Making Sense of Creative Destruction: Anticipating the Looming Threat

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Destruction -

Anticipating the Looming Threat

Master’s Thesis 15 credits

Department of Business Studies Uppsala University

Spring Semester of 2019

Date of Submission: 2019-06-04

Pierre Chatin

Niels Groenewegen

Supervisor: Michal Budryk

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Acknowledgements

First of all, special thanks are due to our supervisor, Michal Budryk, for guidance throughout the writing of this research project. Your insight and advising have been immensely valuable for the completion of the study.

We would also like to give a special thanks to Loomis Sweden who was the case company for the research project. It would not have been possible to carry through the study without the help we have gotten from Joakim Wahlqvist, Patrick Svensson, Stefan Johansson, Johan Vikman, Mats Andersson, Franz Guttman, Jesper Olsson, Heléne Langenskiöld and Marlene Rask at Loomis Sweden. Your time, commitment and valuable knowledge of the cash management business have been critical for the completion of the study.

Thank you all.

Niels Groenewegen & Pierre Chatin Uppsala, 30^th of May 2019

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Abstract

Title: Making Sense of Creative Destruction

Course: Master's Thesis in Entrepreneurship, 15 credits, Graduate Level Authors: Pierre Chatin & Niels Groenewegen

Supervisor: Michal Budryk

Keywords: Sensemaking, prospective sensemaking, future-oriented sensemaking, creative destruction, Weick

Purpose: The purpose of this study is to find how managers make sense of a future threat that does not have an urgent trigger.

Methodology: The method applied in this study is qualitative case study. Nine semi-structured interviews were conducted of managers at the case company.

Theoretical approach: In the context of the case company facing a threat of creative destruction, we study the sensemaking process of the managers we interview. Special focus is dedicated to prospective, future- oriented sensemaking. We apply a Weickian approach in the operationalization of the research.

Empirical findings: Loomis Sweden was our choice of case company. We found that the managers shared a collective sense of the past, but that there was a loss in shared collective sense of the future.

Conclusion: The lack of collective sensemaking of the future is caused by the ambiguous nature of the case company’s future. We further found that emotional dedication impeded prospective

sensemaking for some of the managers resembling wishful thinking about the future.

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Introduction

Swedes are, generally speaking, known to be open-minded towards using new technology in their daily lives (Barbieri & Bolin 2017). In recent years this has had a great impact on the use of cash, which has seen heavy competition from other payment methods (see appendix A).

Contactless payments, online payments, Swish (a service for digital cash transactions, both in the business world but also on an individual level), online shopping, the widespread possibility to pay with credit cards even in the smallest kiosks, and other innovations continue to outcompete cash as a payment method. This is evident in that the amount of cash withdrawals from ATMs has reduced from 219 billion SEK in 2013 to 130 billion SEK in 2017 (Riksbanken, 2018), a decrease of 40.6 % (see appendix B).

In light of the rapid decline, cash management companies in Sweden face heavy challenges from this wave of creative destruction. Hence, it is fair to deduce that firms operating in markets including cash transportation and logistics possibly are under an existential threat. This threat would be further emphasized by the findings of Tripsas (1997) who found that if competence and specialized complementary assets were destroyed, the incumbent firm would perish.

Little research has been done on sensemaking and the relation between slowly unfolding crises in an organizational context (Maitlis & Sonenshein 2010, p. 552; Maitlis & Christianson 2014, p. 108; Sandberg & Tsoukas 2015, p. 23). In this study, research has been made on how managers at Sweden’s biggest cash management firm, Loomis Sweden, make sense of the threat they face, and how they aim to survive this societal change. As sensemaking in large is researched on in the context of sudden shocks triggering it (Maitlis & Sonenshein 2010, p.

552), it is believed that doing research on sensemaking in the context of the exogenous variable of creative destruction, is valuable. Especially since creative destruction is a slow and gradual

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2 shock rather than a sudden and urgent one and hopefully it will enrich scholarly understanding of sensemaking.

Summarizing the above line of argument, the research question of the study emerged:

How do managers make sense of a future threat that does not have an urgent trigger?

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Theory

Creative destruction

Ever since Schumpeter in 1942 introduced the concept of creative destruction, numerous researchers have studied the subject. One aspect, studied by Tripsas (1997, p. 139), focuses on why incumbents sometimes fail to remain dominant and why they succeed in markets that are shaken by creative destruction. The research showed that “incumbents only suffered in the market when both competence was destroyed and the value of specialized complementary assets was diminished” where “destruction of competence” refers to the existing know-how becoming obsolete as new technologies emerge. In the years between 1886 and 1990, three major technological changes shook the typesetter industry in which Tripsas made her research.

The result of these were that the market was taken over by new entrants since the old technology and the know-how became obsolete whereas the incumbents could not sustain and adapt to these changes.

In regard of survival, size is of high importance for incumbents. Ito and Kato (2016) argue that bigger incumbents are more likely to stay in the market than smaller ones who, on the other hand, are more likely to make an exit from the market (Ito & Kato, 2016). Surviving shocks in the market or a new entrant entering the market is arguably connected to the size of the incumbent since a larger corporation tends to be more diversified in the market (Bercovitz & Mitchell, 2007). As incumbents increase in size, the greater the chance for survival of shocks and new entrants, as Figure 1 depicts. Because of their diversification, incumbents are very agile and can shift focus in the market from one segment or product to another.

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4 For Loomis Sweden however, the situation look a bit different. Loomis Sweden is diversified geographically in many markets around the world, yet their core business is solely cash management which raises the question whether Loomis Sweden aims to diversify in different markets in Sweden or not. If yes, then how?

Tripsas (1997) found that incumbents survive creative destruction by extensive investments in new technology. The findings show that even though the incumbents’ technology often is inferior to that of entrants, they manage to survive due to their specialized complementary assets. In his book “The innovator’s dilemma”, Christensen (1997) also concludes that incumbents invest heavily in new technology although, despite this fact, he finds that they sometimes fail nonetheless. He attributes a great amount of the failure of big incumbent firms to “the complexity of managing the resource allocation process” (Christensen 1997: p. 208).

