Marina Gorbis's Blog, page 1470

Training Programs That Work for Business, Workers, and the Economy

In his State of the Union speech last night President Obama called for an “across-the-board reform of America’s training programs” and said, “We know how to do it.”

We agree with him: Regional and industry-specific programs already in place around the country provide successful models. In our December 2012 HBR article “Who Can Fix the Middle-Skills Gap?” we summarized the key ingredients that research on these programs has shown to be essential to their success:

Multiple employers in the region or industry sector cooperate with one another and with educational and labor institutions to design and fund initiatives to train and hire graduates.
Classroom education is integrated with opportunities to apply new concepts and skills in actual or simulated work settings — an approach proven to be the way adults learn best.
Training focuses on offering workers career pathways, not just skills for the initial jobs.

These programs take a variety of forms.  Some like the highly successful like the Center for Energy Workforce Development are joint union-management initiatives. Some like the NCBioImpact consortium in North Carolina (formerly BioWorks) rely heavily on community colleges. And others like MIT’s Leaders for Global Operations are university-industry joint ventures.

Regardless of their specific form or workforce targets, the best thing the federal government can do to help expand such programs to meet the need for skilled workers is to make the funding it provides contingent on demonstrating that these three features are in place.

One Big Reason Why There Are So Many More Billion Dollar Start-ups

A billion dollar valuation is a huge milestone for a start-up, and not just because Justin Timberlake said so in The Social Network.  The billion dollar mark gets thrown around by venture capitalists as shorthand for the level of success they’re looking for when they invest, since the typical outcome for start-ups is failure and thus VC firms bank on a few mega-hits to generate returns.

But billion dollar valuations are seemingly becoming less and less rare. As The Wall Street Journal reports, at the peak of the dotcom bubble in 1999-2000, there were 18 private, venture capital-backed companies in the U.S. valued at a billion dollars or more. Today there are 25, plus another dozen abroad. Surely, critics contend, this signals a bubble.

Perhaps. Bubbles are tough to define, much less identify. But the simplest reason for the increase in billion dollar start-ups is far more mundane: it’s inflation.

As the chart above illustrates, the number of private, venture-backed U.S. companies with billion dollar valuations hasn’t quite matched the dotcom peak, when inflation is accounted for. A dollar in 2000 is the equivalent of $1.35 today, meaning that the proper comparison is between the number of billion dollar companies in the dotcom era, and the number of companies worth $1.35+ billion today. This adjustment makes a big difference. Of the 25 U.S. companies valued over a billion today, only 15 are valued at more than $1.35 billion; of the 37 globally, nearly half fail to clear the bar.

Those concerned about a tech bubble could rightly point out that nearly as many highly valued start-ups as the dotcom bubble should still signal alarm. But that’s quite different than pointing to a dramatically longer list of billion dollar valuations.

Ultimately, the best evidence against a comparison to the dotcom era may be the revenue multiple at which these companies are valued. As The Wall Street Journal reported in October of last year:

This year, shares of newly public technology companies are being valued at 5.6 times sales, estimates University of Florida professor Jay Ritter, who tracks IPOs. That is well short of the median of 26.5 times sales in 1999. Shares of this year’s tech IPOs have risen an average of 26% on their first day of trading. In 1999 the average was 87%.

Bubble or not, the point remains that inflation accounts for much of the increase in billion dollar valuations relative to the dotcom years. Though the dream of a “billion dollar company” still permeates start-up culture, the fact is a billion dollars really isn’t what it used to be.

How to Build Brand Religion

On Thursday at 11 a.m., the Supreme store in Soho debuts a new sneaker design, and people wait around the block to be the first to purchase it. Roughly a mile away in Madison Square Park, a line snakes past manicured lawns as people wait an hour in line to buy a Shake Shack cheeseburger. Further downtown, Tyler, the Creator, the impresario leading man of the hip-hop collective Odd Future, hosts a pop-up shop on Orchard Street with a thousand kids waiting in line to meet the artist and buy his gear.

Typically, lines get a bad wrap: They’re inconvenient and annoying. But if you look closer, you’ll see people — especially young people — actually enjoying it.

Why? Sometimes, the experience of anticipation can be just as powerful as the product you’re selling. And if the product is good and the demand exceeds the supply, the line will be a microcommunity of your very best fans wanting to pay patronage to your brand. The line, at this point, ceases to be a pattern of inconvenience. The line instead is the physical embodiment of brand religion.

