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Volume 173 Number 1
features Selling America 62
Amazon invades India
Alibaba’s New Favorite Label: ‘Made in the USA’
How Jeff Bezos aims to conquer the next “trillion-dollar market.” The inside story.
The Chinese e-commerce giant needs the sales—and prestige—that could come from bigger partnerships with American brands. U.S. companies are eager to reach Chinese consumers. Could this be the start of a beautiful friendship?
By Vivienne Walt
The Last BRIC Standing Under the leadership of Prime Minister Narendra Modi, India is doing what its oncecelebrated cohorts in the emerging-markets bloc can no longer seem to do: emerge.
By Leena Rao
By Ian Bremmer
business gets schooled: sa m k a pl a n
48 Business Gets Schooled When Exxon Mobil, GE, Intel, and others pushed for the Common Core standards, they had no idea they would be incurring the wrath of Tea Party conservatives. They got a painful lesson in modern politics. By Peter Elkind
ON T H E C OV E R : i l l u s t r a t io n b y JOEL HOLLAND
82 A Millennial’s Field Guide to Mastering Your Career
90 The Doctor Will See You (and Your Data) Now
Welcome to a world that doesn’t understand you and might not want to hire you. Still, there’s hope for the nation’s tech-savvy young workers. Here’s how to get the right job—and crush it.
The secrets to your health and longevity are hiding within you. At long last, we have a chance to reveal— and share—them. An excerpt from The Lucky Years.
By Claire Groden
Plus: A Q&A with the author.
By David B. Agus, MD
T H I S PAGE: i l l u s t r a t io n b y NIGEL BUCHANAN
January 1, 2016
A fair-trade upgrade offers a dramatically better deal for coffee farmers.
The death of American research and development. By Chris Matthews
Fair Trade 2.0
A new generation of coffee roasters is redeﬁning “fair trade” in an era of higher-priced artisanal beans. By Jennifer Alsever 12
There are more private satellites in orbit than ever—and the data they deliver is out of this world.
Selling with “joy” at luxe kitchen and bath retailer Pirch. By Dinah Eng
By Jen Wieczner
Idea of Interest
The partisan divide has pushed up sales for Smith & Wesson. By Laura Lorenzetti
Why gun sales soared in 2015
Connected gadgets reveal how disease spreads. By Stacey Higginbotham 34
A Boom With a View
The once-fruitful relationship between Silicon Valley startups and Wall Street is unraveling.
What business can learn from the Golden State Warriors. By Ed Frauenheim
By Erin Griffith
Will a stock bust follow the merger boom? By Joshua M. Brown
Want to make the new year superior to the one before? Here, some tips, tricks, and hacks from the best new business books.
Business in the Cloud
Everyone is using peer-to-peer payment services. Now providers are trying to monetize them.
Global Stock Investing
By Jonathan Chew
By Leena Rao
January 1, 2016
BlackRock’s Dennis Stattman explains why he’s bullish on Japan. Interview by Matt Heimer
6 EDITOR’S DESK 100 BING!
coffee fa r mers: courtesy of thr i v e
Cognitive insurance is here. How can auto insurers keep customers safe from storms and costly storm damage? IBM Watson Internet of Things solutions combine insights from customer driving patterns, trafďŹ c and tweets, and data from The Weather Company to help insurers keep drivers safe. When your business thinks, you can outthink. TM
outthink IBM and its logo, ibm.com and Watson are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. See current list at ibm.com/trademark. Other product and service names might be trademarks of IBM or other companies. International Business Machines Corp. 2016.
A panoramic view of Fortune’s new workspace in downtown Manhattan
The Joy of Reinvention JANUARY HAS LONG BEEN a favored time to talk
of new beginnings—and we have some exciting things in store for 2016. But one of the real joys of leading the team at Fortune for the past year has been watching this grand, 86-year-old franchise transform itself. The biggest change has been in the digital arena, where we now publish 80 to 100 stories a day, read by nearly 17 million people a month. Our video audience has grown ﬁvefold, and we have one of the fastest-growing mobile-device audiences in the magazine world. All of this speaks to the core goal of our evolution: getting you quality business news and advice wherever, whenever, and however you want it. We’ve also doubled down on technology coverage, hiring a passel of new journalists who are true experts in the technologies that are transforming business: cloud and mobile computing, connected devices and the Internet of things, big data and
January 1, 2016
machine learning, advanced robotics and drones. We have made understanding and covering the new industrial revolution our guiding purpose. And, to help drive cross-platform thinking, we have taken down the walls—relocating to bright, new, open offices in early December (see our new digs above). The dynamic space is already helping to foster collaboration. As we continue to reinvent, redesign, and reinvigorate our beloved brand, however, some things won’t change. Ever. We will
continue to be a home for great business reporting and storytelling—like Peter Elkind’s fascinating piece on the blowback to Big Business from its campaign to promote Common Core (page 48), and Vivienne Walt’s compelling dive into Amazon’s new operations in India, as the e-commerce giant reinvents itself to conquer a staggeringly huge market (page 62). Continual evolution, after all, is the secret to business success.
alan murray Editor @alansmurray
p ho t o g r a p h b y FORTUNE
JANUARY 1, 2016
Macro CL OSER L OOK
mik e k emp—rubber ba ll/gett y im ages
THE DEATH OF american RESEARCH AND DEVELOPMENt By Chris Matthews WHEN RUMORS BEGAN TO FLY about a merger between chemical giants Dow Chemical and DuPont, it was obvious the deal was not your ordinary fee-driven scheme dreamed up by investment bankers. The two companies have 331 years of American history between them, with DuPont claiming the title of fourth-oldest Fortune 500 ﬁrm. But it’s not just their ages that distinguish these companies. In an economy in which roughly 80% of GDP comes from the services sector, these vaunted institutions actually make stuff—and perhaps more important, invest a lot in researching how to make better and more proﬁtable stuff.
January 1, 2016
In the eyes of many investors in the U.S. today, however, the large research budgets of companies like DuPont are precisely what’s holding them back. When activist investor Nelson Peltz tussled with former DuPont CEO Ellen Kullman earlier this year, R&D spending was a main talking point. What Kullman defended as a commitment to science and solving the world’s big problems, Peltz saw as empire building that DuPont’s investors could ill afford. (When the dust settled, Kullman resigned.) Whether or not DuPont’s research budget was well spent, there’s plenty of nostalgia for the days when businesses were making huge discoveries. Decades ago, DuPont invented nylon and Teﬂon. Dow, for its part, created Styrofoam. Americans are still fascinated by the centralized research programs of yore, like AT&T’s Bell Labs and the Xerox PARC laboratory, whose scientists’ work
SHARE OF U.S. COMPANIES PUBLISHING NEW SCIENTIFIC RESEARCH
January 1, 2016
CHANGE IN BUSINESS EXPENDITURES ON R&D, 2009–13 CHINA
UNITED STATES UNITED KINGDOM CANADA
7.0% 5.4% –11.3%
alarming. They found that by 2007, just 6% of publicly traded companies were publishing research in scientiﬁc journals, down nearly twothirds from 1980. That, it turns out, is just ﬁne with investors. Arora also found that after controlling for other factors, companies that engage in more research are worth less in public markets. “Corporations value basic science less and demand less of it” than they did 35 years ago, he says. How worried should that make us? Philip Auerswald of George Mason University says the decline of R&D spending in recent decades is essentially a return to normal after overinvestment in mostly military technology following World War II and during the Cold War. Plus, the Nobel Prizes won by corporate research labs may have earned their parent companies prestige, but they don’t always make money. Sometimes it’s competitors who beneﬁt—think of Steve Jobs’ appropriation of Xerox inventions like computer desktop icons. The difficulty of monetizing discoveries has helped dissuade a generation of management from spending big on basic research.
Calculated in constant dollars and adjusted for purchasing power parity
But while the fallout may not be readily apparent, this doesn’t mean it’s not severe. Less focus on corporate research has coincided with the decline in productivity growth that has been plaguing the U.S. economy since the middle of the last decade. Since 2004, gains in what economists call Total Factor Productivity—or the measure of how well an economy combines labor and capital to create economic growth— has been half of what it was in the prior decade. IMF economists recently compared the productivity growth in various U.S. states and found that those where R&D spending was the highest also showed faster TFP growth. With America’s economic rivals—in particular, China— showing no letup in their willingness to boost research and development, it may just be time to stop listening to investors betting on the short term and reignite the American love affair with corporate science. “If we don’t do the basic research,” says Marc Kastner, president of the Science Philanthropy Alliance, “other countries will.”
gr a phic sources: oecd; duk e u ni v ersit y’s fuqua school of business
won Nobel Prizes and led to revolutionary inventions, such as the transistor and the computer mouse. Today Bell Labs exists as a part of Alcatel-Lucent, but its once-sprawling campus in Holmdel, N.J.—the site of early breakthroughs in cellphone technology— has been converted into a mixed-use, new urbanist real estate development. Xerox PARC still calls Palo Alto home, but in 2002 it was spun off as an independent subsidiary and now engages in R&D on demand rather than the open-ended basic research that yielded some of its more famous discoveries. Figuring out just how much corporate research has waned is surprisingly difficult. Look at R&D costs, and you’ll ﬁnd that spending as share of revenue has been fairly steady in recent years. But most Fortune 500 companies don’t disclose that spending, and for the 95 that do, the category is so broad as to be not very useful. After all, R&D can include everything from Bell Labs’ discovery of background radiation (which ultimately led to the development of the big bang theory) to Twitter’s sparkly new “like” button. To get a better sense of the resources dedicated to research, economists Ashish Arora, Sharon Belenzon, and Andrea Patacconi looked at the share of publicly traded corporations whose scientists publish in academic journals. The ﬁndings, published in 2015, were
S K Y- H I G H G R O W T H
Moving Markets From 400 Miles THERE ARE MORE PRIVATE SATELLITES IN ORBIT THAN EVER—AND THE DATA THEY DELIVER IS OUT OF THIS WORLD. By Jen Wieczner
Labs, which says that this year it will be able to take a picture of every inch of land on Earth, every day. What can you do with an astronaut’s view of the planet? Plenty. While Earth observation is still a small slice of the $123 billion satellite services industry, it has been growing fast: Its
January 1, 2016
$1.6 billion in sales in 2014 were up 60% from ﬁve years earlier. Descartes, which raised $5 million in November, says it can predict crop yields partway through the year with 99% accuracy—a level of precision the USDA can’t match until after the season is actually over. Another company, Orbital Insight, which recently raised $8.7 million from Sequoia Capital, among others, tracks construction
in China based on shadows cast by buildings. It also zeroes in on the parking lots of more than 50 U.S. retailers, providing intel about store traffic to hedge funds and other investors. It was among the ﬁrst to notice a drop-off in visitors to Chipotle following the burrito chain’s E. coli scare.
indonesi a: courtesy of pl a net l a b
NOT FAR from the government laboratory in New Mexico best known as the birthplace of the atomic bomb, a startup is applying the same lab’s supercomputing technique toward a different goal: predicting crop production—from space. Los Alamos–based Descartes Labs is just one of many new ventures searching for macroeconomic trends in satellite images— a trove of big data that’s getting exponentially bigger, thanks to the growing number of satellites that companies are hurling past the stratosphere. In 2016, 92 commercial Earth-observation satellites will be put into orbit—that’s more than 10 times the number in 2013, says research ﬁrm Tauri Group. Most are about the size of a loaf of bread and made by Planet
COST OF HANDLING APPAREL RETURNS AS A SHARE OF TOTAL E-COMMERCE FULFILLMENT LABOR SPENDING
SHARE SPENT ON RETURNS IN ALL ONLINE RETAIL CATEGORIES
MAY AUG . DEC .
gr a phic source: a lixpa rt ners
Who suffers when you return those xmas gifts
But the data has applications far beyond ﬁnance: Descartes is developing a method to monitor climate change and could eventually track countries’ compliance with the recent Paris accord. From more than 400 miles up, there’s not much you can hide.
Forest ﬁres in Indonesia, set to clear room for farmland, as seen from a Planet Labs satellite. New technology that reads satellite data can detect ﬁres as soon as 15 minutes after they start.
IT’S A WELL-WORN
online-shopping hack: Order the same dress in three diﬀerent sizes and then return the two that don’t ﬁt. Why not, when free returns have become de rigueur (shipping included)? By some estimates, about 30% of women’s fashion and shoe purchases are later returned. Butoneperson’ssavvyonlineshopping—orill-ﬁtting holidaypresent—hasbecomeanindustry’smultibilliondollarmoneypit. DatafromglobalconsultingﬁrmAlixPartnersshowthat fashionitemsalonegenerate32.2%ofallthelaborcosts retailersincurinJanuary,thepeakperiodforreturns,to runtheire-commercefacilities—includingreceivingpackagesandrestockingtheitems.That’snearlyseventimes thecostincurredbynonfashionitems.Thetotalcostofall returnedgoodsisestimatedat$260.5billion(witha“b”) fortheyear,accordingtotheNationalRetailFederation. Somestoresarebetterpositionedtofootthose restockingbillsthanothers.LuxurybrandslikeNordstrom andNeimanMarcushavehighmarkupsthathelpabsorb shippingcosts.Butit’scostlierformid-tierstoreslike Macy’sandKohl’siftheyhavetoshellout$6inshipping whenacustomersendsbacka$40pairofleggings. Whattodo?Increasingly,retailershavesetuptheir storestoallowshopperstodropoﬀreturnson-site,aswell aspickuponlinepurchases.Kohl’sCEOKevinManselltold analystsinNovemberthatnotonlydoesthetacticsave onshipping,but20%ofcustomerswhocomeintopickup purchasesbuyalittleextrasomethingwhilethey’rethere. Priceyreturnsmaybeamodernproblem,butthesolution isanoldone:Sellmorestuﬀ.—PhilWahba January 1, 2016
The Year of the Gun THE PARTISAN DIVIDE HAS PUSHED UP SALES FOR SMITH & WESSON. By Laura Lorenzetti THERE WERE MORE MASS SHOOTINGS in the U.S. in 2015 than there were days in the year. The shootings, deﬁned as incidents in which at least four people are wounded, have sparked front-page editorials and demands from politicians for stricter gun control. They’ve also been a boon for gunmakers. Smith & Wesson’s stock soared by 151% in 2015, making it the 15th-best-performing large-cap company as of mid-December and adding some $790 million to its market value. Competitor Sturm Ruger & Co. didn’t do too shabbily either, posting a gain of about 70% for the year. Black Friday gun sales, as measured by FBI background checks, were the highest ever for a single day, surpassing 185,000 sold. How does that happen? Calls for stricter controls lead ﬁrearm enthusiasts to stock up—most gun owners have more than one type (the average gun owner has eight). Brian Ruttenbur at BB&T Capital Markets likens it to shoe shopping: “If you have a pair of pumps, you still want a pair of running shoes.” Others see dire headlines and buy guns for self-defense, leading to an uptick in ﬁrst-time purchases too. Says Ruttenbur: “The No. 1 driver of these spikes is fear.”
SMITH & WESSON STOCK S&P 500 0 JAN. 5
China’s pollution crisis has political blowback CHINA IS NOT a country known for bending to the whims of its populace. But as the country’s breakneck economic growth slows, public outrage has escalated over a pollution crisis that closed schools for days and sent thousands to the hospital in December. Beijing’s smog has become political. The Communist Party appears to be going to lengths to diffuse the criticism. Beijing’s mayor said last year that if the air wasn’t improved by 2017, he’d cut off his own head. President XiJinping has said he checks the air pollution levels every morning. “The central government talked about GDP before,” says Wang Yongchen, one of the country’s most prominent environmentalists. “Now there are too many dangers.” Compounding the public outrage: Smog data today is publicly available. The U.S. embassy in Beijing began releasing readings of PM2.5—the tiny carcinogenic pollutants that cause smog—in 2008. Four years later, Beijing released its own readings, and local governments followed suit. Under the Dome, an investigative documentary about pollution that mined that data, got 100million online views (and sent green company stocks soaring) this summer, before censors banned it. The country’s December pollution crisis lasted 53 hours and was lifted after strong winds cleared the clouds away. Mistrust of oﬃcials lingers still. —Scott Cendrowski
gu n: in ter foto—a l a m y; beijing: gr eg ba k er—a fp/gett y im ages
Place to Work has found that a fun, inclusive community spirit is important to employees at the World’s 25 Best Multinational Workplaces, which include Google, Marriott, and H&M. These leading organizations show that esprit de corps is a hard-nosed business advantage. So we took a closer look at the Warriors to see what else they might have in common with the world’s best employers. Here, three rules to follow:
1. Have Fun
G R E AT W O R K P L AC E S
LeSSONS from the Warriors The reigning NBA champions attribute their success to camaraderie and team spirit. By Ed Frauenheim
2. care for each other The Warriors love one another like family members. “It’s a brotherhood,” according to Warriors forward Marreese Speights. “We support every guy that steps on the court, whether it’s 30 minutes or two minutes. Everybody gets the same love.” The collective care reﬂects coach Steve Kerr’s core values: joy, compassion, mindfulness, and competitiveness. In business, deeper connections among co-workers can translate into greater devotion to the organization’s mission.
The Warriors each have impressive talent, but they put aside personal glory for the good of the team, which topped the NBA in assists last year and is leading again this season. Individual unselﬁshness—which generates open, higherpercentage shots—is making the team richly successful. It’s rare to ﬁnd egoless teamwork in the workplace, but it’s a key part of many business success stories. For more examples of companies that exemplify the Warriors’ sense of community, check out our ﬁrst-ever list of the 50 Best Workplaces for Camaraderie at fortune.com/camaraderie. The ranking takes into account employee feedback and measures how welcoming and fun companies are to all employees and the extent workers say they “can count on people to cooperate.” The Warriors began this season by winning 24 games before recording their ﬁrst loss in mid-December. That impressive winning streak not only set the NBA record for best start to a season but also put the Warriors ahead of the 1884 St. Louis Maroons baseball team for the best season beginning in any of the major U.S. professional sports. Coincidence? We think not. Ed Frauenheim is director of research and content at Great Place to Work, Fortune’s partner for our list of the 100 Best Companies to Work For.
noa h gr a h a m—nba e v i a gett y im ages
HERE’S SOMETHING different about the Golden State Warriors—and it’s not just because they’re the current title holders. On any given game day, the Warriors can seem like a pack of giddy 6-year-olds. The players have said that their playful bonding is central to their basketball prowess—and a major reason for their success. The joyful sense of camaraderie at the core of the Warriors’ on- (and off-) court antics can offer lessons to companies about how to build a high-trust, competition-crushing culture. Great
The Warriors love playing together, and that exuberance translates into highenergy, creative teamwork. After passing to teammate Draymond Green for a layup in a recent game, Warriors forward Andre Iguodala danced crazily down the court. By staying loose, the Warriors overcame a 23-point deﬁcit to win. At companies with superserious, dreary cultures, employee energy, innovation, and productivity can suffer.
