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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: NFTs as a Force for Good: The Case of the Savvy Salamanders
People have long sought out rare physical objects, such as paintings, trading cards and memorabilia. Recent innovations in blockchain technology have made it possible for people to exclusively own and trade unique tokens that represent ownership of digital assets like images and text files, known as non-fungible tokens or NFTs. 

While NFTs have been around for a while, they were not well understood until they exploded into the mainstream last year, when a digital artwork was sold at Christie's auction house for US$69.3 million. By the end of 2021, US$40.9 billion had been spent on NFTs. In comparison, the global art market was worth US$50.1 billion. 

NFTs now extend far beyond the art world and can give holders ownership of music, real estate and videos or access to events or members-only clubs. Not limited to ownership and trading, these digital items provide solutions to problems surrounding the traditional exchange of goods and services. For example, NFT concert tickets stored on a blockchain are easily authenticated and can thus eliminate forgery, scalping and illegal reselling.

Drawing inspiration from this rapidly evolving trend, a group of INSEAD MBA students developed one of the first NFT collections at a business school.  

The Savvy Salamander Study Club (SSSC) was launched in 2021 to build and bring together INSEAD's network of crypto-focused alumni. This group of MBA students* (including myself, Aditya Rane) transformed the school's famous green salamander mascot into the face of an innovative NFT campaign where 100 percent of net sales go towards scholarships and developing the club. 

The salamander NFTs further work as a token for membership that grants access to members-only events and networks. The idea is to build a community of crypto pioneers as well as a unique approach to fundraising. 

We outline how we did it and the lessons we learnt along the way. 

 Choosing the right marketplace

In the e-commerce world, preferred marketplaces exist for certain goods – such as eBay for collectibles or Etsy for handcrafted items. In a similar sense, choosing the right NFT marketplace depends on the type of NFT, as well as a combination of economics (royalties and commissions) and features that you want to embed in your NFT.

In our case, we launched our NFTs relatively early on, at a time when many of the major marketplaces were still under active development. We were torn between three popular marketplaces: Rarible, Crypto.com and OpenSea.

Crypto.com made the onboarding of new buyers extremely simple and allowed them to purchase NFTs with credit cards. While this made it easier for users and involved smaller transaction fees, it meant that the NFTs were not hosted on the popular Ethereum blockchain and were instead restricted to Crypto.com’s own blockchain (easy-to-use “bridges” between the two chains are now available, but were not at the time). Ethereum compatibility means that NFT buyers have the flexibility to withdraw their NFTs or move them to any other Ethereum compatible NFT marketplace such as OpenSea.

With Rarible, we felt that the marketplace was more focused on art and “1 of 1” NFTs (one-of-a-kind) as opposed to the generative collectible series we had developed. Given how quickly things change in the metaverse, we opted for the track record and success of OpenSea.

OpenSea supports the Ethereum blockchain and features a no-frills design to allow users to buy and sell assets. We were attracted by OpenSea’s support levels, security and success in executing past generative collectible projects like BAYC. However, we had to accept the trade-off – our buyers would incur higher transaction fees given the popularity and traffic of the Ethereum blockchain.

Minting NFTs  

Minting NFTs, in the simplest sense, is the publishing of the digital file on the blockchain to make it a purchasable digital asset. In minting the salamander NFTs, we needed to ensure that we create the digital file in the exact format that is preferred by the host platform. Adding more data points such as name, description, price and other metadata ensured that our NFTs are indexable and can be easily located and differentiated from other NFTs. While the process itself is simple, a crypto wallet holding crypto currency is needed to cover the costs.   

Building a community of crypto pioneers

We quickly realised that users who weren't as crypto-savvy were struggling. After consulting with INSEAD professors and digital experts, we were advised to provide training to new buyers to bring them up to speed.

We created a “how to” manual that broke down every step of the process, from creating a crypto wallet to buying an NFT. We had to spend more time educating our community than growing it, as for many this was their first foray into the world of crypto. This resulted in a much richer experience, as we helped users learn how to operate in the world of the metaverse while championing INSEAD NFTs as a force for good.

Going slow to go fast 

As management students who live by the "move fast and break things" ideology, we focused on getting stuff done. In hindsight, we recognised that going slow was sometimes the smarter choice, considering platforms in crypto are still early in nature. After we had gone ahead with hosting the NFTs, we realised that we needed to add metadata to differentiate our NFTs and for them to stand out from the crowd.

In the Web2 world, this feature would have been easy to implement and almost universally available, but in the Web3 world it wasn't. This meant that we were either forced to postpone the launch or expect a big multi-million dollar platform to provide support at short notice. Eventually, we bought time by pushing the NFT drop (digital release) forward and managed to add the missing attributes with the help of OpenSea.

Keep the peak firmly in sight 

At times it felt like we were moving in circles and it was difficult to make time for this ambitious extra-curricular activity. However, we were driven by a greater purpose – to help future INSEADers access world-class education regardless of their financial situation. This played an important role in keeping the flame alive.

After a successful launch in June this year, we are now working towards our next NFT drop of Savvy Salamanders in December. We look forward to expanding and increasing engagement with our alumni and helping position INSEAD as the business school for the world – and possibly even the metaverse. 

The Savvy Salamander Study Club was launched by Ferdinand Issels, Michelle Yu, Joning Lee, Jack Ni and Rodrigo Perez Antolin. For additional information please contact Junting He and Aditya Rane who are leading the next phase of SSSC at nft@insead.edu.

The project was supported by Pascale Balze, digital@INSEAD; Sandra El Dakkak, digitalinsead, Holman Chin, Executive Director of Campaign and Advancement at INSEAD; and Peter Zemsky, Deputy Dean of Innovation, Eli Lilly Chaired Professor of Strategy and Innovation at INSEAD.

Are you an MBA student interested in taking part in our NFT for Good competition? Gather your perfect team to solve a real product problem. Register here.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: The Coming of Age of Humanitarian Logistics
“It was 20 years ago, today…” goes the famous opening line of the Beatles’ magnum opus Sgt. Pepper’s Lonely Hearts Club Band. It is indeed some 20 years ago that we saw the birth of humanitarian logistics as a necessary and respected discipline in practice, and a subject of study in academia. Admittedly, there were excellent and experienced humanitarian logisticians or “loggies” before that time, but the rest of the organisation often viewed logistics as the rather simple (but too expensive) operational task of bringing stuff from point A to point B.

Evidently, given the sometimes-rough field conditions, the delivery of supplies was not always a piece of cake. Many loggies were guys (yes, sorry, almost all guys) who could entertain you endlessly with cowboy-like stories late at night at the bar. These very motivated professionals had mountains of experience but little training and systems to support them. Much of their work could be described as improvisation or even “performing miracles”. Humanitarian organisations, including the big players like the UN agencies (or “UN sisters”), did not consider logistics to be a crucial function where investments were badly needed.

Consequently, little management attention and resources were allocated to develop logistics and the function was hidden somewhere very low in the organisational hierarchy. Not surprisingly, the humanitarian world was eventually hit with the reality that logistics is a crucial function. This realisation occurred after organisations were heavily criticised for below-par response to a number of major sudden-onset disasters. Only then did people realise change was necessary.

The professionalisation of humanitarian logistics

In spite of the growing pains, logistics is a well-respected function today and typically sits relatively high in the organisational hierarchy. Most organisations pay attention to the need for logistics professionals, including processes for hiring, training, and retention, as well as adequate systems for preparedness and response. A lot remains to be done, but there is a solid bedrock on which further progress can be systematically built.

Today, logisticians in the humanitarian sector are well-trained experts, capable of adapting and applying concepts from the commercial and other sectors to their specific context. We have seen the emergence of professional logistics associations like the Humanitarian Logistics Association (HLA), as well as training programmes (whether internal or at academic institutes) playing an important supporting role. Researchers have developed methods and insights to support system design and decision making. Humanitarian operations have become “Better, Faster and Cheaper”, as envisioned in the former slogan of the International Federation of Red Cross and Red Crescent Societies (IFRC).

Are we there yet?

It is truly amazing to see how much progress has been made in two decades. But beware, not evolving is tantamount to going backwards. Bigger organisations as well as professional associations like the HLA have a clear role to play in helping smaller organisations that lack resources to develop a full-fledged logistics function. Moreover, while logistics has progressed enormously within the humanitarian sector, the world has also changed fundamentally, in terms of technology, funding, protracted disasters, pandemics, war and climate change. Once again, there may be a lack of management understanding of the key role of logistics.

Are we at a point where logistics always has a place where key strategic decisions are made? I am sure you will agree that we are not quite there yet. The next logical question is what is required? First, just like in commercial companies, logistics needs to be strongly connected to the other managerial functions and responsibilities within the organisation. It should also be on par with them and not isolated or considered inferior.

Second, one needs to realise that one cannot do things alone; there is a strong need for partnerships and specialisation in supply chains. For instance, why should every organisation have its own fleet? Can’t we think about mobility and set up sharing systems, at least for some of our needs?

Third, how do we ensure the efficient and effective use of technology? In many cases, data is still the main challenge. Effective data gathering and sharing is needed as modern data analytics can provide useful insights. Similarly, AI can help forecast future needs, which is particularly urgent in the face of climate change. The list goes on. This is no time to rest on our laurels since we could easily find ourselves in the same situation as 20 years ago.

The need for a paradigm shift

A mindset change on supply chain management is key – namely a shift in view from a largely internal operations optimisation function to a function critical to organisational success. Inputs from robust supply chain analyses should drive important decisions on funding, technology, partnerships, collaboration, specialisation and so on. Supply chain management, anchored in logistics, should be a driver, not a supplementary function. Of course, organisations need to attract and develop supply chain experts with the managerial skills to leverage logistics know-how by influencing important strategic organisational decisions.

Logistics today finds itself at an important juncture, much like 20 years ago. It needs to evolve into a driver of important strategic decisions within the organisation, such as investments in data analytics, technology, sharing platforms and partnerships. How do we decide which key competencies to focus on that can be sold as a service to become a source of income, and how do we decide what to outsource?

Covid-19 has clearly shown that the world is a very complex and highly interconnected system. This system complexity has hit the humanitarian world in the face. Addressing complex systems requires a different approach and a willingness to align many stakeholders. The problems are so huge that we cannot even dream of having sufficient resources. We can’t do it alone, and instead depend heavily on the decisions of others. There is simply no other way than to collaborate with our humanitarian, commercial, or academic partners.

Humanitarian activities can be inclusive and sustainable

Evolution and progress mean that it would be wise to pay more attention to diversity, such as women in leadership positions and the empowerment of locals. Equally important is the need for collaboration with external as well as internal stakeholders, which can be greatly enhanced with technology. Finally, we cannot ignore the importance of reducing the environmental footprint of humanitarian actions.

Just like 20 years ago, I am strongly convinced that the current cohort of logistics and supply chain experts are ready to tackle new challenges. It is no longer about logistics as an operational execution function, but rather, about supply chain management, where the emphasis is on management and a more integrated strategic perspective.

Logistics has built the expertise. It is time to leverage this expertise to better manage supply chains, help drive important change in our organisations, and ultimately, improve the lives of the people whom we set out to help.