So what, exactly, is brand religion? This question is best answered not by looking at the history of brands and their ethos, but by looking at how some religions spread from a niche sect to the masses. Malcolm Gladwell noted in his book The Tipping Point that religions spread not by the force of their charismatic founders, but by the emotional zeal of its followers that spend their days marinating in the dogma. The more a community convenes to exchange ideas around the dogma, the more emotional they grow about the ideas. They, in turn, become influencers in that community and grow more motivated to seduce more followers to the religion.

Cultural or brand fanatics behave similarly. From my experience, fanatics — be it sport, religion, music, or otherwise — are cajoled by emotion. When a fanatic becomes emotional, he or she is more apt to pay more, wait longer, and share louder – elements of what I call “irrational commerce”. The key is to create physical and virtual moments for fans to congregate, share their urgency, and reward them with scarce products or experiences they can’t find anywhere else. The fan, in turn, captures the moment socially (via Instagram, for example) to recruit others who are less fanatical about the brand. The more communal moments brand fanatics can share with one another, the more brand religion can grow. Gary Vaynerchuk cites in his most recent book, Jab, Jab, Jab, Right Hook, that community managers should curate these social moments (what he calls “jabs”) to provoke fans for an emotional reaction. A series of these “jabs” will in turn lead to a consumer call-to-action for that fan (i.e. the “right hook”).

And while large brands like Nike cater to fanatic fans through the release of limited run shoes, for example, brand religion is particularly important for small-to-medium businesses because it leverages the power of small communities to evangelize the product. This is valuable for several reasons: Small brands can’t just open online stores and expect to be successful without hosting and curating a vibrant and nurturing community. If they do, they’ll fall prey to the dynamics better served for large incumbents like Amazon and Zappos, whose direct response-driven purchase funnels are fundamentally based on cost-per-acquisition and impressions served. Huge ad buys can be prohibitively expensive for small businesses and might not deliver sales, let alone long-term fans.  Additionally, competing to be the “most affordable” won’t cut it.

Though price is a valuable differentiator in the marketplace, it won’t promise loyalty because a mere fan will only be as loyal as your cheapest competitor. Even Apple, arguably the most powerful brand on the planet, stumbled when it released its value-oriented iPhone 5c to lukewarm demand. At that aggressive price-point, there were just too many other affordable Android handsets to consider (not to mention it’s own higher-end iPhone 5s, which far out-performed its cheaper sibling).

I’ve seen much of this first-hand: My wife recently started working at SoulCycle, arguably one the most cult-like exercise franchises out there today. At the heart of the SoulCycle brand is the experience: the combination of anthemic music, atmospheric lighting, and motivational exercise from an authentic and charismatic instructor. Fans don’t spin; they “ride,” picking the locations of their bikes on the company’s website, much like reserving a seat on a flight — with those seats closest to the instructor selling out first. All the merchandise sold is exclusive and limited run, refreshing every month. This scarcity only feeds into the fanaticism driven by the experience endured by its hardcore fans and makes up 12% of the company’s revenue. In my estimation, all these tactics ladder up to one governing principle: the founders made a conscious decision to build a brand, not a gym.

Ultimately, this is what brand religion is all about: stoking emotion with a combination of scarcity and urgency. It’s irrational commerce at its finest.

When I spoke with my friend Neil Blumenthal, co-founder and co-CEO of Warby Parker, he reinforced these points by explaining the tactics his company employs to deliver a cult-like brand. The team first created its ethos (“our commandments,” Neil said), which is the articulated reason for your existence. This guides your business practices while also letting fans know you’re filling a deep emotional void. At the heart of Warby Parker’s particular ethos is full, unbridled transparency.

When building their community, they made a point to talk about issues that typical corporations sweep under the rug. After the company launched, for example, it became clear they couldn’t keep up with the demand of their trial-at-home offering. Consequently, they temporarily suspended the program (a move that other growth companies would avoid in lieu of more sales). They were proactively apologetic about it and explained in great detail why they had to curtail one of their most differentiating aspects of their offering. Customers were quick to forgive, and everyone moved on.

Warby Parker’s transparency was also evident in their unique approach to marketing communications. Each year since 2011, the company unveils an Annual Report. In it, fans can find everything from key unique metrics that are driving the business (tidbits they know ardent fans will drop in cocktail conversation), down to the beer and bagels the employees prefer to drink at their Happy Hours or eat at their breakfast meetings. This quick, quirky snapshot of their culture adds a unique flair of personality to the brand, which makes it stand out against competitors.