3. Cooperation Is Key
It happens. Especially when you’re ﬂying in the Bombardier Global 6000 offered by NetJets. That’s because it’s the largest business jet capable of accessing the world’s most difﬁcult-to-reach airports, like Aspen and London City. Offering unparalleled luxury and uncompromising performance, the Global 6000 truly rises above the rest. To learn more, visit aworldabove.com
Be Better! TIPS, TRICKS, AND HACKS FROM THE SEASON’S BEST BUSINESS BOOKS TO MAKE YOUR NEW YEAR SUPERIOR TO THE ONE BEFORE. By Jonathan Chew
THE PRODUCTIVITY PROJECT For one year, Bailey, a Canadian business school grad, structured his life around a single obsession: improving his productivity. While his experiments bordered on radical—he watched 70 hours of TED Talks in one week, for example—Bailey is laser-focused on getting you to excise any wasted eﬀort from your day and routine. Plus, every chapter has a handy takeaway (and an estimated reading time).
Aim for the eﬃciency sweet spot of 40 work hours a week.
January 1, 2016
Improve focus by practicing the Pomodoro Technique: Work on one task for 25 minutes, then take a ﬁveminute break. Your attention muscles will strengthen over time.
ORIGINALS By Adam Grant
By Eric Weiner
By Chris Bailey
Pare your day down to the three most essential tasks.
THE GEOGRAPHY OF GENIUS In this part essay, part travelogue, former NPR correspondent Weiner circles the globe to ﬁnd out what makes the world’s smartest people tick. His discovery: Culture begets creativity. In Hangzhou, China, for example, locals treasure progress over end results. And ideas ﬂourish at Edinburgh universities because disciplines regularly mix and learn from one another. “Genius is like a chemical reaction,” he writes. “Change one molecule and you change everything.” In most cases the ability to recognize and develop talent is more important than being talented. Go to a café in Vienna, or if you can’t aﬀord it, Starbucks. Studies show that ambient noise around 70 decibels is better for creativity than silence.
So you want to be the next Steve Jobs? Grant, an organizational psychology professor at Wharton, presents some counterintuitive steps to get you there (or at least closer) in this rich and practical paean to nonconformity. For example, he advises not quitting your day job before starting a company. “Having a sense of security in one realm gives us the freedom to be original in another,” he writes. And (a bit unlike Jobs) he thinks advice from colleagues is critical. Gather as much feedback as possible from your fellow creators. Mitigate risks by having a safety net. Studies show that nonconformists are often more cautious in certain tasks, which allows them to make big gambles selectively. When it comes to ideas, quantity trumps quality.
p ho t o g r a p h b y MICHAEL CHINI
haveKINDLE willTRAVEL @SAMALIVE, BRECKENRIDGE |
Maybe it’s the excitement of the unknown, or the time by myself, but there’s something thrilling about traveling with Stephen King on my Kindle Paperwhite as my only companion. Follow more journeys on Instagram @ AMAZONKINDLE
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RALPH NADER’S NEW MUSEUM; OLD SOAPBOX
SoulCycle enthusiasts took 2.9 million rides on its stationary bikes in 2014.
FITNESS HAS A NEW BUSINESS MODEL Can it give you a new body model? By John Kell
The high end of projectionsforhowmuchtheFederalReserve will raise rates in 2016, according to Randy Moore, editor of BlueChipEconomicIndicators.NowthattheFedhasﬁnallyhiked rates, the next question is how far. The consensus: not very.
January 1, 2016
soulc ycle: a ndr e chu ng—gett y im ages; na der: jessica hill—a p photo
MOST FITNESS FADS last about as long as a Jane Fonda workout video. American health enthusiasts are ﬁckle. Just ask bankrupt Bally Total Fitness—or walk into a gym in April, after those New Year’s resolutions fade. The industry’s latest obsession, though, may have greater endurance than most. Instead of a typical membership model, new studios are offering trainers and classes in single pursuits like cycling, yoga, or boxing. The class-based model’s poster child, SoulCycle, is hoping to raise more than $200 million in its imminent IPO. U.S. membership in health clubs hit an alltime high of 54.1 million in 2015, according to the International Health, Racquet & Sportsclub
Association, meaning SoulCycle will be entering a bullish market. And the $29.8 billion ﬁtness industry is projected to add another $5.7 billion in revenue over the next ﬁve years, according to IBISWorld. At the high end of the market, spin studios and their ilk enjoy a cost premium, says IBISWorld analyst Sarah Turk, and their lifestyle focus means people also might stick with it past January. “It’s not just a workout,” says SoulCycle CEO Melanie Whelan. “Our studios are really sanctuaries.” That mind-set may beneﬁt both waistlines and wallets.
FOR WAY MORE than half of his 81 years, Ralph Nader has been in the national spotlight. Now the lawyer and consumer activist has opened a museum in his hometown of Winsted, Conn., celebrating (gulp!) tort law and class action suits. That’s not an opening you’ll ﬁnd manyFortune 500 CEOs toasting, but the brilliant and obsessive octogenarian behind America’s auto-safety reforms is always worth listening to. On a chilly D.C. afternoon in December he shared his most recent critique of America’s capitalists: “They are sitting on trillions of cash in this country, and they don’t know what to do with it, so they buy their own stock,” Nader says, singling out Walmart and Apple. “It’s just to enhance the compensation of bosses.” Not surprisingly, Nader supports capping the ratio of CEO-to-worker pay. Does he still harbor political ambitions? He’s not going to run for President again, but stay tuned. His determination to forge America’s populist left and right wings into a broad-based political movement may be ﬁnding new life in an America where populism is surging. —Nina Easton
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JANUARY 1, 2016
Venture FA IR T R A DE 2.0
Some of Thrive’s coffee farmers in Guatemala
courtesy grof a phic thr isource: ve tk tk tk tk k
Friends of the coffee farmers A new generation of roasters is redeﬁning “fair trade” in an era of higher-priced artisanal beans and climate threats. By Jennifer Alsever
ATLANTA COFFEE COMPANY Thrive brewed up strong results in 2015. Demand from corporate customers, including Chick-ﬁl-A, percolated, putting Thrive on pace to generate $20 million in revenue for the year. But the four-year-old roaster doesn’t reap all the rewards. It shares half its sales with the guys at the bottom of the supply chain: the farmers who raise and harvest its beans. When Michael Jones and Kenneth Lander started Thrive in 2011, they couldn’t understand why often-impoverished coffee farmers had to assume all the risks of planting and raising beans. Volatile commodity prices made their revenues uncertain; weather disasters routinely
January 1, 2016
FAIR TRADE 2.0
Lander says Thrive is proﬁtable despite its higher payments because the ongoing relationships with farmers allowed it to eliminate multiple middlemen—such as exporters and importers— who each took a cut. Thrive’s deals protect its supply and provide access to some of the most prime beans at a time when customers are ever more enamored of smallbatch offerings and increasingly obsessed with knowing their coffee’s provenance— and willing to pay for it. Thrive’s relationship with Costa Rican farmer Franklin Garbanzo, for example, gave it ﬁrst dibs on his smallbatch “Geisha” beans, which became one of the company’s top boutique offerings. Thrive has employees on the ground who help farmers develop new ways to fertilize and test plants to withstand drought and a fungus called coffee leaf rust, which have devastated crops in some Central American countries. It’s hard to track the impact of direct trade, since only some roasters use the term and only some produce transparency reports that show the average amount paid in various countries. (Counter Culture, for example, reported that it paid an average $3.37 per pound in 2014.) By contrast, Fair Trade USA monitors how much goes to growers. The third-
courtesy of thr i v e
decimated their crops. (One reason the two were extra sympathetic: Jones’s fatherin-law is a Jamaican coffee farmer, and Lander, a retired attorney, had purchased his own coffee farm in Costa Rica.) Says Lander of the traditional arrangement: “It was an injustice.” Jones and Lander offered a dramatically better deal. Today, rather than pay the standard $1.25 per pound for unroasted green coffee beans, or even the “fair trade” minimum of $1.40 to $1.90, Thrive gives growers 50% to 75% of the sales of the ﬁnished beans on a given corporate contract. “The farmer is our partner,” says Lander. Thrive is the latest roaster in the $26 billion specialty coffee market, the realm of higher-quality beans identiﬁed by where they were grown, to participate in what could be called fair trade 2.0. The initial version, which continues to grow as a percentage of bean sales— from 1.5% a decade ago to 6.0% last year—established minimum prices, about 15¢ a pound more than the commodity rate. Growers who meet certain labor and
environmental standards are certiﬁed as fair trade. Buyers also pay an additional 20¢ a pound for community development—schools or roads— along with 30¢ per pound more if the coffee is organic. Fair Trade USA has delivered $350 million in extra income and assistance to 1.2 million farmers worldwide in its 17 years. The certiﬁcation has expanded to categories such as textiles and fruit. Says Paul Rice, CEO of Fair Trade USA: “It’s enabling amazing changes.” But fair trade hasn’t been enough to lift most coffee farmers out of poverty—critics charge that roasters enjoy a much larger share of the fair-trade premium than the growers—much less allow them to invest and improve their growing techniques. A new generation of roasters is committing more money to partner with farmers. Companies like Intelligentsia and Stumptown Coffee (both newly acquired by Peet’s) and Counter Culture are touting “direct trade,” a phrase that connotes a less formal approach to teaming with growers with a particular emphasis on high quality. The roasters aren’t driven just by altruism. It’s good for business, they say. “It seems so simple,” says Lander. “You pay farmers more, they grow better coffee, the quality goes up, and so does demand.”
party audits also ensure that fair labor and environmental standards are upheld. Starbucks, which buys 461 million pounds of beans each year, created its own programs to work directly with farmers. It started seven support centers around the world, committed $50 million in farmer ﬁnancing, and bought a farm in Costa Rica as a global agronomy center. The company relies on a program it developed with Conservation International called Coffee and Farmer Equity to verify that 99% of its coffee is “ethically sourced.” Starbucks paid an average price of $1.72 per pound in 2014, according to its annual global responsibility report. Meanwhile, a string of tiny players like Pachamama, Doi Chaang, and Cafedirect aims to lift up farmers by giving them company ownership, control, and a signiﬁcant cut of the retail proﬁts. For example, Doi Chaang pays 75% above the fair-trade minimum for beans from a high-altitude Thai village and gives half its proﬁts to the village. The money has helped bring electricity, water, a school, a hospital, roads, and more, says cofounder John Darch. In the four years since Garbanzo agreed to work with Thrive, he says he has tripled his income and been able to ﬁx his home, expand and upgrade his farm, and send his three kids to college. “I’m getting paid three times more without any real risk,” he says. Such anecdotes give Lander and Jones conﬁdence that some day Thrive could use the model for cocoa and tea. “The whole commodity system is antiquated,” says Jones, “and this is the ﬁrst step to change.”
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A Pirch training session in San Diego
does joy help you sell? Training at luxe kitchen and bath retailer PIRCH emphasizes emotions rather than practical skills. By Dinah Eng
January 1, 2016
courtesy of pirch
OST RETAILERS offer training on sales tactics, inventory control, or perhaps how to handle irate customers. Pirch teaches its employees how to work joyfully. Pirch, which aims to be the Tesla of kitchen and bath stores, encourages customers to experience its luxury wares in showrooms designed to create wonder and want. Bring your bathing suit and soak in a $20,000 granite bathtub. Or take a cooking class to try out a $100,000 La Cornue Grand Palais stove. Pirch urges all to “live joyfully,” and sayings from its manifesto—“Play more, think less,” “Be
crazy about something,” and “Forgive”—are featured in every store. That may sound like touchy-feely sloganeering, but it’s the core of the company’s philosophy. As CEO Jeffery Sears sees it, retailers have done a poor job of connecting with customers. The key to selling, he says, is to forget sales and put the customer’s experience ﬁrst. “Our job is to make every guest feel like their time in our store is the best part of their day, whether or not they buy anything,” he says. It seems to be working. Pirch says its sales per square foot average more than $3,000, a ﬁgure that would place it above all but three U.S. retailers (Apple, Murphy USA, and Tiffany), according to eMarketer. Pirch has eight locations, with a ninth scheduled to open in New York’s SoHo in May, and Sears says the company is proﬁtable. To learn how to bring the joy, every Pirch employee attends ﬁve days of training. What’s perhaps unique is that it focuses on the human aspects and not on nuts-andbolts skills, such as using the company’s software, which is left to each store to teach. “Our training is about investing in the people who repre-
sent the culture we deﬁne,” says Sears. “The emotion of the stores emanates from the smiles on people’s faces and the passion they have about serving others. You can’t sustain a culture unless you have a foundation from the training ﬁrst.” The process is led by Mark Tomaszewicz, Pirch’s “ambassador of joy” (who’s also in charge of human resources). It explores the company’s 23 “elements of joy” and how those principles should guide actions. “We give permission for people to act differently than in other workplaces,” Tomaszewicz says. “We teach empathy as a business model, whether it’s talking with a colleague or a customer.” Exercises in gratitude bring out emotional stories, bonding employees. Half a day is spent with the CEO, who gives frank answers to personal questions that can be painful to share, teaching the importance of building trust with customers. Visits are made to different luxury retailers to understand the impact individuals have on a customer’s experience. For Steven Loria, an assistant store director in Glendale, Calif., the training was unlike any he’d had. Loria, who has managed CVS and Lamps Plus stores and owned a company, says the human focus creates a rare sense of belonging. “When I was interviewed for this job, I was asked, ‘Name three qualities that describe you,’” he recalls. (Loria cited empathy, integrity, and love.) “That had nothing to do with my qualiﬁcations for a job. But our corporate culture is about who people are, not what skill sets they have. To me, this is not a job. It’s my life, and I live it joyfully every day.”
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JANUARY 1, 2016
Tech jinping: ted s. wa r r en—gett y im ages; m a p data prov ided by k insa. data r epr esen ts a pprox im ately 3,000 temper atur e r e a dings. geogr a phic coor dinates a r e der i v ed from a non y mous r e a dings a nd h av e been aggr egated to be compli a n t w ith pr i vac y r egul ations.
IDE A OF IN T ERES T
contagion curtailed Can you stop disease with smart devices? WHAT: Track the spread of disease using connected thermometers. THE PROBLEM: For public health oﬃcials, tracking how a disease spreads is as important as understanding its symptoms. But today’s methods are unreliable or too slow. THE PROPONENT: Kinsa CEO Inder Singh believes that giving away a low-cost, Internet-connected thermometer to the parents of schoolchildren will enable his company to reliably track the spread of illness—no pediatrician necessary. THE PROCESS: The child’s temperature and symptoms are transmitted to the Kinsa cloud and aggregated. THE ADDED PERK: Parents receive the aggregated information too, so they can learn if little Sophia’s fever is caused by a cold or if it’s something more serious. —Stacey Higginbotham m a p b y NICOLAS RAPP
TICKER TAPE A collection of curiosities
“NO COUNTRY SHOULD PURSUE CYBER HEGEMONY.” Chinese President Xi Jinping speaking at the second annual World Internet Conference
January 1, 2016
A BOOM WITH A VIEW
Tainted Love The once-fruitful relationship between startups and investors is unraveling. By Erin Griffith
Follow Erin Griffith on Twitter (@eringriffith) or at fortune.com/boom.
January 1, 2016
of risk) boosted their returns by diluting the shares of earlier investors. Wall Street funds also tend to regularly recalculate and publish the value of their holdings, leading to sometimes uncomfortable disclosures that weigh on an ascendant startup’s narrative. When Fidelity marked down the value of some of its startup holdings in November, it set off a wave of negative headlines that raised doubts about highly valued companies like Snapchat and Zeneﬁts. Those moves have added tension to an already awkward relationship between Silicon Valley and Wall Street. Neither side would admit it, but each sees the other as the “dumb money.” For a long time, that view didn’t matter because the arrangement was equally beneﬁcial. When mutual and hedge funds poured huge sums into startups at massive valuations, early-stage venture capitalists could claim another so-called unicorn—a startup worth $1 billion or more—in their portfolio. Founders could keep their companies private for longer, sidestepping public market scrutiny. And the funds gained early exposure to fast-growing companies. But that relationship has soured. Investors tell me that the vast majority of the 131 startup unicorns missed their 2015 revenue targets, leaving their Wall Street backers seeing red. If a public company missed its expectations, management would have explaining to do. But startup CEOs? “They’re not even humble about it,” one investor grumbled at a holiday cocktail party. “It’s the bravado of someone who doesn’t take their guidance very seriously.” Founders know the easy money is drying up—nearly all of them believe it will be harder to raise capital next year, First Round says. So all the anxiety about late-stage money felt at this year’s holiday parties may not matter. For the Valley and the Street, the breakup is mutual.
illustr ation by chr is gash; gr iffith: v irgil bastos
H, THE WINTER HOLIDAYS. It’s a joyous time ﬁlled with family, friends, and the occasional crackling ﬁreplace. For startup founders and other tech industry hangers-on, it’s also an opportunity to toast another year of hypergrowth at plush parties thrown by the venture capital ﬁrms that invest in them. It’s usually a celebratory circuit. But this year things felt different. Founders who would normally be “crushing it” were instead “just grinding away.” Investors who would normally brag about a new deal traded intel on which startups hit their annual revenue targets and which ones badly missed. And gone were the debates over whether we’re in a tech bubble. (We are, according to 73% of founders who responded to a recent survey by First Round Capital.) Instead, the tech industry’s seasonal revelers debated whether or not to include mutual funds like Fidelity and T. Rowe Price in their startup’s next round of funding. Why shut out the funds? Because that money is a gift that comes with strings attached. For example, late-stage investors have taken to demanding “ratchets” that prioritize their shares if things go sideways. When the November IPO of payment processor Square priced below the company’s most recent private valuation, its last investors (who arguably took the least amount
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BUSINESS IN THE CLOUD
Money For Nothing Now that many people are using peerto-peer payment services, providers are eager to monetize them. By Leena Rao
OSE YOUR LUGGAGE on a ﬂight from San Francisco to New York City? No problem. You’ll be reimbursed, says insurance giant Berkshire Hathaway Travel Protection. Normally you’d have to wait months for a check to arrive through the mail. Now claims for money for extra clothes, toothpaste, and shoes can be deposited in your bank account before you leave baggage claim. Peer-to-peer payments technology, which enables people to send money to each other in minutes using a mobile application, is growing in popularity as a tool for businesses to reimburse consumers. Forrester Research estimates that the total P2P payments market will reach $17 billion in transaction volume by 2019. Facebook, Snapchat, Square, and PayPal-owned Venmo all offer peer-to-peer payment services to consumers. But none of them generate much revenue. Preferring adoption to proﬁts,
78% source: dice
SHARE OF U.S. EMPLOYERS WHO EXPECT TO INCREASE TECH HIRING IN 2016
January 1, 2016
providers have resisted charging people fees to send money to each other. But sending money to and from a business? That’s a different story. Charging fees to corporate customers will enable P2P payment providers to make money off the billions of dollars moving through their networks and subsidize consumer-toconsumer activity. “This has the ability to change the dynamic between a business and a consumer,” says Barbara King, head of global personal payments at MasterCard. “It’s resetting expectations around how people get paid.” MasterCard doesn’t offer a consumer P2P payment service, but it is selling the technology to businesses. It’s charging customers like Berkshire Hathaway and FreeShipping.com an undisclosed fee to add peer-to-peer payments to their own businesses. Berkshire Hathaway Travel
GOES ONLINE 1 in 5 AMERICANS “ALMOST CONSTANTLY” pew r ese a rch cen ter
Protection’s Dean Sivley says those fees cost the company less money than printing out and mailing checks or wiring money. The insurer developed a mobile app based on MasterCard’s tech to enable its policyholders to submit a claim and receive a decision and payment in minutes. Rival Allstate offers a similar service powered by ClearXchange, which is coowned by Bank of America, Capital One, J.P. Morgan Chase, and Wells Fargo. For some merchants, peer-to-peer payment technology offers more than speed. Venmo, which is popular among millennials, will soon enable its millions of users to pay for items like food and transportation using its app. “Merchants are very excited about this because Venmo users post their transactions to their friends in the app, so it’s essentially a form of social advertising,” says Joanna Lambert, PayPal’s vice president of consumer product and engineering. Businesses that accept Venmo will be charged fees similar to those of PayPal merchants: 2.9% of each transaction plus a 30¢ charge. The revenue potential is sizable: Venmo processed $2.1 billion in the third quarter of 2015. And then there’s the elephant in the room: Apple. The company is said to be developing its own peer-to-peer payment system for iPhone users— perhaps the best sign that there’s gold in P2P’s hills.