This article is an adaptation of an article published on the HLA website as part of the 'Health and Humanitarian Logistics' series in the lead up to the Health and Humanitarian Logisitics Conference. 
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Countering Climate Change With “Greener” Economics
“Spending more money” has long been seen as an equitable reward for the creation and accumulation of wealth. But, as I have argued in my work spanning more than six decades, how we make money is more important than how we spend it. If the goods and services that we produce leave behind a vast trail of waste, this can easily outweigh their benefits to society and ultimately make the world a poorer place, not to mention a more perilous one.

Humans are producing more waste than ever before. The oceans are a plastic dump and industrial pollution is choking the air. We are injecting massive amounts of fertilisers to make plants grow and neglecting the toxic consequences for freshwater aquifers. Life-sustaining tropical forests are being destroyed to clear land for logging, cattle raising and livestock. The consequence of that is loss of habitat for many species of animals and birds that we – and our children – would like to preserve.

Alarmingly, some well-known economic models predict that global warming of the planet by a couple of degrees Celsius can be “accommodated” by the economy as it is. These models predict that GDP would decline only very slightly if global temperatures were to rise by two degrees. These scholars dangerously underestimate the impact of climate change on all industries and our economies.

Exergy is what matters

We know that climate change is mainly a consequence of carbon dioxide accumulating in the atmosphere. The combustion of fossil fuels like coal, petroleum and natural gas is the main culprit. One of the reasons the levels are so high is because of our inefficient use of energy from nature. This is where the notion of exergy comes in.

All transformations on earth require exergy to be “activated”. This is the share of energy that can be put to productive use, i.e., to do “useful work” (overcoming inertia) in the engineering sense, like pumping water, lifting weights or propelling a ship. Exergy comes directly from the sun as photovoltaic electricity, indirectly as power from falling rain and flowing water, or as biomass from photosynthesis.

Exergy is the fundamental and unique “factor of production”: it is the only “substance” that is needed to drive any transformation of material inputs into material outputs. According to the first law of thermodynamics, materials can be transformed, but do not disappear. All possible transformations are driven by the dissipation of exergy; therefore transformations consume exergy to perform useful work. The second law of thermodynamics tells us that degraded materials can be recycled (by consuming exergy) but the degraded exergy cannot be used again.

Economists need to consider externalities

While some raw materials are replenished by natural processes, many scarce elements are not. Not only are we using – but not recycling – finite natural resources, our current industrial production processes are leaving behind dangerous wastes. If these are not effectively disposed or detoxified, they will impose an increasing cost on our children and grandchildren. These costs were labelled “externalities” in a paper I published with Allen Kneese in the American Economic Review more than 50 years ago.

In this now widely cited paper, we argued that economic models need to recognise the harmful by-products of consumption and production, such as wastes and emissions, in a total cost framework. We argued that the benefits of current activities should always factor in hidden future costs. The most obvious, but not the only example, is the cost of climate change.

Five decades later and counting, economic theorists have not sufficiently adjusted their mindsets and models. This is concerning as policymakers rely on those theories for policy decisions. As a result, governments have still not implemented regulations to seriously clamp down on the externalities associated with exergy consumption. This negligence has hindered the necessary transition to sustainability and has further fuelled the climate crisis we are now in.

Our economy is an “island of order” far from equilibrium

Current economic models, based on ideas dating back to 1870, generally consider the economy as a closed system where everything produced in the system is consumed in the system. In such an equilibrium, all economic activity can continue forever without anything changing. The economy works like a Swiss clock that does not need rewinding.

Such models incorporate three false axioms that have catastrophic implications. First, at the input stage they do not take into account the “free” contributions the earth makes to the economy through nature’s recycling capacities. Second, they assume that the global economy is always approaching equilibrium. Growth in equilibrium is thermodynamically impossible.

Third, existing models do not consider all of the externalities generated by decisions regarding transformations, from production to consumption of end-products. Hence, they ignore waste accumulation in the atmosphere or in the oceans.

Instead of thinking about the economy in terms of sustainability, it is more accurate to describe the economy as an “island of order” that exists far from both thermodynamic and economic equilibrium. This is in line with the views of physical chemist Ilya Prigogine, who received the Nobel Prize in Chemistry in 1977 for his work.

The economy is a living, dynamic system, in constant evolution and seeking order at the cost of introducing greater complexity and interconnections.

Exergy as the main driver of economic growth

Neoclassical economists consider capital and labour as the key “factors of production”, even though most work converting raw materials into useful products is done by machines driven by exergy. Without accounting for exergy, it is as if the economy is unaffected by energy constraints. It also incorrectly implies that energy-related emissions, such as greenhouse gasses, can be reduced or eliminated without consequences for growth.

In previous studies, Benjamin Warr and I demonstrated that exergy is crucial for predicting economic growth. By analysing the energy inefficiency of economies like that of the United States, we demonstrated that energy consumption can explain the part of economic growth that was typically (and magically) attributed to endogenous  “technological progress". Our view is that a country’s output over time is limited and should be explained by the flux of exergy captured from various sources that is needed for the economic system to deliver its goods and services.

Unfortunately, knowing that exergy has always been at the source of economic growth does not tell us much about the future. We need to know how much will be used for space heating, mining, manufacturing, transportation, distribution, agriculture, health services, education, entertainment, defence, law enforcement, IT and so on. And this hugely depends on the conversion efficiency of energy into exergy. Only then can we estimate the future rates of growth and energy inputs per unit of output produced in each sector, in each country.

Cutting greenhouse gas emissions is important, for climate reasons, and the world increasingly understands this. What we don’t fully realise is that energy efficiency is likely the central strategy for economic growth in the future. We can see that space heating and transport are obvious opportunities for increasing efficiency. Vertical farming is one example of how built-up cities can reduce the environmental impact of agriculture and improve its energy efficiency.

The harsh reality is that if we continue along the current path of extremely inefficient energy use, we are headed for social, economic and environmental catastrophe. The “good” news is that because our current energy efficiency is low, significant improvements are possible. We need to better rely on and exploit common renewable energy sources that electrify and energise the planet, such as solar power, wind power, hydro power and even ocean energy.

By integrating the laws of physics with economic theory and recognising the open nature of the economy, as I have outlined for the past five decades, economic theory will do a better job at counteracting the current climate crisis.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
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FROM Insead Admissions Blog: Will China’s Internet Giants Conquer the World?
You could say last year was a good year for China’s internet titans. E-commerce behemoths Alibaba and JD.com notched a record US$139 billion in sales on Single’s Day, the world’s largest shopping event. Social media phenomenon TikTok, owned by Beijing-based ByteDance, was the world’s most downloaded app, overtaking previous favourite https://gmatclub.com/chat. Tencent, the biggest social networking and gaming company in China, reported a 16 percent year-on-year rise in revenue, to 560 billion yuan.

Behind the glittering numbers, however, dark clouds loom. The Chinese domestic market is slowing amid Beijing’s zero-Covid policy and frosty relations with the United States. The government’s crackdown on the tech sector may have eased, but tighter regulation appears here to stay. Despite the tough environment, Chinese internet firms have their sight set on going global. From e-commerce (Alibaba and Pinduoduo) to social media (ByteDance) and fashion retailing (Shein), Chinese players are planting stakes around the world and shaking up more established rivals in the process.

Fast fashion retailer Shein, for example, was valued at US$100 billion in a funding round in April, more than H&M and Zara combined. Founded only ten years ago, Shein now sells in 150 countries including the US, where it is the dominant fast fashion player.

How did China’s tech firms get to where they are today? What are their competitive advantages? What are their global ambitions and can they achieve them? What lessons can companies, entrepreneurs and executives draw? How should they respond? These are the questions various audiences and clients have asked us.

We answer these questions, and more, in our new book, Seeing the Unseen. It combines insights from our research and expertise, as well as more than 300 hours of interviews with investors, entrepreneurs and executives with intimate knowledge of Chinese internet companies’ global ventures. In this article, and another one to be published in the weeks to come, we share snippets from the book that outline the key factors behind the phenomenon and the takeaways.

Beyond the “996” culture

Alibaba’s rise has long been the stuff of legend. In just 15 years, the company went from a scruffy B2B online marketplace to launching the largest IPO in history at the time, claiming the scalps of Amazon and eBay in China along the way. You would have heard of Alibaba’s notorious “996” culture – working from 9am-9pm six days a week. Then there’s the tale of how founder Jack Ma persuaded Japanese investor Masayoshi Son to invest US$20 million in his then-unknown company by being “a little crazy”. But the success of one of the world’s largest companies and valuable brands, as well as that of its contemporaries, is much more complicated than that.

We are all shaped by the environment and circumstances we live in. For China’s internet giants, success was forged in the breakneck changes that the country experienced in the space of a generation. The razing of large swathes of Chinese cities in the early 2000s to make way for high-rise apartments and planned communities, the construction of transport and telecommunication networks and the penetration of mobile phones paved the way for e-commerce, food delivery, new retail and many other business models. A national market in which tech entrepreneurship could scale quickly was born.

But an even more profound change in society planted the seed of homogeneity that led to the rise of internet giants. The tumultuous initial years of the People’s Republic, notably the decade-long Cultural Revolution, swept away the traditional social hierarchy and powerful vested interests. In effect, the Chinese Communist Party cleared the slate for more than a billion people to speak the same language (standard mandarin), receive the same education (nine years compulsory schooling), and watch the same entertainment programmes.

China is now a gigantic, homogeneous market of astounding purchasing power. The government’s promotion of “mass innovation” and “mass entrepreneurship” as well as a hands-off approach to regulation (until the 2020 crackdown) provided further fillip to the emergence of Alibaba, Tencent and their contemporaries.

Mao the start-up strategist

That’s not to say their success comes from simply being in the right place at the right time. For every business model in China, there are hundreds, even thousands of competitors. Success depends on having the right strategy and deft execution of said strategy.

Some entrepreneurs we spoke with called the Chinese Communist Party a great start-up success story. They were only half-joking: We know of many entrepreneurs who read the five-volume Selected Works of Mao Zedong, seeking to glean the art of warfare from a studious peasant’s son who led an impoverished army to triumph against more established and equipped enemies.

Ideology aside, Mao’s tactical brilliance, as it relates to entrepreneurship, lies in knowing when to engage in guerrilla or mobile warfare. Astute commanders deploy guerrilla tactics that make the most of their limited troops when they face an overwhelmingly strong enemy, and switch to mobile warfare – in which troops are constantly on the move and wipe out entire enemy units one by one – after gaining strength.

E-commerce upstart JollyChic and logistics firm J&T apparently imitated Mao’s taste for stealth. The companies quickly and stealthily became major players in Saudi Arabia and Indonesia in recent years, unsettling entrenched local incumbents, without giving much away. None of their senior executives had LinkedIn profiles or had even been interviewed by the media. Shein likewise snuck past more established rivals to take the American market without fanfare. The latest example is Pinduoduo, the upstart e-commerce player that quietly launched a US online shopping site earlier this month in its first major venture overseas.

