Leading Change in a Complex World : Transdisciplinary Perspectives

LEADING CHANGE IN A COMPLEX WORLD Transdisciplinary Perspectives EDITED BY ANNI KANGAS, JOHANNA KUJALA, ANNA HEIKKINEN, ANTTI LÖNNQVIST, HARRI LAIHONEN & JULIA BETHWAITE LEADING CHANGE IN A COMPLEX WORLD Transdisciplinary Perspectives EDITED BY ANNI KANGAS, JOHANNA KUJALA, ANNA HEIKKINEN, ANTTI LÖNNQVIST, HARRI LAIHONEN & JULIA BETHWAITE Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Layout: Villivisio, Lauramaria Laine ISBN 978-952-03-0844-5 (print) ISBN 978-952-03-0845-2 (pdf) Tampere: Tampere University Press Printed in Tampere, Finland by Kirjapaino Öhrling This work is licensed under a Creative Commons AttributionNonCommercial-NoDerivatives 4.0 International License 3 Leading Change in a Complex World: Transdisciplinary Perspectives Contents Contents CHAPTER 1 Introduction: Leadership for Dealing with Complex Changes � � � � � � � � � �7 ANNI KANGAS, JOHANNA KUJALA, ANTTI LÖNNQVIST, ANNA HEIKKINEN & HARRI LAIHONEN Part I Complex World 25 CHAPTER 2 Stakeholder Engagement in the Generation of Urban Ecosystem Services � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 29 ANNA HEIKKINEN, JERE NIEMINEN, JOHANNA KUJALA, HANNELE MÄKELÄ, ARI JOKINEN & OUTI LEHTONEN CHAPTER 3 Organising Complexity: Creating Boundary Objects for Sustainable Urban Development � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 45 ILARI KARPPI & JARMO VAKKURI CHAPTER 4 Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience � � � � � � � � � � � � � � � � 67 TAPIO JUNTUNEN & SIRPA VIRTA CHAPTER 5 Supporting Longer Working Careers in Organisations: Challenges and Complexities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 87 HANNA SALMINEN CHAPTER 6 International Taxation and the Complex Case of Digitalisation � � � � � 103 MARTTI NIEMINEN 4 Leading Change in a Complex World: Transdisciplinary Perspectives Contents Part II Relational Leadership 119 CHAPTER 7 A Stakeholder Approach to Value Creation and Leadership � � � � � � � � 123 JOHANNA KUJALA, HANNA LEHTIMÄKI & R. EDWARD FREEMAN CHAPTER 8 Leading Change: A Customer Value Framework � � � � � � � � � � � � � � � � � � � � 145 MIKA YRJÖLÄ, HANNU KUUSELA, ELINA NÄRVÄNEN, TIMO RINTAMÄKI & HANNU SAARIJÄRVI CHAPTER 9 Conflicts in Leading and Managing Change: Towards a Reflexive Practice � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 165 PAULA ROSSI CHAPTER 10 Evaluation as a Tool for Leading Change � � � � � � � � � � � � � � � � � � � � � � � � � � � 183 PASI-HEIKKI RANNISTO & ANNA SALORANTA CHAPTER 11 Leadership That Drives Social Change With Performance Measures � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 201 TOMI RAJALA CHAPTER 12 Presidents, Institutions, and the Quest for Coherent Leadership � � � � 223 TAPIO RAUNIO CHAPTER 13 Company Directors’ Key Duties and Business Judgment Rule � � � � � � � 245 JANNE RUOHONEN 5 Leading Change in a Complex World: Transdisciplinary Perspectives Contents Part III Dynamic Change 259 CHAPTER 14 Consumer-Citizens as Leaders of Change: The Case of Food Waste � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 263 ELINA NÄRVÄNEN, MALLA MATTILA & NINA MESIRANTA CHAPTER 15 Can Abstract Ideas Generate Change? The Case of the Circular Economy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 281 ERKKI-JUSSI NYLÉN CHAPTER 16 Leadership for a Pluralistic Order? Assessing BRICS and Development Finance � � � � � � � � � � � � � � � � � � � � � � � � 301 MARKO JUUTINEN CHAPTER 17 Megatrends in the Insurance and Financial Sector � � � � � � � � � � � � � � � � � � 321 RAIMO VOUTILAINEN & LASSE KOSKINEN Afterword 341 CHAPTER 18 Leadership for Change: How Did We Get There and Where Do We Go From Here? � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 343 ARJA ROPO Contributors � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 357 7 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes CHAPTER 1 Introduction: Leadership for Dealing with Complex Changes ANNI KANGAS, JOHANNA KUJALA, ANTTI LÖNNQVIST, ANNA HEIKKINEN & HARRI LAIHONEN T he world is changing rapidly. Many contemporary change processes are increasingly complex. The effects of climate change, urbanisation, ageing societies, the dynamics of global security, or creation of sustainable conditions for business development are all phenomena that cannot be made to fit any simple model. They have a number of boundary-spanning components and are dynamic and open to their environments. This means that leaders must possess new kinds of knowledge and skills to understand and deal with such complex phenomena. To respond to the needs of various kinds of leaders operating in these complex environments, this book develops a framework for leading change. This approach is here called the Leadership for Change (LFC) framework and it builds on the following three ideas: 1. Many contemporary change processes are complex and systemic. J This highlights the capacity to think across traditional institutional boundaries and the ability to see patterns and structures beyond specific elements and events. 2. Issues and problems crossing traditional institutional boundaries cannot be resolved by a single actor or sector. Governments, businesses, civil society actors, citizens and consumers must work together, negotiate, and agree on novel ways of doing things. J This stresses the need to understand how different societal sectors and actors function and make sense of the world, and how they can work together. 3. Complex environments are marked by ambiguity and uncertainty. J This emphasises the capacity to embrace uncertainty and use various sources of information and knowledge to create a shared understanding of the situation at hand. 14 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes or competence to make decisions on behalf of others. Instead of top-down, hierarchical management processes, the LFC framework highlights the leadership roles of a variety of actors. Many chapters in this book examine how actors such as frontline employees, customers, or other stakeholders enact leadership. It further examines how cross-sector collaboration can create a greater collective capacity to address wicked problems and complex issues such as global sustainability challenges. In their chapter, Anna Heikkinen, Jere Nieminen, Johanna Kujala, Hannele Mäkelä, Ari Jokinen and Outi Lehtonen (Chapter 2) develop this point in the context of stakeholder engagement. Examining urban ecosystem services – parks, recreational forests, urban gardens – the authors characterise stakeholder engagement as an open and participatory dialogue between various human – and also non-human –stakeholders. Complex settings can be characterised by diverse and potentially conflicting interests, objectives, and perspectives. This has implications for leadership. When multiple stakeholders are involved, it is likely that conflicts of interest arise. As a consequence, negotiations, co-operation, and collaboration are needed. The chapter by Paula Rossi develops this point further. Rossi suggests viewing leading change as a reflexive practice where conflicts and clashing perspectives are explored and appreciated (Rossi, Chapter 9). The LFC framework highlights the need to consider leadership in a relational way. This enables co-operation across sectors and the pooling of the strengths of differently positioned individuals and organisations in solving global challenges. It also challenges the status of human beings as central players in change processes, as the chapter by Heikkinen et al. (Chapter 2) shows. However, leadership is usually defined as the human capacity to influence others, or as the ability to guide or direct others. Often, leadership is seen as a personal skill or trait possessed by an individual, or as the capability or competence of a team or organisation. Research often distinguishes between leadership studies at the individual (micro), organisational (meso), and societal (meta) levels. At the individual level, leadership literature examines leadership from various viewpoints, such as leadership roles (e.g., visionary, contributor, tactician, facilitator) or factors (e.g., strategic, communicative, personal, motivational). At the meso level, research often focuses on organisational performance and 15 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes seeks to determine how individual attributes, such as communication skills, are turned into organisational competences and outcomes. In addition to organisational results, it is also important to understand the processes leading to them. It is possible in many organisations to distinguish both top-down and bottom-up leadership processes. In the former, top management – such as a company’s board of directors (see Ruohonen, Chapter 13) – outlines the vision and defines the strategies for the organisation to follow. In the latter, strategies are more emergent and allow members of the organisation and societal stakeholders to participate in defining what is seen as important and valuable (see Kujala, Lehtimäki & Freeman, Chapter 7; Yrjölä et al., Chapter 8). At the societal or meta level, the most critical leadership challenge relates to global sustainability. The United Nations have set 17 sustainable development goals (SDGs) that all societies and organisations across the planet should take seriously to ensure the present generation leaves the Earth in a liveable state for future generations: (1) no poverty, (2) zero hunger, (3) good health and well-being, (4) quality education, (5) gender equality, (6) clean water and sanitation, (7) affordable and clean energy, (8) decent work and economic growth, (9) industry, innovation and infrastructure, (10) reduced inequality, (11) sustainable cities and communities, (12) responsible consumption and production, (13) climate action, (14) life below water, (15) life on land, (16) peace, justice and strong institutions, and (17) partnerships for the goals (United Nations, 2015). Meeting the global challenges posed by the SDGs means that leaders of various organisations must think beyond the simplistic economic value so entrenched in our current thinking. Instead, they need to understand the importance of multiple societal and environmental values and seek guidance and representation from a diverse set of organisational and societal stakeholders in their decision-making. Such a collective effort also means moving towards a more shared and relational understanding of leadership in organisations (Ropo, Salovaara, Sauer & De Paoli, 2015). When understood relationally, leadership is a process of influence through which social order (coordination) and change (new values, approaches, attitudes, behaviours) emerge (Uhl-Bien, 2006). While this book focuses on formal leadership, it also argues that in many cases leadership is not limited to a small set of formal leaders. It can take 16 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes various forms and occur in different types of organisations and processes. The relational view acknowledges that leadership occurs in bottom-up processes as well as in top-down processes – for example, in the activities of citizens, consumers, activists, and other stakeholders. This is the focus of the chapter by Elina Närvänen, Malla Mattila and Nina Mesiranta (Chapter 14), which highlights the leadership roles of consumer citizens in the reduction of food waste; one of the biggest global sustainability challenges of our time. This chapter – as well as the book as a whole – shows that along with the idea of the complexity of societal challenges, relational leadership itself is a complex phenomenon – a “dynamic system embedding leadership, environmental, and organisational aspects” (Hunt & Dodge, 2000, p. 448). The relational approach to leadership acknowledges that various practices and activities are required to carry out leadership. Processes that ensure the implementation of great visions – sometimes referred to as management – are also needed. Performance measures or indicators discussed by Tomi Rajala (Chapter 11) are an example of problem-solving tools that can be used to serve leadership objectives. Greenhouse gas emissions, life expectancy, household income, income inequality, inflation, unemployment rate, and economic growth are all examples of performance measures recording whether and how social change is occurring. One of the values of the relational approach to leadership is that it highlights the importance of planning, evaluation, organisation, and control when societies and individual organisations are stumbling through small or large changes. For change to emerge, those in formal leadership positions need to be supported by organisational functions such as indicators that ensure change processes are proceeding in the right direction. The relational perspective on leadership can be distinguished from the more traditional entity or personalised perspective, which focuses on subjects and objects, and leaders and followers. This perspective understands leadership as the capacity of individual entities, such as persons, organisations, states, or groups of states. Given the imbalances of power between differently positioned actors, it makes sense to take into account the chiasmatic existence of both relational and entity-based leadership dynamics. For this reason, this volume also includes chapters 17 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes examining examples of more leader-centric or entity-based leadership. Janne Ruohonen explicates (Chapter 13) the mechanisms of protection against liability for damages that enable company directors to make big decisions in complex environments or in conditions of uncertainty. Tapio Raunio (Chapter 12) analyses another example of person-centered or entity leadership: Comparing three semi-presidential regimes, the chapter shows that institutional design has an independent effect on the coherence of leadership enacted by the executive. Marko Juutinen (Chapter 16) takes the discussion of leadership to the global level, posing questions about the extent to which BRICS should be viewed as a new agent in global affairs responding to leadership demands in a changing world order. Dynamic Change Change is a notion that puzzles activists, business leaders, politicians, civil society actors, and managers alike. It comes in many shapes and sizes: it may be small or large scale (Zittoun, 2009), planned or emergent (Hodges & Gill, 2015), evolutionary or revolutionary (Gersick, 1991), and deep or broad (Sabatier & Cerych, 1986). Sometimes it is useful to distinguish change from other related notions, such as adjustment, transition, and transformation. If defining change is not simple, then neither is making change happen. Even simple, small-scale changes can be difficult to make and sustain. Most people have attempted to make a change at a personal level, such as starting to exercise more regularly or adopting a different diet for health or ethical reasons. Sometimes it is difficult to get started, while in other cases sustaining the new routine is the problem. According to some studies (Burnes, 2011; Hughes, 2011), as many as 70 per cent of all change projects fail to produce the desired outcomes. Organisational change projects may fail for various reasons. They may fail purely because making change happen is not an easy task. Moreover, there are many steps in a change process where the management can make mistakes that lead to failure (Kotter, 2012). Thinking of change in terms of a sequence of incremental steps is the traditional way of understanding social and organisational change (see also Kanter, Stein & Jick, 1992). 18 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes The underlying assumption of planned change is that it can be enacted through conscious decisions, reasoning, and action. Change is thought of as a linear sequence of events. The focus is on the controllability of the change process under the stewardship of a competent leader. Typically, approaches that rely on the planned change perspective describe interventions that – as a response to some crisis – “unfreeze” systems, alter some of their features and then “refreeze” the altered system (Lewin, 1951; see also Weick, 2009, pp. 225–241). When managing projects in the context of small-scale changes in single organisations with clear roles or defined decision-making authorities, a road map detailing the route from the need for change to the practicalities of implementing change may be useful. Indeed, in many organisational contexts, change involves managers trying to improve organisational performance by actively changing something: revising organisational structures, changing the ways of operating, acquiring new competences, or developing new products and services. These projects typically aim at developing customer service, improving profitability, or reaching other relevant organisational goals. However, such step-by-step change models can also be found in programmes that aim at broader societal transformations. The chapter by Erkki-Jussi Nylén (Chapter 15) in this volume examines the circular economy as a change-provoking concept with the help of which actors can reorient their actions towards a new economic model. Solving sustainability challenges, addressing societal security threats, and developing employment opportunities in local business environments are issues that cannot be completely planned in a step-by-step manner within any single organisation. As Nylén demonstrates in his discussion of circular economy transition, the notion of change acquires various kinds of meanings in complex, boundary-spanning contexts where the Solving sustainability challenges, addressing societal security threats, and developing employment opportunities in local business environments are issues that cannot be completely planned in a step-by-step manner. 19 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes joint efforts of several actors or stakeholders are at play. In contrast to the linear conception of change, the LFC framework also recognises that many systems are already unfrozen. In such open systems, some kind of modification is always going on. Change is therefore seen as an emergent, continuous, non-linear process with no finite end-point or causal link between the steps or stages (Capano, 2009, p. 11). Change in any one factor of the system – not necessarily a sequence – may lead to deep changes in the system (Capano, 2009, p. 12). The emergent view to change is sensitive to the idea that change may result from the decisions and actions of variously positioned individuals. Change may also result from interaction between scales. This ties in to the relational view of leadership. Leading change is not limited to societal or organisational leaders or managers; it is neither a top-down process nor an isolated event. An example of this is the need to reduce food waste. As discussed by Närvänen et al. (Chapter 14), this challenge gives a leadership role to consumer-citizens, but is also connected to wider regulatory and business landscape dynamics, both locally and globally. Much emergent change may go unnoticed, since it “occurs when people reaccomplish routines and when they deal with contingencies, breakdowns, and opportunities in everyday work” (Weick, 2000, p. 237). Weick (2000) argues that leaders should learn to appreciate emergent change and its effects, encourage experimentation, and create a culture of dialogue where people can speak up when things do not work or antagonisms emerge. This insight resonates with Paula Rossi’s (Chapter 9) discussion of the role of conflicts in change processes. In fact, some scholars have suggested that in the case of complex systems, the idea of a system-fixing change should be abandoned altogether. The focus of change efforts should rather be on identifying a number of points that can be adjusted to improve the overall system. Evolutionary change is a form of such continuous, incremental adaptation and adjustment. When change is understood in evolutionary terms, it preserves some continuity with the past. Perhaps controversially, stability and balance are key ingredients to many evolutionary theories of change. Due to the requirement for balance, changes in one aspect of the system require adjustments in other aspects. Evolutionary theories may 20 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes thus end up minimising the effects of change as adaptations and evolutions eventually contribute to the balance of the existing system (Pierson, 2000). By contrast, a revolutionary change is a discontinuous, radical, and usually unpredictable break from the past. While technological changes associated with industrialisation revolutionised societies in the 18th and 19th centuries (see Nieminen, Chapter 6), artificial intelligence and robotics are considered to have the potential to cause revolutionary changes in contemporary societies (see Voutilainen & Koskinen, Chapter 17). Revolutionary change may also arise as a response to a crisis. It can cause a major shift in the structure of an organisation – be it a state, firm, NGO, or the global economic model. Revolutionary change may also represent a fresh start occurring without warning (Kanter et al., 1992). Revolutionary change is sometimes referred to as a transformational or radical change, as its aim is not to improve and adapt the existing system, but to do things differently – or to do different things. As Erkki Jussi Nylén (Chapter 15) suggests, the idea of revolutionary change is present in those strands of circular economy thinking suggesting a more radical, postgrowth reconfiguration of economic models to meet the sustainability challenges of our time. If systemic change is understood as revolutionary, it has wideranging impacts throughout society – for example, in education, legislative, and overall governance systems. The chapters in this book make it clear that today’s leaders face demanding situations in which they must anticipate and adapt to changes, influence desired change processes, and address wicked problems. In these challenging, complex situations, standardised approaches to leadership often do not work. It is difficult to form an accurate and comprehensive view of the situation, and no obvious technical answers are available. There are also limitations regarding which of the relevant aspects of the problem the leader can influence. New leadership capabilities are needed to deal with complex change. It is not easy to provide a definitive list of these capabilities due to the endless amount of different change contexts. Instead, heuristic models and analytical frameworks – such as the LFC framework developed in this book – provide generic and adaptable thinking tools to meet the needs of various change contexts. There is obviously a need to develop this framework further. As Arja Ropo argues in the 21 Leading Change in a Complex World: Transdisciplinary Perspectives Introduction: Leadership for Dealing with Complex Changes afterword chapter, the complexity view of the world is elitist and founded on the possibility of rational thinking. It may leave the embodied and emotional aspects of leadership and change with too little attention. While some of the chapters in this volume consider not only human but also posthuman dimensions of leadership (e.g. Chapter 2), further developments of the LFC framework should also consider the implications of the material turn in organisation studies and social sciences. This would mean paying attention to the ways in which social and material processes mutually enact leadership and change (e.g., Dale, 2005). The dimension of time can also be added to the LFC framework. The concept of the Anthropocene has alerted us to the fact that although a very recent phenomenon in the unimaginably long history of Earth, the presence of humans has had a profound impact on the planet. In fact, if the history of the Earth were a single day, the first humans resembling us appeared at only a few seconds to midnight. Yet, during this relatively short time, we have become a major geological force (Lewis & Maslin, 2018, p. 3). 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In cities, the major challenge is how to ensure and balance economic, ecological, and social sustainability dimensions now and in the future (Finco & Nijkamp, 2001). This challenge has become increasingly pressing given that more of the global population now lives in urban than rural areas and the rate of urbanisation is estimated to increase rapidly in the next three decades (United Nations, 2014). Ever-growing cities face many sustainability-related threats, such as climate change, overpopulation and growth at the expense of terrestrial and marine capacity, while at the same time cities are a significant source of these problems. Cities create over 70% of global greenhouse gas emissions and consume two-thirds of the world’s energy (C40 Cities, 2018). However, cities can also provide opportunities and be a source for developing solutions to sustainability challenges. Sustainable development has become a dominant policy paradigm and a strategic goal for several cities (Finco & Nijkamp, 2001; Jokinen, Leino, Bäcklund, & Laine, 2018). Urbanisation and the expansive growth of cities highlight the significance of urban nature to city dwellers. As cities grow larger and denser, natural areas located within cities are increasingly required to provide numerous lifesupporting and life-enhancing opportunities to urban citizens (Fischer & Eastwood, 2016; Standish, Hobbs, & Miller, 2013). These opportunities can be conceptualised as ecosystem services, defined as “the benefits that humans obtain from ecosystems […] produced by interactions within the ecosystem” (Millennium Ecosystem Assessment, 2005, p. 3). Urban ecosystems such as parks, recreational forests, urban gardens, green roofs The aim of this chapter is to shed light on stakeholder engagement in the generation of urban ecosystem services. We position nature as a stakeholder and focus on how humans and nature as stakeholders interact and participate in the generation of stormwater systems. 31 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services and conserved natural habitats provide, among other benefits, fresh air and water, nutrition, health, recreation, and well-being for city dwellers. The aim of this chapter is to shed light on stakeholder engagement in the generation of urban ecosystem services. Specifically, we position nature as a stakeholder and focus on how humans and nature as stakeholders interact and participate in the generation of ecological stormwater systems. Recent discussions have highlighted that the remaining blocks of natural habitat are insufficient to keep cities liveable. Instead, attention has turned to the active generation of urban ecosystems and the interaction between humans and the natural environment in this generation (Fischer & Eastwood, 2016). Public parks in cities are a well-known example of urban ecosystems; these are open greenspaces used primarily for recreation and accessible to all urban residents. They are regarded as offering important ecosystem services for improving the quality of urban life and the health of city-dwellers. A more recent example of urban ecosystems is the generation of vegetated green roofs that complement other green networks in cities. Besides biodiversity benefits, green roofs gather and retain rainwater and help alleviate flooding problems, and thus enhance urban sustainability. Future opportunities for rooftop biodiversity and ecosystem services are extensive, as today’s urban footprint includes more than 20% of roof cover (Sutton, 2015). Green roofs are also a prime example of stakeholder engagement in the process of generating urban ecosystem services. The green roof industry provides standardised diverse solutions for old and new buildings, which are implemented and maintained in collaboration with stakeholders. To sum up, we are witnessing a new era where the idea of urban nature has changed from being a refuge separate from the urban structure to a crucial component of the built environment. “Re-naturing” cities involves understanding urban ecosystems as part of climate adaptation and the systemic interrelations between ecology and society (Duvall, Lennon, & Scott, 2018). Consequently, the networks governing urban green areas are undergoing fundamental change. While city planners and officials have traditionally been in charge of green area management, citizens and business organisations are now increasingly involved in these processes (Jokinen, Asikainen, & Willman, 2017; Whiteman et al., 2011). Accordingly, urban ecosystem services are currently generated in 32 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services collaboration and cooperation with various stakeholders in the public and private sectors and civil society. This chapter contributes to the discussion on the future leadership of urban environments by examining how business organisations, the public sector, local communities and nature participate in the generation of urban ecosystem services through stakeholder engagement. The following conclusions are drawn. First, urban ecosystems, such as integrated stormwater systems, provide various benefits to city dwellers through socio-ecological processes. Second, the generation of urban nature is an inherently complex process that includes unforeseen and unexpected elements. The interactive and reciprocal human and non-human processes should be acknowledged and appreciated. In these processes, neither the participants, processes nor the outcomes can be foreseen or predefined; rather, indeterminacy, surprise, conflicts, and experiments are embraced. Third, wicked global problems and sustainability challenges require recognition of the complexity of the issues at hand, as well as acceptance of varied understandings of what are perceived as desired outcomes. The chapter proceeds as follows. First, we utilise environmental politics and stakeholder management literatures to present recent discussions on urban ecosystem services and develop a conceptual understanding of stakeholder engagement in the context of these services. Next, we illustrate stakeholder engagement through the case of urban stormwater systems. Finally, we discuss how humans and nature as stakeholders can engage in the generation of urban ecosystem services, and how the elements of surprise and uncertainty can be acknowledged in these processes. Urban Ecosystem Services and Stakeholder Engagement Urban ecosystem services represent an important approach to enhancing urban sustainability. They are crucial for improving both the natural environments and the quality of life in cities (Gómez-Baggethun et al., 2013). The concept of ecosystem services proposes that the functionality 33 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services of ecosystems provides goods and benefits for humans that are realised when someone actively or passively requires, demands, or uses them (Millennium Ecosystem Assessment, 2005). These goods and benefits can include both material and non-material elements; material elements include food, water and nutrient cycling, and non-material elements incorporate benefits such as opportunities for recreation and pedagogy (Millennium Ecosystem Assessment, 2005). Urban ecosystem services are distinct from ecosystem services elsewhere as they are intertwined with many non-ecological urban elements, including physical infrastructure, technology, social practices, and cultural contexts (Andersson et al., 2014; Kremer et al., 2016). While urban ecosystems alone are not able to maintain life in cities, they are needed increasingly to complement rural ecosystems (Andersson et al., 2014). Recent research on urban ecosystems has suggested that while the crucial natural resources and processes in urban environments need to be preserved, urban ecosystems need also be actively restored and generated. The urban context also highlights the socio-ecological interactions that take place and shape urban ecosystems (Fischer & Eastwood, 2016). Stakeholder engagement has become an important approach for examining and managing sustainability issues as it provides the means to understand the complex and pluralistic interests, relationships and interaction within and among various organisations (Freeman, Harrison, Wicks, Parmar, & De Colle, 2010; Greenwood, 2007; Kujala & Sachs, forthcoming). Stakeholder engagement refers to practices organisations undertake to involve stakeholders in a positive manner in their activities (Greenwood, 2007, p. 315), or to the embeddedness of stakeholders’ objectives, expectations, actor relations and actions in the leadership of an organisation (Maak, 2007). Stakeholder engagement can also be seen as an inclusive decision-making process that promotes equity, enhances local decision-making and builds social capital (Mathur, Price & Austin, 2008). The traditional definition of a stakeholder refers to “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984, p. 46). The issue-based stakeholder view, however, takes a wider perspective by emphasising the issues that affect the well-being of and relationships among stakeholders. To understand 34 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services the generation of urban ecosystems, the centre of attention should shift from a single company or organisation to the issue at hand (i.e., to the collaborative generation of urban ecosystem services). The issue-focused perspective highlights that the goal is to approach and share understandings regarding the generation of urban ecosystem services instead of protecting the interests of any particular organisation (Roloff, 2008). While most stakeholder research has included only human entities as stakeholders, an increasing number of studies argue that nature can also take on stakeholder status (e.g. Driscoll & Starik, 2004; Laine, 2010). The traditional stakeholder approach posits that as nature cannot voice claims or expectations. It cannot act as a stakeholder and can only be represented by other actors, such as individuals and environmental organisations (Laine, 2010). However, Driscoll and Starik (2004) argue that nature can be regarded as a stakeholder in the same way as the local community and the public. Stakeholder engagement processes can deliver many positive outcomes, ranging from knowledge creation to social learning, but they can also act as important means of enhancing sustainable development (Mathur et al., 2008). According to Freeman, Kujala, Sachs, and Stutz (2017), integrative stakeholder engagement consists of (1) examining stakeholder relations, (2) communicating with stakeholders, and (3) learning with stakeholders. Kujala, Lehtimäki and Myllykangas (2016) emphasise the importance of joint interests, the ability to collaborate and trust as important elements of stakeholder engagement. Moreover, understanding the relationship dynamics and actor identities is paramount in the analysis of stakeholder engagement processes (Lehtimäki & Kujala, 2017). Heikkinen et al. (2019) suggest the ideas of radical democracy are useful for considering stakeholder engagement in complex socio-ecological settings such as urban ecosystem services. Radical democracy allows, first, for the consideration of both human and non-human stakeholders as participants in open processes, and second, for the appreciation of complexity, difference, and disagreement in the engagement process. They further argue “an open approach to various ways of communicating and expressing views is necessary when the aim is to include both human and non-human participants” (Heikkinen et al., 2019, p. 123). The challenges that remain are how to recognise and balance the various stakeholder 35 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services interests inherent in the socio-ecological processes and how to generate open processes with the potential to enhance sustainable development. For example, the motivations of business organisations for engaging with environmental issues include interests such as competitiveness, legitimation, and ecological responsibility (Bansal & Roth, 2000), while citizens may look for recreational use and improved well-being. In brief, the open process perspective on stakeholder engagement posits the processes, participants, or outcomes of participation cannot and should not be predefined (Brown & Dillard, 2013). In the generation of ecosystem services, this means there might be unexpected elements active in the process (Lindenmayer, Likens, Krebs, & Hobbs, 2010). Stakeholder Engagement in Stormwater Systems To illustrate stakeholder engagement in the generation of urban ecosystem services, we have explored integrated stormwater systems. We collected empirical data from six stormwater systems in three large cities in Finland: Helsinki, Vantaa and Tampere. The empirical data included field observation material, document analysis, and indoor and field interviews conducted with 14 consultants and city officials. The data were collected from 2015–2017. Integrated stormwater systems represent both a novel solution and a policy transformation in urban ecosystem service generation. Stormwater systems aim to handle rainwater and melt water (i.e. runoff water) by delaying, filtering and purifying the water. Integrated stormwater systems refer to the integration of stormwater practices into the urban landscape by using, for example, ponds and creeks as alternatives to piped solutions in surface runoff water management. The integrated systems combine water and vegetation in various ways and increase multifunctional land use in urban areas. These systems are gaining support in cities; they increase climate resilience and flood protection, improve runoff water quality, and at the same time provide many other ecosystem services such as recreational use, biodiversity conservation, scientific research, and aesthetical landscaping (Cettner, Ashley, Viklander, & Nilsson, 2013; Hoang & Fenner, 2016). 36 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services We focused on four key stakeholders of the integrated stormwater systems, namely business organisations, the public sector, the local community, and nature. Here, business organisations were mostly consulting companies which typically draw up the plans and designs for the development and maintenance of stormwater systems. Our cases were initiated by the public sector, including the city officials, civil servants, and researchers working for the city governments. Local community refers to the people living in or near the stormwater systems, as well as the citizen groups and associations who are the main users or beneficiaries of the systems. Nature as a stakeholder denotes the water and vegetation generated in the stormwater systems, including their diverse and evolving entanglements. In stakeholder engagement, we focused on the actor identities (Lehtimäki & Kujala, 2017), the nature of stakeholder collaboration (Kujala et al., 2016), and the elements of uncertainty and surprise (Lindenmayer et al., 2010), as presented in Table 1. BUSINESS ORGANISATIONS PUBLIC SECTOR LOCAL COMMUNITY NATURE ACTOR IDENTITY •Developer and producer of stormwater systems •The initiator, coordinator, financier, and supervisor •Users, contributors, and co-dwellers of the stormwater sites •Contributor to the ecological functionality of stormwater systems COLLABORATION •Contractual collaboration with the public sector •Contractual collaboration with business organisations •Formal communication with the local community •Formal and spontaneous communication with the public sector and business organisations •Participation through appearance, manifestation and functionalities ELEMENTS OF UNEXPECTEDNESS •Uncertainty related to new products •Uncertainty and unpredictability of ecological processes •Uncertainty related to local community involvement and use of the area •Uncertainty and unpredictability of ecological processes •Uncertainty related to the development of the housing area •Uncertainty related to the appearance of the stormwater site •Surprises through unforeseen ecological processes TABLE 1. Stakeholder engagement in stormwater systems 37 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services Business organisations are the designers and producers of stormwater systems, typically in collaboration with the public sector. This collaboration is also a vital opportunity for business organisations to develop and test new products and services. In these processes, it is typical that business organisations seek to integrate project profitability with knowledge development. Businesses consider the development of expertise on stormwater systems as a means to become pioneers and front-runners in sustainability and in creating sustainable business opportunities. Business organisations mainly have contractual collaboration with the public sector. This collaboration is often centred on innovative and enthusiastic individuals who are motivated to engage in the development of new products. Business organisations also collaborate with other organisations both domestically and internationally when developing their products. Since stormwater systems are not widely established structures, they involve many elements of unexpectedness, uncertainty and surprise. For business organisations, this means dealing with obstacles and the constant need to research and develop their products. The generation of stormwater systems is framed by public interest. The public sector – city officials, civil servants, and researchers working for the city government – is the initiator of these processes. The public sector is also responsible for coordinating, financing, and supervising the generation of the stormwater systems, and it enables new research and experiments to emerge in the field. In addition to contract-based collaboration with business organisations, the public sector engages with the local community through formal hearing processes that allow people to voice their interests. Local people can also give informal feedback to the public sector. The public sector collaborates with local and international peers, such as other cities and research networks. Much like the business organisations it also faces some elements of uncertainty and surprise. These uncertainties can relate to the involvement of local communities as well as the unpredictability of the ecological elements related to stormwater systems. The local community, including the people living in the area and citizen groups and associations identified as users and co-dwellers, contributes to both the design and the development of stormwater systems through their 38 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services everyday activities in using the area. For example, local people might have a habit of taking a certain route through the area. This activity may become an element in the design of the area or, over time, it might change the area as new pathways develop spontaneously. However, in the design and the production of the stormwater systems, the role of the local community is still relatively minor compared to the more powerful public sector and business organisations. The local community collaborates with the public sector through both formal and informal processes. From the perspective of collaboration, the local community has essentially been the object of business organisations’ and public sector activities and communication. However, the collaboration within the local community – among local dwellers and citizens’ associations – might be active and close. For local communities, stormwater systems are still mostly foreign, and therefore can cause some surprises and uncertainties. For example, local communities may expect constant water elements when they see a blue colour in the plans, while stormwater systems might actually be dry green areas most of the time. Another element is the uncertainty related to the development of housing, as local communities may not see stormwater systems as a desired element in the area. In addition to being surprised and even disappointed, local communities can themselves unexpectedly affect the stormwater systems, for example by creating paths, building their own dams and making minor changes to the structures. Nature is a key stakeholder in the generation of stormwater systems, given that natural processes render the ecological functionality of stormwater sites possible. The ecological processes taking place in the stormwater systems are both autonomous and responsive to human activities. This means that human activities can influence the ecological processes, but cannot alone determine the outcomes of these processes. Some kinds of ecological processes take place in any case, irrespective of human influence or the absence of such influence. Nature engages with human stakeholders by appearing, manifesting, and functioning in stormwater sites. Mostly, nature is the object of, and shaped Ecological processes take place irrespective of human influence. 39 Leading Change in a Complex World: Transdisciplinary Perspectives Stakeholder Engagement in the Generation of Urban Ecosystem Services by, the activities and expectations of other stakeholders and continually creates conditions for their actions. As a stakeholder, nature produces unexpected elements through unforeseen ecological processes. Discussion This chapter presents stakeholder engagement as a collaborative process in which openness is valued. Accordingly, the various stakeholder interests and expectations are viewed as important, without seeking a consensus or compromise (Brown & Dillard, 2013). Stakeholder engagement in the generation of urban ecosystem services allows different parties to foster various interests. Stakeholders may have divergent interests and motives yet still see value in collaboration (Kujala et al., 2017). For example, business organisations are increasingly present in developing and producing solutions for urban environments. Through this, they aim to establish and strengthen their market position and enhance their profitability. The expectations that business organisations have when engaging in the generation of urban ecosystems are often tied to their core actions, as they aim to deliver a profitable project to their customers, create new market opportunities, and develop new products and expertise. However, engagement in the generation of stormwater systems is also seen as a way to enhance their image as a front-runner and innovator in sustainable solutions. For the public sector, the main interest in participating in stormwater systems is to produce attractive living areas for citizens. Cities may strive to become pioneers in stormwater management and sustainability by integrating stormwater systems in city governance. Moreover, the public sector aims to follow the global developments in stormwater control and manage risks and costs through integrating effective stormwater systems. Public sector actions can also stem from the expectation of enhancing nature and biodiversity. The interests of local communities in stormwater systems can be described as the desire for pleasant, convenient and green residential areas. This stakeholder group expects concrete changes such as water elements within the residential environments. They are considered passive currently, 46 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development U rbanisation is a planetary process. Homo sapiens are now a predominantly urban species. Cities are thus the key arenas for humankind to keep its planet habitable (see Madanipour, 2006). According to the World Bank estimates, 54 percent of the global population was urban in 2016. For North America this figure was 82 and for the European Union 75 respectively (WB, 2018). The sustainability challenge of avoiding the depletion of natural resources and risking the ecological balance at the expense of future generations is a task faced in a predominantly urban environment (Goodbun, Till & Iossifova, 2012). However, pursuing sustainability in an urban setting is a complex task. It comprises a multi-faceted, multi-sectoral and highly complicated web of choices, with numerous actors operating according to their own, and not infrequently conflicting, visions of promoting sustainability. To achieve sustainability, decision-makers need devices and artefacts to connect the worlds of dispersed groups of actors and organisations (Kahneman, 2003; Vakkuri, 2010). Boundary objects may constitute one such artefact. Boundary objects, as conceptualised by Star and Griesemer (1989, p. 393), are “both plastic enough to adapt to local needs and the constraints of the several parties employing them, yet robust enough to maintain a common identity across sites”. They may either show connections between seemingly detached decision-making processes or play down obstacles that are imaginary or institutionally cooked up rather than real (cf. Quick & Feldman, 2012, pp. 17–18). Such boundary objects, even if weakly structured at the level of their common use, become more structured in local uses where institutions and actors attach meanings to highly complicated phenomena, such as sustainability. However, boundary objects are social constructions. They are devised to serve specific goals, such as acting as intermediaries between groups with different interests This chapter examines complexity through an inquiry into how linking organisational or other boundaries occurs in the pursuit of sustainable urban development. 47 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development (Guston, 2001). For this they require actors who connect the detached worlds, a process here referred to as “boundary work”. We approach boundary objects as analytical tools for discussing the means that eventually structure cross-sectoral cooperation for promoting sustainable urban development. Boundary objects and boundary work give organisations and actors an opportunity to make sense of their changing environment and what this change requires from them. We ask 1) what is the role of boundary objects and boundary work in the promotion of sustainable urban development in Finnish city regions, 2) how do different actors promote their interpretations of sustainability, and 3) what is the role of administrative and other systemic reforms to the design of boundary objects? The purpose of this chapter is to examine complexity through an inquiry into how linking organisational or other boundaries occurs in the pursuit of sustainable urban development. We claim that institutionally weak urban regions are more suitable platforms for boundary work than the siloed administrations of institutionally strong municipalities. The territorial scale for our empirical scrutiny comprises Finnish city regions and the complexities and solutions for promoting sustainability. We give a practical example of how organisations working with different aspects of sustainability can utilise boundary objects in order to reach a common ground. The chapter proceeds as follows: The next section discusses urbanisation as an agglomerated problem. We then discuss what pursuing sustainability in an urban contexts means. This is followed by the discussion of MAL+PE, a Finnish agreement-based version for promoting sustainable urban development. In the empirical section of the chapter we analyse, by focusing on one aspect of the MAL+PE process, an example of the creation of boundary concepts in the context of urban sustainability. We argue the negotiated MAL+PE arrangement enables the use of sustainable and integrated policy and planning measures. By so doing it can be seen as a means to organise the complexity inherent in sustainable urban development. The chapter draws its inspiration from the Finnish city region with the most promising track record in MAL+PE 48 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development work, the Tampere city region, but will also shed light on city regions as a sustainability policy arena in more general. Urbanisation as an Agglomerated Problem Humankind is at a crossroads marked by a dense mixture of agglomerated problems. Agglomerated problems are made of many intertwined challenges met simultaneously. First, the critical natural resources that originally allowed the evolution of a modern society are finite. Second, populations are ageing, first in industrialised societies and after a while throughout the world. Third, the entire world grows more urbanised with new forms of urban communities and new transformational dynamics emerging everywhere (e.g. Saunders, 2011; Ehrenhalt, 2012). Finally, the changing climate ensures that nature will not let human communities function unchanged (cf. Pirani & Tolkoff, 2014; Sunstein, 2007). Urbanisation, demographic transformation, resource scarcity and unpredictable weather highlights the necessity to use the building blocks of dignified human life, starting from cultivable land or drinkable water in a responsible manner (Goodbun, Till, & Iossifova, 2012) – and to find new ways and new resources to nurture the resilience of ever wider cities and metropolitan areas. A worthwhile option in responsible resource-use stems from the modern industrial logic: use them more efficiently. The idea is extremely logical, as sprawling suburban designs produce extensive greenhouse gases in the form of greater per capita infrastructure investments and traffic output compared with greater or traditional urban densities. Urban sprawl as a term refers to inefficient and sparse suburban settlement structures. James H. Kunstler (1993) once dubbed it the greatest resource misallocation in the history of humankind. A more compact and connective urban form with layers of mixed use enhancing its multifunctionality has been a key urban design strategy to resist sprawl (CNU, 2009). New urbanism, an influential planning ideology, has evolved from an urban development resistance movement to a source of planning rules and paradigms particularly cherished by city planners. This reflects the gradual awakening of the planning profession to the 49 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development threat sprawl poses to all aspects of sustainability, from ecological to economic (Chakrabarti, 2013). New urbanism fights urban sprawl through promoting walkable urban environments, finding ways to develop human-size neighbourhoods in a transit-oriented way without compromising the ecological aspects of sustainable urbanity. These are now widely considered essential elements of responsible or “good” urban planning and design – not only in the American home ground of new urbanists, but worldwide. A major handicap of this planning ideology comes from the restrictions set by geographical scale: it works best at the neighbourhood and city district level. However, the basic units of territorially extensive urban networks are large city regions, the natural venues for suburban sprawl. Many of the tools employed by new urbanist planners tend to be insufficient on larger scales. One strategy for escaping the scale limits of neighbourhoods or urban districts is smart growth. This idea has also emerged from the new urbanist movement but focuses on the dynamics and drivers of growth and change instead of the physical design of a particular city (cf. Vanolo, 2014). Another promising approach to the promotion of more sustainable urban development is smart urbanism. It, in the words of Hajer (2014), calls for an entire language that expresses more than efficiency and technology. In many culturally important instances these traditional domains of smart city thinking are infested with unfulfilled expectations for better urbanity or development (Townsend, 2014; Graeber, 2015, p. 109). Continuous urbanisation and the enlargement of the urban scale follows from global competition. No urban design paradigm or cultural critique can turn that process around. Finland is no exception to this development. In Finland, growing urban entities comprising of entire functional systems made up of central cities and their neighbouring municipalities has emerged as the basic component of societal development, breaking and dissipating the traditional urban form (Karppi, 2017). The merging of municipalities, reforms of public administration systems and support of various forms of intermunicipal cooperation have all contributed to this gradual transformation. But the scale expansion that has followed has come with a price. Rapid demographic growth and dynamic economies in the largest and best-connected city regions, which have superior educational 50 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development institutions and broader service systems, have led to intense land-use pressures as well as challenges in long-term financial sustainability. This puts them at the forefront for mitigating the repercussions of growth, including urban sprawl and due resource inefficiencies. Pursuing Sustainability and How to Get It “Right” Pursuing sustainability in an urban context typically requires different actors to reach a common understanding through the “lowest common denominator”. This satisfies the minimal requirements of distinct world views by capturing characteristics that fall within the minimum acceptable range of those world views (Star & Griesemer, 1989, p. 404). The method involves the utilisation of “versatile, plastic, reconfigurable (programmable) objects that each world can meld to its purposes locally” (Star & Griesemer, 1989). Boundary objects are created through this process. This requires conceptual clarity, which may, however, become compromised by the approaches of institutionally embedded actors to the basic elements constituting these objects. The case of pursuing urban sustainability is ultimate particularly for the atmospheric magnitude of climate change and other large-scale unknown unknowns involved. Such “things we do not know we do not know” and their multiple origins have been revealed by Keenan (2014) in a study of the ambiguities faced by commercial real estate actors in their attempts to adapt to climate change. Ambiguities abound, and they should make different stakeholders receptive to each others’ views and sensitive to their capacities to turn out information from which they all can benefit. By contrast, in more routine governance settings, sectoral boundaries limit the scopes of administrations and cocoon individual actors and administrators. This not only allows them to stick to their siloed routines, it allows them to legitimately ignore information that might compromise them. Established routines may also involve complicated issues. Pursuit of important but ambiguous goals such as sustainability is a prime example of a complex process. This complexity is not reduced by the fact that the general context of measures for striving towards greater sustainability is rapidly 51 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development Pursuit of important but ambiguous goals such as sustainability is a prime example of a complex process. changing. Due to the scale of urban expansion, the world is becoming not only more urban but also metropolitan or “city regional”. Metropolitan, as a spatial scale, refers to an amalgamation of municipalities that comprise an integrated labour market area and related economic interests joined together by a dense and high-capacity regional traffic system (Ehrenhalt, 2012). Functionally, scale expansion means new actors, with their responsibilities, priorities and interpretations, meet and try to find common grounds as they work with complex and moving targets such as promotion of sustainability in urban development. Moreover, scale expansion has contextual features. In Finland, this entails a peculiar leadership challenge: it evokes, to dramatise a little, institutional zombies. This is due to the fact that the institutional apparatus for urban and regional planning as a domain for pursuing sustainable development, does not acknowledge the metropolitan – or city region – level. One step down, there are municipalities with broad planning, nature protection and service provision responsibilities. One step up, there are the regions (in Finnish maakunnat), the nascent units of self-government responsible for the implementation of national policy goals pertaining to local land-use and other planning procedures. City regions, while trying to tackle major sustainability (policy) issues, have to do it through negotiation and by making themselves useful to the municipalities they represent. Their administrative powers to bring forth regional interests that should be apart from those of the municipalities are akin to pushing with a rope. It is no wonder only a few city regions have established formal agencies to work on that scale. In the following we approach the sustainability measures pursued in the Tampere city region by looking at the siloed routines and practices of different municipal administrations. While doing so we necessarily reveal these routines as agency and administration-labelled proxies (cf. BuckinghamHatfield & Evans, 1996, pp. 4–5). Proxies like these are the interpretations of different actors as to how the “pursuit of sustainability” is portrayed through their own practices, routines and responsibilities. All actor-based proxies taken together, they may eventually constitute some form of 52 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development sustainability aggregate; a rough, partly overlapping, partly complementary set of activities all seeking to promote sustainability. Proxies, we argue, are virtually inevitable. They stem from a division of labour recognisable in any multifunctional system. The multifunctional nature of a system is a reflection of complexities that are the basic features of governance as well as an outcome of the system’s interaction with its environment. The institutional haziness of city regions can also work for the benefit of thinning out if not entirely dismantling the boundaries of administrative silos – brought to city regions by the customary division of labour in their adjoining municipalities’ administrative structures. As we noted, reaching sustainability outcomes necessarily calls for cross-sectoral work that is notoriously hard for formally-empowered administrative bodies and agencies. However, if the city regions and their evolution do not acknowledge sectors in the way that administrations and agencies do, why should they be injured by the lock-ins caused by these institutional features? Instead, working in the context of urban regions makes it possible to design and utilise proxies that transcend the typically results-oriented goals of agencies in order to create new types of boundary objects. The boundary work this redesigning requires, we argue, is necessary in tackling the problems of multi-faceted and still siloed planning practices in city regions. City regions are administratively crippled even in their institutionally strongest form, represented here by the Tampere city region. Given this, we enquire into the role cross-sectoral cooperation between its member municipalities’ could play in coordinating and essentially putting together the proxies for sustainable development. Furthermore, we ask what kinds of arenas exist, or may be needed, for this coordination. As the subject of this coordination is sustainability, we also acknowledge the much-debated question: Can sustainability be planned in the first place (cf. Meadowcroft, 1999)? MAL+PE as a Sustainability Regime The empirical section builds on findings and analyses several Finnish city regions, using the Tampere region as the primary case. For policymakers, 53 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development looking at city regions instead of individual municipalities verges on a contradiction in terms: from a global perspective Finnish municipalities have an exceptionally strong constitutional position with selfgovernment that also includes local taxation. Due to this, large-scale publicprivate partnerships in large infrastructure and other projects have been rare in Finnish municipalities, with Tampere region again an exceptional case (cf. Valkama, Oulasvirta & Karppi, 2016). Land use and much of infrastructure, housing and even biodiversity policies are composed by municipalities; albeit often in cooperation with central government institutions. In comparison, the position of city regions, newcomers on the Finnish administrative map, is based on consent among different actors. This consent constitutes the key artefact to boost integrated urban policymaking and shatter the administrative silos that effectively maintain land use, traffic, housing, business development and service production as separate policy areas in municipalities. Due to this feature, the entire MAL+PE framework can be seen as a Finnish boundary object for promoting sustainable urban development. Particularly in the case of Tampere city region it has the form of an entire boundary organisation created by the region’s municipalities. The core component of MAL+PE is MAL, a Finnish acronym that comes from the words land-use (in Finnish, Maankäyttö), housing (Asuminen) and traffic (Liikenne). Currently, co-operation among the municipalities of four largest city regions and the national government is based on MAL agreements. The proto idea for MAL was first introduced in 2009 as part of the proposed government reform of municipalities and their service provision (Maankäytön…, 2015). The government’s role becomes most visible through its participation in regionally relevant investments, spearheaded in the Tampere city region by the new light rail system. A MAL prototype action was initiated in the beginning of the year 2010 and evaluated already during the latter part of 2011 as part of broader From a global perspective, Finnish municipalities have an exceptionally strong constitutional position with selfgovernment that also includes local taxation. 