Hyatt's Mark Hoplamazian: Quantifying the Value of Customer Service

Published: October 10, 2012 in Knowledge@Wharton

mazian was predictably a little skittish when his bosses at the Pritzker Organization asked him to become interim president and CEO of the family-owned company's signature investment, the Hyatt chain of hotels.

He had spent the bulk of his career on the finance side of the organization -- where he had worked since its formation in 1997 -- rising to president and advising the Chicago-based firm on its investments. Prior to joining Pritzker, Hoplamazian worked in mergers and acquisitions at First Boston Corp.
But the Pritzkers assured him that he would only be the interim CEO, and even put Hoplamazian in charge of the search committee to find his permanent replacement. Interim leadership tenures "are usually disasters," Hoplamazian noted during a recent Wharton Leadership Lecture. "But I had been with the company so long and loved being there, so I got sucked into the vortex." Hoplamazian did so well in the interim role that the Pritzkers insisted he remain in the job. Six years later, he is happy it worked out that way.
"I was completely smitten," he said. "I got to experience working side by side with some great people at Pritzker. [CEO and chairman] Tom [Pritzker] came to me a few months in and said the candidates he had hoped for had not come through.... On paper, I was completely unqualified, but when Tom said he wanted me, I was ready to do it."
In a way, it was a benefit "to walk in and be completely ignorant" of the management side of running the business, noted Hoplamazian, who graduated from Harvard in 1985 and received his MBA at the University of Chicago. "It was unavoidable, coming as I did with little experience in management, though a lot on the financial side. I got to ask a lot of stupid questions -- but as you know, there really are no stupid questions."
It also helped, Hoplamazian added, that he had been with Pritzker all those years and had become familiar with Hyatt's operations, which encompass 492 properties in 45 countries. Its brands include the upscale Park Hyatt, Grand Hyatt and Andaz hotels; Hyatt Regency and Hyatt Place locations targeted at business and convention visitors and families, and Hyatt House, which offers residential-style accommodation for extended stay travelers.
Hoplamazian took on the leadership role in 2006 in the middle of an upsurge in the hospitality industry. "The year after I came in, 2007, it was like a fantasy world. Everything was going right," he said. "Margins were expanding. Everyone was having a good time. But then [the financial crisis in] 2008 came, and things got funky really quickly. And 2009 was a disaster."
According to Hoplamazian, 2007 was by far the best year ever for the industry -- and 2009 was its all-time worst year. "We had to readjust our budgets six times [in the first six weeks]. It was that bad." By then, however, Hoplamazian had already established a management style: Ask lots of questions, listen to the answers and make sure to treat employees with sincerity.
Quantifying Customer Satisfaction
Hyatt currently employs about 90,000 people, many of whom view the company as an extended family. Since the firm does not produce a physical product, employees’ enthusiasm for work has to come through in the quality of service that guests receive -- which initially made it challenging for Hoplamazian to assess what the company was doing right and where it could improve.
Firms that make a product can judge performance based on sales and whether the devices work properly, he points out. But in the hospitality business, it is not immediately apparent how much the bottom line is impacted by the way individual employees clean guest rooms, provide directions to guests or carry bags up to a suite. It's also not easy to tie those efforts back to the performance of top-level management.
Coming from finance, Hoplamazian wanted to find ways to quantify even a service business like Hyatt. He wasn't met with resistance per se, but many of his co-workers were unsure whether there was a sound method of achieving that goal. "I asked about results of employee satisfaction surveys, and they showed me upward curves," Hoplamazian recalled. "I asked how that correlated with customer satisfaction, and they said it didn't. I asked if individual properties saw it correlating, and they only said, 'No.'"
Hoplamazian decided to approach fellow CEOs in the service industry to see how other firms had tackled the problem, figuring that technology had greatly increased the availability and ease of analyzing customer data. The leadership team at Enterprise Rent-a-Car proved to be the most helpful. "They said the most important contact was the first person who engaged a customer," he said, citing a well-known piece of advice: "There is only one chance to make a first impression." Based on that guidance, Hyatt developed a survey with a one-through-five rating system that was given to customers to fill out during their stay.
"In my discussion with Enterprise, they said that people who give a ‘five’ are three times more likely to return than those who give a ‘four,’" Hoplamazian noted. "And the people who give a ‘four’ are twice as likely [to come back] than [those who give lower numbers]. Below a ‘four,’ and you might as well forget it. The only thing that matters is customer satisfaction."
Authenticity, Listening and Loyalty
Hoplamazian also made a point of engaging employees -- from his general managers down to the custodial staff -- to get their ideas for improving customer satisfaction. "I was reminded of what may well be an apocryphal story about someone seeing a janitor at NASA and asking him what his job was," said Hoplamazian. "[The janitor] said, 'I am putting a man on the moon', which was, I feel, the right answer."
The average general manager at Hyatt has been with the company for 23 years, Hoplamazian noted, and housekeepers, janitors and other service professionals tend to have long tenures as well. "I believe they relate to Hyatt in a human, emotional way," Hoplamazian stated. "They are not thinking about cost elasticity or all these things financial people think about, but [about], ‘How do I really do something that a customer would like?’"
That mindset, he added, is very different from the outlook of many product-driven firms, where staff is primarily focused on getting the next shipment out on time. When Hoplamazian was first starting out at the company, he tried out each hotel job just to see what it was like. He recalled meeting a particular front desk employee and being taken with his enthusiasm. Hoplamazian asked the front desk worker how he kept it up day after day.
"He said that the emotional experience he would get when he helped out a customer was nothing less than the reaction you see [from] a new puppy wagging its tail," Hoplamazian noted. "It is my job to manage employees like that."
Although the economic downturn in 2008 and 2009 was a challenge, Hoplamazian said it was not the disaster for Hyatt that it was for companies in many other industries. In its most recent earnings report, the company -- whose primary competitors include Marriott, Hilton and Starwood hotels -- reported a 5.4% gain from a year earlier and an 8.3% increase in revenue to $1.01 billion. According to The Wall Street Journal, the firm is one of several U.S. hotel companies that are expanding significantly overseas in response to an increase in demand, particularly among business travelers.
Hoplamazian attributes some of Hyatt's staying power to his decision during the downturn to continue paying out bonuses promised to employees at a time when many other companies were cutting out extras. "My own principles and what we had committed ourselves and our people to were tested," he said. "But it had a gargantuan impact. You could see people knowing how serious you were about loyalty even in the face of challenge…. What you demonstrate to others when you are pushed is what makes the difference in leadership," he added. "That one thing has [solidified] employee loyalty now that things have turned. It did not cost that much, and it showed that the leaders of the company were loyal when we needed to be."
When former Pennsylvania governor and U.S. Secretary of Homeland Security Tom Ridge was the guest speaker at one of Hoplamazian's hotel conferences, he asked Hoplamazian what he had learned from being a CEO. Hoplamazian stressed authenticity, being a good listener and loyalty. "Ridge latched onto that and said that when he was in the military, he found that rank gives you compliance," Hoplamazian noted. "He said that because he had rank, he could tell people what to do, and they would do it whether they wanted to or not.
"But that doesn't get you their hearts and souls, and [Ridge said] that you have to make sure you get that, too," Hoplamazian added. "Compliance doesn't get you there. It is how you show up and relate to people day-to-day that matters."
Hoplamazian noted that he had to prove himself as a good leader to Hyatt employees when he first took the CEO position. He arranged to attend regional managers meetings as a way to introduce himself to the staff. At the very first of those gatherings, which included about 25 general managers, "I felt like I was getting grilled from the start. It was clearly not warm and fuzzy."
On the morning of the second meeting, Hoplamazian took aside a manager he had known for a while and asked that person what was going on, and if he could expect the grilling to continue. The manager replied, "'Oh, they just wanted to see if the rumors were right, if you were going to ask questions and really listen,'" Hoplamazian noted. "The rumor mill had already started, and I had now gotten the stamp of approval....
"The important thing is to engage employees. Don't go in saying you know this and you know that, and this is the way it will be," said Hoplamazian. "Listening is critical to leadership, and so is staying authentic. You do that and you will get loyalty, and then your role as a leader will be easy."