Finally, Warby Parker’s use of scarcity and urgency to build brand religion has been masterful as evidenced by their frequent limited-run capsule collections they release. “Most of our competitors put out two capsule collections a year,” said Neil. “We put out 20.” Most of these collections sell out in the first 48 hours and add to the fever pitch of the fans following the brand.

If there’s one thing the new world of social commerce has taught us, it’s that there are no rules any brand must follow to attract an engaged audience. But building a strong, emotional brand by tapping into urgency and scarcity is an important perspective to consider. Like musicians and sports teams before them, brands doing it right regard their community members more as fans rather than customers. And if you can fuel their addiction to your brand ethos, you’ll likely convert them for a fraction of the customer acquisition cost typically associated with winning them over.

HBR’s Guide to Obama’s 2014 State of the Union

Last night, President Obama laid out a set of goals and proposals for his next year in office, with a substantial portion of the speech focusing on business and economic issues. He mentioned a number of themes that we cover regularly here at HBR: the minimum wage, inequality, women in the workplace, manufacturing, and health care to name just a few.  As the President sets out on a post-speech tour to sell his policies, here are management experts’ perspectives on some of those proposals:

Minimum Wage

Obama proposed raising the minimum wage to $10.10, and will do so for federal workers by executive action. MIT’s Zeynep Ton says a higher minimum wage could help employers, provided they know how to structure their business around a “good jobs” strategy. That view is shared by University of Colorado’s Wayne Cascio, who in 2006 wrote about the high cost of low wages for business. Meanwhile, Wharton’s Peter Cappelli has a related message for employers: It’s not ok that your employees can’t afford to eat. Finally, HBR editor Justin Fox lays out the economics of a higher minimum wage.

Inequality and Economic Mobility

Rising inequality and lack of economic opportunity for the middle class was a major theme. HBR’s Julia Kirby and author Chris Meyer argue this is an issue businesses must care about as well, and after surveying the latest data on mobility, Justin Fox says this issue can’t be left to the economists. For those curious about the relationship between inequality and economic growth (in either direction), the data is murky.

Hiring Veterans and the Long-Term Unemployed

Obama said he plans to partner with CEOs to encourage the hiring of the long-term unemployed. For businesses interested in doing so, don’t miss HBR editor Gretchen Gavett’s interview with MIT professor Ofer Sharone on the topic. He also noted his administration’s efforts to train and promote the hiring of veterans, which Derek Bennett argues is also good business.

Women in the Workplace

In one of the biggest applause lines of the night, Obama declared, “It is time to do away with workplace policies that belong in a ‘Mad Men’ episode.” HBR did a deep dive on women and business this fall, and a good place to start is this research roundup covering discrimination, work-life balance, ethics, compensation, and more. From there, check out this set of quick facts on those topics. Finally, HBR editors Sarah Green and Amy Bernstein discuss these issues, and our coverage of them, in this video.

Health Care Costs

Of course, the President addressed health care as well, not just to defend Obamacare, but also to note the challenge of rising health care costs. On the latter topic, check out Michael Porter and Thomas Lee, who lay out a strategy for improving the health care industry. For even more, HBR recently completed a series on the health care industry with the New England Journal of Medicine that covers the issue in depth.

Manufacturing and Insourcing

Obama mentioned a trend toward “insourcing” — the return of manufacturing jobs from abroad — and vowed to promote advanced manufacturing via four new manufacturing “institutes.” For a little more nuance on the insourcing trend, read Brad Power on GE. As for whether America really needs manufacturing to maintain its economic strength, Harvard Business School professors Gary P. Pisano and Willy C. Shih go beyond a simple yes or no answer in a 2012 article. For even more on this and related issues, check out HBR’s series on American competitiveness.

Immigration

Reforming America’s immigration system came up last night, and is considered by some pundits as one of the few areas of potential legislative action this year. Vivek Wadhwa of Stanford and Duke argues that this issue must go beyond talk of talent shortages and gluts to focus on innovation and a growing economic pie. And Jack Mollen of EMC connects immigration reform to the tech sector.

Climate Change

“The debate is settled,” Obama noted. “Climate change is a fact.” If policymakers can no longer ignore the threats of climate change, neither can companies, according to Andrew Winston who calls it the largest risk and opportunity currently ignored by investors.

Gun Safety

Harvard’s David Hemenway argues businesses can play a role in promoting gun safety, as does Eddie Yoon.