Mao also knew his “market” well. Instead of copying the Russians’ strategy of rallying urban workers to protest and seize power, Mao’s communists set up bases in the Chinese countryside to build support and amass followers before launching swift and decisive attacks on cities.

Inspired by Mao’s grassroots strategy, Alibaba built its ecommerce empire from the bottom up, focusing on low-priced products and individual sellers in the customer-to-customer segment in its initial years. As it gained scale and efficiency, the company moved up the value chain to build the brand-focused Tmall. Other rivals have latched onto a similar strategy, including Pinduoduo and online services seller Meituan.

Copying, innovating and going the extra mile

Chinese firms are, of course, notorious for copying. But what many foreigners did not (and perhaps do not) realise is that Chinese players ruthlessly copied products and business models not just from the West but also one another, and they did so with breathtaking intensity.

Case in point: When Groupon ventured into China in 2010 with its group buying business model, thousands of group buying websites including Manzuo, Lashou and Meituan sprouted in China almost overnight. The American firm’s first merchant partner defected on the eve of the launch of their collaboration, lured by Lashou’s better offer. Groupon’s European managers barely knew what hit them. By the end of 2011, Groupon’s China foray had fizzled out.

Similar stories of cut-throat competition played out across sectors and business models in the decade that followed, including ride hailing, O2O (online to offline), bike-sharing, live-streaming and cross-border e-commerce. Copying even extended to technologically sophisticated realms such as smartphone manufacturing, artificial intelligence, face and voice recognition, virtual reality and electric vehicles.

Mere imitation, however, is not enough for Chinese firms to survive and thrive; they also need to iterate relentlessly to meet customer needs. The result is incremental innovations that as a whole drive entire sectors to evolve rapidly. For example, smartphone manufacturers came up with a mobile phone with seven stereo speakers for construction workers and another one that could last a month without charging for travelling salespeople.

Another key success factor is Chinese firms’ extraordinary commitment to customer satisfaction. Former and current executives of Huawei told us how the telecommunications equipment maker and its rival ZTE one-upped foreign competitors.

“Huawei and ZTE recognised that their products were inferior [so] they decided to compensate for that disadvantage with better services and fast problem solving,” said a former executive. The chief technology officer of a large consumer internet company told us that whenever they experienced network problems, Huawei’s service engineers would rush onsite without any fuss even though Huawei equipment might not be responsible for the glitch.

In exploring the context and broad strategies of the rise of Chinese internet firms we are faced with even more questions. How do these companies decide what product to offer in overseas markets and when and how to enter? What resources and managerial attention will the firms need to invest in new territories? How will they recruit strong lieutenants to operate and tackle the challenges of global expansion?

The next article on our book will focus on the nuts and bolts of Chinese internet firms’ overseas strategies and challenges. Watch this space.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Thinkers50: The Upside of Uncertainty
Most of us have probably been grappling with uncertainty over the past couple of years. But while Covid-19 may have upped the ante, ambiguity has always been a hallmark of life – and will continue to be long after the pandemic is over.

Is there a way for us to feel less uncomfortable with or afraid of the unknown? And are there tools we can use to help us navigate the great abyss? Such was the topic of discussion at a recent Thinkers50 webinar moderated by Thinkers50 co-founder Des Dearlove, in which Associate Professor of Strategy at INSEAD Nathan Furr and entrepreneur Susannah Harmon Furr spoke about their book The Upside of Uncertainty.
The book was born out of a salient observation made from interviewing innovators over two decades: to do anything new, they had to endure a period of uncertainty. In their book, the authors expand on specific tools that everyone can employ to deal with the uncertainty that pervades our modern world.

“What I’m interested in is [if this book is reaching] the human inside the manager,” Harmon Furr said. “Uncertainty is too wily, it’s too shifty, it’s changing all the time. You’ve got to be surrendering to it.”

Two sides of the same coin

Furr and Harmon Furr began by pointing to the World Uncertainty Index – a measure of political and economic uncertainty – which shows a rising trend since the 1990s. “You could view it as all-terrifying, and some of it is. There’s no doubt that some of these political and health-related uncertainties have massive downsides [and] we’re not trying to downplay that,” Furr said.

“It made sense for our [ancestors as] unknown things were potentially life-threatening,” added Harmon Furr when asked why we’re all so unnerved by uncertainty. “[But] we’re living in a world now where the dangers of trying things are so much more reduced. That [evolutionary] wiring that would hold us back is really why we don’t do it.”

Uncertainty, the authors stressed, also has an upside. Rather than falling into the trap of merely seeing it as negative, they invited the audience to look for a silver lining. Although uncertainty presents risks that are often associated with failure, it can also be the gateway to opportunity and possibility.

“Uncertainty is actually the moat that protects entrepreneurs,” Harmon Furr said of its unique value to innovators. “If it was just so obvious, we’d all be racing to the same thing at the same time.”

Tips for dealing with uncertainty

The authors introduced a set of tools to help people develop the ability to cope with uncertainty. These are clustered into four phases: reframing, priming, doing and sustaining.

The first tool, reframing, challenges us to change how we view uncertainty. Among the suggestions was to see life as an infinite game, in which the goal is to experience life for what it is rather than as something one needs to win at. Relatedly, they brought up fixed vs. growth mindsets, and how the latter lets us approach uncertainty with more playfulness and ease.

Second, “priming” involves establishing routines that enable us to deal with the unknown more effectively. This includes “uncertainty balancers” that offset ambiguity in other areas – such as wearing the same outfit each day or surrounding yourself with people that act as a grounding force. Responding to a question about how uncertainty affects long-term planning, Furr recommended preparing ahead for a variety of possible scenarios – while remaining flexible – as a strategy to mitigate the negative impact of uncertainty.

When it comes to “doing”, the pair advocated a value-based approach rather than a goal-seeking perspective. While goals are external factors that we often have less control over, values are internal principles that can remain steadfast despite periods of upheaval.

Finally, “sustaining” relates to paying attention to ourselves, our teams and our organisations in the face of inevitable setbacks and frustrations. Besides attending to our emotions (emotional hygiene) and taking stock of what’s around us (reality check), another key element of the sustaining phase is making space for magic – moments of serendipity, flashes of insight or instances of pure luck that arise out of uncertainty.

“[It’s about] trusting when we have those flashes and not dumbing them down, trusting those whisperings that are waiting for us,” said Harmon Furr when about how to access this part of the process. “When we are more aware that they exist, [they will] happen more, and they can get us onto a new path.”
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Affordable Homes for the Poor Can Boost Collective Well-Being
When Covid hit and millions were suddenly forced to work from home, many predicted that a silver lining might be a mass exodus to the suburbs and countryside, thereby helping to tame buoyant home prices in cities. They couldn’t have been more wrong.

Fuelled by ultra-low interest rates, a savings glut and a yearning for bigger spaces, homes prices have surged in most major economies, outpacing income growth. Rate hikes this year have cooled the rally somewhat, but it is feared that by 2025 some 1.6 billion people will lack adequate housing.

National and local governments in Europe and the United States have introduced rent regulation in major urban centres including Berlin, Paris and Dublin with varying degrees of success. But the measures are often divisive, pitting tenants against landlords and investors and, in Sweden, even unseating a prime minister.

Given what is at stake, economists have scrutinised rent stabilisation and control measures for their impact. Studies show that these measures deter landlords and investors from entering the market, reducing housing supply and paradoxically increasing prices and rentals. Experts therefore tend to recommend supply-side policies, like the construction of high-rise apartments to increase availability of affordable housing.

Focus on well-being instead of housing supply

However, these studies tend to focus on how rent policies distort the market. Moreover, the prevailing solution of increasing housing supply benefits the rich as well as everybody else, whereas the poor would benefit more from targeted measures, especially in cities with high levels of inequality.

What if, instead of their impact on the housing market, rent policy measures are evaluated for their impact on a more fundamental metric: well-being? For this reason, my co-authors* and I created a model to simulate and assess housing affordability policies in any given locale, ranging from rent stabilisation (RS) – which is a cap on annual rentals hikes – to housing vouchers.

Using real-life data from the New York metropolitan area, we found that the policies improve average well-being, measured in terms of annual consumption of goods and housing, largely by guaranteeing lower-income residents a roof over their heads. The net welfare gains generated by affordable housing measures are substantial enough to outweigh the misallocations in labour and housing markets observed in previous research.

Our model is novel for factoring in income precarity and risk. In other words, if people have unstable incomes or are at chronic risk of losing their jobs – which is unfortunately common in large cities – then affordable housing policies that help them keep their homes are valuable. This is especially so given that most people are risk-averse, i.e. they dislike having to change their housing consumption like moving to a smaller apartment.

Rent stabilisation and the city

Cities draw people from all walks of life with job and educational opportunities as well as an array of lifestyle and cultural amenities. To understand the effects of affordable housing policies on diverse urban populations, my co-authors and I built our model to capture essential features of the housing market: house prices, rents, construction, labour supply and output, income, wealth inequality, and the location decisions of households. With the right inputs, the model can be used to study any city.

We calibrated our model to the New York metropolitan area and conducted five experiments. In the first, we increased the number of RS homes i.e. housing for which rent generally cannot rise above a few percentage points each year. In real life, RS covers as much as a third of apartments in New York, with another one-third transacting at market rates and the remaining third occupied by owners. Our model shows that if RS housing is increased by 50 percent (by square footage), it will increase low-income households’ access to stable housing. In turn, New Yorkers’ average welfare will increase by a substantial 0.91 percent.

But this policy is not without costs. RS housing units are typically older, smaller and often allocated without means testing, which means they sometimes go to people who can in fact afford to live in non-RS, bigger apartments. Suppressing rent also inevitably weakens incentives to construct and maintain housing while driving up prices of market-rent units. As a result, some professionals and highly skilled workers may be forced to live in the cheaper suburbs and waste time on commuting to the city centre.

Next, we tested two measures that might offset the above-mentioned misallocations. The first is a more targeted approach that income-tests every RS tenant periodically to ensure more RS units go to people who in fact need them. However, we found that income testing reduces incentive to work since earning more may disqualify one from RS housing. And, because some long-term RS tenants are replaced by (needier) new tenants, the average subsidy is smaller as new RS tenants get much smaller rent discounts. All told, this policy delivered substantial welfare gains of 0.66 percent.

The next policy simulation relocates all RS housing from the urban core to the suburbs. Unsurprisingly, the result is gentrification of the city centre with fewer but higher-income residents, larger apartments and increased home ownership. Viewed in a positive light, this means more high-skilled, high-productivity households can live in the heart of New York, contributing more to the city’s output than lower-productivity households.

The flip side is the marginalisation of low-income households to the suburbs. Not only does this lead to segregation of the haves and have-nots, a large part of the population also miss out on amenities – museums, theatres and the like – available only in the city centre. In all, average welfare increases by a comparatively modest 0.25 percent.

Our fourth policy experiment increases the amount of housing available to everyone – not just low-income residents – by easing land-use or height restrictions on housing construction in the city centre. Rents fall across the board as a result. However, because the measure generates only a modest improvement in the plight of low-income households, the aggregate welfare of the population rises by a mere 0.11 percent.

