In these challenging times the FINDER team hopes you are all safe and sound.

Though committed as always to the implementation of the FINDER Project, in line with recent developments of the coronavirus COVID-19 outbreak, we too had to put certain measures in place and were in return also confronted with measures put in place by other countries as well.

As you may recall, as part of the SMS Special Conference Berkeley “Designing the Future: Strategy, Technology, and Society in the 4th Industrial Revolution”, the Strategic Management Society was to host a Doctoral Workshop on March 25th, 2020. This event was an initiative of the FINDER program and would be hosted by Rick Aalbers (Radboud), Saeed Khanagha (VU) and  Krsto Pandza (Univ Leeds). The main objectives of this Doctoral Workshop, focusing on strategy and innovation in a digital era, would be to foster interaction among leading faculty scholars and doctoral students on various aspects of research and on preparing for a professional career in academia. The doctoral student participants will broaden their academic network with senior faculty from around the world and develop a better understanding of the particularities of the academic career.

As the impact of the COVID-19 outbreak has continued to expand however, the University of California, Berkeley, took steps designed to help limit coronavirus risk to the campus community. This included the cancellation of all campus events, which means that SMS will no longer hold the Special Conference at Berkeley as planned March 25-27.

At the moment alternatives for this conference are explored and we are waiting on more information. We remain committed to and excited about this program are looking forward to the moment we can announce when it will take place.

So please stay tuned as we will inform you in the time to come.

No need to tell – How data silence can speak volumes

Photo by Matthew Henry on Unsplash

Data privacy is a hot topic affecting numerous people around the globe – if not every single individual. While the public debate often revolves around the un-ethical retrieval and use of personal data I am going to shed some light on the societal ramifications of people deliberately sharing their data.

In 2009, Meglena Kuneva, European Commissioner for Consumer Protection at that time, said that “personal data is the new oil of the Internet and the currency of the digital world”. Although personal data has become its own asset class and markets for personal data have been developed, it is often traded in grey zones or used in exchange for free services, making its precise valuation complicated.

These days, companies utilize personal data for a variety of purposes: reducing search costs for products via personalized and collaborative filtering of offerings, lowering transaction costs for themselves and for consumers, increasing advertising returns through better targeting of advertisements, and conducting risk analysis on customers.

Let’s focus on the last aspect of conducting risk analysis on customers and illustrate its application in the financial industry. For instance, accurately predicting the default risk of a borrower or an insurance policyholder’s risk of having a car accident can be a competitive advantage and save you money. But how does this development look from a customer’s perspective? So-called usage-based insurances (e.g. Drivewise from Allstate), for instance, are using driver behavior to calculate insurance premiums. Customers who are not willing to share their driving behavior are obviously not amongst the clientele of these insurances and that does not impose a problem at this point. But this only holds as long as there are enough alternative insurance companies that do not require customers to share their driving behavior. However, the market for usage-based insurances is expected to reach a global market size of $115 billion by 2026. Things could change tremendously once insurers and customers realize how much money they can save by using and sharing data. At this point not sharing your data becomes costly and the sole fact that data is not shared already conveys information that could make companies suspicious. What does he or she have to hide?

Going back in history: Germany ratified the “General Act of Equal Treatment” in 2006 which aimed at avoiding discrimination based on race, ethnicity, gender, age, religion, disabilities, and sexual identity. An example is the disclosed information in German CVs: employees do not have to provide any information on aspects mentioned in the General Act of Equal Treatment. However, equality is only ensured if all applicants follow the recommendations and do not share this information in their application. There lies the rub: people who can expect favorable treatment by a system (positive discrimination) could be more forthcoming and willing to share their data, whereas people who have to fear a negative treatment (negative discrimination) could be more likely to withhold it.

But if a critical mass is sharing its data, data privacy-sensitive people might be caught between a rock and hard place because of the phenomenon called information unraveling. Meaning the information disclosure of others pushes you towards disclosing your information if you want to avoid negative discrimination.

