The Industrial Clusters Theory, and the LVMH Texas plant

For Western nations, unwind global supply chains and restart domestic manufacturing, particularly for complex or high-quality goods, is incredibly difficult to achieve in the short term, and it would almost certainly lead to a massive increase in consumer prices. The recent struggles of luxury giant LVMH in Texas offer a stark, real-world example of these challenges.

In 2019, LVMH CEO Bernard Arnault, alongside then-President Donald Trump, inaugurated a new Louis Vuitton factory on a ranch in Alvarado, Texas. The facility, named “Rochambeau,” was intended to produce iconic handbags, often retailing for $1,500 and upwards, bearing the coveted “Made in USA” tag. According to a recent Reuters report¹ citing former employees and industry sources, the Texas plant has reportedly become one of Louis Vuitton’s worst-performing facilities globally, plagued by production issues. A primary challenge lies in finding and training workers capable of meeting the brand’s exacting craftsmanship standards. Sources described difficulties even producing simpler components, significant material waste (reportedly up to 40% of leather hides, double the industry norm), and pressure leading supervisors to overlook methods used to conceal defects. Consequently, poorly crafted bags deemed unfit for sale were allegedly shredded and incinerated. This highlights the fundamental difficulty of replicating a specialized, high-skill manufacturing process in a region lacking a deep-rooted ecosystem for it, even for a company with LVMH’s resources. The reported starting wage of $17 per hour in 2024, while well above the Texas minimum, arguably reflects the mismatch between pay expectations and the level of artistry required for a $2,000+ handbag, further complicating recruitment and retention. Despite these issues, LVMH plans to consolidate further in Texas, aiming to close a California workshop by 2028, though convincing skilled workers to relocate has proven difficult.

The initial rationale for the Texas venture² was strategically sound on paper. The US is a critical and growing market for LVMH. Producing domestically offered advantages like avoiding potential import tariffs and, crucially, enabling a faster, more agile response to American consumer demand, reducing lead times and logistics costs compared to shipping from European ateliers. Texas was chosen for its central location and perceived history in leatherworking, sweetened by local tax abatements. LVMH projected creating 1,000 jobs, aligning with the political narrative of revitalizing US manufacturing. The expectation was that American workers could be trained to replicate the quality honed over decades in Louis Vuitton’s traditional workshops in France, Spain, and Italy. However, the gap between this expectation and the reported operational struggles underscores the complexities involved.

This challenge is explained, in part, by the concept of industrial clusters, extensively researched by Michael E. Porter³. Porter argues that despite globalization, location remains critical. Economic activity often concentrates in “clusters” – geographic areas where interconnected companies, specialized suppliers, service providers, and associated institutions (like universities or training centers) create a unique competitive environment. These clusters foster high productivity, drive innovation through shared knowledge and competition, and stimulate new business formation. The advantages stem from proximity: easier access to specialized inputs and skills, deeper relationships, faster information flow, and strong local incentives. This deep pool of specialized knowledge, skilled labor, and institutional support, often built over generations, is precisely what exists in established high-end manufacturing districts (many now in East Asia, as well as traditional European centers) and is incredibly difficult – and time-consuming – to replicate from scratch elsewhere.

Compounding the challenge of building specific skills for luxury goods is a broader, systemic issue within the United States: a persistent manufacturing skills gap. According to studies⁴ by Deloitte and The Manufacturing Institute (the workforce development partner of the National Association of Manufacturers, NAM), the US could face a shortfall of 2.1 million manufacturing workers by 2030, potentially costing the economy $1 trillion in that year alone. Even before the pandemic, manufacturers reported difficulty finding skilled labor. Today, despite higher unemployment compared to 2018, finding the right talent is reportedly 36% harder. Executives struggle to fill even entry-level production positions, let alone specialized roles requiring advanced skills or craftsmanship. This shortage stems from a mix of factors, including a perception gap about modern manufacturing careers and a lack of workers with the necessary technical skills.

The LVMH Texas experience serves as a microcosm of the broader challenges facing Western economies aiming to reshore manufacturing. It demonstrates that even well-funded, globally recognized brands struggle to quickly establish high-quality production in new locations lacking established industrial clusters and facing a tight skilled labor market.

Reshoring complex manufacturing is not a quick fix, and it won’t come cheap. The difficulties in achieving quality and efficiency, coupled with significantly higher Western labor costs (even $17/hr is far above wages in many established Asian manufacturing centers, yet potentially insufficient for luxury-level skill in the US), inevitably point towards higher production costs. These costs, stemming from training investments, lower initial productivity, material waste, and wages, would ultimately be passed on to consumers, leading to a massive increase in prices for goods currently produced more efficiently elsewhere. While strategic reshoring for critical industries might be necessary, the idea of a wholesale reversal of globalization without significant economic pain and substantial long-term investment in skills and infrastructure remains, for now, largely wishful thinking.

How Zoning Rules Acts as Homeowner Insurance

An excellent section in Abundance¹ discusses the risks involved in buying a house and how they are often mitigated.

The authors quote a passage from Fischel², noting that buying a home is akin to pouring your life savings into one undiversified company, highly vulnerable to local risks like neighborhood changes or shifting municipal policies.

