Why We Can’t Afford to Ignore Higher Education’s Financial Problems 11-12

Here are a few things we know that are wrong with post-high school education in the United States: It’s too expensive; access to quality schools is limited — especially if you’re a nontraditional student or have to pay for it on your own; and, our ideas about college reflect a bygone era. Sara Goldrick-Rab, a professor of higher education policy and sociology at Temple University, may be able to help with some of these challenges. She’s a nationally renowned expert on higher education, and was the lead author of  the Brookings Institution’s 2009 white paper “Transforming America’s Community Colleges,” which significantly influenced President Obama’s American Graduation Initiative. She is also wrote Paying the Price: College Costs, Financial Aid, and the Betrayal of the American Dream. She joined the Knowledge@Wharton Show on Sirius XM channel 111 to talk about the broken U.S. college education system.

An edited version of the transcript of the conversation appears below. 


Knowledge@Wharton: You followed the college careers of 3,000 students over six years. What did you learn?

Sara Goldrick-Rab: A lot, particularly because we didn’t meet these people just one time. We followed them repeatedly over time, and we surveyed them and looked at their administrative records and we talked to them.

First, we learned how insanely broken the financial aid system is. A lot of folks talk about the FAFSA (Free Application for Federal Student Aid). The FAFSA’s a small American bureaucratic tragedy all its own … and it needs reform. But there are so many issues even after the FAFSA, including that students don’t know that they have to refile that darn form year after year. They don’t know that they have to take a certain number of classes and get a certain number of grades and perform in a certain way for them to be able to keep the money year after year.

And frankly, the other thing that they don’t know is that the money that’s delivered after the FAFSA is way short of what they will need to be in school. Even people whose families make virtually nothing are faced with having to borrow, and they’re still short. So they don’t make it.

Knowledge@Wharton: It’s staggering that it’s 2016, and we know young people need college educations as a way to build their careers, yet we have so many things impeding that. These issues have slipped through the cracks time and time and time again.

“We made a huge mistake. We told people to go to college…. But we failed to pay attention to the financing system.”

Goldrick-Rab: Look, we made a huge mistake. We told people to go to college. That was the right thing to do. We prioritized education. That was the right thing to do. But we failed to pay attention to the financing system. It’s as if we just thought that someday, everybody would go to college, and we magically wouldn’t have issues paying for it. Of course we have issues paying for it. And it’s from this lack of attention that we’ve gotten ourselves into this serious problem.

Knowledge@Wharton: I saw the interview you did with Trevor Noah, and you brought up something interesting: We’ve got kids that are going to community college right now who really don’t have a home right now. How does that happen?

Goldrick-Rab: It happens many different ways. One way is that you go to college and you think you’re going to get enough money not only to cover your tuition and fees, your books and supplies, but your housing costs. And the numbers literally don’t add up. So you say, “Well, I’m going to work even though I took the loans. I’m also going to work.” But you can’t get enough work.

Employers out there today are not exactly kind to undergraduates. They don’t pay well, and they don’t give them enough hours. The numbers just don’t add up.

Another way is that, frankly, people from very low-income families are going to college now at higher rates than before. It may have been that they experienced homelessness when they were a high school student, and they know the only way to prevent homelessness in the future is to go to college. It’s just that it keeps happening to them, and we don’t have any resources for them the way that we do when they’re in high school.

Knowledge@Wharton: What about on-campus housing, which some colleges and universities have. Could that be part of the solution in terms of setting something up to help people out when they’re in this type of situation?

Goldrick-Rab: Yes, we have to do much better. I think it will probably surprise your listeners though to know that only 13% of undergraduates today live on campus. So for the most part, the campus residency is not the story. Most people are commuting to school, and they live in their local areas. But if we stereotype them and say, “Well, they live with their families, so their families are paying their rent,” we’re flat out wrong. These days, families don’t have enough money to support other adults living in their houses, and they often charge them rent.

Knowledge@Wharton: What are some of your other concerns?

Goldrick-Rab: We’ve prioritized this idea that you should be able to choose any kind of college you want. What we haven’t done is very much to ensure that the colleges that you can choose — including using taxpayer-funded dollars — actually are good schools. We have a lot of schools out there that, frankly, are not giving people an education that’s worth anything in the labor market — or any other place. Yet they’re able to accept financial aid and student loans and all these sort of things, and pad their budgets with them, and pay their CEOs well. That needs to stop. That’s something where a consumer ought to be able to say, “If federal dollars are going to that place, I ought to be able to assume it’s a decent place.”

Knowledge@Wharton: You’re talking about for-profit schools?
Sponsored Content:

Goldrick-Rab: Yes, the for-profit schools. And then, there are some private institutions that are not-for-profit as well that are not doing so well. We could raise some questions even about places like where we’re sitting here today — places with very big endowments that, frankly, are still charging a lot. I met a young man the other day who graduated from the Community College of Philadelphia. He’s got no income. He’s on disability. He went back to school at 35 years old. He got his associate degree. He was in the honors program. He was in journalism.

He did all this great stuff. He got into Penn. Penn sent him a bill for his first year of college, this guy who makes nothing and is on disability; he was offered a package of $42,000 a year. [Tuition plus room and board and books at Penn runs around $67,000 a year, making even that level of a scholarship offer potentially unaffordable]. Something is wrong here when you have an endowment like this. This is a great school. I went to this school. But I think the alumni of places like this ought to be standing up and saying, “We can do better than this.”

“Most people are commuting to school… But if we stereotype them and say, ‘Well, they live with their families, so their families are paying their rent,’ we’re flat out wrong.”

Knowledge@Wharton: We also need to really look at the types of things we’re teaching in some cases. Some of the degrees that kids are going for don’t match up with the real world.

Goldrick-Rab: Yes, I think this is actually one of the ways in which the new economics of college are changing what college even means. We used to have the freedom to pick what we wanted to major in. Sometimes, people majored in English, and it taught them how to write, it taught them good things, and they went on to do really well in business. That freedom is gone now because of these college prices. Now, we’re going to have 18-year-olds having to ask themselves, “What do I want to be for the rest of my life, so that I get a degree that I can pay off these loans with?”

That’s going to lead to a lot fewer people who know how to write and do those things, and I think down the road, we’re going to be very upset about it. I think the richness of the variety of majors that students have engaged in, in this country, has been part of why this country has done so well.

Knowledge@Wharton: The issue of college affordability has been getting discussed in the presidential race, with some candidates suggesting we should find a way to be able to provide free college education at some level, whether it be through community colleges or more broadly. Where do you stand on this issue?

Goldrick-Rab: I’ve been working very hard on this. I don’t think it’s a pipe dream. I do think it’s a lot more complicated to do it well than people are letting on. The most important thing, though, is that we have a very serious conversation about what we’re going to do finally. Enough talking about it. It’s time for action. And it’s very disturbing that in the recent debates, no mention of college affordability came up. It seems like it might have disappeared from the radar.

If the next president doesn’t take this head on, then we’re going to have a really serious problem. We’re not going to be able to save our way out of this. No amount of college savings is going to be able to help these families today cover the bills for little kids like those I have.

Knowledge@Wharton: Only a minority of people in this country who work 30 or 40 years of their life even have enough savings for themselves, let alone enough to try to help put their kid through college.

Goldrick-Rab: And very few universities provide any benefits for their employees. There’s been a huge change in universities. Most universities are using adjuncts and contingent labor. They’re not providing them with these benefits. When the question comes about educational quality, that’s the question.

