The User Experience: Why Data – Not Just Design – Hits the Sweet Spot 08-03

The successful user experience is about meeting a consumer’s needs on an individual level – a “segment of one” not “one-size-fits” all, many experts say. But what does that look like in practice? “What really differentiates companies is their personalization through data — which allows them to build unique experiences that lead to increased engagement and better outcomes, …” write Scott A. Snyder, president and CSO of Mobiquity and a senior fellow at Wharton, and Jason Hreha, founder of Dopamine, a behavior design firm, in this opinion piece.

Today, design has a seat at the table. With the success of products like the iPod and the iPhone, businesses have realized that a good user experience is key for the bottom line.

Yet even with this determined focus on design, most digital experiences fall short of user expectations. Of the 700 million websites that exist, 72% fail to consistently engage users or drive conversions. Of the 1.6 million apps available, just 200 account for 70% of all usage, and three out of four apps aren’t even used beyond the initial download.

So where did things go wrong? Or more importantly, how can we get them right? Surprisingly, the answer does not lie with design. It lies with data.

Netflix is an example of a company that pays attention to user experience. Early on Netflix chose not to charge late fees, like Blockbuster did, in order to help build its subscription DVD business. Netflix soon put Blockbuster out of business, but also came under threat from other online video streaming businesses like Sling and Roku. Fortunately, Netflix was able to use its viewing analytics to create personalized content recommendations, and even create its own shows geared toward viewer interests, such as House of Cards and Orange is the New Black.

For Netflix, the user experience was the price of entry, and the viewing data they gathered and analyzed became the strategic advantage of the business. Because of their approach, we don’t order special TV/Movie packages anymore. Instead, thanks to Netflix analytics, we have our viewing experience tailored to who we are. This is one example of a new breed of data-driven user experiences created by companies like Amazon, Pandora, Sephora, Nike, Progressive and Disney.

Good user experience design has become table stakes. If you don’t do it well, you can’t even get out of the gate in this hyper-competitive digital world. What really differentiates companies is their personalization through data — which allows them to build unique experiences that lead to increased engagement and better outcomes for the user and company. However, there is a fine line between “helpful” and “annoying” in the digital world, and the price of getting your data-driven personalization right or wrong may be the difference between a delighted customer and one who will never come back to your brand.

Good user experience design has become table stakes. If you don’t do it well, you can’t even get out of the gate in this hyper-competitive digital world.

How Can We Achieve Truly Personalized Experiences?

There are three reasons why digital solutions fail to engage users long term and drive positive outcomes: segmentation, relevance and rewards.

1. Segmentation: Behavioral

Are you someone who likes competition and rewards? Or are you someone motivated by helpful nudges from friends and family? Do you respond to text messages during work, or do you catch up on your personal messages at night? Do you travel a lot? Do you have a “wearable” (or are willing to use one)?

These are the types of questions we should be asking our users. We can either ask them directly, or infer answers from user interactions and behaviors. People are all different — but you wouldn’t know it by looking at most digital products. The majority of applications create a one-size-fits-all experience that fails to engage even a fifth of those who sign up. The good news is that we have the ability to collect individual behavioral data from users so that we can segment them more accurately, and present them with experiences that speak to their unique experiences and preferences.

2. Relevance: Getting Context Right

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In order to deliver relevant, impactful interactions at the right moment, we need to understand each user’s context. But context is much more than just time (when?) and location (where?). With richer data being collected from both users and third-party sources, context is now evolving to include situation (what am I doing?) and emotion (how am I feeling?). An expanded definition of context is shown in the figure above.

(Reference: Mobiquity and Wireless Innovation Council Research, 2014)

With this multifaceted model of context, we move closer to the ideal “segment of one” (a unique profile for each user at a given point in time). You would not want to send weight loss content to a customer who is maintaining a healthy weight, or give a shopping coupon to a stressed out traveler in an airport security line. Context-aware applications like Google Now and Tempo AI (acquired by Salesforce) leverage a user’s calendar as a source of context, so that they know when a user may be busy, in a meeting or enjoying downtime. This information is used by these applications to adjust their content and experience to fit the context-determined mindset of each individual user.

Context-aware applications like Google Now and Tempo AI (acquired by Salesforce) leverage a user’s calendar as a source of context, so that they know when a user may be busy, in a meeting or enjoying downtime.

Most users are only willing to share their data if they perceive that they will get real benefits in return. More than 60% of consumers want real-time promotions, yet 67% don’t trust retailers with their data (Opinion Lab Survey, 2015). We have the opportunity to do better.

3. Reward: Overcoming the Effort versus Benefit Challenge

In order to get, you have to give. Unfortunately, most applications ask for too much and offer too little. Twitter It’s common for apps to have a long-winded sign-up process that asks you every question under the sun. This is not a recipe for success.

Popular applications like Waze and Pandora are case studies in proper information gathering. They provide us with immediate benefits right after we download their apps. Waze improves our driving route in exchange for our location. Pandora gives us a personal DJ, tailored to our tastes, in exchange for rating the songs we’re listening to. In both these cases, our effort seems minimal in comparison to the benefits we get back. Contrast this with the majority of digital solutions that ask for a lot of data (like registration, profile, location, etc.) before delivering one ounce of benefit. We have to “earn the right” to collect the type of data we need to appropriately segment users. We have to win the “benefit versus effort” trade-off with our users by providing them with immediate, tangible benefits and using the data being collected to further personalize their experiences.

Evolving to a Data-driven UX Approach

Eighty-six percent of mobile marketers have reported success from personalization — including increased engagement, higher revenue, improved conversions, better user insights, and higher retention. However, only 1.5% of apps personalize their experiences (Mobile Marketing Automation Report, VB Insight, July 2015). In order to get to true personalization, and deliver greater effort than benefit, we need to make our user-experience (UX) design data-driven.

A traditional UX design process starts with user research followed by user flow creation, persona creation, storyboards/wireframes creation, and (finally) a graphical mock-up or prototype of the design. The desired result of this process is a single beautiful design that attempts to deliver the best possible experience to meet the needs of all the different user types.

By knowing something about each user’s behaviors, motivations and contexts, we have the opportunity to deliver a variation of the core experience that is best suited to each individual user by using robust analytics and an adaptive user interface.

But the reality is that all users are not the same — and they don’t all want to interact with your app in the same way. By knowing something about each user’s behaviors, motivations and contexts, we have the opportunity to deliver a variation of the core experience that is best suited to each individual user by using robust analytics and an adaptive user interface. In a data-driven UX approach like this, we start with the desired outcomes and behaviors we are trying to achieve with the target user base.

We then develop an initial behavioral segmentation model, and identify the optimal interaction strategies and user experience for each segment. And finally, we use analytics and machine learning to have our system adapt over time, so we can further optimize the design and underlying interaction models.

The figure below depicts the difference between a traditional and data-driven UX approach.

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Make it Real

Data-driven UX design is a fundamental shift in how companies approach product design and development. While the journey is not easy, the potential payoff is huge in terms of long-term engagement and positive outcomes for your customers. If you want to move to this new model, you need to consider the following:

1. Expand your definition of context beyond location and time. Situation and Emotion matter.

2. Deliver immediate benefits to users before asking for more of their data. There is a fine line between useful and creepy.

3. Segment your users based on digital behaviors, preferences, motivations and context to drive the most relevant interactions.

4. Set up a big data and analytics environment capable of capturing and acting on behavioral analytics data in real time.

5. Use analytics and machine learning to adapt the target interactions for each user-segment over time, based on user responses.

6. Recruit a new breed of user experience designers—those with analytics skills to support the design of adaptive user experiences.

7. Start with desired outcomes, then pilot and adjust quickly.

It’s no longer good enough to know your customers. It’s what you do with that knowledge that really matters. Your customers are willing to engage and share their data if they perceive a real benefit for them.

Are you ready to live up to your end of the bargain?

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What Insights lie at the intersection of Neuroscience and Marketing 07-02

Research into the interplay between the discipline of neuroscience — which studies the brain and the nervous system — and marketing could help to explain how people make decisions, how they react to stimuli and what triggers might amplify or diminish the impulses that drive social interactions or even innovation in a business setting. Such research also raises ethical questions on how those insights might be used, and how to prevent them from getting into the wrong hands.