Education & Training

The President emphasized the need to improve education to “prepare tomorrow’s workforce,” and proposes better technology in schools, “redesigned” high schools, and improved access to higher education. But missing from conversations about the economic benefits of a college degree is a looming question of professional relevance, argues Alan Kantrow. One critical step to answering that question, he writes, will be helping craft better tools for measuring education. As for worker training, another topic of emphasis in the speech, Thomas Kochan, David Finegold, and Paul Osterman lay out a strategy to address the skills gap in this post.

How Couples Can Cope with Professional Stress

Most of us are familiar with the cycle. At work, the pressure to be “always on,” to meet deadlines, to serve the demands of colleagues or customers, or to deal with a difficult coworker can create stress that leaks into our personal lives. This stress can cause us to be impatient with romantic partners or kids or to neglect our duties at home, creating a vicious cycle of anxiety outside the office that makes work stresses even harder to face.

There are countless examples of couples driven to the edge by work-related stress. And psychological studies have shown that outside stressors — particularly stress at work — can push relationships to the breaking point. But they don’t have to. The vicious cycle of work–home stress can become a virtuous cycle when partners learn to cope with stress together. We are social beings who tend to be happier when connected to others. Our romantic partner is, almost by definition, the person on whom we rely to provide support, and recent research has shown (PDF) that partners who practice dealing with stress together early on can actually strengthen the durability of their relationships over time.

Below are a few thoughts on how couples can cope with professional stress.

Listen and support. There’s a time to question, challenge, or offer solutions. But often when helping a partner deal with professional stress, listening and support are most valuable. Research conducted by eHarmony, for example, found that partners who are supportive when their counterparts share bad events maintain relationship satisfaction and create an environment that leads to fewer arguments. And we’ve almost all experienced the benefit of a friend or partner simply letting us talk through our problems, encouraging us through active listening. Silence can be one of the most powerful forms of communication. And asking thoughtful questions can help your partner gain clarity and come to his or her own conclusions.

Recognize and respect different coping mechanisms. Partners often cope with stress differently. In our marriage, one of us likes to talk everything out as soon as possible after a hard day, and the other needs a little downtime after work to decompress. These aren’t the most compatible coping mechanisms — and when we’re both coping in our own way, we tend to drive each other crazy. Over time, we’ve learned to compromise. Recognize that you and your partner may have different ways of dealing with stress, and there isn’t necessarily a “right” way of coping. Try to accept those differences and then find ways to accommodate one another. For example, let a partner who needs downtime after work have 30 minutes in front of the TV or on the treadmill, but ask that partner to agree to engage more later — over dinner or out for an afternoon stroll. Identifying and working with those differences can be essential to productively dealing with stress.

Kill comparisons. There are at least two types of comparisons couples make that can enhance rather than counteract stress. First, resist the urge to compare yourself or your partner to others professionally — judging your success relative to others. This can lead to doubt, inadequacy, and worry, and it’s a poor substitute for internal motivation. Second, don’t succumb to the temptation to compare stress levels with your partner. When you’ve had a long day and your partner is talking through his or her stresses, it’s tempting to let your partner know just how much bigger and more important your own issues are. But that only creates tension. Learn to simply listen and offer help to your partner. And try to solicit your partner’s help and empathy in your own stress without drawing direct comparisons or judging which is more important. Each partner is an equal, and all stressors are valid and important.

Be active together. One of our favorite activities as a couple is walking in the afternoons. When the weather’s warm enough, we take our son out for a walk around the neighborhood, using the time to catch up and talk through our days. We find that getting out and getting active together is a great stress reliever. Even moderate physical activity can lead to lower levels of stress. Boston University’s Michael Otto has noted, “Usually within five minutes after moderate exercise you get a mood-enhancement effect.” And numerous studies have confirmed exercise as an effective way to enhance mood and fight depression. Exercising together kills two birds with one stone, allowing you to stay physically active and spend more time together.

Find time to cheat (on your job and your kids!). Remember, you are with your partner because you love them — you like to spend time with them, talk to them, and share with them. But often, partners get in a rut. Work piles up. The kids need chaperoning to soccer practices and school events. And the easiest thing to cut out is often one-on-one time with each other. We’ve noted elsewhere that downtime can improve physical and mental health, and we’ve encouraged couples to occasionally cheat on their jobs with their spouses. Similarly, we’ve received good advice from many friends that time together away from kids is just as important as time away from work. So find time to connect as a couple away from the office and outside the home. Make sure that in sacrificing for work and family, you’re not sacrificing all the benefits of being a couple and the stress relief that comes with it.