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Invest M&A A N X IE T Y
Will a stock bust follow the M&A Boom? After a bumper crop of mergers in 2015, investors fear that history will repeat itself. By Joshua M. Brown
WE’RE WRAPPING UP A RECORD
year for mergers and acquisitions. By mid-December the total value of deals involving U.S. acquirers in 2015 had topped $2 trillion for the ﬁrst time ever, driven by such blockbusters as the Dow Chemical–DuPont merger. Throw in tie-ups of foreign companies like brewing giants Anheuser-Busch InBev and SABMiller, and the global total neared $4.7 trillion. These numbers are red meat for bears. Pessimists look at the merger boom and play connect the dots with similar booms of years past. And they’re correct in pointing out that past M&A peaks have tended to occur at the top of stock market
i l l u s t r a t io n b y SHOUT
January 1, 2016
As of December 2015 $2.1
ANNUAL M&A VALUE (for deals with U.S. acquirers)
boom. Deals are happening largely because of deﬂationary forces that practically demand consolidation. From heavy industry to metals and mining, pharmaceuticals to beer, industries are acclimating to a barely growing global economy and a rapidly aging customer base. With a few exceptions, the empire-building hubris of corporate ﬁnance is not in the picture. Today’s near-zero interest rates may enable the M&A activity, but they don’t explain it. Rather, CEOs are entering into marriages of convenience with competitors out of desperation to preserve margins or rationalize costs. Activist hedge fund managers, ﬂush with investor cash and hungry to make their mark, are prompting these marriages with the shotgun of our age, the threat of a proxy battle. No executive is safe, and no company is too large to withstand the pressure. December’s revelation that Dow Chemical and DuPont had struck a merger agreement is as emblematic of today’s M&A situation as the private equity takeover of Equity Office, the nation’s largest office-building REIT, was in 2007. That deal was about using bonds to create ever larger income streams; this deal features two of the world’s oldest industrial businesses ﬂeeing into each other’s arms after going 10 rounds with the activists. In fact, the proposed combination is an anti-empire. The central premise is that the two companies, once com-
January 1, 2016
0.5 0 2,000 1,500
Dec. 11, 2015 S&P 500 INDEX
500 0 1995
bined, will spend the next two years splitting themselves up into three companies organized by product line. Never has a $100 billion merger felt more defensive! One data point that Cassandras often cite is the absolute dollar totals of M&A. It’s true that $2 trillion is an order of magnitude above the average over the past 20 years. But absolute numbers never tell the whole story. To put the M&A total in context, we should observe it as a percentage of stock market capitalization. In 1999 the market cap of the Russell 3000 index of U.S. stocks stood at $14.6 trillion. The M&A total as a percentage of that capitalization was over 10%. It had never reached that level before, and it has not since. The percentage never topped 9% during the 2006–07 boom. And with the Russell 3000’s current market cap of $24.3 trillion, M&A in 2015 represents 8.65%, despite hitting a record high in nominal terms. More important, the average multiple that acquirers are paying, while slightly elevated, is nothing out of the ordinary. Deals are typically calculated as a ratio
of the overall cost (enterprise value) divided by the acquired company’s cash ﬂow (Ebitda). From 1995 through 2014 the average and median multiples for U.S. M&A stood at 11.7. In 2015, deals took place at an average multiple of 12.4. Given today’s low interest rates, lack of global growth, and desperation to create shareholder value, we could argue that these multiples are surprisingly tame. So, yes, record M&A is more likely to occur toward the end of a bull market. But through a qualitative lens, we’re seeing companies pairing off from a position of weakness, not strength, at prices that don’t seem euphoric. There are a lot of things about this M&A boom that should worry investors, but its size alone isn’t one of them. Joshua M. Brown is CEO of Ritholtz Wealth Management, a registered investment advisory ﬁrm, and writes the Reformed Broker blog.
gr a phic sources: de a logic; s&p ca pita l iq
cycles, not long before steep downward slides. But a closer analysis suggests that a more nuanced view is in order. Compared with other booms, today’s feels almost obligatory, rather than euphoric. And while some causes of the surge may give investors reason for concern, it’s premature to declare a market top. The most recent peaks offer instructive contrasts. In 1999, U.S. acquirers announced $1.475 trillion in mergers and acquisitions, almost triple the total in 1995. The AOL–Time Warner deal, announced in 2000, was an emblematic capper to the era. It was an empirebuilding exercise in which an old-media titan allowed a new-media upstart to take over using little more than an elevated stock price as currency. That price turned out to be representative of a broader tech bubble, which burst soon thereafter. M&A dollar volumes next topped $1.4 trillion in 2006 and 2007, but this time the bumper crop was fueled almost entirely by debt. Private equity ﬁrms and investment banks with nearly unlimited powers to ﬂoat bond offerings spurred takeover activity in sectors from retail to restaurants to real estate. Every company, no matter its size, was both a potential target and a likely acquirer. That trend, too, was a symptom of a bubble. In today’s M&A zeitgeist, we see yet another primary consideration: corporate pragmatism. It’s what you might call a reluctant
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GLOBAL STOCK INVESTING
He’s Big On Japan AMONG “WORLD ALLOCATION” MUTUAL FUNDS, BlackRock Global Allocation is one of the giants, with $51 billion under management. And with 26 years at the helm, senior portfolio manager Dennis Stattman is one of the category’s most experienced investors. High bond and stock prices worldwide have Stattman in a cautious mode, and about 20% of his assets are in cash. But he’s bullish about Japanese stocks. He explained why in a conversation with Fortune. Edited excerpts follow, and more can be found at Fortune.com. —Matt Heimer
FORTUNE: You’ve allocated 18% of your fund’s equity portfolio to Japan. Japan’s economy isn’t impressing skeptics. What’s the bullish case? STATTMAN: It’s the strongest and broadest case for any stock market in the world. To start with, on all our valuation measures, the Japanese stock market is more attractive than the U.S. stock market and looks good compared with other major economies. Second thing: Japan is leading the world in stepping on the monetary accelerator. Japan’s central bank is doing quantitative easing at about the same size that the U.S. did, in an economy about 40% the size of the U.S. economy. That has been negative for the yen and extraordinarily positive for corporate proﬁts. And Japanese corporations are broadly undertaking policies that are more shareholder-friendly. They’re doing the things U.S. managements have done for years: increasing dividends and buying back stock. FORTUNE: In the U.S. there’s been criticism of companies for neglecting investment in their businesses in order to reward shareholders in the short term. Is there a danger of that happening in Japan? STATTMAN: I am a bit concerned in the U.S. But this phenomenon in Japan is so much earlier in its history that I’m not worried about it yet. FORTUNE: You’ve said that changing habits among Japanese savers could boost the prices of Japanese stocks. Why is that? STATTMAN: We think there’s a
very strong case that they’re going to add to their equity holdings. Japanese households have only about 11% of their assets in stocks. That will not be enough to meet the ﬁnancial needs of an aging population when bond yields are low. In Japan, the big asset class for savers is cash, which yields approximately nothing. But savers can pick up a lot of yield by going to the stock market. The Japanese stock market yields about the same as the S&P 500, just over 2%. The S&P yields about the same as the 10-year Treasury. But Japan’s TOPIX yields about six times what 10-year Japanese government bonds yield. As savers move over to get that yield, you’ll get an appreciating market. FORTUNE: The TOPIX has more than doubled since 2012. STATTMAN: Right. So you might say, “Isn’t it over?” We don’t believe so. The U.S. stock market is at about 16 times earnings. Japan’s at about 14 times. And as we look at corporate earnings trends, for most of the year we saw all the major regions in the world had fewer upward revisions than downward revisions, with one exception—and that’s Japan. FORTUNE: What could spoil the party? STATTMAN: We are a little concerned with the economic weakness emanating from China. This summer we dialed down our Japanese equity weighting. But we’re still bullishly positioned. This is a multiyear opportunity.
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When Exxon Mobil, GE, Intel, and others pushed for the Common Core standards, they had no idea they would be incurring the wrath of Tea Party conservatives. They got a painful lesson in modern politics.
By Peter Elkind p ho t o g r a p h s b y SAM KAPLAN
January 1, 2016
THE ABCs OF COMMON CORE business gets schooled
Replacing a hodgepodge of separate guidelines in 50 states, Common Core aims to provide a RIGOROUS, MORE FOCUSED NATIONWIDE BLUEPRINT for what students should know at each grade in math and English language arts.
On Feb. 14, 2014, two of the world’s richest men, Bill Gates and Charles Koch, dined together at a West Coast restaurant. They made quite the odd couple: the Seattle Microsoft co-founder, now devoting his time and fortune to changing the world, and the Kansas industrialist, still running his private conglomerate while working to shrink government to the size of a pea. The two discussed many subjects and even touched, diplomatically, on topics they disagree about, such as climate change. There was a second sensitive subject that Gates broached, and it didn’t come up by chance. His team at the Gates Foundation had engaged in a process it calls a “faction analysis” and identiﬁed Koch as a key opponent on a crucial issue. Gates had a mission that night: He wanted to persuade Koch to change his mind about Common Core. The two men were bankrolling opposite sides in a raging war over the future of American education. Through his charitable foundation, Gates has spent more than $220 million on the Common Core education standards, aimed at boosting the dismal performance
January 1, 2016
It seeks to IMPROVE THE U.S.’S POOR EDUCATIONAL PERFORMANCE relative to other countries’, making graduates “collegeand career-ready” and assuring the nation’s economic competitiveness.
IT’S PAIRED WITH NEW STANDARDIZED TESTS
to measure progress in meeting the new standards and to allow comparisons among states.
Though developed without government funds, Common Core RECEIVED A BOOST FROM RACE TO THE TOP, a competition for federal education grants, prompting unexpectedly rapid adoption.
of American children. Starting in 2010, 45 states adopted the benchmarks—which spell out what kids from kindergarten through high school should learn in reading and math—with little controversy. But a backlash ensued, and by early 2014 the standards were under ﬁerce political attack, facing repeal in many states. Koch and his brother David were sponsoring several Tea Party–aligned groups that were fueling the rebellion. Now Gates tried to convince his dinner companion that opposing Common Core was bad both for Koch Industries, which employs 60,000 Americans, and the rest of U.S. business. “Bill talked to Koch to understand what his concerns were and to explain what he thought was the potential and the promise for the Common Core,” says Allan Golston, president of the U.S. program for the Bill & Melinda Gates Foundation. “When someone doesn’t believe in what you’re doing, it’s important to engage with them.” But Koch wasn’t willing to engage with Gates on the issue. Instead, like a senator politely brushing off a constituent, he gave Gates the name of one of his staffers who focuses on the subject and suggested Gates call the staffer. The Microsoft billionaire
pr ev ious spr e a d, st y ling by br i a n by r ne; tillerson: susa na v er a—r eu ters
REX TILLERSON, THE CEO OF EXXON MOBIL, HAS LED THE BUSINESS ROUNDTABLE’S ADVOCACY FOR COMMON CORE. THE STAUNCH REPUBLICAN HAS FOUND HIMSELF ACCUSED OF PROMOTING BIG GOVERNMENT.
left empty-handed. (Both men declined to discuss their dinner.) This extraordinary tête-à-tête is just one example of how the war over Common Core has personally engaged—and bedeviled— some of America’s most powerful business leaders. Hugely controversial, it has thrust executives into the uncomfortable intersection of business and politics. In truth, Common Core might not exist without the corporate community. The nation’s business establishment has been clamoring for more rigorous education standards—ones that would apply across the entire nation—for years. It views them as desperately needed to prepare America’s future workforce and to bolster its global competitiveness. One measure of the deep involvement of corporate leaders: The Common Core standards were drafted by determining the skills that businesses (and colleges) need and then working backward to decide what students should learn. Organizations such as the Business Roundtable have devoted considerable effort to the initiative. The education chair for that association of CEOs, Exxon Mobil chief Rex Tillerson, has played a particularly prominent role. A stern, commanding ﬁgure with an Old Testament glare and a chewy Texas drawl, Tillerson is an unlikely person to lead a campaign of persuasion.
(Never a fan of the press, he declined to speak to Fortune for this article.) But Tillerson has taken on the challenge with trademark intensity. He has pressed other CEOs to join the cause, spread the word by appearing at education summits, underwritten TV advertisements, and personally called legislators in multiple states to press for their support. His company went so far as to cut off campaign contributions to some politicians—even those who support the oil and gas industry—who spurned Tillerson’s entreaties on Common Core. Other companies have been much more timid or have retreated in the face of the controversy. For example, General Electric—once among Common Core’s biggest supporters—has ﬂed the ﬁght after becoming a Tea Party target. “There’s a somewhat unwritten rule that if you’re a CEO, you only get your business involved in an issue that rewards your company in some fashion,” says former Intel chief Craig Barrett. Education reform is “such a hot topic,” especially as Common Core made it “more of a tar baby,” that “it’s sometimes difficult to get people enthusiastic,” he adds. “A lot of people just sit on the sidelines.” Adds Barrett, with exasperation: “It’s turned into a political food ﬁght instead of an education discussion … The hope is that rational minds will prevail.” This is a story about the role Big Business has played in the war over Common Core: how a handful of executives helped turn a decades-old ambition for education reform into reality, their fumbling bewilderment at ﬁnding themselves assailed by opposition they didn’t expect or understand, and how they’ve regrouped and rallied to defend what they wrought. It’s a high-stakes conﬂict that has generated breathtaking political ﬂip-ﬂops and upended traditional alliances, turning natural bedfellows into bitter enemies. It has seen some of the nation’s foremost capitalists accused of promoting an “immoral,” “freedom-robbing,” “socialist agenda,” aimed at turning America’s children into “mindless drones for the corporate salt mines.” Along the way it has reinforced the depth of a growing divide that once would have seemed inconceivable: the gap between America’s most ardent conservatives and Big Business, which the former increasingly view as part
H I G H-P R I C E D M E D I O C R I T Y
business gets schooled
of an undifferentiated “establishment” and hence nearly as odious as government. For now, Common Core has established itself in the vast majority of states and seems to be taking root. But the conﬂict over this issue shares many traits with the crusades over Obamacare, and one of them is this: Its most fervent opponents show not the slightest sign of relenting. FOR DECADES, CEOs have bemoaned the state of U.S. education—with justiﬁcation. American 15-year-olds ranked 27th out of 34 industrialized countries in math, and 17th in reading in the most recent international tests. Colleges complain that signiﬁcant percentages of their entering freshmen require a remedial course. Businesses say they can’t ﬁnd enough skilled U.S. workers. But the executive mind-set on the issue—favoring consistency, efficiency, and accountability—has clashed with the American tradition of local control. “Why on earth can’t we insist on universal standards at least for 9-yearolds?” asked Alcoa CEO Paul O’Neill at a 1996 education summit convened by then-IBM CEO Lou Gerstner and attended by business leaders and 43 governors. “Can’t a 9-year-old multiply by nine and get the same answer in all 50 states?” To CEOs, the issue has always been a no-brainer. In an increasingly global economy, what sense does it make for America to have 50 different sets of education standards? Gerstner helped establish a nonproﬁt called Achieve Inc. in 1996 to promote education reform. With a board ﬁlled with governors and CEOs, the group served, over the next two decades, as a sort of lab for the national standards movement. The modern era of U.S. education reform actually dates back to 1983, when a commission convened under Ronald Reagan produced a landmark report titled A Nation at Risk. “A rising tide of mediocrity,” it warned, “threatens our very future.” In response, William Bennett, Reagan’s education secretary, promoted mastery of a “common core of worthwhile knowledge, important skills, and sound ideas.” (Bennett went so far as to design a full K-12 curriculum.) Conservatives cheered. But the idea was strictly voluntary—“It remains a matter best left for ﬁnal decision to state, local, and private authorities,” Bennett noted—and it didn’t get far. Uncle Sam’s role in education is an exquisitely sensitive issue: Federal law bars the government from dictating education standards or classroom curriculums. And state and local officials—who provide about 90% of public education funding—prize their control. Reform efforts have needed to dance around that by seeking to persuade 50 states to embrace change voluntarily. “You really can’t work this issue on a national level,” says Gerstner. “You’ve got to work it state by state, city by city. It’s messy. Unfortunately, it doesn’t yield completely to reason, which businesspeople like.” Every president since Reagan has ﬂailed at this issue. George H.W. Bush and Bill Clinton convened special education panels and launched commissions in unsuccessful attempts to establish voluntary national standards.