If you’re going to send your kid to school and you’re going to pay for it, you want to have faculty there who are committed and able to spend time with your children, which means a move back to full-time faculty who have something to count on, so that you can have good teachers just like you have in K-12. In a good free-college model, we wouldn’t provide the money to make college free without stipulating that the college receiving that money would provide that kind of educational experience.
“There’s real food insecurity on our campuses, even while some schools are building sushi bars.”

Knowledge@Wharton: What surprised you in the data?

Goldrick-Rab: One of my graduate students came back and she was really upset. And I said, “What’s going on?” And she said, “Well, I asked the question we always ask,” which is a really straightforward, open-ended question: “How’s it going in college?” And the student looked at her and she said, “It’s not going well.” And she said, “What’s your biggest challenge?” She said, “Eating. I don’t have enough food to eat. When other students are eating in the classroom, it distracts me because I’m so hungry. I wish that I had enough to eat so I could focus on learning.” This was staggering to me.

I went, “Wait, that’s not a textbook issue. That’s not an iPod issue.” So we went out there. I mean, I have to admit being a little skeptical. Maybe she was one person. But I’ve now done about four studies of this question with my team, and this thing is happening. There’s real food insecurity on our campuses, even while some schools are building sushi bars.

Knowledge@Wharton: How do you correct that?

Goldrick-Rab: We certainly do have enough food in this country. It’s just how we distribute it and how we price it. Look, we’re sitting in the city of Philadelphia, where every single kid in the city, whether or not their income deserves it, gets a free or reduced price lunch at school. We make sure they have milk, we make sure that they get fed. We don’t do that when they get to college.

If they transition from one of our city’s high schools to the Community College of Philadelphia, they get cut off. And we’re surprised that they’re not learning?

Knowledge@Wharton: Why is there this failure to connect one with the other? Do we just assume that once you’ve graduated high school, you can handle yourself? You can run your own life?

Goldrick-Rab: Perhaps. But I also think it’s because the average person still imagines the average college student as being somebody walking up and down an ivy-covered Locust Walk, essentially. I think they tend to think of them as residential, four-year students with parents who are paying for things. That is not today’s undergraduate. They’re not even kids frankly. Their average age is between 25 and 30 years old when they start college. They’re mainly at community colleges and state universities. These real life things continue to happen to them. And I don’t think we need to say that’s giving away anything to help them. It’s making a good investment so they get an education, and they don’t need our support after they do.

Knowledge@Wharton: Obviously, we know that there are more and more people who are going out into the workforce first, or starting college, then going to get a job, and then going back later. It’s become more the norm.

Goldrick-Rab: It has, and I think it’s actually a great thing. This country gives second chances in a way that other countries don’t. And we have made more progress in that way. We don’t say to somebody, “Yeah, you’re 30 years old and it hasn’t happened for you, so your life is over.” We open our doors. That’s a great thing. But we have to actually resource it. This stuff doesn’t come free.

Knowledge@Wharton: Is it a concern for you that not only is this not really a topic that’s brought up by the presidential candidates, but that we have enough dysfunction in Washington, D.C., that this issue will likely … not really be pushed forward?

Goldrick-Rab: I’m less pessimistic than I used to be about this, because we have made a ton of progress in the last couple of years. We saw a remarkable thing happen in January 2015 when President Barack Obama got up there and put the words “free” and “college” together in a sentence. That’s never happened before.

Who thought that was going to happen? Not me — and I actually brought a plan to do that. We’re also talking about living expenses in a way that we never have. We’re talking about the fact that the rules for getting food stamps don’t align with the rules for being in college. We’re having a much more advanced conversation today than we were even two years ago.

It took 80 years to get free public high school. I think our pace of progress is actually pretty good. What’s important is that we not only focus on things we can get done tomorrow — that’s very short-term thinking. Some of us at least need to be engaged in the long-term battle.

I don’t know that you will get a free public university bachelor’s degree, or anything like that. But I think in the next 20 to 25 years at the most, we will see free public community college restored.

Knowledge@Wharton: There are countries that believe that free college education, as a component of their systems, is something that benefits their economy.

Goldrick-Rab: Most of those countries do things pretty differently than we do. One of those things is, they don’t let everybody go to college. They gate-keep a lot at the secondary level. Germany does this in spades. The tricky part here is that we want to send lots of people to college from all walks of life. We don’t want to have discrimination in who gets to go to college. And we want it to be really affordable. This is something we can do, but we have to give up something. I’m not actually saying money. I’m saying maybe, for example, just as in K-12 education, maybe we just pay for the public sector. That’s a discussion we’ve never had. Maybe we need to have it. Maybe we need to focus our resources on what we can afford to do, and stop prioritizing doing all the things while leaving everybody short.

Knowledge@Wharton: The problem is, though — and tell me if I’m wrong in this — that we’ve got so many public institutions across this country, that that’s a lot of money to be talking about.

Goldrick-Rab: If we take all the money we’re spending on the private institutions — you know, this is sacrilege, it gets people really angry, but I think we need to take a hard look and say, “Look, can we afford to keep doing this where we will finance any institution a student has ever wanted to go to? We’ll give them a voucher and they can take that voucher to that school,” even though the taxpayers are financing things that are not necessarily paying off. When this system began, we didn’t have all of those public institutions. We really needed those private institutions. It’s a completely different situation today.

“I’m less pessimistic than I used to be because we have made a ton of progress in the last couple of years.”

Knowledge@Wharton: The majority of institutions are providing quality education, and people are getting a good background heading into the real world.

Goldrick-Rab: Absolutely, and that’s especially true when those institutions get the resources they need to succeed. People can say, “I can’t get my classes at my local community college.” All right. But when you pass a bond referendum, and you stop underfunding the college, and you actually finance the college, people do get the classes they need. This is a pretty straightforward thing. If we’ve put the money that was supposed to be spent in the public sector into the public sector, we would have better completion rates.

Knowledge@Wharton: How much potential does online learning have to benefit this going forward?
Goldrick-Rab: I think of online learning as primarily benefiting the people who are pretty advanced already in their education. I would like to see it as an option for people to complete the last year of their bachelor’s degree, for example. Maybe more graduate education should be moved online. But people are quite vulnerable during that first couple of years of higher education, especially if they’ve been out of school for a while. They really do need that face-to-face instruction, or at the very least, a hybrid model that still emphasizes making a connection with your teacher. Teachers matter, and they matter a ton to students. So I would hate to see us fool ourselves into thinking that online is going to replace face-to-face instruction.

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Moving forward together: Our thoughts on the US election 11-10

A Microsoft perspective from  Brad Smith Microsoft’s president and chief legal officer

Like so many people across the country, we woke up in Redmond, Washington this morning thinking about yesterday’s election. And like so many Americans, regardless of who we supported through our vote, we strongly share the view that this is a time for the nation to come together. Every president-elect deserves our congratulations, best wishes and support for the country as a whole. The peaceful transition of power has been an enduring and vital part of our democracy for over two centuries, and it remains so today. As a company, Microsoft joins many others in congratulating President-elect Donald J. Trump and Vice President-elect Mike Pence.

As a company, we also look forward to working with the new administration and Congress on issues of common concern. As we think about the future, we know we don’t have all the answers, but four issues rise near the top as we think about the country and information technology.

First and foremost, the vote yesterday registered a strong concern about the plight of those who feel left out and left behind.