By that he means that the allocation of research between already existing products and in the research of new disruptive technology is very complex for big firms to manage. Further, Christensen (1997) points out that the pace of technological development does not always correspond with the pace in the change of demand in the market. This asymmetry leads to the fact that “products that do not appear to be useful to our customers today (that is, disruptive technologies) may squarely address their needs tomorrow”. The risk of not investing in the right future technology is thereby a dangerous such, inherent to the incumbent firm. A third reason for incumbents to fail is that existing business units often possess very specialized know- how which rarely is applicable to the requirements of a new disruptive technology. This is closely related to Tripsas (1997) arguments of an incumbent failing in light of the destruction of competence. The fourth reason for firms to fail, as listed by Christensen (1997, p. 227), is that sometimes “the information required to make large and decisive investments in the face of disruptive technology simply does not exist.” Investing in the right technological development

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5 at the right time is thereby a highly difficult task. This information issue is further emphasized by Gans (2016, p. 85), who claims that for incumbents “uncertainty about which products on the fringe of their markets might turn into serious competition makes it difficult to respond”.

Confirming Tripsas (1997) and Christensen (1997), Igami (2017, p. 843) also finds that new entrants invest heavily in new technology. However, he discovered a distinct time lag between when new entrants begin to invest and when incumbents begin doing so. He suggests that

“despite strong preemptive motives and a higher efficiency of innovation than entrants, cannibalization makes incumbents reluctant to innovate”. Cannibalization infers the replacement of the development of new product at the expense of existing products. In addition to this replacement effect (introduced by Arrow, 1962 and quoted by Igami, 2017), Igami also blames “institutional inertia” for slowing down R&D processes as firms grow bigger and older.

Polites and Karahanna (2012) show how inertia manifests itself in a big firm. A few symptoms of inertia in incumbent firms are high perceptions of sunk cost, high transition costs of technology and short term disadvantages of internal technological transitions, amongst others.

In their article from 2013, Downes & Nunes present the Big-Bang Disruption theory, a new conceptual framework which is derived from Schumpeter’s creative destruction. Over the years of creative destruction, an understanding for how it plays its role in terms of strategies and what and what not to do has evolved and been adapted by countless corporations. Retrospectively, there are many examples of what could have happened if companies were not observant and did not listen to the shocks that affected the market regarding new technologies and innovations. Bower and Christensen (1995) published their article “Disruptive Technologies:

Catching the Wave” in Harvard Business Review where they have contributed to the understanding of corporations of what they should be observant of when shocks hit and affect the market. Accordingly, smaller businesses are more agile when it comes to changing

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6 strategies and products and can therefore mean potential danger for incumbents if these do not act in time (Bower & Christensen, 1995). Big-Bang Disruptions are more aggressive and change the market far more swiftly than “regular” disruptive technologies do. The biggest difference between these two are that Big-Bang Disruptions are unintentional; they are not part of a corporation’s business strategy nor are they following traditional market patterns, which make them highly unmanageable and almost, if not entirely, impossible to predict (Downes &

Nunes, 2013). The reason behind this is that the disruption derives rather from other companies and entities in sometimes completely different industries with nothing close to resembling the business model of the actors in the industry of which it is disrupting.

Sensemaking

For this study, sensemaking will be an integral part. Weick (2009, p. 131) states that sensemaking “unfolds as a sequence in which people concerned with identity in the social context of other actors engage ongoing circumstances from which they extract cues and make plausible sense retrospectively, while enacting more or less order into those ongoing circumstances.”

Sensemaking has been broadly applied in prior research. According to Sandberg and Tsoukas (2015, p. 23), the sensemaking perspective has been applied to even more and more fields of study. In their review paper, where they make an overview of 147 studies on sensemaking, they find 37 different areas. The most common areas where the sensemaking perspective is applied are strategy and organizational change, organization crises and accidents and organization identity. Sandberg and Tsoukas (2015, p. 11) note that, in research, the sensemaking perspective “is confined to specific episodes, is triggered by ambiguous events, occurs through specific processes, generates particular outcomes, and is influenced by specific situational

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7 factors.” Sensemaking has been traditionally focused on crises while organizational sensemaking thus far has been “under-researched” (Sandberg & Tsoukas 2015).

Sandberg and Tsoukas (2015) state that, in an organizational context, sensemaking is applied to a variety of situations. Here they list major planned events, major unplanned events, minor planned events, minor unplanned events and hybrids of triggering events. They point out that minor events sometimes escalate to major events if the sensemaking process is unsuccessful.

It is important to note that major and minor unplanned events more often lead to crises, whereas planned events rarely evolve into an urgent crisis. In this study focus will be on the viewpoint of planned events as a wave of creative destruction is not urgent, but rather a relatively slow process without a sudden trigger.

Stensaker and Falkenberg (2007) performed a case study on a Norwegian oil company that was going through major organizational change with the aim to cut administrative costs with 50%.

In their research they find that sensemaking is an important component of individuals’

responses to corporate change. Especially “when individuals interpreted the changes differently from corporate intentions, [...] divergent responses at the individual level lead to corrupted change outcomes.” (Stensaker & Falkenberg 2007, p 172). This finding is further highlighted by the findings of Maitlis and Sonenshein (2010) who state that sensemaking by middle managers often has great impact on the outcome of organization change as it is communicated from top management to frontline employees. Thus, it is very common in organizations that interpretations of organizational change varies greatly in and between hierarchical segments.

Another important finding is that corporate change itself was not consistent over time.

Stensaker and Falkenberg (2007) find that as time passed during the organizational change process, the more customized the change would be. On different organizational levels, this often led to diversions from the original corporate intention.

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8 As mentioned before, sensemaking is often a process associated with sudden crisis. In their paper, Maitlis and Sonenshein (2010) discuss sensemaking both in the context of crisis and of organizational change. The motivation behind their paper is that “integrating insights from studies of change enables a natural extension to research on crisis sensemaking” (Maitlis &

Sonenshein 2010, p. 552). Furthermore, they mention commitment, identity and expectations as critical levers of the sensemaking process.

Commitment influences sensemaking because “individuals often generate explanations retrospectively to justify actions to which they have committed” (Maitlis & Sonenshein 2010, p. 562). Referencing to Kotter (1996), they state that making a strong public commitment can have a very beneficial effect on facilitating “dramatic” corporate change. It helps other organizational members to envision the same meaning, helping them shape a commonly shared understanding.