They then suggest that public policy, particularly zoning rules, has evolved to mitigate these risks. These rules – such as common local regulations dictating minimum lot sizes, preventing the construction of multi-family or public housing projects, and mandating extensive parking – aren’t just arbitrary, according to this view.

Instead, they function to protect the existing character and, crucially, the property values of an area. They act as a buffer against changes that could negatively impact a homeowner’s massive, illiquid investment.

By limiting development and maintaining the status quo, zoning effectively provides a form of insurance for homeowners. This use of bureaucratic structures to safeguard existing investments echoes broader discussions on how such practices can preserve wealth, particularly among established groups³.

Biases, "respectable" economists and their policies

Imagine you see someone using a frying pan to put nails in the wall. You tell them, « No proper homeowner would do that. »

While using a hammer is correct, this way of speaking doesn’t persuade. If their method works for the few nails they need and nothing seems to go wrong, just saying it’s not ‘proper’ gives them no real reason to change. You miss the chance to explain the actual advantages of a hammer that matter to everyone – maybe it’s faster, safer in the long run, or avoids hidden damage. These are better reasons than just talking about being ‘proper’.

We see this same problem often when people discuss economics. When important economists say, “No respectable economist would support these policies,” it’s like the frying pan comment. This kind of statement often doesn’t reach the people it’s aimed at. Why? Because the people who do support those policies probably don’t care about that particular group’s idea of ‘respectable’. So, the criticism becomes meaningless noise to them. This approach builds walls between groups (echo chambers) instead of helping understanding or allowing challenges to possibly bad policies. It stops people with different ideas from talking to each other, which is necessary to check our own biases (see confirmation bias).

Instead of focusing arguments on what ‘respectable’ experts approve, perhaps the real challenge should be looking for ideas or criticisms so fundamental, based on clear evidence or logic, that even economists with very different or less ‘respected’ views would have to agree they are valid, or at least seriously discuss them. Finding this common ground, or points of disagreement that everyone acknowledges, seems far more productive than relying on the label of ‘respectability’, which is often subjective and used to exclude people.

Europe Aims for Independence: Investing in Critical Raw Materials

The European Commission is taking significant steps to reduce the EU’s reliance on external sources for critical raw materials, particularly China.

Recently, the Commission unveiled a list of 47 “strategic projects” that will receive funding and support to develop new mines, processing facilities, and recycling plants across Europe. This initiative addresses the urgent need to secure access to essential materials, including rare earth metals, which are vital for technological advancements, military and space industries, and the ongoing green transition. These 47 projects, selected from 170 applications, involve a substantial investment of €22.5 billion and span 13 European countries.

Italy is set to play a role in this European strategy with the selection of four key projects. All four Italian projects focus on the recycling of critical raw materials, highlighting the importance of creating a circular economy within the EU. These projects include a major initiative by Glencore in Portovesme, Sardinia, to convert part of a zinc production complex into a facility for recycling end-of-life batteries to extract lithium and other valuable materials. Solvay will utilize its plant in Rosignano, Tuscany, to recover palladium from catalytic converters. Additionally, Itelyum Regeneration in Frosinone will recycle electronic waste, and Circular Materials in Padua will focus on recovering nickel, copper, and platinum from industrial liquid waste.

These European initiatives and the Critical Raw Materials Act aim to bolster the EU’s resilience in a complex global landscape. By increasing domestic extraction, processing, and recycling capacities, Europe can mitigate supply chain vulnerabilities exposed by events like the pandemic, the war in Ukraine, and rising protectionist policies. The focus on critical raw materials like lithium, cobalt, nickel, and rare earth elements will not only support the growth of key industries but also drive innovation and sustainability. With streamlined permitting processes and substantial financial backing, these strategic projects pave the way for a more secure and self-sufficient future for Europe.

Confirmation Bias and Marketing in Small Manufacturing Firms

Small manufacturing firms often operate with limited resources and razor-thin margins. Effective marketing is a necessity for survival and growth. Yet, a pervasive cognitive bias, confirmation bias, frequently undermines their marketing efforts, leading to missed opportunities, wasted resources, and ultimately, stagnation.

What is Confirmation Bias

Confirmation bias, the tendency to seek out, interpret, favor, and recall information that confirms or supports one’s prior beliefs or values, is a natural human inclination. However, in the realm of business, particularly marketing, it can be a devastating force. This article explores the specific ways confirmation bias negatively impacts the marketing activities of small manufacturing firms, highlighting the pitfalls and offering potential solutions.

Skewed Market Research and Customer Understanding:

Small manufacturers often operate within niche markets, developing a strong sense of their customer base. This familiarity, however, can breed complacency and a reluctance to challenge existing assumptions. Confirmation bias manifests in:

• Selective Data Gathering: Instead of conducting comprehensive market research, managers may focus on data points that reinforce their pre-existing beliefs about their target audience. For instance, if a manufacturer believes their product is primarily valued for its durability, they might only seek feedback related to durability, ignoring crucial aspects like aesthetics or user experience.
• Misinterpretation of Feedback: Even when presented with diverse customer feedback, managers might selectively interpret it to fit their existing narrative. Negative feedback that contradicts their assumptions is often dismissed as outliers or misinterpretations, while positive feedback is amplified and generalized.
• Ignoring Emerging Trends: The manufacturing landscape is constantly evolving, with new technologies, consumer preferences, and competitive pressures emerging regularly. Confirmation bias can blind managers to these changes, leading them to cling to outdated marketing strategies and product offerings. They might dismiss early signals of a shifting market as temporary blips, only to be caught off guard when the change becomes mainstream.