Source:http://knowledge.wharton.upenn.edu

'The Corner Office': Adam Bryant on the Five Qualities of Successful Leaders

Why do some people get promoted, while others do not? What distinguishes CEOs from all others? To answer these questions, New York Times editor Adam Bryant has interviewed more than 200 CEOs for his Corner Office column. In his book, The Corner Office: Indispensable and Unexpected Lessons from CEOs on How to Lead and Succeed, Bryant shares what he has learned from Xerox CEO Ursula Burns, Ford CEO Alan R. Mulally, Yum Brands CEO David C. Novak, Teach for America CEO Wendy Kopp, Zynga CEO Mark Pincus, and other leaders. Knowledge@Wharton recently sat down with Bryant to discuss five qualities of successful leaders, the age-old question of whether leaders are born or made and how his discussions with CEOs have influenced his own approach to leadership. 
An edited version of the transcript appears below.
Knowledge@Wharton: You have interviewed more than 200 CEOs for your New York Times "Corner Office" column, and you drew on 70 interviews with CEOs and top executives for your book, The Corner Office. Through these conversations, you have distilled five qualities of successful leaders. Tell us about those.
Adam Bryant: What I really tried to do is understand what it is about these people that explains ... why they kept getting promoted. The first [quality] is passion and curiosity. That really refers to a deep sense of engagement with the world -- a questioning mind. [People who exhibit this quality] are interested in people, interested in things. When they go into a situation, they try to figure out, "How does this work and how can it be made to work better?" The second one is battle-hardened confidence, which really refers to having a track record of facing down adversity and knowing what you're capable of, because at all points in our lives we get put on the hot seat in stressful situations. These CEOs had faced down that adversity, and there was that quiet confidence. They knew what they were capable of. The third one is team smarts, which is the organizational equivalent of street smarts.... You have a good antenna for meeting dynamics and a good sense of how to bring people together. The fourth one is what I call a simple mindset, and that really refers to the ability to distill a lot of information down into the one or two or three things that matter. When you stand up in front of a group of employees, you don't want to say to them, "These are the 12 things I want you to think about this year." You really want to give them one, two or three because that's what people can remember. On those days, CEOs really earn their paycheck if they can take a very complicated portfolio company and say, "These are the three things that matter." The last one is fearlessness, which is really just a bias toward action -- not recklessness, but a willingness to take risks and to see things that need to be turned upside down or inside out to be improved. The CEOs that I've interviewed had reverence in their voices when they talk about this quality of fearlessness.
Knowledge@Wharton: Can you give us some examples of a couple of the leaders you talked to and what they said to you that really resonated?
Bryant: Alan Mulally of Ford talked about this quality of passion and curiosity. If he's in a group of people, he wants to ask them all sorts of questions and understand them. One woman I interviewed had a great expression: "middle brain." People always talk about left brain and right brain; she talked about the fact that she felt she had a middle brain, which is a good balance of the analytical and creative. That was kind of a nifty way of capturing an idea that came across in a lot of the interviews where it really is a matter of marrying the two sides of the brain. You do have to have the creative to be successful, but you also need to balance it with the analytical.
Knowledge@Wharton: In your view, do these five traits help CEOs guard against corruption, bankruptcies and scandals?
Bryant: Wow. It's hard to know. These are certainly personal qualities. If [leaders] are truly passionately curious, then hopefully they'll have that sense about their organizations and they're not just sitting in their ivory tower.... Almost every month, there's some new scandal, and I find it remarkable. To be candid with you, over time, I've seen [some of the CEOs that I've interviewed] in controversial situations. I guess it goes back to my evolving theory of life, which is if you give enough people enough time, some people are going to do questionable things.
Knowledge@Wharton: You note that management is about results. What insights did the CEOs you spoke with have on managing people in order to get those results?
Knowledge@Wharton: A lot of it is really about marshaling the team and really giving people a sense of a clear mission. Because if you can really boil down the goals of an organization to just the three metrics and the overarching goal for the company, then people have a clear sense of what their role is in the organization and how that contributes to those goals. In a lot of organizations, especially big ones, people feel like they're often siloed, and they don't really understand how their work is contributing to that goal. That's why I think this notion of simplicity is so important. If you can really boil down the strategy just to have a simple plan and say, "Here's how we're going to measure it," then people can, throughout their day, have an awareness of how their work can contribute to those goals. A lot of people are team players at heart, but they need to know how they can contribute. Otherwise, they're going to be on Facebook and Twitter all day.
Knowledge@Wharton: Based on your interviews, do you think leaders are born or made?
Bryant: I think it's a little bit of both. I really do. I think there has to be a little bit of aptitude to begin with -- maybe a lot of aptitude. But I do feel a lot of these skills can be developed. In fact, I've met some executives over the years ... who are very mindful about it. It's a little bit like dieting. If you agree with these five traits I've identified (and I'm not saying I've cracked some magic code) ... then it really comes down to ... always making small and large choices, in the same way you make choices about diet and exercise. If you keep these in mind and if you're in a situation where it is a team dynamic, then just watch people who are particularly good at it and study it and look for the impact. Be fearless, not just at work, but in your own personal life. Take changes, take risks. If you want to emulate the CEOs and you agree that those five characteristics make sense, then I do think these are things that people can work on and that there will be a pay-off.
Knowledge@Wharton: And how have these interviews affected your own leadership?
Bryant: I am always reminded by the CEOs of the importance of simply spending time with my employees. I manage a group of nine reporters, and I try and spend a lot of time listening to them. I try and spend a lot of time in actual conversation and not on email. I've been reminded often of the importance of talking to somebody. Over the phone or in person is very different from an email because there's so much opportunity for communication to be misread and to be lost in translation over an email. A lot of it comes down to time. I've really come to believe over time that about 90% of all problems can be solved actually talking, rather than letting stuff fester or trying to hash something out over email. I think picking up the phone, talking to somebody in person and [having an] adult conversation about something ... can release and avoid things that can really bog things down. So, those are the main things I've really been reminded of by the CEOs. I've learned a tremendous amount from them, I have to say.