54 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development government programs on regional cohesion and competitiveness. Simultaneously, a practice and experience-based volume on contemporary planning of urban areas was published by a newly created actor, MAL Network (Kurunmäki, Uusivuori, & Hanhijärvi, 2011). This network was established in the Tampere city region to build on the experiences of municipalities in the second-largest urban area in Finland. In the closing words of that volume, Dr. Kimmo Kurunmäki, the then leader of the MAL network envisioned its next phase until 2013. This included the provision of public services and business development – or vitality policies in the governance newspeak – making one of their first appearances in the future design of the MAL configuration. The original MAL is regularly extended to MALPE (or MAL+PE) with P for services (in Finnish Palvelut) end E for business development (Elinkeinot). Yet, before continuing and particularly before branding MAL/ MAL+PE as a ground-breaking institutional innovation, a brief disclaimer is necessary. The integrated approach to the various elements defining the planning of urban or any other geographic areas has an extensive track record. One should keep in mind the original approaches to cities and their environs as promoted by Patrick Geddes’s idea of a regional plan or Patrick Abercrombie’s Green Belt of London with its present-day offspring, yielding to the much praised Portland growth boundary (e.g. Mace, Blanc, Gordon, & Scanlon, 2016; Batty & Marshall, 2009; Beauregard, 2015). The Tennessee Valley Authority during the Great Depression was yet another of the concept’s early roots. Reino Ajo (1944) measured the intensity of the Tampere downtown’s regional economic impact as it reached the fringes of a territory known since the 1940s as the Tampere traffic (catchment) area and today as Tampere Region. In the UK, the famous 1960’s South-East Study traced the developmental dynamisms around the Greater London Region, and its Finnish cousin, Uusimaa (or, in English, Helsinki Region) 2010 from the year 1966 did the same at approximately the same time in what was to become, decades later, the Helsinki Metropolitan area. Where MAL+PE is genuinely unique is that the traditional unitary state model of spatial planning based on planning legislation and division of labour between strictly defined planning authorities has been complemented by a new kind of trading zone. This consists of agreements among the 55 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development municipalities of those city regions most willing to go beyond the planning mechanisms stipulated in the 1999 Land Use and Building Act (132/1999) on the one hand and the key planning ministries of the national government on the other. The fact that these agreements differ from case to case, reflecting the particular conditions in the first four city regions which have completed them, introduces a certain “quasi-federal” element in the Finnish planning regime. A common denominator to all agreements, however, is the pursuit of sustainability in urban development. The institutional mechanism to set this goal comes from the National Land-use Guidelines. They are based on a government decision in 2000 with a second revision issued by the Ministry of the Environment in December 2017. These guidelines comprise the backbone for the entire system of strategic land-use planning from local to regional, to highway, power grid and other infrastructure and network planning. However, they intervene in the functions of regional administrations whose reform is now also underway. The future role for the guidelines is therefore somewhat contested. How Can Boundary Work Help in Breeding Smart and Sustainable Urbanism? Sustainability is a notoriously ambiguous, even treacherous, concept. In an all-Nordic endeavour to chart challenges for the 21st century regional development, Janne Hukkinen (2000, p. 175) encapsulated this disposition to a catchy maxim “my sustainability is not your sustainability”. The general concept has remained prone to conflicting and opportunistic interpretations alike. In urban planning – bound to promote sustainable development – it has been eagerly elaborated into what has been discussed here as sustainability proxies. Given the lacking heuristics of what fundamentally is at stake with sustainability and smart urbanism, performance measurement and measurers of performance are necessarily able to produce only approximations of (smart) sustainability (cf. Keenan, 2014). 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London, England: Black Dog Publishing. 65 Leading Change in a Complex World: Transdisciplinary Perspectives Organising Complexity: Creating Boundary Objects for Sustainable Urban Development Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press 67 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience CHAPTER 4 Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience TAPIO JUNTUNEN & SIRPA VIRTA Takeaways for Leading Change Claims of increasing complexity and nonlinear change in contemporary societies and global politics are often presented as a justification for increasing demands of resilience as a key strategic response in security policy and practices. Our conceptual analysis juxtaposes resilience as a security mentality with other – partly overlapping – security mentalities such as defence, protection, and prevention. This provides a good case study of how perceived complexity of our societies affects the way in which governance and leadership are understood. The theory of nodal security governance resonates with the idea of relational leadership. Our analysis suggests the rise of resilience as a mentality might also indicate a certain lack or even crisis of leadership. The chapter invites readers to exercise a normative and ethical reflection on the practical effects of different security mentalities from the level of individuals to the level of global governance. It also gives readers a basic account of what security is, what it means to govern through security, and what the purpose of security is in relation to sovereignty, political order, and the freedoms and responsibilities of citizens. 68 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience H ow should security be governed? What are the requirements for security leadership today? These questions are being voiced with increasing urgency as a variety of new threats to security emerge and are recognised. There is a growing awareness that the promotion of security as both an objective and subjective condition will require new ways of thinking and acting (Wood & Shearing, 2007). In the past decade, security studies in many disciplines, notably in international relations, political science, governance studies, and criminology, have addressed this challenge. The governance of security is based on policies and strategies which involve responding to threats or breaches of security that have already occurred. It also involves anticipating and seeking to prevent threats that might occur. The analysis of security governance explores ways of thinking (mentalities) underlying these strategies, the organisational forms used to implement those ways of thinking (institutions such as the police, military, and international organisations), the techniques used to turn mentalities into action (technologies, policies, and strategies), and the resulting actions (practices). In this chapter, we use the nodal theory of networked and multilayered security governance (Johnston & Shearing, 2003) as the framework through which we analyse responses to the changing security environment and increasing complexity of threats and risks. The perspective of multilayered security governance focuses on the dynamics, contemporary policies, and practices of security. It also provides perspectives on the societal implications of different ways of understanding security governance. The purpose of this chapter is to analyse resilience politics as an example of a novel security mentality by comparing it with some of the more traditional security mentalities such as defence, protection and prevention. We argue the strong impact of resilience politics as a novel security mentality in recent years is evident in the various efforts to rearrange institutions, technologies, and practices of security governance. As to the question of social complexity, we argue the growing influence of resilience approaches in relation to security policy and governance The purpose of this chapter is to analyse resilience politics as an example of a novel security mentality. 69 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience offers an illustrative example of how responses to the interconnectedness of modern societies and perceptions of increasing uncertainty also have effects on how the changing demands of leadership are understood. Using the nodal theory of security governance, this chapter also asks what implications – institutional, practical, and technological – resilience strategies and the supposedly increasing vulnerability of our societies pose to security leadership. The chapter is structured as follows: we begin by elaborating on what security is and its relationship to key concepts such as sovereignty, order, freedom, and political legitimacy. From there we analyse how the emergence of resilience politics as a novel security mentality has transformed the agenda of security governance, including dominant threat perceptions and agency in providing security. We also illustrate how the emergence of resilience politics has affected the way security and the technologies of its governance have been transformed in the last decade in the context of the Nordic model of internal security and critical infrastructure politics as well as in the European Union Global Strategy (EUGS). We then present a concluding discussion. What is Security? In political science, security is defined as the core function of the state. The most familiar definition can be found in Thomas Hobbes’s Leviathan; Hobbes (1651/1999, p. 123) argued that without the state, society would descend into a war of all against all (i.e. a state of nature). It was in order to avoid this that men came together to make a social contract, building a state to provide security. Therefore, the state has been given the power over people and territory. This exceptional power derives from the definition of the state: “A state is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory” (Weber, 1946/1991, p. 78. Emphasis in original). To sustain their external security, states have military forces and intelligence authorities. To sustain internal security (political, social, and public order), states have police forces and criminal justice systems. 70 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience Security is commonly defined as a state of being. This is illustrated in the following definition, published in the SAGE Dictionary of Criminology, which is free of discipline-based connotations: Security is the state of being secure, specifically freedom from fear, danger, risk, care, poverty or anxiety� Security also implies certainty� The roots of the term are in the Latin securitas/secures, derived from se (meaning without) cura (fear, anxiety, pains, worry)� Safety is closely related to security� Safety also means freedom from danger or risk� However, it has additional connotations which have more to do with physical conditions, e�g� freedom from injury, the safety of the body and of property� In this context certainty refers to certainty of order, assurance and predictability (Virta, 2006, p� 371; Virta, 2013b, p� 312)� When defined as the core function of the state and, according to the Universal Declaration of Human Rights (1948), as a core human right, security is a powerful political concept and phenomenon. In this reading, the sovereign (state) has the power or position to define the governance, political use, content, objectives, distribution, etc. of security. Fundamental questions of democracy are ambiguous in this context. Governance of security – as a concept – refers to organisations, strategies, and practices. Governance through security is always a political act. There is an irrevocable link between security and the maintenance of sovereignty. The question of who has the power or legitimacy to make claims on matters of (national) security is fundamentally a political one. When a specific phenomenon is authoritatively labelled a security issue – that is, a threat to the existing social order – it is more easily perceived as an issue to be dealt with using exceptional measures. The normal running of politics and governance does not typically rely on such exceptional measures (Huysmans, 2004). What we have presented here is a constructivist perspective of security, which starts from the premise that threats perceived by the state elite or the society in general are not just “out there” in the objective reality to be “picked up”. Instead, political leadership and other authorities are involved in processes of signification that construct and give meaning to these threats. This also affects perceptions of what security is and what it means for the polity in the first place (see also Vuori, 2017). 71 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience The vast political capital vested in the term “security” means that any policy pursued in its name is difficult to argue with: How could anyone reasonably be opposed to security (Zedner, 2009, p. 144)? Although contemporary security leadership necessitates an understanding of the complexity of different societal threats and risks, one should not forget that claims for security are essentially contested. In other words, although security is a rather common concept, its use is not clearly definable. It can refer to various objects, processes, and societal contexts depending on one’s perspective and values (Buzan, 1983, p. 6; see also Gallie, 1956, p. 168). Security can be seen as a fundamentally “wicked problem”, as a “particularly complex and tricky leadership and management context” (see the introductory chapter of this book). This also means that security cannot be “solved” for good, either in existential terms – meaning that there is no absolute state of security available in human life – or in the sense that different stakeholders would achieve a consensus over the value, meaning, and practical efficacy of different security mentalities. Governing Security Through Resilience In recent years, scholars in various academic fields have noted that resilience politics is challenging traditional ways of thinking about the governance of security, such as the mentalities of defence, protection, and prevention (Chandler, 2017; Corry, 2014; Virta, 2013a). We argue a security mentality based on resilience is emerging and transforming the ways in which governance and governability are perceived. Instead of focusing on the governance and prevention of foreseeable uncertainties and threats, resilience politics is presented as an answer to the assumed inability of our societies and governments to guarantee security with preventive and proactive policies. This is thought to happen because of the increasingly complex and interconnected nature of our societies and new threats emanating from both man-made and natural sources (Rosa, Renn, & McCright, 2014). As a concept, resilience has a distinctive academic background in life sciences such as systems ecology as well as psychology and complexity thinking dating back to the 1950s (see Bourbeau, 2018). From these 78 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience Community policing and local-level cooperation is seen as a vital tool for preventing violent radicalisation. Common measures and practices have been adopted and implemented locally. What was earlier seen as a question of national security has now been localised and is also a part of the policy field of urban security. There are also differences between the general EU and Nordic models. One example can be found from the approaches to critical infrastructure protection. In the Nordic countries, the role of what is today labelled the comprehensive societal resilience approach has traditionally been considered important, as has been the focus on the protection of physical infrastructure and increasing its redundancy. The EU, on the other hand, has traditionally focused on physical infrastructure and only recently started to map security technologies that would merge the protectioncentred approach with increasing demands for a more comprehensive societal resilience approach (Pursiainen, 2018, pp. 633–635). One of the recent key documents based on the security mentality of resilience in the context of the EU’s external relations is the 2016 EUGS entitled “Shared Vision, Common Action: A Stronger Europe”. Although originally formulated in the context of the EU’s humanitarian and development policy programmes established in the Sahel and eastern regions of Africa in the early 2010s, in the EUGS, resilience appears as a strategic concept – that is, a security mentality. Resilience is mentioned some 40 times in the EUGS. Human security, the concept in vogue when the EU’s last foreign and security policy strategy was drafted in the early 2000s, is only mentioned four times – a clear verbal indication of a paradigm change from protection to resilience. In the EUGS, resilience is defined as the ability of states and societies to reform amid an increasingly complex and unpredictable threat environment (European External Action Service, 2016, p. 23). Many scholars and key EU officials have noted the central role of resilience in the EUGS is also communicative (Mälksoo, 2016; Tucci, 2016). In other words, it has been applied to the strategy as a reactive conceptual compromise to mitigate the fact the EU lacks effective control over the societal development and security situation in its “near abroad”. The 1990s and early 2000s promise of the EU as a progressive and pacifying 79 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience liberal project that would also allow good governance practices to trickle into the societies in its near abroad has not yet materialised. Instead, hot crises, interlinked extraand intrastate wars as well as the fundamental lack of human security in the Middle East, Africa, and Eastern Europe painfully testify to the crisis of the EU as a liberal project, not to mention the EU’s internal challenges and disintegrating propensities. In this light, resilience has been invented as a boundary concept or communication device uniting those who still believe in the optimistic liberal project and its soft power effects with those who favour a more isolationist approach and emphasise the role of power politics and strict control of the EU’s external borders (Cross, 2016). The EU seems to be more sceptical of its own leadership abilities and readiness to govern the complex threat environment with top-down models now than it was two decades ago. Following the security mentality based on resilience and the dispersion of security agency as the nodal theory of security governance presented above suggests the EU’s approach to reinforce the strengths and resources of local agents, communities, and civil society is the starting point of a decentralised and agile mode of security governance. On the other hand, it is good to acknowledge that societal security strategies and internal security strategies usually have citizen participation and deliberation as their strategic objectives. They are considered integral elements of systemic comprehensive security, where collaborative, complex, adaptive networks are seen as new forums of citizen engagement. To give a recent example from Finland, deliberative models have been introduced into the areas of societal security and resilience. Citizen engagement and participation has been enhanced through novel practices such as citizen sourcing and citizen juries (Virta & Branders, 2016, p. 1151). Discussion In contemporary security parlance, resilience refers to the ability of societies, communities and even individuals to withstand major disruptions or shocks and to maintain one’s functioning – even learning 80 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience to be stronger – after adversity. As a strategic concept directing security policy, resilience is a sweeping response to perceptions of increasing complexity posed by the combination of various nonlinear threats and the vulnerability of our postmodern societies and lifestyles. The rise of resilience politics does not come without possible ethical problems. Some scholars have even claimed the rise of resilience as a dominant security mentality might lead towards a culture of insecurity where policies are guided with the goal of taming the most harmful consequences of insecurity instead of comprehensively providing safety from harm (see Evans & Reid, 2014; Joseph, 2013; Methmann & Oels, 2015). Using the nodal theory of security governance, we have also illustrated the possible implications that the shift from security mentalities such as protection, prevention, and defence to that of resilience poses to the techniques of security governance, agency, and leadership in general. The rise of resilience politics seems to follow the general lines of nodal theory in that the security political actorness continues to disperse among different levels of societal actors. At the same time, the increasing demands of security indicate traditional state-centric security actors are facing severe challenges in terms of security leadership. The rise of resilience politics and its practical implications indicate a certain lack of leadership and controllability. On the face of it, traditional security authority tends towards multilayered nodes and actors, all the way to communities and individuals. This might lead to positive enhancement of several societal actors in terms of security actorness. But the increasing reliance on resilience also has a dark side. What seems especially daunting is the critique that resilience strategies naturalise complexity-induced insecurity as a permanent state and normalise crises as potentially positive learning experiences enabling one to become stronger and more anti-fragile (see Schmidt, 2015). In some instances, the increasing demand for resilience might decrease incentives for traditional state actors to transform social structures with reforms and preventive policies. It is also appropriate to ask whether resilience approaches rely on a relatively managerial and reactive conception of political subjectivity activated only after the harm has already occurred. As a security mentality, resilience seems to be rather passive in the face 81 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience of complex threats stemming from outside and within one’s society (Bourbeau, 2015, pp. 174–177; Juntunen & Hyvönen, 2014). Finally, in terms of security leadership and management in practice, within the complex contemporary world of old, new, and emerging threats and risks, the terms “security risk management” and “security risk governance” best describe the strategic and operative functions of various networked actors and nodes in doing and delivering security – global networks, states, authorities, civil society assemblages, and people themselves (see Button, 2008). A systemic approach to security entails complex and adaptive security systems and subsystems. The value of the complexity theory derives from its characteristics: interdisciplinary, nondeterministic, systemic, contextual or circumstantial, and chaotic; or at least not entirely predictable and developmental (Pycroft & Bartollas, 2014). Security leadership requires systems intelligence. 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Abingdon, England: Routledge. 85 Leading Change in a Complex World: Transdisciplinary Perspectives Security Dynamics: Multilayered Security Governance in an Age of Complexity, Uncertainty, and Resilience Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press 87 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities CHAPTER 5 Supporting Longer Working Careers in Organisations: Challenges and Complexities HANNA SALMINEN Takeaways for Leading Change Population ageing is a global phenomenon and a current megatrend with political, governmental and economic consequences worldwide. Although population aging brings challenges, it can also provide new opportunities. Relational leadership stresses the importance of collective leadership and bottom-up processes along with top-down ones. This chapter highlights empirically organisational practices which support longer working careers. However, this requires trust and open dialog between employees and supervisors as well as enabling organisational structures. The main argument put forward is that organisations which are able to utilise the potential of longer working careers and a more age-diverse workforce, are likely to flourish in the long run. 94 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities I hope I will be able to continue (working) until retirement age, but this (deteriorating health) tells me I am ageing� N13 It also greatly depends on yourself, how you manage and develop along with your job, and how you take care of your own fitness� N21 …well, I have always said, that what I lose physically, I win in intelligence� I can organise my daily job in a way that I will not run all over the place and rush… N7 Continuous learning and development were closely related to discussions of the meaningfulness of the work and late career. The learning and development opportunities provided by the organisation were seen as playing an important role in horizontal career advancement, which prevented feelings of career plateauing. Continuous learning and development and the competencies gained at work were also closely related to the perceptions of their own work ability. However, continuous learning was also seen as demanding and tiresome when it was unclear how it related to individual professional development. … I have always received new (career) changes (in this organisation) and a new start, and possibilities to learn new things� N4 Well, personally, I feel all kinds of projects are a lot on top of all the others� …and then all the IT programmes are updated� That is quite frustrating� N5 Professional competence also related to the discussion of individual roles in the work community. First, competence was perceived as reinforcing feelings of assertiveness and self-worth in the work community. Second, professional competence was perceived as contributing widely to the work community. Some emphasised their roles as mentors to new employees. They also tended to worry about the integration of these new employees and how they would adapt to their work community. It helps to cope with the job if you feel that you are a respected person in the work community and you have something to give� N10 95 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities The turnover among personnel is high, so one big challenge at the moment is how to properly take care of the integration (of new employees) into this work community… N14 While they emphasised their own active role in maintaining workability, the active involvement was also expected from the organisation and supervisors. However, it was not always clear how the employer promotes the balance between individual resources and job demands. For instance, in this house [hospital], I feel they [managers] have not figured out what they are doing with us, older nurses� I haven’t seen…any development programme or project regarding what will happen to us, given that our exhaustion is physical in nature� N2 When it was asked about specific HRM practices and policies that would promote the older nursing professionals’ abilities to continue working, those practices were related mainly to flexibility in working hours, including the reduction of shift work. Some stressed their own active role in reducing their workloads by, for example, refusing to do extra work. But, most of them expected the organisation to implement flexible practices. In addition, moving from shift work to day work was not seen as problemfree, given that it decreased their monthly salaries and thereby their future retirement allowances. It happens a lot, when it is a rush situation and it is difficult to get employees… that (they) call during days off to go back to work� So, I have refused to be reached (by phone), I had to…when I went through that exhaustion� After that, I learned to listen to myself� There is no use of me being here at work if I have not rested and charged my batteries� N8 Well, when I think about what would promote my abilities to continuing working, flexibility, concerning, for example, work shifts, influences it… N3 … part of them (older nursing professionals) want to continue working in shifts due to the extra wages…I don’t do night shifts any more, rarely weekends� It does 96 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities affect my wages…I first dropped off from night shifts and then from weekend shifts…taxation, of course, compensates for it, but the employer does not…But obviously, if you think that I will have been off of night shifts for ten years before I retire� Seven years off of weekend shifts� It really does matter� N2 In addition to flexible work practices, managerial support in general was seen as important to retaining older employees in the organisation. Great value was placed on the supervisory support. In particular, the mutual trust and respect between employee and supervisor was seen as a prerequisite to being able to discuss and negotiate possible challenges related to work ability as well as changes needed in the work. The supervisor must see how an individual’s resources match with the job… we have a good supervisor…she supports a lot and retains us, that helps (to cope with the job)� N19 …I feel that as an employee, I have the responsibility to inform (my supervisor) when I am not able to manage my work…it is a kind of negotiation issue… N17 Well, of course it is important that the supervisor has the knowledge and understanding regarding the content of your work� And then, of course, that those supervisors have trust in (us)…Maybe it is because of the trust that I have been able to make development initiatives rather freely� N12 The content of the work, work ability, continuous learning, flexibility and supervisory support were most significant aspects related to retention among the studied older nursing professionals. Yet, some of these aspects also included challenges and contradictions. While the deteriorating workability was seen to influence the ability to continue working in a psychically (and mentally) demanding job, the work itself also motived and provided a sense of meaning. In addition, although continuous learning was seen as a key component of being able to carry on through late career, it was also perceived as somewhat burdensome. Similarly, while flexibility in work schedules was seen to ease the workload, it was not always seen as a financially optimal solution. 