The following is an example of information unraveling told by Prof. Ben Polak during his lecture on game theory at Yale University. He describes that the hygiene in restaurants in Los Angeles in the 1990s had become so alarmingly bad that the government introduced a new quality control that checked the restaurants and distributed health certificates from A to D. Despite the fact that companies were not obliged to display their certificate to the public those restaurants receiving an A started to put their certificate in the window. What did this do to the other restaurants? Well, those who received a B started hanging up their certificate because they did not want to be considered only having a C or D. Guess what C-certificated restaurants did? They followed the logic of B-certificated places and hung up their certificates as well. Only those receiving a D did not engage in the practice of showcasing their certificate. However, from a customer’s perspective, the interpretation is clear: if you do not show your certificate you are most likely part of the lowest assessment and therefore, not a good place to dine. By the way, information unraveling is only effective if the receivers know about it. Tourists usually did not which made displayed certificates ineffective in touristy areas.

So where does this leave us? The bottom line is if people are sharing their data deliberately it can start cascades of information disclosure that make markets extremely efficient. However, it also holds the potential to discriminate against people who are not willing to share their data. So, while the public debate has been revolving around protecting customers from companies harvesting and utilizing personal data against their will, the debate on which data companies are not allowed to use despite the customers’ consent should get more attention. Evidently, that debate is a very industry- and service-specific discussion but one that has to go with the current developments.

by Jonas Röttger, FINDER ESR

Purple Rein – Revolutionizing Revenue Models To Thrive Towards Blue Oceans

We are happy to introduce Mike Schavemaker, Innovation Transformation Lead and senior innovation consultant at Royal Philips, and member of the FINDER Advisory Board, on the FINDER blog! Mike guides the fellows with his academic and industry experience. Together with Barbara Voelkl, he shares his opinions, exciting developments and future revolutions in the world of business models in a blog series, so stay tuned.

The content of the FINDER blog is not an expression of Royal Philips, nor created on behalf of Royal Philips. The content is created and contributed by private persons.

Last year, on March 28th, Amazon announced to move into health care space. The company, founded in Seattle on the concept of delivering books at the most convenient way possible, now a tech-giant that delivers anything from overstock toys to data lakes through AWS makes it way to an arguably complete new venture space: health care. Why does Amazon think moving into health care space is the next place to be? Amazon is renowned to move into red ocean industries where traditional suppliers and supply chain rein such as publishing (with acquiring a.o. the Washington Post), catalog sales and ubiquitous data center applications and turn them into blue oceans. And leading the pack.

Amazon does this profoundly by understanding a fundamental question in business: who owns the customer. It enters spaces where providers of goods and services conveniently sell in a status-quo market. Where these same incumbent providers do not question any more how to bring additional value through combinations of innovations to capture the attention of the customer and retaining them; at least not in a paranoid sense. Rather they tend to relish themselves the comfort of their existing business models and only incrementally improve the propositions that they bring to market.

Navigate Uncharted Waters – Streamline Your Business Model

We argue that the simplest way to uncover industry leaders – or industry revolutionaries – are to find those companies who push their revenue models whilst fully aligning their value chain, from innovation, operations to sales, in their obsessed sense to stay close to their customers, or even fully align their customers’ interest with their own. The revolution therefore starts by focusing on the bottom right of the business model canvas and understand how to move your ship and your crew in line with this next purpose. For traditional product oriented companies, this means to move from a capital expenditure model to an OPEX-delivery model in the first place.

Essentially this means that as a product company your start to develop capabilities to address the needs of your customer according to their life cycle – and let them pay accordingly across this life cycle. Typically as a service, not as a mere product sell. In ‘product-sell country’, market share is your ultima. This accounts for hardware products, for ‘productized’ software where you buy a license per release. Appreciation by the customer presents itself by a transaction; thereafter product companies typically direct the attention to the next interested party.

In ‘solutions country’, wallet-share is your ultima. Wallet-share resembles how relevant you are as a company in the eyes of the customer. If your customer only brings 3% of their income to you, then you are not likely to be invited to the proverbial birthday party. If you manage to your customer to bring 30% of their income to you, then you are certainly invited to your customer’s birthday party: in fact, the party wouldn’t be complete without your presence. In a business sense, relevancy is connected linearly with the dollar-amount running from your customer to you. It is connected to your ability to address your customer’s preparation, planning, design and implementation of a solution, and being able to sustain the solution operationally for your customer and to enrich the solution optimally to your customer’s needs. The other currency acting as a proxy for relevancy is time: how well you are able to address their imminent need and invest time to persistently and longitudinally in making their lives easier, achieve their goals more effectively and raise the bar from satisfaction to delight. Taking your customer by the hand across these steps in the life cycle means that you can now shift from product based CAPEX-sell, to the game-play of providing a solution.