In important respects, this concern is understandable. In recent months we’ve been struck by a study from Georgetown University. It shows that a quarter-century of U.S. economic growth under Democrats and Republicans alike has added 35 million net new jobs. But the number of jobs held by Americans with only a high school diploma or less has fallen by 7.3 million. The disparity is striking. The country has experienced a doubling of jobs for Americans with a four-year college degree, while the number of jobs for those with a high school diploma or less has fallen by 13 percent.[1]

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We know we have a lot to learn, but we believe this makes one conclusion abundantly clear:  in a time of rapid change, we need to innovate to promote inclusive economic growth that helps everyone move forward.  This requires a shared responsibility among those in government, across the private sector, and by individuals themselves.

As we’ve had the opportunity to learn more, we’ve concluded that new technology tools can play an important role.  This was part of the conviction that led Microsoft to decide earlier this year to acquire LinkedIn, a deal that has already been cleared to close by regulators in the United States.  LinkedIn is a good example of what one increasingly sees among both tech companies and tech-based non-profit groups.  New technology services and tools help individuals develop new skills and connect with new jobs.

As we look to the future, these can better help more people develop so-called middle skills – the types of technical skills that can ensure that those with less than a college degree can not only learn valuable new skills, but obtain the certifications and credentials that will be valuable in the workplace.  And we believe that new data tools such as LinkedIn’s Economic Graph can serve even more cities and states to help those in government match their worker training and economic development resources with the strongest opportunities in the market.  These are but a few of the roles where new technology can help.

We also believe that these issues represent the next frontier for innovation in public policy.  We’re enthusiastic about new potential initiatives at the federal and state levels that can promote broader education and training, bring labor laws into the 21^st century, and ensure portable benefits and a stronger safety net for the tens of millions of Americans that are working part-time, acting as an independent worker, or participating in the expanding tech-based gig economy with companies such as Uber and Lyft.  In short, while the problem is clear, potential solutions are manifold and more than anything, we need to come together to pursue them.

Second, as a company that does business around the world, we believe there’s a clear opportunity to invest in infrastructure.  As the American Society of Civil Engineers concluded in 2013, our water pipes too often are too old, our highways too often are congested, and our bridges too often are deficient.  We don’t claim to be experts in the field, but we know a traffic jam when we see one, in part because most days around Seattle we sit in one.  It was encouraging to see both presidential nominees endorse new infrastructure investments, and we believe that new data analytics and cloud technologies can contribute to these improvements.  We especially appreciate the role that broadband and computing infrastructure can play in creating broader economic opportunities, perhaps especially in areas of higher rural unemployment.

Third, as we think societally about these new opportunities to address those who have been left behind, it’s critically important that we appreciate the continuing national strengths that serve the country so well.  We’ve benefited from the opportunity to see so much of this firsthand.  We invest over $12 billion a year in research and development, as much as any other company on the planet, and over 85 percent of this work is done in the United States.  Over a third of our engineers have come from other countries – 157 countries, in fact.  We have employees from every race, ethnic background and religion.  If there’s a language spoken on the planet, there’s a good chance that it’s spoken by an employee at Microsoft.  And we’re committed to promoting not just diversity among all the men and women who work here, but the type of inclusive culture that will enable people to do their best work and pursue rewarding careers.

We know that this is the only way we’ll fully succeed as a company.  And we believe it’s the only way we’ll fully succeed as a country.

So while we all need to do more to support those who haven’t moved forward in recent years, we share the conviction that this is a time to bring the entire nation together.  And that means everyone, with an appreciation for the spirit of generosity and mutual respect that has often represented the best of the American spirit.

Finally, it will remain important for those in government and the tech sector to continue to work together to strike a balance that protects privacy and public safety in what remains a dangerous time.  As this election demonstrated, technology now plays a ubiquitous role in our daily lives.  But people will not use technology they do not trust.

We’re committed to developing technology that is secure and trusted, both for Americans and for people around the world.  We literally have thousands of employees who make this their focus and priority.  And we know that we’ll benefit from stronger government policies as well.  That’s why we’ve not only advocated for clearer and more modern U.S. laws, but have filed lawsuits four times in the past three years against the current administration, standing up for what we believe are the vital rights of people both here and abroad.  As we’ve won the cases we’ve brought, we’ve been reminded of one of this country’s greatest strengths, its strong Constitution, independent judiciary, and the overarching rule of law.

Between now and Jan. 20, we’ll all participate in what is perhaps the most defining aspect of our democracy, the peaceful transition of power from one political party to another. Today is a day that finds some Americans celebrating and others commiserating about the electoral result.  But it’s also a day that reminds us of what makes the country special.  It’s a day that provides an opportunity to look beyond disagreements and divides, identify bold solutions to common problems, and find new ways to work together. It’s a good time for all of us to listen and to learn from each other.

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Why Are Immigrants More Entrepreneurial? 11-02

Image credit : Shyam's Imagination Library

What do Arianna Huffington (Huffington Post), Dietrich Mateschitz (Red Bull), Elon Musk (Tesla, SpaceX), and Sergey Brin (Google) have in common? Apart from their success as entrepreneurs, they all share one distinct characteristic: extensive cross-cultural experience. Huffington grew up in Athens and studied in London before starting her career as a politician and media entrepreneur. Mateschitz spent considerable time overseas as a marketing salesman prior to founding Red Bull. Musk migrated from South Africa to the U.S. as young adult. Brin left the Soviet Union with his family after facing growing anti-Semitism and moved to the U.S., where he later cofounded Google.

Their stories are prominent examples of a widespread pattern. In the U.S., immigrants are almost twice as likely to become entrepreneurs as native-born U.S. citizens. Immigrants represent 27.5% of the countries’ entrepreneurs but only around 13% of the population. Similarly, about one-fourth of all technology and engineering companies started in the U.S. between 2006 and 2012 had at least one immigrant cofounder. And this pattern extends beyond the U.S. — data from the 2012 Global Entrepreneurship Monitor showed that the vast majority of the 69 countries surveyed reported higher entrepreneurial activity among immigrants than among natives, especially in growth-oriented ventures.

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Research has suggested that selection and discrimination effects may be driving this phenomenon. It appears plausible that entrepreneurial individuals are more likely to migrate and that immigration policies in many countries favor highly motivated and capable individuals. Additionally, discrimination against immigrants in labor markets may exert pressure on them to seek self-employment.

In a recent study, we investigated a different explanation: Cross-cultural experiences may increase individuals’ capabilities to identify promising business ideas. By living in different cultures, they encounter new products, services, customer preferences, and communication strategies, and this exposure may allow the transfer of knowledge about customer problems or solutions from one country to another. By applying this kind of arbitrage, a temporary or permanent migrant can decide to replicate a profitable product or business model available in one country but not in another. Successful companies such as Starbucks (inspired by coffeehouses in Italy) and the German online retailer Zalando (inspired by Zappos) exemplify the potential of this strategy.

Cross-cultural experiences may also stimulate creativity. Interacting with two or more cultural contexts can help immigrants combine diverse ideas, solutions, and customer problems in order to create something entirely new. This principle is illustrated by the origin story of Red Bull. When Dietrich Mateschitz traveled to Thailand in the 1980s, he observed the popularity of a cheap energizing drink called Krating Daeng among truck drivers and construction workers. Finding that it helped ease his jet lag, he decided to license the product and sell it in Austria under the name Red Bull Energy Drink. Rather than simply importing the product, Mateschitz realized the opportunity to combine the newly obtained knowledge about a product (a drink popular among truck drivers) and the knowledge about his home market (conservative beverages market, growing clubbing scene) into an entirely new business idea. By adapting size, taste, and brand, he created the first energy drink for the alternative clubbing scene — something previously unseen in the Thai and Austrian markets.