Laugh together. John Gottman is perhaps the world’s leading authority on marital success. In his “love lab” he successfully predicts which marriages will end in divorce approximately 90% (PDF) of the time after a brief observation. And he claims that shared humor is both a key way to strengthen a relationship and a key “repair attempt” for couples in conflict. Serendipitously, humor is also a key way to deal with stress: Studies have shown that laughter can alter your mood and soothe your stress response. Life’s problems are hard, but when couples can learn to tease one another, to laugh, and to use humor to confront life’s difficult issues, they may also manage their relationship and their professional anxieties better.

These are just a few ways in which couples can more effectively manage professional stress together. Each couple will have to find their own solutions, but learning to cope with stress together is a fundamental skill for thriving at work and at home.

This is the first post in a blog series on taking control of stress. Jackie and John Coleman are contributors to the HBR Guide to Managing Stress at Work.

The Social Disparity Behind America’s Growing Obesity Gap

America is bursting at the seams. Two-thirds of adults and more than one third of kids and teenagers are overweight or obese. For children, obesity has more than doubled in the past thirty years, making it one of the biggest public health concerns in the United States.

Last August, health experts around the country breathed a sigh of relief when the CDC reported that childhood obesity might be leveling off. After years of fighting the war on obesity and campaigning to get kids to eat healthier and be physically active, there was finally some uplifting news. Some experts were cautiously optimistic, while others outright cheered.

Not so fast. Put that cupcake down.

A closer look at the trends reveals that while the overall obesity rate has plateaued, there is more to the story. In a paper published yesterday in the Proceedings of the National Academy of Sciences, my colleagues Carl B. Frederick, Robert D. Putnam, and I show that obesity is falling — but only for one part of the population.

Looking at two national health surveys, we found that obesity has decreased among teenagers who come from wealthy, well-educated families, but it has continued to increase among poor teens. Putting these two trends together, it looks like the epidemic is easing.

But underneath the aggregate trend lies a striking social disparity.

It is no news that obesity is a bigger concern for poor children. But our research shows that the gap is growing. Between 2003 and 2010, obesity rates among teens whose parents have no more than a high-school education rose from about 20% to 25%. Over the same period, obesity rates among teenagers whose parents had a four-year college degree or more declined from 14% to about 7%. We find similar trends when we use a measure of family income instead of parental education to measure socioeconomic status.

The growing obesity gap is bad news for public health officials, who will have to continue to fight costly obesity-related diseases in the years ahead. But the real victims in this failed war on obesity are the kids, whose future health prospects look nothing short of grim. Obese kids grow into obese adults. They are also more at risk for a host of other health problems such as type-2 diabetes, obstructive sleep apnea, high blood pressure, several types of cancer and psychological problems.

So what is behind the diverging trends?

In simple terms, obesity is a result of an energy imbalance — we consume more calories than we use. To lose weight, we should eat less and move more.

Turns out, all kids — poor and wealthy — are eating fewer calories than they did a decade ago. Looking at the eating and exercise patters of teens in both groups, we found that a difference in physical activity may be what is really driving the obesity gap.

One in five kids from less-educated, low-income families report being physically inactive. By comparison, only one in 10 teens with college-educated parents said they had done no sports or exercised in the previous week.  The exercise gap has increased sharply during the last ten years, mirroring the trend in obesity rates.

What is driving the sharp difference in physical activity over the last few years? The answer is complicated, but a good starting point is to look at the role of schools, neighborhoods, and health care professionals.

Teens from poor families are increasingly less likely to participate in organized sports. The introduction of  “pay to play” programs has made school sports a luxury that only wealthy families can afford. Joining the football team in the Arlington school district in Massachusetts costs $500, which almost seems reasonable compared to the price tag of playing tennis in Riverside Local School District in Ohio: $874.  As part of money-saving efforts, many schools have been forced to cut down or even eliminate their sports programs — and these are the schools that poor kids are more likely to attend.

Poor kids are also increasingly more likely to live in poor neighborhoods that provide fewer opportunities for being physically active. Kids who live in neighborhoods with sidewalks, parks, and recreational centers and where they feel safe to bike around the block or run around the park are more likely to be from wealthier families – and less likely to become obese.

Wealthy teens are also more likely to have a regular doctor and get advice on the importance of healthy eating and physical exercise.

If public health experts are to beat childhood obesity and thereby have a shot at reducing obesity among adults, they ought to pay more careful attention to class-based factors that contribute to obesity. Kids should have equal access to physical education and school sports, recreation centers and playgrounds, and they should feel safe walking or skateboarding around the neighborhood.