Get Your Customer On Board – Leverage The Relationship

The first stepping stone of providing a solution is to extend a product or license sell with a performance based revenue model. Particularly business-to-business oriented firms have extended their portfolio of offering to this model in the nineties. Nowadays any self-respecting product company in B2B-space has a service organization to support their ‘productized’ maintenance services, even if they deliver components to a solution. In this context, the firm commits itself to ensure business continuity and resilience for their customer base and leverages their contracts to substantiate the commitment.

The contract itself becomes the embodiment of how thick, or how thin the umbilical cordis between the firm and the customer is. And how simple it is to do business; as simple it is to deepen out the relationship. In performance based revenue models, the needle still hinges towards ‘transaction’ rather than ‘relation’.

Firms who push the needle further away from transaction, will typically start to develop usage-based revenue models. Moving towards this model will yet require, or actually demand the firm to understand how their product is consumed in the hands of the customers. Ensuring to provide richer functionality and solutions to answer for the customer’s ever evolving needs. Data becomes the inevitable carrier to understand how/when/who/what/where/how the customer’s needs continuously evolve. Addressing a richer set of offerings requires on the one hand a clear contract, on the other hand data mapping translated in integrated lifetime-serving offerings, being enabled by a digital platform that accommodates an ecosystem of solution and channel partners. The prior unlocks a leading position, the latter unlocks to sustain that leadership position. Not the other way around. Leadership, defined in its nature not by means of market share in a total addressable market; the traditional line of thinking. Contrary, leadership, defined by remaining relevant in terms of the wallet-share you manage to address at your customer, complemented by your natural role to orchestrate the connections and probabilities in your ecosystems.

Just look at players as and Microsoft. By first building a comprehensive portfolio of products that captures (and captivates) the value of the customer, they then stretch their portfolio to additional adjacent applications – which on their term are offered in a partnership program. The composite of this approach allows these industry leaders to create a fine network of application partners, whilst retaining the central orchestrating role around addressing the life cycle their customers. Cisco referred to this as Customer Advocacy, Microsoft perfected the approach by introducing the practice of Customer Success Management, a concept that takes relationship to a next level.

Orchestrate Your Customer’s Reality – Build Up Joint Relations

In history, the strongest relationships are based on trust and a sense of co-investment. An investment in time, an investment in money – or both. This brings us to the ultimate revenue model, being the outcome-based class. Providing services that allow a win, or a loss to your customer – and yourself – if you fail to address the need correctly, if you do not reach the opted result. This type of risk sharing requires your company’s capabilities to fully plug-in in your customer’s reality. This is not for the faint-hearted, especially for those companies that have full focus on establishing shareholder value. Company risk is often associated with volatility. Volatility requires a premium. Another reason why this revenue model is not often seen in any industry, is simply that economic or even political context is not ready yet. For instance, in the case of healthcare space, solution providers who try to offer these solutions to hospitals often face that the economic reimbursement model does not entice the hospital to opt-in: the investment costs would arguable be lower, however this defeats the purpose of the hospital trying to sustain their allocated annual budget to run their facilities. However, in the United States, the health care reimbursement is much more liberal.

What if you could, simply spoken, put your organization’s capabilities to use that you have garnered whilst developing yourself towards an outcome based service provider. Can you turn red oceans to blue, or even to purple on a global basis? This is arguable exactly what happens with Amazon Health. Amazon takes its organizational capabilities to use to provide improved health care services to its employees. What stops them to make the full hospital equipment floor completely digital, reading out vital signs first on assets to weave in the hospitals as outcome based partners, then elevate their partnership with these same hospitals to create meaningful outcome based treatment based on clinical vital signs. Who owns the customer? Making hospital operations fully digital and fully life cycle immersed is just one step to turn the red ocean a little bit more purple. Just apply this simple thought experiment: offering incumbent field service staff an extra raise and tools to be more effective in handling operations would create a massive shift in the existing U.S. healthcare service landscape. Healthcare provided as a financial service by a new entry tech leader: to any actor in the value chain.