97 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities Discussion This chapter focused on the challenges and complexities related to the retention of older employees in organisations, with special reference to HRM. While longer life expectancy is the result of many improvements in our society, including improved healthcare, nutrition and safety, the ageing population and workforce presents a complex challenge to societies, organisations and individuals (Hertel & Zacher, 2018). In addition to society-level initiatives and reforms, including pension reform, there is a need for organisation-level actions to support longer working careers and the active ageing of employees (Mahon & Millar, 2014). Finding ways to retain older employees in organisations is also crucial to addressing expected labour shortages and minimising costs related to early retirement (Wang & Shultz, 2010). Due to societal, industrial, organisational and individual differences, no single “fit-for-all” solution can be found for supporting longer working careers. This chapter discussed some of the contemporary theoretical viewpoints concerning retention of older employees in the field of HRM and provided an empirical example of the challenges and complexities related to retaining older nursing professionals in the field of public healthcare. Despite diverse theoretical backgrounds, recent HRM studies concerning the retention of older employees, have emphasised the importance of fit between the abilities of employees and their work demands (Hertel & Zacher, 2018) as well as the active role of both employees and the organisation in order to support longer working careers (Kooij, 2015; Wallin, 2014). The empirical example presented in this chapter showed that the fit between an individual’s resources and job demands was closely related to the feelings of workability among older nursing professionals. Competence was identified as an important component of perceived workability. Thereby, continuous learning and development throughout working life, one way or another, is important for the retention of older employees (Ilmarinen, 2006; Hertel & Zacher, 2018). Opportunities to develop competencies was closely related to the discussion of horizontal career progress (Tempest & Coupland, 2016). It was also seen as way to contribute to the larger work community. 98 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities Older nursing professionals prioritised flexible working practices as a way to enable working until retirement age and even beyond (cf. Hennekam & Herrback, 2015). This supports the argument that flexible HRM practices are important for balancing demands in work and non-work domains (Bal & De Lange, 2015). However, changes in work schedules were also perceived as problematic, because they reduced wages. When it comes to the employee-supervisor relationship, trust and support from one’s supervisor were seen as significant factors in providing an environment in which older employees could actively discuss and negotiate development initiatives needed to support longer working careers. This lends credence to the importance of collective and relational leadership (Uhl-Bien, 2006). The continuous fit between individual abilities and work demands requires age-inclusive HRM practices, but also the active role of supervisors and older employees themselves (Kooij, 2015). References Armstrong-Stassen, M., Freeman, M., Cameron, S., & Rajacic, D. (2015). Nurse managers’ role in older nurses’ intention to stay. Journal of Health Organization and Management, 29(1), 55–74. https://doi.org/10.1108/JHOM-02-2013-0028. Bal, P. M., & De Lange, A.H. 2015. From flexibility human resource management to employee engagement and perceived job performance across lifespan: A multisample study. Journal of Occupational and Organizational Psychology, 88(1), 126–154. https://doi.org/10.1111/joop.12082 Brough, P., Johnson, G., Drummond, S., & Timms, C. (2011). Comparisons of cognitive ability and job attitudes of older and younger workers. Equality Diversity and Inclusion: An International Journal, 30(2), 105–126. https://doi.org/10.1108/02610151111116508 Buchan, J., O’May, F., & Dussault, G. (2013). Nursing workforce policy and the economic crisis: A global overview. Journal of Nursing Scholarship, 45(3), 298–307. https://doi.org/10.1111/jnu.12028 99 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities De Vos, A., & Van der Heijden, B. I. J. M. (2017). Current thinking on contemporary careers: The key roles of sustainable HRM and sustainability of careers. Current Opinion in Environmental Sustainability, 28, 41–50. https://doi.org/10.1016/j.cosust.2017.07.003 Hennekam, S., & Herrbach, O. (2015). The influence of age-awareness versus general HRM practices on the retirement decision of older workers. Personnel Review, 44(1), 3–21. https://doi.org/10.1108/PR-01-2014-0031 Hertel, G., & Zacher, H. (2018). Managing the aging workforce. In D. S. Ones, N. Anderson, C. Viswesvaran, & H. K. Sinangil (Eds.), The SAGE handbook of industrial, work and organization psychology (pp. 396–428). Thousand Oaks, CA: Sage. Ilmarinen, J. (2006). Towards a longer worklife: Ageing and the quality of worklife in the European Union. Helsinki, Finland: Finnish Institute of Occupational Health. Kooij, D. (2015). Clarifying and discussing successful aging at work and the active role of employees. Work, Aging and Retirement, 1(4), 334–339. https://doi.org/10.1093/workar/wav024 Kooij, D., de Lange, A., Jansen, P., & Dikkers, J. (2008). Older workers’ motivation to continue to work: Five meanings of age. A conceptual review. Journal of Managerial Psychology, 23(4), 364–394. https://doi.org/10.1108/02683940810869015 Mahon, J. F., & Millar, C. J. M. (2014). ManAGEment: The challenges of global age diversity for corporations and governments. Journal of Organizational Change Management, 27(4), 553–568. https://doi.org/10.1108/JOCM-05-2014-0100 Ng, T. W. H., & Feldman, D. C. (2015). The moderating effect of age in the relationships of job autonomy to work outcomes. Work, Aging and Retirement, 1(1), 64–78. https://doi.org/10.1093/workar/wau003 Organisation for Economic Co-operation and Development (OECD). (2006). Live longer, work longer. Paris, France: OECD. https://doi.org/10.1787/19901011 Riekhoff, A-J., & Järnefelt, N. (2017). Gender differences in retirement in a welfare state with high female labour market participation and competing exit pathways. European Sociological Review, 33(6), 791–808. https://doi.org/10.1093/esr/jcx077 100 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities Sonnet, A., Olsen, H., & Manfredi, T. (2014). Towards more inclusive ageing and employment policies: The lessons from France, The Netherlands, Norway and Switzerland. De Economist, 162, 315–339. https://doi.org/10.1007/s10645-014-9240-x Tempest, S., & Coupland, C. (2016). Lost in time and space: Temporal and spatial challenges facing older workers in a global economy from a career capital perspective. The International Journal of Human Resource Management, 28(15), 2159–2183. https://doi.org/10.1080/09585192.2015.1128455 Tenhunen, S. (2017). Eläkeikä nousee mutta joustot säilyvät. Kyselytutkimus vuoden 2017 eläkeuudistuksesta ja työssäjatkamisaikeista [Retirement age will rise but flexibility will remain. Survey regarding year 2017 pension reform and intentions to continue working]. Retrieved from http://www.etk.fi/wpcontent/uploads/elakeika-nousee-mutta-joustot-sailyvat-1.pdf Uhl-Bien, M. (2006). Relational leadership theory: Exploring the social processes of leadership and organizing. The Leadership Quarterly, 17(6), 654–676. https://doi.org/10.1016/j.leaqua.2006.10.007 Uhlenberg, P. (2013). Demography is not destiny: The challenges and opportunities of global aging. Generations, 37(1), 12–18. United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Ageing 2017 – Highlights (ST/ ESA/SER.A/397). Retrieved from http://www.un.org/en/development/ desa/population/publications/pdf/ageing/WPA2017_Highlights.pdf Wallin, M. (2014). Ikäjohtaminen Euroopassa – Näkemyksiä parhaista ikäjohtamiskäytänteistä EU27 maissa [Age management in Europe – Views about best age management practices in EU27 countries]. Helsinki, Finland: Työterveyslaitos. Retrieved from https://www.julkari.fi/bitstream/handle/10024/116721/ Ikajohtaminen_Euroopassa.pdf?sequence=4 Wang, M., & Shultz, K. S. (2010). Employee retirement: A review and recommendations for future investigation. Journal of Management, 36(1), 172–206. https://doi.org/10.1177/0149206309347957 101 Leading Change in a Complex World: Transdisciplinary Perspectives Supporting Longer Working Careers in Organisations: Challenges and Complexities Whittington, F. J., & Kunkel, S. R. (2013). Think globally, act locally: The maturing of a worldwide science and practice of aging. Generations, 37(1), 6–11. Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press 103 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation CHAPTER 6 International Taxation and the Complex Case of Digitalisation MARTTI NIEMINEN Takeaways for Leading Change When there is a change so fundamental as digitalisation, no part of society is left unaffected. The transition from the brick and mortar economy to the digital economy has dramatically transformed the setting of international business taxation and basic principles of the international tax system have become outdated. This chapter demonstrates how digitalisation and the transformation of the global economy affect international taxation and discusses how to restore the integrity of the international tax system. It also argues that managing complex and systemic changes requires understanding a multiplicity of fields and leadership beyond institutional boundaries. This kind of leadership is now more necessary than ever due to the increased complexity of the global economy and divergent interests of key players. 110 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation This occurs because the residence state principle is also being eroded as will be discussed below. The main problem with international double non-taxation is that it distorts competition neutrality between global and local or “big” and “small” businesses. If the effective tax rate is 20 percent for one company and 1 percent for another, it is clear their chances of success are far from equal. The fact that multinational enterprises are in many cases subject to zero or close to zero taxation also creates pressure for states to compensate tax revenue losses by tax increases in other areas, particularly payroll taxes and value added tax. This reduces incentives for economic activity in general. There is also the issue of fairness. If one company does not pay its fair share others will have to pay more (Burgers & Valderrama, 2017; Lamberts, 2017). Company X State A State B CIT 30% CIT 35% FIGURE 3. In this case Company X sells leather bags to customers in State B just like it did in the previous examples. The only difference is that Company X no longer has physical presence (retail store) and, thus, no permanent establishment in State B. Instead, consumers residing in State B can purchase the products of Company X through a website maintained by Company X in State A. Company X pays taxes, namely a 35 percent corporate income tax, only in its residence state (State A). 111 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation International double non-taxation does not occur simply through the lack of taxable presence in the source state. It also requires income to go untaxed in the residence state. For a growing number of multinational companies this has become reality. Technological developments not only erode the source principle but are also compromising the functioning of the residence principle. Due to the abundant possibilities provided by modern ICT and logistics, key functions of a multinational enterprise can be allocated to any jurisdiction depending, among other things, on tax considerations. For example, the central management (board meetings), advertising, financing, manufacturing and research and development operations can, and typically are, situated in different jurisdictions. Most importantly, the possession of intangibles, such as, trademarks or brands, copyrights, patents, knowhow and goodwill can be allocated almost anywhere. The location of intangibles has become essential. Their importance in the global value chain has significantly increased due to the expanded scope of digital services (OECD, 2013). Manufacturing goods is now easier and cheaper thanks to, among other things, the technological process of automation (production without human assistance). Automation is evolving fast and goes hand in hand with digitalisation. Indeed, technological innovations such as 3D printing may make manufacturing of everyday goods so simple that literally anyone can do it. This means the real value is less where the manufacturing takes place and more where the intangibles are located. And this brings us back to tax considerations. In the previous examples, Company X, resident in State A, owned the trademark that distinguished its products from similar products of other manufacturers. The example below demonstrates what happens from a tax perspective if the ownership of a trademark is transferred from Company X to another group company, Company XX, which is located in a low tax jurisdiction. As demonstrated above, the issue of international double non-taxation is not something concerning only modern ICT companies. It is also relevant in the case of more traditional businesses that sell, under a global brand, tangible goods (e.g. furniture or clothes) or services (e.g. coffee shops and fast food restaurants). It is also worth pointing out there are various other tax planning techniques besides the one described above that may result 112 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation in international double non-taxation. They may be based either on other types of intragroup payments besides royalties (e.g. interest payments or service fees) or technical mismatches or “loopholes” in international tax legislation (e.g. so-called hybrid arrangements). The important point is that the phenomenon of international double non-taxation is relevant in any area of the economy where international corporations operate. The Company X Company XX State A State B CIT 30% CIT 35% royalty State C CIT 25%, ETR 0,001% FIGURE 4. Company X still sells leather bags to consumers in State B via its web store just like it did in Figure 3. However, the ownership of the trademark or brand of X group is now transferred to another group company, Company XX, located in State C. The general corporate income tax rate in State C is 25 percent. But due to a special regime that is applied to income from intangible property the effective tax rate (ETR) for Company XX is only 0,001 percent. 95 percent of the profits made by Company X in State A is offset by tax deductible intragroup royalty payments to Company XX. Of the profits it made from selling leather bags to consumers in State B, the X group (Companies X and XX) now has to pay a combined taxes of little over 1,75 percent. 113 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation potential magnitude of the issue is highlighted by the fact that more than 80 percent of all worldwide trade takes place within the global value chains of multinational enterprises (United Nations, 2013). Discussion There are various ways to confront current issues in the international tax system and to restore the integrity of the international tax system. There are short term solutions or “quick fixes”, such as a particular digital tax outside the scope of the existing tax treaty rules limiting the tax jurisdiction of the source state. There are also medium term solutions such as the introduction of a “digital permanent establishment” not based on physical presence, but other indicators such as use of bandwidth or collection of user data (see e.g. Brauner & Pistone, 2017). A more far-reaching option would be to discard the source and residence principles altogether and base tax jurisdiction on other factors; for example, the location of consumers (Devereux & de la Feria, 2012). The greatest challenge is not the designing of a tax system suitable for the digital age. The real issue is how to deliberate on and implement the required modifications. As noted above, a century ago the world was facing a somewhat similar situation, where technological innovations had changed the structure of the global economy and the new reality had become fundamentally incompatible with the prevailing international tax system. It was also discussed how individual countries were not in the position to effectively confront these challenges. This was ultimately achieved through international cooperation. But what is the case today? Can there be sufficient international consensus on the international tax system in the digital era? International bodies with the capacity to implement all-encompassing solutions to the prevailing challenges of the international tax system are the United Nations and the OECD. Both organisations have a long history of issuing supranational tax law regulation. However, the purpose of the United Nations in the field of international taxation has diminished over time to a more observatory role. The main emphasis has been on safeguarding the interests of the developing world. For this reason, the 114 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation OECD and the associated G20 forum is, in practice, the only international operator able to provide worldwide solutions in the field of taxation. The OECD has in recent years successfully introduced instruments within its Base Erosion and Profit Shifting (BEPS) project to mitigate international double non-taxation (OECD, 2018b). However, there is one issue yet to be resolved that makes the situation today somewhat more challenging compared to the time when the elimination of international double taxation was in everyone’s interest. The problem is that even within the OECD countries, that is the developed western economies, there are persistent conflicts of interest. Some countries, for example the Benelux countries and Ireland, may not see international double non-taxation as such a pressing concern as do Australia, Germany, France and the Nordic countries. Also, and most importantly, there are the fundamentally different positions of the European Union countries and the United States on how and whether the source state taxation of digital businesses should be modified. The European Union is looking for ways to tax the United States -based technology giants, such as Google, Apple, Microsoft and Facebook. The United States, understandably, sees the situation differently. Reaching global solutions is, not only in this case but also generally, difficult and time-consuming. New players and levels of decision-making have emerged in the field of international taxation which take a regional instead of a global perspective. The EU Commission, for example, has stated that if the OECD cannot provide an effective and timely solution to the erosion of the source state principle, the European Union will proceed with its own solutions (European Commission, 2017; European Commission 2018a; European Commission 2018b). However, if the process concerning the Common Consolidated Corporate Tax Base initiative (European Commission, 2018c) is any indication, even reaching a common understanding in the EU may be difficult to achieve. The CCCTB approach would not be based on classic concepts of source and residence but on The European Union is looking for ways to tax the US-based technology giants, such as Google, Apple, Microsoft and Facebook. 115 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation a so-called formulary apportionment method where states’ jurisdiction to tax would depend on the location of three equally-weighted factors: assets, labour and sales. This would represent an innovative and up-to-date approach to international taxation. It would however result in a loss of tax revenue in individual countries – at least in the short term. As the OECD and European Union have so far been unable to resolve the source tax issue, countries have begun to take unilateral actions. For example, India has recently introduced a plan for a new digital tax that would make multinational digital entities operating in the country liable for taxes. Similar considerations have taken place also in the United Kingdom and Italy (Agarwal, 2018; UK Government, 2015; Reuters, 2017). Although relatively simple to implement, the problem with such unilateral solutions is that they make the particular country less attractive for foreign investments compared to competitor countries (Olbert & Spengel 2017). They may also be in violation of existing tax treaties and trade treaty law. This may erode the political capital of states in relation to countries which suffer tax revenue losses and whose companies are affected or would prefer a coordinated solution. Besides political and legal measures, there is also another possible approach to address the current issues of international taxation. That is the so-called corporate social responsibility approach (CSR), whereby companies, either of their own volition or due to pressure from nongovernmental organisations, traditional and social media, the general public and consumers, modify their behaviour to better meet the requirements of good corporate citizenship, including paying their taxes (European Commission, 2011). However, so far there is very little evidence of any real effects of the CSR approach to the most pressing global tax concerns. Acknowledgements This contribution was made possible with funding from the Academy of Finland under the “Transformation of the International Tax System” research project (grant number 310747). 116 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation References Agarwal, S. (2018, February 3). Budget 2018: Foreign digital companies with India user base may have to pay tax. India Times. Retrieved from https://economictimes.indiatimes.com/news/economy/policy/ budget-2018-foreign-digital-companies-with-india-user-base-mayhave-to-pay-tax/articleshow/62761393.cms Brauner, Y., & Pistone, P. (2017). Adapting current international taxation to new business models: two proposals for the European Union. Bulletin for international taxation, 71(12), 681–687. Burgers, I. J. J., & Mosquera, Valderrama I. J. (2017). Fairness: A dire international tax standard with no meaning? Intertax, 45(12), 767–783. Devereux, M. P., & de la Feria, R. (2012). Defining and implementing a destination-based corporate tax. Oxford, England: Centre for Business Taxation Working Paper. Devereux, M. P., & Vella, J. (2014). Are we heading towards a corporate tax system fit for the 21st century? Oxford, England: Centre for Business Taxation Working Paper. European Commission. (2011). A renewed EU strategy 2011–14 for corporate social responsibility (Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions COM(2011) 681 final). European Commission. (2017). A fair and efficient tax system in the European Union for the digital single market (Communication from the Commission to the European Parliament and the Council COM(2017) 547 final). European Commission. (2018a). Proposal for a Council directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services (COM(2018) 148 final). European Commission. (2018b). Proposal for a Council directive laying down rules relating to the corporate taxation of a significant digital presence (COM(2018) 147 final). 117 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation European Commission. (2018c). Common Consolidated Corporate Tax Base (CCCTB). Retrieved from https://ec.europa.eu/taxation_ customs/business/company-tax/common-consolidated-corporatetax-base-ccctb_en Gadžo, S. (2018). The principle of ‘nexus’ or ‘genuine link’ as a keystone of international income tax law: A reappraisal. Intertax, 46(3), 194–209. Lamberts, P.B.W.L. (2017). Fair taxation: Truth is in the eye of the beholder. Intertax, 45(1), 49–53. League of Nations. (1923, April 5). Report on double taxation submitted to the Financial Committee (Document E.F.S.73. F.19). Martha, R. S. J. (1989). The jurisdiction to tax in international law: theory and practice of legislative fiscal jurisdiction. Deventer, The Netherlands: Kluwer. De Melo Rigoni, J.M. (2017). The international tax regime in the twentyfirst century: The emergence of a third stage. Intertax, 45(3), 205–218. OECD. (1963). Draft double taxation convention on income and capital (Report of the Committee on Fiscal Affairs). OECD. (2013). New sources of growth: Knowledge-based capital. Key analyses and policy conclusions (Synthesis report). Retrieved from https://www.oecd.org/sti/inno/knowledge-based-capital-synthesis.pdf OECD. (2015). Addressing the tax challenges of the digital economy (Action 1 – Final Report. OECD/G20 Base Erosion and Profit Shifting Project). Retrieved from https://doi.org/10.1787/9789264241046-en OECD. (2018a). Tax challenges arising from digitalization (Interim Report OECD/G20 Base Erosion and Profit Shifting Project). Retrieved from https://doi.org/10.1787/9789264293083-en OECD. (2018b). About the inclusive framework on BEPS. Retrieved from www.oecd.org/tax/beps/beps-about.htm Olbert, M., & Spengel, C. (2017). International taxation in the digital economy: Challenge accepted? World tax journal, 9(1), 3–46. Reuters (2017, December 19). Italian budget commission approves web tax on digital services. Retrieved from https://www.reuters.com/ article/us-italy-tax-digital/italian-budget-commission-approvesweb-tax-on-digital-services-idUSKBN1ED14F 118 Leading Change in a Complex World: Transdisciplinary Perspectives International Taxation and the Complex Case of Digitalisation UK Government. (2015, November 30). Diverted profits tax: guidance. Retrieved from https://www.gov.uk/government/publications/ diverted-profits-tax-guidance United Nations. (2013). Global value chains and development: Investment and value added trade in the global economy (UNCTAD/DIAE/2013/1). Whittaker, D. R. (2016). An examination of the OECD and UN model tax treaties: History, provisions and application to US. Foreign Policy. North Carolina Journal of International Law and Commercial Regulation, 8(1), article 4. Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press PART II Relational Leadership 126 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership suppliers and distributors, investors and communities with the purpose of creating new jobs, products and services needed and desired by various stakeholders. Value not only accrues to owners and investors, but to all stakeholders (Garcia-Castro & Aguilera, 2015). The collective value created reflects the value created in all stakeholder relationships (Bosse et al., 2009). For public organisations, organisational objectives are connected to stakeholders through joint activities. In this way, public organisations fulfil their mission and create value for all involved parties (Heikkinen, Kujala, & Inha, 2018). Interestingly, the origin and evolution of the stakeholder concept can be traced to Scandinavian management literature dating back to the 1960’s; the basic concepts and ideas of stakeholder thinking were developed by Swedish researcher Eric Rhenman (Rhenman, 1964; Rhenman & Stymne, 1965; see also Strand & Freeman, 2015). In the 1970s, the “stakeholder approach enjoyed an almost dominant role in the Finnish university management teaching” (Näsi, 1995b, p. 98). Among the promoters of stakeholder thinking was Finnish professor Juha Näsi. He was influential not only in international theory development from the 1970s to the 2000s, but also in advancing stakeholder thinking in the strategic management of Finnish companies. Since R. Edward Freeman’s seminal work in 1984, the stakeholder approach has gradually increased its importance in organisational studies worldwide. Over the years, the stakeholder approach has been established as an important approach in conceptualising the relationship between business and society. The approach has been used to examine multiple phenomena in various fields such as strategic management (e.g., Haksever, Chaganti, & Cook, 2004; Harrison, Bosse, & Phillips, 2010; Sachs & Rühli, 2011), corporate responsibility (e.g., Sachs & Maurer, 2009; Smith & Rönnegard, 2016; Strand et al., 2015), business ethics (e.g., Phillips, 1997; Purnell & Freeman, 2012; Wicks, 1996), international business (e.g., Lehtimäki & Kujala, 2017), and non-profit organisations (Heikkinen et al., 2018). At first, stakeholder scholars were primarily interested in identifying the most important stakeholders and their interests; in other words stakes, in business (e.g., Clarkson, 1995; Mitchell, Agle, & Wood, 1997). More recently, the focus has shifted toward examining interaction between diverse stakeholders (Neville & Menguc, 2006), understanding 127 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership stakeholder dialogue (Burchell & Cook, 2006; van Huijstee & Glasbergen, 2008), and learning from multi-stakeholder networks (Roloff, 2008). The interest lies in stakeholder interaction and the nature of stakeholder relationships (Evan & Freeman, 1988; Mitchell et al., 1997; Rowley, 1997). Advocates promote the idea that the interests of different parties in stakeholder organisations should be incorporated into the process of value creation (Freeman et al., 2010). Value, in this sense, is created not only for stakeholders but also with stakeholders (Freeman et al., 2010). The key argument in stakeholder theory that, in the long run, an organisation must operate in such a way that each stakeholder is satisfied with what they give and with what they receive, i.e. stakeholder interests must be balanced over time (Freeman et al., 2007; Näsi, 1995a). In business organisation, the stakeholder approach argues it is necessary to broaden organisational goals beyond profit maximisation and include the interests and claims of non-stockholding groups (Mitchell et al., 1997). One of the main arguments is that the development and maintenance of favourable and productive stakeholder relationships are essential in creating value (Post, Preston, & Sachs, 2002; Svendsen, Boutlier, Abbott, & Wheeler, 2002). Seeking to serve the interests of a broad array of stakeholders will create more value over time (Freeman, 1984; Harrison et al., 2010). As society changes, the stakeholder approach can help organisations and their leaders in determining what issues to address in order to facilitate the creation of new innovations and value (Harrison & Wicks, 2013). In this chapter, we present two approaches to understanding stakeholder interests and firm-stakeholder relationships. First, we introduce the Responsiveness Approach in stakeholder management. It proposes that organisations operate in a stakeholder environment and proposes ways in which organisations can pit responding to stakeholder needs and interests at the core of its strategic operations. Second, we introduce the Stakeholder Value Creation (SVC) model in stakeholder management. This model In the long run, an organisation must operate in such a way that each stakeholder is satisfied with what they give and with what they receive. 