Maitlis and Sonenshein (2010, p563) mention identity as a hinder to organizational change.

Deeply rooted identities are sometimes “completely replaced”, which by employees can be perceived as threatening as they find it hard to make sense of their new roles. This can often evoke change resistance.

Also, emotions are a very important component in sensemaking, especially negative felt emotion. Maitlis & Sonenshein (2010, p. 567) note that “negative felt emotions typically found in crisis and change contexts are especially likely to impede sensemaking”. Thus, they assert that emotion can be an obstacle to sensemaking, but vice versa, failure in sensemaking itself can also trigger negative emotions.

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Prospective sensemaking

Prospective sensemaking is a more recent term, slightly diverting from the traditional view of sensemaking as sensemaking long has been seen as “inherently retrospective” (Maitlis &

Christianson, 2014, p. 96). However, they summarized literature that states that prospective, future-oriented sensemaking is retrospectively making sense of an imagined future event.

Wiebe adds that “managers temporally make sense of their experiences of change, actively configuring the relationship between the past, present, and future in different ways” (2010, p.

213). Analyzing managers in a context of organizational change, he explains that future- oriented sensemaking draws on present experience which in turn draws on past experience.

This is an interesting finding as it reveals how expectations about organizational change are shaped. It is also further backed up by Zhang et al. (2010;2011, p. 285) who define future- oriented sensemaking as “always embedded in or related to past and present temporal states and is undertaken using present-oriented sensemaking practices identified in part by ethnomethodology.”

Stigliani and Ravasi (2012, p. 1250-1251) confirm that retrospectivity is a cornerstone of prospective sensemaking, however they add that this does not mean that people necessarily express themselves in ‘retrospective’ phrases when speaking of the future. Thus, they diverge from Weick (1979, p.199) who states that prospective sensemaking grammatically is expressed in future perfect tense.

Wright (2005) finds that managers in the periphery of the organization often use inductive reasoning in their sensemaking, whereas managers in the center generally adopt deductive reasoning. According to Wright, managers using scenarios in their prospective sensemaking

“enhance the abilities of the inductive strategist” (by that meaning managers in the periphery).

Combining these finding with those of Stensaker and Falkenberg (2007) creates an interesting picture. Their findings that customization of organizational change is very common fits well

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10 with peripheral managers’ need to operate inductively. If a manager in the periphery makes sense of his environment differently than top managers, he or she will adapt the organizational change initiative to make it fit with his or her environment.

Konlechner et al. (2019) dedicate special focus to expectations in the context of organizational change. In their study, prospective sensemaking is analyzed as an important component of organization change. They find that there is “stickiness” in expectations (Maitlis & Sonenshein also state this (2010, p. 564)) and that the degree of “stickiness” depends on how frames develop through prospective sensemaking. Furthermore, they find that expectations change radically when “ambiguity tolerance” between expectations and new cues is exhausted. This leads actors to “lose confidence that desired future reality can be attained” (Konlechner et al.

2019, p. 725). This finding is interesting because it has great impact on the outcome of organization change as the process evolves.

Expectations are also seen as an important element of performance in a hierarchical context.

The “shared set of expectations about performance, which in turn leads to the enactment of that performance” (Maitlis & Sonenshein, 2010, p. 564). As an example they mentioned the Bhopal factory which by management was perceived as a unit with low expectations. According to Weick (1988) these low expectations from management were transferred down to employees.

All of this contributed to sloppy procedures, inattention to details and lower standards. The question is whether lowered expectations on a market in decline (which the Swedish cash management market presumably is) influence the overall sensemaking of the challenge in the market.

Conceptual framework

On an individual level this study will use the conceptual framework presented in Figure 2 and the model is based on Weick’s (1995) model for the sensemaking process. Focus will only be

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11 on the interplay between cues and mental frames and how these together shape the sensemaking process. Identity, expectation, context, language, emotion, politics, technology and other situational factors are regarded as exogenous variables to the model (Sandberg & Tsoukas 2015, p. 36). The conceptual framework can be explained by cues and mental frameworks retrospectively influencing one another. Cues influence the mental framework through new signals, while the mental framework influences how new cues are perceived. Together these shape the sensemaking process. When ambiguity between cues and mental frameworks becomes too wide however, we speak of a cosmological episode (Orton & O’Grady 2016, p.

227). They write that “a cosmology episode refers to the process involved when an event or experience unsettles one’s cosmology or, in other words, one’s sense of the universe and one’s place in it”. Thus, a total loss of meaning and understanding of one’s environment or situation.

Figure 2. The conceptual framework of the individual's sensemaking process illustrated. Cues and mental frames are two central concepts in sensemaking theory

which together constitute the process of sensemaking. Cues are occurring in the exogenous environment, yet what counts as a cue and how it is interpreted depends on the mental frames. Frames on the other hand are constructed from past cues and

these frames determine the perception of new cues. In a whole, this process is called sensemaking. Hence, the mental frames can change when new cues emerge,

a process that requires mental effort.

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Operationalization

In order to evaluate how Loomis Sweden makes sense of their surroundings and the constantly changing business landscape the conceptual framework of sensemaking have been operationalized in terms of the three different elements of the theory. Maitlis and Christianson (2014, p. 59) state that sensemaking is composed of “perceiving cues, creating interpretations and taking action”. Drawing on this theory, we have renamed these components as cues, frames and sense.

● Cues are defined as the changes, occurred events or facts that have had perceived impact for the company. Cues are difficult to operationalize quantitatively but through semi-structured interviews it should be possible to develop an understanding and determine for which of these that have had palpable impact on the company’s strategic actions.

● Frames are viewed as to where the interviewee addresses their own belief, view or opinion of a past or present state. Thus, for the sake of clarity, a belief about e.g. past change is seen as part of a mental framework (frame), whereas a statement about a previous event is defined as a cue.

● Sense refers to the relation between a cue and a frame. According to Weick (1995, p.

110) “a cue in a frame is what makes sense”. Hence, we looked for phrases expressing what Loomis Sweden ought to do in the future (enactment sense) or how an event in the past influences the present.