More than spreading the public health message about the importance of healthy diet and physical exercise, we should attack the problem at its root cause. In the spirit of celebrating the 50th anniversary of Lyndon B. Johnson’s “War on Poverty” campaign, we should make better progress in reducing the number of kids who live in poverty, attend schools with no PE classes, or live in neighborhoods where broken swing sets are a bitter reminder of what used to be playgrounds.

The Financial Crisis May Cost Each American at Least $19,000

Three economists at the Federal Reserve Bank of Dallas calculated how much economic activity would be lost by the time the U.S. returns to the growth path it was on before the global financial crisis began in 2008. Their estimate: about $6 trillion to $14 trillion, or $19,000 to $45,000 for every man, woman, and child in the country, according to The New York Times. The per-person cost rises to as much as $120,000 if the calculation includes the impact on workers’ well-being, the Times says.

Big Data’s Dangerous New Era of Discrimination

Congratulations. You bought into Big Data and it’s paying off Big Time. You slice, dice, parse and process every screen-stroke, clickstream, Like, tweet and touch point that matters to your enterprise. You now know exactly who your best — and worst — customers, clients, employees and partners are.  Knowledge is power.  But what kind of power does all that knowledge buy?

Big Data creates Big Dilemmas. Greater knowledge of customers creates new potential and power to discriminate. Big Data — and its associated analytics — dramatically increase both the dimensionality and degrees of freedom for detailed discrimination. So where, in your corporate culture and strategy, does value-added personalization and segmentation end and harmful discrimination begin?

Let’s say, for example, that your segmentation data tells you the following:

Your most profitable customers by far are single women between the ages of 34 and 55 closely followed by “happily married” women with at least one child. Divorced women are slightly more profitable than “never marrieds.” Gay males — single and in relationships — are also disproportionately profitable. The “sweet spot” is urban and 28 to 50. These segments collectively account for roughly two-thirds of your profitability.  (Unexpected factoid: Your most profitable customers are overwhelmingly Amazon Prime subscriber. What might that mean?)

Going more granular, as Big Data does, offers even sharper ethno-geographic insight into customer behavior and influence:

Single Asian, Hispanic, and African-American women with urban post codes are most likely to complain about product and service quality to the company. Asian and Hispanic complainers happy with resolution/refund tend to be in the top quintile of profitability. African-American women do not.
Suburban Caucasian mothers are most likely to use social media to share their complaints, followed closely by Asian and Hispanic mothers. But if resolved early, they’ll promote the firm’s responsiveness online.
Gay urban males receiving special discounts and promotions are the most effective at driving traffic to your sites.

My point here is that these data are explicit, compelling and undeniable. But how should sophisticated marketers and merchandisers use them?

Campaigns, promotions and loyalty programs targeting women and gay males seem obvious. But should Asian, Hispanic and white females enjoy preferential treatment over African-American women when resolving complaints? After all, they tend to be both more profitable and measurably more willing to effectively use social media. Does it make more marketing sense encouraging African-American female customers to become more social media savvy? Or are resources better invested in getting more from one’s best customers? Similarly, how much effort and ingenuity flow should go into making more gay male customers better social media evangelists? What kinds of offers and promotions could go viral on their networks?

Conversely, an immediate way to cut costs and preserve resources might be to discourage the least profitable and most costly shoppers. Are there clever ways to raise prices, minimize access or otherwise manage those expensive older, single customers and high-maintenance, low-purchase young females? Are there fast, cheap de-markers —such as, say, an Amazon Prime membership combined with age and ethnicity — to quickly qualify prospects worth cultivating?

Of course, the difference between price discrimination and discrimination positively correlated with gender, ethnicity, geography, class, personality and/or technological fluency is vanishingly small. Indeed, the entire epistemological underpinning of Big Data for business is that it cost-effectively makes informed segmentation and personalization possible.

But the law, ethics and economics leave unclear where value-added personalization and segmentation end and harmful discrimination begins. Does promotionally privileging gay male customers inherently and unfairly discriminate against their straight counterparts? Is it good business — let alone fair — to withhold special offers from African-American women because, statistically and probabilistically, they are demonstrably less profitable than Asian and Hispanic female customers?

Big Data analytics renders these questions less hypothetical than tactical, practical and strategic. In theory and practice, Big Data digitally transmutes cultural clichés and stereotypes into empirically verifiable data sets. Combine those data with the computational protocols of “Nate Silver-ian” predictive analytics and organizations worldwide have the ability — the obligation? — to innovatively, cost-effectively and profitably segment/discriminate their customers and clients.