Ineffective Product Positioning and Messaging:

Confirmation bias can severely hinder a firm’s ability to effectively position its products and craft compelling marketing messages. This happens through:

• Echo Chamber Marketing: Managers might rely on their own internal perceptions and the opinions of like-minded colleagues or long-standing customers, creating an echo chamber that reinforces their existing beliefs about the product’s value proposition. They may fail to consider how their products are perceived by a broader audience or new potential customers.
• Sticking to Familiar Messaging: If a particular marketing message has been successful in the past, managers may be reluctant to change it, even if market conditions have shifted. They might continue to emphasize features that are no longer relevant or resonate with the current target audience, ignoring the need for updated messaging.
• Overlooking Competitor Analysis: Confirmation bias can lead to a distorted view of the competitive landscape. Managers might focus on the weaknesses of their competitors while downplaying their strengths, creating a false sense of security. They might fail to recognize emerging competitors or new product innovations that threaten their market share.

Inefficient Resource Allocation and Marketing Spend:

Limited resources are a constant challenge for small manufacturers. Confirmation bias can lead to inefficient allocation of marketing budgets, resulting in wasted resources and missed opportunities.

• Investing in Familiar Channels: Managers might continue to invest in marketing channels that have been successful in the past, even if they are no longer effective. They might be reluctant to experiment with new channels or technologies, such as digital marketing or social media, due to a lack of familiarity or a belief that they are not relevant to their industry.
• Overreliance on Personal Networks: Small manufacturers often rely on personal networks and word-of-mouth marketing. While these can be valuable, they can also be limiting. Confirmation bias can lead managers to overestimate the reach and effectiveness of their personal networks, neglecting the need for broader marketing efforts.
• Ignoring Data-Driven Insights: In today’s digital age, data analytics provide valuable insights into customer behavior and marketing performance. However, confirmation bias can lead managers to ignore or dismiss data that contradicts their preconceived notions. They might focus on metrics that support their existing beliefs while ignoring those that suggest a need for change.

Hindered Innovation and Adaptation:

In a rapidly changing market, innovation and adaptation are crucial for survival. Confirmation bias can stifle these critical processes.

• Resistance to New Ideas: Managers who are heavily invested in their existing beliefs may be resistant to new ideas or suggestions from employees, customers, or external consultants. They might dismiss innovative concepts as impractical or irrelevant, preventing the firm from exploring new opportunities.
• Fear of Change: Confirmation bias can create a fear of change, leading managers to cling to familiar processes and products even when they are no longer effective. They might be reluctant to invest in new technologies or adopt new marketing strategies, fearing the uncertainty and potential risks.
• Stifled Employee Creativity: When managers are resistant to new ideas, it can stifle employee creativity and innovation. Employees may feel discouraged from sharing their insights or suggestions, knowing that they are likely to be dismissed.

Combating Confirmation Bias:

Overcoming confirmation bias is an ongoing process that requires conscious effort and a commitment to critical thinking. Here are some strategies that small manufacturing firms can implement:

• Embrace Data-Driven Decision Making: Rely on objective data and analytics to inform marketing decisions. Avoid relying solely on intuition or anecdotal evidence.
• Seek Diverse Perspectives: Encourage feedback from a wide range of sources, including employees, customers, suppliers, and industry experts. Actively seek out dissenting opinions and challenge your own assumptions.
• Conduct Regular Market Research: Stay informed about emerging trends, customer preferences, and competitor activities. Conduct regular market research to validate or challenge your existing assumptions.
• Experiment and Iterate: Embrace a culture of experimentation and continuous improvement. Test new marketing strategies and product offerings, and be willing to adapt based on the results.
• Foster a Culture of Open Communication: Encourage open and honest communication within the organization. Create a safe space for employees to share their ideas and concerns without fear of judgment.
• Implement Blind Testing: When possible, conduct blind tests to evaluate marketing materials or product features. This can help to minimize the influence of personal biases.
• Hire External Consultants: Bring in external consultants with expertise in marketing and market research. They can provide an objective perspective and challenge existing assumptions.
• Develop Critical Thinking Skills: Invest in training and development programs that focus on critical thinking and decision-making skills.

By acknowledging the presence of confirmation bias and actively working to mitigate its effects, small manufacturing firms can improve their marketing effectiveness, enhance their competitiveness, and achieve sustainable growth. In a world of constant change, the ability to challenge assumptions and adapt to new realities is not just an advantage, it’s a necessity.

References

• Psychology Today: Cognitive Biases Are Bad for Business
• Psychology Today: Motivated Reasoning
• Investopedia: Confirmation Bias: Overview and Types and Impact

Nuclear Power in Italy: An Opportunity for the Country's Energy Future

Nuclear power has returned to the center of public debate in Italy, and beyond. The growing demand for energy, the need to decarbonize the production system, and the geopolitical challenges linked to fossil fuels have prompted many countries to re-evaluate this energy source. In Italy as well, after the 1987 referendum that decreed its abandonment, there is a growing interest in nuclear power, fueled by various industrial and political players.