By the above coding parameters, the interplay between cues that the individual experiences and mental frames that the respondent holds were analyzed. This in turn enabled analysis of the sensemaking process in the context of the threat from creative destruction.

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Methodology

Research Design

In order to answer the research question and fulfill the purpose of studying how companies use sensemaking in times of creative destruction, a case study was conducted (Bryman & Bell, 2011). There are five different types of case studies where one is named The Revelatory Case whose main focus is to study a new phenomenon where no prior research has been made due to inaccessibility (Yin, 2003). Both of the theoretical frameworks, from which the study assumes its shape, are established organizational and economic theories yet seemingly never applied together. Further, Yin (2003) argues that many of the qualitative single case studies are considered as broadly revelatory. The underlying reason for why this study is of revelatory character is namely because there is no prior research regarding both creative destruction and sensemaking, especially not based on this case company. Bryman & Bell (2011) assert the fact that the purpose of a case study is not necessarily that the result needs to be generalizable and applicable to other actors in the market but rather that the result leads to a theory. Thus, the main objective of this study is not to elaborate a conventional theory that is generalizable but rather study how the managers at the case company make sense of the future in times of creative destruction, and thus propose an extension to an existing theory. However, the result that is presented may nevertheless function as a point of reference in similar situations within other organizations or companies (Bryman & Bell, 2011) undergoing similar market changes.

Generally speaking, it is more common to see qualitative methods being used in these kinds of studies since this sort of studies intends to profoundly examine a specific case in contrary to quantitative ones (Bryman & Bell, 2011). This study is not an exception since it is also profound in its configuration where the focus is one specific company and their situation.

Qualitative research methods takes “soft values” or “soft data” into consideration within the

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14 frames of the study (Davidsson & Patel, 2003) and seeing that sensemaking is a soft value it is therefore highly difficult to quantify it. Because of this reason, this study will be of qualitative character using semi-structured interviews with adequate representatives from the chosen company (Bryman & Bell, 2011). In terms of specificity, semi-structured interviewing is preferred over non-structured interviewing in those cases where researchers from the beginning of the study have a fairly clear idea of what is to be examined through it. The specificity increase by using semi-structured interviewing since researchers have the possibility to aim their questions to what is to be researched (Bryman & Bell, 2011). Two significant strengths within qualitative research designs is the closeness between researcher and research-project and the fact that the data that is being collected is both profound and explanatory (Bryman &

Bell, 2011). The closeness between researchers and research item infers taking part of and focus on what the interviewees narrate and thereby not excluding their own opinions but rather the opposite of highlighting them. In doing so, more information has emerged than solely the one regarding the questions that were structured in advance.

However, it can be argued that qualitative data opens up for more potential misinterpretation than the quantitative one does. Compiling qualitative data therefore requires that the interpretations are made based on the empirical data that has been collected and it is of great importance that a high objectivity in interpretations and assessments are sought for.

Furthermore, a weakness of semi-structured interviews is that the results are not as undemanding to interpret as those of a quantitative study (Bryman & Bell 2011). Qualitative research is often criticized for being too subjective when it comes to interpretation of the data by the individual researcher (Bryman & Bell 2011). Also the relation between the researcher and the respondent is mentioned as disturbing. The objectivity was thereby strengthened by the fact that the authors did not know the interviewees before the interviews and that no further contact was established with any of the respondents after the interview.

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15 In terms of research approach an abductive method has been used due to its iterative nature (Saunders et. al., 2016, p. 148). An abductive method is essentially a combination of both inductive and deductive method and an iterative method is suitable with a starting point in the theory which then applies to the empirical data. The purpose of utilizing an iterative approach is to oscillate back and forth between theory and data throughout a research project (Bryman

& Bell, 2011). This iterative way of working has allowed the understanding to grow successively as the project swings and using a case study has enabled deeper understanding analysis of the theoretical field and its problem. Further, this could also contribute to a greater understanding of how the theory is put into practice (Bryman & Bell, 2011).

Sample

The study has been limited to Loomis Sweden as its operations in Sweden are almost exclusively dedicated to cash management, an industry currently undergoing creative destruction. Many of Loomis Sweden’s competitors are cash management companies as well as security firms which infers that Loomis Sweden is more dependent of the cash management market and thereby a more suitable subject for the study than its competitors. The underlying reason for them being more suitable is the fact that the change in market situation is more palpable for Loomis Sweden than for their competitors. The study has been limited to the Swedish market since Sweden experiences the largest decrease in cash usage in comparison to the rest of the world and also due to the geographical location of Loomis Sweden’s headquarter.

The interviews consisted of a total of 9 employees; 5 c-level managers, 1 middle-manager and 3 account managers, at Loomis Sweden, a branch of the Sweden-based global cash management company Loomis AB. Only one of those asked to participate in an interview did not partake since the person did not believe to be the right person to interview. In terms of individual interviewees we had a dialogue with representatives at Loomis Sweden to determine

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16 the best suited candidates for our study. In accordance with snowball sampling, which is known to be used within qualitative research, we found new people to interview by asking the interviewee for another suitable person (Bryman & Bell, 2011). In a dialogue with Loomis Sweden, interviewees within the management segments were asked for and once a contact was made with a manager the project was taken further from there.

The sample was limited to only doing research on one company due to three main reasons;

● Limiting the scope where a thorough study of one firm undergoing creative destruction is believed to be a better approach than to spread the focus on multiple firms. The aim is to perform an instrumental case study (Bryman & Bell 2011) where the findings possibly can be generalized. For the sake of focus in the study, it was argued that a limitation to one firm was more advantageous.

● Integrity. Loomis Sweden favored that the study did not extend its research to one of their competitors. Further, it allowed the interviewees to speak more freely as they needed not fear the authors having any sensitive information that potentially otherwise could have gotten into the hands of a competitor.

● The sake of feasibility as the time and resources were restricted.

Data Collection

The empirical data has been collected through interviews with suitable representatives of Loomis Sweden. The interviews had a length of 25 - 40 minutes and were held in a semi- structured format. The Interview Guide (see appendix C) was used for all interviews and supplementary questions arose in those cases further specifications or explanations were needed. The data has been collected through interviews with top managers, middle managers and front employees. By choosing the semi-structured interview as method of data collection

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17 the respondents were able to adapt their answer so that they could respond to what they interpreted as the core of the question (Lundahl & Skärvad, 2016).