Of course, many regulated industries — notably health insurance, financial services, employment — expressly forbid certain kinds of discrimination. In effect, companies and organizations are required to deliberately ignore or exclude potentially valuable customer information. In America, for example, particular attention is paid to processes and programs that have “disparate impact” on employment. (A future post will address this). Regulators, legislators and court systems worldwide are frequently on the lookout for examples of “disparate impact” and unequal/unfair treatment of customers. There should be no doubt that the intimate customer knowledge that Big Data confers guarantees greater scrutiny from governments worldwide.

But the main source of concern won’t be privacy, per se — it will be whether and how companies and organizations like your own use Big Data analytics to justify their segmentation/personalization/discrimination strategies. The more effective Big Data analytics are in profitably segmenting and serving customers, the more likely those algorithms will be audited by regulators or litigators.

Tomorrow’s Big Data challenge isn’t technical; it’s whether managements have algorithms and analytics that are both fairly transparent and transparently fair. Big Data champions and practitioners had better be discriminating about how discriminating they want to be.

A Minimum-Wage Hike Could Help Employers, Too

President Obama’s State of the Union address tonight is expected to include a push to increase the minimum wage. A lot of companies that rely on low-wage workers are worried about that. It’s obvious to them that paying employees more will result in some combination of three outcomes: (a) profits will suffer as the wage increases eat into margins, (b) prices will have to be raised to maintain profitability, and (c) operational quality will suffer as a result of cutting headcount. But there is more to the equation than wages, prices, and quality. There’s what those wage-earners can do to earn their wages—their productivity, motivation, customer service, and contributions to continuous improvement.

The smart way to deal with an increase in the minimum wage is to design work in a way that improves employees’ productivity and increases their contribution to profits. All this is possible even in low-wage settings. In fact, some companies are already doing it. Early in my career, I did research in retail operations that showed that bad jobs with poverty-level wages, unpredictable schedules, and few opportunities for advancement were not just rotten for the employees but were hurting the companies and their customers. Retail stores were full of problems that good, motivated employees could fix, such as misplaced products that no one could find and obsolete products lingering on the shelves, which led to lost sales and profits and frustrated a lot of customers.

Later on, I began to study some retailers that thrived by managing to offer good jobs and low prices. And I mean thrived—these companies were growing and coming out on top in very competitive industries, while spending much more than their competitors did on paying and training their employees. I examined four companies in particular: Mercadona, Spain’s largest supermarket chain; QuikTrip, a large convenience store chain with gas stations; and the well-known retailers Trader Joe’s and Costco. These four companies don’t seem to have much in common. Different products, different customers, different ownership structures, different locations, different store sizes, and different employee incentives.

Whatever they are doing right, it doesn’t depend on any of those factors. But here’s what is common among them. They all follow what I call the good jobs strategy, which is a combination of smart operational choices and investment in people. When I examined these companies, I saw that they made four choices in how they designed their work. They: (1) offer less, (2) combine standardization with empowerment, (3) cross-train, and (4) operate with slack. These choices transform their heavy investment in employees into great performance by reducing costs, improving employee productivity, and leveraging a fully capable and committed workforce.

I won’t go through all four choices here—that’s enough for a book. (Hint, hint.) Let’s just go through “operate with slack” to get a feel for what the choices are like and how they support the good jobs strategy.

Workload in a service setting is always uncertain. You never know how many customers will show up when and what they will want. So it’s easy to have either too many or too few people on the job. In my earlier research, I saw retailers consistently erring on the side of too few. This was no accident; they were more worried about keeping labor cost low than about the consequences of having too few employees. Companies that follow the good jobs strategy, on the other hand, consistently err on the side of too many—they operate with slack. That obviously improves customer service and sales, but it also helps companies reduce costs—yes, reduce—by keeping mistakes to a minimum and by giving employees time to contribute to continuous improvement.

But here’s the key. Operating with slack works great for these companies because it amplifies the benefits of their other three operational choices and their heavy investment in people. For example, because these retailers offer less to their customers and standardize many processes, they have a better sense of what the workload will be at their stores. So while they deliberately err on the high side, they don’t tend to be way off. And since they cross-train, their employees can always be doing something useful (not just make-work) even when there are no customers.

Sometimes people think I’m claiming that if a company pays higher wages, it will make more money. That’s not my message at all. The good jobs strategy is much more complicated than that. Yes, it includes paying employees more, but it also includes those operational choices, which are very down-to-earth yet quite unusual in many industries.