Voting with their feet

Interestingly, giving an additional US$800 million in housing vouchers, essentially cash transfers, to low-income households produces no welfare gain in our model. Any benefit generated is offset by higher taxes introduced by the authorities to fund the expenditure. This causes some high-income residents to move away, necessitating even higher taxes to finance the same expenditure, in turn driving out more wealthy residents, and so on. The outflow, meanwhile, triggers a drop in the housing stock, resulting in higher rents.

Our model can be a useful tool for policy makers investigating the benefits and costs of various rent stabilisation measures for their cities. While there is no one-size-fits-all solution, one thing is for sure: Rent stabilisation policies can be a net positive for average well-being in unequal cities such as New York and Seoul after the associated risks and efficiencies are accounted for (though perhaps less so in more equal cities with vast social safety nets). By assuring financially precarious residents of housing stability over the long term, such policies ultimately give more than what they take away.

*Jack Favilukis, UBC Sauder School of Business, and Stijn Van Nieuwerburgh, Columbia Business School

 
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: The Pandemic Has Dealt a Blow to Gender Balance
In early 2020, when news first broke of a mysterious virus circulating through China, INSEAD alumna Jolanda* found herself in “a perfect storm,” she says.

At the time, the senior HR leader was working for a multinational company that was divesting its Asian business. When it became clear that Covid-19 posed a serious threat to Asia’s economy, the company accelerated those plans, laying off 60 percent of its corporate employees – most of whom were women working in Asia, Jolanda says. She was one of them.

Soon after, the borders in Singapore – where Jolanda lived with her husband and eight-year-old daughter – closed, and schools transitioned to remote learning. The isolation took a toll on Jolanda’s daughter, who began suffering from sleepless nights, meltdowns and disordered eating. While addressing her daughter’s needs, Jolanda did her best to embark on a job search. But few companies were hiring. Meanwhile, Jolanda’s husband was consumed with a high-pressure job on the frontline of Covid-19, placing the weight of caregiving on her shoulders.

As the stressors mounted, Jolanda began questioning herself. “You feel like you’re a failure as a professional and a mother,” she recalls. “You think, ‘Really, what’s my value? What’s my worth?”

The norm, not exception

Jolanda’s story is one that has played out all too often during the Covid-19 pandemic. Indeed, it aligns with several key findings from our latest Alumni Impact Survey, which captured the opinions and experiences shared by more than 6,000 INSEAD alumni between February and April 2022.

Results from the survey show that during the pandemic, layoffs have impacted nearly twice as many women (5.3 percent) as men (3.6 percent), with women with caregiving responsibilities being the most affected by layoffs. Among alumni living with family members requiring care, 6.3 percent of women were laid off, compared to 3.3 percent of men. The survey also found that time spent by women on domestic labour increased more than that by men during the pandemic, regardless of age and employment status.

On the one hand, these results are not surprising. Gender disparity in the workplace is well documented, particular in terms of gender gaps in pay and leadership. Due to social norms, women continue to serve as the primary caregivers at home and perform the bulk of unpaid labour. These issues reinforce the systemic web of challenges that continue to hold women back in business and society.

On the other hand, these results are surprising when you consider the population that it reflects: INSEAD alumni, a relatively privileged group of highly educated, highly intelligent and highly successful professionals. These results also challenge the theory that layoff and resignation disparities are due to differences in the types of work men and women do, given that our female and male MBA are equally qualified.

The takeaway? Not only has progress towards gender parity slipped during the pandemic, some organisations have reinforced inequities by laying off women with caregiving responsibilities. Moreover, it’s clear that INSEAD alumni are not immune to this problem.

Recommendations for leaders

The good news is, global business leaders – namely, INSEAD alumni – have the power and influence to reverse the tide on gender balance. Here are five ways leaders can take small steps toward achieving gender parity.

1. Pay attention

Blind spots happen when a busy executive doesn’t pay attention to the dynamics, causes or consequences of gender inequality. For that reason, leaders must carve out time and space for learning, reflection and engagement on issues of gender balance. During 21 to 23 September, for example, INSEAD’s Dean Ilian Mihov attended the UN HeForShe in New York City, a sign of our school’s continuing commitment as a HeforShe Alliance member in driving specific outcomes in gender balance by 2023. Talking at the event, Dean Mihov reaffirmed the importance of global initiatives such as HeForShe in helping to ensure continued awareness of these ongoing issues.

2. Perform equity audits

Regularly auditing gender equity, focussing on pay and representation, is essential. The time to do this is now. In particular, businesses should scrutinise the profiles of the highest paid employees and consider the numeric representation of women across different levels of seniority. These data can help build a strong case for reprioritising diversity, equity and inclusion (DEI) efforts that may have moved to the backburner during the pandemic.

3. Question norms and practices

It would be wise for CEOs, especially male ones, to critically evaluate how their organisation operates and behaves with respect to gender balance. Key questions to ask include: How does my organisation treat people with caregiving responsibilities? Does our culture accept employees who have lives beyond work? What safeguards are in place to support working parents?

4. Guard against women getting fired or “opting out”

As our research indicates, leadership development does not protect women from getting laid off or pushed out of the workplace. We need male and female leaders involved in these decisions to guard against these outcomes. In part, this involves actively working against unconscious biases that can creep in during hiring and firing processes.

5. Create equity contracts

As my colleague Jennifer Petriglieri wrote in her book Couples That Work, dual-career couples should create an equity contract that addresses three important issues: values (What matters most to you?), boundaries (What would you never want to do?) and fears (as opposed to phobias). Discussing these issues openly helps couples set boundaries and achieve a more equitable balance of parenting and career.

Putting experience to work

Good news about Jolanda: After plugging forward with her job search, she landed on her feet with not one, but three job offers. Today, she leads DEI efforts for an organisation whose workforce is mostly women – a role that has further increased her awareness of gender balance, among other DEI issues.

Women “carried the Covid-19 crisis on their backs and still have not fully come back personally or professionally to pre-pandemic levels,” Jolanda says. “In that sense, the gender agenda has regressed.” To chip away at this problem, she is focused on addressing inequity at the systemic and structural level, pushing for frameworks that keep decisionmakers accountable.

“So, when layoffs were considered, did we ask: What DEI lens was used and applied? What representation mix did you look at? Was it cultural? Was it men versus women? Was it senior level versus junior level? For any framework to work fairly, it must have an element of equity built in.”

She continues, “If we don’t address structural inequity, it will continue to perpetuate. It’s always the people with the least power, the least inclusion and the least decision-making who will suffer the most.”

Jolanda’s advice to act against inequity resonates strongly. I personally encourage all leaders to consider their own current and potential reach of impact and engage with the tough questions that will enable us to improve our organisational and societal systems for the future.

*Name has been changed to protect privacy.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Why the World Is Attracted to Neo-Authoritarian Leaders
Centuries ago, Jewish mythology warned of a primordial sea serpent – the Leviathan – so monstrous an embodiment of evil that it challenged the very presence of God. According to the scriptures, a force no less powerful than God would be required to destroy this horrible creature and restore the natural balance of the world.

With the passage of time, the symbolic meaning of the Leviathan morphed in oddly conflicting ways. It came to stand for God’s own power of creation, a dark force, an avatar for chaos and anarchy, a beast of Satan, willful ignorance, the unabashed abuse of power, and even flat-out authoritarianism.

In the 17th century, philosopher Thomas Hobbes put forward the idea that the world needs a Leviathan to preserve the peace. For Hobbes, the Leviathan served as a metaphor for the ideal state, a commonwealth in which the masses – chaotic, selfish, and sinful by nature – could be united under a single sovereign power, wielding nearly unlimited authority.

Fast forward to today, and it is clear that Leviathan-like leaders remain and are on the rise. While the United States has been released from the grip of Donald Trump (for now) many countries are still ruled by Leviathans. The non-exhaustive list includes Russia’s Vladimir Putin, China’s Xi Jinping, Saudi Arabia’s Mohammed bin Salman, Turkey’s Recep Tayyip Erdogan, Belarus’ Aleksandr Lukashenko, Hungary’s Viktor Orban, India’s Narendra Modi, Brazil’s Jair Bolsonaro, Myanmar’s Min Aung Hlaing and Venezuela’s Nicolás Maduro.

Of course, these leaders do not rise in a vacuum. It is the people who enable them, support their growth, and even cheer them on. But why are humans attracted to these rulers who carry the Leviathan’s dark force?

The pathological lure of the neo-authoritarian                                          

When people are fearful about the future – socially, economically, and environmentally – they regress into a dependency position looking for someone to guide them. Thus, not surprisingly, they are drawn to "miracle workers” who offer quick fixes. These leaders’ approaches to governance are dangerously Leviathan in nature.

Unlike dictators such as Hitler, Stalin or Mao, contemporary Leviathans use methods that aren’t explicitly draconian. Rather than resort to overt, excessive violence, they rely on deception and seduction to ensure the obedience of their subjects. In this respect, they can be described as neo-authoritarians.

While some neo-authoritarians tout themselves as defenders of democracy, in reality they exploit the system to police every area of their subjects’ lives and maintain their powerbase. In doing so they create a phantom democracy. What makes their behaviour so sinister is their ability to frame their agenda as a product of “freedom of choice”. For example, elections appear to be a legitimate expression of the people’s will, yet results are manipulated or even pre-determined by convoluted political frameworks.

Another salient feature of their modus operandi is their twisted use of the law. Neo-authoritarians selectively apply the law when they need to fight opponents, and bend or breach it when they need protection from any threat to their power. One of their most deceptive and dangerous talents is this capacity to centralise power with pseudo-democratic processes.

The psychological ploys of the neo-authoritarian

There is no doubt that neo-authoritarian leaders are charismatic, yet beneath their veneer lurks a calculating personality with a mix of narcissistic and psychopathic traits. Void of empathy and morals, consumed by a thirst for personal power, Machiavellian in nature and inclined toward vindictiveness, these leaders have the capacity to inflict profound human suffering without feeling a thing.

In their efforts to rise to power, such leaders deploy certain psychological tactics:

They present themselves as defenders of the common people, who are often depicted as victims.
They skilfully use the media to manipulate their followers and make a point of staging large-scale public events where they position themselves as the unifying celebrity.  

They are masters at inventing ideologies, religious or otherwise, to cement their powerbase and justify their policies.
They create an illusion of choice during elections as a way of maintaining their powerbase.  They don’t tolerate dissent and have no qualms about disqualifying or even imprisoning opponents.
To assure their hold on power they become dependent on cronies, family members, the military and the police.

They are very talented in seducing the members of the emerging middle class by using financial incentives and status-based symbols.

When faced with a restless population, neo-authoritarians point out external threats to justify their existence. Of course, waging war will be the ultimate distraction.

The question before us

Human beings will always struggle with the need to be led and the desire to be free. And while most people claim opposition to any kind of demagogue-type leader, they can easily fall victim to the pathological desire to be led and controlled.