The U.S. spends more per student (from ages 6 to 15) than most countries but obtains test scores that are merely in the middle of the pack.
CUMULATIVE EXPENDITURE PER STUDENT
2012 SCORE MATH
540 $120,000 USA
100,000 U.K. AUSTRALIA
JAPAN GERMANY CANADA 80,000 480
460 POLAND 60,000
January 1, 2016
ba r r ett: nelson ching—bloomberg v i a gett y im ages
THE CEOs STEP UP … OR STEP OFF
EXXON MOBIL /
Led by CEO Rex Tillerson, a committed advocate for Common Core, the energy giant has run TV ads backing the standards and has joined foundations in bankrolling an aggressive new group aimed at winning over conservatives.
Former CEO Craig Barrett is among Common Core’s most passionate supporters, and the company has stood with him even when the standards came under ﬁre. In 2013, Intel, hosted a forum with Common Core experts and encouraged its employees to serve as ambassadors for the initiative.
STATE FARM /
Just-retired CEO Ed Rust has long been active in the education ﬁght. State Farm also funded Biz4Readiness, a smartphone app crammed with talking points, statistics, and videos, to help CEOs make the case for the Common Core.
The private software giant has long focused its philanthropy on education, oﬀering free online teaching tools mapped to individual state standards. Under CEO Jim Goodnight—an outspoken supporter of Common Core—SAS quickly adapted the aids to the new standards.
Through its foundation, GE was a generous early donor and evangelist for Common Core. Then Tea Party protesters targeted the company, prompting the company to redirect its cash (and voice) toward less controversial philanthropy (see box, page 57).
Finally, the Clinton administration was able to pass a watered-down initiative that required states to adopt standards and tests— but left them entirely up to individual states. Most established tragically low expectations. President George W. Bush’s 2002 education reform, “No Child Left Behind,” only worsened this problem. It set the impossible requirement that 100% of students be “proﬁcient” in reading and math by 2014, and punished schools that weren’t making adequate progress. To bring themselves closer to 100%, many states simply lowered the score needed to pass their tests. The result: In 2007, Mississippi judged 90% of its fourth graders “proﬁcient” on the state’s reading test, yet only 19% measured up on a standardized national exam given every two years. In Georgia, 82% of eighth-graders met the state’s minimums in math, while just 25% passed the national test. A yawning “honesty gap,” as it came to be known, prevailed in most states. Finally, in April 2009, organizations representing state governors and education chiefs agreed to develop a single set of rigorous standards: the Common Core State Standards Initiative. The ambition was to make all children “college- and careerready,” with the same expectations in Mississippi as in Massachusetts. The standards would spell out what students should learn
at each grade level, without dictating curriculum or how it would be taught. They would be accompanied by tough new standardized tests to measure progress in meeting the benchmarks. The tests were the hammer to drive improvement and provide accountability. The goal was universal acceptance. This would allow comparisons among states, help the children who move annually to a new state stay on track, and permit sharing of education ideas, textbooks, and teaching materials. Promoters of the Common Core took three big steps to smooth adoption. First, they developed standards for only English language arts and math, avoiding the ideological land mines in teaching history and science, such as slavery, evolution, and global warming. Second, they enlisted Bill Gates, whose foundation had already sunk hundreds of millions into other education initiatives. The Gates Foundation would help bankroll virtually every aspect of Common Core’s development, promotion, and implementation. “This is like having a common electrical system,” Gates told the Wall Street Journal in 2011. “It just makes sense to me.” His spending would be critical—but it would later feed a view among some that one rich man shouldn’t have so much say over a national policy. In the short term, though, Gates’ millions helped make possible the third (and most important) step: writing the new standards without a penny from Uncle Sam. “State-led initiative” became advocates’ mantra for describing Common Core. “It had been crafted as a local-control issue, and we wanted to keep it that way,” says former Intel CEO Barrett. “All the groundwork had been done very carefully.” When it came time to draft the provisions, career readiness was a central focus. The writers spent their ﬁrst two months learning what colleges and businesses wanted high school graduates to know by the time they arrived on their doorstep. From there, the writers “back mapped,” crafting gradeby-grade benchmarks to get them there. The resulting standards were then reviewed by teachers’ unions, state education officials, academic groups, feedback panels, and independent validation committees. Two drafts were published online, generating 10,000 public comments and prompting further revisions.
REPUBLICANS OPPOSED TO COMMON CORE business gets schooled
federal education officials always knew this was treacherous terrain. “There was deﬁnitely discussion about whether the feds should get involved because of the potential for political backlash,” says Joanne Weiss, a former top deputy in the U.S. Department of Education under Obama. Now a consultant, Weiss acknowledges that the administration walked a tightrope. “The department tried to get involved in a way that just handed money back to the states, that let them do their own thing. We wanted to be both supportive and arm’s length—admittedly a hard balancing act.” Common Core’s architects also worked to avoid any federal taint. For a time, it all worked according to plan—in fact, far better than anyone had imagined. The new standards rolled out to general praise from educators and endorsements from business groups. The most detailed appraisal (funded with $959,116 in Gates Foundation money) was conducted by the Thomas B. Fordham Institute, a right-leaning Washington think tank. Its 370-page analysis found the Core standards “clearly superior” to those in place in “the vast majority of states.” Forty-ﬁve states, more than half of them led by Republican governors, adopted Common Core by the end of 2011—remarkably short order. The only holdouts were Virginia, Alaska, Texas, and Nebraska; Minnesota took up the standards, but only for English. The Obama administration tried to tiptoe. It didn’t attempt to mandate implementation, but it strongly encouraged it. The administration accelerated the process by launching Race to the Top, a competition among the states for $4.35 billion in federal grants. Applicants received 70 points (out of a possible 500) for approving “enhanced standards and high-quality assessments” (most obviously Common Core) by August 2010. In the midst of a deep recession, the cash promoted a quick embrace. The federal Education Department also provided $350 million in grants to two consortia set up by the states to develop the new Common Core tests. In the 45 states, adoption of the standards, which typically required just a public meeting and approval by the state education board, stirred little notice. “Zero,” recalls Tony Bennett, the elected superintendent of public instruction in Indiana when the state signed on. “No controversy. No criticism.” Victory in hand, Common Core advocates turned their energies toward the task of implementation. They didn’t foresee that a deep well of opposition was about to erupt. “In a sense the early days almost went too easy for us,” Gates would later say. “Everything seemed to be on track … We didn’t realize the issue would be confounded.”
LIKE THE CEO S ,
January 1, 2016
O P P O S I T I O N SU R G E S Hostility to Common Core, especially among Republicans, soared with astonishing speed.
She homeschooled all 12 of her children. Ruzicka was deeply concerned by what, in late 2010, she began to hear about Common Core. To her it sounded like, as she puts it, “a backdoor way in to national standards.” States had adopted Common Core, Ruzicka says, “before parents even knew what happened.” In retrospect, approving an education transformation without building parental support would turn out to be a huge mistake. It meant that the opposition would mass and organize before many potential allies of the standards even realized they needed to be defended. Ruzicka began gearing up to ﬁght it. She coined a phrase that crystallized her view of the problem with devastating rhetorical force: “Obamacore.” Ruzicka wasn’t alone. In the fall of 2011, an Indiana mom named Heather Crossin became alarmed about changes in how her 8-year-old daughter was being taught math. Her third-grade homework didn’t ask her just to solve three times nine—it demanded that she explain the reasoning behind her answer. Crossin was at a loss to help. The principal at her child’s school blamed the changes on Common Core. Crossin, who once served as a legislative assistant to Republican Rep. Dan Burton, began organizing Hoosiers Against Common Core. She approached local Tea Party groups and welcomed the help of national
ch a rt source: education next
turn out to be just the sort of people who today cause ﬁts for billionaires and CEOs used to exercising power through traditional channels: passionate regular folks linked to activist networks with a ﬁrm grasp on how to maximize the power of the Internet and social media. Gayle Ruzicka, who volunteers as Utah state president for Phyllis Schlaﬂy’s Eagle Forum, had long been battling to preserve local control of schools. Indeed, Ruzicka takes “local control” far beyond where most parents would:
THE “CONFOUNDERS” WOULD
The Flip-ﬂoppers and the Waﬄers
Jeb Bush “Because people have a diﬀerent view of what Common Core is, am I supposed to back away from something that I know works?” —MAY 2015, NASHVILLE YES!
Numerous politicians—particularly Republicans—have executed breathtaking reversals in their positions on Common Core as the political heat intensified.
“The term ‘Common Core’ is so darn poisonous, I don’t even know what it means. I’m for higher standards—state created, locally implemented—where the federal government has no role in the…content or curriculum.” —AUG. 14, 2015, IOWA
ER, I THINK SO:
chr istie: nichol as k a mm—a fp/gett y im ages; cruz: m a ndel nga n—a fp/gett y im ages; bush: ch a r les omm a n ney—the washington post/gett y im ages; tru mp: scott olson—gett y im ages; fior ina: da niel ack er—bloomberg v i a gett y im ages; huck a bee: joe r a edle—gett y im ages; ca rson: m a r k w ilson—gett y im ages
YES! “We’re doing Common
Core in New Jersey, and we’re going to continue … I think that part of the Republican opposition … is a knee-jerk reaction … that if the President likes something, then the Republicans in Congress don’t.” —AUGUST 2013, AT AN EDUCATION CONFERENCE, LAS VEGAS
Carly Fiorina YES! “Internationally benchmarked standards and assessments help ensure our students graduate high school prepared with the skills necessary to succeed in the our 21stcentury economy.”
“We must reject federal control of our education and return it to parents and teachers. We need to take it out of the cubicles of Washington, D.C., where it was placed by the Obama administration, and return it to the neighborhoods of New Jersey.”
—NOVEMBER 2009, “CARLY ON EDUCATION,” POSITION STATEMENT FOR SENATORIAL CAMPAIGN
—MAY 28, 2015, SPEECH AT BURLINGTON COUNTY COLLEGE, N.J.
“I think Common Core is a really bad idea. It is a giant bureaucratic program, and we have demonstrated over 40 years that the Department of Education can get bigger and bigger and bigger, and the quality of education continues to deteriorate.”
Mike Huckabee “Rebrand it, refocus it, but don’t retreat.” YES!
—NOVEMBER 2013 SPEECH, COUNCIL OF CHIEF STATE SCHOOL OFFICERS
“We must kill Common Core and restore common sense.”
—2015, HUCKABEE CAMPAIGN WEBSITE
—MAY 6, 2015, CNBC INTERVIEW
ST E A D I LY I N FAVO R
NO CLEAR POSITION
A LWAYS O P P O S E D
Hillary Clinton, John Kasich
Ben Carson, Ted Cruz, Rand Paul, Donald Trump
i l l u s t r a t io n b y ARIAN BEHZADI
organizations opposed to the standards, including the American Principles Project, where a man named Emmett McGroarty served as education director and as a key ﬁgure in the ﬁght. They fed Crossin’s group anti–Common Core “white papers,” set up its website, helped plot strategy and write leaﬂets, and even ﬂew in for local rallies and media interviews. The grass-roots moms’ rebellion, fanned
through social media and the Tea Party network, quickly gained momentum in multiple states. Says Business Roundtable vice president Dane Linn, then education policy chief for the National Governors Association: “We heard the rumblings in the states. It was like prairie ﬁre after prairie ﬁre.” One of the ﬁrst shocks for supporters of Common Core came in Indiana. There opponents targeted superintendent Bennett, a conservative Republican whose advocacy of school vouchers, charter schools, tough teacher evaluations, and Common Core had made him a darling of national reformers. In November 2012, Bennett was defeated in a reelection bid by a massively outspent Democratic opponent, a former teacher who had voiced skepticism about the
business gets schooled
standards. In the same election, Tea Party Republican Mike Pence succeeded Mitch Daniels, the term-limited GOP governor who had backed the standards. A few months later, Indiana delayed its implementation of Common Core. Tea Party groups soon made Common Core a national rallying cry. In 2013, Glenn Beck took up the cause, declaring it “Communism—we are dealing with evil.” That April the Republican National Committee passed a resolution condemning Common Core as an “inappropriate overreach to standardize and control the education of our children so they will conform to a preconceived ‘normal.’ ” In the hands of opponents, the “state-led” plan, commissioned and adopted voluntarily by nearly all the nation’s governors and school chiefs, was recast as a “national takeover of schooling” developed “behind closed doors” by “private trade groups” and, of course, Barack Obama. Indeed, the president’s perceived imprimatur was the chief cause of opposition, in the view of some supporters. “If we had a Republican president, I don’t think we would have had this backlash,” says Cheryl Oldham, a former George W. Bush administration official who is now vice president of education policy at the U.S. Chamber of Commerce. “It was because it was viewed to have been something that was Obamaled and -driven and forced on everyone. That just fueled a lot of the pushback.” Critics claimed that Obama’s Race to the Top funding had “forced” states to adopt Common Core. In fact, the federal government has a long history of granting states money to write standards. And the agreement that governors signed to develop Common Core explicitly welcomed Uncle Sam’s cash, acknowledging an “appropriate federal role in supporting this state-led effort” with incentives. Obama would give critics further ammunition by repeatedly praising the higher standards, even as he took pains to note that they’d been developed “not by Washington.” To be sure, there were legitimate questions: Was the implementation schedule too rushed for such a massive classroom change? Were the standards too tough—or not rigorous enough? Some people were suspicious of business’s support of the standards, charging that they were aimed at turning out corporate “drones” and “minimally educated worker bees.” Did the English benchmarks emphasize analysis of “informational texts” too much, at the expense of literature? Would it all be too costly? Some questioned the premise that smarter standards would boost learning at all. Teachers’ union leaders—who had endorsed Common Core at the outset— complained bitterly about its rollout, especially objecting to the immediate use of new standardized tests in their performance evaluations. This criticism of “high-stakes testing” would later bring Common Core under assault from both ends of the political spectrum. But it wasn’t wonky details that threatened to unravel the initiative. It was the most extreme claims, which spread like wildﬁre. Schlaﬂy called Common Core an Obama scheme—in collaboration with book publishers and Gates—to “dumb down” schoolchildren, “indoctrinate them to accept the left-wing view of America,” engage in “active promotion of gay marriage,” and “dismantle moral society.” Bloggers warned that Common Core would allow the federal government to engage in wholesale data collection on schoolchil-
dren—including iris scans—then sell the information “to the highest bidders.” Parents charged that Common Core forced 10thgraders to read pornography out loud in class and required graphic sex-ed instruction. One Florida legislator asserted that the state’s Common Core testing will “attract every one of your children to become as homosexual as they possibly can.” Never mind that none of those assertions were true. Common Core was becoming politically radioactive for Republicans. “All of a sudden in 2013, you saw these Common Core repeal bills getting introduced all over the place,” says Fordham Institute president Mike Petrilli. “Those of us for it were caught pretty ﬂatfooted. We realized this thing was at risk.” If somebody didn’t ﬁght back, it appeared, Common Core might go down in ﬂames. to me to sit and watch these political debates around a subject that is so vitally important to our chil-
“IT IS UTTERLY DISTRESSING
January 1, 2016
GE’s Retreat General Electric was a leading supporter of Common Core— until it began facing political pressure over the initiative.