The Latest News:

In February 2025, Confindustria organized a conference in Rome to relaunch the International Energy Agency’s (IEA) report on nuclear power. The event saw the participation of important figures from the industrial and political world, including Aurelio Regina, delegate of the president of Confindustria for Energy, and Gilberto Pichetto Fratin, Minister of Environment and Energy Security1. During the conference, Aurelio Regina stressed the importance of nuclear power for the energy transition and to maintain the competitiveness of Italian industry. “If we want to maintain our industrial vocation and at the same time proceed with the energy transition, nuclear energy is an unavoidable option.”¹

Minister Pichetto Fratin expressed openness towards nuclear power, stating that “The draft law on nuclear energy is ready and will go to a forthcoming council of ministers, I hope it can be approved by the autumn. In the meantime, we are working with the Ministry of Economy on the bill decree. It is possible that they will arrive together. On the coverage we have to check with the Ministry of Economy, they are doing it, we will see in the next few days. My commitment is to create the conditions to provide answers to the needs of the country.”¹

Nuclear Power in the European Context

At the European level, nuclear power is experiencing a phase of strong development. The European Commission has included nuclear energy in the Green Taxonomy, recognizing its role in the fight against climate change. Several European countries, including France and Sweden, are investing in new nuclear technologies, such as small modular reactors (SMRs) and fast reactors. Italy, despite not having active nuclear power plants, participates in research and development projects in the nuclear field at the European level.²

The Draghi Report

The Draghi Report on European competitiveness, published in September 2024, underlines the importance of energy at competitive prices for the economic growth of the European Union. The report highlights how the cost of energy in Europe is significantly higher compared to other regions of the world, such as the United States and China. This competitiveness gap is due to several factors, including dependence on natural gas imports, exposure to spot markets, and price volatility. The Draghi Report does not explicitly express itself in favor of nuclear power, but underlines the need to diversify energy supply sources and reduce dependence on fossil fuels.³

The Advantages of Nuclear Power

Nuclear power has several advantages compared to other energy sources:

• Low environmental impact: nuclear power plants do not produce greenhouse gas emissions during their operation, contributing to the fight against climate change.
• High efficiency: nuclear power plants have high energy efficiency, producing large amounts of energy with a relatively small amount of fuel.
• Reliability: nuclear power plants can operate 24 hours a day, 7 days a week, guaranteeing a stable and continuous energy supply.
• Safety: nuclear power plants are designed and operated according to strict safety standards, minimizing the risk of accidents.

The Challenges of Nuclear Power

Nuclear power also presents some challenges:

• Construction costs: the construction of a nuclear power plant requires substantial investments and long times.
• Waste management: the radioactive waste produced by nuclear power plants must be managed and disposed of safely.
• Social acceptance: public opinion is often divided on nuclear power, due to concerns related to safety and environmental impact.

The Future of Nuclear Power in Italy

The future of nuclear power in Italy is still uncertain. Despite the growing interest from some sectors, public opinion remains divided and the political picture is not yet entirely favorable to a return to this energy source. However, the energy and environmental challenges that the country faces could push to reconsider the role of nuclear power in the national energy mix. Italy has a long history of research and development in the nuclear sector. In the 1960s and 1970s, the country built and operated several nuclear power plants, but the 1987 referendum led to their closure. Today, Italy participates in research and development projects in the nuclear field at the European and international level.⁴

New nuclear technologies, such as SMRs, offer the possibility of building smaller, safer, and cheaper plants compared to traditional ones. These technologies could represent a solution for Italy, allowing it to produce clean and reliable energy without the risks and high investment costs of large plants.⁵

Conclusions

Nuclear power is a controversial energy source, but it has undoubted advantages in terms of decarbonization, efficiency, and reliability. Italy, despite having abandoned nuclear power in 1987, is witnessing a renewed interest in this energy source, fueled by the energy and environmental challenges that the country faces. The future of nuclear power in Italy will depend on the ability to overcome the challenges related to costs, waste management, and social acceptance.

An informed and transparent public debate on the topic is fundamental to overcome the resistances and fears related to nuclear power. Italy has the skills and technologies to return to being a leading country in the nuclear sector, contributing to the energy transition and economic growth of the country.

Henry Ford's workforce management: salary increase and reduced working hours

Henry Ford’s mass production system revolutionized manufacturing, but its success wasn’t solely about the assembly line. A less-discussed, yet equally vital, component was his radical approach to workforce management. Ford recognized that even the most efficient processes are useless without a stable and motivated workforce. His solution: the $5 workday and the 8-hour workday.

As described in “Invisible Advantage: How Intangibles are Driving Business Performance”¹, early manufacturing suffered from crippling employee turnover. Factories were harsh, and workers, often new to industrial life, quit frequently. Ford’s Highland Park plant experienced a staggering 400% turnover rate, requiring 54,000 hires annually to maintain a 13,000-person workforce. This constant churn disrupted production and ballooned training costs. The assembly line, while boosting output, worsened the problem by intensifying worker dissatisfaction.

Ford understood this unsustainable turnover was a major bottleneck. His 1914 solution was revolutionary: an eight-hour workday and a $5 daily wage – unheard of at the time. This bold investment in human capital paid off spectacularly.