128 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership views organisations and their stakeholders as interdependent. The SVC model highlights the importance of understanding how organisations pursue joint interests. We will conclude with a discussion on these two approaches and their impact on understanding how companies and other organisations operate. The Responsiveness Approach The key argument in the responsiveness approach is that organisations decide their societal engagement based on stakeholder needs and demands (Frederick, 1978; Wood, 1991). The strategic outcome is that organisations which respond to stakeholder needs and interests are better off in the marketplace and can gain a competitive advantage over organisations which do not pay attention to the views and expectations of their stakeholders. Since the early days of stakeholder theorising, the discussion has focused on the question of who stakeholders are, identifying their stakes and understanding the nature of stakeholder driven organisations. The responsiveness approach seeks to identify the most important stakeholders, analyse the interests and needs of these stakeholders, and measure responses to stakeholder expectations. Measures for analysing the connection between social responsibility and social performance have also been developed (e.g., Berman, Wicks, Kotha, & Jones, 1999; Kobeissi & Damanpour, 2009; Orlitzky, Schmidt, & Rynes, 2003). Mitchell et al. (1997) made an important contribution to the stakeholder theory by defining the principle of who and what really counts in stakeholder management. They identified three attributes that serve as a basis for stakeholder salience: power of the stakeholder, urgency of the demand made by the stakeholder, and the legitimacy of the stakeholder demand. Their theoretical framework, the salience model, is one of the best-known models for the responsiveness approach (Figure 1). In the salience model, power refers to “a relationship among social actors in which one social actor, A, can get another social actor, B, to do something that B would not have otherwise done”. Legitimacy, in turn, is defined as “a generalized perception or assumption that the actions of an entity are 129 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership desirable, proper, or appropriate within some socially constructed system or norms, values, beliefs, definitions.” Urgency, as the third dimension of the model, addresses “the degree to which stakeholder claims call for immediate attention” (Mitchell et al. 1997, p. 869). According to this model, the more attributes a stakeholder claim has, the more salient it is. Salience is defined as “the degree to which managers give priority to competing stakeholder claims” and stakeholder salience analysis is argued to reveal the definitive stakeholders and provide a foundation for analysing stakeholder relationships (Mitchell et al. 1997, p. 869). The stakeholder salience model has served as a tool for empirical analysis in previous research. For example, Myllykangas et al. (2010) used the salience model in a longitudinal study to depict stakeholder dynamics in strategic change of a company. The results of the study showed that over time, in the different strategic periods, the stakeholders both lost and FIGURE 1. The stakeholder salience model (Mitchell et al. 1997, p. 874) POWER 1 Dormant Stakeholder 2 Discretionary Stakeholder 3 Demanding Stakeholder 4 Dominant Stakeholder 5 Dangerous Stakeholder 6 Dependent Stakeholder 7 Definitive Stakeholder 8 Nonstakeholder LEGITIMACYURGENCY 130 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership gained attributes. With the salience model, they were able to show that stakeholder relationships are processes that change and evolve over time (Myllykangas et al., 2010, p. 68). The salience model has been also used to measure and assess stakeholder influence (Aaltonen, Kujala, & Oijala, 2008; Eesley & Lenox 2006; Neville & Menguc 2006; de Vries, 2009), to examine stakeholder prioritising (Boesso & Kumar, 2009; Harvey & Schaefer, 2001; Parent & Deephouse, 2007), and to study responsibility reporting (Weber & Marley, 2012). It has also been used to identify stakeholder management strategies in supply chain collaboration (Co & Barro, 2009; Magness, 2008), to create corporate stakeholder cultures (Jones, Felps & Bigley, 2007), and to analyse the dynamics of stakeholder relationships (Jawahar & Mclaughlin, 2001). Despite the wide use of the stakeholder salience model in empirical analysis, many researchers have criticised the model for its limited understanding of stakeholder relationship dynamics (Friedman & Miles, 2002), the role of dependent stakeholders (Calton & Payne, 2003), and stakeholder interface and networks (Pajunen, 2006; Frooman, 1999; Rowley, 1997; Rowley & Moldoveanu 2003). Moir, Kennerley & Ferguson (2007) and Derry (2012) point out that the stakeholder salience model does not work because salient stakeholders change over time and managers need to tackle constantly changing stakeholder relationships. For this reason, a better understanding of how stakeholders influence organisations, how organisations should engage with stakeholders, and how to evaluate the impact of organisational activities on stakeholders is needed. According to Freeman (2010), stakeholder theorising needs to escape the trap of building trade-offs among stakeholders and move toward redefining how we think about value creation. In the next section, we discuss the mutuality and jointness of value-creating stakeholder relationships in more detail. Stakeholder Value Creation Stakeholder value creation is seen as the ability of an organisation to create enduring relationships with its stakeholders (see Dyer & Singh, 1998; Freeman, Wicks & Parmar, 2004; Goyder, 1999; Hillman & Keim, 2001; 131 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership Wheeler & Davies, 2004). There are many ways to examine how value is created in interactions between organisation and its stakeholders and even among stakeholders themselves. Scholars have recognised that value is a complex concept with different dimensions. Mele and Colurcio (2006) identified five value dimensions: customer value, human resource value, shareholder value, firm value, and societal value. Lerro (2011) presented four stakeholder value dimensions: economic value, socio-cultural value, environmental value, and knowledge value. Harrison and Wicks (2013), in turn, identified four stakeholder utility factors representing the different kinds of value sought by stakeholders: stakeholder utility associated with actual goods and services, stakeholder utility associated with organisational justice, stakeholder utility from affiliation, and stakeholder utility associated with perceived opportunity costs. More recently, Garriga (2014) argued that instead of stakeholder utility, understanding stakeholder capability is sufficient to understand value creation in stakeholder relationships. She identified the following stakeholder capabilities as significant to value creation: being employable, being autonomous, being innovative, being entrepreneurial, being responsive, being socially integrated, being emphatic, being “green”, and being healthy (Garriga, 2014). The Stakeholder Value Creation (SVC) model focuses on the stakeholder relationship. It seeks to understand how value is defined in organisational relationships. It argues that instead of seeking to define what is valuable for whom, leadership should seek to understand value-creating stakeholder relationships and their characteristics. It is crucial, on the one hand, to recognise that different stakeholders have different expectations toward the firm, and on the other, to understand the importance of bringing stakeholder interests together over time (Freeman et al., 2006). There is a distinction between what counts as value for a single organisation and what counts as valuable in general (Donaldson & Walsh, 2015). An organisation will likely never be aware of all stakeholder interests Instead of seeking to define what is valuable for whom, leadership should seek to understand valuecreating stakeholder relationships and their characteristics. 132 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership nor be able to fully manage the social processes leading to value creation. The SVC model therefore highlights three attributes of value in creating stakeholder relationships: (1) joint interests, (2) ability to collaborate and (3) trust. These attributes are synthesised in Figure 2. Joint interests create the basis for collaboration, interaction and development of a relationship. Joint interests build on shared objectives, aligned strategic goals and a sense of understanding between the organisation and its stakeholders. Joint interests between the focal organisation and stakeholders can be strengthened if strategic goals account not only for short-term economic outcomes but also for the longterm goals of stakeholder wellbeing and societal benefits. For Freeman (2010), the jointness of stakeholder interests is central to stakeholder theory. Common history, shared experiences and mutual objectives support joint interests in the relationship and quality of stakeholder interaction Trust Ability to collaborate Joint interests FIGURE 2. Stakeholder value creation (SVC) model 133 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership and also develop stakeholder dialogue (Harrison et al., 2010; Myllykangas et al., 2010). Dentoni, Bitzer and Pascucci (2016) argue that the capability to understand needs and demands and to recognise conflicting views among multiple stakeholders is an important part of joint interests. While sharing objectives is important in creating joint interests in a relationship, different stakeholders can have differing goals and still be willing to work together. Joint interests mean that the goals of different parties do not need to be the same. Instead, parties see value in collaboration and are willing to invest in it. For example, in a situation of organisational renewal, employee objectives may be to save jobs while management concentrates on the strategic outcome of improved efficiency. What is important in such a situation is that both groups are willing to work together to find solutions supporting organisational renewal which create value for all parties. The ability to collaborate is the basic attribute of all relationships. The ability to collaborate is based on a mutual understanding of the importance of interaction and information sharing. Active participation and openness between the organisation and stakeholders are important aspects of the ability to collaborate. A strategic change can mean implementing new ways of thinking about collaboration, adopting new roles between the organisation and its stakeholders, developing new competencies, and learning new things (Myllykangas et al., 2010). The ability to collaborate means that both the organisation and its stakeholders see the opportunity to advance their own interests while also pursuing joint interests. Garriga (2014) showed that being responsive, being socially integrated, and being empathetic are relevant to the ability to collaborate. The capabilities to interact, learn and change are essential in stakeholder collaboration (Dentoni et al., 2016). Information sharing and learning transform relationships from transactional to collaborative (Svendsen, 1998; Myllykangas et al., 2010). The ability to collaborate also means commitment to interactions that construct solid relationships and make the co-creation of value possible (Myllykangas et al., 2010). Ability to collaborate is based on a mutual understanding of the importance of interaction and information sharing. 134 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership Commitment manifests itself in stakeholder loyalty, the stability of stakeholder relations and the development of stakeholder networks. Commitment strengthens the relationships as it allows for attaining both separate and shared targets and appreciating different stakeholder interests (Cai & Wheale, 2004). Forerunners of stakeholder value creation are ready to invest in stakeholder collaboration and are able to create processes that support continuous stakeholder dialogue (Freeman et al., 2007). In committed stakeholder interaction, meetings, gatherings and negotiations are frequent and collaboration is intense (Myllykangas et al., 2010). In time, relationships become tighter and stronger. Commitment often increases in the collaborative process. Trust is both an element of the relationship and an outcome of a successful interaction and collaboration. Commitment and fairness along with information sharing and learning build trust in a relationship (Cai & Wheale, 2004; Myllykangas et.al. 2010). Trust is the oil in the wheels of stakeholder relationships. Trust builds resilience and reduces strain on relationships in situations of change (Kujala et al., 2017). Trust is important in strategic change. Leaders who develop trust in stakeholder relationships will improve organisational performance (Wicks, Berman & Jones, 1999). The higher the trust between the organisation and its stakeholders, the easier it is for all parties to engage in joint value creation. Stakeholders who trust an organisation are willing to share information because they know it will not be used against their interests (Harrison et al., 2010). The SVC model brings trust, joint interest and the ability to collaborate together. It is therefore useful in examining stakeholder value creation. Discussion Over the years, stakeholder theory has developed into a promising approach which views organisational and stakeholder interactions from the standpoint of joint instead of conflicting interests. In this chapter, we have presented two models: the salience model, which focuses on stakeholders, and the SVC model, which views stakeholder relationships as central to stakeholder value creation. With these two models, we show that attention to both the 135 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership attributes of stakeholders and the attributes of stakeholder relationships are needed when seeking to understand value creation in organisations. The strength of the salience model is that it provides insight into identifying key stakeholders and the strategic impact of their interests; i.e., who and what counts. However, the salience model does not capture the co-operational nature of stakeholder relationships, where value is pursued together (Myllykangas et al., 2010). What is problematic is that the salience model treats stakeholder relations as transactional. It emphasises responding to short term problems instead of seeking to foster long-term stakeholder collaboration. As such, the responsiveness approach reproduces the neo-classical view centred on maximising economic value instead of generating collective value (cf. Bosse et al., 2009; Donaldson & Walsh, 2015). The responsiveness approach is one sided, as it sees stakeholder relationships predominantly from the focal organisation’s point of view (cf. Davila & Molina, 2017). In order to foster dynamic stakeholder collaboration, stakeholder theorising needs to pay attention to both stakeholders and relationships. Recent literature has made a strong argument that stakeholder relationships are reciprocal (Bosse et al., 2009) and evolve over time (Davila & Molina, 2017). Stakeholder interests need not be zero-sum games. The SVC model promotes the idea of stakeholder relationships consisting of joint interests and the ability to collaborate and trust. It directs attention to the ways by which value is created with and for stakeholders. Relationships of value creation are not considered to be built on inconsistency, rivalry and conflict. Rather, they are built on a search for mutual joint interest and collaboration. Instead of narrowing the relationship between an organisation and its stakeholders as a simple transaction-based exchange between parties focusing on economic returns, the SVC model provides an appropriate lens through which to consider the value stakeholders seek. Acknowledgements The authors gratefully acknowledge the financial support from the Academy of Finland (Decision no. 298663). 142 Leading Change in a Complex World: Transdisciplinary Perspectives A Stakeholder Approach to Value Creation and Leadership Rowley, T. J. (1997). Moving beyond dyadic ties: A network theory of stakeholder influences. Academy of Management Review, 22(4), 887–910. https://doi.org/10.2307/259248 Rowley, T. J., & Moldoveanu, M. (2003). When will stakeholder groups act? 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Academy of Management Review, 16(4), 691–718. https://doi.org/10.2307/258977 Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press 145 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework CHAPTER 8 Leading Change: A Customer Value Framework MIKA YRJÖLÄ, HANNU KUUSELA, ELINA NÄRVÄNEN, TIMO RINTAMÄKI & HANNU SAARIJÄRVI Takeaways for Leading Change Complex and dynamic changes like digitalisation and disruptive business models as well as environmental and sustainability challengess are part of any organisation’s environment today. There is increasing uncertainty concerning the actions needed from managers and executives to succeed. The customer value framework presented in this chapter offers a simplifying tool and heuristic for managers to use in complex decision situations. The framework enables managers to build a concrete outside-in vision for organisational change. It helps managers to focus on outside-in thinking – starting from understanding what is valuable and meaningful for the customer, a key stakeholder of any organisation. It moves on to the way value can be created relationally with customers as well as how it can be ultimately captured. Outside-in thinking is crucial in today’s VUCA world (Elkington, van der Steege, Glick-Smith, & Moss Breen, 2017). If organisations focus only on their internal perspective, they may fall behind as they lose sight of what is happening in their external environment. The chapter provides an important introduction to customer value for students, scholars and practitioners both within and outside the field of marketing interested in leading a customer-oriented change. 146 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework C ustomer value is a core purpose of successful organisations and serves as a vehicle for leading and communicating change – the fundamental theme of this book. Customer value captures what customers perceive as meaningful and important. Organisations which strive to adopt the customer’s perspective will benefit from the customer value framework. Keeping the customer’s perspective at the heart of organisational decisionmaking will ensure the organisation remains relevant to one of its key stakeholders – the customers. The customer-value framework is not something that can be implemented only as a top-down, hierarchical management process in the organisation. Rather, it emphasises the role of frontline employees who are interacting with customers. These employees often have vital knowledge about what customers’ value. Customer value is a relational concept in the sense that it prompts thinking in outside-in rather than traditional inside-out terms. Outside-in thinking is becoming crucial in today’s VUCA world; that is, volatile, uncertain, complex and ambiguous (Elkington et al. 2017. See also Chapter 1 in this book). If organisations focus only on their internal perspective, they may fall behind as they lose sight of what is happening in their environment due to forces of change like digitalisation, sustainability challenges and disruptive business models. The customer value framework enables managers to build a concrete outside-in vision for organisational change. The purpose of this chapter is to offer a timely introduction to customer value as a framework for leading change. It consists of three parts. In the first part, the concept of customer value is explained: what is it and how can it be defined? In the second section, we address customer value as a key driver in the organisational transformation from inside-out (firmoriented) toward outside-in (market-oriented) orientation. The outsidein perspective extends attention from the internal perspective of the organisation such as its resources and capabilities toward the external perspective: it starts from customers, what is relevant to them rather than what is important to the firm or organisation. The third section The purpose of this chapter is to offer a timely introduction to customer value as a framework for leading change. 147 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework provides examples of how organisations successfully apply the customer value framework in their respective contexts. Defining Customer Value Customer value entails what customers perceive as meaningful and important for them. It is at the core of contemporary marketing 1 . It addresses the two sides of the same coin: why customers choose and buy certain products or services and become loyal to particular companies, and why these companies and other organisations succeed (Kumar & Reinartz, 2016). These two perspectives – customer and company perspectives to value – are widely used in consumer and buyer behaviour research as well as management and strategy literature. They are relevant to companies and public sector organisations alike (Mitronen & Rintamäki, 2012). The concept of customer value addresses the nature, structure and dimensions of value from the customer’s perspective (Holbrook, 1994; 1999; Khalifa, 2004; Gallarza, Gil-Saura, & Holbrook, 2011). The concept of customer value proposition entails the strategic positioning for competitive advantage based on value created for targeted customer segments from the company’s perspective (Webster, 1994; Anderson, Narus, & Van Rossum, 2006). Despite the various endeavors to articulate the ultimate definition of customer value, researchers have concluded no single explanation encompasses all aspects of the concept (for a review, see e.g. Gallarza et al., 2011). Instead, researchers have addressed the concept from different perspectives, focusing on the nature, structure and dimensions of customer value. These perspectives provide a holistic view of the customer value concept and are discussed next in more detail. First, Holbrook (1999, p. 5) defines the nature of customer value as “an interactive, relativistic preference experience.” Compared to other concepts such as quality, customer value is not an objective characteristic 1 ”Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (American Marketing Association, 2013). 148 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework of any artefact, but perceived (and often co-created) in interaction between a customer and a product or service. Further, customer value is a subjective evaluation, emphasising the role of contextual factors such as use situation, time and personality. Preference refers to the idea that the customer makes comparisons between different options and makes judgements based on liking some more than others. Customer value is not only about what happens in the mind of the customer – the decision processes and cognitive information processing related to choosing products and services. It is also about how customers experience value through all of the five senses in pre-purchase, purchase and post-purchase events. Second, the structure of customer value is important, because it helps in understanding value as an outcome of evaluation and in identifying the hierarchical levels where the evaluation process (i.e. valuation) takes place. From bottom to top, these levels include attributes, consequences, and goals/purposes. The structure of customer value is often defined at the consequences level, as an equation of benefits and sacrifices (Zeithaml, 1988; Woodruff, 1997). This equation may take the form of benefits minus sacrifices (e.g. Anderson et al., 2006) or benefits divided by sacrifices (e.g. Zeithaml, 1988). Benefits and sacrifices are perceptions of bundles of attributes related to products and services in use situations (Zeithaml, 1988; Woodruff, 1997). For instance, product attributes such as luxurious brand image and expensive price might be perceived as status. Whether or not status is perceived depends on the goals and purposes of the customer. Personal and contextual factors affect this evaluation. Khalifa (2004) has suggested value components models, benefits-sacrifices models, and means-ends models as conceptual levels for modeling customer value. Value components models simply focus on positive and negative attributes as decision-making drivers. Benefitssacrifices models focus on the customer consequences of using products and services. Means-ends models, then, take all three levels to promote the understanding of the chains linking customer goals, preferred outcomes and finally the concrete and abstract attributes (see also, Puustinen, Kuusela, & Rintamäki, 2012). Third, the dimensions of customer value depict the subject matter of what is being appreciated. A classic approach is to differentiate between 149 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework utilitarian and hedonic value (Batra & Ahtola, 1991; Sheth, Newman, & Gross, 1991; Babin, Darden, & Griffin, 1994; Holbrook, 1999). Utilitarian value refers to rationally defined, instrumental outcomes, whereas hedonic value is self-purposeful, and evaluated based on emotional criteria. These basic dimensions can be seen as opposite ends of a continuum, leaving space in between for other dimensions to occur. One attempt to summarise these underlying dimensions is based on economic, functional, emotional, and symbolic value (Rintamäki, Kuusela, & Mitronen, 2007; Rintamäki & Kirves, 2017). Economic value focuses on the price of the offering. Customer value is created through low prices, discounts and other monetary incentives. Functional value focuses on solutions to customer problems. It is about saving customers time and effort (both physical and cognitive). Convenience, ease of use and agile service models create functional value. Emotional value sets the focus on customer experience, emphasising the role of positive feelings and emotions in value creation. These may vary from fun and excitement to feeling relaxed and secured. Symbolic value then, focuses on meanings that define one’s identity. Symbolic value results from status (how does the use of this product or service present me in the eyes of others?), self-esteem (how I can build and sustain my own selfimage?), and sense of belonging (with whom do I want to bond?). If customer value is a key driver of consumer and buyer behaviour, then it must be placed at the heart of organisational strategy. This company perspective to value is discussed in literature under the label of customer value proposition (for a review, see e.g., Payne, Frow, & Eggert, 2017). The origins of the concept can be found in late 1980’s at McKinsey, where Lanning and Michaels (1988) developed their ideas of business as a value delivery system. Their thinking challenged the prevailing business logic at that time, where the product(ion) was the starting point and customer the endpoint. In their model, they start from understanding what customers value in the first place, hence steering the system. Customer value proposition can be defined as “an encapsulation of a strategic management decision on what the company believes its customers value the most” (Rintamäki et al., 2007, p. 624). It is essentially a tool for positioning the company around customer value creation. As Webster (1994, p. 25) explains, a value proposition can be seen as 150 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework the verbal statement that matches up the firm’s distinctive competencies with the needs and preferences of a carefully defined set of potential customers� It’s a communication device that links the people in an organisation with its customers, concentrating employee efforts and customer expectations on things that the company does best in a system for delivering superior value� The value proposition creates a shared understanding needed to form a longterm relationship that meets the goals of both the company and its customers� Instead of a mere slogan, the customer value proposition transforms a company’s use of resources and capabilities into enablers of relevant dimensions of customer value. Hence, a good customer value proposition should a) increase the benefits and/or decrease the sacrifices that the customer perceives as relevant; b) build on competencies and resources that the company is able to utilize more effectively than its competitors; and c) be recognizably different (unique) from the competition, and d) result in competitive advantage� (Rintamäki et al�, 2007, p� 624)� Based on the above discussion, customer value can be defined as an economic, functional, emotional and/or symbolic outcome of the evaluation of customer-experienced benefits and sacrifices throughout the pre-purchase, purchase and post-purchase stages. These four dimensions of value also serve as a foundation for identifying customer value propositions that position the organisation in the eyes of the customers and steer the implementation of strategy within the organisation. Proposing customer value challenges companies to make conscious choices about the customer segments they serve, resources they need, and competencies in which they excel. Based on the strategic customer value proposition, operational-level processes can be designed for creating the right value for the right segments in ways that break free from traditional product-centric thinking. Creating customer value suggests new roles for the customer and the organisation, and inspires new ways to integrate resources for value creation. 151 Leading Change in a Complex World: Transdisciplinary Perspectives Leading Change: A Customer Value Framework Moving Toward Outside-in Thinking The literature on strategic management and decision-making underlines the need for organisations to constantly change and adapt in order to ensure their survival. One way to survive is to transform organisational decision-making and activities to be more in line with the marketplace. A key aspect in decision-making is whether it takes an inside-out (firmoriented) or outside-in (market-oriented) orientation (Day & Moorman, 2010). While both types of reasoning are needed in all organisations, an inside-out orientation still typically dominates decision-making in organisations across industries. An inside-out orientation to strategic decision-making starts by considering the organisation’s unique strengths, such as valuable resources, superior goods or distinct capabilities. It then involves searching for potential markets and strategies for leveraging these unique resources (Hooley, Greenley, Fahy, & Cadogan, 2001). Inside-out decision-making is therefore focused on understanding, improving and leveraging the organisation’s current strengths. In the short term, an inside-out oriented organisation typically succeeds, since cost-cutting and performance enhancement exercises generate tangible and direct results on the bottom line. Achieving favorable results quickly creates a positive feedback loop. This means organisations tend to become inside-out oriented over time. An organisation with an inside-out orientation risks distancing itself from its market, ultimately losing its relevance in the eyes of its customers and other stakeholders. In contrast, an outside-in orientation places importance on external considerations: it shifts attention from internal organisational characteristics toward the external environment. In that respect, strategic decision-making with an outside-in orientation begins with sensing and interpreting market signals, such as emerging consumer trends, shifts in competitor behaviour and novel customer processes (Payne, Storbacka, & Frow, 2008; Saeed, Yousafzai, Paladino, & De Luca, 2015). These insights are then used to anticipate, influence and meet marketplace changes by developing new capabilities and offerings (Day & Moorman, 2010). Many organisational changes are rather driven by external than internal pressure. Evolving market dynamics, such as rapidly changing 254 Leading Change in a Complex World: Transdisciplinary Perspectives Company Directors’ Key Duties and Business Judgment Rule concerning for example the expansion of business must be collected before making decisions. However, the directors do not need to be able forecast every possible future event that might happen. This means that directors are not obliged to predict all the possible risks – but only the relevant ones. In US corporate law, the business judgment rule is central to company law doctrine. The rule is also widely accepted in many EU countries. 12 American corporate law has had a significant influence on the company law of the European countries. In some EU countries the BJR is codified in some form, but there are not always separate provisions for this purpose. 13 Even if there are no specific provisions the BJR is taken into account when dealing with directors’ decision making (Cebriá 2018). The contents of the rule is then derived from company law principles and liability provisions. Especially in US business judgments are very rarely reviewed in court. Courts in some countries do not review board decisions on principle (Bainbridge, 2003). This means that the courts are not obligated to analyse whether directors have made the correct business decisions as such. Instead courts focus on analysing whether the decision was based on adequate information and appropriate process (Keya 2016, p. 216). 14 In other words, directors need to decide what information is essential for taking decisions and what is not. The rule is simple in itself but it is sometimes difficult to recognise what is essential information at the time of the decision to determine if the board’s decision is within the boundaries of “normal”. The directors’ main duty is to find out as much as possible and carefully analyse the risks of the decision. Risk analysis is a crucial part of decision-making process. Both legal and market risks must be taken into account. However, board decisions are almost always made under uncertain circumstances. The board must dare to do business and take new risks. If there 12 For a detailed analysis on BJR provisions in EU countries, see Gerner-Beuerle et al. (2013, 108–118). In the UK the legal regulation of business judgment is not as clear as it is, for example, in the US (Kershaw, 2009, p. 428–430). 13 These countries are Germany, Portugal, Romania, Croatia and Greece (Gerner-Beuerle et al, 2013, p. 116–117). 14 The rule is not without exception as sometimes substantive reviews can be made in extreme circumstances (Rosenberg, 2006, p. 321–322). 