Source:http://knowledge.wharton.upenn.edu

Swarthmore professor Barry Schwartz says rules and incentives are an "insurance policy against disaster, but [they don't] produce excellence." In the recent book, Practical Wisdom: The Right Way to Do the Right Thing, Schwartz and co-author Kenneth Sharpe, also a Swarthmore professor, say what is needed is not more bureaucracy. Instead, society needs the Aristotelian ideal that trumps all others -- practical wisdom. Knowledge@Wharton recently sat down with Schwartz to discuss why individuals fail to do the right thing, what practical wisdom looks like in practice and what organizations can do to regain people's trust.
An edited version of the transcript appears below.
Knowledge@Wharton: You note that there is a collective mistrust of the institutions that surround us. Why is that?
Schwartz: I don't want to be monomaniacal about this. There are probably many reasons, not one, for this distrust of institutions. One that Ken and I focused on in writing Practical Wisdom is that we have come to the view as a society that when things are broken, the way to fix them is either by making more rules or by creating smart incentives.... If you make a lot of rules and you have somebody standing over people's heads watching them to make sure that they actually obey the rules, then you don't care what people's motivation is. You have to follow the rules or you're out.
[For example,] if schools don't work, rigid curricula and scripts for teachers follow. Bonuses [follow] if your kids do well.... If the financial system is broken, change the incentive structure so that bankers stop ripping off their clients. The point of our book is that you will never get what you need and want out of any institution that matters by relying on rules and incentives. Rules and incentives are the booby prize. If you can't count on anything else, then you impose rules and incentives. But you'll never get what you want. It's an insurance policy against disaster, but it doesn't produce excellence. You need people of good character who want to do the right thing because it's the right thing, who know how to figure out what the right thing is in this particular situation with this particular person and who are willing to improvise, take the initiative, risk being wrong -- and all in the service of actually serving the mission of whatever activity they are in: teachers who want their kids to learn and be excited about learning, doctors who want their patients to be healthy and lawyers who want their clients' interests to be well served and don't need to be goaded either by rules or by incentives into achieving that.
We think that what we're doing as a society instead is a very, very pale substitute for what's needed. But you don't hear anyone talking about the importance of character to the making of good teachers, good doctors, good bankers, good politicians or anything else.
Knowledge@Wharton: You say that practical wisdom is a better path. Can you tell us the source of that idea and what you mean by that?
Schwartz: The source of the idea, embarrassingly enough, is Aristotle. Aristotle was famous for being what's called a virtue theorist. That is, the way you create good societies is by creating good people, and the way you create good people is by instilling in them the virtues. He had his own list of what the virtues are, and our list would be different from his, but the point is he thought that good societies depend on people of good character and that good character is something that can be trained.
He had a big list of virtues, but he thought there was one particular virtue that was the master. That one he called practical wisdom. The reason was that courage is a virtue, but you can be too courageous. Then we don't call it courage anymore; we call it recklessness. So what's the right amount of courage? That requires wisdom. Honesty is a virtue. But so is kindness. Often you find yourself having to decide whether this is a situation that calls for honesty or one that calls for kindness. What enables you to figure that out? Wisdom is what enables you to figure that out.
For him, the way one scholar put it, these virtues are running around like unruly schoolchildren, and wisdom is what creates order out of this chaos and actually helps people to find what he called the mean, the right amount appropriate for this person and this situation. All we did in the book was try to take Aristotle's ideas and translate them into a language that makes sense in the 21st century and apply them to the kinds of institutions and problems that we face in modern developed societies, as opposed to ancient Athens.
Knowledge@Wharton: You describe people who use practical wisdom in their lives, such as Luke, the janitor. Please tell us about his story.
Schwartz: This is work that was actually done by a psychologist named Amy Wrzesniewski who is visiting [at Wharton] this year. She's on the faculty at Yale and was an undergraduate [at the University of Pennsylvania]. She started doing this work as an undergraduate at Penn. She was interested in how people craft their jobs, especially people who do what is called "dirty work," the people who are invisible, the people we don't notice.
She did a big study of hospital custodians at a major academic hospital. For a lot of them, there was a long list of job duties: 30 different things that you had to do as a janitor. When she started interviewing janitors, she found there were some who thought their job was just doing these 30 things: emptying trash, restocking shelves, washing floors and so on. But there was a nontrivial number who thought their job was doing whatever was necessary to provide aid and comfort to the professional staff, to the patients and to the patients' families. The example of Luke involved a young man who was in a coma, apparently the result of a fight in which he got the tar beaten out of him. This young boy's father was keeping a vigil all day every day, except that he would go out and smoke a cigarette now and then. Luke cleaned the kid's room and washed the floor. But the dad was out smoking and didn't see it. When the dad came up, he angrily accused Luke of not cleaning the boy's room. The boy's in a coma, so the boy wouldn't [be able to say Luke had been there]....
Luke was angry, but he immediately suppressed the anger, and he said, "OK, I'll take care of it." He cleaned the room again. He cleaned it so that the boy's father could see him clean it. He said in the interview that he understood he should have been angry, he could have been angry. But he finally decided, I can understand what this man is going through. Why not do something so he can see that he's actually having an effect that contributes to the welfare of his son? So he cleaned the room again. It's really an incredibly touching story because one doesn't expect that kind of judgment and humanity from people who are basically invisible. These are the people nobody notices without whom the institutions wouldn't function.
The reason Luke was able to do that, and he has colleagues who behave similarly, is that they weren't being so closely supervised. They could do their job -- the 30 things on their list -- and still have time to do what they thought was their real job, which was to provide comfort and care to patients and their families. Imagine the hospital having financial difficulties and having to crack down and lay off staff. Now there are one-third fewer janitors than there used to be. All of a sudden, you have more responsibilities and you have to work faster and harder and you don't have time. You have somebody breathing down your neck and you don't have time to do what you think is your real job because there are just too many rooms to get clean and too many trash cans to empty.
Luke was blessed to be working in a time and in an environment in which his supervisors left him alone, so he could do both the job that was officially defined as his job and the job as he had crafted it and [which gave him] enormous satisfaction. When you asked him and people like him how hard is it to learn to do this job, they would say it takes a lot of experience to do this job. It doesn't take a lot of experience to wash floors and empty trash cans. It takes a lot of experience to know how to intervene with patients and their families in a way that actually is comforting and helpful. You don't want to be a loose cannon, and initially you probably are. Your well-intentioned efforts to make people feel better don't work. Over time, you learn when to intervene, how to intervene and [what] small things you can do that make a big difference.
There's another janitor we mention here in the book who ... took it upon herself to change the pictures on the wall in this patient's room. Who notices what pictures are on the wall in a hospital room? But she figured that maybe it would inspire this person to get a sense that there was actually progress being made, that things were changing if the environment wasn't exactly the same hour after hour, day after day. Every couple of weeks she would take pictures from another room and put them in this room. This is not obviously part of her job description. People really do come up short when they hear this because they don't expect it. They deeply admire it when they hear about it, and what I hope is that they ask themselves, "Well, how can I do something like that in my work?" I don't know if they do ask themselves that question, but it would be nice if they did.
Knowledge@Wharton: Those are a couple of very interesting examples of how to act in an ethical way using the wisdom that you talk about in the book. But what about cases where the stakes are much higher, such as in the case of ... Penn State's Jerry Sandusky? Many people have been charged with keeping his crimes a secret. What can businesses do to help their employees do the right thing in cases like that?
Schwartz: What won't do the job is giving lectures to people about business ethics or organizational ethics.... You need to exemplify the behavior that you want the people working with you and under you to display. You need to be a model of what it means to be an ethical organization and you need to be doing it all day, every day. There are very, very few organizations that I'm aware of that behave like that. There is a charter school movement that's become national called the Knowledge Is Power Program (KIPP). They have had incredible results with inner-city kids. There are a couple of KIPP schools in Philadelphia. What the founders of KIPP realized, though they didn't quite say it in that way at the time, is that the most important thing that kids need to learn is character. If you can teach them character, respect for knowledge, respect for the educational process, respect for the teacher, respect for one another, then teaching them how to add and subtract is trivial. If you can't teach them that, then teaching them how to add and subtract is impossible.
The question is then how do you teach them that? The answer is you teach them that by showing it to them every minute of every day. That's what KIPP teachers do. They are always teaching, and they know that they are always teaching. It's incredibly demanding on them. It's the secret sauce that produces these extraordinary results. That's what people who run organizations need to do.
Knowledge@Wharton: It's not the rule or the policy or the incentive to act in a certain way. It's modeling certain ideals and behaviors within an organization. Is that right?
Schwartz: Yes, you need the power of good examples. You need to show people that you really do value ethical conduct, rather than just talking the talk and then ignoring unethical behavior. One reason why the bank catastrophes happened is that you have these CEOs of major banks who have become public figures. They go off and give speeches about the banks' ethical commitments and commitments to rebuilding this city and the neighborhood and this that and the other thing. They know that two levels down in the hierarchy there is a manager whose job depends on the people he supervises making their margins. They don't have to know how that manager gets that to happen. All they need to know is that the manager does get it to happen. If he doesn't, out he goes.
It's not just plausible deniability. It's just complete indifference to what it takes to produce the results that you're insisting that the people who work for you produce.... As long as that dynamic exists, you can forget about ethical speeches from corporate leaders because it will never actually have an impact on the way the people who are making the day-to-day decisions in the company operate.
Knowledge@Wharton: How can institutions regain our trust? Is that possible?
Schwartz: It's not easy. You have to do it. You do it by doing the right thing in conspicuous ways. Slowly, bit by bit, episode by episode, you win back the trust of the community that depends on you. There's nothing you can tell people that will or should earn their trust. You have to demonstrate it in the way you behave, which means you have to be in it for the long haul and be patient and win one victory at a time. With respect to some institutions, it's hard to be optimistic. I don't see what public educational institutions can do to regain the trust of the families who have not been well served by them. I don't know what financial institutions can do to regain the trust of people who have not been well served by them. As far as I'm concerned, everybody in the ratings agencies should simply be thrown in jail and the keys to the jail thrown away. They so betrayed the public trust in their giving AAA ratings to every piece of crap under the sun. If people are paying attention, it will take a generation to regain the trust that got lost in the space of six months.