The same procedure as all the time? The potential of digital financial business models to change our decisions for better

Whereas FinTechs and digital financial applications are labeled “disruptive forces” and “game changers” shaking up the existing world of finance and beyond within industry and even politics, academics tend to hold the view that by a bare change of the platform or transaction setting of our financial decisions, existing theoretical frameworks are not challenged too intensively.

However, not only does digitalization allow for more collaboration – between humans, distributed humans as well as between humans and technological entities – but also for different ways of collaboration. Imagine you consider buying Apple stocks in four different situations:

i) Analyzing your finances, you consider you are liquid enough now to invest and Apple seems a solid start for that. You open your online depot and fulfil the transaction.

ii) When opening your interactive depot, you just saw your boss sold his 120 Apple stocks just a minute ago. You still continue your transaction?

iii) When opening your online depot which you share with your baseball mates, you need to get the majority of them on board before the buying trade is possible. Do you consider researching a bit more? Are your mates going to agree to this transaction?

iv) While surfing on your phone, a push-up from your online trader pops up – their chatbot informs you it is a good time to buy Apple stocks now. Do you follow this advice on the go?

Considering these, a mere selection of possible scenarios of a trading situation, it becomes obvious that human financial decisions are shaped through contact, if online or offline, direct or indirect, if in the form of advice, communication or the pure existence of a social group within which an individual makes a decision. Keeping in mind the vast financial and strategic decision-making literature on nudges with the numerous examples of how framing a decision context changes our decisions, FinTech applications with their diverse setups, designs and defaults are definitely worth having a second glance from an academic perspective. FinTech applications give a new angle to financial decision-making transforming the way of collaboration. Does online and task-related communication such as in a collaborative investment app free individuals from halo effects? Does advice from AI remove or strengthen critical thinking? It remains the joint task of practitioners and academics to understand and design these applications as frames for inclusive, unbiased decisions so that research can serve its purpose – society.

by Barbara Voelkl, FINDER ESR

The Inner Workings Of Any Business Model: Human Interactions

Fintechs and Innovation

When it comes to innovation, its importance to success is by no means new. Already in the ‘60s and ‘90s, managers and researchers have given innovation a key role at the forefront of successful entrepreneurialism, yet with the rise of the above trends its importance over the years has accelerated. Its importance can be traced to the growing investment by firms – between 2005 and a good decade later, the innovation spend by the globe’s 1000 largest corporates increased from $400 billion to over $700 billion. It does, however, not all come down to big money – an analysis from Strategy& reveals that big spenders are not necessarily the most innovative, which allows for discussions about which other key elements determine the success of internal R&D or corporate venturing activities.

To make matters more complex – despite all the knowledge, theory and best practices with regards to innovation management – studies show that a large share of programmes linked to innovation either fail or do not realise all their objectives pursued. Dozens of factors contribute to this, which typically vary per region, organisation type and size and innovation product/service, and again researchers have been able to identify the most important factors contributing to the failure of the programmes. In other words, successful innovation, according to many, not only requires that the right contextual and programme factors are in place, but also that the known barriers to innovation are mitigated. With so much under consideration, it comes as no surprise that CxO’s and managers still struggle with the phenomenon on a daily basis. The FinTech industry provides an interesting case in point where innovation is still at the forefront of its potential, and valuation of new business opportunity is surging.

Managing the Networked FinTech Organization

To help professionals successfully manage innovation, the FINDER programme reviews a large number of models and researches on the topic, and looks into the dynamics of a diverse set of organisations. However we view upon the grand challenge of ongoing innovation, also in the Fintech domain, businesses have two reasons to reorganise. The first stems from the wish to innovate. The second surfaces when things are not going well and people need to be laid-off: how can we limit the damage? In both cases it will be useful to map the company’s innovation-DNA. Improvement – which is always the goal – starts with new ideas. And only when you know where these ideas enter the organisation and how they spread, can you redeem them. The use of an Organisational Network Analyse (ONA) offers a solution: the model shows where things happen and where not.