255 Leading Change in a Complex World: Transdisciplinary Perspectives Company Directors’ Key Duties and Business Judgment Rule was no protection against uncertainty, the board would be inclined to stick to old ways, which can sometimes be the riskiest option. It is therefore clear that under the business judgment rule company directors are not liable for unsuccessful business decisions. If the board has decided to invest into a new business sector and the venture is unsuccessful, directors are not liable for the damages if they have acted duly with the BJR principles – there is no room for “second-guessing” by the court (Keya, 2016, p. 262). One of the most important matters concerning the business judgment rule is the burden of proof. The main rule is that directors are not obliged to prove they have conducted themselves diligently. 15 This means the plaintiff must first prove the board decision was taken against the BJR principle. If the plaintiff succeeds in this, the director must prove no damage was caused due to his or her actions. This is called an inversion of the burden of proof. This is why documenting the reasoning and material behind the decisions is very important. The purpose of BJR is actually to protect directors against company’s claims for damages. There are, however, some significant restrictions regarding business judgment rule (Bainbridge, 2000, p. 631–632). The scope of these restrictions varies across countries in the same way as the contents of business judgment rule. The BJR is not harmonised – and probably never will be. Some restrictions are nevertheless widely accepted in many judicial systems. Firstly, it does not apply as a safe harbor rule if the decision is against the law, for instance against the national companies act or criminal act. The rule does not apply to board decisions which breach the equal treatment of shareholders principle. Secondly, it does not protect directors who have acted deliberately against their duties or have been in gross negligence of their duties. 15 See, Cede&Co v. Technicolor Inc. 634 A.2d 345 (Delaware Supreme Court 1993; Mähönen & Villa, 2015, p. 373). Germany and Spain are exceptions (see EMCA, 2017, p. 222). If there was no protection against uncertainty, the board would be inclined to stick to old ways, which can sometimes be the riskiest option. 256 Leading Change in a Complex World: Transdisciplinary Perspectives Company Directors’ Key Duties and Business Judgment Rule References Bainbridge, S. M. (2003, July). The business judgment rule as abstention doctrine. Law and Econ. Research Paper. Los Angeles, CA: University of California, School of Law. http://dx.doi.org/10.2139/ssrn.429260 Bourne, N. (2016). Bourne on company law. London, England: Routledge. Cebriá, L. H. (2018). The Spanish and European codification of the business judgment rule. European Company and Financial Law Review, 15(1), 41–68. https://doi.org/10.1515/ecfr-2018-0002 Davies, P. (2010). Introduction to company law. Oxford, England: Oxford University Press. Davies, P., & Worthington, S. (2016). Gower principles of modern company law. London, England: Sweet & Maxwell. Dignam, A., & Lowry, J. (2014). Company law. Oxford, England: Oxford University Press. EMCA. (2017). European model company act 2017. Retrieved from http://law.au.dk/en/research/projects/european-model-companyact-emca/ Ferran, E., & Look, C.O. (2014). Principles of corporate finance law. Oxford, England: Oxford University Press. French, D., Mayson, S., & Ryan, C. (2016). Company law. Oxford, England: Oxford University Press. Gerner-Beuerle, C., Paech, P., & Schuster, E. (2013). Study on directors’ duties and liability. London: London School of Economics. Retrieved from ec.europa.eu/internal_market/company/docs/ board/2013-study-analysis_en.pdf Greenfield, K. (2014). The failure of corporate law: Fundamental flaws and progressive possibilities. Chicago, IL: University of Chicago Press. Hannigan, B. (2016). Company law. Oxford, England: Oxford University Press. Johnson, L. (2005). Corporate officers and the business judgment rule. The Business Lawyer, 60(2), 439–470. Johnson, L. (2000). The modest business judgment rule. The Business Lawyer, 55(2), 625–652. 257 Leading Change in a Complex World: Transdisciplinary Perspectives Company Directors’ Key Duties and Business Judgment Rule Kershaw, D. (2009). Company law in context: Texts and materials. Oxford, England: Oxford University Press. Keya, A. (2016). Directors’ duties. Hampshire, England: LexisNexis. Mähönen, J., & Villa, S. (2015). Osakeyhtiö I: Yleiset opit [Limited Liability Company I – General Principles]. Helsinki, Finland: Alma Talent. Mähönen, J., & Villa, S. (2010). Osakeyhtiö III – Corporate governance [Limited Liability Company III – Corporate Governance]. Helsinki, Finland: WSOYpro. Pettet, B. (2001). Company law. Dorchester, England: Longman Pearson Education. Rosenberg, D. (2007). Galactic stupidity and the business judgment rule. Journal of Corporation Law, 32(2), 301–322. Ruohonen, J. (2015). Exceptional profit distribution limitations in Finnish limited liability company during the second world war. Retrieved from http://www.ennenjanyt.net/2015/06/exceptionalprofit-distribution-limitations-in-finnish-limited-liabilitycompany-during-the-second-world-war/ Savela, A. (2015). Vahingonkorvaus osakeyhtiössä [Limited Liability Company and Tort Law]. Helsinki, Finland: Alma Talent. Sjåfjell, B., & Mähönen, J. (2014). Upgrading the Nordic corporate governance model for sustainable companies. European Company Law, 11(2), 58–62. Schybergson, P. (1964). Aktiebolagsformens genombrott i Finland. Utvecklingen före 1895 lag. governance [Breakthrough of Limited Liability Company Form in Finland – Development before 1895 Act]. Helsinki, Finland: Lakimiesliiton kustannus. Financial Reporting Council. (2016, April). The UK corporate governance code. Retrieved from https://www.frc.org.uk/directors/corporategovernance-and-stewardship/uk-corporate-governance-code Toiviainen, H. (2008). Introduction to Finnish business law. Helsinki, Finland: Edita. Trask, A., & Deguire, A. (2013). Betting the company: Complex negotiation strategies for law and business. Oxford, England: Oxford University Press. 258 Leading Change in a Complex World: Transdisciplinary Perspectives Company Directors’ Key Duties and Business Judgment Rule Vahtera, V. (2011). Osakeomistuksen riski ja sääntely [The Risk of Shareholders and Regulatory Framework]. Helsinki, Finland: Lakimiesliiton kustannus. Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press PART III Dynamic Change 261 Leading Change in a Complex World: Transdisciplinary Perspectives Dynamic Change C hange comes in many shapes and sizes. It may be small or largescale, planned or emergent, evolutionary or revolutionary, and deep or broad. The Leadership for Change approach highlights the importance of developing conceptualisations of social change in order to enact meaningful change in current practices and systems. In this section, change processes are examined at and across several levels, in the context of a variety of complex societal challenges. Elina Närvänen, Malla Mattila and Nina Mesiranta’s chapter analyses change in the context of food waste, which is one of the most eminent sustainability problems of our time. The tackling of this challenge requires change throughout the entire global food system. The chapter shows that the practices of consumer-citizens offer a convenient entry point for an analysis of such cross-level change processes. Abstract ideas can also be harnessed to generate change, as Erkki-Jussi Nylén argues. Nylén introduces the concept of ideological steering to approach the change-making potential of abstract concepts. These ideas are then deployed to examine whether and how circular economy thinking can change the current unsustainable economic model. Changes in the international system are examined by Marko Juutinen through a case study of BRICS, an informal group of states comprised of Brazil, Russia, India, China and South Africa. Juutinen analyses how BRICS challenge existing multilateral structures and whether this challenge amounts to a systemic and revolutionary change in the international system. Besides the transformations of the international system, megatrends provide another large-scale conceptualisation of change. The chapter by Raimo Voutilainen and Lasse Koskinen analyses the implications of a set of megatrends for the insurance and financial sector. 263 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste CHAPTER 14 Consumer-Citizens as Leaders of Change: The Case of Food Waste ELINA NÄRVÄNEN, MALLA MATTILA & NINA MESIRANTA Takeaways for Leading Change We examine consumer-citizens and their roles in leading change in the context of food waste reduction. Food waste is one of the “wicked problems” facing society, businesses and consumers alike. It provides an interesting case for the LFC approach because it is a complex and dynamic issue where multiple actors and interests are at stake. In this chapter, we take the consumer-citizen’s perspective and explore the roles they can adopt regarding the issue of reducing food waste. The chapter provides an overview of consumer-citizenship and identifies a continuum of roles: choice-maker, carrier-of-practice, and leader of change. The characteristics of these roles are illustrated by drawing empirical insights from the Wastebusters research project examining consumer-citizens as active reducers of food waste. The continuum demonstrates that consumercitizens’ food waste reduction involves an evolutionary change from making more sustainable purchasing decisions, to reconfiguring everyday life practices, and finally mobilising other consumers to join the movement. In their relational leadership roles, consumer-citizens also have the ability to affect the system as a whole. The chapter argues that in order to address the food waste issue, moving away from top-down, informational policies and expert-led campaigns toward participatory grassroots and bottom-up ways of engaging consumer-citizens is necessary. 270 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste FIGURE 1. Consumer-citizen continuum in reducing food waste CONSUMERCITIZENS AS... CHOICEMAKERS CARRIERS OF PRACTICES LEADERS OF CHANGE SCALE OF CHANGE Attitudes and individual behaviour + Communities and groups + System level STANCE TOWARD FOOD SYSTEM Accepting, unreflective Questioning, reflective Critical, reflective STANCE TOWARD CHANGE Making individual changes Willing and capable to critically evaluate and change daily food consumption related routines Engaging in actively changing food consumption practices of other consumers or the system as a whole HOW ARE CONSUMERS ACTIVATED? Receive factual information from governmental bodies, other institutions and experts Use own embodied knowledge and receive information from experts and communities Engage in actively changing other consumers’ practices by making invisible issues visible and leveraging upon information and experience EXAMPLES Buying foodstuffs near their expiry dates; buying leftover meals from a restaurant by using ResQ Club (or other similar) application Stop throwing expired food items in the bin; planning what to buy before going to grocery; offering leftover food to e�g� friends and co-workers Bringing food waste into popular culture through movies; influential leaders of food waste movements; dumpster diving/ freeganism + = includes earlier presented category/categories 271 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste lives, as choice-makers they are not reflective of the everyday routines and practices of how food waste occurs. Hence, the choice-maker more or less accepts the food system as it is. Discrete acts do not affect the food system as a whole. Many food waste related campaigns are based on the idea that giving (expert-led) information about food waste will lead to increased awareness of the issue and further to positive attitudes toward reducing food waste (see also Evans, Welch, & Swaffield, 2017). For instance, a Finnish “Waste week” campaign, organised annually by a non-governmental organisation, focuses on educating consumers about the effects of food waste (for other similar campaigns, see Aschemann-Witzel et al., 2017). It promotes action by organising events, disseminating information about food waste, and encouraging companies, public organisations and other parties to battle against food waste together with consumers. The problem with campaigns relying on attitude change is that there is a recognised attitude-behaviour gap particularly in sustainability issues – having the intention to do something does not necessarily lead to action (Shove, 2010). This issue is addressed through a practical and theoretical understanding of consumers underlying the second role of consumer-citizens discussed below. Consumer-Citizens as Carriers of Practices The second role denotes consumer-citizens as carriers of practices. Here, consumers are seen as (re)performing different practices and routines in their everyday lives. Consumption is seen as broader than mere purchasing behaviour, and includes the phases of use and disposition. Individual consumption behaviours do not necessarily depend upon conscious and deliberate choice but instead, on participating in socially learnt practices depending on upon cultural meanings, values and understandings (Shove, 2010). From the perspective of this second role, the route to reducing consumer food waste is through consumers either dropping unsustainable practices, changing elements of existing practices or adopting new more sustainable practices (Phipps & Ozanne, 2017). Earlier research has found that being able to plan and manage 272 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste routine aspects of grocery shopping, cooking as well as food preservation, storage and display are central to managing food waste (Evans 2011, 2012; Närvänen, Mesiranta, & Hukkanen, 2016). Consumer-citizens as carriers of practice are willing and able to evaluate critically and change their daily food consumption-related routines. They also question the (effective) functioning of the current food system. An example of dropping an unsustainable practice is when consumer-citizens stop throwing food items in the bin based on use-by and best-before dates. Instead, consumer-citizens begin utilising their senses such as sight, taste, and smell in assessing whether food products are still edible. Similarly, they can change their existing shopping routines by making plans (e.g. shopping lists) beforehand in order to avoid buying excess food. Existing food storage and cooking practices at home may also be modified in order to account for leftovers or use food items in their order of expiry. Different kitchen appliances such as blenders and freezers may be added to the existing array of practices to help consumers transform potential food waste into new dishes or to prolong the life of food items (Närvänen et al., 2016). Consumer-citizens are also capable of adopting completely new practices, such as starting to offer leftover food to house guests and/ or bringing it to the office to share with co-workers. As consumer-citizens adopt the aforementioned practices, the scale of change expands from their own behaviour to the communities and groups where they are members. Becoming more reflective of their behaviour at home and in other contexts where they encounter food waste may result in a questioning or at least reflective orientation toward the food system (Chaudhury & Albinsson, 2015). Consumer-citizens may for instance learn to distrust date labels or start purchasing fruit and vegetables that do not look perfect yet are perfectly edible. They may also share this practical knowledge with their family members and communities. For example, a Finnish company Paulig initiated the “Waste Challenge” campaign in 2016. It encouraged consumers to post their best tips for reducing food waste on social media. Experts and authorities are no longer seen as the only relevant source of information. Instead, consumer-citizens learn from each other and can themselves become experts on the issue. This increased civicmindedness and expertise results in consumer-citizens becoming even more 273 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste involved in the issue and adopting the third identified role of consumercitizens as leaders of change. We now discuss this role in more detail. Consumer-Citizens as Leaders of Change The third role identifies consumer-citizens as leaders of change. In this role, consumer-citizens are personally concerned about the negative aspects of affluent consumer society as well as the environment. They are thus interested in the future welfare of other people, species, and the environment and capable of making a difference and leading change. Consumer-citizens in this role engage in actively changing the food consumption practices of other consumers and/or the system as a whole. For instance, the Finnish “From waste to delicacy” blog campaign, initiated by several active Finnish food bloggers from May 2012 onwards, has encouraged other consumers to reduce their food waste. Posting tips, receipts, and visually appealing photos, the food bloggers have shown that, with a little effort and/or cooking knowledge, anyone can reduce household food waste and “make the world better” one meal at a time (Närvänen et al., 2016). The campaign has appealed primarily to young, working-age (female) consumers interested in cooking and ready to adopt novel, upto-date and/or fashionable consumption patterns. The scale of change within this role is related to the food system and society as a whole, thus expanding the sphere of social change compared to the first or second roles. The consumer-citizens who adopt the third role actively try to reveal the flaws of the current food system as well as other issues related to it. Examples of these types of actions include efforts to bring the food waste issue into popular culture. Movies like “Just eat it” (http://www.foodwastemovie.com/) and “Wasted – the Story of food Waste” (https://www.wastedfilm.com/) make invisible things visible and abstract things concrete. These documentaries show that incredible amounts of food items are thrown away or recalled from groceries for various reasons as well as point out the fact that large amount of food is never harvested due to standards set by retailers or the preferences of (wealthy) Western consumers. 274 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste Another example of consumer-citizens as active leaders of change are the influential leaders of grassroot food waste related movements and non-governmental organisations (NGOs). These include the Danish “Stop wasting Food” (http://stopwastingfoodmovement.org/) campaign by Selina Juul, the British “Feedback” (https://feedbackglobal.org/) and “Toast Ale” (https://www.toastale.com/) campaigns by Tristram Stuart, the Dutch “Taste Before You Waste” (http://www.tastebeforeyouwaste. org/) campaign by Luana Carretto, and the Finnish “From Waste to Taste” project (http://waste2taste.com/) by Johanna Kohvakka. These food waste movements/NGOs, usually starting as grassroots interest groups in the social media, are led by committed individuals keen to address the social problem of food waste. They try to increase awareness of food waste, educate consumers, and encourage the public to participate in the discussion and take action. They may also give tips regarding how to cook from leftovers, how to shop for groceries in a sensible manner and how to donate surplus food. The message comes from one consumer to another. In this way, consumers themselves encourage other consumers to be active in terms of not wasting their food. There are currently several other NGOs that, with the help of a multitude of (consumer-citizen) volunteers, collect surplus food (from farmers, manufacturers, and retailers) and donate it to those in need. These include food banks as well as other related NGOs such as Hole Food Rescue (http://www.holefoodrescue.org/) in Teton County, Wyoming, U.S. and Food Angel (http://www.foodangel.org.hk/en/) in Hong Kong. Social media channels have also been used to share surplus food. Foodsharing.de (https://foodsharing.de/) is an online platform which enables consumers (together with farmers, manufacturers, and retailers) to offer and collect leftover food. Mobile applications have been developed for the purpose of enabling consumers to share their leftovers with other consumers living near them, such as the Finnish Neighbourfood (https://neighbourfood.org/). Voluntary dumpster diving for food or freeganism can also be seen as an example of consumer-citizens as active change agents. Freegans engage in an alternative mode of consumption as they collect food items from supermarket garbage bins. They also operate as modern-day Robin Hoods as they snatch food from multinational retailers and give to those in need 275 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste – either using it themselves or donating it to charities. Freegan practices involve using the senses in assessing the edibility of food items, embodied knowledge and skills about optimal collection time of food items, what kinds of food products are to be picked from the bins, and how to prepare them (Edwards & Mercer, 2012). Engaging in the practice, consumers enact their ethical and political beliefs including the commitment to minimise food waste produced by the capitalist food system. Discussion This chapter has examined the role of consumer-citizens as leaders of change in the context of food waste reduction. In reviewing literature on consumer-citizenship and drawing empirical insights from the Wastebusters research project, we have identified a continuum of roles regarding food waste reduction: choice-maker, carrier-of-practices, and leader of change. The roles emphasise the capability and willingness of consumers to recognise themselves as change agents regarding food waste reduction. However, the ways and means for achieving change varies among roles. In the first, change occurs through increased sharing of (usually expert-led) knowledge and consequently an increased awareness of the issue of food waste. In the two other roles, socially shared food waste reduction related choices and practices are incorporated so as to promote a more sustainable way of life, expanding from single households to communities and groups and the food system as a whole. The continuum paints a positive picture of the ability of consumer-citizens to lead the change in solving wicked problems such as food waste. However, there are also some critical views that should be presented. First, consumption activities related to developing more sustainable ways of living can easily be undervalued as alternative and marginal lifestyles rather than becoming a universal moral The continuum paints a positive picture of the ability of consumercitizens to lead the change in solving wicked problems such as food waste. 276 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste consumerist model (Jacobsen, 2017). A key issue for making an impact is then how to scale sustainable consumption practices for the masses and normalise them. It must also be acknowledged that even though we are discussing global challenges, the abilities of consumer citizens to change their own and others’ behaviour are not equal. These abilities depend on economic, social and cultural capital – i.e. the resources that consumercitizens have available for them. Second, political consumerism in general fits the neoliberal political agenda of freeing regular political bodies from handling difficult issues and giving them instead for consumers to solve on their own (Evans et al., 2017; Giesler & Veresiu, 2014). The effectiveness of the activities of consumer-citizens, however, depends on infrastructural arrangements (Giesler & Veresiu, 2014; Jacobsen, 2017). This means that the activities of consumers-citizens to reduce food waste need to be situated within the broader context of the food system, aiming for shared and distributed responsibility between actors (Evans et al., 2017). The system has to be transformed so that it makes it possible for individual actors (consumers and companies alike) to drop unsustainable practices, modify existing practices, and adopt new, more sustainable, practices (Phipps & Ozanne, 2017). Food waste, like any other wicked problem, is a systemic issue and cannot be solved by the activities of any one actor (Reinecke & Ansari, 2016). Instead, relational leadership that mobilises different actors is needed. Policies should also recognise the complexity of consumer behaviour in all its aspects rather than viewing consumers as choice-makers only (Southerton & Evans, 2017). Our continuum highlights that when attempting to involve consumers in making a change, grassroots oriented and consumer-driven initiatives are more likely to succeed than top-down, informational campaigns (cf. Barnett, Clarke, Cloke, & Malpass, 2008). Finally, in discussing consumer-citizenship, it must be noted that both concepts (consumer and citizen) are continuously contested and unstable (Gabriel & Lang, 2015). There are various interests at play and many other actors in addition to consumer-citizens themselves (such as retailers, NGOs and politicians) are increasingly claiming to represent the consumer’s interest and talking on their behalf. As argued by Trentmann (2007, p. 151), it may be better to approach citizen-consumers in terms of 277 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste “multiple identities that are only slowly (and unevenly and incompletely) fused into a universal subject”. References Aschemann-Witzel, J., De Hooge, I. E., Rohm, H., Normann, A., Bossle, M. B., Grønhøj, A., & Oostindjer, M. (2017). Key characteristics and success factors of supply chain initiatives tackling consumerrelated food waste–A multiple case study. Journal of Cleaner Production, 155, 33–45. https://doi.org/10.1016/j.jclepro.2016.11.173 Barnard, A. V. (2011). ‘Waving the banana’ at capitalism: Political theater and social movement strategy among New York’s ‘freegan’ dumpster divers. Ethnography, 12(4), 419–444. https://doi.org/10.1177/1466138110392453 Barnett, C., Clarke, N., Cloke, P., & Malpass, A. (2008). The elusive subjects of neo-liberalism: Beyond the analytics of governmentality. Cultural Studies, 22(5), 624–653. https://doi.org/10.1080/09502380802245902 Chaudhury, S. R., & Albinsson, P. A. (2015). Citizen-consumer oriented practices in naturalistic foodways: The case of the slow food movement. Journal of Macromarketing, 35(1), 36–52. https://doi.org/10.1177/0276146714534264 Cherrier, H. (2009). Anti-consumption discourses and consumerresistant identities. Journal of Business Research, 62(2), 181–190. https://doi.org/10.1016/j.jbusres.2008.01.025 Edwards, F. & Mercer, D. (2012). Food waste in Australia: the freegan response. The Sociological Review, 60(S2), 174–191. https://doi.org/10.1111/1467-954x.12044 European Commission. (2017). EU actions against food waste. Retrieved from https://ec.europa.eu/food/safety/food_waste/eu_actions_en Evans, D. (2011). Blaming the consumer – once again: The social and material contexts of everyday food waste practices in some English households. Critical Public Health 21(4), 429–440. https://doi.org/10.1080/09581596.2011.608797 278 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste Evans, D. (2012). Beyond the throwaway society: Ordinary domestic practice and a sociological approach to household food waste. Sociology, 46(1), 41–56. https://doi.org/10.1177/0038038511416150 Evans, D., Welch, D., & Swaffield, J. (2017). Constructing and mobilizing ‘the consumer’: Responsibility, consumption and the politics of sustainability. 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Rome, Italy: Food Agriculture Organization of the United Nations (FAO). Retrieved from http://www.fao.org/docrep/014/mb060e/mb060e00.pdf Jacobsen, E. (2017). Political consumption – citizenship and consumerism. In M. Keller, B. Halkier, T.-A. Wilska, & M. Truninger (Eds.), Routledge handbook on consumption (pp. 181–190). Abingdon, England & New York, NY: Routledge. Johnston, J. (2008). The citizen-consumer hybrid: ideological tensions and the case of Whole Foods Market. Theory and Society, 37(3), 229–270. https://doi.org/10.1007/s11186-007-9058-5 279 Leading Change in a Complex World: Transdisciplinary Perspectives Consumer-Citizens as Leaders of Change: The Case of Food Waste Jubas, K. (2007). Conceptual con/fusion in democratic societies: Understandings and limitations of consumer-citizenship. Journal of Consumer Culture, 7(2), 231–254. https://doi.org/10.1177/1469540507077683 Lund, A.-R. (2015, October 30). Ruokajäte kiertoon. Natural Resources Institute Finland. Retrieved from https://www.luke.fi/ruokajate-kiertoon/ Micheletti, M. (2003). Political virtue and shopping: Individuals, consumerism, and collective action. New York, NY: Palgrave Macmillan. Moisander, J. & Valtonen, A. (2006). Qualitative marketing research: A cultural approach. London, England: Sage. Närvänen, E., Mesiranta, N., & Hukkanen, A. (2016). The quest for an empty fridge. In B. Cappellini, D. Marshall, & E. Parsons (Eds.), The practice of the meal: Food, families and the market place (pp. 208–219). Abingdon, England: Routledge. Phipps, M., & Ozanne, J. L. (2017). Routines disrupted: Reestablishing security through practice alignment. Journal of Consumer Research, 44(2), 361–380. https://doi.org/10.1093/jcr/ucx040 Prothero, A., McDonagh, P., & Dobscha, S. (2010). Is green the new black? Reflections on a green commodity discourse. Journal of Macromarketing, 30(2), 147–159. https://doi.org/10.1177/0276146710361922 Reinecke, J. & Ansari, S. (2016). Taming wicked problems: The role of framing in the construction of corporate social responsibility. Journal of Management Studies, 53(3), 299–329. https://doi.org/10.1111/joms.12137 Shove, E. (2010). Beyond the ABC: Climate change policy and theories of social change. Environment and Planning A: Economy and Space, 42(6), 1273–1285. https://doi.org/10.1068/a42282 Southerton, D. & Evans, D. (2017). Consumption policies within different theoretical frameworks. In M. Keller, B. Halkier, T.-A. Wilska, & M. Truninger (Eds.), Routledge handbook on consumption (pp. 204–214). Abingdon, England: Routledge. 