Those are the opportunities and challenges for the Wharton Neuroscience Initiative, which was launched in September 2016, according to Michael Platt, its director. Platt, a neuroscientist, is also a Penn Integrates Knowledge professor with appointments at the University of Pennsylvania’s Perelman School of Medicine, the department of psychology in the School of Arts and Sciences, and the marketing department at Wharton. Creating the neuroscience initiative “at the intersection of medicine and business … is a provocative idea,” said Platt. But he is convinced that “it sends a clear signal to business schools, universities and people in industry that neuroscience is here, and the future of business is in neuroscience.”

Technological developments in the space also make it an opportune time for such an initiative, according to Elizabeth (Zab) Johnson, who is managing director and senior fellow of the Wharton Neuroscience Initiative. She pointed to the “huge boom” in wearable neurotech, and the proliferation of devices such as heartbeat monitoring watches, sleep monitoring gadgets and brainwave headbands. “[Students] need to know how to tell hype from what’s practical,” she said. “We need them to be savvy about that.” Platt and Johnson were previously colleagues at Duke University’s Institute for Brain Sciences.

Platt and Johnson discussed the intersection of neuroscience and business on the Marketing Matters show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)


How We Tick, Why We Tick

Businesses and marketers need to get up to speed on the use of neuroscience in advertising and marketing, according to Catharine Hays, executive director of the Wharton Future of Advertising program, who co-hosts the Marketing Matters show. “The essence of the initiative is grounded in helping people, understanding how we tick, why we tick, and then using that information to make sure that we tick well,” she said. It helps that Penn has a large neuroscience community, she noted.
Platt expanded on Hays’s comments and said, “Knowing something more about how we tick as individuals and how we tick together sometimes and sometimes we don’t could impact the way we do business and educate the next generation of students….”

According to Platt, the “tremendous strides” in neuroscience over the last couple of decades will help people with brain disorders like Alzheimer’s disease. Those same advances in neuroscience will also help businesses and individuals “reach their maximum potential to create value for society,” he added.

The Wharton Neuroscience Initiative this year started an Introduction to Brain Science for Business course. It essentially uses business as a vehicle to teach students neuroscience, and also a means to convey some of the emerging areas for applications, said Platt. Some of those are in the area of marketing, to test the effectiveness of advertising such as engaging people and predicting sales, he explained. The idea is to broaden the domain of neuroscience beyond attention or decision-making to social neuroscience or studies of creativity, he added.

“The brain is trying to figure out ambiguity, and is trying to find solutions for what we see and what we perceive.” –Elizabeth (Zab) Johnson

Takeaways for Businesses

Research being conducted by Platt and Johnson could find numerous applications in the world of business. Johnson’s research includes studies in vision and color vision. For example, she would examine why different people identify the same color differently, such as some seeing blue as black or white as gold. She pointed to applications, for example, in the cosmetics industry. “We spend a lot of time looking at whether or not we can make ourselves more attractive” by adding different colors, she said.

Johnson saw big opportunities for research into those varying perceptions of color. “People had very emotional responses when they realized that what their friends saw was different from what they saw, even though it is same [color],” she said. The neuro-scientific explanation for people seeing colors differently is still being probed, she added.

“Inherently … what you perceive is all in your head, which as neuroscientists we always knew,” Johnson said. “We also know that the brain is trying to figure out ambiguity, and is trying to find solutions for what we see and what we perceive.” She has also begun to research how colors on people’s faces change depending on their emotional state “and the signals that we might be getting but we don’t think about,” such as when people blush.

Hays noted that 80% of the decisions or choices people make are based in their subconscious. “[In] bringing them to the fore and making them explicit, the business applications are mind boggling,” she said.

Platt said his research includes trying to understand at “a very deep level” aspects of interpersonal interactions. That begins with how people perceive each other to “higher-order processes” such as how that might prompt people to be kind or deceptive, he explained.

“We are working out the circuitry [and] trying to understand how we might turn up the volume on some of those signals and turn down the volume on some others,” Platt said. “So, could you do various kinds of nudges to promote more social behavior, to make us more attentive to each other, or [to become] better able to read social cues and be better listeners?”

“Could you do various kinds of nudges to promote more social behavior, to make us more attentive to each other, or [to become] better able to read social cues and be better listeners?” –Michael Platt

A Measured, Cautious Approach

Penn research is focused on using those insights to test new therapies to treat people with disorders, including both medicines and non-invasive brain stimulation, Platt explained. “We need to do research to figure out how to do it right, and how to do it safely.” Some of those therapies are being put into practice at the Children’s Hospital of Philadelphia, he added.

Platt’s research extends to studying decision-making and how people weigh trade-offs between continuing to exploit something they know well versus taking risks to explore new ways of doing things. “That is where the spark of innovation comes from,” he added. As that research advances, it will also try to uncover the mechanisms of that process, measure it on individuals unobtrusively through a wearable device or “stimulate that circuitry on people whose job it is to be innovative.” The research work will also extend to innovating on devices at an ideas lab to improve quality and make them cheaper so they can be used more in everyday lives.

Platt acknowledged that such research raises “important ethical questions,” but clarified that they are not specific to neuroscience in a business context. He said that among other resources to grapple with those issues, he wants to tap into the deep expertise in bioethics at Penn. Johnson called for continuing debate on these issues to come up with the right applications.

Reproduced from Knowledge@Wharton

How Anticipating Future Variety Curbs Consumer Boredom 06-29

Image credit Shyam's Imagination Library

If your favorite chocolate brownie ice cream were on sale, then surely buying a few containers to stock in your freezer would makes sense, right? Surprisingly, the answer may be no, according to recent research from Wharton marketing professor Barbara Kahn, who also serves as director of the school’s Jay H. Baker Retailing Center. In a paper titled “Anticipation of Future Variety Reduces Satiation from Current Experiences,” Kahn and her co-authors — Julio Sevilla from the University of Georgia and Jiao Zhang from the University of Oregon — debunk the notion that consumers respond positively to an endless supply of the exact same product.

Through controlled lab experiments, Kahn and her team found that when consumers are offered more variety for future consumption, their perception of present satisfaction changes. The paper was published in the Journal of Marketing Research. Kahn spoke with Knowledge@Wharton about what the research means for marketers. 

An edited transcript of the conversation follows.

Knowledge@Wharton:  Could you give us a summary of your research?

Barbara Kahn: What the research shows is that if you anticipate consuming a variety of things in the future, you will satiate slowly on what you’re consuming now.

Knowledge@Wharton: This sort of sounds like the reason why we all overeat at the buffet.

Kahn: Except overeating is consumption, and this is about eating the same thing over time, how fast you get bored with it or how fast you satiate with it. The reason it’s interesting to marketers is, of course, that marketers want you to consume as much as possible of their product. But the problem is when you consume a lot over time, you get bored, or satiate. This is not just for food; it could be for music or for anything else that you consume over time. Is there a way to reduce the boredom so that you’ll enjoy what you’re consuming for a longer period of time?

What we found was that some of that boredom and satiation is cognitive. It’s not all physical. If we can encourage you to think about something in the future that’s related to what you’re consuming now, and that will offer more variety, then you’ll satiate more slowly.

In an article you wrote for the American Marketing Association on this research, you introduced the example of yogurt, which I think helps to clarify this. Could you explain that example?

Kahn: Say you’re eating vanilla yogurt every single day for lunch for a week, two weeks, three weeks. You could imagine over time that you’d get bored with vanilla yogurt. What can we do to make you less bored?

Knowledge@Wharton: If you went to Costco or BJs or some warehouse and bought a whole pallet of yogurt, and it was all different flavors or some flavor different from vanilla, and you knew in the future you would consume that, it would make you satiate more slowly with the vanilla yogurt you’re eating over time today. That’s the idea.

Knowledge@Wharton: What are the implications for retailers like Costco, for example?
Kahn: It’s that selling a variety of things has a benefit over and above what you might think. Just having the variety in the refrigerator will make the enjoyment of a single flavor more pleasurable.
Knowledge@Wharton: What is the biggest surprise that came out of this research?