An interview composes of many linguistic nuances, the difficulty of interpretation, tone and other subtleties. For this reason it was of high importance that the interpretation of the data was conducted in a manner as objective as possible. In order to avoid possible misinterpretations both of the authors of this paper conducted all interviews together. With the interviewees’

permission, all interviews were recorded and later transcribed word by word as accurately as possible, which also allowed the authors to experience the interview anew (Bryman & Bell 2011). All interviews were conducted in Swedish, the native tongue of the interviewees, which possibly inferred that interviewees could express themselves more freely than if the interviews were held in English. Accordingly, the transcriptions were made in Swedish as well and the empirical data presented in that section consists of extracted quotes that were, as accurately as possible, translated to English.

By applying this method, the study have been able to gather more information than what would have been possible with a survey. Neither was it determined that it was appropriate to conduct unstructured interviews (Bryman & Bell 2011). The reasons for this being that the interview guide consisted of too many specific questions that had to be answered for us to be able to know if and how the sensemaking process was conducted by each individual.

Secondary data has also been collected, however mainly to further illustrate the changes that have occurred in the cash usage over the past years. For this purpose, Riksbanken’s (Central Bank of Sweden) webpage have been accessed to collect data of said development.

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Reviewing Theory

In the beginning of this study a literature review was presented in order to widen the knowledge in the field. The relevant theory was found through Uppsala University’s search engine, Uppsala University’s Library, the Business Source Complete database and Google Scholar.

Through the snowball sampling of papers further relevant papers were discovered. Fortunately, the previously mentioned platforms did provide other “snowballed” papers that were determined to be relevant to the theory.

Reliability & Validity

Assessing the quality of a research study is done according to the two criteria: reliability and validity (Bryman & Bell, 2011). The reliability and validity differ between qualitative and quantitative research and LeCompte & Goetz (1982) write about internal and external reliability and validity regarding qualitative research. Reliability refers to whether the result of a study can be repeated (external reliability) and whether or not the observers agree on what has been observed (internal reliability). Validity refers to what degree the results can be generalized (external validity) and whether the observations match the theory (internal validity).

Reliability

External reliability according to LeCompte & Goetz (1982) is whether the result of a study should be the same if it were repeated again and again. The internal reliability however refer to what degree the perceptions and interpretations of one of the authors in a research group is aligned with the other members’ perceptions and interpretations of the same group. The two authors of this study have similar academic and personal background with one exception being

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19 the major in bachelor degree which is split between economics and business. This entails a fairly equal perception of the world which is positive in terms of interpreting the collected data.

However, a more heterogeneous group could possibly contribute with wider perspectives which would further facilitate the discussion. Nevertheless, the two observers have reviewed theory, conducted the interviews and analysed the empirical data together. All interpretations of the data were discussed together in order to reach consensus.

Regarding the external reliability, the replicability, there is some criticism stating that the business landscape is constantly changing and of highly dynamic character which entails that circumstances are shifting over time. The interview guide used for this study is attached in the appendices to increase the chances of replicability in the future (Bryman & Bell, 2011).

Another issue regarding the reliability is the semi-structured nature of the interviews where supplementary questions arise and the interviewees are free to reply in an open manner which increases the span of interpretation that is required. To counteract these phenomena all of the interviews have been recorded and transcribed to ensure that the empirical data is entirely based on what the interviewees have said.

Validity

Validity is the term for the extension to which the study really measures what the study aims to measure. In a qualitative study, internal validity refer to how well the collected data can represent reality (LeCompte & Goetz 1982). In this paper we interviewed multiple managers and other staff at Loomis Sweden. This has allowed us to collect the necessary data and enabled us to understand how sensemaking is done under pressure from creative destruction. We believe that the interviews we have conducted are a fair representation of the sensemaking of the challenge ahead for the company. It would be desirable to have interviewed more

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20 representatives yet given the sample of interviews we got, of which 5 c-level managers, we deem the data to be highly valid.

According to LeCompte and Goetz (1982) external validity is the extent to which the findings can be generalized to other cases/scenarios. Creative destruction is a well-established theoretical framework which in the business landscape historically has repeated itself several times over and there are other existing companies enduring creative destruction at all times.

When adding creative destruction to the theory of sensemaking, it makes the future highly ambiguous and difficult to determine. The result of this study is therefore thought to be generalizable but further research has to be made on another company or entity undergoing creative destruction.

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Empirical data

The interviews were conducted by a snowball sampling where initial contact was made with Stefan Johansson, CMO at Loomis Sweden who provided further interviewees. In the table below all interviewees are presented in the same order as the interviews were conducted along with each individual’s title and number of years they have been working at Loomis Sweden.

Past observed cash decrease

The interviewees widely developed their views on how Loomis Sweden had developed in recent years. All interviewees unanimously state that cash as a payment method is on the decrease, that it is hurting Loomis Sweden’s business. Mats Andersson, Head of IT, notes:

“It has been decreasing. Cash as a payment method has during that entire period been decreasing as a share of the total number of transactions.”

Patrick Svensson, CEO, states:

“There is less and less cash in the market.”

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22 Johan Vikman, Head of Operations, said:

“It has been decreasing, I do not remember exactly how much but if I would be honest... I guess one does not look at the revenue but rather the decrease of cash, then

it is about 10% annually.”

Heléne Langenskiöld, Key Account Manager, states:

“....but it has constantly gone down, it has, it has decreased and it continues to decrease.”

All interviewees attribute the decrease in cash payments to the rise of other payment methods.

These are often generalized as “digital payments” whether they are made by card or electronically transferred. Some respondents however specify that by digital methods they also mean cards, mobile, online and other payment methods.

Another observation is that some of the respondents go further than to merely observe a decrease in cash payments as caused by the rise of alternative payment methods. The Key Account Manager, both Account Managers, the CFO, the Head of IT, and the Production Manager all mentioned the banks as actively working against cash. Marlene Rask, Account Manager 2, said:

“The banks do not want cash, everyone understands that.”