286 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy Clearly, there is a buzz around the idea of the CE, but prestigious seminars and speeches from the upper echelons of society count for nothing unless change happens at the grassroots level. If CE thinking is to break through, the still-abstract CE discourse must translate into actual changes in the practices of production and consumption. The most obvious example of these practices is recycling. Other examples include waste utilisation, turning products into services, sharing economy practices, and ecological product design. The latter means that products should be designed to be updatable, easy to repair, and pollutant free. Furthermore, they should be reusable and/or minimize the amount of waste created during their life cycle. Digitalisation opens up opportunities for the creation of forums where actors can exchange goods. One of these is the ResQ Club (2017), which is a smart phone application that enables restaurants to offer their leftover meals at a discount to prevent food going to waste. Locked into the Old Ways of Doing Things In this section, I will discuss the complex socio-institutional playing field where the transformation towards the CE is being driven. As the previous section showed, there is momentum for change. But when considering the agenda of CE thinking, the magnitude of the change required is huge. Changing the prevailing logic of how resources are moved and channelled in the economy is a tall order (cf. wicked problems). Such change is challenging for two reasons. First, the old ways of doing things – the incumbent technologies and practices – are likely resistant to change. Second, the socio-institutional environment where change is driven is complex. The contemporary socio-institutional environment has become more complex and polycentric from the perspective of power distribution. This also relates to the transition “from government to governance.” In practice, this means that instead of control and coercion, administrations nowadays use subtler ways of steering society. This is because power has been distributed horizontally and vertically. This has led to increased complexity in the ways in which societal development is steered. The verticality of power distribution means the nation state is no longer the undisputed 287 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy nexus of power. Instead, the importance of the local and global has grown (for example, cities and the European Union). The horizontal distribution of power means that numerous institutions other than the nation state’s administration and policymakers have a say on the direction in which societal development should be steered. These actors include corporations, interest groups, social movements, researchers, and think tanks, and they often have diverging interests. The polycentric power distribution and the differences of interests enhance the role of dependencies and networks between actors in the process of steering societal development. It is unlikely that a single actor can define the direction of development. Instead, the objectives of development and means to proceed must be negotiated by different actors. This is not an easy process, since change is not in the interests of all parties (Evans, 2012; Meadowcroft, 2007; Pierre, 2000; Pierre & Peters, 2000). The concept of lock-in explains why the old ways of doing things enjoy huge advantages compared to radically new technologies and practices. It illustrates types of difficulties change makers are up against, as change must take place in grassroots level practices to steer production and consumption onto a sustainable track. First, incumbent practices and technologies are already familiar and tested. They might also have a preestablished infrastructure, a network of suppliers and customers and suitable regulations in place (Meadowcroft, 2009). Second, the parties behind incumbent sociotechnical practices have political leverage, as James Meadowcroft (2009, p. 329) notes: Economic actors associated with established technologies are not enthusiastic about alternatives that would render their competencies obsolete� And since economic strength (investment, income, exports, employment) can be converted into political influence, they can place substantial hurdles in the path of nascent rivals� The complex socio-institutional environment and advantages possessed by established practices suggest it is difficult to steer the development of contemporary society towards the type of change envisioned by CE thinking. There are many influential actors in contemporary societies who 288 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy have something at stake in societal development. While some actors are satisfied with the way things are and might directly or indirectly obstruct attempts to deviate from the status quo, others promote different ways of doing things. In addition, some actors might promote a quite specific type of development, for example, framing development in a way that directly benefits themselves. When talking about change of such a huge magnitude, there are bound to be parties from each type. Overturning the old ways of doing things is hard even when incumbent technologies or practices are sub-optimal. When talking about societal change, there is no such a thing as a clean slate; change always unfolds against some sort of an inherited setup (Lähde, 2013). This inherited setup has a defining history. It is nevertheless possible to create momentum for large scale change in complex and polycentric societies. The following section introduces the concept of ideological steering, which shows how momentum for change can potentially produce results in complex contemporary societies. Ideological Steering: The Interplay Between the Concrete and the Broad Ken Webster (2013), Head of Innovation at the Ellen MacArthur Foundation, has listed six temptations to be avoided when talking about the CE. The first one hits at the heart of James Meadowcroft’s (2007, p. 311) concept of ideological steering: Temptation#1 is to be too concrete� (Webster, 2013, p� 545) According to Webster (2013), the problem of being too concrete is that it can narrow the view of the issue. On the other hand, being too broad can result in being too vague. The concept of ideological steering encapsulates the interplay of the concrete and the broad in terms of efforts to steer societal development. Meadowcroft (2007, p. 311) defines ideological steering as “the development of sets of inter-related ideas that 289 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy influence activities at all levels.” Ideological steering shows how concepts such as sustainable development (SD) and the CE use their abstract and overarching nature to their benefit. These concepts can exceed the lines of political positioning, but they can also work as a framework for building political arguments. In this way, a set of ideas can create consensus and provide ammunition in debates. To illustrate, sustainable development is commonly defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987, p. 41). That definition rises to the level of the “common good,” and it is easy to agree with and difficult to directly argue against. Still, there is plenty of room for debate about SD. Declarations of the “common good” type do not answer the question of how SD is to be achieved. For ideological steering to work, abstract and overarching concepts that provoke change need to be accompanied with other, more concrete concepts. These clarify the direction of societal development. The more concrete concepts reveal how change could be achieved and what it would look like in a specific context. While the interplay between the broad and the concrete is important for furthering change, it is essential for actors in some degree internalise and accept ideas related to change. The internalisation of ideas can manifest as commitments towards change. Widespread acceptance and commitment to change can enable the utilisation of more concrete instruments to further development. These concrete instruments include for example, adjusting regulation, creating new institutional actors, funding, and collaborating in different ways (Meadowcroft, 2007). When analysing the promotion of the CE from the point of view of ideological steering, the same kind of logic applies as with SD. The objective of the CE is to bend the linear “take-make-use-discard” economy into a circular one, and in that way to make the economy sustainable. It is easy to endorse this objective and difficult to directly disagree with it. However, the objective of the CE does not in itself reveal how such change should be pushed through. This is where the concrete comes in, which in the case of the CE means the practices of recycling, ecological design, waste utilisation, etc. It should also be noted that when the discussion moves from general level declarations to the specifics of change making, there 290 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy is bound to be more debate concerning the direction of change. It is not problematic to declare that the needs of the present should be fulfilled without undermining the future generations’ ability fulfil theirs, or that the resource flows of our economy should be closed. However, when considerations move towards how and where the change should manifest, conflicts of interests occur. Ideological Steering of the CE in Finland For abstract ideas like the CE to generate change, it is essential that different actors to some degree internalise and accept the idea of what the concept is aiming to do. Only after that can the actual change – whether it is conceptualised as social, material, institutional, or structural – be pushed forward. The concept of ideological steering resonates with the idea of relational leadership discussed in this book. In ideological steering, leadership is not viewed as a capacity of individual entities, but as a relational event between actors that takes place in the influencing processes where social order and change emerge. In this section, I discuss the promotion of the CE using ideological steering as a theoretical prism. I highlight some examples showing how actors from different sectors of society relate and align around the concept in the Finnish context. The first step is for change provoking concept needs to spread among the actors. In Finland’s case, this is what the Sitra does by publishing reports and organising seminars about the benefits of the CE. In the last few years, the CE has become topical in public discourse (Lavikainen, 2015). However, for the internalisation process of CE thinking to work, the message about the CE needs to appeal to a different type of actor. In fact, the general level discourse about the CE aims to appeal with both a push and a pull message. The push side of CE thinking involves pushing actors away from the practices of the linear economy. CE thinking does this by pointing out two sets of sustainability issues related to the linear economy. The first set highlights that our planet has biophysical boundaries and our economy should stay within those boundaries or else there is a risk of collapse. The 291 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy other set of sustainability issues deals with environmental problems that are the consequence of human activity – for example, climate change. These sustainability issues are grave; they are transnational in nature and are commonly accepted scientific facts (Steffen et al., 2015; Boulding, 1966). The key to underlining sustainability issues is to show the linear economic model to be irresponsible. This is done by outlining grave, scientifically proven problems of the “take-make-use-dispose” economy. To enhance the push side message, the effects of sustainability issues on businesses are also emphasised. For example, resource scarcity can make prices volatile. Consequently, when the irresponsibility of the linear economy is highlighted, the next reasonable step is to start thinking about how to change this unsustainable arrangement. Nevertheless, this sort of shaming is probably not the most efficient way to generate change. It is the pull side of CE thinking that increases the probability of change taking place. The pull side is more positive in tone than the push side. The pull towards the CE involves showcasing the opportunities generated by change. These include estimates of how many new jobs would be generated and how much added economic value will be created by the transformation to the CE (Sitra, 2015; 2016). This affirmative message is especially appealing to public sector actors, who are essential for the change towards the CE. Public sector actors are important for two reasons. First, they have access to large amounts of resources that can be channelled into the change making process. A good example of this is the framework program introduced by the Finnish Ministry of Environment, which finances development projects for nutrient recycling practices and technologies (Ministry of the Environment, 2018). The resources can also be something other than money, such as information, utilisation, or access to networks (Farla, Markard, Raven, & Coenen, 2012). Second, the public sector has the power to change regulations, which is one of the most influential ways of changing the structures of production and consumption. It is the nation state that has the power to change regulations, although in the EU countries, some legislative powers have been devolved to EU governing bodies (EUR-Lex, 2018). In addition to new jobs and added value for the economy, promoters of the CE speak about the business opportunities the change towards the CE could create. These in turn entice grassroots level economic actors to 292 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy add inputs from CE thinking to their business model – or, in the best-case scenario, to provoke them to change their entire business model to follow CE thinking. Talk about new business opportunities can be appealing to economic actors because they work in a competitive environment where new ways of doing business can provide a competitive edge. However, business opportunities need not to be simply about competition. For example, the Confederation of Finnish Industries published a CE promoting report titled Take a Leap into Circular Economy! Together Towards New Growth (2016), which introduces businesses operating according to CE thinking. The main point of the report is to encourage actors to discover CE business opportunities by crossing the established lines of industry – in other words, to cooperate with actors from unfamiliar fields and to create new businesses in line with CE thinking as a consequence of expanding networks. The main message of the report is cooperation, not competition. Overall, public discourses on the CE are mostly positive. It is framed in terms of solving the issues of sustainability and creating opportunities that generate economic activity and “economic goods,” such as new jobs, added value, and business opportunities. Fundamentally, the ideological steering of CE involves creating enthusiasm for the CE among different types of actors and involving them in transforming the economy according to the CE principles. Struggles in Turning the Linear Economy Circular There are also challenges that complicate the capacity of this abstract concept to generate change. In this section, I discuss the incongruities between CE thinking and material reality, the insincere use of the concept of CE, and the struggle over how far the CE should extend. At the level of material reality, the CE discourse has cultivated concepts like the “closed loop” and “zero waste society.” In reality, both ideas are practically impossible. The problem with the “closed loop” is that matter and energy dissipate. This means a totally closed system is impossible (Boulding, 1966; Georgescu-Roegen, 1977). In contrast, a “zero-waste society” is possible, but we would then need to call waste something else. 293 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy After all, waste is the name for matter we put in rubbish bins. Since waste is a classification, the class could be named something else, but that would not change the fact that the economy produces overflow (Boetzkes, 2016; Hultman & Corvalles, 2012). In defence of these concepts, we should bear in mind their objective is to work as idealisations to which our production and conception system should aim as closely as possible. The way in which the CE has been ideologically steered has its pros and cons. The clear merit of the CE is that it has spread efficiently among actors. Arguably, this is largely because the general idea of CE is easy to agree with. Despite being a somewhat abstract concept, it nevertheless gives strong indications of what kinds of measures should be taken and in what direction societal development should be steered. Besides, the abstractness of CE gives actors the opportunity to shape the idea of the CE to suit their own perspectives. Of course, this malleability also introduces risk. An abstract concept can be used “insincerely” to designate practices that are not really about the change but more about maintaining the old ways of doing things. The concept of “greenwashing”, which refers to presenting a practice as “environmentally friendly” even if it is practically not, is already well discussed (see Seele & Gatti, 2017). The abstractness of CE means that some actors may claim a practice to be a form of CE, even when it hardly is. Valenzuela and Böhm (2017) have discussed “CE washing” as a related concern. They ask whether companies promising to take back their older products for recycling might actually be counterproductive from a CE perspective: the take-back promise might relieve consumers of feelings of guilt associated with buying a new product sooner than necessary. The problem in this case would be whether the “take back and recycle” promise increases the amount of consumption and decreases the life-cycle of the products. The possibility of “CE washing” is not the only struggle concerning CE thinking. Another major issue derives from the push and pull perspectives The take-back promise might relieve consumers of feelings of guilt associated with buying a new product sooner than necessary. 294 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy that promote CE. Grave sustainability issues push towards change, while new possibilities pull towards change. However, there is a discrepancy between the two. In order to resolve issues of sustainability, there have been serious calls to cut the total amount of material production and consumption; to abandon the fetishism of economic growth (Kallis, 2011); and to make the economy fit the biophysical boundaries of the planet (Steffen et al., 2015). However, when discussion focuses on the opportunities presented by the CE (new jobs, added value to the economy, and business opportunities), it implies economic growth, and thus the greater utilisation of resources. In the worst case, it means we continue to overstep the biophysical boundaries of the planet despite achieving a CE (Hobson & Lynch, 2016). To make matters more complex, there is another issue to consider: if the change towards the CE did happen, when it would be “ready”? What would be the grounds to declare the CE has displaced the linear economy? Discussion This chapter discussed whether the circular economy as an abstract concept can generate change, and how it could do so. It is thus also necessary to discuss what kind of change we are dealing with here. Does the CE involve planned, emergent, evolutionary, or revolutionary change? Arguably, it involves all of them, but also none, since the linear economy is the dominant paradigm, and the promotion of the CE is about provoking change. There are obviously features of planned change in the CE. For example, some companies have started to do business according CE thinking (e.g., Confederation of Finnish Industries, 2016). To create or to change a business model to fit the lines of CE thinking requires planned decision making, reasoning, and action. There are also concrete step-by-step plans to turn Finland into a leading CE practitioner by 2025. Sitra (2016) has published “a road map” report on how this objective could be reached, which very much resonates with ideas that change can be planned. However, the change towards the CE can also be conceptualised as an emergent change: If we examine the CE in a wider societal context, we see that it is multi-level, multi-actor, nonlinear, and non-finite in terms of 295 Leading Change in a Complex World: Transdisciplinary Perspectives Can Abstract Ideas Generate Change? The Case of the Circular Economy its timeframe. Even though in the CE promotion speeches the message is articulated in terms of the fixing the system, in reality change making is about adjusting a number of points in the system. In that sense, the promotion of the CE is about evolutionary change, where the key words are continuity, incrementalism, adaptation, and adjustment. Currently, the aspect of revolutionary change in the CE discourse remains normative: some critical voices argue that the change towards the CE should be more radical than it now seems to be. References Andrews, D. (2015). The circular economy, design thinking and education for sustainability. Local Economy: The Journal of the Local Economy Policy Unit, 30(3), 305–315. https://doi.org/10.1177/0269094215578226 Boetzkes, A. (2016). Resource systems, the paradigm of zero-waste, and the desire for sustenance. Postmodern Culture, 26(2) https://doi.org/10.1353/pmc.2016.0008 Blomsma, F., & Brennan, G. (2017). The emergence of circular economy: A new framing around prolonging resource productivity. Journal of Industrial Ecology, 21(3), 603–614. https://doi.org/10.1111/jiec.12603 Boulding, K. (1966). The economics of the coming spaceship. In H. Jarett (Eds.), Environmental quality in a growing economy (pp. 3–14). Baltimore, MD: John Hopkins University Press. Confederation of Finnish Industries. (2016). Take a leap into circular economy! Together towards new growth. Retrieved from https://ek.fi/ wp-content/uploads/Take_a_Leap_into_Circular_Economy.pdf European Commission. (2015). Closing the loop – An EU action plan for the circular economy. Retrieved from http://eurlex.europa.eu/legalcontent/EN/TXT/?qid=1453384154337&uri=CELEX:52015DC0614 Evans, J. (2012). Environmental governance. London, England: Routledge. EUR-Lex. (2018). Institutional affairs. Retrieved from http://eur-lex. europa.eu/summary/chapter/institutional_affairs.html?root_ default=SUM_1_CODED%3D01&locale=en 302 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance I nternational affairs are undergoing significant changes. On one hand, the US has lost its predominant position in global governance. While still powerful, it is unable to influence decisively international organisations. At the same time, the influence of rising powers and the long-excluded majorities of the Global South has increased. Because of this ensuing cacophony of a growingly pluralistic world order, global governance on multilateral level, like the World Trade Organization (WTO), has been crippled with international cooperation shifting to regional and intra-regional groupings. Consequently, international affairs are increasingly characterised by fragmentation, pluralism, and competition. As a new institution of intra-regional and emerging power cooperation, BRICS presents us with a case study into these transformations. Are these changes making the world less governable and more conflict-prone? Or is governance just taking new forms to better reflect the inherent pluralism of the world? According to Amitav Acharya (2016), fragmentation of governance does not necessarily imply the end of governability and cooperation. In fact, he argues that fragmentation and pluralism might be a means for better leadership, more creative and responsive to particular contexts and special needs. This chapter presents a case study on BRICS, founded in 2009 by Brazil, Russia, India, and China and joined by South Africa in 2011. The purpose of this chapter is to examine how this new initiative relates to global governance and leadership. This boils down to the question about BRICS’ agency: what kind of agent is it? Two competing hypotheses frame this work: 1. BRICS is a challenger 2. BRICS is a constructive leader of change? The first hypothesis derives from the BRICS challenge theory, which proposes that BRICS seeks to challenge the current system and therefore promotes instability in global governance. This hypothesis defines the relation of new international organisations to global governance in terms of linear change. The alternative hypothesis is based on a non-linear understanding of change, a key theme explored in this book. From a non-linear perspective, change may be conceived of as an inherently open process more akin to The purpose of this chapter is to examine how the BRICS initiative relates to global governance and leadership. 303 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance creative chaos than planned harmony. Change is not merely a reaction to something or a logical outcome of preceding causes. Instead, changes occur in contexts where input factors are uncontrollable, unknown and random. In an increasingly pluralistic world order, where dispersion and multiplication of political agency, authority and knowledge have broken linear continuities between them, the non-linear perspective offers a complementary way to understand change. Indeed, linear perspectives presuppose continuity where it does not necessarily exist. This makes it difficult to recognise changes that come, so to speak, from outside the box. The second hypothesis is that BRICS is a constructive force in global affairs. From this perspective, BRICS is a response to or reflective of the emerging pluralistic world order. It can be analysed as a space maker for new alternatives of governance, promotion of pluralism as well as leadership in diffused power system. The particular focus of this chapter is on BRICS development finance initiatives. It sheds light on BRICS’s relation to development both as a paradigm and practice. To the extent that BRICS creates space for new development practices and paradigm, and to the extent it takes leadership in solving development issues, it deserves the label of a constructive leader of change. The chapter is organised as follows. The first section discusses development as a paradigm applied by international financial institutions, the World Bank and the International Monetary Fund. The second section discusses current debates and perceptions of BRICS and details the two hypotheses of the case study. The third section presents an empirical analysis of BRICS development finance initiatives, establishing the differences between BRICS institutions and the dominant multilateral financial institutions. It argues that while BRICS can only with difficulty be seen as a promoter of alternative development finance, it is nonetheless opening up a space for rethinking and unthinking the predominant ideas and practices of development finance. Problematising the Orthodoxy of Development The concept of development means evolution in a state of being or a gradual rise from being underdeveloped to being developed. The concept 304 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance is descriptive in the sense that it refers to a process of becoming something. While there is no strict classification of developed countries, this group of countries includes the usual suspects: the US, Canada, most of Western and all of Northern Europe, Australia, South Korea, Switzerland, and Israel. All these countries are liberal democracies. According to some scholars (e.g., Ferguson, 2011; Fukuyama, 1992), it is the practice of free markets, competition and individuality that defines liberal democracies and explains their advancement. Liberal democracies, according to this view, have found the paradigm and the formula for development. In this sense, development can be framed as a normative concept. From an epistemological standpoint, development is like any other normative concept: it is of a fundamentally subjective nature. There is no God of development – seen and heard by all of humanity – who could lay down, explain and teach the paradigm of development. From a philosophical standpoint, development is a pluralist concept. While its actual form and substance varies from place to place, from people to people, no one can claim universality for their subjective ideas. Nonetheless, development has its high priests and armies, like most other subjective truths of political importance. Indeed, it was not so long ago that the Washingtonbased international financial institutions (IFIs), the World Bank Group and the International Monetary Fund (IMF), dominated the politics of development. The orthodoxy which emerged from these institutions was the idea that market forces were the best mechanism for development. This is usually referred to as the Washington Consensus or free market fundamentalism (e.g., Stiglitz, 2002). This orthodoxy of development was based on the idea that private market forces were the best available mechanism for development and that the state of being developed was equivalent to an unfettered market economy. It was not merely an ideology. It was a political practice by international financial institutions financing development projects expected to step in when states need financial assistance (acting, for example, as a lender of last resort). In practice, the Washington Consensus meant that any country in need of financial help from the IMF and the World Bank had to commit itself to political reforms. These included privatizations of public property, cuts in public spending on infrastructure, education and health, 305 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance trade liberalisation and the deregulation of foreign exchange (Babb, 2013; Glinavos, 2008; Saad-Filho, 2010; Williamson, 2004). There are several instrumental reasons for the rise of a singular paradigm of development above all others, two of which stand out. The first is the former hegemonic position of the USA, which contributed to the universalisation of this singular paradigm. The second is the epistemic foundation in mainstream economics that combines subjective preferences and normative values with universality. One of the leading figures in making this combination was the Austrian economist Ludwig von Mises. According to Mises (1949, p. 21), the backbone of social and economic development is the individual choices repeated day after day in free markets and mediated by prices and money. For von Mises, this fundamental subjectivism of free markets is the foundation of scientific objectivism: instead of norms and values, objectivist science studies market preferences. This provides the only scientifically verifiable norm for a good society: liberty to choose and free markets. Von Mises (1949, p. 21) writes: [I]t is in this subjectivism that the objectivity of our science lies� Because it is subjectivistic and takes the value judgements of acting man as ultimate data not open to any further critical examination, it is itself above all schools of dogmatism and ethical doctrines, it is free from valuations and preconceived ideas and judgments, it is universally valid and absolutely and plainly human� Sustainable use of natural resources is one of the problems of this perspective to development, particularly that developed countries have polluted the earth so that life-giving radiation from the sun does not escape the earth as it used to. Instead, it shines ever warmer on the plastic garbage islands (larger than some countries) surfing the oceanic streams, which are in jeopardy due to melting polar ice caps. This model of development, as Peruvian diplomat and author Oswaldo de Rivero (2010, p. 2–3) argues, “operates in the same way as a cancerous cell that goes on destroying the organism off which it lives.” The most ardent proponents of free market fundamentalism argue that the rise in our material well-being through the availability of cars, mobile phones, McDonalds and, most importantly, the decline in child mortality, are clear indications of a true 306 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance global development. However, economic development has been paralleled with ecological disaster. From the only universally applicable perspective, that is, the preservation of our common earth, economic development has also brought about a rapid degeneration of the natural environment. Another set of problems related to the development orthodoxy are social in nature. Only a minority of the global population, even in developed countries, enjoys economic independence, which is a key aspect of free market competition. Without it, market-related choices are less about individual preferences and more about power. Even more importantly, one should not forget the millions of people born to life at a subsistence level, without individual or communitarian control over their living environments and subjected to the force of hunger and the money that serves global markets (Alvaredo, Chancel, Piketty, Saez, & Zucman, 2018, p. 10–14; FAO, IFAD, UNICEF, WFP, & WHO, 2017, p. ii). Concern with the social effects of economic development is not new. It was raised by the founders of both liberalism and communism. Karl Marx’s (1887/2010, p. 313) critique of the English factories, where the worker becomes “a living appendage of the machine,” is still applicable to the sweatshops of Indonesia, China, India and other parts of the emerging and developing world. Adam Smith (1776/2005, p. 637–638) worried about the effects of long hours of stationary factory work on the intellectual and emotional abilities of workers. He wrote that the high productivity and economic gains for the owner may come with heavy costs for the worker, “to be acquired at the expense of his intellectual, social, and martial virtues.” It is equally questionable whether it is proper for millions of people in developed societies to live in poverty through both unemployment and minimum wage employment, while a wealthy minority acquires the majority of the income (Ehrenreich, 2001; Shipler, 2005). Thus, the problems of this old paradigm are many, and it has been objected to critique from academia, from developing countries as well as from within multilateral institutions (e.g. Rodrik, 1996; Stiglitz, 2002; Mendes Pereira, 2016). As a result, the international financial institutions have sought to better take into account problems of poverty and social exclusion, employing the concept of inclusive growth to describe shift away from the old orthodoxy (Mendes Pereira, 2016; Saad-Filho, 2010). 