Kahn: We’ve always known a lot about anticipation; a lot of past research has shown that you should savor the anticipation of something good. There’s an advantage in planning for a vacation or a wedding or something that’s really fun. You might actually enjoy the anticipation of the event more than the event itself. That’s something that’s been shown before.

But what’s different about this research is that we show that anticipating variety in the future affects your current consumption. That’s somewhat surprising because you wouldn’t think that just thinking about something in the future could affect how you’re enjoying something today.

Knowledge@Wharton: One of the other interesting examples you brought up in your AMA article was the idea that maybe it’s not always best to keep a surprise gift a secret from a significant other. Could you explain that?

“You wouldn’t think that just thinking about something in the future could affect how you’re enjoying something today.”

Kahn: The point is that if people can anticipate something that’s going to happen in the future, not only do you savor the excitement of the future, but it also can affect your current consumption, so that’s a little counter-intuitive.

Knowledge@Wharton: If someone’s going to give you a surprise vacation, for example, knowing about it earlier helps you to anticipate and actually enjoy something else in the present, correct?

Kahn: Right. You know you’re going to have a lot of varied activities — you’re going to go skiing and mountain climbing or whatever you’re going to do in the future — so maybe you won’t be as bored with what you’re doing right now.

Knowledge@Wharton: There are all sorts of implications for this. What are you going to look at next?

Kahn: It’s interesting to think about how consuming variety can affect things besides the actual utility you have for the variety. One of the projects I’m working on with a doctoral student at Drexel University is how consuming variety can make you feel less guilty or more fulfilled when you’re in a self-regulatory mode — like when you’re trying to like control your weight or eat more healthily. Sometimes, using variety as a cue for doing more of a good thing or less of a bad thing can alleviate guilt. That’s kind of an interesting thing — that variety in and of itself can affect these other kinds of feelings or emotions.

Reproduced from  KNOWLEDGE@WHARTON

Mastering the Art of Communication: What Big Data Can Tell Us 06-15

Image credit: Shyam's Imagination Library

There’s plenty of anecdotal evidence about what makes a good communicator, but Noah Zandan is
more interested in the science behind it. That’s why he co-founded Quantified Communications, a firm that helps business leaders remake and refine their messages.

Zandan spoke recently to Cade Massey, Wharton practice professor of operations, information and decisions and co-director of the Wharton People Analytics Initiative, about how he applies research to the art of communication. Massey is co-host of the Wharton Moneyball show on Wharton Business Radio on SiriusXM channel 111, and this interview was part of a special broadcast on SiriusXM for the Wharton People Analytics Conference.

An edited transcript of the conversation appears below.

Cade Massey: Let’s understand what Quantified Communications is and how you got going in that direction.

Noah Zandan: The idea behind it is that communications has always been considered an art. How people talk to each other, how executives communicate, how we relate to other people, how we connect to the world around us, has always kind of been this art. Academics have been studying it for years, which is really exciting, and what we are trying to do at Quantified Communications is bring some of that research and apply it to a business environment. We work with corporations and organizations to really help their leadership, help the people moving the message of the business to deliver that message, and do it in a way where they are using objective data to know whether or not it works.

Massey: What is your background?

Zandan: I studied economics in college. Econometrics. I showed up on Wall Street, bright-eyed, and realized pretty quickly as I got further and further into Wall Street that we were modeling everything — obviously looking at risk and trying to make $1 billion decisions — off of data. But there was a missing factor from our model, and that was the people: The way that the executives communicate, the way they told the story, how confident they were was really one of the critical success factors on Wall Street. But there was no data behind it, and I’m an econ guy. [I thought,] “This isn’t rational.” I started looking and found some amazing research. Folks like James Pennebaker at the University of Texas, people who have been measuring this stuff for years, but nobody in the business environment knew this existed.

“We thought visionaries would really be complex thinkers, but in fact what they’re really concerned with is making things simple and breaking it down into steps.”

And so from there, we started. Our co-founder [Peter Zandan] has a Ph.D. in evaluation research and started finding all of this great stuff and then built a big database and a big platform to measure it. All of the big presidential speeches, all of the TED talks, media interviews — you name it, we’ve tried to go find it.

Massey: What are you doing with it?

Zandan: Well first, you have to be able to process it. So you’ve got to tag it; you’ve got to organize it; you’ve got to make sure that it’s useful. The New York Times calls it being a data janitor. It is a huge part of the job for a data scientist. We spent a long time doing that, and then we had to go understand it. Was it successful or not? Did it accomplish its purpose? Did the audience react to it in the appropriate way? Go out and ask a bunch of people what they think. Do you trust this person if they did this? Do you believe them? Do you want to engage with them more? And then measure the factors of the communication. What types of words did they use? Were they making eye contact? What were they doing with their hands? Then you can understand the factors that correlate with success.

Massey: How did you decide what factors to look for?

Zandan: Again, academic research. Folks in academics have been doing this for years. One of the best guys out is Albert Mehrabian out of UCLA. He created this model called the Three Vs — verbal, voice and visual. It breaks down someone’s communication into some of the important elements, and he did a bunch of research as to how those are correlated with whether or not I like you. You go talk to communications folks and researchers, and they understand eye contact, facial movement, features.

There are factors behind all this stuff.

Massey: As you said, it’s historically been an art. What is the disparity between what you’re bringing to this conversation versus what’s been in the conversation before? When you come to these academics with this unbelievable database and say, “I’ve run some tests of these ideas,” are they saying, “This is different than anything we’ve seen before?” Or is this just a bigger version of what they’ve done?

Zandan: I would probably say it’s just a different use case. The academics are doing it from a great research standard, really thinking about how to apply it for research validation. What we’re doing is trying to bring it in a more applied way — looking at how leaders can communicate, really thinking carefully about what their purposes and audience types are. And then we can also go a little bit further, in that we can build predictive models and just run them over and over, given that we’re a business and not held to kind of the research standards.

Massey: One question you’ve looked at is, what do visionary communicators or visionary leaders do? Can you give us a recap of your findings?

“If you think about Elon Musk talking about Tesla, he always talks about what it’s like to drive in the car, what it’s like to look at the car, how the doors work.”

Zandan: We looked at hundreds of transcripts of visionary leaders. It was just a linguistic analysis. We didn’t look at their faces or voices or things like that. What we identified was what separates these people who we consider to be visionaries, everybody from Amelia Earhardt to FDR to Elon Musk to TED Talks on innovation. What separates them from the average communicator? What distinguishes them from a factor model perspective?

There were three main findings that we had. One: We thought visionaries would talk a lot about the future, but in fact they talked about the present. Two: We thought visionaries would really be complex thinkers, but in fact what they’re really concerned with is making things simple and breaking it down into steps. Three: We thought that visionaries would be really concerned with their own vision, but in fact they’re more concerned with getting their vision into the minds of their audience.

Massey: What does that mean?

Zandan: That means using second-person pronouns and using a lot of perceptual language, talking about look, touch and feel. It really brings the audience into the experience with you. So if you think about Elon Musk talking about Tesla, he always talks about what it’s like to drive in the car, what it’s like to look at the car, how the doors work. It’s really less about the future of energy and transport. As this kind of theoretical vehicle, he really brings it and makes it tangible.

Massey: One thing that jumps out to me about that research is the present tense versus the future, especially when you’re talking about visionary leaders. You would have expected that to go the other way. Why do you think they are so much more effective?

Zandan: We saw it highly correlated with credibility. I think that people think if you’re talking so much about the future, then it’s going to be less credible. People aren’t going to believe you as much. So, you really want to [apply it to] today.

“The data can lead you down a path of replication. We don’t want to do that, because so much of what you communicate is your personality.”

Massey: How do you apply this research for your clients?

Zandan: What we often get asked to do is help people improve their communications, use the technology, use the analytics, allow them to make data-driven decisions on how to better impact their audiences. The No. 1 question Oprah Winfrey gets when the lights go off after her interviews with all of these amazing world leaders and celebrities is, “How did I do?” That’s what these people want to know. We can answer that not in a way that their team is going to — which is, “Hey, boss, you did great.” We can actually give them a lot of truth in the data — talk about how they are perceived, talk about how they can get better, and give them a very prescriptive plan to better impact their audiences and achieve their purposes.