Joakim Wahlqvist, Production Manager, also asserts:

“Then again it is tricky considering that banks actually are those that want it [society] to be cashless.”

The Head of Operations adds to this by noting how banks have operated historically:

“I think, even if I cannot review the whole period I have not worked here... but there has been an increased outsourcing too. The banks have successively abandoned cash management.”

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23 The Head of IT shares this view:

“But what does the customer behavior depend on? Partially because of the simplicity and there clearly are advantages with paying digitally, with card or Swish (Swedish money transferring app) or some of the other payment methods. Then in Sweden it [the development]

has been spurred by the banks behaviour, which make it more complicated to pay with cash.”

Jesper Olsson, Account Manager 1, does not mention the banks as having this agenda. Instead he mentions that many of their clients view cash management as a cost and therefore abandon it. He said:

”[...] but that is not the primary reason for the decrease in cash, it is rather financial;

companies view it as a cost.”

Loomis Sweden in the present

The present performance of Loomis Sweden is, by all managers who touched the subject, observed as positive. The Production Manager notes that:

“Because currently Loomis is a thriving company, we have a very high margin and despite cash management developing as it does now we are, we believe, in Sweden at a margin of

about 15-16%, despite how cash management has developed”.

The Head of Operations emphasizes:

“If you look at the net profit then it is still high, we have a good margin and succeed in decreasing, or keeping costs in check if you will.”

The Key Account Manager confirms this by stating:

“We are a stable company and our ambition is to remain in business”

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24 Different managers continually raise the strengths of the company. The Head of IT mentions Loomis Sweden’s current client base:

“Because we have a client base in Sweden with 40.000 clients that habitually buy services from us. And [they] evidently feel quite some confidence in us because they are prepared to

take their money, that they have acquired from their operations, and transfer it to us.”

Franz Guttman, CFO, is even more enthusiastic about this fact:

“One could say that… we have about 40.000 clients. And it is a gold mine to have 40.000 clients. Not many have that, of all the companies that would like to do something. And these

[clients] are very interesting companies. They operate in all sorts of environments, all sectors.”

Even if the CMO uses a different number, he refers to the same information:

“That means that the value of Loomis Swedish branch is not in the top-line, but in the client base. We have around 50.000 clients in Sweden”.

Loomis’ market share is also often mentioned as a strength. The CEO asserts:

“We have 75% of the market, the cash market, what Loomis has. The others have the rest!”

The Production Manager also notes this.

“Yes, Loomis has maintained a market share, throughout the last 10 years, or 5 years, stable at 75%”.

Loomis Sweden and cash in the future

Regarding the future of cash in Sweden, the interviewees all agreed that cash as a payment method would likely further decrease in the future. There were a few differences however to the degree of the decrease, and what could (if at all) stop or moderate the trend. Also the respondents outlined their views on the implications this has for Loomis Sweden in the future.

Some of the interviewees were firm in their beliefs that cash would be a prominent payment

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25 method in society for years to come, as that would remain Loomis Sweden’s core business.

The CFO, the Head of IT, the Production Manager and the Key Account Manager were amongst those who expressed this view. To the question whether Loomis Sweden would work with cash management in 5 to 10 years’ time, the CFO responds:

“Yes, I am convinced. Because of the reasons I mentioned previously.”

The Head of IT also believes cash will be important for Loomis Sweden. He expresses himself more hesitantly however;

“For our core [business] it looks pretty dark. It is hard to determine and something we speak a lot about in the leadership… where it [the trend] is heading. Nobody doubts that the curve

is bending downwards. [...] I believe it will not end soon. Rather I believe it will continue.

But Loomis as a firm however, will have more legs to stand on, we will do other things apart from dealing with physical cash.”

The Key Account Manager replies to the question whether Loomis Sweden will work with cash in 5 to 10 years’ time and refers to the security issue:

“Yes, we will do that. It is too short time for cash to disappear. [...] If something happens, a cyber-attack or an electricity blackout for instance, what should we do then? How can one

make purchases?”

Later on in the interview she also mentions people who are depended on cash as a payment method. Specifically she mentions elderly and people with disabilities.

The Production Manager also holds a similar view, that cash will remain a payment method in Sweden for many years to come. He said:

“Cash management will, we believe, go down a little over time. But there is.... we look at it as a bottom-line there. It will not… we do not believe that it [society] will be cashless as many

others think [...]”.

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26 The Production Manager largely attributes this bottom line of cash in society to groups in society that otherwise would be excluded from society. He notes:

“[...] because we have many groups in society that do not have bank cards, they will be left outside of the system.”

The CFO gives the same reasoning as he “has heard a number of around a million people who are not in the digitized world” in Sweden. He also believes that integrity is an important reason for the demand for cash to stabilize. Referring to Germany, where people are more reluctant to share personal data, he believes people and authorities will start pushing back once they feel that cash is entirely on its way out. The Head of IT however, does not mention less technology apt groups as a reason for cash remaining in society.

The CMO and the Head of Operations have a wholly different view on the development of cash in the future. They believe cash will decrease to levels that are too low for Loomis Sweden to do business with. The CMO prophesied the following:

“I believe that within 10 years cash is…. the turnover rate of cash will be too low to do business with, business in cash for a company like Loomis for example.”

He believes however that authorities possibly could start regulating cash more strictly. At length he describes conversations with MSB (Swedish Civil Contingencies Agency) and how he thinks that the fear of an attack on internet-based services might make authorities more aware of the security aspect of cash. Later however, he notes:

“We cannot do business in the hope that there will be a war between Russia and the Ukraine and that it will create a shadow over Northern Europe so that the internet will not work.”

He also points out a parliamentarian investigation advising the government to force the banks to hold responsibility for cash in society. He has little faith that there will be a political solution in the future as he describes politicians as “tone-deaf” to the issue of how the costs of cash

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27 management in the future will be divided. No mention is made by the CMO of vulnerable groups in society or any future integrity worries about digital payment consumers.

The Head of Operations holds a similar view on future cash levels in society as the CMO. He believes levels of cash in society will shrink to a critically low level:

“I do not think that cash will disappear entirely, but the volume will be so small that is… it will not be possible to run the company on those”.