Source:http://knowledge.wharton.upenn.edu

The Promise -- and Perils -- of Personalized Medicine

Published: December 19, 2012 in Knowledge@Wharton

Personalized medicine -- the ability to tailor therapies to patients' individual genetic characteristics -- has long been the holy grail of the life sciences industry. The effort has produced a string of recent successes, including a host of drugs targeted to people with specific genetic profiles, the European approval of the world's first gene therapy treatment, and a much-heralded leukemia treatment pioneered at Children's Hospital of Philadelphia (CHOP) that uses tweaked versions of patients' own cells to eliminate their cancer. While these advances are certainly exciting for patients, they raise a host of ethical, legal and financial challenges that people working in the field will need to address before personalized medicine can become a thriving business.
The challenges are so great, contends Wharton health care management professor Ezekiel J. Emanuel, that claims of a renaissance in medicine brought on by individualized approaches often seem hyperbolic. "Before we buy into this, we need to remember that almost every evaluation of what drives health care costs up points to new technologies," says Emanuel, who is also a professor of medical ethics and health policy at Penn's Perelman School of Medicine. "We need to be skeptical. We need to see the data before people buy into the idea that personalized medicine is going to produce cost savings and be so much better for the system."
Despite skepticism, recent advances have given proponents of personalized medicine reason to cheer. On December 7, CHOP announced that oncologists on its staff brought about a complete remission in a child with acute lymphoblastic leukemia by taking T cells from her immune system and genetically programming them to hunt down and kill cancerous cells. The therapy, called CART-19, was developed in conjunction with Penn scientists and licensed last August to drug giant Novartis, which is developing it for more widespread use.
On November 2, Amsterdam-based uniQure B.V. received European approval for Glybera, a gene therapy treatment for a rare disease called lipoprotein lipase deficiency. Patients with the disease have errors in a gene that produces a protein for processing fat from food, so fat builds up dangerously in their bodies. Glybera, which is a one-time treatment, uses a virus to deliver into the body a functional gene, which produces the critical fat-processing protein.
Another sign that personalized medicine is on the upswing is that 23 FDA-approved drugs -- mostly for treating cancer -- are being marketed with tests designed to identify "biomarkers," or genetic signatures indicating which patients are most likely to respond. "Those products now account for more than $26 billion in revenues on an annualized basis," notes Jay Mohr, who has worked in the personalized medicine field and is currently managing director of Locust Walk Partners, a life sciences consulting firm in Cambridge, Mass. "The opportunity is huge, and it's really where medicine is going."
According to Emanuel, capitalizing on that opportunity won't be so simple. "Using genetics is just one more way of subdividing patients. It's not 'personalized' in that way. You still have a group of people who are going to be treated in the same way. And for some people, the treatment will work. For [others], it will not work."
He adds that the financial hurdles of personalized approaches may be insurmountable, disputing the argument from many health care industry experts that subdividing patients based on who is most likely to respond to a treatment is more cost effective than throwing random therapies at them until they find what works. "You have to test it empirically to see whether there are savings," Emanuel says. "You have to look at the cost of a screening test over a large group of people. Then you need doctors to actually adhere to the test results. Then, when you identify a smaller group of patients to treat, the pivotal question is, how expensive is the new treatment? You need to add up what you're saving and what you're spending."
Furthermore, he notes, the financial challenge is complicated by the motivations of profit-making enterprises. "You're going to use the drug on ever fewer people, but then [companies] have to recoup the development costs and [see] corporate profits. The idea that this is going to be cheap is a myth. It's going to be very expensive."
Even the companies that are pioneering personalized treatments are grappling with the challenge of making sustainable businesses out of them. Jorn Aldag, CEO of uniQure, admits that it is hard to envision how a one-time gene therapy treatment for lipoprotein lipase deficiency -- which only affects about 3,000 patients worldwide -- could produce an ongoing revenue stream for his company. For that reason, uniQure's executives are working with a consulting group to consider a range of options, which include establishing an annuity-like payment plan that would provide the company with ongoing payments for each treatment, rather than one lump-sum payment. "It's complicated," Aldag says, "because you're asking someone to pay for something that's supposed to have a long-lasting effect, but how do you know up front that it will have that effect?"
Who Owns Genetic Data?
According to Mohr from Locust Walk Partners, there are some signs that players in personalized medicine are starting to work out viable business models. Mohr was one of the pioneers in the personalized medicine space, having served a decade ago as acting CEO of Cambridge-based Variagenics, which developed technology to sequence DNA from individual patients' tumors and use it to predict their response to certain therapies. Variagenics was acquired in 2003, and the company that resulted from a series of subsequent deals, called ARCA Biopharma, is no longer pursuing the cancer-sequencing technology, he says.
One of the challenges Variagenics faced -- and an ongoing issue in personalized medicine -- was figuring out the best way to compensate all the players involved in matching the right patients to the right therapies. In the early days of Variagenics, Mohr negotiated a deal with Novartis to explore the use of its genetically targeted cancer drug, Gleevec, in prostate cancer. "One of the challenges we had in the negotiation around that deal was determining whether our company should receive a portion of the revenues coming from sales of Gleevec in prostate cancer," he recalls. "In effect, our diagnostics and our biomarkers -- [which were] our intellectual property -- were going to be instrumental in predicting patients who would respond best to Gleevec. We thought we should be compensated for that." The ultimate terms of the deal were not disclosed. "If a company is doing the research to understand variations that predict whether a person responds to a particular drug or not, it should get compensated," Mohr argues. "That should be the proprietary domain of industry."
Not everyone agrees. "How we invest as a society in the discovery of biomarkers that describe who's at greater or lesser risk [in terms of] responding to therapy should be taken on as a policy issue, rather than an issue of private enterprise," says Jason Karlawish, professor of medicine and a senior fellow in the Center for Bioethics and the Leonard Davis Institute of Health Economics at Penn. Karlawish was one of the leading voices in the debate over a lawsuit brought against the Mayo Clinic earlier this year by Prometheus Laboratories, which patented a method of determining the correct dosage of a drug used to treat gastrointestinal disorders by measuring metabolites in patients' blood. When the Mayo Clinic developed a similar process, Prometheus sued for patent infringement. "Essentially, what Prometheus was doing was patenting a way of thinking -- not so much an invention," Karlawish says. "That, fundamentally, is not what patents are for."
The case made it all the way to the Supreme Court, which concurred with Karlawish. Justice Stephen Breyer ruled in March that allowing companies to patent tests based on naturally occurring phenomena in the body would be akin to allowing Newton to patent the law of gravity. The ruling generated ire from the Biotechnology Industry Association lobbying group and other industry players, who worried that limiting patentability would discourage companies from innovating in the field of personalized medicine.
But Karlawish worries the opposite might occur if patentability is granted too broadly in medicine. "If Prometheus had succeeded with the suit, Mayo's discovery and its application would never have made it out into medical practice," he says. "It may be good for business to have the ability to patent these discoveries, but it's not so clear to me it's good for science and public health."
Double-edged Sword
Despite concerns about patent litigation stifling innovation, the desire to match patients with therapies based on their genomic profiles has spurred a raft of entrepreneurship. For example, Switzerland-based MolecularHealth, backed by the founder of software giant SAP, is developing a technology platform that oncologists can use to pinpoint therapies for patients based on their genetic variants. And in September, a company called MyoKardia started up in San Francisco with the intention of developing drugs for patients with a type of cardiomyopathy that is caused by certain genetic mutations.
Reed Pyeritz, professor of medicine and chief of the division of medical genetics at the Perelman School, believes that personalized medicine could be particularly useful for treating cardiac diseases, many of which have a genetic basis that's well defined. "To the extent that you can both prescribe the appropriate dose, as well as prescribe the appropriate drug, then you're going to be far ahead of the game," he says.
In fact, he notes, economic studies have shown the potential value of genetic screening in heart disease. Roughly one-third of patients with aortic disease, for example, have a particular genetic mutation, Pyeritz says. "That helps us manage that person, because it tells us whether they should have surgery sooner rather than later, of if they should be on a certain medication." Screening those patients' relatives can also be valuable. "If they don't have the mutation, they don't have to worry about it, whereas if they do, we know how to follow them. If you can eliminate half the relatives from needing to be screened with expensive imaging and so forth, that more than pays for the cost of the genetic testing in the family."
Pyeritz was a co-author of a June 2012 paper published in the journal Genetics in Medicine that he believes proves the value of genetic testing. The researchers took a group of 100 patients with a genetic vascular disease called hereditary hemorrhagic telangiectasia and compared the cost of routinely screening their relatives for signs and symptoms to the cost of running genetic tests on all at-risk relatives. They found that genetic testing saved more than $22,000 for a family of four. The total savings across the entire patient group was more than $9 million.
Still, Pyeritz says, genetic testing presents a double-edged sword. Recent genomic advances have made it possible to scrutinize a person's genetic makeup in increasingly greater detail -- an exercise that may have unintended consequences. Pyeritz has looked in particular at microarray testing, a new technology that enables deep examination of chromosomes. "The microarray allows you to look for small gaps or duplications in a person's chromosomes," he says. "This has been a great tool for defining new syndromes. However, when you do these kinds of microarray analyses, you find all sorts of variations, and you don't know what they mean."
Then there's the problem of what some in the field of personalized medicine refer to as "incidentanomas" -- genetic tests that uncover details about a person's disease risk that they might not have known otherwise. "Let's say you have a child with developmental delay, and you do this microarray analysis, and you find they have a deletion in a gene that causes Parkinson's disease in middle age," Pyeritz says. "Then you may test the parents and find that the 30-year-old mother has the same [deletion]. Yet this isn't why you did the test. Then you're stuck with this quandary of whether or not to report this [to the individuals you tested]."
Figuring out the best way to deal with incidental findings in genetic testing has become a priority in personalized medicine, says Jimmy Lin, research instructor of genomics and pathology services at Washington University School of Medicine in St. Louis. Lin is the co-founder of the non-profit Rare Genomics Institute, which provides genomic sequencing and analysis services to families affected by rare and little-understood genetic diseases. "When you test for things of familial origin, what you find affects the entire family, so you have to be very careful," Lin says.
The Rare Genomics Institute puts all parents who apply for its services through a long and extensive consent process. "We ask them, 'If we find something that shows a pre-disposition to cancer, do you want to know? If we find a gene for a disease that's late onset and there is no treatment for it, do you want to know? If there's a disease that's late onset, and there may be something you can do now, do you want to know?'" Lin says. "Ultimately, it's an individual decision."
The bottom line, says Karlawish, is that many questions still need to be answered before the promise of personalized medicine can be reality. "As a society, we're going to need to start to think about the ethical, legal and social implications of this. Frankly, this is numbers-driven medicine, and there are a lot of for-profit and proprietary interests at hand in owning the numbers. It's a new model that presents novel challenges."