Massey: When you work with people in that role, what data do you collect?

Zandan: We look at text, audio or video, which we can take in. We’ll break those down into the elements. So text is what you say, the words. For audio, we’ll look at the words as well as your voice. And then for video, which is our favorite, you’ve got the face and the gestures. You break down all of those into different behavioral patterns, you measure all of them, you benchmark them against what they would consider to be a measure of success. That could be themselves, that could be someone who is best in class, that could be a competitor they aspire to be. And then you could give them a road map for how to achieve that. We’ll give them some guidance on that, but a lot of times they know. The White House came to us and said, “We want to replicate one of Obama’s best speeches. We know which one was our favorite, and we want to understand the different factors behind that.”
Massey: Can you speak about what you found?

Zandan: No. But the speech was a eulogy in Arizona, which they considered to be one of the best ones he has given during his tenure.

Massey: Let’s put it this way, did you find anything interesting when you looked at that kind of speech from that level? That’s really championship-level rhetoric.

Zandan: Of course. You uncover stuff, but what’s worth saying here is that there is also the other side of the equation, which is authenticity. I am not President Obama. I do not speak like President Obama. If I did, it would seem very strange to an audience. Everybody has their authentic tone. We work really hard to measure authenticity. It’s one of the hardest problems.

Massey: Being able to do something like that would be a real advance.

Zandan: It would. And there is obviously authenticity to the way you deliver the message, and there are words that are considered authentic. But what we’re careful on is we don’t want to push people to be something that they’re not. The data can lead you down a path of replication. We don’t want to do that, because so much of what you communicate is your personality.

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How to Regulate Innovation — Without Killing It 02-11

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Digital innovation is giving rise to new business models. Uber and Airbnb are household names today, when not so long ago we were all learning about the sharing economy. The regulations don’t always evolve as quickly as technological change — at least that’s the perception. So what should policy makers and regulators do? Wharton legal studies and business ethics professor Kevin Werbach, who wrote a policy brief about the topic for the Penn Wharton Public Policy Initiative, recently shared his insights into that question with Knowledge@Wharton.

An edited transcript of the conversation appears below.  

Knowledge@Wharton: In your article, you mentioned something called the Internet of the World. Can you tell us what that is?

Kevin Werbach: There’s something big going on, and it’s a bigger trend than most people realize. There are three trends, and each in and of themselves is significant. One is what we often call the sharing economy — it’s really more the on-demand economy. It’s not just about sharing resources, but services like you mentioned, Uber and Airbnb, which give on-demand access to resources. The second piece is the Internet of Things — all kinds of devices, billions of devices getting networked. And the third is big data and analytics — the ability to understand and manipulate trends coming out of all those devices.

What those three things together mean is that all of the world, potentially, is networked. It’s not just that you go somewhere to a computer or you go to your phone to get access to information. It’s that potentially everything is a generator of data, and all that data can be integrated and analyzed and processed and manipulated. What that means is the kinds of trends and the kinds of developments that we saw online are now happening offline. They’re happening to things and physical objects in the world, as well.

Knowledge@Wharton: You point out that the scale of on-demand services is potentially much greater than the legacy industries they challenge. How so?

Werbach: There’s this kind of cheap talk about new technologies disrupting old technologies. And actually, the theory of disruptive innovation — which goes back to Clayton Christensen and Harvard Business School — is a serious academic theory, but far too often people in business and entrepreneurship and in the media use the word “disruption” as just kind of a synonym for new technology. And the reality is, it’s not that you have one market, and suddenly a bunch of new companies come in a replace that market.

“I’m arguing for an openness and a recognition that ‘regulation’ isn’t a dirty word.”

Often what happens — and this is what we’re seeing with things like the on-demand economy — is that the new markets are different. So it’s not that Uber takes the taxi market and every taxi gets replaced by an Uber driver. In fact, Uber has put out some numbers for the past several years that show that the scale of the market they’re tapping into is actually much bigger.

What that means is, [the existence of on-demand services firms] is not just a competitive threat — and certainly it is a competitive threat to the incumbent industries — but it’s creating something new. It’s unlocking latent demand that the previous approaches didn’t reach.

Knowledge@Wharton: You also pointed out that throughout the different technological waves since the 1990s — we went through ecommerce, social media, now mobile– regulations have always been seen as an enemy of innovation. But you say that this digital dichotomy is actually misunderstood. Can you explain that?

Werbach: There’s two pieces to it. One is the term that you referenced that I use in the paper — the digital dichotomy. That is a misunderstanding that the online world is inherently different from the offline world. The reason that’s not true is what I said at the beginning. Increasingly, there is no difference, even if you’re using a physical thing.

So take the Uber example — and it’s such a perfect example. [It’s] a physical person driving a physical car, but from your standpoint running the app and pushing a button and saying, “Make a car appear” — it’s as though that’s something that’s in cyberspace. It’s as though it’s something digital. It’s an extension of the software infrastructure of Uber, even though it’s a physical thing, a physical person driving a physical car.

We tend to assume that there is one set of rules for the real world, and there’s one set of rules for the digital world, and that’s a mistake because, increasingly, there is just the world. Software technology, networks, all these trends, and what I call the Internet of the World are affecting everything. So that’s the first piece: the assumption that we can just ignore the rules of the physical world because we need totally new rules for the digital world.

The larger issue, though, is this question of innovation and regulation. And again, there’s this common assumption that innovation needs to thrive with no regulation, and any time government gets involved, that’s a check and a drain and a block on innovation — and that’s not really the case.

What I talk about in the article you referenced and the larger law review article it’s based on, is that if you go and look at the history of how the internet developed, how electronic commerce developed in the 1990s, a surprising amount of the time it was government action actually facilitating innovation, and the emerging startups actually pushing for that government intervention to help create a more innovative marketplace.

Knowledge@Wharton: That’s an interesting point, and in your article you also pointed to one challenge for regulators, and that is a lot of these new startups don’t really fit neatly into industry categories. The example you use is Uber versus Skype. Can you go through that example?

Werbach: I should be clear. It’s not that regulators always get it right. They make mistakes, and they have lots of flaws and lots of reasons why they act in a certain way, and we should definitely criticize bad regulations. But we just shouldn’t assume necessarily that they are bad, and necessarily what startups do is good.

The Skype and Uber comparison is basically that both of them were companies that when they started were illegal in most jurisdictions. Skype — the very popular internet communications service, originally voice calling, now also video and messaging and so forth, [and] now owned by Microsoft — was illegal in most of the world when it launched, because there were rules saying you could not do a communications service, a telephone service, outside of the existing regulatory infrastructure.

In the U.S., because of what we did — I was at the Federal Communications Commission in the 1990s, when we had to think about voice over IP (Internet Protocol) — we very deliberately left open the door. Even though things like Skype were outside of the regulatory structure, we made a conscious decision to allow them to develop. And that’s an example of regulators consciously deciding not to impose a whole set of rules early on — when these were nascent technologies — allowing them to grow.

Uber is similar. Uber is illegal in most of the cities where it operates. And the story of Skype, I think, is a hopeful story. What happened with Skype is that first of all, you had regulators like the FCC in the U.S. that understood these new internet calling technologies were … a way to lower prices and create better service, and [provide] new services and innovation, and so that we shouldn’t rush to impose all the traditional rules on them. And as these companies grew, they were able to work with regulators to address the rules that were necessary.

Knowledge@Wharton: You believe that government can actually be a positive force in innovative markets. Can you give us more examples of that?

Werbach: We saw a lot of examples with the growth of the internet and electronic commerce, starting 20 years ago. One of them was the antitrust case against Microsoft. Microsoft was the dominant company in the personal computer [market] and in the operating system market, and lots of start-up companies — like Netscape — realized they wanted to innovate, they wanted to build the internet economy as we know it today. You couldn’t have Microsoft standing there, using its power at the time.