Turnover plummeted from over 400% to just 37%. This newfound stability brought numerous benefits. Training costs decreased as the company no longer constantly replaced employees. Experienced workers became more proficient, improving quality and efficiency. Crucially, a stable workforce fostered camaraderie and pride, boosting morale and productivity.

The $5 wage wasn’t just about reducing turnover; it was about attracting and retaining top talent. Ford’s generous pay drew skilled workers, creating a highly motivated and capable workforce. This fueled growth, with profits doubling from $30 million to $60 million between 1914 and 1916. The increased efficiency and productivity allowed Ford to meet the booming demand for the Model T, cementing his market dominance.

Ford’s human-capital strategy demonstrates a key principle: investing in your workforce isn’t just a cost, it’s a vital investment with substantial returns. By addressing the root causes of turnover – poor conditions and low pay – Ford unlocked the true potential of mass production. He proved that a motivated, well-compensated workforce is crucial for operational excellence and growth. His $5 revolution wasn’t just charitable; it was a strategic imperative that transformed the automotive industry and remains a powerful lesson for businesses today.

The Human Factor: Why Happy Workers are the Foundation of a Productive Construction Industry

The construction industry is at a critical juncture. On one hand, it’s poised for a period of immense growth, driven by urbanization, infrastructure development, and the push towards a more sustainable future. McKinsey predicts global construction spending could reach a staggering $22 trillion by 2040. Yet, the industry is grappling with a significant paradox: low productivity and a shrinking workforce.

A recent McKinsey report, “Delivering on construction productivity is no longer optional,”¹ rightly highlights several key challenges hindering productivity, including slow technology adoption, difficulties in scaling improvements, and complex project dynamics. However, I believe it overlooks the most crucial element: the human factor.

In my personal view, productivity must go hand in hand with happy workers. Satisfied workers are the bedrock of a thriving and efficient construction industry. They are more engaged, more productive, and less likely to leave their jobs. In an industry facing a growing labor shortage, prioritizing worker satisfaction is no longer just a nice-to-have; it’s an absolute necessity.

The Power of Satisfied Workers

Numerous studies have demonstrated the link between worker satisfaction and improved productivity. For example, a Gallup study found that companies with highly engaged workforces outperform their peers in earnings per share². Other studies are available (example: Oxford University’s Saïd Business School³ and Management Science⁴) with different methodologies and therefore different numbers, but with very similar conclusions.

In the construction industry, this translates to:

• Fewer Safety Incidents: When workers feel valued and safe, they are more likely to follow safety protocols, leading to a reduction in accidents and injuries.
• Better Quality Work: Engaged workers take pride in their work, resulting in higher quality construction and fewer defects.
• Less Rework: Satisfied workers are more attentive to detail, minimizing errors and the need for costly rework.

Why Satisfaction Matters More Than Ever

The construction industry is facing a looming labor crisis. An aging workforce, coupled with a widening skills gap, is creating a shortage of qualified workers. To attract and retain top talent, construction companies must prioritize the well-being and satisfaction of their employees.

Here are two actionable strategies that entrepreneurs can implement to foster a more positive and productive work environment:

1. Invest in Training and Development

One of the most effective ways to demonstrate your commitment to your workers is to invest in their professional development. This not only enhances their skills and knowledge but also shows them that you value their growth and potential.

• Targeted Skills Training: Provide training programs that address specific skills gaps in your workforce, such as advanced carpentry techniques, digital tool proficiency (BIM software, project management tools), or safety certifications.
• Leadership Development: Offer opportunities for workers to develop their leadership skills, preparing them for future supervisory or management roles.
• Mentorship Programs: Pair experienced workers with newer employees to foster knowledge transfer and create a supportive learning environment.
• Tuition Assistance: Support employees who wish to pursue further education, such as associate’s or bachelor’s degrees in construction management or related fields.

By investing in training and development, you’re not only improving the skills of your workforce but also increasing their engagement, motivation, and loyalty.

2. Implement Incentive and Rewards Programs

Recognizing and rewarding employees for their hard work and contributions is essential to boosting morale and reinforcing positive behaviors.

• Performance-Based Bonuses: Offer bonuses tied to individual or team performance metrics, such as meeting project deadlines, exceeding quality standards, or achieving safety goals.
• Profit-Sharing: Consider implementing a profit-sharing program, allowing employees to share in the company’s success and fostering a sense of ownership.
• Employee Recognition Programs: Publicly acknowledge and appreciate employees who go above and beyond, through awards, certificates, or company-wide announcements.
• Non-Monetary Rewards: Offer non-monetary incentives, such as extra time off, flexible work arrangements, or opportunities for career advancement.

A well-designed incentive and rewards program can motivate employees, improve productivity, and enhance overall job satisfaction.

A Call to Action

The construction industry stands to benefit immensely from a more human-centric approach. By prioritizing worker satisfaction, construction entrepreneurs can unlock the full potential of their workforce, driving productivity, improving project outcomes, and creating a more sustainable and prosperous future for the industry.

Artificial Intelligence and Cybersecurity: an assessment

This document explores the crucial intersection of Artificial Intelligence and Cybersecurity, using a case study inspired by the World Economic Forum’s white paper, “Artificial Intelligence and Cybersecurity: Balancing Risks and Rewards” (available here). We simulate an AI cybersecurity assessment for “Bellini Composites,” a family-owned Italian manufacturer, and present a realistic discussion between the company, its founder’s father (a tech-savvy but cybersecurity-skeptical), and a cybersecurity consultant.