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When Values Collide, Consumers Speak with Their Wallets

Published: December 19, 2012 in Knowledge@Wharton

A high-level executive of a fast food company openly discusses his disapproval of gay marriage in two interviews. The comments spark protests at the company's stores and weeks of negative reaction on cable news shows and in the blogosphere.
A mid-level manager of a well-known charity makes comments in an Australian newspaper about his organization's interpretation of Biblical views on homosexuality. A politically liberal blog urges a boycott of the charity's holiday giving campaign on the grounds that the group discriminates against gays and lesbians.
In both cases -- the first involving Chick-fil-A, the second the Salvation Army -- the actions of an individual voicing their own opinions, not the views of the company, led to consumer retribution and the potential loss of income to the organization, either through a short-term drop in customers or the loss of long-term donors. In neither case were the comments directly associated with the company's core mission, but such distinctions are becoming meaningless when amplified by social media, experts say.
The rubric used by the public when judging these incidents, they add, isn't the same for nonprofit organizations as it is when it comes to for-profit companies. Charities are held to a higher standard regarding the words and actions of staff members, even if those words and actions aren't directly related to its mission. The off-the-cuff remarks of an employee half a world away can have long-lasting reverberations on the success of a charity -- and those kinds of public opinion quakes are hard to shake off.
"People like feeling confident that their giving is making the kind of difference they want to make," says Katherina Rosqueta, executive director of the Center for High Impact Philanthropy at the University of Pennsylvania. "Philanthropy is an expression of deeply held values consistent with what a donor believes. Any time they learn an organization they supported is not being consistent -- either with the reason they supported them in the first place or their own beliefs -- that can cause the organization to potentially lose the donor's support."
Sparking a Powder Keg
The two incidents referenced above are, by now, familiar to many.
In June and July, Chick-fil-A COO Dan Cathy gave separate interviews to Christian media outlets in which he affirmed his opposition to gay marriage. In one interview, held on The Ken Coleman Show, he said: "As it relates to society in general, I think we are inviting God's judgment on our nation when we shake our fist at him and say, 'We know better than you as to what constitutes a marriage.' I pray God's mercy on our generation that has such a prideful, arrogant attitude to think that we would have the audacity to try to redefine what marriage is all about."
His stance wasn't necessarily a surprise: Chick-fil-A is one of the few businesses that is closed on Sundays and major holidays, and its founder and CEO, S. Truett Cathy, is a devout Southern Baptist. Dan Cathy's comments nonetheless sparked outrage across social media and led to boycotts of the chain's 1,600 stores. Although the chain tried to distance itself from the issue, Cathy's words became the de facto stance of the restaurant chain.
Likewise, an Australian media relations official with the Salvation Army gave an interview with two gay journalists in that country in which the group's views on homosexuality came up. In response to a question on whether or not the Bible states that gays should be put to death, Major Andrew Craibe said the group's view that homosexuals should be put to death was "our belief" and that the Salvation Army has "an alignment to the Scriptures."
The international organization quickly moved to assure the public that Craibe's comments were "extremely regrettable" and that Salvation Army members did "not believe, and would never endorse, a view that homosexual activity should result in any form of physical punishment." But that wasn't enough to keep the liberal-leaning America Blog from urging its followers to drop protest cards, not change, in the Salvation Army's red kettles this year.
A Personal Investment
In both cases, one official's statements conflicted with the personal beliefs of a segment of its audience who were, in turn, applying their values to the organization in question. It's not an uncommon phenomenon for both for-profit companies and charities, notes Wharton marketing professor Americus Reed.
"Consumers are drawing on their belief about what ... this company is about. For a nonprofit, that's all kinds of highly moralized things," Reed says. "For a for-profit company, that's not necessarily so unless the company is positioned that way. Ben and Jerry's brand equity, for example, is associated with the environment and a higher order of socially impactful, socially collective sorts of ideas."
Although neither Cathy nor Craibe expressed an opinion that was entirely out of step with their respective organization's world view, consumers tend to take such statements more personally when they come from a nonprofit, Reed adds. Even if the personal views of a charity executive are not in conflict with the nonprofit's mission -- imagine the head of an environmental conservation group being pro-life, for example -- speculation about the politics of a group can lead donors to make assumptions about its views across the board.
"When you connect your identity to an organization that's a not-for-profit, you're not decoupling things in your mind. You're connecting in a way that's certainly explicit in the group's outwardly defined values, and you're assuming implicitly that those values are in total alignment with yours," he says. "For most of us, we don't connect with Chick-fil-A based on values. We connect with them based on that fact that we like their sandwiches."
Transportable Value
The differences stem from what a consumer believes he or she should receive in exchange for supporting a particular organization, the professors note. For a for-profit company, usually that's a tactile item: a chicken sandwich, a cell phone, a pair of pants. For a charity, it's something more personal. "If we look back at the history of philanthropy and why donors give, it's just about trying to get the most social bang for your buck," Rosqueta points out. "It's about what the donor believes a better world should look like."
Rosqueta cited the fissure that developed between the Susan G. Komen for the Cure organization and many of its longtime supporters when Komen, a breast-cancer research and support organization, stopped funding clinical breast exams and mammograms at Planned Parenthood, a women's health organization that also performs abortions. Komen officials cited an internal policy against funding groups that are under investigation -- Planned Parenthood was the subject of a Congressional inquiry at the time -- when it halted its annual funding of around $600,000.
Although the decision was reversed just four days later, the backlash was swift and furious, with many of Komen's supporters assuming the funding was cut in response to political pressure. In this case, Rosqueta says, donors who supported Komen likely supported the overall mission of improving women's health, and they saw the funding decision as anathema to their goals.
"They had supporters who cared very much about the goals of the nonprofit, but who were turned off by what they viewed as a political move on the part of the organization. For donors, just like any individual, [an incident like that] is a pause to reconsider support of an organization when it becomes associated with a set of values and statements that you personally find inconsistent with your own values and statements."
That personal connection makes it, in some cases, even easier to pick up one's figurative toys and play in another sandbox. Wharton marketing professor Deborah Small notes that donors often can feel the same sense of accomplishment by simply switching their charitable aims. "Lots of organizations are asking for money all the time. Unlike Chick-fil-A, I don't get any different consumption value if I give to the local food bank [versus to the Salvation Army]," she says.
The same isn't necessarily true in the private sector, adds Reed, where consumers can find it easier to explain away their internal inconsistencies. "Few consumers are willing to express negative reactions," he says. "When it comes to the inconsistency, they'll say they don't agree with a company, but they're not willing to pay more for an alternative.
"Consumers are really good rationalizers. You'll make up all kinds of different ways to get around it."
'Stay Out of That Stuff'
For Komen, the repercussions of its funding decision were quickly visible: Participation in the charity's multi-day fundraising run/walk event, the Komen Global Race for the Cure, was markedly down in several cities, including Washington, D.C.
For the Salvation Army and Chick-fil-A, however, the link between their separate controversies and profits is less clear. The Salvation Army's red kettle campaign is currently under way. The international organization hasn't released a status update on its progress, but local news reports indicate donations are behind pace in several areas, although it is impossible to determine how much of an effect, if any, the boycott is having.
Chick-fil-A got more of a positive bounce from its controversy, thanks in large part to a counter-protest spurred by conservative political leaders. On the so-called "Chick-fil-A Appreciation Day" held in August, supporters flocked to the business and gave some locations record-breaking sales.
As a corporate strategy, however, Reed says it is too dicey for businesses and nonprofits alike to risk decades of corporate identity on one off-the-cuff comment. "If I were counseling folks on things like this, I'd say stay out of that stuff," he notes. "At the end of the day, there is too much potential downside to put your company, your brand, your equity at risk based on private beliefs. You can believe whatever you believe. No one wants to take those rights away from you. But you need not come out and make those kinds of statements."