307 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance Yet, many scholars have argued that these changes do not amount to a change in the paradigm itself and that, in spite of some reforms, the Washington Consensus remains without an alternative. (Babb, 2013; Glinavos, 2008; Saad-Filho, 2010). Against this background, BRICS has elicited debates on how it relates to the Washington Consensus and whether BRICS offers alternatives to the old development paradigm (see e.g., Ban & Blyth, 2013; Gray & Gills, 2016; Bond & Garcia, 2015). This chapter seeks to relate BRICS to global governance through the international financial institutions and in particular through the orthodoxy of development. BRICS: A Challenger or a Constructive Leader? BRICS scholarship has mostly operated within linear or evolutionary perspectives on change. In other words, the focus has been on a potential rupture with the past or a gradual improvement of it. The BRICS challenge theory can be divided into two main hypotheses: a) that BRICS poses a challenge to the hierarchy between states in the current multilateral system or b) that it seeks to challenge the system. Challenging the hierarchy between states is relevant for a state-centric analysis of international relations, and particularly for the US and its allies (e.g., Tammen et al., 2000). From an institutionalist perspective, international relations are mostly understood in terms of rules and norms, whereby decisionmaking takes place in international organisations between many states (e.g. Ikenberry, 2001). From an institutionalist perspective, it is relevant to study BRICS relations in terms of the current institutions, rules and norms. In the global trading and financial system, BRICS has already engendered some changes. In response to the US dominance in international financial institutions, BRICS launched two new financial institutions in 2014: the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). Three BRICS members of the World Trade Organisation (WTO), Brazil, India and China, played a crucial role in upsetting the former balance of power at the WTO by increasing the influence of the developing world (Hopewell, 2016). In its summit declarations, BRICS calls for a greater 308 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance voice for the developing world and demands democratic reforms at the United Nations (UN), World Bank and IMF (see Stuenkel, 2013; Thakur, 2014). What exactly have been the effects and objectives of these changes? Is BRICS promoting a new kind of economic and social development and a new type of multilateralism, or is it simply seeking a greater level of influence; i.e., seeking to change the hierarchy between states? The BRICS are not the best promoters nor appliers of market-oriented regulatory systems, fiscal austerity and comprehensive trade liberalisation (Babb, 2013; Fourcade, 2013; Schmalz & Ebenau, 2012). They have instead retained varying measures of direct or indirect state control over their markets (Nölke, ten Brink, Simone & May, 2014; Stephen, 2014), most notably China (Jiang, 2014; McNally, 2012; van der Pijl, 2012). Moreover, in the UN, China and Russia – both members of the Security Council – have used their veto power in support of either their strategic interest or the fundamental values of national integrity. An example of this is the US-led humanitarian intervention in Syria and regarding the application of the Responsibility to Protect (R2P) commitment (Stuenkel, 2014). The fact that the BRICS economies differ from liberalised Western economies does not, however, validate the hypothesis of systemic change. Internally, the BRICS countries are very different in terms of their economic structures implying that they have no shared economic vision or a challenging economic alternative to offer. Russia is heavily dependent on its oil and gas exports and has a poorly diversified economy. India has a booming services sector, but about half of its population survive on small-scale agriculture. There are as many poor Indians as there are Europeans altogether, but there are also as many rich Indians as there are Germans. China, however, is the most important trading partner of all world powers, and while many are dependent on China, China is dependent on only a few. Interestingly, China’s economic ties are much closer to the EU and the US than, for example, to India or other BRICS countries. Moreover, China’s economic (and military) clout in South Asia (India’s neighbourhood) has intensified the already deepseated conflicts between the two. BRICS has no common agenda for change. Indeed, Babb (2013) has shown there is no such thing as a BRICS consensus that opposes the 309 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance old Washington Consensus. Duggan (2015), in contrast, has argued that BRICS is changing the rules and norms of globalisation with a new agenda of global economic governance. His conclusion was based partly on the antipathy of BRICS towards internal reforms and partly on the discourse of development in BRICS Summit declarations. Nevertheless, Duggan does not prove the existence of an actual agenda. Instead, he simply demonstrates the existence of a discourse that deviates from established views on development. True, as Mielniczuk (2013) has argued, new or alternative discourses can have long-standing effects on the ideational construction of global governance through creation of shared purposes. This, however, is also not the same as an agenda nor does it necessarily lead to a formation of new or alternative agendas. The scholarly debate around BRICS does not render support for the BRICS challenge theory, in the sense that BRICS is actively promoting systemic change. In contrast, the Trump administration clearly views China and Russia in particular as challengers of the US-led international system. These states, according to this view, do not only seek to overturn the hierarchy between states, but also challenge the dominance of the liberal democracies in international affairs. The recent US National Security Strategy (Trump, 2017, p. 25) and the National Defence Strategy (Department of Defense [DoD], 2018, p. 2) declared that great power competition has returned and that challenger states seek “to shape a world consistent with their authoritarian model – gaining veto authority over other nations’ economic, diplomatic, and security decisions.” It is indeed true that BRICS countries have used their position to challenge the US and developed country agendas at the UN and WTO. However, that does not mean that they would not have played by the rules. Disagreement is fully acceptable. Moreover, democratic decision-making among peers is much more difficult than managing a hierarchical system. Governance of the UN and WTO is today much less about hierarchy between states that it was during the post-Cold War unipolar moment (e.g., Ikenberry, 2015; Hopewell, 2016). It is much more about democratic decision-making among peers. Thus, governance is bound to be more prone to disagreement, shifting alliances and timely negotiations, but this is something that comes with pluralism and evidences the viability of 310 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance cooperation instead of its demise. BRICS has indeed underlined its support for global institutions and multilateralism: We emphasize the importance of an open and inclusive world economy enabling all countries and peoples to share in the benefits of globalization� We remain firmly committed to a rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO (BRICS, 2017, art� 32)� Upholding development and multilateralism, we are working together for a more just, equitable, fair, democratic and representative international political and economic order (BRICS, 2017, art� 2)� At least within the BRICS grouping, the so-called authoritarian states, Russia and China, are demanding the democratization of international affairs. It is, however, the leading democracy in the world that flouts the rules: Putting its protectionist rhetoric into practice, the Trump Administration has imposed a unilateral 25 per cent tariff on metal imports – in violation of global trade rules. He has tweeted that “trade wars are good, and easy to win” (Rushe & Haas, 2018). It appears that the challenge to the multilateral system is coming from the West rather than the rest. The transformation from international cooperation to great power competition is perhaps a suitable description of how the current US administration relates to multilateral governance rather than how BRICS or China does. This situation is known as the Thucydides Trap. The expression originated from the fear felt by the Athenians regarding the rise of Sparta; a fear that contributed to the long Peloponnesian War (Zhang, 2015, pp. 176–177). There is insufficient evidence to confirm the BRICS challenge theory that BRICS poses a) a challenge to the hierarchy between the states in the current system or that it seeks to b) challenge the entire multilateral system. Hierarchies between states are constantly evolving. From the perspective of dominant powers wishing to retain their dominance, the rise of new powers poses a challenge. If, however, the rising powers are constructive players, willing to cooperate within established institutions, changing the hierarchy between states does not represent a challenge against the system. Thus, scholars tend to dismiss the likelihood of a systemic challenge. This 311 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? Assessing BRICS and Development Finance leaves the BRICS challenge theory poorly equipped to understand change because the absence of a challenge does not equal a lack of change. This is where the dynamic conception of change outlined in the framework chapter of this book comes in. From a dynamic perspective, changes in open systems are not necessarily planned from above but emanate from through multiple channels from below, above and from between. Changes in multilateral governance may thus arise from a situation where developed countries no longer have a dominant position. Barma et al. (2009) have suggested that while emerging economies may not seek to overturn multilateral institutions, they may be constructing new webs of interaction that sideline developed countries. The result of this process would be a world “without the West”. This interpretation builds on the idea that by increasing cooperation and diminishing the centrality of the US and its allies, BRICS and the rising powers may not actively change world order or seek to challenge its former hegemon, but they nevertheless do instigate some change. Instead of actively promoting change, transformations occur through a constantly intensifying cooperation. The emerging powers thus create new webs of interaction with new central nodes, diminishing the importance of old nodes. As a consequence, even if BRICS does not actively challenge the global system, it can nevertheless be seen as a force of change. Thus, a competing hypothesis to the BRICS challenge theory is that BRICS is a constructive force in global affairs, which promotes change by creating a space for alternatives. To be a constructive leader in the case of development finance, BRICS should fulfil the following conditions: 1) cooperate with multilateral financial institutions, 2) develop alternatives to liberal development policies and 3) promote open debates and formulations of development policies. The following sections assess BRICS development finance initiatives from this perspective. Assessing BRICS Development Finance The BRICS policy of development finance culminates in its two institutions, the NDB and CRA, both launched in 2016. The NDB was established to 318 Leading Change in a Complex World: Transdisciplinary Perspectives Leadership for a Pluralistic Order? 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Journal of Contemporary China, 24(91), 176–195. https://doi.org/10.1080/10670564.2014.918419 Leading Change in a Complex World: Transdisciplinary Perspectives Copyright © 2019 Tampere University Press and the authors Edited by Anni Kangas, Johanna Kujala, Anna Heikkinen, Antti Lönnqvist, Harri Laihonen and Julia Bethwaite Tampere: Tampere University Press 321 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector CHAPTER 17 Megatrends in the Insurance and Financial Sector RAIMO VOUTILAINEN & LASSE KOSKINEN Takeaways for Leading Change Megatrends are complex in nature, and a good understanding of them requires new skills and perspective. This chapter discusses megatrends in the context of the insurance and financial sectors. It argues that leaders and managers in the insurance and financial sector must be ready to rise to new challenges, from managing businesses in complex environments to operating in fields that are fundamentally changing and in a transition phase. In connection with these developments, more information is available now than ever before, and that information must be managed effectively. Analysing changes in terms of industry specific megatrends and trends presents one possibility to do this. Globalisation has opened new opportunities and brought new risks for businesses. This chapter outlines how leaders and managers within insurance and financial enterprises can endorse the complex character of such transformations as well as the dynamic nature of these changes. 322 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector Megatrends and trends offer a fruitful approach to analysing change. The term “megatrend”, as defined by John Naisbitt (1982), describes the significant social, economic, political, and/or technological movements that shape our lives. Megatrends are larger in magnitude, longer in duration, and deeper in their effects than normal trends. They are complex combinations of factors and huge in their effect, in both time and space (Mittelstaedt, Shultz, Kilbourne, & Peterson, 2014). Megatrends can best be identified and analysed in relation to more detailed grassroots trends. We examine how contemporary megatrends are visible in the insurance and financial sector, alongside key trends that have altered the landscape in this area. We show that managing this change has become a major challenge for the top management of financial enterprises and point out ways in which companies in these sectors can respond to the challenges arising from contemporary megatrends. At both the European and global levels, the insurance and financial sector has experienced profound structural change in recent decades. One key factor in these developments has been the banking sector and insurance sector competing with each other while at the same time also cooperating with each other (Voutilainen, 2006). Competition has taken place in the form of financial convergence. This means insurance companies launch products that perform nearly or exactly the same task as products from banks, or vice versa. Another manifestation of financial convergence is a company in one of these sectors establishing a new company in another sector or acquiring a company in that sector. Finnish banks have been especially active in establishing or acquiring insurance companies, which is why the chapter focuses on examples from Finland. As for cooperation, alliances have been formed between banks and insurance companies. The most preferred alliance model from the executive management point of view is a financial conglomerate – banks and insurance companies operating under common ownership. The benefits of this arrangement is the increased potential for effective crossselling and diversification of business portfolios. The drawbacks include high capital costs and often significant upswings and downswings in business results (e.g., Voutilainen, 2006). Here too, expansion beyond the financial sector can be seen, with banks and insurance companies starting 323 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector joint operations in other fields (e.g., OP Group, 2018). At the same time, non-financial companies have entered the insurance and financial sector. We then identify various (micro) trends in these fields, providing both Finnish and international examples and discussing the benefits and drawbacks associated with the individual trends. The discussion also examines each of these trends in light of societal megatrends. Figure 1 summarises the relationship between individual and macro trends. At the upper level there are the three megatrends: (M1) More complex regulation and taxation, (M2) Technology and demographic transition, and (M3) Fundamentally changing business models. We introduce them on the basis of their magnitude, duration, and effects on the insurance and financial sectors. At the lower level we classify individual trends under applicable megatrends. MEGATREND 1 MORE COMPLEX REGULATION AND TAXATION MEGATREND 2 TECHNOLOGY AND DEMOGRAPHIC TRANSITION MEGATREND 3 FUNDAMENTALLY CHANGING BUSINESS MODELS • Increasing financial regulation • Changes to taxation and tax policy • Products being tailored customer-specifically • Digitalisation • New health-care products (old age and other) • Hybrid products • Incentive-based insurance products • Cybersecurity • Financial convergence • Non-financial convergence • Cross-selling • One-stop shopping • Opening of value chains Megatrends and individual trends FIGURE 1: Individual trends and corresponding megatrends 324 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector This chapter proceeds in the following way. First, we discuss the megatrend, more complex regulation and taxation. We then examine the technology and demographic transition megatrend. This is followed by a discussion on fundamentally changing business models. We then examine the role of risk management The Trends and Megatrends Observed Trends in the insurance and financial sector are partly exogenous but are also influenced by the actions of the industry. On the basis of observed industry practice and reports, we have identified several trends: • Increasing financial regulation • Changes to taxation and tax policy • Products being tailored customer-specifically • Digitalisation • New health-care products (old age and other) • Financial convergence • Non-financial convergence • Incentive-based insurance products • Cross-selling • One-stop shopping • Hybrid products • Cybersecurity • Opening of value chains Proceeding from scientific findings, we further classify these fundamental trends in terms of societal megatrends. The trends listed above can be best categorised as part of three megatrends: The first of these is a megatrend of more complex regulation and taxation; the second is demographic and technology transition. The third refers to fundamental changes in business models. While the individual trends could be classified in several ways, the authors find this approach to be most logical for the reason that each trend can easily be attached to its corresponding megatrend. 325 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector More Complex Regulation and Taxation Complexity of the financial sector is a well-known phenomenon. Nicola Cetorelli, James McAndrews, and James Traina (2014) have shown that bank holding companies have grown in size and also become substantially more complex. The findings suggest that greater complexity is a natural adaptation to a new model of finance oriented toward securitisation. It is an important one indeed. Åke Freij (2017) has demonstrated the great significance of regulatory change for firms and entire industries and the difficulty in managing the implementation of new requirements arising from such change. The financial sector well exemplifies the type of boundary-spanning phenomenon this book focuses on. Changes occurring in the financial sector are an outcome of actions and interactions of public authorities and private actors. These actions and interactions are also multiscalar in the sense that their origins are in local, regional, national or supranational environments. The strongest shapers of trends and changes in economic life are the actions of public authorities, particularly in relation to regulation and taxation. Decisive movement in this area is especially strong in the insurance and finance sector. Manifested principally in stricter rules, this clearly qualifies as a megatrend. This section describes the emergence of a more complex regulation and taxation landscape. It dissects this megatrend into two trends: We first examine the effects of increasing financial regulation on the actions of companies. We then detail trends in taxation and taxation policies. In the insurance sector, the EU Solvency II regulations have been in force since the start of 2016. The new rules are risk-based and entail much more precise risk estimates than earlier regulations, for both the investments and technical reserves of insurance companies. At the same time, with the new Basel rules, capital and liquidity requirements for banks have increased. The Basel rules were set up by the international Basel Committee and regulate mainly capital and liquidity requirements for banks. Many bigger banks apply internal models for capital adequacy calculations, but the Basel committee seems to be heading towards prohibiting the use of internal models (expected with the so-called Basel 4). 326 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector The European Insurance and Occupational Pensions Authority (EIOPA) is the authority for regulating solvency requirements for insurance companies and occupational pensions companies in the EU. It has provided instructions for several stress tests (e.g., European Insurance and Occupational Pensions Authority, 2016) to assess the resilience of European insurance companies against adverse macroeconomic developments. The new Solvency II rules are so strict, in fact, that several European insurance companies have opted to take advantage of transition arrangements made possible by supervisory authorities and terms of Solvency II. The capital requirement associated with traditional and with profits life insurance are one important example of how rigorous the new solvency rules are. In traditional life insurance, there is a capital guarantee and a limited profit guarantee. The capital guarantee obligation requires the firms to hold a large amount of solvency capital. An alternative to the traditional life product, unit-linked life insurance involves no guarantee. The insured decides how to invest his or her money and retains full responsibility for profits and losses during the insurance period. It is natural that the solvency capital requirement for unit-linked insurance is only a small fraction of the capital requirement for traditional insurance. However, with Solvency II, this difference becomes even larger. Consequently, insurance companies are shifting their businesses from traditional life insurance to unit-linked offerings (see Ruuskanen & Voutilainen, 2015). For regulatory reasons, customers are no longer able to obtain guaranteed policies. They are obliged to make investment decisions they are not qualified to make or at least often dislike. As a response, life insurance companies have started to produce compromise products combining features of traditional and unit-linked life products: so-called variable annuities with a limited guarantee (Ruuskanen & Voutilainen, 2015). In this product, the insurance company may be obliged to pay back at least the amount of the premiums – for example, as a death benefit or as savings at a certain time. The solvency capital requirement of a variable annuity is less than that of traditional life insurance but greater than the amount of capital required for unit-linked insurance. Supervision of large financial conglomerates is particularly challenging, especially in cases of cross-border groups. Pekka Korhonen, Lasse Koskinen, 327 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector and Raimo Voutilainen (2006) brought together Finnish banking and insurance supervisors to ascertain which model for alliance between banks and insurance companies they most preferred. The supervisors chose a loose cross-selling agreement, citing supervisability and management of system risk as the most important criteria in their decision. The second element in the megatrend of increased regulatory complexity is the taxation environment. Taxes on financial products have profound effects on customer behaviour and, thereby, on product development. Below, we illustrate the effects of shifts and complexities in taxation, which is highly country-dependent, by looking at developments in Finland. This is an interesting example of how public and private actors behind change dynamics interact. The Finnish state has reformed the tax treatment of individual pension insurance several times over the last two decades. The lowest possible retirement age has been raised and tax deductions for premiums have decreased. Before the latest tax reform, there were 700.000 pension insurance customers, but few have been interested in the product since then. Currently, the lowest retirement age allowed is 68 years and the pension must be paid out over a span of not less than 10 years. Information on Finnish taxation system can be found in Finanssivalvonta (2017). As changes in the state’s taxation policy have made individual pension products unattractive for customers, life insurance companies have developed other products suitable for long-term savings purposes. For example, Nordea, which is the biggest financial group in the Nordic countries, has launched a capital redemption plan that pays out regularly. The product, called Target Saving, can supplement the mandatory pension, but it can also be used to finance studies or any time when there is no actual salary, thanks to the regular outpayments. As changes in the state’s taxation policy have made individual pension products unattractive for customers, life insurance companies have developed other products suitable for longterm savings purposes. 334 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector are a better fit to each other in the portfolio diversification sense (for more details, see Estrella, 2001). Forming of financial conglomerates has been an international trend since the 1990s. In Finland, there are two large conglomerates active in this field: Nordea (a Nordic group composed of a bank and life insurance companies) and OP Group. Nordea does not engage in non-life operations, while OP’s activities encompass both insurance types. It should be noted there has been resistance to the trend. In the early 2000s, some giant financial conglomerates were dismantled in Europe: Credit Suisse – Winterthur and Allianz–Dresdner. The advantages noted above may not have compensated for the difficulties in the financial management of these groups. One-stop shopping is another trend to emerge recently in the customerservice process for financial services, alongside cross-selling and hybrid products. The concept is that of offering the customer a wide assortment of bank and insurance products during the service visit (which may be in a branch office or via telephone, Net meeting, or other online interface). One-stop shopping is a driver for cross-selling (Mäenpää & Voutilainen, 2011). The customer benefit is comprehensively taking care of all financial matters during a single session; the drawback is a package deal and difficulty in comparing to competing products (cf. Voutilainen, 2006). A closed value chain in the financial sector involves a given sales channel (e.g., a bank) offering the customers only funds of that channel’s own fund company and its own life insurance company’s unit-linked insurance (which are linked to in-house funds and other investment instruments). An open value chain, in contrast, means the sales channel offers also competing financial groups’ products (as an alternative). Banks in Sweden have opened their value chains, while Finnish banks generally have closed value chains. Entities such as Private Bank constitute an exception. As customers grow more demanding, Finnish banks are likely to start opening their value chains. Solvency II, discussed earlier, is relevant to this connection. Because of the high solvency capital requirements, some banks have divested their insurance holdings at least in part. It has been reported (Navarro, 2014) that the large Spanish banking group Santander sold its traditional life portfolio, with a high solvency capital requirement, and retained its risk life and unit-linked portfolios. When banks give up their insurance holdings 335 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector (either partly or totally), they often make an exclusive sales agreement covering those products. Bank divestment of insurance portfolios has not yet spread to the Nordic countries. On the other hand, almost all Nordic life insurance companies have stopped selling traditional life insurance (for further details, see Ruuskanen & Voutilainen, 2015). Before moving on, let us expand on some remarks made in the introduction. Financial convergence can involve engaging in competition via an insurance company launching a product that performs the same task as a product of a bank (or a nearly identical one) or vice versa. An alternative method of financial convergence is to establish a new company in the other sector or acquire a company already active in that sector. Finland has seen an especially strong move in this regard in banks establishing or acquiring insurance companies. More generally, banks were active in financial convergence with the wealth management sector in the 1980s, before turning to the life insurance sector in the 1990s and the non-life insurance sector as the 2000s began. Lately, banks and insurance companies have experienced a new type of convergence and competition led by retail chains. Examples of retail sector actions in finance are Carrefour in France, Tesco in Britain, and S Group (in cooperation with LocalTapiola) in Finland. For their part, banks have extended the operations’ scope to non-banking sectors such as health care and automotive operations, as in the case of OP Group in Finland. With non-financial industries penetrating banking and insurance arenas while financial enterprises are entering new business areas, we can conclude that financial convergence has gone a step further: it has turned into industrial convergence. Discussion Megatrends require new kind of risk management and solvency regulation. Several authors (e.g., Billio, Getmansky, Lo, & Pelizzon, 2012) have drawn attention to increased risk in insurance and finance, finding that all hedge funds, banks, broker/dealers, and insurance companies are highly interrelated. This is likely increasing the level of systemic risk in the finance 336 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector and insurance industries through a complex network of relationships that changes on multiple time scales. Financial crises such as those of 1998, 2001, and 2008 highlight the need for holistic risk management and risk-based capital requirements. In response, Solvency II and Basel II–IV regulations permit insurance companies and banks to use internal (in-house) models for risk management and for calculating the solvency capital requirement. However, weak internal models were one cause of the crises in 2008. The main objectives and potential benefits of using internal models for regulatory purposes include risk management that is more risk-sensitive and innovative, along with greater efficiencies in terms of capital and costs. Statistical modeling is a key part of any internal model attempts to forecast the probability distribution for the profit-and-loss account and the funds available internally (European Insurance and Occupational Pensions Authority, 2014). As for the solvency capital requirement of insurance companies, a forecast looking one year ahead to the 99.5th percentile (VaR) is the calibration target. The modeling areas are addressed by the statistical quality test and calibration test in the Solvency II framework. For an overview, we direct the reader to the key articles of the directive and the aspect of internal models that they address: • Art. 113: Policy for changing of the model • Art. 114: Governance and management • Art. 118: The use test (addressing whether the model is relevant for and used in risk management) • Art. 119: Statistical quality standards • Art. 120: Calibration standards • Art. 121: Profit and loss attribution • Art. 122: Validation standards • Art. 123: Documentation standards Senior management understanding of internal model and its uses is one of the key principles guiding the use test. Leaders should have an overall understanding of the internal model, as well as specific areas they use the model. 337 Leading Change in a Complex World: Transdisciplinary Perspectives Megatrends in the Insurance and Financial Sector All of these standards are useful in the development and application of internal models in today’s changing world, with the aim of better risk management. 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