It’s hard to realize today, with what’s happened — the growth of Apple and the growth of smartphones and so forth — just how much power Microsoft had as a bottleneck. Microsoft controlled access to the PC, and the PC was the only game in town. Had it not been for that action by the government — filing that antitrust case — Microsoft may have been able to warp or slow down the growth of the open internet economy. And it turned out most of the startups were on the side of the government in the case.

“What stops the algorithm from colluding with someone else’s algorithm behind the scenes to fix prices?”

[More recent cases include] the fight over network neutrality rules, where lots of startup companies went to the Federal Communications Commission and said, “We don’t want broadband providers — the access providers, the internet service providers or ISPs as they’re called — to stop us from getting into the market, or to basically tax us, and say, ‘you can only get to customers if you pay us this special fee.’” They were actually urging government to act in order to create a more open market.

Knowledge@Wharton: You also say that on-demand services would bring what you call algorithmic competition policy questions to the fore. Why is this important?

Werbach: Competition policy — I gave the example of Microsoft — is tremendously important to the digital economy. The Microsoft case was an example where there was a new kind of business model. Microsoft was one of the first to build this platform, network-based business model where Windows benefitted from all the applications on top of Windows, but Windows would always want to ensure that none of those applications would then compete with it. And there were tremendous benefits of that model. You know, Microsoft did great things for innovation, but the Microsoft case put a spotlight on some of the dangers and the downsides.

What we’re seeing now with these next-generation platforms, these on-demand platforms, is a new twist on that model. Companies like Uber and Airbnb are built on algorithms. They’re built on software that understands supply and demand and matches people on both sides of the network. And again, that’s a tremendous boon for competition and innovation. I’m not saying it’s bad, by any means, but it does put the platform owner in a position of unimaginable control.

How do you know that what you are paying for that Uber ride is the efficient price? Uber says, “Well, by definition, it’s what the algorithm gives you.” Well, but who controls the algorithm? And what stops the algorithm from colluding with someone else’s algorithm behind the scenes to fix prices?

Again, we have antitrust doctrines about things like price-fixing, but those are based on people in a smoke-filled room saying, “Okay, you’re going to charge this, and I’m going to charge that.” … Now it’s all happening silently, through software. And so I think this one of the great competition policy challenges of our age is how to prevent those kinds of mechanisms from raising costs and raising prices and hurting consumers, while still allowing flexibility for companies to innovate and do things that, most of the time, actually wind up helping consumers.

Knowledge@Wharton: That brings us to the point you made in your article about algorithmic cartels. How could those come about?

Werbach: The algorithms could talk to other algorithms — and we see this already. You look at pricing on Amazon.com. Amazon has this platform that allows anyone else to [look in] Amazon.com and set their prices. A lot of companies that are sophisticated set their prices algorithmically. They might say, “Amazon is charging this price. Automatically charge 2% less than Amazon’s price.” So when [the product] comes up, they’re the cheapest price.

“You get this increasingly complex war between the algorithms, because they’re all basing their prices on each other.”

What happens is you get this increasingly complex war between the algorithms, because they’re all basing their prices on each other, and so forth. What can potentially happen is companies decide, “Well, no, let’s both agree. We’ll set a price higher, as opposed to competing in a race to the bottom, and we’ll both be better off.” But who’s worse off is consumers. So that’s a concern that we’re starting to see on platforms like Amazon, and it’s more of a concern on these digital on-demand platforms, where again, everything is in software. And we have lots of different actors coming together, and we don’t even know what the mechanism is to get access to the data to see if that’s what’s happening.

Knowledge@Wharton: How do you regulate that?

Werbach: First, you start to have a conversation where the regulators say, “Here’s what we’re trying to achieve.” And the companies say, “Here’s what we’re doing.” And you figure out what’s possible. Ultimately, as I said, there needs to be access to the data. And this is a great opportunity, because these new platforms generate tremendous amounts of data. They use the data internally to be more efficient and to provide better service, but if they could provide more transparency of that data, that would give regulators the opportunity to identify what the market performance is. This can be done in a secure way, in a way that doesn’t harm them with competitors and so forth.

It’s actually making the regulation itself more algorithmic, making the regulation itself more data-driven, which is a healthy and a good thing. And so I think this is potentially the new model we’re going to come to, but it takes the company’s willingness to work together and not to make [sweeping] statements like, “Oh, we don’t need any regulation.”

Knowledge@Wharton: You mention alternatives to direct regulation, which are self-regulation and what you call co-regulation and delegated regulation. Can you explain the differences among all those?

Werbach: These are models that actually are used much more widely elsewhere in the world, especially in Europe for things like internet content. There’s a whole variety of different models, but basically they start with the notion that companies individually and industry collectives and industry groups potentially know the most about their market, and if they’re well-meaning, they can come up with mechanisms that achieve the goals of regulators, without government having to be intrusive, or without government having to be inefficient, because regulatory agencies don’t have the data, and they’re not set up to operate in that way.

The problem is, you need some accountability. Just saying, “Let companies regulate themselves” is meaningless, because there are always incentives for companies to cheat or to game the system or basically help themselves at the expense of the public.

But there are a variety of mechanisms where, for example, government sets goals and then gives industry opportunities to meet them, report on how they’re doing, and provide transparency of the data. There are mechanisms that basically say, “All right, in the first instance, you have this opportunity to act, but if you don’t act in a way that we find appropriate, then we’re going to intervene.”

“Nascent, small innovators should have lots of running room, because even a good rule will kill them off.”

Again, there’s different variations on these mechanisms, but [overall] it’s an approach that says instead of everything starting with the regulator — the regulator says yes or no before anything happens in the marketplace — companies can come into the marketplace, especially new companies.

Nascent, small innovators should have lots of running room, because even a good rule will kill them off when they’re too small.… I’m arguing for an openness and a recognition that ‘regulation’ isn’t a dirty word.

Knowledge@Wharton: Any final thoughts for policy makers and regulators?

Werbach: Regulators have to take action here, too. It’s not that they need to just stay where they are and expect the companies to come to them. Often, there’s lots of legacy in regulation, and some of it is regulators’ fault, and some of it is the fault of, for example, the legislatures that set up the rules. A lot of what we are seeing in these markets is the need for legislative change, for governments to change the structure of the rules, because the rules use terms that no longer make sense, or they have categories that no longer make sense.

There needs to be a lot of dialogue between industry and regulators and legislators, to say, “All right. Where are these glitches? Let’s fix them.” Regulators need to be part of that and not to just assume that the status quo is the right approach. Regulators also need to be open. They need to go to these companies and say to them, “We have shared goals here. We’re not here to put you out of business, but we care about consumers, and we trust that you do, too. So let’s come up with a solution.”

It really has to go both ways, and ultimately, this is about trust. There needs to be a mutual process of generating trust between these industries and the regulators, and in a lot of cases, that’s lacking. But I’m hopeful, and I think the examples that we saw with the growth of the internet really are a story about good work on both sides that facilitated this extraordinary explosion of innovation and wealth creation that we saw.

Reproduced from Knowledge@Wharton

    

How Will Demonetization Affect Business in India in 2017? Knowledge @ wharton 01-08

It’s work in progress. Three events dominated India’s economic landscape last year, but whether they can be described as “progress” is debatable. One definitely isn’t: the unseemly brawl that broke out over control of the Tata group with Ratan Tata returning as interim chairman after ousting incumbent Cyrus Mistry. A lot of dirty linen is being washed in public, putting partly in the shade the political charges being traded elsewhere.

The second is the goods and services tax (GST), whose objective is to replace all taxes levied by the federal government and the states with one central tax. The GST is scheduled to come into effect by April or — at the latest — by September. Although both houses of Parliament have approved the bill and the President has signed off on it, a GST Council is now squabbling over the details, which could delay implementation.

“The timing is not right for implementation,” says West Bengal finance minister Amit Mitra, who is also chairman of the empowered committee of state finance ministers. He lays the blame squarely on the center’s move to demonetize Rs500 ($7.4) and Rs1,000 notes. “We all supported the GST under the premise that this would be the only destabilization factor,” Mitra told a TV channel. “We did not know that there would be a much bigger destabilization in the form of demonetization that would be let loose on the country.”