As part of the work of this ESR and extending on prior work featuring amongst others in this book we illustrate how managers can – with the help of social network analytics – identify key processes and information flows, and how they can eliminate the information barriers within organisations that derail innovation objectives. With FinTech initiatives less and less constrained by traditional organizational boundaries, we zoom into the collaborative efforts between small firms and large incumbents alike.  ‘Massive jumps’ in innovation activity and performance can be achieved by putting people together who ordinarily do not communicate, or by introducing a ‘forced communication governance’, our exploratory work already suggests.

On the Tech in FinTech

Just as other tech oriented industries, the fintech industry is shaping up quickly, and M&A is becoming the inorganic growth strategy of choice, just as it is in many other high tech settings.

But what do we know about high tech acquisitions when it comes to market response?

For instance, we know that geography plays an important role in explaining their actual innovative performance. Based on an empirical study of 3680 high tech acquirers prior work coauthored by one of the FINDER members, only 21.04% of high tech firms examined proved more innovative after an acquisition.

Afbeeldingsresultaat voor research policy"

Considering the effect of an acquisition on the innovation trajectory of the two firms, work featuring in Research Policy, considers some of the innovation consequences of high tech acquisitions, not too different from the ones currently under observation in the scope of the FINDER project. Drawing on insights from the transaction costs and international business literatures findings suggest that both geographic distance and borders influence post-acquisition innovative performance. Examining the patent portfolios of 3683 high tech acquirers in the period 2000–2012  support for a ‘liability of distance’ hypothesis is found – showcasing every 1000 km between the target and the acquirer to cost as much as 19 lost patent applications. The study does not find support for a ‘liability of foreignness’ hypothesis, however, but shows in fact, that else equal, cross-border deals result in 3.15 additional patent applications in a high tech context. For high tech acquirers ‘foreignness’ appears, therefore, to be more of an ‘asset’ than a ‘liability’. Would the lion’s share of these differences, just as in the case of the high tech acquisitions observed in this study, also be accounted  for by cultural differences? Current work by this ESR explores some of the underlying drivers of M&A success in a fintech context. Keeping you posted on the outcome when we can!

Last places left for the FINDER Research Excellence Workshop at Atos for early and mid stage doctoral students (February 10th and 11th)

The FINDER project announces the following Research Excellence Workshop targeted at early and mid stage doctoral students ready to advance their current work to a next level. The FINDER Research Excellence Workshop will be held at the premises of Atos in Amstelveen and is intended for doctoral students at the early stage of their dissertation research. The workshop will be highly interactive and will include a variety of panels, practical sessions on developing dissertation proposals and launching academic careers. The FINDER Research Excellence Workshop is a two-day workshop, focused on advanced methodologies and research publication strategies. This workshop aims to increase the knowledge of the participants on qualitative and quantitative research methods at advanced levels. Moreover, it will provide an opportunity for the participants to refine their research skills, increasing their chances of publication in high quality international journals, and learning how to deal with the research study and with publishing challenges. The purpose of the FINDER Research Excellence Workshop is to develop the publication strategies and research skills of doctoral students in the fields of digital innovation. The workshop is scheduled for February 10th and 11th, 2020.

 The FINDER Research Excellence Workshop is a two-day workshop, focused on advanced methodologies and research publication strategies. This workshop aims to increase the knowledge of the participants on qualitative and quantitative research methods at advanced levels. Moreover, it will provide an opportunity for the participants to refine their research skills, increasing their chances of publication in high quality international journals, and learning how to deal with the research study and with publishing challenges.

Foto Amstelveen
(Atrium Atos Amstelveen -Foto Jean-Pierre Jans )

The purpose of the FINDER Research Excellence Workshop is to develop the publication strategies and research skills of doctoral students in the fields of digital innovation. To allow for interactive discussions and feedback between participants in a friendly environment, the number of participants will be limited to 20. Overall aim of this workshop is to provide doctoral students with the opportunity to submit a paper on a subject related to digital innovation. The workshop will be moderated by several scholars affiliated to the FINDER program and beyond, a.o. from Radboud University, VU Amsterdam, TU Eindhoven and the University of Groningen.