In the United States, there are early rumblings about the 2024 presidential election and the possible return of a Trump candidacy. If such a scenario were to materialise, the US electorate would once again face the lure of the Leviathan – an embodiment of evil capable of destroying the very balance of a world where people have the freedom to speak their mind. If such a candidate were to emerge in the US or elsewhere, would we proceed informed of the dangers, or would we be deluded by the pathological lure of the Leviathan? That is the question before us.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: The Hidden Power of Workers From Humble Backgrounds
Growing up playing in the mud around Manila’s rice fields, Joy was blissfully unaware of the fact that she was poor. Her father was a farmer and her mother a bank worker, enduring an existence they hoped their daughter would escape.

It was only when she received a scholarship to a top university in Manila that Joy realised just how poor she was. Despite this obstacle, she found the more she mixed with fellow scholarship and international students, the more her confidence bloomed. As her self-belief prospered, it kindled her ability to dream.

When Joy was selected to join Nestlé’s management trainee programme, she had to take on a part-time job to support her extended family. In her second company, Mondelez, she finally felt free. After a foray into multi-level marketing left her saddled with debt, Joy dusted herself off and returned to corporate life with renewed confidence.

Currently an MBA candidate on full scholarship at INSEAD, Joy is still plagued by imposter syndrome. But she keeps her head high and takes it all in her stride. Even if she doesn’t know what her next destination will be, Joy knows she has “arrived”.

An invisible hurdle

People like Joy, who have had less access to money, opportunities and cultural capital, face multiple workplace barriers.

Socioeconomically disadvantaged workers often face discrimination in the recruitment process or exclusion from promotions and advancement opportunities. When they do get a foot in the door, they report experiencing harassment and discrimination because of their social status.

Workers from humble backgrounds have a huge invisible hurdle to clear, and there is little assistance to help them get on or move up the corporate ladder.

While global organisations are finally paying attention to gender, racial and ethnic inequalities in the workplace – and to a lesser extent sexual orientation, disability and age – little is being done to address social diversity.

A recent study found the chances of landing a managerial role are 32 percent lower for people from lower social classes compared to people from higher social classes. The same study found the odds of becoming a manager are 28 percent lower for women than men and 25 percent lower for African-American than white workers.

People-oriented leaders

But individuals from disadvantaged beginnings have proven to make better leaders because they value interdependence and community over independence and self-sufficiency. This is a key finding in a working paper by Winnie Jiang and Amy Zhao-Ding on underprivileged female Chinese founders. The majority of participants in this study became people-oriented founders with a keen interest in empowering their employees.

Born and raised in rural, underdeveloped areas in China, the women interviewed did not possess the social, cultural and educational resources needed to start a business on their own. Nor did they ever envision themselves becoming business owners.

After they were given the opportunity and support to start their own businesses, these women either came to identify themselves as founders or gave up on their dream.

In the beginning, participants exuded excitement and hope as well as anxiety and self-doubt when imagining themselves as founders. Those who fixated on the potential negative outcomes became paralysed by fear and, as a result, were unable to fully identify themselves as founders.

However, the majority were able to abate their negative emotions, focus on self-improvement and respond with positive emotions such as a sense of competence and confidence. These individuals developed founder identities and transformed their sense of self.

Ultimately the success of these female founders depended on whether they were able to constructively regulate their negative emotions, especially fear of failure and self-doubt. The same is true for Joy, whose confidence helped her rise above her circumstances.

Addressing social disparities in the workplace

What if school curricula from the early years were to focus more on building confidence of each individual? We believe that, by the age of 14, every pupil should be able to tell their story with pride, regardless of origin, and to build on the facets of that story that make them a unique and powerful individual.

What might happen if universities went out of their way to recruit outstanding students from difficult backgrounds? What if higher education establishments took career development more seriously and connected hundreds and thousands of brilliant individuals with work opportunities that suited their needs and true selves?

More pragmatically and immediately, we should be aspiring to facilitate awareness and understanding of the business world for those from disadvantaged backgrounds.

For business leaders, these are the five actions you can take to resolve social disparities in the workplace:

Become a mentor of less socially advantaged youth, whether through your organisation or local community.

Break the bounds of traditional recruitment, look to a broader talent pool in your recruitment and challenge entrenched recruitment models organisation-wide.
Reach out to local high schools to expose the opportunity of working in your organisation and its inclusive approach.
Get to know your team members at a deeper level, including their personal stories.
Create formal and/or informal DEI-focused mentoring initiatives within your sphere of influence in the organisation. Ensure participation from all minority groups and encourage both mentors and mentees to listen and learn.

Beating the social odds is no easy feat, and the scars may never leave those who dare to dream. At the end of the day, we all need to be a little more observant of how those around us may be struggling to fit in and make an effort to open our arms and our minds.

Read an extended version of this article.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Why Communication Breaks Down
Even if individuals are highly motivated to work together, they aren’t always able to do so effectively. That's because communication remains a key challenge. The human ability to communicate what’s in the mind is miraculous; no other species does it with as much richness. Even so, we don't do it perfectly.

Communication is the grease that ensures an organisation runs like a well-oiled machine. Yet, miscommunication is persistent in our work and everyday lives. Miscommunication can range from harmless errors to tragic and costly ones. In 1999, NASA lost a US$125-million Mars orbiter spacecraft. The cause? NASA’s contractor had used English units of measurement for a key spacecraft operation, while NASA used the metric system. We each bring our own “codes” – languages, jargon and terminology – to a conversation, and if these are not the same, confusion and sometimes disaster ensues. But we can work towards becoming better communicators.

The many moving parts of communication

Communication problems tend to be complex. First, effective communication entails the interaction of many factors. The message sent by the sender interacts with how much the receiver already knows about it, whether the receiver understands the label attached to the subject, and whether the receiver can make the inference.

Second, communication is dynamic since it typically happens over time. Each time we attempt to communicate something, whether we succeed or fail, we change our understanding of the world. Learning takes place. If communication were a problem-solving game, the problem changes each time we play it.

This combination of interaction and dynamics further complicates communication. It is not simply a case of understanding language. In our study on how the nature of code differences shapes communication, we developed a model to capture both interactions and dynamics in a rigorous way to better understand communication problems. Instead of using our intuition to understand a complex problem, we depend on math – by studying the behaviour of a mathematical model in a computer program over time.

Decoding miscommunication

We compare communication problems arising from two broad types of code differences. The first type of difference arises between codes in mutually unfamiliar contexts, such as across functional departments that are likely to use different vocabularies and therefore different labels in their code. For instance, the phrase “zombie debt” is relevant for the debt collection department of a credit card business but may mean nothing to an IT worker – neither the label nor the concept is relevant.

The second type of difference arises across social groups within the same broad linguistic community and work environment. Speakers of the different codes use the same labels and are familiar with the same set of stimuli but map these differently, resulting in “jumbled codes”. For instance, one branch of a bank may use the term “attrition” for the departure of employees, whereas those in another use it to describe the loss of customers (using “turnover” instead for employee departure, which the first branch may use to refer to sales).

When working across different geographies, time zones, functional roles, and languages, these differences in communication codes are nothing new. What is not known, is whether these differences are the same or what kinds of differences have the biggest impact on communication. The model allows us to compare, as the two parties learn through trial and error, which types of code differences are harder to solve.

Not all code differences are the same

Our model predicts that in trying to tackle communication challenges, some differences are harder to resolve than others. In particular, we expect the problem to be trickier when people use the same word for different things (homonyms) rather than different words for the same thing (synonyms).

Prior studies indicate that when pilots attend training conducted in English, native English speakers may have a harder time than non-native speakers. Trainees who do not speak English learn the jargon of aviation from scratch, while native English-speaking trainees have been using these words in their own way. For instance, when the trainer uses the term “confirm”, English-speaking trainees would have already attached meaning to the word – one that might be different from its meaning in the aviation context. This same label for two different meanings can create potential confusion around whether it refers to a request to confirm or a confirmation in itself. On the other hand, this is not a problem for those who never had the word “confirm” in their language.

When codes are jumbled, code differences need to be overcome by unlearning prior associations that clash and forming new associations. This is what makes it harder for the native English-speaking pilots; the rest don’t face this issue. This implies that communication challenges in post-merger integration, buyer-supplier relationships, and research and development alliances may be less severe than in cross-functional collaboration within a firm. In the latter scenario, when the same set of labels is used for different things, unlearning is required.

Start with the basics: diagnosis

Since solutions to communication problems vary by context, there is no single easy solution or formula. Our model seeks to explain when we should expect communication breakdowns to be more (or less) persistent across organisational boundaries and what we can do about them. In practice, it enables a clear and rigorous way of thinking about a very complex problem and breaking it down into parts that can be better managed.

Ultimately, the takeaways for managers and practitioners would be to diagnose communication failures carefully. “Zombie debt” is less likely to be a problem than “confirm”.  Beyond diagnosis, agreeing on words and what they mean, by means of developing a glossary, could be a way to integrate codes. Other interventions may include using interfaces such as translators when communicating and reducing the need for communication by modularising work.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Speed Kills: Why Some MNCs Fail to Pay Attention to Quality
Last month, Boeing agreed to pay US$200 million over charges that it misled investors about two crashes of its 737 Max aircraft that killed 346 people. The penalty imposed by the US Securities and Exchange Commission is small change compared to the US$2.5 billion shelled out by the plane maker last year to settle a criminal fraud suit filed by the US Department of Justice.

Sadly, Boeing is one of many MNCs to fall foul of the authorities or public opinion over subpar products in recent years. In 2016, Samsung had to recall its flagship smartphone globally at a cost of US$5.3 billion over complaints of exploding batteries. Meanwhile in China, Heinz has been embroiled in at least two damaging recalls since the 2000s.

The common thread is an obsession with speed to get ahead of the competition. Samsung’s Galaxy Note 7 was touted as a rival to Apple’s iPhone; Boeing pushed out the 737 MAX in three months to beat Airbus to the order book of American Airlines; Heinz was trying to capture a bigger share of China’s crowded baby food market, then worth an estimated 8 billion yuan.

In a forthcoming paper*, Sam Park, Professor of Strategy and International Business at Nanyang Technological University, shed light on why MNCs often pay insufficient attention to quality while focusing on business expansion. Park and his colleagues found that the kind of attention MNCs pay to their operations is as important as how much, especially in emerging, fast-evolving markets like China.

Toxic chilli sauce and other crises

Contrary to previous research that treated MNC’s attention as a monolithic whole, Park et al argued that it could be differentiated between expansion attention, which focuses on growing revenue, and stakeholder attention, which focuses on the welfare and ethical behaviour of employees, suppliers and dealers – the primary stakeholders that have a direct impact on product quality. They hypothesised that the risk of an MNC experiencing a consumer crisis is greater when expansion attention is higher and lower when stakeholder attention is higher.

The researchers interviewed senior managers of five large MNCs in China and analysed 92 consumer crises involving 68 Fortune Global 500 companies in the country from 2000 to 2013. Heinz, for instance, suffered reputational damage in 2005 after its chilli sauce was found to contain a cancer-causing food dye. Dell was slapped with lawsuits from an online anti-Dell consumer alliance in the early 2000s for using a quota model that encouraged salespeople at local retailers to prioritise sales over consumer experience.