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Real Estate with a Cause: Identifying Investments that Serve a Triple Bottom Line

Published: December 19, 2012 in Knowledge@Wharton

A derelict medical center for veterans in Salem, Va., that was transformed into an energy efficient place to live and work -- thanks to a mélange of private and public funds -- proves that investors can make money and support social change at the same time.
That was the message of a panel discussion at the recent Wharton Social Impact Conference focused on innovative approaches to financing socially responsible projects in the real estate sector. How much money is potentially available for building while also serving social and environmental benefits is anybody's guess. One expert, who manages a large, San Francisco-based investment fund dedicated to creating quality jobs in low-income areas of California, estimated $20 trillion. Figures from JPMorgan, however, came in substantially lower -- $400 billion to $1 trillion within the next eight years.
Douglas P. Lawrence, managing principal for 5 Stone Green Capital, a small investment fund that is focused on green technologies, called the veterans' medical complex in Virginia, a "win-win" because "investors get an 8% return, and homeless veterans get a modern, light-filled place to live, stellar medical care and a chance to make some money in a year-round greenhouse. For the environment, we reduced energy consumption by 30%. For the military, this project has impact because it cares deeply about veterans," said Lawrence, a former co-portfolio manager for JPMorgan's urban green property fund.
In addition, the Virginia veterans' project was a rock-solid investment because construction loans and rents were government guaranteed, Lawrence noted, adding that he "wouldn't even look at a building project today that does not incorporate green technologies."
Socially responsible or sustainable real estate development does more than turn a profit. While investors expect gains, there is a growing number who also want to do something for the greater good, whether it is in urban housing, green technology, job creation, preserving historic treasures, providing access to health care, education, clean water, healthy food or numerous other areas around the world in need of capital for change.
"Building green does not cost more. It costs different because the savings are over the long haul," said Lawrence. "With the population expected to grow to seven billion by 2050 and the depletion of our fossil fuels, it only makes sense that we employ the best technologies to keep operating costs as low as possible."
Forget Bamboo Floors and Bike Racks
Lawrence's fund is targeted to three types of real estate: multi-family housing in cities, old industrial buildings suitable for rehabilitation because they are likely to spawn new companies and jobs, and construction of grocery stores and pharmacies because they will "always be essential." He derided what he called "merchant builders who build as cheaply as possible, then move out and leave the problems for the next guy."
On the contrary, he noted, "building green is not about bamboo floors and bicycle racks. It is about improving the bottom line by driving down expenses. It's also about learning how to be a better steward of the resources we have on the planet and how to build better in the first place. This is nothing more than old-fashioned asset management, instead of financial engineering, as a way to increase profits."
While impact investing is gaining momentum in these post-recessionary times, it is far from mainstream, said panel moderator Benjamin Blakney, an investment consultant and former treasurer of the city of Philadelphia. He credited a subtle shift in language for an uptick in interest.
"There is movement away from the term 'socially responsible' investing because it sounds a bit inferior, like maybe the investor should expect a compromise in returns," he noted. "The term 'impact investing' shifts the emphasis to the target. It acknowledges that cash is king and that investment conversations are mercenary. Show me the money. Don't forget money managers have a fiduciary responsibility to seek out market-rate or above market-rate returns."
Other buzz words for the practice that are growing in popularity are "venture philanthropy" or "responsible capitalism." Bill Gates' name surfaced repeatedly during the conference to illustrate the need to make money first before having enough to give away.
Better Analytics Align Money with Passion
Real estate development is inherently complex. Sometimes the desire to add impact investing can make a tentative deal collapse, warned Blakney. A major obstacle, according to The Gallin Group, a market research firm that surveyed 51 leading impact investors last year, is the dearth of high-quality investments along with too few investment managers, consultants and entrepreneurs who can construct and promote measurable investments.
"Asset owners say they would put more capital to work if they were able to find high-quality investments," the study said. "They recognize that their investments serve as demonstration projects, and success may be able to catalyze the flow of additional capital. Therefore, the management teams of the investments must be solid."
Industry pioneers, such as the $3 billion Rockefeller Foundation in New York, view impact investing as a way to reduce poverty and other social problems, but more importantly as a carrot to attract wealth from the largest private capital markets.
More investors are beginning to poke around for social benefit investments because "traditional investments in the last few years have left them dry," noted panelist Joseph J. Haslip, managing director of Blue Harbour Group, a hedge fund. Previously, he was the city of New York's representative to four pension funds with assets in excess of $100 billion. "The atmosphere is definitely getting better. Increased availability of analytics is also helping investors align their money with their passions, he said. "For example, data has shown that corporations with minorities and women on their boards actually outperform those that have none."
While some observers consider green construction to be the "new normal," panelist Stuart Brodsky, a professor at New York University's Schack Institute of Real Estate, predicted that U.S. commercial markets are still 15 years away from "building totally green." The market has made progress, "but there is still a lot of wasted money in construction. The industry would benefit from greater standardization of requirements and government leadership," said Brodsky, who served as the national manager for ENERGY STAR, a program that resulted in a 24 million metric ton reduction in greenhouse gas emissions and a savings of $7.5 billion in energy operating costs.
Tax credits and other government-sponsored redevelopment strategies incentivize private investors to put their money into public projects. Approximately 20 states already mandate or encourage public pension funds to invest in initiatives with a social benefit and, in particular, to support local economies.
A 'Second Downtown' for D.C.
Panelist Elinor R. Bacon, president of a real estate development company in Washington, D.C., and a former deputy assistant secretary for the U.S. Department of Housing and Urban Development's office of public housing investments, noted that the amount of private capital invested in public housing in the last decade has increased four-fold. Her latest project is a 23-acre waterfront site in southwest Washington that is a private-public partnership between the District of Columbia and a team of six development companies, including Bacon's.
Construction on The Wharf is expected to begin early next year and be completed in 2020. It is a poster child for socially responsible real estate development, Bacon added, because it will transform a swath of blighted and isolated waterfront land, owned by the District, into a vibrant place to live, work, shop, study and play. By creating what some are calling a "second downtown" for D.C., as opposed to pushing into the suburbs where building costs are lower, the project exemplifies smart growth, she noted.
There are several measureable ways in which the developer and the city are trying to ensure that The Wharf is not just another urban renewal project that gentrifies an area to the point that long-term residents can no longer afford to live there. While the project includes a yacht club, an Intercontinental Hotel, bike paths, a college campus and about 900 residential units, a substantial number of low and moderate-income families will be blended into those units, according to Bacon.
The plan also stipulates that 51% of the jobs created by the project will be reserved for D.C. residents. Locals also will get preference for 30% of the highly competitive construction apprenticeships attached to the project. Recognizing that the city's waterfront -- along the Potomac and Anacostia rivers and the Washington Channel -- is its most abused resource, the project includes a massive reuse cistern designed to reduce or eliminate storm water run-off, Bacon noted, adding that the project will produce a triple bottom line because it will create profit for shareholders, protect the environment and improve the lives of those who live, work and pass through the space. "In the end, it will substantially improve the quality of life there."


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Why Anxiety Makes You a Sucker for Bad Advice