Bellini Composites: A Case Study

Bellini Composites, a 30-employee company nestled in the Italian Alps, specializes in high-performance composite materials for high-end motorcycle manufacturers and racing teams. Founded 25 years ago by Paolo Bellini, the company prides itself on the superior strength-to-weight ratio and customizability of its carbon fiber parts. With an annual turnover of €5 million and a 15% operating margin, Bellini Composites reinvests significantly in R&D, its core strength.

The six-person R&D team, comprised of highly skilled engineers, constantly explores new resin formulations, fiber weaves, and manufacturing processes. While equipped with modern CNC machinery and CAD/CAM software, Bellini Composites has yet to delve into AI-driven predictive maintenance or other AI-powered optimizations. They recognize the potential benefits of AI but are also wary of the security implications.

The Assessment and Discussion

The following sections detail the AI cybersecurity assessment, including the questions posed, Bellini Composites’ responses, a skeptical reactions, and the cybersecurity consultant’s expert counterpoints.

1. Risk Tolerance

2. Risk vs. Reward

3. Governance Process

4. Vulnerabilities and Risks

5. Stakeholder Involvement

6. Assurance Processes

European Union AI Act

The European AI Act¹ is the world’s first comprehensive law regulating artificial intelligence within the EU. Designed to foster innovation while ensuring AI is safe, fair, and transparent, the Act safeguards users from harmful AI applications while unlocking benefits like improved healthcare and sustainable transport.

A Risk-Based Approach for Trustworthy AI²

The AI Act classifies AI systems based on their potential risks—unacceptable, high, limited, and minimal—with corresponding obligations.

• High-risk AI (e.g., healthcare, transportation) must comply with strict transparency, safety, and human oversight measures.
• Banned AI applications include social scoring and real-time biometric identification in public spaces, reflecting the EU’s commitment to ethical AI.

Fostering Innovation with Regulatory Sandboxes

To balance regulation with innovation, the Act introduces regulatory sandboxes, enabling companies—especially startups and SMEs—to test AI systems in controlled environments. This allows businesses to refine their models while ensuring compliance, fostering a trustworthy AI ecosystem that encourages responsible development.

Transparency for General-Purpose AI³

The legislation also applies to general-purpose AI models, such as chatbots and image generators. These models must clearly disclose AI-generated content, comply with copyright laws, and provide transparency in their operations, ensuring users can trust AI-driven interactions.

Implementation Timeline⁴

The EU AI Act was officially published in the EU Official Journal on July 12, 2024, marking a major milestone in AI governance. It will come into force on August 1, 2024, with full application starting August 2, 2026. However, certain provisions outlined in Article 113 will take effect earlier.

What This Means for Businesses

For companies operating in or serving the EU, compliance with the AI Act ensures consumer trust, legal certainty, and a competitive edge in the evolving AI landscape. By aligning with ethical AI principles, businesses can navigate regulation while driving innovation in a responsible manner.

'Humphrey': An AI toolkit for the UK civil service

The UK government has recently announced an ambitious plan to use AI to modernise public services¹. They are creating a suite of AI tools called “Humphrey” that will help civil servants work faster and more efficiently².

For example, a tool called “Consult” will analyse public responses to public consultations, allowing the government to better understand public opinion. Another tool, called “Minute”, will automatically generate meeting summaries, freeing up officials to focus on more important tasks.

How can a small business benefit from AI?

While you may not have the same resources as the UK government, your small market research firm can still benefit from AI. As the technology becomes more accessible, we will start to see a growing number of affordable and easy-to-use AI tools that can be used by small businesses. For example, you could use AI to analyse large sets of market data to spot trends that you might otherwise have missed. Or you could use AI to automate repetitive tasks such as transcribing interviews or coding data.

External consultancy to leverage AI

AI is a rapidly evolving field, and it can be difficult to keep up with the latest developments. If you are interested in using AI in your business, it might be helpful to consult with an expert. An AI consultant can help you identify the right AI tools for your needs and can assist you in implementing these technologies within your business.

AI has the potential to transform the way businesses operate, and small businesses in the UK are well-placed to take advantage of this technology. With a bit of planning and foresight, you can use AI to automate processes, improve efficiency, and gain a competitive edge.

World Economic Forum - Global Cybersecurity Outlook 2025

The Global Cybersecurity Outlook 2025¹, published by the World Economic Forum in collaboration with Accenture, highlights a widening gap in cyber resilience between SMEs and larger organizations.

• Only 14% of organizations are confident they have the necessary people and skills to address cybersecurity challenges effectively.
• Many SMEs lack the resources for robust cybersecurity, often relying on basic tools that leave them particularly vulnerable, especially within interconnected supply chains.
• While 78% of private sector leaders believe that cyber and privacy regulations help reduce risk, 69% find these regulations overly complex or struggle with ensuring third-party compliance.