Park et al measured expansion attention by how quickly the MNCs set up local subsidiaries. Stakeholder attention was assessed by the number of unique practices firm put in place to train or engage with employees, suppliers and dealers. Nestlé, for example, had a mandatory training programme that “teaches employees the right nutrition skills and knowledge”; Ford China worked with cash-strapped suppliers to ensure that their activities “followed the legal framework”.

The researchers’ analysis turned out remarkable – and rather sobering – findings. For the average firm in their sample, expansion attention increased the likelihood of experiencing consumer crises by 98.1 percent whereas stakeholder attention slashed the risk by 81.5 percent.

Continuous two-way educating and adapting

Managers under pressure to expand business operations typically fail to pay appropriate attention to the welfare and ethics of their primary stakeholders. In emerging markets like China, changing stakeholders’ entrenched but ethically controversial practices may even slow business growth in the short term.

An MNC executive told Park et al: “Fast expansion requires us to be more flexible [on quality requirements] about what we offer to our clients … We are loosening the global HQ’s standard on raw materials, and we are making a compromise to local suppliers.”

The researchers highlight the potentially hazardous consequences of this obsession in a country evolving at lightspeed, but their findings are just as relevant to MNCs everywhere, as consumers in general become more informed and sophisticated. The bottom line: MNCs need to coevolve with their operating environment. On the one hand, they should keep up with society’s and consumers’ expectations; on the other, they ought to demonstrate leadership and vision – particularly in relatively unregulated markets – by proactively educating employees, suppliers and other stakeholders on ethical behaviour and service quality as spelled out by their global HQ.

To do so, as Park et al suggest, MNCs could empower subsidiary managers to develop “cognitive division of labour”, with different managers attending to distinct stakeholders. This will help firms explore risks and opportunities in the behaviour of a wide range of stakeholders. It will also prevent decision makers in subsidiaries from being fixated on expansion.

Ultimately, global HQs need to press home the significance of stakeholder attention by incorporating stakeholder engagement as a critical component of MNCs’ foreign operations.

*Attention-based constraint to MNC coevolution in China's changing stakeholder environment will be published in the Journal of Business Ethics.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: How to Design for Disruption
Geopolitical tensions, supply chain breakdown, climate change, the rise of AI and a growing risk of inflation-driven recession are leading to a period of extreme disruption.

For many leaders, this uncertainty is viewed through the lens of caution and constraint. Plans for evolution and revolution take a back seat as organisations opt to pull up the drawbridge and wait for the dust to settle. That seems to be the most common refrain in the business community and in news articles.

We disagree and argue that if business leaders and their organisations really want to stay relevant (and profitable), then they need to embrace the concept of D-VUCAD (disruption, volatility, uncertainty, complexity, ambiguity and diversity). They should see disruption as an opportunity and not a limitation.

Disruption to a market can be devastating for a company, just ask the likes of Kodak, Nokia or Xerox, but it can also promise tremendous opportunities for those agile enough to take advantage of this brave new world.

Unseen opportunities

Being agile means converting an outcome of uncertainty and turning it into an opportunity that helps the organisation grow. For example, one consequence of the Covid-19 pandemic was a dramatic shift from using public transport to private cars. Yet, people still wanted to stay connected and remain social while travelling.

This demand for social interaction from the comfort of your car presented an opportunity. A potential opportunity that Marelli, the Italian manufacturer of automotive components, identified early and built on in new and inventive ways. Their innovations included putting touchscreen display screens in the side panels of vehicles, allowing passengers to easily stay connected while on the move. The company’s agile and pioneering approach means they are now well placed to benefit from an opportunity that arose from an unexpected disruption.

But how can a company plan for the unexpected? While we understand the paradox, it is clear that being passive is not an option. To stay relevant in the D-VUCAD landscape, companies need to actively design for disruption, formulating and embracing strategies that help them become more flexible and agile.

Changing markets

In an ever-changing world, organisations have to move beyond existing certainties and norms. Companies need to reinvent themselves every decade or so to align with emerging realities and changing revenue and profit pools. As described in The Phoenix Encounter, a book Sameer Hasija co-authored, this process involves identifying threats that may transform existing markets and developing strategies to build back your business afresh.

Take the example of L&T Technology Services (LTTS). The leading engineering research & development (ER&D) services company is looking to do business in a D-VUCAD world where the pace of technological innovation has already begun to impact and transform their traditional markets.

Add to this the pandemic-induced shifts caused by the flux of independent contractors (gig workers), a new work from home culture and disruptions to travel and in person communications, and it becomes clear that the way organisations have been doing business over the last 100 years has changed, perhaps irrevocably.

However, this dramatic upheaval should be viewed as a potential opportunity. After all, the global demand for ER&D is predicted to grow at an annual rate of 12-13 percent to reach US$75 billion by 2025.

As the world spends increasing amounts on new technological solutions it is vital that engineering services companies pivot to a higher level of customer centricity to stay relevant and ahead of the competition.

The new reality for the ER&D industry is that clients are no longer judging organisations by the products or services that they can deliver but by the experiences that they offer. Dr. Richard Soley, Executive Director of Cloud Standards Customer Council, an end-user advocacy group explains it this way: “Companies [are beginning] to buy outcomes, and not [just] the products that deliver them.”  

Perhaps the first step in driving that change is a revitalisation of the mission, vision and values charter of an organisation, enabling it to focus on the fundamentals. In the case of LTTS that meant a move towards a cultural transformation that had a greater focus on partnering with their stakeholders to deliver inclusive growth for everyone, while also highlighting the importance of people in the innovation process.

Pick your bets

So how does an organisation succeed in this D-VUCAD environment? Start by building any reinvention around your core business model. Look at the trends that could or are already impacting your industry and decide which of these are going to be the most important to your organisation and also your customers. 

Picking the right bets is not always easy, but if you get it right it can open up huge untapped opportunities. A good example of this is the American tech conglomerate Cisco. Around seven years ago, Cisco was convinced that the Internet of Things (IoT) was going to be a key trend and dedicated significant resources to become a pioneer in what was at the time a nascent technology.

In 2020 the industrial IoT market size was valued at US$ 216.13 billion with a predicted annual growth rate of 22.8 percent from 2021 to 2028. Cisco has market share of nearly 15 percent. Rather than wait for the market to grow Cisco decided to help create the market. A good organisation is adept at fishing in a pond, a great organisation creates a brand-new pond to fish in.

Choosing the right technology

Identifying, adopting and implementing the right technology can be a key differentiator here, ­ one that helps organisations attract and capture scarce mindshare in the D-VUCAD world. As companies continue to scan the global landscape for new opportunities, focused investments around these game-changing technologies can help unlock new growth trajectories.

Microsoft is a good example of this in practice. The tech giant’s transformation into a leader in cloud computing has been well documented but it was actually only a small part of their business just a decade ago. Microsoft’s leadership had the vision and focus to reinvent the organisation and back a potential technology trend that could positively impact the group’s business in the long term.

The reality is that it can be hard for leadership teams to develop a growth mindset unless they are challenged and dealing with disruption demands a growth mindset.

Of course, we shouldn’t forget that choosing a technology is always a bet. How you choose to make it, and the way you drive it forward, is always going to influence the journey that you are set to undertake.

Prepare for the future

Another interesting case study is that of Shell. The oil and gas giant has been aggressively moving into the EV charging domain with a roadmap to roll out 500,000 electric charging stations by 2025. This radical repositioning of Shell as an EACV player is a good example of proactively identifying future opportunities and building a first-mover advantage.

Not every trend you predict will evolve as expected. And not every idea you try will be successful. The important thing is to explore a range of different opportunities then analyse which have potential. Try, fail and then pivot to what works.

There are plenty of current examples of organisations testing out ideas in response to ongoing disruptions. Take construction equipment manufacturer Caterpillar, which purchased Yard Club, a marketplace for construction equipment. On paper, this looks like it could cannibalise its existing business model, which is focused on selling new tools and equipment. On the flip side, it could also position them as a pioneer in a new circular business model where equipment-sharing becomes the norm, in line with global sustainability trends.

Be agile, adaptive, and adept

An organisation’s ability to constantly transform and reinvent itself can be seen as the dual engines that drive continued business success, helping to ensure they stay relevant while also opening up new markets and opportunities. Yet despite the obvious benefits, implementing change is not always straightforward.

After all, employees can rightly question the need to disrupt the status quo when an organisation is turning a profit and operations are running smoothly. However, the reality is if you wait for things to go wrong then it is usually too late to respond. And it is typically the investor community who question the status quo and highlight early red flags. It is thus essential for organisations to have an ear to the ground and pick up any early warning signals.

The challenge is how to promote a need for continual change without unsettling your team and without breaking what is already working well. After all, a shift in strategy can have potentially negative impacts for members of the team.

Take the example of the L&T Group. The Indian engineering and construction conglomerate recently moved into green energy, commissioning its first green hydrogen plant at its engineering complex in Hazira, India. This initiative is in line with the Group’s stated climate leadership targets that will help reduce the greenhouse gas footprint for itself as well as its clients by approximately 300 tonnes per annum by 2026. Instead of waiting for the inevitable calls to adopt a carbon neutral roadmap, L&T has proactively addressed this, generating goodwill among its stakeholders.

Being co-optive

Leaders cannot succeed in a vacuum. If transformation is really going to work then a consultative approach can help guarantee that all the stakeholders – employees, customers, investors, and society – are on board with, and properly understand, the mission, vision and values you are promoting. They are more likely to get onboard if they are clear on how the reinvention will benefit them.

That is why transformation needs to happen in stages so that change is not too abrupt or traumatic for the different stakeholders involved. Staggering the changes also gives you the opportunity to demonstrate the benefits at each step of the transformation.

Stakeholders also need to feel that they are part of the process, which is why you need to address the concerns of fence sitters and allow them the ability to offer feedback on proposals to build the widest possible consensus.

By taking this collaborative approach, you can build a roadmap that everyone is aligned with and that leaves your organisation ready to embrace and take advantage of future disruptions.

Dream-Discuss-Deliver-Double Down

At LTTS, their Dream-Discuss-Deliver-Double Down moment led to a “just-in-case” approach which meant identifying six “Big Bets”: electric autonomous and connected vehicles, 5G connectivity, digital products and AI, digital manufacturing, medical technology and sustainability, and having a laser-guided focus on nurturing these potential bets. Each trend is already starting to have an impact on society and this impact has the potential to grow even further over time.

Arguably, the key for any organisation looking to adapt to a D-VUCAD world is being able to make the shift in strategy from a “just-in-time” mindset, where you aim to deliver what is requested, when it’s needed to a “just-in-case” attitude where you can design for disruption and growth.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Rising to the ESG Challenge: Towards Effective Governance
There is growing recognition that businesses have a pivotal role in driving the environmental, social and governance (ESG) agenda on the global stage, and leading organisations have stepped up to the challenge. However, companies and boards face new ESG challenges arising from Covid-19 and the protracted war in Ukraine. More than ever, board directors are indispensable in stewarding ESG agenda to drive positive impact in an increasingly volatile world.