Initially, no company supported the Common Core standards more enthusiastically than General Electric. In February 2012 the company’s charitable foundation announced an $18 million grant— “the largest corporate commitment to date for the Common Core,” its press release noted— to help states transition to the new standards. That August,
GE gave another $7 million to Achieve Inc. to aid Common Core’s implementation. GE, which has been active in education philanthropy for decades, didn’t just write checks. Led by foundation president Bob Corcoran, a 34-year GE veteran, it evangelized for Common Core. For three years the foundation convened an annual Business and Education Summit focused heavily on Common Core. The 2012 event was dedicated to developing a “uniﬁed business eﬀort” backing the standards. The foundation simultaneously held a separate weeklong conference for educators at
dren, to the future of our country, and competitively,” fumed the silver-haired man in the dark suit and gold tie, waving his arms in exasperation. “And I’m going to tell you, I’m extraordinarily disappointed in my home state. I’ve spent many hours on the telephone during the last legislative session. To no avail. Could not make a dent. So the political forces around this are powerful. But they have to be taken on.” It was a strange thing indeed to hear Rex Tillerson, CEO of Texas-based Exxon Mobil, bemoaning his impotence at a 2014 panel discussion in Washington, D.C. But such is the frustration of serving on the frontline in this war. Like other CEOs engaged in education reform, Tillerson sees high national standards as a “business imperative.” Companies simply can’t ﬁnd enough skilled American workers. But Tillerson articulates his view in a fashion unlikely to resonate with the average parent. “I’m not sure public schools understand
the same location, dedicating most of the agenda to Common Core. GE Foundation education director Kelli Wells opened the 2011 event, according to a video posted by an attendee, by declaring, “We’re going to be focusing on the Common Core so much that you’re going to be eating and drinking and dreaming about the Common Core.” The GE Foundation website asserted that “the future health of business depends on this historic initiative.” It urged executives to promote Common Core with state oﬃcials, give speeches, “engage the media,” and “keep pressure on school boards.” GE recruited 73 executives—including the CEOs of Alcoa, Boeing, and State Farm—to sign an open letter backing Common Core, which was published as a full-page ad in the New York Times in February 2013. GE also urged companies to remain resolute in the face of the political storm that the reforms were sure to generate, noting, “The business community can be the spine of stability in a changing environment, helping others stay the course too.” As it turned out, GE didn’t maintain its own “spine of stability.” In 2013 the Tea Party, which was already accusing GE of “crony capitalism” for backing the Export-Import Bank, began attacking the company on Common Core. That April, protesters from FreedomWorks, a Tea Party group, picketed GE’s annual shareholders meeting at the New Orleans Convention Center. They carried signs reading GE LEAVE EDUCATION ALONE! and GENERAL ELECTRIC STAY OUT OF MY CHILD’S EDUCATION. In July 2013 the GE Founda-
tion devoted a conference to Common Core for the last time. That October, Corcoran retired as head of the foundation, replaced by GE’s chief diversity oﬃcer, Deborah Elam. With that, GE would stop making new grants and advocating Common Core. Says the Business Roundtable’s Dane Linn: “They stopped funding anything Common Core related.” Wells, who remains director of GE’s U.S. education philanthropy, insists the foundation “never took a stance on Common Core, in the sense of the yes-or-no piece of it.” She says GE merely gave money to help educators required to teach to the standards. “It wasn’t something where the foundation was saying it’s right or wrong,” says Wells. “Both sides had valid points and positions.” While denying any “retreat,” Wells acknowledged that the growing controversy made GE uncomfortable. “That was not something we wanted to be involved with.” Corcoran says he left GE of his own accord. Unaware of the capitulation until Fortune informed him of it, he says the GE Foundation was “absolutely totally committed” to backing Common Core during his tenure, calling it “some of the best work the foundation has ever done.” Adds Corcoran: “If GE has moved away from that investment, it saddens me. If Common Core dies because it’s been abandoned too early— moving on to new investments while others tear it apart—you won’t see an eﬀort to increase the quality of education systemically in this country for 20 more years.”
that we’re their customer—that we, the business community, are your customer,” said Tillerson during the panel discussion. “What they don’t understand is they are producing a product at the end of that high school graduation.” The Exxon CEO didn’t hesitate to extend his analogy. “Now is that product in a form that we, the customer, can use it? Or is it defective, and we’re not interested?” American schools, Tillerson declared, “have got to step up the performance level—or they’re basically turning out defective products that have no future. Unfortunately, the defective products are human beings. So it’s really serious. It’s tragic. But that’s where we ﬁnd ourselves today.” Exxon Mobil’s philanthropy has long been focused on math and science education. Tillerson himself became deeply engaged in the Common Core
business gets schooled
ﬁght in early 2012, when he became chairman of the education and workforce committee for the Business Roundtable, the powerful Washington, D.C., trade group for 202 big-company CEOs. But while opponents like Ruzicka and Crossin harnessed the power of the web, Tillerson’s team turned to an older, more genteel form of media—the kind that is better at reaching silver-haired CEOs than, say, blogger moms. In April 2012, Exxon Mobil ran an advertisement during the CBS telecast of the Masters golf tournament. Common Core is “unlocking a better way to prepare our children for college and careers,” the ad argued. The tagline: “Join Exxon Mobil in supporting the Common Core State Standards Initiative.” It’s hard to say whether the Exxon ad had any impact when it ﬁrst appeared. But by the time it aired again a year later, it generated a reaction—a deeply hostile one. Glenn Beck responded with a 12-minute polemic, and emails—99% critical, according to ExxonMobil Foundation executive director Pat McCarthy—cascaded in. “Big Businesses Whore for Common Core,” headlined one blog post discussing the ads. Critics began urging a company boycott. Wrote one: “Cut the gas cards up … this is disgusting.” Even the government expressed frustration. In May 2013, Secretary of Education Arne Duncan scolded executives at a U.S. Chamber of Commerce event for failing to do more to defend Common Core: “I don’t understand why the business community is so passive when these kinds of things happen.” Many companies stayed on the sidelines. Worse, one staunch supporter— GE (see sidebar)—abandoned the ﬁght. AS THE THREAT GREW DURING 2013, Common Core’s supporters struggled with how to ﬁght back. “Our responses initially were fact-based,” says Achieve’s president, Mike Cohen. “But the opposition’s appeals were more emotional than that. It turned out facts didn’t often matter.” Everyone wanted to coordinate strategy; supporters considered a national advocacy campaign, including TV ads. But advocates didn’t want to reinforce the very notion they were trying to combat. “Having someone from Washington explain that there’s not really a conspiracy here doesn’t really put the ﬁre out,” notes Cohen. Grass-roots rage had made Common Core a potent issue. Many Republican officials who had backed the standards were now ﬂip-ﬂopping. Presidential aspirants performed some of the most remarkable acrobatics. In Oklahoma in 2013, Common Core supporters enlisted Mike Huckabee, the former governor of next-door Arkansas, to ﬁght a growing repeal movement. Huckabee wrote a two-page letter urging lawmakers to stay the course: “I’ve heard the argument these standards ‘threaten local control’ of what’s being taught in Oklahoma classrooms. Speaking from one conservative to another, let me assure you this simply is not true.” Huckabee called the Common Core standards “near and dear to my heart … something to embrace.” Less than two years later, after announcing plans to seek the Republican presidential nomination, Huckabee had a different view. “We must kill Common Core and restore common sense,” he declared on his campaign website. Huckabee was hardly alone in reversing his position (see box, page 55).
January 1, 2016
The Common Core standards are “excellent” and a “conservative idea.”
Conservative politicians cast Common Core as a looming threat to liberty. Even in Texas, which never adopted the standards, the state legislature—in the name of defending local control of education—passed a law in June 2013 making it illegal for any school district to use the Common Core standards. In his successful run for governor, Greg Abbott vowed to “crush” Common Core. At the Business Roundtable, Tillerson importuned his fellow CEOs at every meeting to “be visible in their support” and “pick up the phone and call key state leaders to voice their support for staying the course,” according to Linn, who became the group’s education specialist around that time. The Exxon CEO urged them to wield their lobbying and economic clout, especially in states where they operated major facilities with lots of jobs. Tillerson was so persistent that he annoyed some of his CEO peers. Some companies—such as Intel and Cisco—promoted the standards. But the response from others fell short. The Exxon Mobil CEO simply couldn’t move his peers amid the political heat. Tillerson didn’t hesitate to ﬂex his own muscle. In May 2013, after Pennsylvania delayed implementation, he ﬁred off a letter reminding the governor and others that his company had “signiﬁcant operations” there. Common Core, he advised them, was necessary to give Exxon Mobil “the conﬁdence that the education standards we require for employment will be met by your state’s graduates.” An education blogger quickly branded this a “Maﬁa-style letter,” and suggested Pennsylvania’s governor “may soon wake to a horse’s head laying in his bed, which will smell vaguely of gasoline.” Five months later, Tillerson was even less subtle, warning lawmakers contemplating repeal that Exxon Mobil might not hire anyone from states that don’t have Common Core. “If I can’t ﬁnd the workforce in the state that I’m in, I will go to the next state and ﬁnd that workforce,” he told NBC’s Tom Brokaw in an interview on stage at an education conference. “And I’m going to look in states that are using the Common
“Once the standards become national like Common Core, parents have no say…It’s an agenda to control education from the top. People with money, like Gates, want to have a lot of control over what’s being taught.”
“We view [Common Core] as quite fundamental…The rollout of Common Core—there’s a lot that’s been learned…including a mea culpa where in some places our foundation and perhaps others were naive…”
ben nett: a lex wong—gett y im ages; ruzick a: r ick bow mer—a p; gates: r ingo chiu—zu m a pr ess.com
Core State Standards because I have a high degree of conﬁdence in the kids that graduate under that system.” The persistent advocacy from Exxon’s gruff CEO, a staunch Republican and blunt critic of federal regulation, drew some particularly improbable attacks. Tom Borelli, then a leader of Tea Party group FreedomWorks, called Tillerson’s support “another example of the Big Business establishment joining ranks with big government to expand centralized control of our lives.” BY EARLY 2014, the tide seemed to be turning against Common Core. Indiana became the ﬁrst state to drop out entirely. South Carolina soon followed. Over the next year state lawmakers would introduce more than 100 bills to limit or halt implementation and 40 to drop Common Core altogether, according to a tally by the National Conference of State Legislators. Oklahoma would become the site of the most dramatic reversal for Common Core to date. Mary Fallin had won election as the state’s first woman governor as a strong supporter of Common Core. She vigorously defended the standards in a January 2014 speech to the National Governors Association. That spring the Oklahoma legislature overwhelmingly passed a bill that didn’t just scrap Common Core. It dictated that the state eventually implement new benchmarks—subject to a 10-point comparison to make sure they didn’t even resemble Common Core. Fallin had not indicated whether she would sign the legislation, and activists descended en masse to persuade her. One group of opponents besieged the Capitol wearing green T-shirts reading common core is not ok. National organizations swamped Fallin’s office with thousands of calls urging her to sign the repeal. School administrators and teachers, meanwhile, warned of educational chaos; they had already prepared classroom plans for the fall aligned to Common Core. Business groups urged a veto. Tillerson, in Oklahoma City to deliver a speech at an en-
ergy conference, urged Oklahoma not to retreat from its “prior commitment” to “high and meaningful standards.” In the end, Fallin sided with Common Core’s opponents. On June 5, 2014, she signed the new legislation, citing the “widespread concerns” that Common Core “gives up local control of Oklahoma’s public schools”—the very concerns she’d previously dismissed. It was about this time that Tillerson’s company adopted a new policy for its corporate political action committee. ExxonMobil PAC would make no more donations to elected officials actively opposed to Common Core, even those who typically back the company’s principal business interests. Among the ﬁrst to be affected: Oklahoma Gov. Fallin. Her campaign committee had received a combined $6,000 in annual donations from ExxonMobil PAC in 2011, 2012, and 2013. In 2014, as she campaigned for reelection, ExxonMobil PAC gave her nothing. EVEN BEFORE THE DEFEAT in Oklahoma, Common Core’s supporters had begun to recognize that they had to step up their defense—and do so in a more localized way. The real ﬁght was occurring in individual states considering repeal. The proponents unrolled a “ground game,” helping launch state advocacy groups with full-time staff and websites, featuring testimonials from local teachers and business leaders supporting Common Core. Recognizing the need for conservative political and PR savvy, Common Core backers turned to a new nonproﬁt they’d established, called the Collaborative for Student Success, to “ensure fact-based discussion.” (The group’s funding includes $27.9 million from the Gates Foundation, as well as grants from the ExxonMobil Foundation.) To run it, leaders of eight big foundations hired Karen Nussle, a former Newt Gingrich aide who had become a Washington PR and marketing operative. Nussle assumed the role of “conservative whisperer.” She established a rapid-response operation, to spin news about Common Core and respond ﬁercely to opponents’ charges. She also retained William Bennett, one of the fathers of Common Core, as an advisor. In ads and media interviews aimed at calming the right, Bennett bashed the Obama administration for meddling (“That messed up everything,” he tells Fortune), but defended the standards as “still excellent” and a “conservative idea.” America, he told the Manchester Union Leader, needed to adopt “real standards” across the country “so we can stop being the dumb asses of the industrial world.” Nussle says Bennett, now an author and radio talk-show host, makes an ideal advocate because he is “unassailable as a hard-core conservative.” (Still, assail him they have. The conservative blog RedState.com put it this way: “Bill Bennett paid to pimp for Common Core.”) A few business leaders stepped up their efforts too. State Farm developed a smartphone app—a sort of electronic cheat sheet for CEOs to use in promoting the standards—called Biz4Readiness. It included statistics, talking points, videos, and rebuttals to “common myths” about Common Core. In 2014 the U.S. Chamber of Commerce and Business Roundtable bankrolled a two-month round of ads. They aired on Fox News rather than during a golf tournament. THE ANGER AGAINST COMMON CORE remained ﬁerce, with politicians facing intense
pressure. And yet most state education officials and many teachers continued to view the substance of the standards as extremely valuable. In the face
business gets schooled
of these opposing positions, an almost-too-easy third way began to emerge. Instead of dropping out, 27 states simply renamed their education standards. In most cases they tweaked some of the provisions while retaining the vast majority. In Florida, for example, the dreaded Common Core was dead! Long live … the Next Generation Sunshine State Standards! This provided political cover for Republicans. For their part, supporters of Common Core concluded they had no need to ﬁght such initiatives. (The advocates note that any serious standards will necessarily share many elements with Common Core. Says Rich McKeon, head of the Helmsley Charitable Trust, a philanthropy that has given millions to support the standards: “It’s hard to get rid of Common Core completely unless we don’t want kids to do a lot of math and writing and deep analytical thinking.”) The moves lowered the temperature in the ﬁght, and by 2015 the repeal forces seemed to be losing momentum. The battle of Arizona may have been the turning point. The state’s Republican governor, Doug Ducey, took office in January 2015 after campaigning against Common Core. Tea Party–backed legislators promptly prepared a bill to dump the standards, which had been embraced under Ducey’s GOP predecessor, Jan Brewer. Opponents took aim at both the standards and their supporters, including former Intel CEO Barrett. Once again the accusations were wild. A Republican, Barrett had retired to Arizona and served as an education adviser to Brewer. A group called Arizonans Against Common Core declared that Barrett “has UN ties!” and advised that “Common Core Science Standards”—actually, there are none, since Common Core doesn’t deal with science—“Teach Global Warming!” The repeal bill passed the Arizona house and went to the senate, where Republicans had a big majority. This time, though, the business community had seemingly learned how to tangle with the organized opposition. The Arizona chamber of commerce—and Barrett—fought back hard. The chamber lobbied furiously, senator by senator, arguing that the state, which had been struggling for years to improve its poor-performing school system, needed the standards to attract jobs. They made the same case to Ducey, a former CEO of Cold Stone Creamery. Soon after, the governor publicly stated that getting rid of the Common Core standards wasn’t “necessary” after all. A week later, the Arizona senate voted 16–13 to preserve the standards. THE ADVERSARIES OF COMMON CORE have no intention of capitulating. In 16 states,
it now faces various implementation “reviews.” The clock ran out in 2015 without any more states dropping out. But in 2016, legislative assaults will undoubtedly resume. That said, Common Core has become a reality. Like Obamacare, it’s reviled in many quarters. Yet it’s increasingly impractical to undo. Countless schools have established curriculums designed around the standards, retrained teachers, and bought new books and materials. Reversing course would require redoing all of that again. Today, 42 states remain officially committed to the Common Core (under whatever name), while South Carolina, Indiana, and Alaska have standards of their own that experts say closely resemble
January 1, 2016
Common Core. After decades of controversy and conﬂict, a single set of thoughtful, higher standards is shaping the education of most American schoolchildren. (Exxon Mobil is conﬁdent enough of the standards’ staying power that it has rescinded its policy of withholding campaign contributions to opponents of Common Core.) It remains unclear how well this grand experiment will meet its ultimate goal: better preparing kids (and our country) for a challenging future. A key element of the Common Core effort—common standardized tests to allow honest assessments of progress—remains unfulﬁlled, swept back by a wave of parental concern about over-testing and teacher anxiety about being judged too harshly too soon. (Indeed, even the Gates Foundation—a staunch advocate of testing accountability— has urged a two-year moratorium on using new Common Core exams for teacher evaluations or student promotions, citing the need to give everyone time to adjust.) Of 43 states initially enrolled in one of the two consortia established to develop new Common Core tests, only about half remain. Dropout states, which must use their own tests, have cited teacher and parent concerns, as well as unhappiness with the new exams and their cost. But for states unwilling to repeal the standards, abandoning the tests has also become a way to assert local control—and appease anger about the Common Core. The ﬁrst states started using the new tests this year, producing refreshingly honest—if predictably dismal—results on student proﬁciency. As education experts see it, it will take several years to assess how successfully the combination of standards and “aligned” tests can drive improvements in the classroom. “We’re better off than we were before Common Core,” says veteran education scholar Chester Finn, a senior fellow with Stanford’s Hoover Institution. “We’ve got better standards. There’s less lying about the performance of kids and schools. There’s some better curriculum in place. If you were hoping for a 100% gain, today we’re probably looking at a 37% gain. But honestly it’s still early days. The aircraft carrier of an education system turns really slowly.”
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:KLOHKHOSLQJRXUFOLHQWČ‡VČ´QGOHVVULVNZLWKRXWORVLQJRQIXWXUHXSVLGH -,1#+1')04#/#)'7#"*,01-#,-)#"'"+12+"#/01+"1&115#0/#1&#'/ '%%#01 #5-#+0#/'$1"'"1"'"+1(+,44&1,1&#/,-1',+04#/#3') )#&# VDYLQJVZHČ´QGWKURXJKSURSHUWD[VWUDWHJLHVZLOOFRPSOHWHO\FKDQJH\RXUUHWLUHPHQW %*##*#* #/6,2/#4'++'+%'$6,2/#+,1),0'+%1,1&# Gary Marriage, Jr. | CEO, Nature Coast Financial & Best-Selling AuthorÂŽ www.NatureCoastFinancial.com 6 /,(#/0+"/#"#"'!1#"1,,+#1&'+%,2/!)'#+10#&3#"##- (+,4)#"%#+"2+"#/01+"'+%,$/#)#011#+"/#!,+1'+2))6)#/+'+% 211&1 GRHVQČ‡WPDNHXV*DPH&KDQJHUVÎ–QVWHDGLWČ‡VWKHGHGLFDWLRQDQGIRFXVZHJLYHWR HDFKFOLHQWZKLFKFRPHVIURPRXUKHDUWVWKDWPDNHVWKHGLÎ?HUHQFH:HVWULYHWREHD -,0'1'3#$,/!#'+1&#'/)'3#0 John-Mark Mitchell,CRS, GRI | CEO/Founder, Mitchell Prime Properties & Best-Selling AuthorÂŽ | www.gomitch.com Î–QRXULQFUHDVLQJO\FRPPRGLWL]HGZRUOGWKHRQHGLÎ?HUHQWLDWRUEHWZHHQ\RX +"6,2/!,*-#1'1',+'0*!&+%'+%1&#%*# 61#))'+%*601,/6+"1&,0# ,$*6!)'#+101,0*+6-#,-)#0-,00' )#$6,2-,0'1',+6,2/0#)$01&# 0,)21# H[SHUWLQ\RXUČ´HOG\RXČ‡OOZDWFKHYHU\RQHHOVHEHFRPHLUUHOHYDQWDQGVWDUWHDUQLQJ 4&16,2"#0#/3#1,, Nick Nanton, Esq. | CEO, Dicks + Nanton Celebrity BrandingÂŽ Agency www.DNAgency.com 2!!#00"#-#+"0,+1/2016,2!/#1#4'1&'+6,2/*/(#1!/#1#"1/201 6!/#$2))6 2')"'+%*/(#1'+%0601#*1&1-,0'1',+0*#0#)# /'165-#/1 #$,/#"2/'+%+"$1#/1/+0!1',+1(#0-)!#3#/6*/(#1'+%0601#**201 !/#1#%#+2'+#%,,"4'))+"1/201-,0'1',+'+%6,201&#,+)6-#/0,+!)'#+1/#)'#0 ,+1,0,)3#1&#'/-/, )#* Greg Rollett | CEO, Celebrity ExpertÂŽ Marketing www.CelebrityExpertMarketing.com 2XUČ†*DPH&KDQJLQJČ‡DELOLW\WRKHOSFRPSDQLHV*URZ*OREDOO\YLDPXOWLSOH +#4%#"'%'1)*/(#1'+%!&++#)0&0#+ )#",2/!)'#+10#5-+"'+ !,2+1/'#0 #&#)-/%+'71',+004'$1)6/#!&(#6"#!'0',+*(#/04,/)"4'"#20'+%'*-#!! )#-#/0,+)'7#""'%'1)!*-'%+0+",+#1,,+#*/(#1'+%0,)21',+0# #)'#3# &OLHQW*URZWKIRFXVZLOODOORZHYHU\RUJDQL]DWLRQWRJURZZLWKIXOOVWHDPHYHU\GD\ '+#3#/646 Subhakar Rao Surapaneni | Chairman, Champions Group www.championsgroup.com 2/1#*0,"*-'++,31',+!)#/#"1&#$,% #14##+1&#*/(#1#/0 +"1&# 20'+#00 #'+%*/(#1#" 6!/#1'+%-)1$,/*1&1%'3#0!)#/3'0' ')'161, 10(0'+3,)3#"'+0#/!&#+%'+#*/(#1'+%01/1#%6&+(01,,2/2+'.2#--/,!& 4#&3#&#)-#" 20'+#00#0 #!,*#0#)$/#)'+1'+1#!&+'!)!,+1#512)+"!,**2 QLFDWLYH6(2GLVFLSOLQHVZLWKDVXFFHVVUDWHLQLPSURYHGZHEWUDÉ?FČ‹ Steve Wiideman | President, Wiideman Consulting Group, Inc. www.Wiideman.com
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January 1, 2016
THE NEXT FRONTIER:
Residents of Govandi, one of the poorest slums in the city of Mumbai, shop online at a new Amazon outpost.