Published: December 19, 2012 in Knowledge@Wharton

Deciding the best course of treatment for a medical condition. Figuring out the right investment plan for your retirement savings. Choosing the most desirable career path for your future. These are all weighty, anxiety-wrought decisions that individuals are faced with nearly every day, and most will seek advice from others before deciding on the right path forward.
The anxiety surrounding such decisions has always intrigued Wharton operations and information management professor Maurice Schweitzer. His curiosity prompted him to look into how it impacts decision making. "Anxiety is one of my favorite emotions," Schweitzer says. "It's an emotion that is very pervasive, but understudied.... Anxiety has largely been studied as a 'trait' -- e.g., anxious people -- rather than a 'state' -- something that all of us experience for periods of time."
Schweitzer, along with Wharton PhD student Alison Wood Brooks and Harvard Business School professor Francesca Gino, dug deeply into the relationship between anxiety and decision making over the course of two years. They presented their findings in a paper titled, "Anxiety, Advice and the Ability to Discern: Feeling Anxious Motivates Individuals to Seek and Use Advice," recently published in the Journal of Personality and Social Psychology. Relying on eight different experiments, the authors studied how being anxious impacted peoples' openness to accept advice and their likelihood of following poor guidance.
As the researchers note in the paper, three factors influence how receptive individuals are to advice: the characteristics (such as the amount of experience or knowledge) of the advisor; the level of real or perceived difficulty of the decision at hand, and the internal state of the decision-maker when he or she is being given advice. "In almost every domain, individuals discount the advice they receive," the researchers write. "In contrast to this finding, we identify an important aspect of a decision-maker's internal state that causes individuals to be very receptive to advice: anxiety," which they say "promotes feelings of low self-confidence."
There are two types of "state" anxiety -- emotions that are triggered by some aspect of the decision itself, or nerves prompted by an unrelated stimulus. The latter was employed by the researchers, who induced stress in their subjects by asking them to listen to scary music, watch a heart-pounding clip from an action movie or write about an anxious time in their lives. Both Schweitzer and Brooks say they would like to look more closely at the other type of state anxiety, but noted that doing so is much more complicated and invasive. "Using incidental anxiety is a very clean way to study the effect this emotion has on anxiety," Brooks notes.
Though Schweitzer and his colleagues decided to use the more "testable" type of anxiety, they point out that the experiments focus on a rarely studied side of decision making. "Previous research has examined the cognitive consequences of experiencing anxiety; here, we investigate its motivational consequences," the researchers write. "Second, we expand our understanding of the advice-taking process. In particular, we identify the importance of self-confidence and the ability to discern between good and bad advice. Third, although a growing literature has examined advice taking, our work examines the relatively understudied process of advice seeking." Advice taking "is relatively easy to study. There are methodologies in place," Schweitzer adds. "But advice seeking is the more interesting problem."
Anxiety, Anger and Self-Confidence
In the first of their experiments, Schweitzer and his colleagues asked 102 college students to look at a photo of a stranger and estimate that person's weight. The group was told that those who came within 10 pounds of the right answer would receive a $1 bonus. After completing the initial task, some participants were shown an "anxiety-inducing" clip from the movie Vertical Limit; the rest watched a "neutral" clip from a National Geographic documentary about fish in the Great Barrier Reef. Next, the group took a survey to rate their self-confidence and was asked to complete another round of weight estimates. But before being shown the photographs again, participants were asked whether they wanted to receive advice from someone else before making their guesses.
Those put in an anxious state by the movie clip reported "significantly lower" self-confidence than those who watched the nature documentary. Consequently, 90% of the "anxious" participants opted to seek advice, compared to only 72% in the neutral state. Those in the anxious state were also more likely to take the advice they were given.
The next seven experiments built on the first and examined different dimensions of anxiety's influence on advice. Schweitzer notes that eight experiments enabled them to rule out any other factors influencing participants' actions, and to compare different stimuli and influences. "We wanted to make sure it was a legitimate effect, and wanted to make our case in a compelling way," he says.
In the second experiment, the researchers focused on the influence of anger, in hopes of showing the difference between the two emotions. "Anxiety is characterized by a sense of uncertainty, whereas anger is characterized by a sense of certainty," the authors write. They used the same circumstances as the first experiment, but in addition to showing some participants an anxiety-inducing movie clip and some a neutral one, a third group was shown a clip from the movie, The Bodyguard, intended to make them feel angry. The results showed that, like the neutral-state participants, the students in the "angry" group were less receptive to advice and more self-confident than the "anxious" group.
The third experiment employed different stimuli -- the theme music from Psycho and Handel's Water Music: Air -- and a different test -- solving a complicated math problem. In addition to studying how anxiety affected advice taking, the researchers also examined how participants viewed the quality of the advice given. Before solving the math problem, all 79 subjects were handed an envelope containing the same handwritten note, ostensibly from someone who had previously completed the task. Among those in the "anxiety" group, 68% took the advice, compared to only 41% in the neutral condition.
The fourth experiment, according to Brooks, was not part of the original research but was prompted by an anonymous reviewer who wanted to make sure there were no other mediators between anxiety and advice taking beyond the already examined self-confidence. The experiment involved another test -- estimating coins in a jar -- and induced anxiety in one group by asking them to write about a stressful experience (the other group wrote about how they spent their evenings), followed by tests to measure participants' levels of information processing and self-confidence. "We find that anxiety does impair information processing but that only diminished self-confidence, not impaired information processing, mediates the link between anxiety and advice taking," the researchers write.
The most striking results, Schweitzer says, came out of the next three experiments, which looked at how anxiety impacts one's ability to discern between good and bad advice. The experiments used the same writing task as the prior study, followed by the same estimating task. Some participants were given bad advice; others were given accurate estimates for the number of coins in the jar. Those who were in a neutral state were more likely to take advice when the person giving it was purportedly very accurate; anxious participants, however, tended to make no such distinction. "The most surprising thing was [participants'] inability to discern in an anxious emotional state," Brooks notes. "People in an anxious state were really bad at differentiating between good and bad advice."
Schweitzer adds that these results also show just how dangerous anxiety can be. "The problem is that those two things -- being receptive to advice and being less discriminating -- can combine in a way that can be harmful for individuals." In the final experiment, the researchers found that anxious individuals were more open to, and more likely to rely on, advice even when they knew that the person offering it had a conflict of interest.
Making Time for Reflection
Despite the deeper understanding of anxiety and its influences that came from their findings, Schweitzer and his colleagues admit that there is still work to be done in this arena. For example, they note in the paper that further work should look at the influence of anxiety and advice processing when the advisor and decision maker meet face-to-face (in their experiments, all of the advice came secondhand.) More broadly, the paper also suggests that future studies should examine the interpersonal dimension of anxiety, noting that researchers could look into how anxiety affects trust and spreads throughout a group.
And as an immediate follow up, Schweitzer and Brooks are focusing on a study of advice seeking, including what leads people to seek advice and the consequences of seeking advice. Additionally, Brooks is working on her dissertation, which examines how individuals can reappraise their anxiety and turn it into a more positive emotion, like excitement. "After this paper, I thought there has to be an upside to this feeling," Brooks says. "Anxiety is a basic emotion and has to serve some purpose."
According to Schweitzer, the research demonstrates the importance of understanding how anxiety can impact a person's choices. He suggests that people refrain from making major decisions until they are in a relaxed state and are able to clearly reflect on the matter at hand. In addition, he adds that the key element to conquering anxiety is self-confidence.
"People who are very self-confident can overcome these effects," Schweitzer notes. "Most of us, however, will lose confidence in the face of an overwhelming hospital setting or a financial advisor bombarding us with terms we don't understand. It's important to monitor our level of anxiety and recognize that anxiety makes us more receptive to advice and less discriminating."


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Recession Survival Kit

Tuesday 13 January, 2009

by Mal Emery

Let's be clear about one thing. Real success is sustainable. It lasts and it happens in any economic climate - in spite of external influences - and is not exclusive to soaring economies or to businesses that are lucky. Businesses that survive and thrive in tough times are those which adopt an attitude of discovery rather than resistance.

In tough times, business owners tend to focus on the external environment, and as a result they lose focus on the internal workings of their business. But more importantly, they lose focus on their customers. They panic.
This is where mindset comes in. To be successful, you must be mentally tough and emotionally strong. In tough times, the media (predictably) is focusing on the negative. Negative stories sell newspapers, but they do nothing for people's confidence.
Negativity creates a sense of resistance, and while resistance to unpleasant conditions is an expected human condition, it also stymies business owner's capacity to act and focus.
The reality is that in tough times there are just as many opportunities as there are in good times - maybe even more.
A lot of it has to with mindset and education. You must start with the end in mind and remember the cost of education is always cheaper than the price of ignorance. There are two ways to get an education, the first is the school of hard knocks and the second is the school of prior learning.
I have spent considerable time researching the techniques used by businesses to survive and even prosper in a recession. Here are some of my key findings:

1. Put your efforts into your existing clients - Relationships are everything
   
   It sounds obvious, but losing customers through neglect or sloppiness is especially painful in tough times. The cost of replacing them is higher and the difficulty in replacing them is greater.
   
   Just doing what you do competently, or delivering your product as agreed, is not enough to earn your customer's subsequent business. In tough times your competitors will resort to price cutting. If you are not countering this with a quality relationship you WILL lose.
   
   Regardless of the economy, your list of clients and prospects is your most valuable asset. Even more important is your relationship with them and what you are known for.
   
   The truth is that most businesses fail because of an inability to keep customers coming back, rather than an inability to attract customers.
   
2. Grab your customer's attention - Be innovative
   
   Most people in business have unreasonable expectations of the results they will achieve by using plain vanilla advertising and marketing. The one thing your clients and prospects won't put up with is being bored.
   
   The most important thing you've got to do in advertising is to get seen and read. A good example is a pizza shop owner I know of, who instead of sticking her advertising in the letterboxes with all the other clutter, ties her advertising to their fence.
   
3. Take advantage of your customers' fears - Become a tiger in your jungle
   
   In tough times many companies cut back on direct-mail in favor of email or so called easier and cheaper forms of marketing.
   
   Others cut back because of the postal increase, so there is less competition, less clutter in the mailbox. So the tigers eat even better in the jungle and starve last.
   
   Become a tiger in your jungle. You competitor's overreaction to changing economic conditions means more opportunity for you. You may decide to target different customers or alter your message, but you should go after them.
   
4. Your advertising must get people's attention
   
   If you cannot make a compelling case in your advertising to choose your business over your competitors, then you have no business spending a cent on advertising.
   