In small group sessions, managed by an experienced faculty, each paper will be allocated a senior scholar as a discussant and authors will receive feedback from peers and other participants. Thus, participants will be required to read and review the papers from other participants of the session. Papers should focus on the participants’ doctoral research. Both theoretical and empirical papers are welcomed, as long as they are closely related to the dissertation topic. Students are welcome to use the opportunity to present their dissertation proposal.

Selection of papers will be done through the submission of extended abstracts (four pages plus two pages references) or full papers no later than Friday January 24th, 2020 by email to Linda Buis – (Project Management Office FINDER – Fostering Innovation Networks in a Digital Era). Update: Only  2 places left – don’t miss out.

Doctoral workshop hosted by FINDER at the the SMS Special Conference Berkeley “Designing the Future: Strategy, Technology, and Society in the 4th Industrial Revolution”

As part of the SMS Special Conference Berkeley “Designing the Future: Strategy, Technology, and Society in the 4th Industrial Revolution”, the Strategic Management Society will host a Doctoral Workshop on March 25th, 2020. This event is an initiative of the FINDER program and hosted by Rick Aalbers (Radboud), Saeed Khanagha (VU) and  Krsto Pandza (Univ Leeds). The main objectives of this Doctoral Workshop, focusing on strategy and innovation in a digital era, are to foster interaction among leading faculty scholars and doctoral students on various aspects of research and on preparing for a professional career in academia. The doctoral student participants will broaden their academic network with senior faculty from around the world and develop a better understanding of the particularities of the academic career.

The doctoral workshop will have an interactive intent and is open for doctoral students from across the globe interested in the Strategic collaboration domain and the role of Technology therein, so central to the FINDER objectives. Participants will be accepted through this application process.

During the first part of the workshop, as a doctoral student you will encounter senior faculty and other participating students to receive an initial response to your research proposal. In the second part, you will pitch your research, practicing to anticipate, critically reflect and nuance your contribution as part of the academic debate.  The objective is to strengthen and effectively position your research (e.g. the research question, the importance of the research gap, theoretical reasoning, and selection of target journals). Throughout the workshop, you will get a chance to present your work and engage in a constructive dialogue with senior faculty and your peers. The format of the workshop will be a combination of presentations by and interactive discussions with a panel of senior international faculty.

During the main SMS Berkley event dedicated to “Designing the Future: Strategy, Technology, and Society leading researchers in the field will bring their experience into the discussion to further develop participants’ insight into the key themes of this conference. The FINDER program is represented in this program as well as part of the sub plenary programming, including various a representation of the FINDER business and academic delegates serving as session hosts, participants and discussants.

Afbeeldingsresultaat voor berkeley university"

Emotion recognition technology in the financial sector – Curse or blessing?

Emotion detection and recognition is a hot topic in the tech industry. It could enable companies to react to emotional states of their customers by e.g. hindering or fostering impulse purchases, changing the tone of voice in customer services or identifying product functions that are extremely frustrating to use. For instance, virtual assistants like Siri could assess when people are screaming furiously and react more kindly – if that is not fanning the flames. In general, the emotion detection and recognition market is a huge and rapidly growing one: in 2012 it was estimated to be worth $12 billion and some people expect it to rise to $90 billion by 2024

How does emotion recognition technology work?

Based on the analysis of voice and facial expressions in videos, audio or images machine-learning algorithms try to predict the current emotional state of humans. These days, this is often done through supervised deep learning algorithms (mostly convolutional neural networks) which are previously trained on large sets of manually labeled data. The labeling is done by human raters who assess which emotion they perceive as most prevalent in a given image or piece of audio. The analysis is often limited to the so-called “basic emotions” ( happiness, sadness, fear, anger, surprise, and disgust) which are believed to be universal and identifiable by all humans independent of their culture.

How is emotion recognition technology used in the financial sector? 