AMAZON INVADES INDIA
How Jeff Bezos aims to conquer the next “trillion-dollar market.” The inside story. BY
p ho t o g r a p h s b y BENJAMIN LOWY
January 1, 2016
ROWS OF COMMERCE:
Amazon’s 280,000-squarefoot fulﬁllment center in Hyderabad is capable of storing and shipping 2 million items.
AMAZON IN INDIA
In the blistering heat one recent afternoon, a crowd of people gathered down a narrow side street in Govandi, one of Asia’s poorest and most sprawling slums, on the eastern edge of Mumbai. Here, goats and cows jostle for space with nearly a million people amid the fetid, trash-strewn paths and crumbling buildings. Many have no toilet at home, and thousands make their living by scavenging in the nearby municipal dump. But on this particular day, the crowd of men jammed into a storefront in the side street had arrived to try their hand at something entirely new in their lives: online shopping. At the door, a man handed passersby leaﬂets explaining that the store owner’s laptop connected to hundreds of thousands of items that could be delivered to his establishSUPER SPENDING ON THE SUBCONTINENT WHEN IT COMES TO SHOPPING, THERE’S A NEW WORLD ORDER.
50 0 2000
January 1, 2016
gr a phic source: wor ld ba nk
CUMULATIVE GROWTH IN HOUSEHOLD CONSUMPTION EXPENDITURE
ment within a few days. “I bought a mobile phone,” says Ansari Jameel, 24, amazed at the swift transaction, as he emerged from the store, adding that he had scraped together the money from his job packing vegetables in a local street market. “The prices are good, and I ﬁnd a lot of things I cannot ﬁnd other places, like clothes, shoes, and watches.” Jameel does not know it, but he has just become part of a crucial experiment for one of the giants of the tech world: Amazon.com. His surprise discovery of Internet commerce is like found treasure to Amazon—and in CEO Jeff Bezos’s estimation, a key part of his strategy for future growth. The setting for these ambitions is modest, to say the least. But that hardly matters. Or so we discovered when Amazon agreed to let Fortune spend a week on the ground exploring its barely two-year-old operation in India—a journey that took us through four cities, from north to south, veering from razzmatazz glitz to grinding poverty, sometimes within a matter of hours. In pulling back the curtains, Amazon, one of the most private public companies in the world, revealed how it is racing to piece together an immensely complex puzzle—much of which it is having to build from scratch, at giant expense and with painstaking attention to the minutiae, as it tosses out assumptions that American customers have taken for granted for decades. In doing so, the company, an upstart here, has thrown itself into a knife ﬁght with two privately owned and much more established Indian competitors—Flipkart Internet Pvt. and Snapdeal, owned by Jasper Infotech Pvt.—as well as a clutch of smaller Indian startups that are nipping at all of their heels. It is a ﬁght that Amazon is far from certain of winning, yet one it cannot afford to sit out. The company predicts that India will be its biggest market after the U.S. within a decade and that the Indian e-commerce market as a whole will ultimately be gigantic. “The size of opportunity is so large it
will be measured in trillions, not billions—trillions of dollars, that is, not rupees,” says Diego Piacentini, Amazon’s senior vice president for international retail, who oversees operations in Asia and Europe and who is Amazon’s biggest shareholder after Bezos. Over lunch in New Delhi, Piacentini tells me he now spends more time, by far, in India than any other country in his portfolio, shuttling back and forth from Seattle; he jokes that his last two haircuts have been in India. He believes a big payoff from the India push is “unavoidable.” But it will not come cheap. “We know that in order to win in India we need to do things we have never done in any other country,” he says. “We need great people, a great platform, and honestly, a lot of money.” It is not hard to see why the battle for India is this ﬁerce, nor why Bezos, famously obsessed with analytics, would see it as essential for Amazon’s future. The numbers alone are dizzying. India’s population of 1.25 billion is four times as big
as the U.S.’s and more than double Europe’s. And since the median age is 27—a full decade younger than Americans’— the trajectory will be steep. India will overtake China as the world’s most populous country in just seven years, according to the UN. It is now the world’s fastest-growing major economy, and the IMF projects 7.5% growth next year. The roads and railways might be creaking under the strain. Many laws governing business are a confounding tangle, including a law forbidding foreign companies from selling products directly to Indians. That law effectively renders Amazon India a platform for vendors—akin to its “fulﬁllment by Amazon” program in the U.S.—rather than the company so familiar to Americans, which buys wholesale items in bulk and sells them directly in a Brobdingnagian online store. Still, one factor makes India vastly more accessible to global tech companies than that other mega-nation, China: The language of business here is English. “You have a market that is rivaled by only the U.S. and China. And China is very difﬁcult,” says Jayant Sinha, minister of state in India’s Finance Ministry, whose résumé seems tailor-made for his high-level
January 1, 2016
AMAZON IN INDIA
post: He spent years as a partner at McKinsey & Co. in Boston and at the Silicon Valley investment ﬁrm Omidyar Network in Mumbai. On the wall of Sinha’s Finance Ministry office, in the grand British-era government buildings in New Delhi, hangs a portrait of the national hero Mahatma Gandhi, who led the 1940s independence struggle, preaching simple living— a far cry from the talk within these walls these days, which is all about investment opportunities and proﬁt-making. For e-commerce, Sinha says that after the U.S., “India is the logical No. 2.” One reason for India’s huge potential is that it starts from such a small base. Barely one-quarter of India’s population has access to the Internet at home, whether on a smartphone or computer, and only a small fraction of those have ever shopped online. For e-commerce, that means explosive room for growth. Morgan Stanley estimates that revenue could soar to $137 billion by 2020, more than 10 times the 2013 level of $11 billion. That is partly thanks to plummeting prices for smartphones (there are cut-rate deals online for Chinese models like OnePlus and Xiaomi), which about 350 million Indians now own. Google and Facebook are among those investing heavily in increasing Indians’ online access, having concluded that their future growth—like Amazon’s—depends on massively expanding the world’s Internet users from the current 1 billion or so. “The mandate is wider than just selling some products online. We’re building a whole e-commerce ecosystem,” says Snapdeal co-founder and CEO Kunal Bahl, who launched his company at age 27, in 2010, after earning a management and technology degree at Wharton in Philadelphia. He returned home to New Delhi, he says, only because the U.S. refused him a work visa to stay—a spectacularly good twist of fate for the now-32-year-old Bahl, it turned out. His company, built in part with ﬁnancing from Alibaba and SoftBank, is valued at an estimated $5 billion. Bahl is not surprised by the sharp growth in India’s e-commerce. “We know the tectonic shift is already happening,” he says. “We just need to explain to the outside world that it is happening.” saw the shift coming, U.S. companies were slow to arrive. That gave local executives like Bahl a headstart, which Amazon, for one, is now struggling to overcome. In 2007, six years before Bezos launched Amazon India, Binny Bansal, a computer engineer from northern
THOUGH INDIAN ENTREPRENEURS
January 1, 2016
Order Up Right, motorcyclists line up to receive orders and addresses at an Amazon delivery center; far right, whisking deliveries through New Delhi’s legendary gridlock.
India, co-founded Flipkart with his childhood friend Sachin Bansal (no relation) when they were in their mid-twenties, after the two had worked in Bengaluru (a.k.a. Bangalore) as software engineers for … Amazon. They concluded that Indians would love an Amazon-style shopping site. Just like Bezos, they began by selling books online. Eight years on, Flipkart, valued at about $15 billion, is now India’s biggest e-commerce company, with 44% of the market—nearly triple Amazon’s 15%— and the two Bansals are each worth $1.3 billion. Tiger Global Management, Accel Partners, and South Africa’s Naspers are key investors. Binny Bansal says they plan to take the company public in the U.S. by 2019. When I ask him if Amazon is hampered by having begun years after Flipkart, he says, “Absolutely. When you start late, you have to crunch whatever others have done in eight or 10 years into two years. That is just messy and crazy.” The craziness was on full display traveling around India in October, when Amazon, Flipkart, and Snapdeal—on perhaps their busiest shopping week of the year—launched a frenzied marketing blitz to kick off the season of Diwali, the Hindu festival of lights, when Indians engage in a massive spending spree. A forest of billboards, the majority for Amazon, sprang up on roadsides and bus stations, promising blowout sales on furniture, clothes, smartphones, and other items; Amazon
even ran a lottery for customers with a prize of a gold brick. Eight-page jacket ads for the three companies wrapped newspapers. Within hours of its ﬁve-day sale ending, Amazon switched its billboards for new ones announcing another threeday sale just a week later. Flipkart, meanwhile, announced it had sold $100 million in items within the ﬁrst 10 hours of its ﬁve-day sale. To an outsider’s eyes, Amazon’s ads seemed frenetic and breathless, maybe even a little desperate. But the strategy comes straight from Bezos. To head Amazon India, Bezos had picked Amit Agarwal, a Mumbai native who joined Amazon in Seattle in 1999 after graduating with a computer science degree from Stanford. Agarwal shadowed Bezos for two years as his technical adviser before heading to Bengaluru, in southern India, the closest thing the subcontinent has to a Silicon Valley. “I spent more time with Jeff than my wife,” he jokes over breakfast. Then in 2013, Agarwal and Piacentini met with Bezos in Seattle to present their detailed business plan for India. The boss was unimpressed, they say, regarding their ideas as too cautious and methodical, given Amazon’s late arrival in India. He believed they had to go in with guns blazing. “He challenged us to think like cowboys, not like computer scientists,” Agarwal says. “We needed to move very fast.” Bezos had good reason to worry. He did not want
a repeat of Amazon’s past mistakes—in China, that is. There, Amazon trails far behind Alibaba and other Chinese companies, with no sign of ever catching up. “China has been something of a debacle,” says Benjamin Schachter, Internet analyst for the Macquarie Group in New York City. Amazon has only about 1.1% of China’s market and is so overpowered by Chinese competitors that it ﬁnally launched a store on Alibaba’s Tmall platform last March (see our feature on Alibaba in this issue, page 74). But what went wrong in China is a matter of dispute. Schachter says investors believe Amazon “has invested a ton of money that has not really paid off.” Amazon sees things differently. “We should have spent way more in China. On everything,” says Piacentini, an Italian who ran Apple’s Europe operations before joining Amazon in 2000. “And that is why we are not shy in India.” He and Agarwal tell me Bezos has given them wide freedom to run India without his intervention, accepting that it could take years for the billions of dollars in investment to show returns. “His solicitations are never, ‘When will we make money?’ ” Piacentini says. “It’s always, ‘Are we investing enough?’ ” To signal just how much money Amazon was prepared to plow into India, in September last year Bezos ﬂew to Bengaluru in a visit ﬁlled with Bollywood-style bling, arriving one day after Flipkart had closed a $1 billion round of ﬁnancing. He posed on an ornately painted delivery truck outside Amazon’s Bengaluru headquarters dressed in a white Indian wedding suit and handed a $2 billion mock check to Agarwal. The message was clear: He would spend whatever it took to win. By some estimates the company is spending nearly $25 million
January 1, 2016
AMAZON IN INDIA
“The opportunity will be measured in trillions, not billions—trillions of dollars, that is, not rupees.” a month in India already. “Investors are prepared to give Amazon leeway,” says Schachter. “But they don’t want to see a repeat of what happened in China.” Whether unbridled investment alone is enough for Amazon to catch up to rivals and dominate in India remains far from a settled question, of course. And some of those competitors, indeed, don’t exactly sound nervous at the prospect. “We’ve also got deep pockets,” says Flipkart CEO Binny Bansal, who adds that he has no worries about staying on top. “This is the last big frontier of e-commerce left. Nobody wants to lose.” at Amazon’s no-holds-barred plan late one afternoon in the Janakpuri neighborhood in western New Delhi. Down a side alley sits a warehouse that serves as one of the 4,000 motorbike delivery centers in the country—the ﬁrst such service in Amazon’s 20-year history. There was a frenzy of action inside as each bike rider ﬁlled a large black backpack with packages, grabbed a list of addresses, and raced out the door. Straddling on the back of one of the bikes, I clung to the sides as we weaved through rush-hour traffic, dodging cars and rickshaws, women in saris, and the occasional cow. Experts in their districts, the riders are essential to Amazon’s ability to make speedy deliveries, since the country has an arcane address system, patched together haphazardly over the decades, with many addresses containing descriptions reading something like “behind the mosque, across from the stadium.” Amazon faces a far bigger logistical hurdle than addresses, however: getting paid. Barely 60% of Indians have bank accounts, and only a fraction of those have credit cards. So Amazon’s payment systems in India are drastically different
I GOT A CLOSE-UP LOOK
January 1, 2016
from any the company has attempted before and involve the kind of hand-holding that would be unimaginable to U.S. customers. About half the customers pay cash only when their purchases are delivered. Amazon has partnered with thousands of small shop owners across the country to act as pickup points in exchange for receiving a small commission per package. When we ﬁnished our deliveries by motorbike that October afternoon in Janakpuri, we dropped by a tiny convenience store in the neighborhood, where a few Amazon packages sat on shelves between the rice and cooking oil. Lokesh Maggo, 33, whose father runs the shop, says he calls customers when their Amazon packages arrive and then collects the cash to give to Amazon the next time they swing by. In the process, his own business has grown. “People come here and then buy other things they need,” he says. For now, Amazon’s strategy is to persuade Indian stores to sell their products through the company, even if it currently costs Amazon more money than it makes on the transactions. That could be inevitable right now, since its U.S. revenue model—buying in huge bulk at wholesale prices, then selling retail online—is not an option in India, whose laws forbid foreign companies, Amazon included, from direct sales to Indians. Amazon boasted in its earnings call with analysts in October that the number of Indian sellers on its site had increased 250% in a year. Left unsaid, however, was that recruiting them has required staff to help on almost every aspect of the sellers’ business. One afternoon we watched an Amazon team set up lights and cameras in a small furniture store in Bengaluru so they could photograph a few leather couches and upload them to the site. The store owner tells me he doubted he would sell a single item on Amazon, but decided he “might as well” post his high-end furniture on the site. It was, after all, free. Much could still go wrong with Amazon’s strategy. The legal obstacles it faces are not ones that affect Indian competitors, including the country’s retail giant, the Tata Group. In February, Tata— late to the game—is launching its own e-commerce platform, effectively turning its thousands of retail stores into an Internet behemoth. Up in the colonial-era whitewashed Tata headquarters in Mumbai, the e-commerce team show me their plan, designed, they say, to put a serious dent in Amazon, Flipkart, and Snapdeal’s trade. “Indian growth is on a tear,” says K.R.S. Jamwal, executive director of Tata Industries. “People like to say the winners have already been chosen. I don’t agree. This is a 10-, 20-, 30-year journey.”
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TIME INC.â€™S NEWEST VEHICLE
AMAZON IN INDIA
India Fashion Week brings cachet and plenty of exposure for Amazon, a lead sponsor of the event.
Workers in the Hyderabad warehouse, an endless hive of activity, ready packages for shipping.
Beyond even its prodigious ﬁnancial investment, though, Amazon is clearly going all in. Witness its practice of ﬁlling out tax forms for some sellers, letting the latter avoid one major bureaucratic headache that is a perennial gripe here; each of India’s 29 states has a separate tax code, making cross-country shipping a laborious process. Amazon will even pick up items from sellers and deliver them—something the company does only in India. Another practice unique to its subcontinent operations: Amazon takes telephone orders for goods from sellers across India, packs the products into bags with Amazon logos, and delivers them straight from the sellers’ stores on Amazon motorbikes. That’s a far cry from the Amazon Americans know—whose core business is built on shipping millions of items, including groceries, from its own warehouses rather than collecting them from outlets. But then that’s a model that would severely limit Amazon’s business in India, where mom-andpop stores dominate. For Indian businesses, to be sure, the partnership with Amazon is an unalloyed boon. Sales for local businesses rocketed eight- or 10-fold during the Diwali promotion in October (at least according to Amazon); the company also exports items like saris and handicrafts to 25 million Indians in the U.S. “This is a land of small shops, with people who have probably never accessed the Internet,” Agarwal says. “If you want fast, cheap delivery, you have to build the whole infrastructure yourself.”