   The truth is, there is no such thing as a bad medium (media), only poorly targeted and strategised marketing. Just as there is no such thing as a bad hammer, just one that is poorly weilded.
   
   Here is a five step test you should put all your marketing and advertising through. Does it:
   
   
   1. Get attention
      
   2. Arouse interest and emotion
      
   3. Tell an interesting story in a believable way
      
   4. Offer an incentive to take action now
      
   5. Ask for action and make it easy for people to do what it is you want them to
      
5. Make appropriate adjustments to services, payment options and products
   
   David Ogilby, one of the greatest advertisers to live, said: "All advertising should be news. Find ways to present what you do, the services you provide, the products you sell, expressed as news."
   
   Find ways to use what is in the news and on their minds about the economy to your advantage. This does not necessarily mean slashing prices. It may be message related. It may mean arranging better or more finance options.
   
   Better still, focus only on the products and services you sell that produce the bulk of your turnover, and then do it better.
   
6. Only run offer-based advertising - Accept change
   
   I cannot understand the point of advertising without an offer to respond to. If you are really happy spending a lot of money on ads with no accountability, give me a call and I will gratefully accept the money.
   
   Contrary to many famous advertising or copyrighting gurus who maintain that the headline is the first thing you write, the first thing I create is my offer.
   
   The reason the offer is so important, is that it breaks down the major barrier to business - lack of trust and skepticism. In tough times you cannot afford to be boring. Instead make even more outrageous offers, add greater value, use testimonials, bold guarantees and give your clients a compelling call to action.
   
   Today, the world around us changes at the speed of light, yet most business owners change with the speed and agility of a giant iron ore ship, and are destined to meet a similar fate as the Titanic.
   
7. Agility is the key to success
   
   Few people like change, and frankly that is a natural response. After all no one welcomes disruption.
   
   But there is more danger in ignoring and resisting change - particularly where your customers and prospects are concerned. Being agile is the key, being responsive to their needs and desires.
   
   Success depends on an attitude of discovery rather than resistance, reactions that are opportunistic rather than protectionist. Many businesses experience revolution - but few experience evolution.
   
   In an economic crisis, being agile when it comes to your marketing and sales provides industry and business with the opportunity to change the rules when it suits them and create new truths about how business is done.

Avoid blame - You are the answer!

The truth is that money is made mentally long before it is physically collected. The old saying is true: "People have more hang-ups about money than they do about sex."
If you haven't got it then you need to start looking at your thinking. However in my experience, most people prefer to take the easy option and blame circumstances beyond their control, like a recession, the education they didn't get, the parents they never had, the government of the day or anything or anyone that is handy other than them.
In many cases the difference is acting on the getting and using of information.

Author Credits

Mal Emery is one of Australia's most successful business and marketing coaches and author of the recently released book 'Recession Proof Your Business and Income: How to Survive And Thrive In Any Economic Climate'. To find out more visit the Web site: www.recessionfreebusiness.com

Recession Survival Kit

Tuesday 13 January, 2009

by Mal Emery

Let's be clear about one thing. Real success is sustainable. It lasts and it happens in any economic climate - in spite of external influences - and is not exclusive to soaring economies or to businesses that are lucky. Businesses that survive and thrive in tough times are those which adopt an attitude of discovery rather than resistance.

In tough times, business owners tend to focus on the external environment, and as a result they lose focus on the internal workings of their business. But more importantly, they lose focus on their customers. They panic.
This is where mindset comes in. To be successful, you must be mentally tough and emotionally strong. In tough times, the media (predictably) is focusing on the negative. Negative stories sell newspapers, but they do nothing for people's confidence.
Negativity creates a sense of resistance, and while resistance to unpleasant conditions is an expected human condition, it also stymies business owner's capacity to act and focus.
The reality is that in tough times there are just as many opportunities as there are in good times - maybe even more.
A lot of it has to with mindset and education. You must start with the end in mind and remember the cost of education is always cheaper than the price of ignorance. There are two ways to get an education, the first is the school of hard knocks and the second is the school of prior learning.
I have spent considerable time researching the techniques used by businesses to survive and even prosper in a recession. Here are some of my key findings:

1. Put your efforts into your existing clients - Relationships are everything
   
   It sounds obvious, but losing customers through neglect or sloppiness is especially painful in tough times. The cost of replacing them is higher and the difficulty in replacing them is greater.
   
   Just doing what you do competently, or delivering your product as agreed, is not enough to earn your customer's subsequent business. In tough times your competitors will resort to price cutting. If you are not countering this with a quality relationship you WILL lose.
   
   Regardless of the economy, your list of clients and prospects is your most valuable asset. Even more important is your relationship with them and what you are known for.
   
   The truth is that most businesses fail because of an inability to keep customers coming back, rather than an inability to attract customers.
   
2. Grab your customer's attention - Be innovative
   
   Most people in business have unreasonable expectations of the results they will achieve by using plain vanilla advertising and marketing. The one thing your clients and prospects won't put up with is being bored.
   
   The most important thing you've got to do in advertising is to get seen and read. A good example is a pizza shop owner I know of, who instead of sticking her advertising in the letterboxes with all the other clutter, ties her advertising to their fence.
   
3. Take advantage of your customers' fears - Become a tiger in your jungle
   
   In tough times many companies cut back on direct-mail in favor of email or so called easier and cheaper forms of marketing.
   
   Others cut back because of the postal increase, so there is less competition, less clutter in the mailbox. So the tigers eat even better in the jungle and starve last.
   
   Become a tiger in your jungle. You competitor's overreaction to changing economic conditions means more opportunity for you. You may decide to target different customers or alter your message, but you should go after them.
   
4. Your advertising must get people's attention
   
   If you cannot make a compelling case in your advertising to choose your business over your competitors, then you have no business spending a cent on advertising.
   
   The truth is, there is no such thing as a bad medium (media), only poorly targeted and strategised marketing. Just as there is no such thing as a bad hammer, just one that is poorly weilded.
   
   Here is a five step test you should put all your marketing and advertising through. Does it:
   
   
   1. Get attention
      
   2. Arouse interest and emotion
      
   3. Tell an interesting story in a believable way
      
   4. Offer an incentive to take action now
      
   5. Ask for action and make it easy for people to do what it is you want them to
      
5. Make appropriate adjustments to services, payment options and products
   
   David Ogilby, one of the greatest advertisers to live, said: "All advertising should be news. Find ways to present what you do, the services you provide, the products you sell, expressed as news."
   
   Find ways to use what is in the news and on their minds about the economy to your advantage. This does not necessarily mean slashing prices. It may be message related. It may mean arranging better or more finance options.
   
   Better still, focus only on the products and services you sell that produce the bulk of your turnover, and then do it better.
   
6. Only run offer-based advertising - Accept change
   
   I cannot understand the point of advertising without an offer to respond to. If you are really happy spending a lot of money on ads with no accountability, give me a call and I will gratefully accept the money.
   
   Contrary to many famous advertising or copyrighting gurus who maintain that the headline is the first thing you write, the first thing I create is my offer.
   
   The reason the offer is so important, is that it breaks down the major barrier to business - lack of trust and skepticism. In tough times you cannot afford to be boring. Instead make even more outrageous offers, add greater value, use testimonials, bold guarantees and give your clients a compelling call to action.
   
   Today, the world around us changes at the speed of light, yet most business owners change with the speed and agility of a giant iron ore ship, and are destined to meet a similar fate as the Titanic.
   
7. Agility is the key to success
   
   Few people like change, and frankly that is a natural response. After all no one welcomes disruption.
   
   But there is more danger in ignoring and resisting change - particularly where your customers and prospects are concerned. Being agile is the key, being responsive to their needs and desires.
   
   Success depends on an attitude of discovery rather than resistance, reactions that are opportunistic rather than protectionist. Many businesses experience revolution - but few experience evolution.
   
   In an economic crisis, being agile when it comes to your marketing and sales provides industry and business with the opportunity to change the rules when it suits them and create new truths about how business is done.

Avoid blame - You are the answer!

The truth is that money is made mentally long before it is physically collected. The old saying is true: "People have more hang-ups about money than they do about sex."
If you haven't got it then you need to start looking at your thinking. However in my experience, most people prefer to take the easy option and blame circumstances beyond their control, like a recession, the education they didn't get, the parents they never had, the government of the day or anything or anyone that is handy other than them.
In many cases the difference is acting on the getting and using of information.

Author Credits

Mal Emery is one of Australia's most successful business and marketing coaches and author of the recently released book 'Recession Proof Your Business and Income: How to Survive And Thrive In Any Economic Climate'. To find out more visit the Web site: www.recessionfreebusiness.com