We conducted two experiments to find evidence that these effects can make immigrants more entrepreneurial. First, we analyzed the effects of short-term cross-cultural experiences in a longitudinal field experiment. We tested the entrepreneurial capabilities (i.e., the ability to identify profitable business opportunities) of 128 students before and after a semester of living and studying abroad by asking them to come up with business ideas in the context of media and food retailing. We did the same for a control group of 115 students that continued their studies at their home university.

The business opportunities they came up with were rated by four venture capitalists and industry experts blind to the source. Results showed a clear pattern (see Figure 1): The group that gained cross-cultural experience received significantly higher VC and expert ratings (+17%) on their business ideas after their semester abroad, while the ratings of the control group’s business ideas actually declined slightly (-3%) at the end of the semester.

We also conducted a laboratory experiment in which we tested these same effects with a sample that had long-term cross-cultural experiences — 96 migrant entrepreneurs in Austria. We randomly assigned them to two groups. Applying a technique called priming, we asked the experimental group to recall particular experiences while living abroad, thereby activating the memories and associations connected to their cross-cultural experience. The control group was asked to recall neutral experiences that were not related to cross-cultural memories. Both groups were invited to come up with business ideas that were then rated by experts. The business ideas of the group with activated cross-cultural experience were rated significantly higher (27%) by experts than the ideas of the control group.

In order to better understand this phenomenon, we interviewed all 96 participants after the experiment, asking them to describe how they generated ideas. These interviews were coded independently by two raters. Results showed that many participants had indeed applied knowledge arbitrage (e.g., “Innovative shop concepts such as [name of Asian supermarket chain] are missing in Vienna”) and creative recombination (e.g., “In France, I have seen supermarkets that were so big that all employees were wearing rollerblades….In my concept I also tried to use space as design concept to impress”) to identify profitable business opportunities.

The finding that cross-cultural experiences increase opportunity recognition capabilities has clear implications for businesses, entrepreneurs, and policy makers. It highlights the value of cross-cultural work experience or a migration experience for entrepreneurs and entrepreneurial companies. Entrepreneurs and managers can actively seek to build such experiences by living abroad and systematically comparing what they observe in other markets. In multinational businesses, human resource management tools such as expatriate assignments or international job rotations can help build opportunity recognition skills. To make these tools even more effective, managers can complement them with entrepreneurship training prior to an international assignment. Furthermore, priming instruments like the ones in our experiments could be used while living abroad and afterward to spur business ideation.

For companies, ignoring the positive effect of cross-cultural experience on opportunity recognition may be harmful. If expatriates with good ideas receive no chance to exploit them within a company, they might choose to do so outside of it. Previous research has identified that many expatriates choose to leave their organizations soon after finishing an overseas assignment, when they suffer from a lack of promotion opportunities, career counseling, and status. Our results suggest that some of them might do this in order to exploit opportunities to become entrepreneurs.

Implications of our research also extend to the field of immigration policy. The United Nations estimates that there are over 240 million temporary and permanent migrants and refugees worldwide. Our results help explain the above-average entrepreneurial activity of this group and highlight the positive effects that immigration can have on an economy. We show that migration does not need to be a zero-sum game or a “war for talent,” with migrating entrepreneurs increasing entrepreneurial activity in one country at the expense of another. Instead, migration can help nurture entrepreneurial abilities by fostering the learning and application of cross-cultural knowledge that helps someone identify profitable opportunities.

Since immigration is increasingly seen by some people as a threat, the insight that more immigration may result in an overall gain in entrepreneurial activity may be a useful reminder of the opportunities associated with migration. It suggests that public money may be better spent on building incubators for migrant entrepreneurs than on building border walls. 

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INSEAD Dean Talks B-School’s Past, Present, Future 10-22

INSEAD Dean Talks B-School’s Past, Present, Future.

Times are good for the business school headquartered in the quaint French town of Fontainebleau.
INSEAD, which brushes up against a national forest about 70 kilometers southeast of Paris, is having a stellar year. Last November, it nabbed the top spot in Poets&Quants’ composite ranking of international schools. In January, INSEAD became the first school not named Harvard, Stanford, Wharton, or London Business School to claim number one in the Financial Times’ global ranking of MBA programs. What’s more, the school has more alumni giving and engagement than ever before, enjoys solid job placement rates despite offering a turbocharged 10-month full-time MBA, and is in the midst of planning a new curriculum that will roll out next September.

This past Saturday (Oct. 8), Poets&Quants had the opportunity to meet with INSEAD Dean Ilian Mihov in his Fontainebleau office during a massive alumni reunion weekend to discuss his first three years as dean and where he sees the school — and business education as a whole — going. When Mihov took over as dean, he did so with at least three objectives. He wanted to put greater resources into career development, increase fundraising, and build a new curriculum. Three years later, he’s done all three.

First, Mihov says, INSEAD doubled the budget for career services. This led to increased staff and a new career development center. Students now gain personal career coaches before even starting the program, and more than 180 companies a year trek from around the globe to INSEAD’s Fontainebleau or Singapore campuses. Next, efforts to increase alumni engagement and giving have paid off handsomely. Five years ago, INSEAD raised about €4.7 million ($5.2 million). This past academic year, the school set a goal of €16.5 million ($18.2 million)— and ended up with nearly €24 million ($26.4 million). Meanwhile, Mihov says, alumni attendance at events on campus is up 25%.

Finally, after a lengthy process that was spearheaded by a five-member faculty committee and included input from recruiters, alumni, and current students, the school will roll out a completely revised curriculum for next September’s incoming class. Highlights will include a personalized leadership development program, a cluster of required courses focused on business and society, and, Mihov says, deeper self-reflection and character building.

APPLICATIONS FROM THE U.S. SURGING

To keep the upward momentum moving, Mihov says INSEAD must continue to fundraise so it can compete for the best students and professors. Currently, about 20% of INSEAD students receive scholarships, well below the near 50% level at Harvard Business School where the average annual student grant is $37,000. Mihov wants to get closer to HBS’ 50%. “I think that everybody is fighting for two things. One is students, and the other is faculty,” he says. “So the toughest challenge for us is to keep INSEAD an attractive proposition in this competitive environment.”

To be sure, INSEAD has tapped into two of the most saturated markets for MBA applicants. For the past five years, the largest nationalities represented have been from the U.S. and India. Each country has comprised 9% to 12% of the school’s cohort, which is enough for the highest conglomerate from one country. The school regularly enrolls students from more than 80 countries each year and has an alumni base that spans 170 countries. According to Mihov, U.S. applicants are higher than ever before. But to break deeper into the robust U.S. applicant market, Mihov says INSEAD needs to continue to communicate the legitimacy of the one-year MBA — and it needs to innovate.

In a robust and broad-ranging interview, Mihov discusses in detail the process INSEAD went through to revamp its curriculum, future development of the school’s Abu Dhabi campus, improvements the school needs to make, and why the one-year model involves classroom time equal to or more than a two-year program — among many other topics.

You’ve now officially been dean for just over three years. What are some of your proudest accomplishments over that time?

I think there are several key things that we did. At the very beginning, we decided to completely revamp our career services and build a career development center. We more than doubled our budget. We provide the students now with personal career advisers. So when students come to INSEAD, they have somebody who helps them during the year figure out where they want to apply, figure out what they are going to do, preparing them for interviews, preparing them for submitting CVs, recommendation letters — all of these things. Those are some of the technical things, but they also help with the behavioral things like how you behave during the interview. And I think that has a very big impact on how the students feel and the success rates on the reports in terms of matching students with the right employers.

We also invested a lot in business development — that is, relationships with employers. Today we have more than 180 companies coming to campus recruiting, which is quite significant. That was the first thing I really thought was necessary to do.