The good jobs strategy is not easy. You have to get many things right all at the same time. You have to embark on this path with a long-term perspective—you can’t just plug the components in and start raking in profits. But it is a strategy for producing excellence. That has been proven by the companies I studied, among others. It’s a sustainable strategy where everyone—customers, employees, investors—wins.

This is why US employers shouldn’t fear the prospect of a minimum wage hike, and in fact should view it as something of a gift. If firms are forced by law to pay their employees higher wages, they will rethink their operations in ways that make sense for all kinds of reasons. A good jobs strategy will let them reward their employees without hurting their customers or their bottom line.

A Company Without Job Titles Will Still Have Hierarchies

Radically flat. That’s the management goal that Tony Hseih, founder of e-commerce giant Zappos, aims to achieve by the end of 2014. To get there, Hsieh plans to toss out the traditional corporate hierarchy by eliminating titles among his 1,500 employees that can lead to bottlenecks in decision-making. The end result: a holacracy centered around self-organizing teams who actively push the entire business forward.

Think of it as management operating system 3.0.

It’s not a new concept. The term “holarchy” made its debut in Ghost in the Machine, a analysis of the human brain and its failings penned by Arthur Koestler in 1967. Derived from the Greek word holos (root of the English word whole), it defines an entity in which all parts are working together to create an autonomous whole. Think: a total entity greater than the sum of its parts.

Management consultant Brian Robertson took that idea and founded HolacracyOne, a firm dedicated to helping companies (including Zappos) achieve this corporate ideal. The approach comes with its own lengthy constitution which details how to restructure an organization peopled with leaders who are held accountable for their own roles and contribute equally to the success of the entire unit.

There are reasons to think the experiment might work at Zappos. From Hsieh down through the newest customer service rep, Zappos’ entire staff is driven by its ten core values. And the company has already begun implementing the new approach with about 150 employees. But is it a sustainable choice for any business?

There is evidence to support how smashing management silos within an organization not only saves money, but also supports nimble decisions unencumbered by the myopic judgments of a handful of executives.

On the flip side, critics point to the way human nature takes over when hierarchical structures of power disappear along with the titles that denote them. Jan Klein, a senior lecturer at the MIT Sloan School of Management whose research focuses on organizational change, told Business Insider that the concept had a run during the 1980s when factories tried holacracy on for size.

The elimination of first-line supervisors at Shell Oil and other manufacturers of varying sizes stalled after only six months –and more rapidly at the even larger companies. According to Klein, some staff walked out rather than lose a hard-won management title. Others simply couldn’t self-regulate.

It’s no wonder. Innate perceptions of status kick in to draw the evolutionary lines of who’s boss and who’s not.

In this, people are like dogs, suggest researchers Sanjay Srivastava of the University of Oregon and Cameron Anderson of the University of California, Berkeley, in a paper on the perceptions of power and status in social groups. The social animals who travel in packs care about two things: First, who is dominant? And second, who likes me?

They say humans subconsciously rely on visible cues like attractive features or extroverted personalities to assign status in a group that has no labels to indicate otherwise. In a company devoid of bosses, these perceptions of status will take hold to establish a pecking order.

Add to that the fact that people naturally strive to attain higher status in the form of admiration and respect from peers and those perceived to be more powerful. In a holacracy, our instinctive inclination to climb up the ranks at work will find no reward when there is no boss to offer feedback or a pat on the back.

That’s because status is as important to us as breathing. Research shows that perceptions of social status –of ourselves and others– and our overall standing in social hierarchies affect how we make decisions, how altruistic we are, as well as our overall mental and physical health. In his book The Status Syndrome, Michael Marmot details how closely status is aligned with longevity and good health. Status even surpasses education and income, two factors that usually determine how healthy an individual can be throughout their life.

Some employees will therefore naturally converge around a perceived leader, leaving others feeling insecure. Since our brains are hardwired to tune in to threats over rewards, people tend to act more defensively when they feel their status is at stake. As David Rock, co-founder of the NeuroLeadership Institute, writes, even an ordinary conversation can devolve into an argument when people feel threatened. As a result, a host of physiological reactions occur, impairing our memory and our ability to make good decisions. Not exactly fertile ground for collaboration and innovation.

In a holacracy, the titles disappear, but human dynamics won’t. In an environment where everyone is a leader, some other mechanism needs to be put in place to ensure that everyone can maintain and optimize the tenets of fairness, trust and transparency so the entire organization can move forward.