According to Wharton emeritus professor of management

, while it is too early to assess the impact of demonetization, the move raises long-term questions. “What will have been gained from this step, and at what cost and mostly borne by whom?” he asks. He notes that rival political parties that have protested against demonetization could “broaden their tactical agenda to harm or even derail the GST implementation.” It also remains to be seen how the negative sentiment against demonetization could hurt the BJP and its allies in assembly elections in Uttar Pradesh in February-March, he adds.

“What will have been gained from [demonetization], and at what cost, and mostly borne by whom?” –Jitendra Singh

Demonetization represents much more than destabilization; critics argue that it has struck a body blow on economic activity in India. The decision – which was entirely unsuspected – was announced on 8 November 2016. While the pros and cons of the measure still continue to be debated, the consensus of opinion appears to be that while the proponents of demonetization may have had good intentions, the suffering it has caused to millions of Indians is unwarranted. Since Rs500 and Rs1000 notes make up some 86% of the total currency in circulation in India, especially in the vast rural areas, one economist compared the pain to what individuals might experience if 86% of their blood was removed from their bodies.

To be sure, demonetization has its supporters. While industrialists and corporate chiefs (Ratan Tata, Mukesh Ambani, K.V. Kamath and Deepak Parekh, to mention a few) favor the move, economists (including Nobel laureates Amaryta Sen and Paul Krugman, among others) are critical. “The clan of economists has spoiled the party [with] their estimates of how output will be affected as spending has stopped, manufacturing hit and several workers laid off. The net result can be a fall of between 0.5% and 2% in GDP,” says online news channel Firstpost. “The debate still goes on.”
According to Singh, Modi took “a bold, even visionary, step” with demonetization in attempting to combat the black economy and counterfeiting, and cutting financial support to terrorism. “What was always key, however, was how well the implementation process would unfold,” he notes.

“Even supporters of the decision would say that the implementation was far from perfect.”

Kartik Hosanagar, a professor in Wharton’s department of operations, information and decisions, views demonetization against the backdrop of other economic gains. The year 2016 has overall been “a good year” for India, he notes, listing the highlights:

⦁ The GDP growth rate has held up at more than 7%.

⦁ Foreign direct investment went up significantly during the year. (It rose 30% on a year-on-year basis to $21.6 billion between April and September 2016, according to public ⦁ data published by the India Brand Equity Foundation, a government-sponsored trust.)

⦁ Initiatives such as the ‘⦁ Make in India’ program “have borne early fruits.” Many MNCs including Panasonic and Pepsi set up manufacturing facilities in India during the year.

⦁ “The startup world has seen ⦁ a drop in investment activity, but I see that as a return to sanity
rather than a worrisome contraction,” Hosanagar adds.

“The biggest wild card in all of this, of course, is demonetization,” notes Hosanagar. “It’s unclear how it will all play out.” He hopes that “any impact on economic activity and GDP will be temporary, and the long-term benefits such as an increase in cashless activity will be more permanent.” He adds that “this is the India optimist in me speaking.”

“The biggest wild card in all of this, of course, is demonetization.” –Kartik Hosanagar

Part of the problem with demonetization was that it came as a bolt from the blue; the government claimed giving advance notice would have the defeated its purpose. But not everyone agrees with that view. “There was no need for secrecy,” counters Jayati Ghosh, a professor of social sciences at Jawaharlal Nehru University. “All demonetizations through history have been done with some advance warning. This reduces the damage to innocent people. The government could monitor suspicious transactions after the announcement, just as it is doing now. In any case, I would not have demonetized Rs500 notes. If high-value notes like Rs1,000 are the problem, why replace them with even higher value notes?” (A Rs2,000 note has been introduced as part of the package.)
Moving Goalposts

The government, meanwhile, seems to have moved the goalposts: The claimed objective of the exercise has apparently changed from rooting out black money to promoting cashless transactions. Several measures have been introduced, among them a 0.75% discount on digital payments made for buying petrol and diesel and a 0.5% cut in the price of railway season tickets bought using digital technology.

In another twist, the government appears to be no longer pushing demonetization as a “cashless” plan. It has now become a “less-cash” strategy. That is as it should be; the world doesn’t have a cashless economy so far. In India, Bloomberg data shows the share of cash in the volume of consumer transactions is 98% (against 55% in the U.S. and 48% in the U.K.). It is 90% in China and 86% in Japan. Much of the cash transactions are in rural India. So, expectedly, life came to a near standstill and much misery ensued when people found themselves unable to use their own money. Even when the money was in a bank account, limits on ATM withdrawals compounded the problem further.

But India is also a country where finding novel, workable solutions to problems – commonly known as jugaad — is par for the course. While long lines multiplied in front of banks and ATMs (several people claimed to have had heart attacks while standing in them), ways were found to deal with the situation. By December 31, the visible impact was a Parliament at near paralysis as politicians took potshots at each other, a plethora of banking riches coming back into the system (some 90% of the Rs500 and Rs1,000 notes were returned), and a host of new scams to convert black money into white with the connivance of bankers and politicians.

Nobody is denying a short-term setback. The Reserve Bank of India (RBI) has reduced the GDP growth rate forecast for 2016-17 from 7.6% to 7.1%, the Asian Development Bank from 7.4% to 7%, Fitch from 7.4% to 6.9% and Bank of America-Merrill Lynch from 7.7% to 7.4% (for calendar 2016). All believe, however, that growth will recover the next year.

Modinomics to the Defense

Modi defended the demonetization exercise in a televised speech on New Year’s Eve, arguing that it had to be done. “It seemed at times that the evils and corruptions of society, knowingly or unknowingly, intentionally or unintentionally, had become a part of our daily lives,” he said. “Crores of Indians were looking for an escape from this suffocation.”

Modi said in his speech that after demonetization, only 24 lakh (2.4 million) Indians acknowledge an annual income of Rs. 10 lakh each (Rs. 1 million). “Can we digest this? Look at the big bungalows and big cars around you,” he said. “If we look at any big city, it would have lakhs of people with annual income of more than [Rs.] 10 lakh. Do you not feel, that for the good of the country, this movement for honesty needs to be further strengthened?” The upshot of that is his government would now try to bring hundreds of thousands of tax evaders into the net.

But Modi will find it tough to strengthen the tax machinery sufficiently to force those people to start paying taxes, according to critics. “If he doesn’t, then what was the point of subjecting the whole country to so much disruption and pain?” writes Siddharth Varadarajan, former editor of The Hindu newspaper, in The Wire, a nonprofit publication.

Modi also said in his speech that over the last 10-12 years, the demonetized currency was being used in the black economy, and that excess cash in the system caused inflation to spike and fueled corruption. “Lack of cash causes difficulty, but excess of cash is even more troublesome,” he said. Critics have attacked those remarks as being unsound in economic theory.

Demonetization could have potentially derailed the GST, which was practically a done deal, according to experts interviewed by Knowledge@Wharton. The impact of demonetization will pass in a couple of quarters, but the GST delay will have more far-reaching effects. “Undoubtedly, the GST is a bigger reform. It would be the most fundamental reform initiated since 1991,” says Dharmakirti Joshi, chief economist at Crisil, a global S&P company.

“There was no need for secrecy. All demonetizations through history have been done with some advance warning.” –Jayati Ghosh 

Commenting on demonetization, Joshi says: “Any disruption in the flow of money, verily the economy’s lifeblood, impacts business cycles quickly. There is no precedent to the scale of demonetization that has taken place in India. That is why quantifying its impact is so difficult. A few countries that replaced their old currency with new did it in a gradual manner — the introduction of the euro in the Eurozone, or in Zimbabwe where the old currency was gradually phased out.”

The GST Impasse

The government has only itself to blame for the GST impasse. The proposal has been around for a dozen years. Its origins lie even further in the past: In 2000, the BJP-led government of A.B. Vajpayee started a discussion on the GST. Prime Minister Narendra Modi had opposed it when he was chief minister of Gujarat; now, it is the pivot of his reforms. Experts agree that the GST could increase India’s GDP by 1.5% to 2%. It has received, in its time, the backing of former finance ministers Pranab Mukherjee (now president of the country) and P. Chidambaram. Yet it still gets held up.