The second thing that I’m very proud of is that we went through a long process of curriculum review. It’s always difficult to build consensus around something. One of our colleagues warned us — he was at another school before coming to INSEAD and was a tenured professor — and he said that there, they went through the same thing and at the end they went back to the same curriculum as before. But in our case, I’m happy that it went very well. We will be implementing the new curriculum for the class that starts in September of 2017.

We produced a leadership development program so that there is professional coaching, group coaching, and peer coaching during the entire year to make our students more aware about how they make decisions, how they have biases, how to correct those biases, how to behave in teams. It’s a standard coaching exercise. In addition to this, we produced a cluster of business and society courses in our third period. One is political analysis, one is more of a public policy — environmental, sustainability, inequality — all these issues that link business and society and have created some problems in recent years. And the third course is ethics. We had it before as a required course but it was between other courses. Now we put it together in this cluster.

So there are several changes that I think will improve the program and will make it more effective. We have the students develop not only competencies, but also build and further their character and understanding of themselves. That’s the second thing.

The third thing is the relationship with the alumni. Today the alumni engagement at INSEAD is the highest ever. In the last year we have seen a 25% increase in the number of alumni coming back for reunions. Last year, we had 3,200 alumni come back for reunion. This is very important. I think it creates a much stronger school in a sense that the students can benefit much more from this relationship with alumni. Our faculty benefit from the relationships and we are trying to build something for the alumni as well, like a platform for continued learning, so they will benefit as well.

On the fundraising front, we are doing very well. To me, this is one of the most important successes because we have an alumni network that spreads into 170 countries. We have more alumni in more countries than any other business school. So it’s a very powerful network and if we can activate this network and connect it to the school, we can do a lot of new and interesting things.
And a fourth thing that is also quite interesting is in the digitalization we have moved forward substantially. It’s more relevant for executive education, but we are trying to bring it to the MBA class.

The curriculum change is something you mentioned quite a bit when you first took over as dean. Can you share any more about what that process was like and any more detail on key improvements within the curriculum that you didn’t already mention?

Yeah, so, I think what I mentioned already are the most important changes, but I think the process was quite interesting because we did not want to change the curriculum just for the sake of changing it. We wanted to change it to make it relevant for the students and for the recruiters. So we created a committee of five faculty members and then benchmarked against other schools to see what other schools are doing and have been doing, which generated some interesting insights but also we realized, we are not very far from what other schools are doing in many ways.

Then we talked to students and asked what they expect to see at INSEAD. And there were demands for certain courses. At INSEAD, it is critical to do this every 10 or 15 years because INSEAD is different and our electives are a marketplace. At many other schools, the faculty decides these are the electives that we are going to run and people subscribe. Here, if an elective does not run well, we’ll kill it, and we have a very strict criteria for that. If the elective is successful, we launch a bunch of sections so more people can take it. So as we see the demand, we will change electives. But still, there were some, like digital marketing and media, all of these things we just introduced as a result of this.

Then we went and talked to alumni and asked what they thought was good and what they found useful over the years, and what they thought was not as good. We heard very clearly that they wished there was a bigger emphasis on leadership development, there was a bit more emphasis on decision making, on reflection, self-awareness, ethical dilemmas, and so on.

And then we went to recruiters and asked what they need from our students. I think today we are very fortunate that many recruiters are going after our students because of their global nature. So one of the things that they really valued a lot was the global mindset, the diversity of the students coming from all over the world, so they can go back to these countries. Many recruiters need people in Southeast Asia, in Africa, Latin America, and sometimes it’s difficult to convince students who have gone to a top U.S. or European school to go back to their countries. But our students, because of their mindsets, are willing to do that. Last year — the class that just graduated — are placed in 57 countries. And the other thing that recruiters said — and that’s why we introduced it: that they are quite happy with the development of the analytical skills. The program we have is rigorous and comparable to top schools. But they really wanted more emphasis on soft skills. So that’s why we have this leadership development program.

Speaking of recruiters, you all have students coming from all over the world, many of whom are trying to jump industries, functions, and/or countries and have no traditional internship like in a two-year program, yet you all still have impressive job placement stats. Is this because of the increased resources and communication with recruiters?

Yeah, we can do this because now we have focused on career development even before they come to INSEAD. It is a 10-month program, there are no internships, but at the same time, even before they come, we have online courses for building their CV and all kinds of videos on how to prepare for career development. And during the year, there are personal career advisers and group career advisers focused on industries. Everybody understands it’s a very short period of time and we really have to do things very quickly. We enlarged the number of advisers because we realized if we want to do it right, it’s not going to happen with the numbers we had before.

It is impressive how many people switch functions and industry and geography. But obviously the people we take in are very high-quality and the willingness they have to be global and move around is very valuable and valued by companies.

The other big news coming out of INSEAD recently is obviously the Financial Times ranking. How does getting that number one spot feel and how much do you value rankings?

I think rankings matter. Rankings are very good feedback for facts and what things are working well and not working well. And the community is really energized by this number-one spot. I think what we learned from the rankings is that because we are placing students in emerging markets, our salaries are growing faster. Or they are going into industries that have high salaries. But on the salary side, INSEAD has been improving.

The second positive thing that we learned, which was very good, is that our research ranking has increased significantly. To me, this is very important because the school shifted towards research in the 1990s. It was under Dean António Borges. And it was difficult to integrate it into cultures.

INSEAD was a teaching place. We emphasized teaching quality, I would say more than most of the other schools. And here, it’s not that the dean of faculty says you have to be a good teacher, professors feel the pressure. You have to be good in the classroom. Our students are a little bit older, the average age is 29. They also put more pressure on the faculty to be good in the classroom. So integrating these two cultures was sometimes painful. But today we have the best teachers and many of them are also great researchers. We have created a culture where the research and teaching goes hand-in-hand.

The reason I think it is very important is because if you think about the disruptions and the biggest threat coming from online, it is famous professors from top schools delivering high-quality material that is basically distributed for free. And right now of course there are issues with MOOCs. But eventually things will improve. The only way we can stay relevant in an environment like this is if you have a school where professors are at the forefront of research in management sciences and so on. So when you go into the classroom, you are not reading the textbook, which you can get on a video or MOOC, but also you are engaging in a discussion where professors are bringing the latest insights from various empirical studies and theories. And that makes a big difference, and I have seen it in many classes at INSEAD. That students and executives realize they learn something they can’t get easily from the video or newspapers.

For example, I am a macroeconomist and I have had several talks in the past about the economic drought and inequality. And what I was bringing in the classroom were inequality studies that people have published in top academic journals. And sometimes the conclusions from these studies, with the data, was contrary to what you would see in newspapers. And then you realize that you are learning something you cannot learn otherwise. To me, this maintains the competitive edge to the school.

I think it is very easy to see where we are also weak, in terms of the rankings. We want to increase female participation at INSEAD in the number of MBAs. We have 30% women today, which is still big progress to 10 years ago. But, again, it’s not where we want to be. We have looked into this issue. We are trying to analyze why this is happening. And it is, to a large degree, our geographical distribution of applicants. From the U.S. students, we have 45% of women like most of the U.S. schools. From China, we have 60% women. But from Europe, we have 12% and that’s where we are putting emphasis, in trying to change this.

So, to me, this is what rankings give. You can try to understand where the investment has paid off — and where we are still weak and need to improve.

One of the things you mentioned in your interview with Poets&Quants in 2014 was putting a significant emphasis on fundraising. Can you give us some updates on how that is going?