He did not mention vulnerable groups in society, the security aspect or integrity worries as a reason for cash to remain a payment method in society.

In contrast to the CFO, the Head of IT, the Head of Operations, the CMO and the Production Manager, the CEO did not have an answer to how cash usage will develop in Sweden in the future. To the question whether he believes Loomis Sweden will have left cash management altogether in 10 to 15 years he responds:

“I cannot answer that question. There is a researcher saying that by 2023 there will be no cash anymore. Yes, then it will be hard. But on the other hand there is a demand from the

Riksbank [Central Bank of Sweden] that cash is important. MSB [Swedish Civil Contingencies Agency] is looking into this. One sees that there is an outsidership for those

who cannot handle anything else but cash”

In the above quote the CEO, similarly to the CFO and the Production Manager mentions more vulnerable groups in society. He also mentions authorities as a possible future guarantee for the prevalence of cash in society. However, he does not list security as a reason, but rather the one million people in Sweden who can pay solely with cash.

Account Manager 1 also believes in the persistence of cash. He attributes this to authorities stepping in for the sake of the 10% of the population “that is excluded if they cannot use cash.”

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28 He explains:

“So I believe that something should happen where everyone will have the right to be able to pay with cash, because otherwise we will see a decrease more drastic than we have today.”

Account Manager 2 is also convinced that cash will still be around in Sweden in 5 to 10 years.

She attributes this to the issue of integrity. Also she firmly believes that people will want to have the option to pay with cash. She notes:

“One is controlled in a way that I think… imagine that cash would disappear tomorrow, that one [the banks/government] would say; no this is bad. Then people would think; ‘wait, now

someone has removed my right to choose’.”

The threat of internal inertia

Overall, there was a common understanding that the major threat was of external character, referring to the decline of cash usage in society. Some referred to the phenomena as “the increase of alternative payment methods” whereas others as “the decreasing use of cash” but the bottom-line was equal. There were also some mentions of competitors although these were never seen as a great threat. Some of the interviewees differed in their answers when asked about the threats for Loomis Sweden and pointed out the threat of internal corporate inertia.

The CMO said the following:

“The biggest threat is definitely if we were to enter a passive state, if we all of a sudden should suffer from inability to innovate. We know the conception of the world, we know of the

trends, we have worked by a considerable amount with reviewing data to see where it is heading. So the greatest threat does not come from the outside, it is if we were to have the

mindset of ‘A cobbler should stick to his last’, that is the greatest threat.”

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29 Following the same mindset was the Head of Operations, who also claimed the decreasing use of cash:

“But I believe it is more of an internal issue, that we are not agile enough, decision-making paths are long and we are efficient when ‘there is a fire’, but before that it takes a long time.

If you would take a look at the structure of the group you will see that the management group for Europe are seated in Spain. They do not see the same problems as we do which infers that they might not be in the same hurry as we are in regards of new products and I believe that is

a threat as well.”

The Head of IT viewed the decrease in cash as the main threat as well but pointed out the same internal threat as the Head of Operation. He stated:

“[...] it is the market itself. If we do not have the ability to renew ourselves and find new paths then, frankly, it does not look good.”

The Account Manager 2 also referred to the greatest threat as of an internal one. She explained:

“The banks do not want cash, everyone understands that. But we do. And it is important that we… we might not be able to, in the same way as the banks, be seen and heard everywhere.

But we have to try to be one step ahead. We might not be able to slow it [the decrease] down but we need to adapt to our customers. And it needs to be done quicker.”

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New products and services

Throughout all interviews, all respondents stressed the importance of Loomis Sweden providing new products and services in the market. Even if some of the interviewees discussed digital solutions at length, even those that mention digital services or products more sparsely emphasized that it is important for the future of Loomis in Sweden. Most concrete was the CMO who revealed:

“Which means that in our strategy plan until 2021, which stretches from 2017 to 2021, we are going to transform ourselves in the value chain from core business, which is CIT and

CMS, cash in transit, cash counting and processing, to digitalization.”

In answering what he believes Loomis should do in Sweden in the future, the CFO is more careful by stating “we are researching whether there is more we can provide which we are able to provide, we try to look outside the box, beyond the horizon, the digitized world.” Several of the interviewees mention that the best way for Loomis Sweden to be able to provide digital products, is through firm acquisition. None of those who discussed how it should be done favored internal product development.

It can also be observed that Account Manager 2 briefly emphasized digital product development only once. Account Manager 1 did not mention digital products at all. Even if he stretches the importance of product development he says: “I believe it will be hard for Loomis to all of a sudden start saying that we are the new Klarna”. (Klarna is a successful fintech company offering digital payment solutions in Sweden)

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The bankruptcy of Panaxia

Back in 2012, another actor and competitor within the security and cash management sector went bankrupt due to a crisis that struck the company. Some of the interviewees mentioned Panaxia’s bankruptcy as an event that increased Loomis Sweden’s business. The CFO states:

“About six years ago we were three incumbents in the Swedish market, it was Loomis, Panaxia and G4S and we were fighting over market shares, Panaxia were very successful in

doing so. They took over some customers; we believe in pricing but perhaps also because they were a bit more exciting challengers and fast-growing. Back then the times were hard for Loomis, we had a market share of about 40-45 %, which was significantly higher before

that. From the beginning it was Loomis who were dominating the market, it was us who started and ran the operations [...] But when G4S and Panaxia joined the game it was the biggest actor [Loomis] who was the most affected and lost some large contracts. So those were tough times, six years ago. But then Panaxia went bankrupt, and we took a very big part of the volumes; the market chose us. Ever since, we have stood ground and even strengthened

our market share, so now we are at about 75-80%.”

The Production Manager added:

“After it there was a peak for us since existing customers required help and we spent a lot of resources to acquire them so we got the majority of those. This was 2012 as I recall it.”

The national banknote and coin changeover

Initiated in 2015 and ending in 2017, a major changeover was implemented to replace all existing denominations of banknotes and coins except the 10-krona coin, with new versions (Riksbanken, 2019). All interviewees mentioned the changeover as an important event in recent

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32 market history and that it increased business activity and boosted revenue, even though it was temporarily.