One reason is that implementing the GST requires a constitutional amendment. The GST Constitutional Act has already been passed by the Lok Sabha and the Rajya Sabha (the two houses of Parliament) and, on 8 September, the President of India signed off on it. The states – in the form of the GST Council – are reading from the same book. But it may take some time to get to the same page.

According to Singh, while the GST has the potential to boost GDP growth and foreign investment flows, the opposition to it could cost the country dearly. “There is the very real possibility that some actors will take the low road, and try to delay or even derail the GST implementation,” he notes. “If that were to occur, it will not be the first time in post-1947 Indian history when key leaders would snatch defeat from the jaws of victory.”

Singh hopes that the political parties involved, including state level parties, “put the collective long-term interests of India and all Indians above apparently enticing short-term partisan gains, and get the GST bill implemented at the earliest.”

Viewed in isolation, demonetization and GST could be promising for India, according to Singh. “Absent some of these spillovers, the long-term impact of the demonetization could be quite positive for the Indian economy,” he says. “If the GST gets implemented soon, and if there is further rationalization of the tax structure, and if opposition parties cooperate, there may be a couple of quarters of somewhat lower growth, and then the economy would return to its positive trajectory. But there are several ‘ifs’ in between.”

Tata, Cyrus Mistry

The end of the year also saw a high-profile family split. The 149-year-old Tata group, the largest in the country and the most respected, with a global turnover of more than $100 billion, sent shockwaves through corporate India with the ouster of chairman Cyrus Mistry.

Mistry took charge four years ago after a search panel was appointed to find a replacement for Ratan Tata, who was turning 75. The 50-year-old Mistry was a surprise choice. And problems were apparently building for a long time under the surface.

“Any disruption in the flow of money, verily the economy’s lifeblood, impacts business cycles quickly. There is no precedent to the scale of demonetization that has taken place in India.” –Dharmakirti Joshi

Mistry is now being ousted from all the Tata group companies. Says a letter to shareholders by Ratan Tata: “Since Mistry was appointed as a director of various Tata group companies only as a corollary to his being the chairman of Tata Sons, the right step would have been for him to resign as director. Unfortunately, he has not yet done so, and his continued presence as a director is a serious disruptive influence on these company boards, which can make the company dysfunctional, particularly given his open hostility towards the primary promoter, Tata Sons.”

Responded Mistry: “I have to say that the board of directors [of Tata Sons] has not covered itself with glory. To ‘replace’ your chairman without so much as a word of explanation and without affording him an opportunity of defending himself in a summary manner must be unique in the annals of corporate history. The suddenness of the action and the lack of explanation have led to all manner of speculation and has done my reputation and the reputation of the Tata group immeasurable harm.”

Most of the Tata group is owned by the Tata trusts, of which Ratan Tata is chairman. So there are no two ways about how the ouster move will go. But Mistry has his supporters. His family has a stake of some 20% in Tata Sons; the trusts hold about 66%. Besides, he is not without friends, who include some independent directors. Nusli Wadia, a board member of Tata Motors, has entered the fray (with yet another letter). “[JRD Tata, Tata Group chairman before Ratan Tata] never expected anyone to toe his or the Tata line,” he told the board of Tata Motors (where he has been an independent director). “It is both sad and unfortunate that Tata Sons and its interim chairman Ratan Tata are not only not practicing this great tradition but effectively destroying it.” Wadia has sued Tata Sons for defamation.

Singh suggests that the problems at the Tata Group run beyond those related to Mistry’s ouster. He describes the group as “a structurally complex entity, with multiple interests at play, all of which may not always be naturally aligned.” As Mistry’s family owns a significant minority shareholding in Tata Sons, “it is natural to think that interpersonal issues are paramount here,” he noted. “This is a mistake. There are difficult structural issues embedded in the context, some of which will not go away with Mistry’s departure as chairman of Tata Sons.”

According to Singh, the Tata-Mistry controversy could have wider, deleterious effects if it is not resolved soon. “At a minimum, it is a distraction from the effective governance and operations of the group; it could damage the Tata brand; and it also has the potential to raise questions in the international community about the attractiveness of India as an investment destination.”

As matters stand, Mistry has resigned from the boards of the major Tata companies (except for Tata Sons). “The fight goes onto another platform,” he told the Business Standard newspaper after he quit. “[I] will pursue it further. This move gives me an opportunity to concentrate my efforts…. I will be moving legally.” Won’t the battle be long and arduous? “I have a lifetime ahead of me,” he replied.

In a statement to the shareholders announcing his resignation, Mistry states: “Bringing to the fore these ethical issues can have a short-term adverse impact… I feel strongly that such short-term pain is necessary for long-term interests.”

Is that Cyrus Mistry talking or Narendra Modi?

How the Pursuit of Happiness Has Made Us Nervous Wrecks 12-10

Worry, anxiety and nervousness are at an all-time high in American society. The economy, terrorism, politics, work, parenting — the list of stressors is endless. But author Ruth Whippman believes there’s another reason why anxiety has become the new normal for Americans, and it has to do with the notion that happiness must be pursued above all else. The concept is even baked into the Declaration of Independence.

Whippman recently joined the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111 to discuss her new book, America the Anxious: How Our Pursuit of Happiness Is Creating a Nation of Nervous Wrecks.

An edited transcript of the conversation follows.

Knowledge@Wharton: A state of perpetual anxiety does feel like a new norm right now for most Americans.

Ruth Whippman: Absolutely. The World Health Organization says that America is the most anxious country on the planet and by a wide margin. A second-place country is very far down the list from America. We are, in this country, more likely to suffer from clinical symptoms of anxiety than anywhere else on the planet.

Knowledge@Wharton: You’re a British transplant. In doing this book, were you able to gain perspective on what’s going on here that maybe some of us don’t realize?

Whippman: As an outsider, when you come into a place completely new, you perhaps see things in a different way. It was quite the culture shock. We moved here when my husband got a job in Silicon Valley. We moved from fairly gray London to beautiful sun-drenched California. I imagined that my life here was going to be absolutely perfect. Free of anxiety. The beaches. The weather. Everything was going to be wonderful. But I started to notice very quickly that there was this real kind of sense of anxiety here — that far from being in this land of Instagrammed perfection, people were anxious about their lives and not necessarily any happier than the people back in London, who were perhaps a little bit more negative, a bit more cynical.

Knowledge@Wharton: What do you think are the reasons Americans are so anxious right now?
Whippman: There are lots of genuine reasons why life can bring anxiety. Money worries, inequality, the state of the economy, health care — those sorts of big issues. But one of the things that I identified pretty early on was that people seem to be very culturally preoccupied with this idea of happiness, of finding happiness. I was having conversations with people, and the same topic would come up again and again, with people really kind of agonizing about it. Am I happy? Am I as happy as my neighbor? Am I as happy as my friends? Am I as happy as everybody on social media? Could I be happier if I tried harder? There seemed to be this real anxiety about being as happy as you could be.

“Mindfulness starts to feel like a tiny, teeny Band-Aid on a much, much bigger problem.”
I started looking into it, and this is a multibillion-dollar industry in the United States. This industry is devoted to this idea that if we just try a bit harder, if we do another thing, read another book, try another class, then we can become happier. And I think this is one of the big causes of anxiety in American society.

Knowledge@Wharton: Through what avenues is this a multibillion-dollar industry?
Whippman: It’s what you think of as the traditional self-help industry — the books, the apps, the causes. That amounts to about $11 billion. To put it in context, that’s about the same size as Hollywood. Recently, there’s been a new kind of subsidiary industry: for lack of a better term, the quasi-spiritual thing – [including] meditation, mindfulness, yoga. Although these things are supposed to be spiritual practices, they amount to probably the same in terms of the size of the industry.
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This is a huge new thing. It’s this idea that if we just buy another app or read another book or try another thing, then this new, improved version of ourselves will be fully self-actualized and fully happy. I think that, itself, is causing anxiety.

Knowledge@Wharton: What is the impact financially, culturally and in other areas?