In a recent joint study by the INSEAD Corporate Governance Centre (ICGC) and BCG, 91 percent of board members said they want to spend more time on strategic reflection about sustainability. Yet 70 percent indicated that their boards are only moderately or not at all effective at integrating ESG into company strategy and governance. In fact, 43 percent of directors said the ability of the company to execute ESG strategies is one of the biggest threats to achieving ESG goals.

Not why, but how

These findings show that the biggest challenge to driving the ESG agenda is not about “why” ESG is important, but rather “how”, said Ron Soonieus, ICGC Director in Residence and Senior Adviser with BCG at a webinar on rising to the ESG challenges organised by the ICGC and Boards Impact Forum.

Corporate boards struggle with ESG due to two main reasons, said Soonieus. One is the skills gap whereby those with board-ready credentials may not have the necessary ESG expertise (and vice versa). The other is the convergence of the high speed of change and complexity of change in ESG issues.

Soonieus outlined six core governance models and complementary practices that support the ESG agenda.  Models include full integration, appointment of ESG committees, ESG representatives in committee or board champion, and no formal embedding. The panellists, with a collective wealth of board experience across industries and geographies, agreed that the business conditions and environment can influence the choice of model – there is no one-size-fits-all solution.

Six possible board structures. Source: BCG-INSEAD ESG Pulse Check (March 2022).



In some instances, an influential director who is passionate about climate change can raise relevant issues to the agenda, said Johan Raslan, an independent director at Sime Darby Property Berhad of Malaysia. Even so, it is not always plain sailing. Directors need to stand up for what they think is right – even if they were the lone voice – in the face of not getting support, said Susan Hooper, the Chair of Tangle Teezer and Inter.Earth.

Don’t wait for perfect

With Covid-19 and Russia’s invasion of Ukraine, the “how” of ESG has changed fundamentally, said Lise Kingo, a non-executive director at Sanofi, Covestro and Aker Horizons. Businesses are faced with skyrocketing energy prices, unviability of certain markets and the need to take care of affected employees. How companies address the geopolitical agenda can also have less tangible – but no less important – impact on their reputation.

In today’s challenging conditions, boards will be working with incomplete and imperfect information. But leaders cannot afford to wait; they must adapt, said Hooper. “Don’t wait for perfect,” she said.

In fact, the ESG landscape is far from perfect. Soonieus noted that without a set of standardised framework, standards and ratings, it is hard to compare sustainability hygiene, control and practices. He cited the case of Volkswagen: The automaker’s reputation was tarnished by an emissions scandal (or “Dieselgate”) despite being one of the most highly rated in the industry.

Ultimately, the choice of standards and frameworks depends on what is material to the company, although this can also change, said Soonieus. Agreeing, Noora Al Marzooqi, Vice President for Group Strategic Investments at Abu Dhabi National Oil Company, said the choice hinges on what is most relevant to the company’s operations, where it operates in, and the local regulatory requirements. She agreed that it is critical to maintain a mindset of continuous evolvement.

Due to the speed of change and moving KPIs, boards need to recalibrate how they see materiality and what could have crucial impact on the business on a regular basis, said Kingo.

How to prioritise

Given the complexity of each pillar of E-S-G, “How do you prioritise the asks, demands and expectations of different stakeholders?” asked Sonia Tatar, Executive Director of the ICGC and INSEAD Wendel International Centre for Family Enterprise, who co-moderated and hosted the webinar. With external pressures from regulators, stock exchanges and sovereign wealth funds among others, Raslan cautioned that boards should not be overburdened.

With increasing expectations from a diverse pool of stakeholders, boards can expect competing demands and ultimately, not everyone will be satisfied, said Nicolas Naudin, a non-executive director of Human Cell Design, a Toulouse-based pharmaceutical company. Boards need to be “courageous” in prioritising, arbitration and explaining their decisions. “The growing pains of ESG will lead to more effective ESG governance,” he said.

Kingo said companies should prioritise issues that are most applicable to them, the region where they operate and where the biggest material risks lie. For instance, companies with heavy production would focus on the environment and energy, while pharmaceutical companies would focus on social aspects such as access to healthcare. Raslan explained how priorities would vary by geography. Based in Malaysia, he highlighted the importance of social issues such as human trafficking and the treatment of foreign workers in South-east Asia. To address such sensitive topics, he stressed the importance of access to trusted internal reports.  

Kingo noted that the “Environment” in ESG tends to be more tangible and relatively “easier” to deal with, and therefore generally gets more attention. On the other hand, “Social” is not getting enough attention despite worsening social inequality. Companies may also be blind to the “Governance” imperative, said Kingo, as they fail to see how it relates to the environment or responsible business. However, recent geopolitical developments have shown that companies need better governance to prepare for any unforeseen challenges, she added. These can affect decisions such as which markets to operate in, where to locate production sites and how to improve employee welfare, among others.
Video of Q&A moderated by Sonia Tatar. View full webinar here.

Walk the ESG talk

Boards should incorporate ESG targets into business strategies and consider how it affects the organisation, operations, people and community they operate in, said Al Marzooqi. In fact, the focus on ESG should be a corporate purpose and not just an agenda item. To Naudin, consistency is imperative to integrating ESG into the heart of strategy. He stressed the need for consistency between the ESG ambition and the business strategy, such that ESG is reflected across the organisation, from innovation to communication, remuneration, capital allocation and investment.

Thankfully, boards do not need to reinvent the wheel. They could adapt from best practices such as the World Economic Forum’s climate governance principles, which serve as a framework for corporate boards, suggested Liselotte Engstam, Chair of Boards Impact Forum, who co-moderated the webinar.

Naudin challenged boards to look beyond the company’s performance and consider a value-chain perspective, taking into account the upstream and downstream impact of the business. This holistic approach presents an opportunity to take a deep dive into operations and innovate across the entire eco-system.

Said Al Marzooqi: “We need a mindset shift and see ESG not as a risk to be mitigated, but an opportunity.”



Watch the webinar, “Rising to the ESG challenges: Routes towards effective governance”, here.

Sign up to attend ICGC’s next event, Governance Imperative in a New World Order, at INSEAD’s Fontainebleau campus from 25 to 26 November 2022.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: A Perfect (Macroeconomic) Storm
The International Monetary Fund has just published its new World Economic Outlook in which it highlights the difficult situation the global economy finds itself in as we head towards 2023. The pessimism of the IMF is shared by the World Bank and the OECD in their own latest updates.

If the global economy falls into recession in 2023 it will be just three years after the world was hit by a deep contraction caused by the Covid-19 pandemic. While there is no set frequency at which recessions happen, three years is clearly very short by historical standards. What went wrong? How bad will the next recession be, and how long will it last?

There is no easy answer to these questions as each recession is unique. The same could be said about today’s economic environment. The world is facing an unusual set of economic circumstances that represent a collection of risks that can easily tilt the economy towards a recession. Predicting how many of these risks will materialise or what their economic impact will be is a challenge. As a result, we see not only a deterioration of economic forecasts for 2023 but also increasing uncertainty. A manageable slowdown, a mild recession or a large and persistent global crisis all look plausible.

Imbalances and bad luck

Let’s take a step back. What causes recessions? In some instances, we can blame bad luck or what economists like to call “shocks”. A perfect example is the 2020 global crisis, which was caused by a pandemic that led to policy-driven lockdowns as well as decreases in consumer and business confidence. No one saw the recession coming, even if we knew that a pandemic was a possibility.

But it is not always bad luck. There are recessions that are caused by the accumulated excesses of the preceding years. The 2008 global financial crisis fits into this category. A real estate bubble that had emerged over the previous years combined with increasing hidden risks in financial markets sent those markets into turmoil, damaged the balance sheets of financial institutions as well as corporations, and pushed the global economy into one of the worst recessions on record.

While as I write this the world economy is not yet in a recession, a worrisome combination of imbalances and bad luck could very easily tip it into a crisis.

The largest imbalance is straightforward: inflation. After decades of low inflation during which central banks built very strong credibility around their inflation targets, 2021 surprised us with inflation rates that were higher than anything we had seen since the early 1980s.

Inflation is a classic macroeconomic imbalance that calls for central banks to raise interest rates in order to slowdown the economy and reduce pressure on prices. When I teach this subject in my Macroeconomics course at INSEAD I always use this quote from Donald T. Brash, the former governor of the Reserve Bank of New Zealand who had to manage high inflation during his tenure: “I know of no central banker who would claim with any confidence that inflation can be reduced from a high level to a low level without at least some, temporary, impact on growth and employment.”

The best central bankers can hope for is a “soft landing”, a situation where the economy slows down enough to ease inflation without causing a recession. But while airplane pilots practice “soft landings” regularly in their jobs, central bankers do not have the same experience. In many countries it has been decades since we have faced a situation like the one today. We have to be ready for policy mistakes and a harder landing than what central banks are hoping for.

The worst is yet to come

A second source of imbalance the global economy currently faces is debt. In recent decades we have witnessed a steady increase in government debt levels and, in many instances, private ones as well. This increase did not lead to widespread crises because global interest rates were also declining to historically low levels. Today, interest rates (adjusted for inflation) remain low and do not threaten the sustainability of government debt, but that is assuming that investors do not question the credibility of governments.

In times of uncertainty investors may start doubting the governments’ commitment to deliver on their promises. This will raise interest rates on the debt of those governments, leading to sovereign debt crises. Given the central role of government debt in financial markets, this can cause financial trouble as well. Recent developments in the United Kingdom are a perfect example of how fast things can go awry.

The final source of imbalance is the Chinese real estate market. In recent years this sector has contributed an excessive share to China’s GDP, to levels seen only before housing bubbles burst. For years, the Chinese government has tried to rebalance its economy away from investment towards consumption but it has failed to do so. A sharp correction in this sector could put Chinese growth rates under serious strain.

And then there are all the potential strokes of bad luck. Starting with the leftovers of the Covid-19 crisis that are still being felt in some countries, for example China with its zero-Covid policy. The threat of new, more virulent variants cannot be ruled out. The invasion of Ukraine by Russia has led to a massive energy crisis in Europe and higher energy and food prices in the rest of the world. The coming months could produce a variety of scenarios in this war, some of which could be very damaging from an economic point of view.

That is where the world economy is today, navigating difficult imbalances while surrounded by events that pose very large downside risks to the growth potential of many economies. As the IMF puts it, we are not yet in a global recession, but the scenarios ahead suggest that the worst is (possibly) yet to come.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Americans Underestimate the Impact of Voter Suppression
Casting one’s vote is the defining act of a participatory democracy. But states in America have passed a variety of restrictions, including limiting polling place access, imposing stricter voter identification requirements, adding administrative burdens for mail-in voting and a litany of other rules, restrictions and regulations. All these will make voting more difficult for some eligible voters heading to the polls in November for the pivotal US midterm elections.

Such hurdles dampen voter turnout. While calls for more secure voting could be seen as deliberate attempts by conservatives to suppress voting, our research suggests an additional, less cynical reason: Americans greatly underestimate how much these policies limit the ability of legitimate voters to vote.