Main Organizational Challenges to Cyber Resilience for SMEs

Small and medium-sized enterprises (SMEs) face three primary challenges in achieving cyber resilience. The evolving threat landscape is growing more complex, requiring a level of adaptability that many SMEs struggle to achieve. Additionally, the ongoing skills shortage leaves organizations without the talent needed to manage these risks effectively. Finally, a lack of incident response preparedness leaves SMEs particularly vulnerable when breaches occur, further widening the gap between small businesses and larger organizations.

Cyber Resilience Gap

The gap in cyber resilience between small and large organizations continues to widen. A staggering 35% of small organizations report insufficient cyber resilience, a sevenfold (7x !) increase since 2022. In contrast, larger organizations have made significant progress, halving their reports of insufficient resilience. This disparity has reached a critical point, with 71% of cyber leaders agreeing that SMEs are increasingly unable to protect themselves from escalating risks. Larger organizations, more likely to implement advanced security measures like AI safeguards, are encouraged to support SMEs to strengthen the resilience of the entire ecosystem.

Adoption of Cybersecurity Measures

SMEs often lack the resources to build robust cybersecurity infrastructure, leaving them reliant on basic tools and practices. This dependence significantly increases their vulnerability, especially in interconnected supply chains, where attacks on smaller entities can propagate across entire ecosystems.

AI Deployment and Risks

While 66% of organizations recognize the transformative potential of AI in cybersecurity, only 37% have implemented processes to assess AI tools’ security before deployment. For SMEs, the challenge is even greater: 69% lack the necessary safeguards for secure AI deployment. This gap exposes smaller organizations to heightened risks from insecure AI models, further complicating their cybersecurity posture.

Supply Chain Vulnerabilities

SMEs often form critical links in larger supply chains but typically lack the security maturity to address the risks inherent in such interdependencies. Key vulnerabilities include software flaws introduced by third parties and the potential for cyberattacks to spread across the entire ecosystem. These weaknesses not only threaten SMEs but also pose risks to the broader networks they are part of.

Inequity in Cyber Resources

Since 2024, the cyber skills gap has widened by 8%, leaving two-thirds of organizations facing moderate-to-critical shortages of essential talent. Only 14% of organizations feel confident in their current cybersecurity capabilities. SMEs, in particular, struggle with limited financial resources, infrastructure, and access to skilled professionals, making it challenging to build a strong security foundation. This inequity in resources and workforce disproportionately affects SMEs, hindering their ability to respond to evolving threats effectively.

Regulatory Requirements

While 78% of private sector leaders agree that cyber and privacy regulations effectively reduce risk, 69% report that these regulations are overly complex or difficult to implement. Verifying third-party compliance is another common challenge. The European Union’s NIS2 Directive aims to address these issues by raising cybersecurity standards, requiring enhanced incident reporting, stricter supply chain oversight, and increased accountability for boards of directors. However, for SMEs, navigating these regulatory complexities remains a significant hurdle.

Driving Innovation in Agribusiness: A Roadmap for Change Using Kotter’s 8-Step Model

Innovation and adaptability are crucial for businesses looking to thrive in today’s competitive agribusiness landscape. In this blog post, we’ll explore how a production farm in Northern Italy can embrace transformative change by automating pesticide spraying and harvesting processes using Kotter’s 8-Step Model for Leading Change (Kotter, J.P., 1996)¹.

This roadmap will guide the farm’s journey toward efficiency, profitability, and sustainability. While this roadmap presents a dream-like scenario, it is important to acknowledge that the implementation may face numerous challenges and unexpected detours. These steps are designed to provide guidelines, spark ideas, and serve as a point of reference for structuring a well-organized plan, helping to navigate potential obstacles effectively.

Step 1: Create a Sense of Urgency

The farm must inspire its stakeholders to act with passion and purpose to seize the opportunity for innovation. Highlight the current inefficiencies in manual pesticide spraying and harvesting, such as high labor costs, limited scalability, and the risk of human error. Share compelling data to show how automation can:

• Reduce costs by optimizing resource use.
• Improve worker safety by minimizing exposure to pesticides.
• Increase productivity, enabling the farm to compete in a growing market.

Organize workshops and presentations for employees and stakeholders to communicate the importance of these changes and the risks of maintaining the status quo.

Step 2: Build a Guiding Coalition

Form a coalition of key individuals who are passionate about the farm’s future. This group should include:

• Farm managers: To provide leadership and oversight.
• Technical advisors: To guide the selection and implementation of IoT and robotic technologies.
• Key employees: To offer practical insights and represent the workforce.
• External partners: Such as technology providers and consultants.

Empower this coalition to guide, coordinate, and communicate the change initiative effectively.

Step 3: Form a Strategic Vision

Articulate a clear vision for the farm’s future:

• Vision Statement: “To enhance operational efficiency and maintain competitiveness in the agribusiness sector by leveraging advanced automation and IoT technologies.”
• Strategies: - Implement robotic pesticide spraying systems to ensure precision and reduce waste.
  • Adopt automated harvesting machines to enhance efficiency and minimize labor costs.
  • Utilize a SaaS-based IoT network to monitor and optimize operations seamlessly.

Step 4: Enlist a Volunteer Army

Large-scale change requires widespread support. Create excitement among employees and stakeholders by:

• Sharing success stories of other farms that have successfully automated similar processes.
• Offering training sessions to empower workers to understand and embrace the new technologies.
• Encouraging open communication to address concerns and gather feedback.