Whippman: This idea of the American Dream — if you really work hard for something, then you can have it — is just out of reach; we’re trying to get to this kind of happy ever after. Psychologically, that’s pretty tough on people because our emotions don’t work quite like that. Just by trying harder, we can’t actually control our own emotions and make ourselves happier in that way.
It’s having a huge impact culturally. In the book, I start to look at all different areas of life. I look at the workplace, religion, social media, parenting. These ideas about making ourselves as happy as possible have infiltrated all different areas of American life.

Knowledge@Wharton: Focusing on the corporate end, there are people who have a mix of anxiety from both personal life and professional life, which ends up being a toxic formula for them. Think there are people who have anxiety in their personal lives, but work ends up being a catharsis.
Whippman: Work means different things to different people, and that depends on what your job is, how you feel about it, who your employer is. But I think that one trend that’s becoming true across the board, at least for professionals, is that we are working in America longer hours than almost anyone else in the world and than ever before in recent times. There’s a blurring of the lines between personal life and work. We’re never fully switched off. We’re on our cellphones; we’re checking our email every five minutes. There’s a joke about this new mantra that instead of work/life balance, come to me and talk about work/life integration. It’s something that works very well for employers and maybe less well for employees.

I’ve talked in the book about this whole idea of happiness in the workplace. It used to be that work was work and home was where you tried to find happiness and your social life and all the rest of it. There’s been a deliberate blurring of those boundaries. You see it where workplaces are offering dentists and doctors and video games and free food and that sort of thing to keep people working longer hours. [Employers are] even sending their staff to happiness training and mindfulness training.
Knowledge@Wharton: I have a 10-year-old and 7-year-old twins, and their school is doing

mindfulness training for kids. I’ve come around a little bit on it because I think it does help kids. Our kids are feeling more pressure at a younger age than they’ve ever felt before.

“Just by trying harder, we can’t actually control our own emotions and make ourselves happier in that way.”

Whippman: I think you’re absolutely right. Mindfulness has come to schools, to the military, to workplaces. It’s in corporations. It is a multibillion-dollar industry. I think mindfulness starts to feel like a tiny, teeny Band-Aid on a much, much bigger problem. You say your kids are under so much pressure, and I think that’s true of my kids and kids across the board and adults in the workplace. It’s this idea that we work these incredibly long hours, we’re very stressed and there’s pressure on us to be more productive than ever before. “Oh, and here’s your hour of mindfulness training every week.” It feels like you’re not really addressing the actual problem. You can’t pay your rent, you don’t have any health insurance, but oh, try a bit of mindfulness. You’re in a burning building and here’s a tiny little fire extinguisher. Try and sort it out.

The other thing about mindfulness is that there are great, grand claims for it. I am not saying that mindfulness is not helpful to certain people. It is. But the evidence for it is much weaker than is commonly claimed. There was a big meta-analysis [conducted] a year or two ago that showed there was no real difference in benefit between doing mindfulness and doing any kind of relaxation technique. Whatever that is for you, whether it’s getting a pedicure or just talking to a friend or listening to some music, mindfulness is of no benefit beyond that.

Knowledge@Wharton: Were there companies that you talked to that really showed that there was a level of happiness there? Or does pretty much every company have a level of angst in it?

Whippman: Some companies are better places to work than others, no doubt about it. I went to visit Zappos, which is very much pushing this happiness agenda. The CEO of the company, Tony Hsieh, is very interested in positive psychology. His company’s message is delivering happiness. You go to that company and there are balloon animals and parades and fireworks and they have out-of-hours socializing and free snacks. It’s very strongly encouraged that you socialize with your colleagues out of the workplace. I think this is a kind of corporate culture that is becoming more common. As I said before, this is blurring the lines between what is your boss’ business and your boss’ concern and what isn’t. For some people, that works great. Some people want to go to work and have a parade come past their desk and do a little disco and that kind of thing. For me, as a kind of awkward British person, I think it would be absolutely horrendous.

Knowledge@Wharton: Some companies make a Friday happy hour at the office the norm. A friend who worked for a big retail company told me they would have a once-a-month beer bash at the office. They were playing drinking games.

Whippman: That is particularly common around Silicon Valley and that kind of California culture. It’s this idea that your work mates should be your friends. They call it “cultural fit.” It’s the company culture, and you should take part in that. But I think it’s problematic for a lot of reasons. For me, I’m a mom, I work, I have young kids. I don’t want to be getting drunk in the office with my work mates. I want to be home. This pressure that the office has to be my social life, that I have to not just do my job and collect my paycheck, but I also have to emotionally perform and be a part of this whole big thing — I don’t want that. I think this socializing culture is particularly tough on women with families.

Knowledge@Wharton: This is something driven in part by millennials. Do you see it continuing for a long time, or will the next generation look at it differently?

Whippman: It’s hard to say because there could well be a backlash. People could say, “Just give me some space, I just want to go home. I don’t want to be doing my dry cleaning at work.” There [was an item] in the news recently that Facebook was actually paying for their female employees to have their eggs frozen so that they could delay child bearing. I feel like it’s getting to the point where it’s an intrusion on your personal liberty, your personal space and your private life. They’re not forcing anyone to do this, but it’s little by little.

Knowledge@Wharton: Some of these companies believe that these perks, like dry cleaning, are the way to go because you’re building culture within the corporation. There are people for whom that works perfectly.

“I think people are paradoxically likely to experience more happiness if they stop trying quite so hard.”

Whippman: The key element here should be choice. When you’re talking about making your company a good place to work that attracts good employees, there is nothing wrong with that. But I think cultural fit can quite often be a smoke screen for, “We only want a certain type of person to work at this company.” That can be problematic for diversity and for all kinds of reasons. Cultural fit means that you are kind of a big funster, that you drink with the boys every night. It could work very well for a 24-year-old software engineer who doesn’t have anywhere else to be, but it might not work so well for someone with a family or from a different kind of culture. It’s easy to say it has no bearing on your ability to do the job well.

Knowledge@Wharton: With all of this pursuit for happiness, a little less happiness ends up being a good thing from time to time?

Whippman: Well, not a little less happiness. But I think people are paradoxically likely to experience more happiness if they stop trying quite so hard. One of the things I noticed when we first moved here is that people talked about happiness almost like people talk about going on a diet. There’s no pleasure involved in it, but if I just try a bit harder, it would make me a good person or a better, more improved person to do this. I think to just take a step back, stop worrying about it, stop really pursuing it so relentlessly and just kind of hope that it comes along the way will actually lead to more happiness. There is quite a lot of research that backs that up, too.

Knowledge@Wharton: Are we setting ourselves up for another generation to follow in that path?
Whippman: This is a really big trend in parenting at the moment — that we are so invested in our kids’ happiness. When I was a kid, my mom [would say], “Off you go, go and play on your own, do your own thing,” and she wasn’t micromanaging my happiness. She wasn’t micromanaging every moment of my day, optimizing my experience.

With the coming of these helicopter parents who hover over our kids a lot, kids of college age now show more anxiety than any previous generation. There was one study recently that showed that an average high school or college student now has the same levels of anxiety as a psychiatric patient in the 1950s of a similar age. That’s grading it on the same test. So, I think we are creating a generation of anxious kids.

I think also for that generation, which has grown up with social media, happiness is really kind of the currency of social media. It’s all about putting your best foot forward and putting your blissful photos on Facebook where everybody is having a great time and everyone is at a great party and you’re Instagramming and it’s perfect. Everyone is talking about being authentic all the time, so obviously, it’s as authentic as nothing. I think that puts a great pressure on people now.

Social media is not one thing. There’s lots of different ways that people interact with social media. But one of the big things is making our lives seem as blissfully wonderful as they possibly can be. And it’s very easy; you just compare yourselves to others. I do it myself. We went apple picking in an orchard recently with my kids. Frankly, it was kind of a miserable day. It was really hot and our kids were whining the whole time. There was no water, there were no restrooms. But I still posted the one picture on my Facebook account of my kids smiling and holding up the apples and looking so happy. Everybody looking at that would think, what a perfect day they’ve had. And I do the same. I look at my neighbors or my friends and I say, “God, why is my life not like that?” It’s never been easier to compare ourselves unfavorably to other people.

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