It’s going very, very well. This data is in the reports, so it’s publicly available, but the new one we are still preparing. If you look at fundraising about five years ago, we raised €4.7 million. But it’s been increasing and the last academic year that we just finished, our objective was to raise €16.5 million. And we ended up with close to €24 million. So we exceeded the target by more than 45%. I think that’s where the school can be, and even higher. Most of the money we raise is for scholarships.

We also raise money for research. We raise money for career services. The career development center was funded by donations from alumni because they understand this. So it is still a priority. Because, for me, fundraising is about investing in the future of the school — building a better school, ensuring the quality of the students. And that’s certainly working well.

We’re still not where we want to be in terms of scholarships. We want to go more than double the amount we currently give for scholarships. It’s a very important objective. But things have changed dramatically.

In that interview you also mentioned INSEAD being the most complicated business school in the world and a logistical nightmare moving students across two or three campuses in a year. Do you still feel that way?

It is still the most complicated. I said it today at the reunion. Because we are the biggest MBA program in terms of number of students that we put on the market every year. On campus some U.S. schools have more students, but what really matters is how many students you have to help in finding jobs and it’s quite significant. Still, 75% move between campuses. And now we introduced another complication by offering a period in Abu Dhabi. But at the same time, I think that it is worth doing this. This complication is not for its own sake. I think the students that do move between campuses see firsthand the different environment’s globalization. And some of them go to Wharton. So it’s Fontainebleau, Singapore, and Wharton with the Wharton exchange.

I don’t know if I said this in the previous interview, but I think that if we had not gone to Singapore, INSEAD would not be where it is today.

Why do you think that?

Because I think that today we offer a unique opportunity for people who want to think about the world and to experience the two campuses. And we have developed expertise on Asia and Asian companies that otherwise, I don’t think would have developed. It’s very difficult to build cases on China or India or Singapore or Indonesia by sitting in Fontainebleau. You can do it, but it’s not as insightful as when you’re there. Even when you read the newspaper, you see all of the news coming in and you can integrate it into the teaching. I think our students get information about Asia and Europe more than anybody else among the top schools, just because they are in this environment. Of course you teach a lot of other things like globalization and the U.S. and so on, but it’s the environment. We have speakers, forums, field trips, that help them understand the culture and the way people do business in these countries.

What are some of the most important differences between campuses?

Let me first start with Abu Dhabi. Abu Dhabi is still in the process of development. We are going to possibly build a new campus in Abu Dhabi. Right now we only have our executive MBA there, which works quite well. And we have executive education. Only one of the MBA classes can go there for two months. We want to develop this going forward with getting more periods in Abu Dhabi. So it’s a very different campus compared to Fontainebleau and Singapore.

In terms of culture among the students, I think there is no difference between Singapore and Fontainebleau. The composition of the class is the same. It’s true, we have about 200 in Singapore and 300 in Fontainebleau, but the mix of nationalities is very similar. Of course Singapore is an urban campus, so it’s slightly different and people are in the city. Here there is a potential in getting closer to each other because everybody is in Fontainebleau and there is not much else there unless they decide to go to Paris. It’s a very good environment for studying for one year.

So I think there are slight differences because of this, but at the same time, in terms of culture, students move seamlessly between the two campuses. I have not seen any problems or people from Fontainebleau or Singapore behaving differently.

How do you think applicants from the U.S. view INSEAD and what would you change about that, if anything?

That’s a very interesting question because in the last few years, we have seen a rapid increase in the number of applications from the U.S. In fact, today, the biggest group on campus are Americans — 9% of the new class that we just admitted. In the past five years it has been Indians and Americans as the largest groups, but still a minority like everybody else.

We see now a big increase in applications. I think the number-one ranking has helped people become aware. But I still think it is difficult for some applicants to see the benefit of INSEAD compared to other schools. And there is still skepticism to the one-year program. Academically, there is almost no difference. Because in the U.S., two years is four semesters of three and a half months — so 14 months. And very often you have a day free during the week for career and job search and networking. So basically you have 20% less, so it’s about 11 months of academic work. And at INSEAD, the 10 months are including classes on Saturday. So from an academic point of view, in terms of what you get in the classroom, you get the same thing that you get at other schools. Now, I think that more and more applicants see the one-year MBA as a viable and strong product. I think it was the GMAT data that said more people applied for one-year programs.

Specifically, from the U.S., we obviously have several things that work against us. The first one is the language requirement. On entry, you need two languages spoken and written at a high level. And on exit, you need a third language. Many students come with three languages already but there are also others that do not. In Europe, most people do have these languages. The education system is different where almost everybody starts with a second language in middle school and a third language by the time you go to university.

The other thing is that the U.S. has a lot of other great schools, so there are other opportunities. Many applicants are considering the U.S. schools. And the value of INSEAD, we sometimes don’t communicate properly enough. For us, we think that if somebody is looking for having a career in a global economy, working with teams that are very diverse, then INSEAD has a lot to offer — more than most of the U.S. schools. We have today 86 nationalities on campus. We create teams of people that sometimes are from countries that are at war with each other. Because we want to make sure that during this year they learn how to interact in teams with somebody that you may not like. But you still have to work on that team. So we’re trying to develop them as managers or leaders or entrepreneurs with a global perspective. Again, the two-year schools are excellent of course, but still, most people look for jobs in the U.S. Most people end up with jobs in the U.S. It’s still the biggest economy. But it’s just a different position, competitively. We just have to make our story heard, and if somebody wants to have a global perspective, then hopefully they apply to INSEAD.

Can you give any examples of what you think applicants fail to see about INSEAD?

I think it’s the global perspective. What is different about INSEAD? Well, the one-year program is obviously different than a two-year program. That’s easy to see. But it’s difficult, for example, to see that, from an academic point of view, it doesn’t make any difference. Because people don’t do the calculation and they see two years as two years, but actually, academically, it’s the same duration.

We look at the number of hours we have in the classroom and it’s very similar to the top U.S.
schools. With some we have more, and with others we have less. I have heard this before, that you cannot teach these things in one year. Well, actually you can. And I think that we do. But at the end of the day, the ultimate test is whether students get jobs or not. And our students are placed at top companies around the world. So I think it’s difficult to see that you are not losing anything academically, but you’re gaining this global perspective — this diversity, which is becoming more and more important. It’s difficult to communicate this message sometimes.

This clearly hasn’t had much influence on job placements, but what can you say for students who are considering INSEAD but are also looking for an internship? The internship is an important aspect for many students entering the two-year model.

That’s true, but we also take older students. I think for younger students it’s more important that for ones that are at a different level. We have increased the age to 29 for two key reasons. One is that because of the lack of internship, they have to be able to get that job with just the academic side. The second reason is when they come with more experience and knowledge, we give them academically 90% or 100% of what American schools give them. It’s very intensive. And if you have not heard of strategy and you have not done things in business sufficiently for a long period of time, it could be quite confusing. That’s how we’ve tried to compensate with a lack of internship.

What is the best advice you have for applicants considering INSEAD and other top schools?

I think the advice is, think about your aspirations, your career, what you want to do. Schools in the U.S., again, have their strengths. We have our strengths. INSEAD has not only the global, which we have discussed, but INSEAD has always been entrepreneurial and has been more so in recent years. If you look at the PitchBook ranking that came out a few weeks back, it’s interesting that our alumni — many of them are outside the U.S. — have managed funds that are comparable to what the top U.S. schools have raised in the past five years. INSEAD is becoming more and more focused on entrepreneurship. But what I think is really important is this self-awareness and leadership development, which will be a thing that is helpful to them throughout their careers. It’s not just about getting a job.

What are some of the toughest challenges you anticipate facing in the next few years?