Small barriers, big consequences

In our study published in the Proceedings of the National Academy of Sciences, we compared the actual and perceived drivers of voter turnout in the 2020 elections. Specifically, we compared the roles of political beliefs and friction – external barriers that hinder action. We surveyed a representative sample of 1,200 eligible American voters in election-competitive states before the elections, and then followed up with them after the election to see whether they voted.

Americans consistently underestimated the impact of friction on voter turnout. They believed their actions are primarily determined by their convictions, such as identifying as conservative or liberal and seeing voting as a civic duty. We attribute this to American’s strong belief in self-control and intentional action, causing them to overlook the impact of seemingly mundane barriers.

But such barriers do matter. In our study, we found that those who faced more obstacles – like not owning a car, lacking access to childcare or having to take time off work to vote – were less likely to cast their vote. This aligns with prior research findings that people are less likely to vote when polling places are further away, when polling stations’ opening hours are limited, and even when it rains.

However, when we asked our survey participants to list what they think drives turnout, only 12 percent of participants mentioned friction in their responses. In comparison, 91 percent mentioned beliefs like ideology or party affiliation. In other words, Americans think that turnout is largely driven by beliefs, and that friction plays a minor role.

The costs of underestimating friction

People who discounted the effect of friction on voter turnout tended to endorse friction-imposing policies and oppose policies to make voting easier, in turn perpetuating the problem of limited voter access. This can help explain why legislators and voters often accept or even support measures that restrict voters’ access to the polls.

Restrictions do not affect all would-be voters equally. Those with scarce resources are disproportionately affected by seemingly trivial barriers. Travelling long distances to polling stations and standing in line for long periods may seem mundane – but can be especially burdensome for the frail and disabled. The inability to vote by mail or outside work hours puts voting almost out of reach for parents juggling work and childcare.

The US has made it difficult for some of its citizens to vote. Legislative reform could have instituted structural changes that broaden voting access, for example automatic voter registration. However, national-level attempts, like the ambitious For the People Act, largely fell flat. The new voting restrictions to be implemented in the 2022 midterm elections will put American agency to the test.

Make things easy

Policymakers tend to think that if people are motivated enough, they can easily surmount mundane barriers. This naive view ignores how important it is to make desirable behaviours not just possible, but easy to perform.

In response to tightened voting restrictions, grassroot initiatives such as the All in to Vote online platform have tried to help demystify the voting process. The platform is an effective way to boost voter turnout by providing state-specific, step-by-step guidance to help voters plan their vote. While the government limits voters’ ability to voice their views, grassroots organisations have stepped up to partly counter this by making things easier. There’s hope yet.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Americans Underestimate the Impact of Voter Suppression
Casting one’s vote is the defining act of a participatory democracy. But states in America have passed a variety of restrictions, including limiting polling place access, imposing stricter voter identification requirements, adding administrative burdens for mail-in voting and a litany of other rules, restrictions and regulations. All these will make voting more difficult for some eligible voters heading to the polls in November for the pivotal US midterm elections.

Such hurdles dampen voter turnout. While calls for more secure voting could be seen as deliberate attempts by conservatives to suppress voting, our research suggests an additional, less cynical reason: Americans greatly underestimate how much these policies limit the ability of legitimate voters to vote.

Small barriers, big consequences

In our study published in the Proceedings of the National Academy of Sciences, we compared the actual and perceived drivers of voter turnout in the 2020 elections. Specifically, we compared the roles of political beliefs and friction – external barriers that hinder action. We surveyed a representative sample of 1,200 eligible American voters in election-competitive states before the elections, and then followed up with them after the election to see whether they voted.

Americans consistently underestimated the impact of friction on voter turnout. They believed their actions are primarily determined by their convictions, such as identifying as conservative or liberal and seeing voting as a civic duty. We attribute this to American’s strong belief in self-control and intentional action, causing them to overlook the impact of seemingly mundane barriers.

But such barriers do matter. In our study, we found that those who faced more obstacles – like not owning a car, lacking access to childcare or having to take time off work to vote – were less likely to cast their vote. This aligns with prior research findings that people are less likely to vote when polling places are further away, when polling stations’ opening hours are limited, and even when it rains.

However, when we asked our survey participants to list what they think drives turnout, only 12 percent of participants mentioned friction in their responses. In comparison, 91 percent mentioned beliefs like ideology or party affiliation. In other words, Americans think that turnout is largely driven by beliefs, and that friction plays a minor role.

The costs of underestimating friction

People who discounted the effect of friction on voter turnout tended to endorse friction-imposing policies and oppose policies to make voting easier, in turn perpetuating the problem of limited voter access. This can help explain why legislators and voters often accept or even support measures that restrict voters’ access to the polls.

Restrictions do not affect all would-be voters equally. Those with scarce resources are disproportionately affected by seemingly trivial barriers. Travelling long distances to polling stations and standing in line for long periods may seem mundane – but can be especially burdensome for the frail and disabled. The inability to vote by mail or outside work hours puts voting almost out of reach for parents juggling work and childcare.

The US has made it difficult for some of its citizens to vote. Legislative reform could have instituted structural changes that broaden voting access, for example automatic voter registration. However, national-level attempts, like the ambitious For the People Act, largely fell flat. The new voting restrictions to be implemented in the 2022 midterm elections will put American agency to the test.

Make things easy

Policymakers tend to think that if people are motivated enough, they can easily surmount mundane barriers. This naive view ignores how important it is to make desirable behaviours not just possible, but easy to perform.

In response to tightened voting restrictions, grassroot initiatives such as the All in to Vote online platform have tried to help demystify the voting process. The platform is an effective way to boost voter turnout by providing state-specific, step-by-step guidance to help voters plan their vote. While the government limits voters’ ability to voice their views, grassroots organisations have stepped up to partly counter this by making things easier. There’s hope yet.
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Re: INSEAD Knowledge: Expert opinion and management insights [#permalink]
FROM Insead Admissions Blog: Can Fintech Be a Force for Good?
“We need banking, but we don’t need banks anymore,” Bill Gates famously said in 1994. Today, his prediction is playing out with tech companies disrupting the finance sector and blurring the lines between finance and technology. Their promise? Faster, cheaper and more accessible financial services.

Fintech has potential for great things and ill alike – and could well be the force for good. But for all the hype surrounding blockchain, cryptocurrencies and non-fungible tokens (NFTs), the concept of fintech remains ambiguous, said Lily Fang, a Professor of Finance and the AXA Chaired Professor in Financial Market Risk at INSEAD.

Perhaps the more interesting question then, is which comes first, she said at a webinar on “The Impact of Fintech on the Future of Global Economy” co-organised by INSEAD and Thinkers50.



The tech driving fintech

Fintech, said Fang, is fundamentally about using technology to deliver financial services. The internet of things has made more data available while necessitating new ways of collecting, storing, processing and analysing new types of data from new sources at scale. Fang named four key areas where technology is powering fintech: data collection, data architecture, data analytics and computing architecture.
Many people are in fact no stranger to these technologies. AI and machine learning are used to analyse huge volumes of data and enable service providers to know their customers better or conduct due diligence at a scale that was not possible before. At the architecture level, cloud computing and quantum computing have enabled the scale, flexibility and speed required to handle massive volumes of data.

We have also seen how blockchain has transformed the way data is captured and authenticated, laying the foundations for cryptocurrencies and NFTs. Meanwhile, opportunities abound in specialised functions such as cybersecurity to keep the fintech ecosystem safe, as well as in the development of APIs (application programming interface) that enable different applications to interoperate.

These technologies have transformed financial services, from payment to credit, investing and insurance. Loans and insurance applications can now be validated and processed more quickly. Investors can trade easily with AI portfolio management tools and high-frequency trading. Indeed, with the emergence of cryptocurrency, even the very notion of money is being challenged.

Crypto and FOMO

When cryptocurrencies were first launched, they were met with exuberance, as were most technological leaps. That’s why markets are marked with bubbles and crashes, noted Fang. Fear of missing out (FOMO), fuelled by social media, the media and the influence of personalities with market-moving power such as Elon Musk and Cathie Wood, spurred many to jump on the cryptocurrency bandwagon.

At the same time, financial platforms like Robinhood have put cryptocurrency trading within reach of the masses, in the form of commission-free trading via a mobile app. Fang cautioned that platforms that gamify investment tend to make investing appear cheap and easy while understating the risks that investors are faced with.

In the crypto world, the peer-to-peer system of money is designed in such a way that everyone is responsible for their own actions and money. While the removal of the middlemen smells like freedom, it also means there is no backstop nor possibility of government bailout should things go south.

On governance and ethics

Traditionally, financial services such as banking and insurance are highly regulated to keep providers in line with mandatory standards and ethical behaviour. While technology has changed the delivery of these services drastically, the fundamentals of finance remain.

On the other hand, tech companies – which mostly operate in less regulated environments – are racing ahead in the fintech landscape. As such, the entry of tech companies into a traditionally highly regulated space has created regulatory loopholes, which need to be plugged. Regulation is simply not moving as fast as technological developments. Blockchain technology, for instance, is designed in a way that decentralises data governance, authentication and protection. Unlike a bank, it cannot be shut down by the government.

While supporters of blockchain insist that the technology’s distributed architecture cannot be hacked, cryptocurrencies are stolen daily in reality. At the national scale, the introduction of digital currencies by central banks can put volumes of data in the hands of the governments, giving them unsurpassed power and surveillance capability, cautioned Fang. Ultimately, the merits of technology depend not only on the design, but also human actors and governance, she said.

On a positive note, some regulatory convergence is observed as governments make banking licences mandatory for mobile banking service providers. At the global scale, the Basel Committee on Banking Supervision is playing an important role in setting standards and regulations of cryptocurrencies.

Can fintech be a force for good?

The disruption of the finance sector has forced financial service providers to “self-disrupt” in order to catch up with tech and to do better. By lowering the cost structure of delivering financial services, fintech lowers the bar and makes financial services more accessible to more people. Ultimately, fintech can reduce inequality by enabling financial inclusion.

In 2007, telecommunication companies Vodafone and Safaricom revolutionised banking in Kenya with the mobile banking service M-Pesa. In a land where only 14 percent of the population owned a banking account, the service enabled the vast majority of Kenyans to be part of the country’s financial system without the need for bank accounts or credit cards. By increasing access to financial services and enabling commerce, the technology has pulled over 2 million people out of poverty over the years.

In another example, insurtech (the combination of insurance and technology) leverages blockchain technology to improve access to insurance. Insurers such as AXA have been offering customisable insurance – known as parametric insurance – to indemnify its customers against the probability of pre-defined parameters such as flood or drought. By lowering the cost of insurance while offering wider, customisable coverage, it plugs the gap of conventional coverage. This has enabled businesses that typically fall through the crack – such as micro farmers – to manage risks and do more with limited resources.

Don’t lose sight of the basics

Ultimately, not all financial and economic issues can be solved by technology. To assess the merits of technological innovations and solutions – including fintech – Fang urged managers and consumers to put these questions front and centre:

Does the business have a real purpose?

What is the problem the business is trying to solve?

Is it using the right way to solve it?

What are the incentives behind the offering?

“We need a healthy dose of understanding that technology is not going to solve all problems,” said Fang. “At the end of the day, we still need judgement.”
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