Personal finances are an emotional topic for many persons. Studies have shown that the emotional state has a significant influence on the ability to make wise financial decisions.  This is an interesting point for banks and financial institutions that want to build services around their customers’ needs and feelings. One of the first movers in this domain was the United Bank of Scotland who partnered with an emotion recognition software company in 2016 to assess customers’ preferences concerning wealth management in a pilot study. However, the software was never adopted, despite the enthusiastic statement of UBS’ chief investment officer who dreamt about identifying his customers’ “subliminal desires”. Rosbank, a Russian bank whose majority shareholder is Societe Generale, decided to use emotion recognition software in call centers to calculate a “customer satisfaction index” in real-time. This is supposed to help operators identify the most critical issues but can also be used as a KPI for call center employees. Moreover, WeSee AI adopted emotion detection and recognition software to detect insurance fraud. The company promises to be able to assess the validity of claims “more significantly and accurately than ever before” through automatically evaluating people’s emotions. Overall, it seems that companies in the financial sector like the idea of using emotion recognition technology. But how reliable is the technology currently? In the following, we will assess the technology’s maturity level from research perspective.

How far developed is emotion recognition technology?

The scientific background for emotion recognition technology is weak. The latest report by the AI NOW Institute of the New York University argues that the technology should, therefore, be banned from the application in decisions that affect people’s life. We are going to discuss two major reasons the authors state in their report.

Displaying and feeling are not the same

Current psychological research concludes that displayed emotions do not necessarily reveal the actual inner emotional state of a person. Hence, it is misleading to rely on software that is only analyzing a fraction of all signals that have to be considered to assess a person’s mood (including asking how she or he feels). A recent paper by the Association for Psychological Science revealed that e.g. facial expressions alone are a very weak indicator to determine someone’s real feelings. If financial products and services are built upon these assumptions they at best add noise to their analysis and at worst disadvantage people or at least offer negligent consulting. Furthermore, facial expressions and tone of voice are for the most part under voluntary control. That could lead to absurd behavior when people interact with emotion-sensitive software: people could scream at call-center software just to be forwarded to a real person. This seems far-fetched but technology has always had behavior-changing effects on society: an ongoing study with currently 66.000 participants found that people are on average checking their phones 35 times to see (among other things) whether somebody texted them. Just imagine people running to their mailbox 35 times a day, seven days a week.   

Illegally scraped and biased data

Finally, the data sets that are needed to train the emotion recognition algorithms are often created by scraping websites without the informed consent of the people pictured in the harvested images or videos. This practice seems to be applied by both companies and research institutions. Not only does this depict a violation of privacy rights but it can also imbalance the composition of training data sets leading to wrong conclusions: a study found systematic racial biases in two well-known and widely used emotion-recognition software (Face++ and Microsoft’s Face API). Software that detects negative emotions based on racial biases could propose very conservative financial products that significantly lower the interest rate of their clients and therefore, further increases systematic racism.

Final thoughts

Facial recognition is often a necessary antecedent for emotion recognition software. Therefore, it is encouraging to see that the tech-savvy city of San Francisco recently stopped using facial recognition software and that a bipartisan bill to regulate commercial use of facial data is currently discussed in the US congress. To conclude, emotion recognition software is still far from being applicable in most business settings. Especially in finance, as an industry that has a strong direct influence on the well-being of people, companies should be careful not to draw wrong conclusions or overestimate the technology’s potential. Researchers have to stay ahead of the industry to ensure transparency and be able to act as technological and ethical evaluators.  

Sister Project Receives NWO Funding

The Netherlands Organisation for Scientific Research (NWO) has awarded a €15,000 grant to Drs. Rick Aalbers (principal investigator, FINDER project) and Armand Smits (assistant professor Radboud University). The researchers, both employed by the Nijmegen School of Management at Radboud University, will investigate business models in creative industries for complexity and improvement potentialities.

Dr. Rick Aalbers

This project will employ qualitative comparative analysis, an innovative research technique that systematically assesses combinations of cases in order to find complex interactions and relationships. In doing so, the grant enables the researchers to build an inclusive knowledge-generating collaboration, using contemporary techniques, between the research and business sectors through dynamic exploration.

Finally, this project will contribute to CLICKNL‘s Knowledge and Innovation Agenda 2018-2021.

– S. James Ellis