I think that everybody is fighting for two things. One is students and the other is faculty. So the toughest challenge for us is to keep INSEAD an attractive proposition in this competitive environment. To show that the school is continuously innovating and helping students get their jobs. For us, the big issue is that in terms of the amount of money you have to pay for the MBA, we’re still probably the cheapest school in the top 10 — but the amount is still substantial, and the U.S. schools are competing with more scholarships. To me, this is a very big challenge. We are focusing on building a very robust scholarship program. Today 20% of the students receive some form of financial aid. But the idea is to get to 50% at least. And that’s very tough.

And then for faculty, I don’t think we have that much trouble with maintaining faculty. We have professors that are very productive and engaging. In academic journals, they’ve published more than many of the other top schools. We do have the environment but one of the big risks is if this environment changes and we start losing some of the professors. We’re not there yet, it’s more like a risk, and hopefully we’ll never be there.

If I think about another risk, obviously digitalization can be something that can come up. And probably some schools are suffering from the availability of online courses. For us, digitalization is a huge benefit. Because now we can take some of the material out and use it as a digital offering before they come to INSEAD, which is what we’re doing with the new curriculum. So we can free up some more time during the year. For us, it will allow us to do things that are value-adding and good for the students. But for challenges, not in the near future, but in the medium turn, it could be companies or organizations that offer some courses or building out a portfolio of courses that will not necessarily replicate an MBA but that could be viewed as a certificate program with five or six courses at the job that I want. That’s possible.

What are some of the most important lessons you’ve learned as dean?

I think the number-one lesson is, communication is key. I think communication is key in moments when you need to change something. People need to understand why you are doing it. And the second reason communication is key is, in our case, spreading the word of INSEAD is not where it should be. It’s so interesting that today, even at the reunion when we had 500 people in the room — people that are obviously passionate about their school and are coming back and love the school — but when I show them what the school has done in the last 10 years or so, they are very surprised. If you go year after year surprising people in a positive way, it means, on average, the information you have is not out there. People don’t know what is happening in the school. And that’s something that I’ve learned is very valuable. So we’re focusing now on brand awareness, branding exercises, communication, (and) we’ve started an alumni magazine that gives stories about the school and alumni.

And it’s interesting that what I’ve learned is, if you try to understand the demands of the students and alumni, if you try to understand what they’re after when they come to INSEAD or when they reconnect to the school, I think you can achieve a lot of great things. I think that we see some of these things happening. And sometimes it’s difficult, what they want. Sometimes it’s not possible. But when you engage in a conversation, then you either convince them it’s not possible or they convince you it is possible. So engaging in conversations and listening is very valuable.

If you could change one thing about graduate business education, what would it be and why?

I don’t want to continue to sell our curriculum change, but I think we need to continue to focus more on personal development. About the emotional component in working with other people. About psychological issues. About building character and being aware of what your values are and how you align your decisions with your values. If you build these things at this stage, you will see fewer corporate scandals and fewer issues. Because they will be able to check themselves. I think today, most of the business schools are providing excellent quality in terms of competence building and analytical skills. We have created so many exercises — cases, simulations, and so on — that help them develop these skills, and they are absolutely crucial. They have to be there, no doubt.

But now I think we also have to increase our focus on character building, awareness, and reflection. And I think that’s not only true for the MBAs. This is something that we learn from executives and now we are bringing it to the MBAs. We see executives make a decision, start implementing, practice, and move on. You never have the time to stop and reflect and look back and say, “OK, I made this decision, we implemented this, that was wrong, that was right, now let me think about how to do the next one to avoid these mistakes.” This reflection on the practice you have had in the past is still a muscle that many people do not train enough.

Any other final thoughts?

I would add that to the American applicants that are considering business education, probably the most important thing in the process of decision making is to talk to alumni from different schools. To see how this alum talks about the school. What is positive about the school? This is key. Most alumni will be selling their school, of course, but you have to have the filter to figure out what part of the sales pitch is relevant for you. So I would encourage them to find INSEAD alumni in the U.S. and learn what INSEAD gives.

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A Data-Driven Approach to Customer Relationships A Case Study of Nedbank’s Data Practices in South Africa 10-19

South Africa’s Nedbank is a leader in its market — but to stay in that position, it needed to identify new ways to serve its existing business clientele as well as attract new customers. Its solution: Use the extensive transaction data the bank collects to help customers improve their service.

Introduction

In 2015, store managers at BUCO, a hardware retailer with 46 locations across South Africa, had an intuitive feel for whether men or women were their most frequent customers, which locations had the most loyal customers, and from what suburbs the most valuable customers to a given store were coming. That all changed shortly after Judy Gounden, a group marketing executive at BUCO’s parent company, Iliad Africa Ltd., began using Market Edge, a commercial data service provided by Nedbank Group Ltd., South Africa’s fourth-largest bank by market value.

According to Gounden, Market Edge — which packages credit and debit card information with geolocation, demographic, and other transactional data — enabled new insights into customers’ behaviors that would have been difficult to identify without the new tool. These insights in turn have changed the way the company operates, says Gounden:

We can now look at card transaction data and say, “On a Wednesday at 9:00 a.m., we had the most card transactions versus any other day in the week, and most of these people are 50 and 60 years old.” That’s our pensioner day. In some geographical regions, we’ve got very high loyalty, and in others, we get new customers constantly, so the tool helps us think about how we market in each region. What’s more, when I told a store manager who believed that most of his business was derived from local residents that, in fact, half of his business was coming from residents that lived in a town 10 kilometers away, his eyes went wide and he said, “How do you know that?” So we shared the data with him. At BUCO’s location in Nelspruit, which is on the Crocodile River in the northeast near Kruger National Park, we learned through the data that a large portion of our clientele was female, so we introduced a Saturday craft workshop featuring chalk paint. It’s the latest craze in do-it-yourself painting. The workshop was a huge hit; it just accelerated the craft area of that business. After that, department sales just skyrocketed. Many stores have replicated this example.

Chris Wood, head of emerging payments, strategy, and regulation at Nedbank, counts Iliad Africa and BUCO as one of the many success stories for Market Edge since its public launch in July 2015. Wood’s team sold or gave away the tool to 1,500 of Nedbank’s merchant locations. Several large companies, such as Burger King and McDonald’s, were either involved in co-creating the product with Nedbank as part of the pilot or had purchased the tool, demonstrating that it could make a significant business contribution to the bank’s credit and debit card line of business as well as to retail and business banking (RBB), the largest business division within Nedbank Group. The value of Market Edge to Nedbank may derive less from sales of the tool — the typical price is a flat fee of 500 rand per location a month (about $35) — and more from expanding relationships with existing merchant clients and acquiring new customers. (See “Market Edge: Use Cases.”) 

Nedbank’s Market Edge clients, like Burger King and BUCO, use the tool to analyze potential store locations and drive business into their stores.

A year after its launch, Wood was convinced that he could build a team to place Market Edge in 90,000 merchants. But there was one big challenge: The current sales force in the card and payments line of business was not yet effective at selling Market Edge, despite concerted training efforts. Nedbank had plans to expand the sales force, but there were many competing priorities and it was unclear whether the bank would support a sales force dedicated to Market Edge.

Nevertheless, the tool has shown Nedbank the promise of data and analytics as a commercial offering. It is also just one of several ways that the RBB business cluster is using data and analytics to build an edge in its market. “The strategic challenges that we’ve set for ourselves highlight the need to ramp up all of that [data] capability,” says Ciko Thomas, group managing executive of RBB. “We have momentum, but we need to build institutional and organizational capability.”