The CFO had the following to say regarding the changeover:

“The Swedish Central Bank got the idea that ‘now we will have new banknotes and coins in Sweden’, which is a huge business opportunity. In a sense, everything is doubled, in with the new and out with the old and replace everything. Ahead of us, we saw a substantial revenue increase because of it, which also was the case. However, the trouble was that the public got started way too late and the deadline was set to June 30th, if I am not mistaken. So it became

very difficult to plan of course, way too much came in way too late.”

The general idea of the changeover amongst the interviewees was captured by the CMO:

“We were lost during a couple of years where we did not see the underlying level.

Partly because a competitor went bankrupt in 2012 whose volumes we absorbed and then there was the banknote and coin changeover between 2015 and 2017 which also doped the whole cash management in a way. When it was completed in October 2017 we found ourselves in the harsh reality and were a bit shaken since it had decreased

significantly more than we had expected.”

The CEO mentions the changeover as an event that boosted revenue temporarily:

“Throughout these last years we, in a way, have had an underlying drop. There is less and less cash in the market, but we have compensated for that by taking market shares. We have

taken new markets and at the end we had the banknote and coin changeover.

The Head of IT, recaps the past years:

“Cash has been decreasing for the past 5-10 years, the use of cash in society. But Loomis’

operations and revenue have not unambiguously decreased during this period, there have been other factors that have had influence… The bankruptcy of Panaxia is one of those. The

banknote and coin changeover is another.”

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33 When asked about the cash management market the last couple of years, Account Manager 1 said the following:

“It has slowly been decreasing and around 2017, after the banknote and coin changeover, it became quite obvious that we were peaking since all the cash needed to be changed [in the end of the changeover] and after that it went downwards rather swiftly. So it was pretty tough

in 2018 but now it is recovering a bit. It resembles and ECG; there are ups and downs. But overall it has been going down, there is no way of brushing that under the carpet.”

As a part of the changeover, new cash machines that were placed at the merchants and integrated with their checkout systems needed to be replaced since the old machines could not handle the new banknotes and coins. The Production Manager said the following regarding this issue:

“The changeover lasted for two years so we had a big plan for it. After it was done you could say that it was like a step downwards and the reason for that was that many of those who had

machines to handle cash decided not to reinvest in new machines, machines that were not able to update due to the new banknotes. Instead many, or a part of them decided to cross

over and go cashless and use other methods of payment.”

Both the bankruptcy of a competitor and the national banknote and coin changeover were events that covered the true reality for Loomis Sweden since the correct market levels could not be seen through the economic effects of said events. The reason for the abrupt awakening was explained by the CFO:

“[...] In that sense in has been tremendously interesting and this, should we say highly rapid change in market shares, makes it difficult to see how the underlying volumes turn. It is a bit

problematic to follow the statistics, amount of cash and cash usage. The statistics exists, however it is difficult to know how it affects our revenue. It is about turnover, how much we [the Swedish people] put in our drawers, the behaviour of the market and so on… So there is

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34 a possibility that the underlying drop in cash has been ongoing even sooner with some

percentages.”

As stated by the CMO, Loomis Sweden realized what the real market levels were in October of 2017 and in 2018 an action plan was put into practice.

The Action Plan of 2018

Action plans were implemented in both France and Sweden in 2018 and the main objective for these were to handle new market situations (Loomis, 2019). The CEO said the following about Sweden:

“After the banknote and coin changeover we were forced to implement a big corporate adjustment because then the volumes had severely decreased. We needed to do something about it, and we did last year. We discontinued offices, reorganized the management group

and laid off personnel in order to adjust to these new volumes.”

Some of the discontinued offices were repositioned and centralized as a part of the action plan. The Production Manager explains:

“What we have seen lately is that the smaller offices we have had around the country... there is too little amount [of cash] to be able to handle it on our own premises, we have very expensive plants considering security and such. Instead, we move the money to other larger

units so there will be a larger production. So as of now, we basically only have three branches for CMS; Stockholm, Gothenburg and Malmö.”

Having the changeover on the horizon, Loomis Sweden knew that something had to be done.

By the end of it, it was time to act again. The CFO explains:

“We had to considerably staff up on all fronts with new coworkers. When it abruptly ended we had to let people go in the same manner as they were employed. And mainly this was the restructuring. We found ourselves in a sort of ‘bubble’, in a way. The revenues increased

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35 heavily and then it was a rollercoaster downwards to the same level [as before] minus a few

percentages due to the underlying drop. We needed to adapt to these new revenues and that is what we refer to as the Action Plan.”

The Head of Operations said the following about the connection between Panaxia and the changeover:

“The changeover doped our results quite heavily during those years since it was a long period and we had actually been doped for quite some time with revenues before that as well and then it dropped in 2017. I do not remember the exact percentage but heavily [down] to a

normal level where it always should have been [without the doping]. So in a sense it is a consequence of it but not the changeover itself but rather the absence of it.

The new global CEO of Loomis AB

Several of the interviewees (interestingly none of the Account Managers, nor the KAM mention this though) mention the new global CEO of Loomis AB, Patrik Andersson, as an important change in the corporate group’s strategy. According to multiple interviewees his predecessor was more conservative and mainly focused on the core business, cash management. The new global CEO has focused more on innovation and new, digital, products and services.

The Head of Operations notes:

“Yes it has. A lot is connected to the corporate group where one previously, before the current global CEO, was pretty conservative, it went ‘cash is king’, that was what

we were supposed to work with.”

The CMO notes:

“One can ask; has it changed during the last 5 to 10 years? Yes, it has changed in a way that the view on beginning to work with these question has been taken seriously in conjunction

with the new global CEO we got. We recruited Patrik Andersson who came from Orkla

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36 Foods, he was CEO there then, so he had a whole different view while the old global CEO we

had come more from the traditional basic industry.”

The Head of IT shares the view that the new global CEO implemented a new strategy:

“Now we have a new global CEO since a few years back, Patrik Andersson, and a change, of course, has occurred with for example this ‘climbing up the value chain’, starting the Innovation center. And we also have leeway for Loomis Sweden to look at… we have not

done much yet, but researching on and probably launch new options that are not cash- related in Sweden. That has been a great change.”