January 1, 2016
The morning after zooming through Janakpuri by motorbike, I ﬂew to Amazon’s biggest Indian warehouse, outside Hyderabad, 1,000 miles south of New Delhi. Set about a half-hour’s drive from the city’s glassy new airport, through ﬁelds and rice paddies, the 280,000-square-foot warehouse is capable of storing more than 2 million items— making it a relative piker compared with Amazon’s gargantuan hangars in the U.S. The Pampers diapers, Dr. Seuss books, math textbooks, Nikon cameras, and Ferrero Rocher chocolates stacked on the shelves represent perhaps something more precious to customers in India: the chance to buy merchandise they have never seen in their towns— including remote villages in the Himalayas and communities in Kerala reachable only by boat. Propped against the walls of the warehouse are signs with the slogan that captures in a handful of words what is unfolding at hyperspeed around the workers in Hyderabad: “Transforming the way India sells, transforming the way India buys.” TO TRULY DISRUPT the shopping habits of 1 billion people, however, Amazon, Flipkart, and others will need drastic transformation of the country itself— change that can come, perhaps, only at the hands
of government, not companies. There are signs that it is slowly happening (see “The Last BRIC Standing” on page 72). In 2014 Narendra Modi, a charismatic Hindu nationalist, came to power as Prime Minister partly on a sweeping “Digital India” campaign, promising to resuscitate the decrepit manufacturing industry, build highways and railroads, streamline arcane tax rules, create dozens of new cities with high-speed connectivity, and provide banking services to hundreds of millions of people. Those are all things e-commerce badly needs, and Modi is promising big changes. Even for the few Indians with credit cards, online shopping is still “painful,” in Agarwal’s word, with obligatory two-step authentication and cumbersome interstate trading laws. Parliament is debating whether to introduce a national sales tax, and the government has launched a fund to ﬁnance venture capital, modeling it on Israel’s Yozma Fund, which has helped power the rocketing success of Israeli startups. After years of stagnation, Modi seemed like a godsend to Indian entrepreneurs. Little surprise, then, that during his September visit to Silicon Valley, where 15% of startups are founded by Indians, 18,000 people jammed the
San Jose Convention Center to hear him speak. But California is 8,000 miles—and a galaxy away—from India. “In South Mumbai or Bangalore it’s easy to feel you are in New York or Silicon Valley. We drink the same coffee, listen to the same music, watch the same TV,” says Sinha, the minister of state for Finance. “But step 10 or 20 yards outside that zone, and you are in India. We are a poor, developing country.” No matter how much Modi transforms his nation, millions of Indians will continue shopping with cash for years to come, the roads will remain muddied and potholed, and thousands of factories will remain dysfunctional. Until now, Sinha says, tech companies have zeroed in on the “top 100 million”— hardly a small number, but a small fraction of Indians. But in creating cash payment systems and pickup points for customers and even allowing those with no Internet connection to shop on Amazon, the company has the possibility of reaching a customer base several times that size. “Amit [Agarwal] is Indian to the core. He totally gets India,” Sinha says. “He’s come in and reinvented Amazon’s model.” For Amazon to succeed in India, it will have to straddle those two worlds: the wealthy few and the poor masses. If it does, it could have a shot at something else too: helping to create a new model for other emerging markets. If e-commerce takes off across India, the industry could replicate its model for India in other vast developing countries, such as Indonesia and Nigeria. Then, says Sinha, the tech industry would have two global centers: Silicon Valley and Bengaluru. “Just like the U.S. is the economic hub and innovation engine for the top 1 billion people on the planet, India is going to be the innovation hub for the next 5 or 6 billion people,” he says. In the ramshackle slum of Govandi, where raw sewage clogs the gutters, Amazon’s storefront operation is one sign of how that new hub might look. Here, few people have ever logged on to a computer, and many do not yet have a smartphone. Instead, the store owner guides them through Amazon’s site, then writes down their order in pen in a ledger and takes the cash once Amazon delivers the item to the store, passing the money along to the company, minus a fee. On a good day, more than 30 people purchase items in his store. It is a small start, but one Amazon believes will rise quickly. “What we do in India will affect Amazon’s future in a very, very big way,” Agarwal says. “If Jeff writes a book on Amazon, India will certainly be a chapter in it.” It will be some time before we know whether that chapter will be titled “Bezos’s Folly” or “The Billion-Customer Bounty.”
January 1, 2016
Prime Minister Narendra Modi (center) welcomes a throng of top executives at a 2015 Fortune summit in New York.
INDIA: THE LAST GREAT EMERGING MARKET
The Last BRIC Standing Under the leadership of Prime Minister Narendra Modi, India is doing what its once-celebrated cohorts in the emerging-markets bloc can no longer seem to do: emerge.
A FEW WEEKS AGO, Goldman Sachs ﬁnally conceded defeat for its BRICS fund, an investment vehicle focused on the hot emerging-markets bloc of another era. The fund had lost 88% of its assets from a peak in 2010. And the reasons by now are so familiar that they can be rattled oﬀ by cabdrivers: Scandal-plagued Brazil—the “B” in BRIC—has been lurching from crisis to crisis and is now sinking into its deepest recession in 25 years.
January 1, 2016
r ebecca gr eenfield for fortu ne
By Ian Bremmer
Russia (the “R”) is rusting like a Cold War–era Volga, hobbled by sanctions and a chief export (energy) that has cratered in value. China’s onceunstoppable economy is cooling quicker than a Sub-Zero, as reforms sputter forward. And South Africa, which joined the BRICS group a few years ago (turning the acronym’s lowercase “s” into an uppercase one) barely rates a mention. The only component of this bloc not imploding is the “I”: India—a country long known for strong potential and feeble performance. Indeed, India is set to become one of the fastest-growing major economies in the world over the next
several years. In 2016 its GDP is expected to expand by 7.5% to 8%, a signiﬁcantly stronger number that we can expect in China—though from a much lower base. India, it should be emphasized, has a long way to go. More than 170 million of its people live on less than $1.90 per day, according to the World Bank. (China’s per capita income in 2014 was nearly ﬁve times as high as India’s $1,596.) And the subcontinent remains a rural land, with nearly half of all jobs there related to agriculture. It won’t become an urbanized, industrial power this year or next. Yet India is beneﬁting from some important current trends. Its growth depends little on exports, limiting India’s vulnerability to slowing economies elsewhere, and as a major importer of energy and other commodities, it has beneﬁted greatly from the sharply lower prices of the past few years. Most important, it is a place brimming with conﬁdence these days, as Prime Minister Narendra Modi’s economic reform process begins to bear fruit. Modi’s changes, in fact, are already opening India to private investment as never before, setting the country on a path toward becoming the emerging-market world’s biggest success story over the next several years. Modi arrived with a bang in May 2014. His campaign, focused on strong leadership, corruption-free government, and rapid economic growth for all Indians, regardless of caste or creed, won over urban and rural voters alike and delivered Modi’s party—the Bharatiya Janata Party, or BJP—the largest majority in India’s lower house of Parliament in 30 years. He has since built broad popular support for reforms needed to improve the country’s business climate, trigger rapid economic development, and establish much more eﬃcient government—moves that have brought a surge in foreign
investment. In high-proﬁle and emotional speeches, he has startled and delighted audiences with plain speaking on social issues ranging from gender inequality to the country’s chronic shortage of working toilets. And he has expertly used new media to engage with India’s soaring population of lower-middle-class youth. To be sure, there have been notable setbacks for the Prime Minister and his party. Elections to the Delhi assembly earlier this year and a vote this fall in the northern state of Bihar undermined the perception that Modi can get whatever he wants. He can’t. The BJP and its allies control assemblies in just 11 of India’s 29 states, and because lawmakers in India’s upper house are indirectly elected by state legislatures, the BJP will continue to lack a majority there for the foreseeable future. Though it isn’t particularly popular these days, the opposition Congress Party used its leverage in the upper house earlier this year to obstruct key elements of Modi’s legislative plan from advancing. Communal tensions are also damaging Modi and the BJP because many Indians continue to associate the party with Hindu chauvinism. (Some BJP members and its coalition ally, the RSS, still publicly champion some fairly extreme views.) Despite all this, Modi’s approval ratings remain above 70%. He has demonstrated unexpected ﬂexibility by consulting with Congress Party leader Sonia Gandhi to advance changes that beneﬁt them both. He has formed alliances of convenience with regional and caste-based parties to ensure that stalled elements of his agenda move forward in coming weeks. And the BJP has been expanding its support base, reducing its dependence on any one group at the ballot box. Modi, for his part, has spent that political capital quickly and well—taking a machete to the thicket of overlapping permits and regulations that choke business and constrain growth. He is pressuring state governments to do the same and tax authorities to take a less hostile approach toward business. Local-level corruption remains endemic, and many state bureaucracies still move at a glacial pace. But important regulatory changes in land acquisition at the state level should improve the business environment. What’s more, Modi will probably soon win passage on a longawaited national goods and services tax, which ought to sharply lower barriers to trade across state lines. This coming year, he will face a number of particularly tough challenges as he pushes his legislative plans to boost employers’ freedom in hiring and ﬁring workers and to open up the electrical power industry, now largely run by state-government-controlled ﬁrms, to private-sector companies—both of which are sure to bring intense union opposition. But Modi, at least, has recent history on his side. Past eﬀorts to lift restrictions on foreign direct investment (FDI) in the defense, railway, construction, and retail sectors have already made a diﬀerence. Total FDI surged a remarkable 27% in ﬁscal year 2014–15, and it will climb higher this year. These are the kind of numbers that folks betting on India have been waiting for. Modi has proved as creative as he is forceful. He has persuaded some reform-minded state leaders to take advantage of constitutional provisions that allow
them to rewrite national-level legislation on certain restrictive land, electricity, and labor rules. And his government has created an annual state-level “ease of doing business” index to map progress and intensify peer pressure on underperforming local governments. The Prime Minister has also raised India’s global proﬁle and enhanced its inﬂuence by supplanting multinational meetings with bilateral summits—an approach that has brought the country closer to (and facilitated investment from) Japan, Europe, and the U.S. Likewise, Modi has built better relations with Indian Ocean neighbors. Most important for the country’s future, he has pushed past traditional Indian suspicion of regional rival China to engage Beijing and draw substantial Chinese corporate investment. The “Modi eﬀect,” in sum, has been remarkable, keeping the “I” of those old BRICS on the prize of economic revitalization. That said, it is probably—make that certainly—too early to bury the others. China remains strong and stable, and its slowing economy will not limit the extension of its international inﬂuence. Brazil may be getting exactly the crisis it needs to set the country on a path toward better governance and sustainable long-term growth. Russia’s ﬁnancial reserves and smaller population ensure that it’s not headed over a cliﬀ soon. And South Africa’s African National Congress will (eventually) have to change if it is to regain lost support from urban young people. India, though, reminds us that some emerging markets can do what few major economies have done of late—and that is to evolve. Narendra Modi, at the very least, can take a long, slow bow for that. IAN BREMMER is the president of Eurasia Group and author of Superpower: Three Choices for America’s Role in the World.
January 1, 2016
“Sniff, swirl, then swish.” An Italian-born sommelier guides a crowd of tasters through generous pours of velvety Robert Mondavi reds. Some of the well-dressed guests listen intently. Others clutch their glasses as they wander among lush gardens or settle at upright winebarrel tables to nibble on cheese and charcuterie. It’s a scene straight from a Napa Valley tourism brochure—but it’s taking place 6,200 miles away from that cradle of Cabernets. Beyond the gardens lies the industrial sprawl of Hangzhou, China; a thick cloud of urban smog
ALIBABA’S NEW FAVORITE LABEL:
‘MADE IN THE USA.’ 7KH&KLQHVHHFRPPHUFHJLDQW QHHGVWKHEXPSLQ VDOHVDQG SUHVWLJHWKDWFRXOGFRPHIURP ELJJHUSDUWQHUVKLSV ZLWK $PHULFDQ EUDQGV86FRPSDQLHVQHHGDQ HDVLHUZD\WR UHDFK&KLQHVH FRQVXPHUV&RXOG WKLVEH WKH VWDUWRIDQLPSRUWDQWUHODWLRQVKLS"
By Leena Rao i l l u s t r a t io n b y
hangs just a few feet above the party. And the Californiastyle tasting area is a pop-up, built on the campus of e-commerce giant Alibaba as part of a campaign by Mondavi to tap Alibaba’s enormous customer base. The guests are almost all Chinese and young, and some sniff and sip the wine warily, the way Americans might approach slivovitz or soju. Even basic instructions from the sommelier about how to hold a wineglass draw appreciative ahs. It’s a scene of cross-cultural courtship—and a glimpse of a broader effort with high stakes for Alibaba and American companies alike.
Alibaba is the hottest e-commerce company of the past ﬁve years, a fusion of eBay and Amazon whose 386 million active users accounted for $394 billion in sales in ﬁscal 2015—six times the sales volume of its biggest Chinese competitor. The company created a huge marketplace and a sophisticated distribution network just in time to serve a generation of Chinese consumers attaining middle-class prosperity. “We are seeing Chinese consumers adopt new retail formats and online shopping faster than any of their global counterparts,” says Jasmine Xu, president of e-commerce for Procter & Gamble Greater China. Those trends fueled a rise so impressive that even the January 1, 2016
A SHORTCUT TO CHINA
January 1, 2016
CEO Daniel Zhang, creator of Tmall, poses with Tmall’s mascot at an event promoting Singles Day; below opposite, he confers with Alibaba founder Jack Ma.
ALIBABA’S BEST SELLER:
ALIBABA’S FLAGSHIP WEBSITE, Taobao, which launched in 2003, is essentially China’s eBay. It’s an eclectic virtual bazaar dominated by small businesses and individuals selling to one another, where shoppers can ﬁnd oddball collectibles from mom-and-pop retailers, jeweled iPhone cases, and live scorpions. In its early years Taobao also became a market for counterfeits of foreign brands—a problem that persists today, though Alibaba has taken steps to curb it. Alibaba’s other site, Tmall, went live in 2008 with a business model sharply distinct from Taobao’s. Tmall is Zhang’s brainchild. He positioned it as a marketplace for higher-quality clothing, food, and electronics, with a focus on luxury brands. This is where visitors browse and buy everything from Olay face creams to Burberry coats. It’s also the site on which Alibaba has staked its growth. Taobao is still the bigger platform, generating $69 billion in gross sales for the quarter ended Sept. 30, compared with $43 billion for Tmall. But Tmall’s gross sales grew 56% year over year that quarter, four times as fast as Taobao’s. Tmall owes its growth to China’s rapidly expanding, brand-conscious middle class. Currently there are 109 million Chinese people with a net worth between $50,000 and $500,000, according to Credit Suisse, which estimates that those ranks could surpass 500 million by 2022. It’s a demographic that’s very comfortable with e-commerce: 40% of Chinese consumers buy groceries online, for example, compared with only 10% of Americans. What many aspirational Chinese want most is
china foto pr ess—gett y im ages (2)
mighty Amazon became an Alibaba partner, and the company’s IPO was one of the business highlights of 2014. Today, however, Alibaba looks mortal. Its growth has slowed, hampered by China’s ebbing economy and by competition from a growing crop of rivals like JD.com. Its stock has fallen 26% from its post-IPO highs, from $115 to the mid $80s. To reignite its growth, chairman and founder Jack Ma and CEO Daniel Zhang plan to lean on U.S. companies— brands that hold enormous appeal in China. “This is an incredibly important strategy for the future of Alibaba,” Ma says. To woo these iconic companies—among them P&G, Estée Lauder, and Macy’s—Alibaba is pitching itself as a shortcut to the world’s most populous market. Alibaba is helping foreign companies with marketing, data analytics, and shipping. And more recently it has sweetened the pot with a newer service, Tmall Global, that lets U.S. brands sidestep many of the taxes, regulatory hurdles, and logistics hassles that trip up foreign companies in China. All this comes from the company that turned the obscure Singles Day holiday into a lucrative shopping phenomenon. Alibaba’s $14.3 billion in Singles Day sales in 2015 were double the U.S. e-commerce total from Thanksgiving, Black Friday, and Cyber Monday combined. If all goes as Ma and Zhang hope, Alibaba and American companies could reap enormous rewards. Alibaba earns money by charging fees of 2% to 5% on transactions on its sites, and in ﬁscal 2015 it took in $12 billion in revenue. Bob Peck, analyst at investment ﬁrm SunTrust Robinson Humphrey, estimates that U.S. and European goods could generate $30 billion to $40 billion in annual sales on Alibaba by 2017. That could add as much as $2 billion a year to Alibaba’s top line. And while many of the goods sold by international brands are, ironically, made in China, an Alibaba bump of that size could still generate a double-digit percentage increase in U.S. exports to China, which totaled about $120 billion in 2014. That’s the best-case scenario. As Zhang admits, “What sells in the U.S. doesn’t necessarily sell in China.” For Alibaba there’s the risk that U.S. brands will use it to “showroom” goods—and then abandon it for other sales channels, says Ben Cavender, an analyst with China Market Research Group. Still, it’s a relationship with tremendous potential, and Fortune recently took a closer look at its rapid evolution.
What Sells in China Many Chinese consumers admire American brands, but that doesn’t mean they’ll buy American products. Here are some of the lessons that Alibaba’s U.S. partners have learned about selling to this huge new market. START SMALL. Chinese consumers can be reluctant to make full-size purchases of unfamiliar products. Robert Mondavi found that oﬀering single-serving bottles of wine— about a quarter the size of a typical bottle—encouraged buyers to try varietals like Chardonnay and Merlot.
goods from abroad. Foreign brands often carry a better reputation than their Chinese equivalents; recent crises involving toxic chemicals in Chinesemade food and cosmetics have fueled that sentiment. Min Su, a fortysomething professional driver in Hangzhou, underscores the point. “I’m addicted to buying beauty products on Tmall,” she says. But she trusts only brands like Kiehl’s and Lancôme, saying they’re safe to put on her skin. “I don’t buy in stores,” she says; she doesn’t trust them either. Tmall offers U.S. companies a portal to consumers like Min. But selling on the site is only half the battle. “It’s incredibly difficult to set up operations [in China], even if you are a large brand,” says Cavender, the analyst. Like all foreign companies, Tmall partners must establish a Chinese-licensed business unit and a Chinese bank account. Paperwork to obtain licenses and permits must be ﬁled in person, often with multiple agencies. Even opening a bank account can
FLY THE FLAG. In categories that “touch the skin,” like cosmetics, diapers, and personal-care products, many Chinese shoppers place a premium on foreign brands. Cosmetics giant Estée Lauder features the words “Made in USA” in very large, bold type on most of its Alibaba web pages.