View South Africa's Ned Bank Study with videos

Using behavioral science to improve the customer experience 10-16

By guiding the design of customer interactions, the principles of behavioral science offer a simple, low-cost route to improved customer satisfaction.

          

Service operations seem a natural setting for the ideas of behavioral science. Every year, companies have thousands, even millions, of interactions with human beings—also known as customers. Their perceptions of an interaction, behavioral scientists tell us, are influenced powerfully by considerations such as its sequence of painful and pleasurable experiences. Companies care deeply about the quality of those interactions and invest heavily in effective Web sites and in responsive, simplified call centers.

Yet the application of behavioral science to service operations seems spotty at best. Its principles have been implemented by relatively few companies, such as the telecommunications business, which found that giving customers some control over their service interactions by allowing them to schedule field service visits at specific times could make them more satisfied, even when they had to wait a week or longer. Many more companies ignore what makes people tick. Banks, for example, often disturb the customer experience by altering the menus on ATMs or the interactive-voice-response (IVR) systems in call centers. They fail to recognize the psychological discomfort customers experience when faced with unexpected changes.

Likewise, for every restaurant that surrounds a bill’s arrival with a succession of complementary desserts—thereby capitalizing on the customer’s preference for service encounters that end positively—there are a lot of call centers that ignore the importance of a strong finish. Indeed, many companies actively work against one by placing so much emphasis on average handling times that they inadvertently encourage agents to end a call once its main business is complete, leaving customers with memories of brusque treatment.

It doesn’t have to be this way. Academics such as Professor Richard Chase at the University of Southern California’s Marshall School of Business have used research on how people form opinions about their experiences to design actual services. In a 2001 Harvard Business Review article,¹ 1. For more, see Richard B. Chase and Sriram Dasu, “Want to perfect your company’s service? Use behavioral science,” Harvard Business Review, June 2001, Volume 79, Number 6, pp. 78–84. Chase and his team even laid out principles for managers to consider when designing any customer interaction. Get bad experiences over early, so that customers focus on the more positive subsequent elements of the interaction. Break up pleasure but combine pain for your customers, so that the pleasant parts of the interaction form a stronger part of their recollections. Finish strong, as the final elements of the interaction will stick in the customers’ memory. Give them choice, so they feel more in control of the interaction. And let them stick to their habits rather than force them to endure the discomfort and disorientation of unexpected change.

Here we review the experience of an insurance company that used those principles to improve its customers’ satisfaction significantly, with no incremental costs or fundamental changes in people or infrastructure. A systematic approach like this one is needed to counteract the natural tendency of service operations to focus on the needs of IT systems and work flows, not to mention the preferences of employees, managers, and service providers, largely ignoring the way customers perceive their service interactions. If companies in a broad range of service industries—including banking, telecommunications, and retailing—applied a rigorous approach, they would reap significant economic benefits, ranging from reduced churn to greater cross-selling to additional customer referrals.

Setting the stage

Executives at a leading North American health insurer sought to help patients manage their treatment programs for serious long-term illnesses, such as diabetes or congestive heart failure. Conditions like these are difficult to manage because treatment is often protracted and outcomes can depend on the patients’ willingness to make significant lifestyle changes.

Patients participating in an experimental health-management program received regular, scheduled calls from a team of nurses over a period of several months. The calls aimed to deliver additional support to patients undergoing long-term treatment, by helping them understand the available options and stick to their treatment regimes, as well as reinforcing lifestyle changes recommended by their doctors. Improved compliance helps insurers too, as better outcomes reduce the overall cost of treatment.

In the past, the clinical-treatment program for each patient had determined the content of such calls, and the company used what it considered to be a tried-and-true method for managing them. Team members had received guidelines on the objectives of the calls and used a checklist to sequence discussions with customers.

Behavioral science in action

To see if this approach could be improved, the company divided the nurses into two groups—approximately 20 in a pilot group and another 20 in a control one—and began applying a behavioral-science lens to the interactions of the former to test different versions of the call structure. Postcall surveys measured the customers’ satisfaction with each call and with the company. Key customer and operational metrics (including sign-up rates) helped estimate the financial impact. The pilot team used behavioral-science principles throughout the interactions.

1. Get bad experiences over with early

The team identified difficult issues—for example, the forthcoming lapse of certain insurance benefits or the need to transfer from one facility to another—and moved them to the start of the call. It also set up a later phase built around constructive coaching from the nurses on how to deal with the issues raised earlier. In addition, general questions that were likely to make patients uncomfortable (about current pain levels, smoking habits, eating patterns, and alcohol consumption, for instance) were moved from the end of the call to the beginning.

2. Break up pleasure and combine pain

By combining the most challenging elements of a call in its first phase, the health-management team could focus on positive aspects during the rest of it. The team found that patients responded very positively to coaching by nurses, so there was an effort to ensure that coaching on multiple topics was an explicit part of every phase of the call. A nurse might, for example, discuss the next treatment steps, how the patient could take advantage of all covered benefits, and ways of minimizing out-of-pocket expenses. There was also an effort to resolve all possible issues within a call and to transfer it to other groups only as a last resort.

3. Finish strongly

The conclusion of the health-management calls was scripted to finish on a positive note by emphasizing the tangible insurance benefits available to patients and, where medically appropriate, the likelihood of a successful outcome to the agreed-upon action plan. At the end of a program lasting several months, with calls taking place every month or so, patients received a final call from their health-management nurse. This call ended by celebrating their progress, reviewing the goals they had met, and summarizing the positive steps they had taken to achieve those goals.

4. Give customers choice

The company made an effort to give customers explicit choice on three critical elements: the type of treatment plan, which facilities to visit and which doctors to see, and the timing of future calls. In each area, the nurse was guided to tell the customer, “You have a choice; let me give you some options.” Customers explicitly had the right to make the ultimate decision, though the outcome may have been limited or strongly suggested—for example, “Hospital A is closest to your home, but B is only 15 minutes further away, and it has a specialist unit with a great track record at treating your condition.”

5. Let customers stick to their habits

In many situations, it was important for patients to change their lifestyles—say, by eating different foods, consuming less alcohol, or exercising. To encourage patients to make these changes while minimizing the discomfort they generated, nurses introduced them gradually over a series of calls. Dietary changes might be discussed initially, for instance, followed by encouragement to begin exercise. The nurses also tried to reframe the patients’ perceptions of the severity of the changes by comparing them with more unfavorable alternatives: for example, “instead of eliminating your favorite foods altogether, why not just try picking low-fat varieties next time you are in the store.”

The team also worked to ensure that the calls themselves became a positive habit for the patients. This approach gave them the option of having the same nurse on follow-up and promoted a consistent approach for every call, so that they became used to the interactions.

Results

The effect of the changes was significant. Patients in the test group reported an average satisfaction level seven percentage points higher than that of patients in the control group—for calls with the same basic content. These patients’ satisfaction levels with the company was on average eight percentage points higher than that of the control group. More important, patients in the test group were on average five percentage points more likely to say that the calls had motivated them to make positive changes in their behavior.

Notably, the program didn’t significantly affect the company’s costs or change key operational metrics, such as the length of a call or the number of calls a day. Moreover, test group nurses reported an average level of job satisfaction higher than that of the control group nurses. Finally, the impact was rapid. Most of the increase in the satisfaction levels of the test group patients happened within two weeks.

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Many other service industries could benefit from a similar approach. By breaking down frontline transactions and rebuilding them with behavioral and experiential principles, companies could systematically achieve rapid, measurable improvements in customer satisfaction.

About the author(s)

John DeVine is a principal in McKinsey’s Miami office, and Keith Gilson is a consultant in the Toronto office.

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