Foster a sense of collective purpose and show how everyone’s efforts contribute to the farm’s long-term success.

Step 5: Enable Action by Removing Barriers

Identify and address potential obstacles to progress:

• Financial Barriers: Secure funding through grants, loans, or partnerships with technology providers.
• Resistance to Change: Offer comprehensive training and demonstrate the benefits of automation to hesitant employees.
• Technical Challenges: Work closely with SaaS providers to ensure the equipment is portable, easy to install, and user-friendly.

Streamline decision-making processes and provide resources to overcome these challenges efficiently.

Step 6: Generate Short-Term Wins

Celebrate early successes to build momentum:

• Milestone 1: Successfully implement the robotic pesticide spraying system on a trial basis and measure its impact on efficiency and cost savings.
• Milestone 2: Deploy automated harvesting machines for a small section of the farm and showcase the results to stakeholders.

Publicize these wins through meetings, newsletters, and social media to energize and motivate the team.

Step 7: Sustain Acceleration

Leverage the initial successes to push for broader changes:

• Expand automation to all sites and production areas.
• Continuously evaluate and upgrade the IoT network and robotic systems.
• Use the time and cost savings to invest in R&D projects, such as exploring alternative pest control methods and developing frost protection systems.

Encourage ongoing feedback and iteration to maintain momentum.

Step 8: Institute Change

Embed the new practices into the farm’s culture:

• Document the processes and outcomes to establish a playbook for future innovations.
• Regularly evaluate the impact of automation on efficiency and profitability.
• Recognize and reward employees who champion the changes.

Reinforce the connection between these new behaviors and the farm’s success, ensuring they become ingrained in day-to-day operations.

Bonus Insight

For successful transformation, leadership and management must collaborate effectively. Avoid focusing solely on early wins and instead drive the project to full completion (Kotter, J.P., 1996, p.129):

Conclusion

By following Kotter’s 8-Step Model, this farm can transform its operations, setting a benchmark for innovation in the agribusiness sector. With a clear vision, collaborative effort, and strategic execution, the farm can achieve its goals of efficiency, profitability, and sustainability.

Transition 4.0 and the Smart Industry Readiness Index (SIRI)

Industry 4.0 is accelerating, but many companies struggle to understand its value and how to apply it concretely. Questions like “What is Industry 4.0?”, “Where do we start?”, and “What are the opportunities for improvement?” are common among businesses that want to adopt these solutions.

The Smart Industry Readiness Index (SIRI) was developed to address these challenges. It’s a structured framework that helps companies evaluate their digital maturity level and identify practical steps for improvement. Based on three fundamental pillars (Process, Technology, and Organization), SIRI also includes an Assessment Matrix, a tool that balances technical rigor and practical applicability, defining end goals and intermediate steps for continuous improvements.

SIRI is a structured framework designed to help businesses assess their readiness for digital transformation and the adoption of Industry 4.0 practices. Originally developed by the Singapore Economic Development Board (EDB) in collaboration with industry experts, SIRI provides a standardized and practical approach to analyzing the digital maturity of companies. Among the partners who contributed to its development is TÜV SÜD, a global certification body with a strong focus on quality, safety, and sustainability. This collaboration has allowed for the integration of high-quality standards and a practical approach to evaluating the capabilities of businesses in the context of Industry 4.0.

SIRI offers companies numerous benefits on their path to digital transformation. These include:

• Competitive Benchmarking: It allows companies to compare their performance against competitors, precisely identifying areas of strength and areas for improvement.

• Strategic Focus: It helps organizations focus on initiatives with the maximum strategic impact, ensuring optimal use of available resources.

• Flexibility: It’s applicable at any stage of the digitalization process, regardless of the initial technological maturity level, making it suitable for companies of all sizes and sectors.

• Education and Knowledge: It provides a clear understanding of the fundamental principles, key technologies, and tangible benefits of Industry 4.0, thanks to a structured framework based on three pillars, eight fundamental dimensions, and 16 key parameters.

• Practical Guidance: It offers a detailed roadmap to progressively achieve desired goals, allowing for targeted and continuous improvements.

• Common Language: It eliminates the confusion associated with technical terminology of Industry 4.0, creating a standard language that facilitates communication among different stakeholders, both internal and external to the company.

• Transformation Support: It improves collaboration with technology providers, making it possible to identify priorities, fill gaps, and plan structured transformations effectively.

The SIRI assessment methodology is based on five key principles that guide a structured and flexible approach to analyzing a company’s digital maturity:

1. Current State as a Starting Point: SIRI provides a clear and detailed overview of the company’s current state of digital maturity, focusing on the present rather than future projections.

2. Standardized and Open to Innovation References: It uses Industry 4.0 principles as a reference base, but without excluding emerging concepts and technologies that could affect the industrial landscape.

3. Comprehensive and Customizable Coverage: All dimensions of the framework must be examined, with proportional attention to their relevance for the specific sector and the company’s strategic priorities.

4. Flexibility in Results: Reaching the maximum level in all dimensions is not a universal goal; companies should focus on levels that reflect their needs and ambitions.

5. Continuity Over Time: SIRI is conceived as a dynamic and iterative tool, to be used periodically to support continuous improvement and adapt to changes in the business context.

To know more, visit EDB Singapore - The Smart Industry Readiness Index.