SHOW, DON’T TELL. Some U.S. exporters need to show China’s customers how to use their products. Lobster, for example, is little known in China, so FoodExport Northeast created how-to videos for Tmall, teaching consumers how to cook lobster in their own kitchens.
take months. Consequently, big U.S. companies that had already invested in China infrastructure—Nike, P&G, Gap, and, yes, Amazon are prominent examples—have taken advantage of Tmall. But for others the bureaucracy remains daunting. Zhang attacked this problem by creating Tmall Global, which debuted in 2014. It’s a “cross-border” marketplace that creates a huge, helpful regulatory loophole. Foreign companies that sell only through Tmall Global don’t need to set up Chinese subsidiaries or bank accounts; in practice, they can start selling to Chinese consumers in a matter of days. Alibaba’s payment spin-off, Ant Financial, handles transaction processing with the brands’ home-country banks. Alibaba takes care of shipping and inventory through Cainiao, its network of logistics partners, a service for which Tmall customers pay extra. Perhaps most appealing: Companies that import through Tmall Global can pay lower taxes. Alibaba has worked with China’s government to create “bonded” warehouses in four cities. Goods shipped through these points aren’t subject to standard import duties. Some aren’t taxed at all; others are taxed at discounted rates of 10%, and only after shoppers purchase them. This compares with the 30% to 40% wholesale tax rates standard for such brands, says Cavender. It’s a deal the Chinese government was willing to offer, Alibaba officials say, because it meant consumers would spend more money at home. In his stark office in Hangzhou, Zhang describes Tmall Global as the missing link between American companies and “digital China.” Zhang, 43, is a Jack Ma protégé and ﬁnance guy who joined Alibaba in 2007 after a career that included a stint at PricewaterhouseCoopers. He speaks so softly you have
January 1, 2016
A SHORTCUT TO CHINA
AMERICAN-MADE, ALIBABA-DELIVERED: Above left, Chinese shoppers read about an Alibaba promotion at an Estée Lauder store. Above right, workers prepare goods for shipment at a warehouse run by Cainiao, Alibaba’s shipping network.
ON ALIBABA’S HEADQUARTERS CAMPUS, young employees cluster, laughing and messaging on mobile phones. Many ride Alibaba-branded tandem bikes from one building to another. Silicon Valley–style perks, such as lactation rooms and Ping-Pong tables, dot every ﬂoor. Still, a visitor sees plenty of reminders that she’s in Hangzhou, not Menlo Park. Rows and rows of bamboo plants punctuate the massive office ﬂoors; there’s one placed on each desk for good luck, and the tall
January 1, 2016
reeds make open desks look like forest clearings. For all the campus’s high-tech trappings, most of its toilets are essentially just holes in the ﬂoor, and each bathroom includes a bucket where employees dump their tea leaves. Tucked among these buildings, employees are building up Alibaba’s infrastructure for foreign brands. In 2014, when Costco decided to start selling food in China, it shipped several tons of nuts via freighter to a bonded warehouse in Ningbo. It didn’t have to handle any logistics beyond that, thanks to Cainiao. Alibaba’s shipping network isn’t always China’s fastest: JD.com, for example, boasts same-day delivery in 40 cities, compared with only six cities for Alibaba. But its reach is tremendous. According to Cainiao executive Wan Lin, it ships to every district in China and can ship overnight to 200 cities. Cainiao will quintuple the warehouse space it leases, to 54 million square feet, over the next year—setting aside a space bigger than New York City’s Central Park, largely to accommodate foreign goods. Alibaba also helps companies ﬁgure out which products might fare best in China. For Tmall Global, the company helped Macy’s focus its selection on accessories, shoes, towels, and sheets—the kind of “touch the skin” categories where China’s shoppers covet foreign brands. In the food world,
courtesy of a liba ba; zh a ng peng—light rock et/gett y im ages
to lean in to hear him, and his simple navy suit hangs baggily on his slender frame. His message, though, is conﬁdent. “You have nothing to lose,” he says, addressing an imagined American executive. “Tmall Global gives these companies the ability to learn the Chinese market and understand the Chinese consumer without a massive investment.” So far that pitch has proved alluring. Costco has used Tmall Global to make an impressive China debut. Department store stalwart Macy’s tried and failed earlier this decade to establish its own e-commerce presence in China; now it has a “storefront” on Tmall Global. And some companies that already sell widely in China, including P&G, are using Tmall Global because it lets them bring new products to market faster. The big question is whether the brands now dipping a toe in these waters will commit further and dive in.
Alibaba’s cultural translation is particularly vital. To most Chinese, for example, lobster may as well have come from Mars. Alvin Liu, general manager of Tmall Global, says the site has helped U.S. ﬁshermen develop instructional videos to teach consumers how to cook the crustacean. Campbell’s quickly learned that its soups were prized—not as freestanding dishes, but as sauces for other meals. The company hired a Chinese chef to create recipes for Tmall; one explains how to make a traditional sweet-and-sour sauce out of a tomato-based soup. Bernie Chou, the general manager for Robert Mondavi in China, says many Chinese shoppers hesitated to buy a full-size, 750-milliliter bottle of wine that they might not like or ﬁnish. Mondavi, a division of U.S. conglomerate Constellation Brands, responded with 187-milliliter bottles, each a quarter the size of a normal bottle, so that drinkers could try Chardonnay, Cabernet Sauvignon, and Merlot without a big investment. Alibaba puts plenty of promotional muscle behind its U.S. partners. It can tap its huge well of purchasing data to target their marketing, reasoning that someone who buys, say, Alaskan black cod is more likely to splurge on other American delicacies. If a consumer has bought diapers from any manufacturer, Tmall will pitch the person offers for P&G’s diapers, wipes, and other baby products. The American origin of these brands, meanwhile, is emphasized at every turn. Tmall web pages for their products often feature the phrase “Made in USA” in a massive font, in red type. Last spring the Washington Apple Commission held a promotion on Tmall Global. It generated only about $100,000 in sales, but Rebecca Lyons, a marketing manager for the association, was impressed by its reach: 18.4 million Chinese consumers clicked on the promotion, and the apples’ American cachet was a big draw. Thanks to that publicity, Washington apples have now penetrated Sam’s Club and other retailers in China. Those sold on Tmall have an additional beneﬁt: a QR code that lets purchasers use their smartphones to verify the fruit’s origin. WHILE U.S. BRANDS are generally upbeat about the
exposure they’re getting from Alibaba, almost everyone involved is mum about how much they’re actually selling. Alibaba declines to disclose total sales for international products, and Zhang acknowledges that goods from the U.S. still represent a small percentage of sales volume. Of the 10 American companies Fortune spoke with, all declined to reveal their sales totals from Tmall and Tmall Global. “It’s still early days for our business in China,” said a Campbell’s spokesperson in a typical response. P&G, which sells everything from Pam-
pers to Gillette razors through Tmall, was more openly bullish but not much more speciﬁc. It says its China e-commerce business, which includes but is not limited to Tmall, is now the company’s largest online retail operation, surpassing those in the U.S. and Europe. P&G declined to reveal e-commerce’s share of its $7 billion in annual China revenue but said its value had grown 100-fold during the past four years. Heavily publicized promotions generate a lot of the buzz and dollars for foreign brands on Alibaba. During one six-day Tmall promotion in September, Estée Lauder registered $1.3 million in sales; during a two-day sale in April it sold $600,000 worth of La Mer face cream. Retail experts note that items often sell at steep discounts during such promotions. But it all might be worth it if it helps brands get a foothold on Singles Day. That, too, is a creation of Daniel Zhang, who latched on to a day celebrated ironically by romantically unattached Chinese college students and turned it into a behemoth e-shopping event. “You better believe U.S. retailers will jump on any event that drives this level of commerce,” says Gil Luria, retail analyst and managing director at Wedbush Securities. New sellers at the 2015 blowout included Apple, Estée Lauder, Robert Mondavi, and Macy’s. To accommodate an anticipated surge in American sales, Cainiao chartered 200 transport planes— traditional commercial plane “belly cargo” wasn’t going to be enough to ship everything, Wan Lin explains. In the ﬁrst eight minutes of the big day, Nov. 11, Alibaba sold $1 billion; by day’s end the total was $14.3 billion. (JD.com and other Chinese e-commerce sites also held Singles Day sales, though at nowhere near the same scale.) How did international brands do? On that topic, Alibaba is boosterish but fuzzy. Alibaba would not break out dollar values but says that 33% of its Singles Day shoppers, 30 million in all, made at least one purchase from international brands or merchants. Costco was the top international seller, Alibaba said. The bulk retailer enticed Chinese consumers to buy underwear, kitchen supplies, and a host of food items—including 245 tons of mixed nuts, about $4.1 million worth by Fortune’s back-of-the-envelope calculations. (Costco did not reply to multiple requests for comment.) Evidence of success? It’s far too early to tell. Still, Bob Peck, the SunTrust analyst, thinks Singles Day 2015 delivered on its international promise. Based on Alibaba’s 30-millioncustomer count and his analysis of Tmall spending patterns, Peck estimates that international brands sold $2 billion worth of goods on Singles Day, with about half of that going to American brands. That would mean international sales accounted for 14% of revenue that day—in line with the share Peck thinks they’ll eventually post year-round. P&G says that it saw record sales on Singles Day 2015, surpassing 2014’s total in a matter of three hours. And even the soft-spoken Zhang is willing to take a cautious verbal victory lap: “This day demonstrates the power of domestic China consumption,” he tells Fortune.
January 1, 2016
FROM THE EDITORS OF GOLF.COM
MASTERI YOUR CAREER
A MILLENNIAL’S FIELD GUIDE TO
WELCOME TO A WORKING WORLD THAT DOESN’T UNDERSTAND YOU, MIGHT NOT WANT TO HIRE YOU, AND DEFINITELY DOESN’T WANT TO PAY YOU VERY MUCH. STILL, THERE’S HOPE FOR THE NATION’S RISING GROUP OF IDEALISTIC AND TECH-SAVVY YOUNG WORKERS. HERE, OUR BEST ADVICE ON HOW TO GET THE RIGHT JOB—AND CRUSH IT.
THERE ARE A LOT of different kinds of cakes that you can make in a mug. That’s the key takeaway of the cooking blog hosted by Lana Lingbo Li, a millennial who burned out on Burning Man, freelance web design, and world travel, then settled down to fulﬁll a passion: a website primarily dedicated to the sheer variety of mug-size confections that young, lazy singles can bake in their microwaves. By day the Harvard grad has a full-time job at a Boston startup, but Li couldn’t imagine herself on a typical corporate trajectory. “I’m doing better than most people my age, and I’ve had an interesting life,” she says. “I do feel like I’ve really drunk the millennial Kool-Aid.” • Just what is the millennial Kool-Aid? All we really know is that corporate America is about
By CLAIRE GRODEN Illustrations by ANDY RASH
M I L L E N N I A L E M P LOY E E S
to be chugging it. In 2015 the generation surpassed Gen X to become the largest in the workforce. Though misconceptions abound, the economy’s youngest workers really are different: They’re accustomed to the swipe, refresh of constant notiﬁcations, the steady ping of chat messages, and the reassuring weight of a smartphone on their person at all times. They’re principled—and statistically less likely to pursue a job they hate just for the money. And for all their supposed entitlement, they ventured out from the nest during one of the greatest economic recessions of our time, a fact that still weighs on their paychecks. Right now, the oldest millennials—loosely deﬁned as any adult born after 1980—are starting to move up the managerial ranks, just as the youngest enter a workforce that’s less stable than ever. Corporate pensions are a relic, and the life expectancy of the average S&P 500 company dropped from 61 years in 1958 to about 20 years today. There are up to 54 million people in the “freelance economy,” but it can be hard to make that pay—just as it’s hard to make a living writing about cake. What’s a twenty- or thirtysomething to do? Fortune surveyed dozens of economists, hiring managers, and working millennials (this author is one of them) to compile the best advice on how a new generation can thrive in the new economy.
1. WITH ALL DUE RESPECT TO PETER THIEL: YOU NEED TO GO TO COLLEGE WHEN IT COMES
to the aftermath of the Great Recession, millennials have earned their whining rights. In the past ﬁve years real average hourly earnings have mostly declined, but no age bracket has seen a drop as bad as the millennials— and that’s despite their being the besteducated generation in
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American history. That education? Overrated, says iconoclastic venture capitalist Peter Thiel, who’s paying young people to skip school and start companies. That may sound particularly appealing to someone facing a student-loan debt likely to be 56% higher than that of a graduate a decade ago. But the evidence is clear that college—and even a secondary degree—is the best ticket out of young workers’ economic quagmire. “The opportunities for young adults have been pulled apart,” says Pew Research Center’s Richard Fry. Millennials with a bachelor’s degree take home median annual earnings of $45,500, a slight increase from the college grad takehome pay of previous generations at the same
age. But for millennials without a college degree, which is most of them, earnings have fallen since their parents’ and grandparents’ time. Now the median diﬀerence between a high school diploma and a bachelor’s degree is almost $20,000 a year—a gap that will only grow as degree holders earn promotions and those without higher education compete for a pool of jobs that has been shrunk by automation and outsourcing. “They’re bouncing around in a world with no way up,” says Georgetown University Center on Education and the Workforce director Anthony Carnevale. Almost one-quarter of millennials with only a high school diploma live in poverty—and even a few of Thiel’s truant protégés have decided to go back to school after all.
2. DON’T EXPECT YOUR EMPLOYER TO BE YOUR FRIEND
HINK OF ALL THE ADULTS
who have guided you into maturity: parents, teachers, coaches, and deans. Your boss may be the ﬁrst adult in your life who doesn’t necessarily have your best interests in mind. In fact, your interests might be completely at odds: New employees with less seniority are often the ﬁrst to get the ax when the economy tightens. The rest of the time companies save money by retaining good workers. Accounting for the cost of living, real median hourly wages have languished in recent
ic o n s b y MARTÍN LAKSMAN
“THEY’RE TERRIBLE SAVERS.”
Many have fretted over young people’s negative savings rates, but major purchases, like a first house or a minivan for a new family, have meant that those under 35 have been spending more than they save for decades.
“THEY’RE INVETERATE JOB HOPPERS.”
Millennials do have shorter tenure than other generations, but most say they eventually want to settle down with one employer.
years. But according to a November report by ADP, while employees in the same positions as the year before got a 3.5% wage bump in 2015, job switchers’ pay increased 6.5%. In many cases a new gig may be the surest route to escaping salary stagnation. That’s probably part of the reason the median job tenure of workers ages 20 to 24 is now less than 16 months. The trend has taken a toll on workplace collegiality, though, decreasing bosses’ motivation to coach new talent. Kathryn Minshew, 30, who founded career site the Muse, says that after watching many of her friends struggle to ﬁnd mentors at work, she added a coaching service to her startup’s offerings, catering to a clientele starved for career guidance. There are exceptions, of course. Eric Smith, 27, took an accounting job in 2010 because he “wanted to be employed more than anything else.” But after about four unhappy years of boredom and angst, he left the profession and joined Teach for America, moving across the country to teach second grade in Las Vegas. A former boss coached him through the move, knowing his heart wasn’t in accounting. Yet give or take the odd employer willing to give farsighted advice (let alone dispense the constant feedback that millennials famously crave), young professionals today must navigate their own winding career paths. Says Jodi Glickman, author of Great on the Job: “No one cares more about —career managing your career expert jodi than you do.” glickman
“No one cares more about managing your career than you do.”
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M I L L E N N I A L E M P LOY E E S
3. REMEMBER, YOU’LL NEVER BE GOOD ENOUGH
Intergenerational coaching isn’t just for millennials. Here’s how older managers can recruit and keep them. GIVE MORE FEEDBACK At PricewaterhouseCoopers, where four out of ﬁve workers in 2016 will be millennials, constant evaluations via an app have replaced semiannual performance reviews. BOOST FLEXIBILITY The Cleveland Clinic is hiring as many as two millennial doctors to replace each retiree, as young MDs demand more worklife balance.
that laid out the strategy, the penultimate slide summed up the modern corporate mentality: “Your economic security is based on your skills and reputation.” The solution? Develop abilities that can’t be automated away: timeless talents like critical thinking, playing nice, and effective writing. And don’t be afraid to skip around to pick up relevant skills. Riley O’Neill, a 25-year-old employee at Bellevue, Wash., software startup Limeade, puts it this way: “For people my age, you stay at a place for the minimum amount of time you can without it looking bad, and you try to ﬁnd the next place that will give you the skills you want to learn.” O’Neill spent only a year in Limeade’s marketing division before asking to transition to product management. “I don’t want to stagnate,” he says.
LAVISH PRAISE Stephanie Camp, a vice president at wellness startup Limeade, says she starts oﬀ meetings with kudos and hands out goodies like lip balm and gum to employees who praise co-workers. DECK OUT THE OFFICE GM plans to spend $1 billion to revamp a major corporate campus, with a focus on new technology and collaborative spaces.
In 2015, millennials became the largest generation in the U.S. labor force.
They’re less likely than others to stay in the same job for long …
53.5 MILLION BABY BOOMERS
YEARS SPENT WITH THE SAME EMPLOYER,
10 GEN X
by age and generation
20–30 YEARS OLD
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ch a rts sources: census bur e au; edelm a n ber l a nd; bur e au of l a bor statistics; pew r ese a rch cen ter
EY, GREAT, you’ve learned to code. But now that you know Objective-C, you’re behind on Swift. Just as state-ofthe-art microﬁche-browsing skills were later supplanted by web-search know-how, today’s in-demand skill sets are guaranteed to be outdated tomorrow. “Businesses are reshaping at this amazing velocity,” says Mary Lyons, PricewaterhouseCooper’s talent innovation leader. “You see business strategies adapting every three to ﬁve years.” For those who fall behind, the consequences can be dire. At Wall Street darling Netﬂix, the HR philosophy embraces laying off employees whose roles are no longer critical. The company parted ways with hundreds after it outgrew their skill sets. A spokesman says the ethos is key to the company’s agility. In a leaked PowerPoint deck
How Oﬀices Can Adapt
IDs at an art school. “It takes so much hustle and initiative and forward momentum. But you don’t need to quit your job.” A side gig might not launch every millennial into the ranks of the Fortune 40 Under 40, but it can still oﬀer a raft of other beneﬁts: new skills, a broader network, and extra cash. In some cases a second pursuit can oﬀer a sense of purpose, something that three in every ﬁve young professionals say they seek in their professional lives. Take Greg Gonzalez, 23, who has wanted to run his own business since he began selling Halloween candy on the middle school bus. On weekends and from 8 p.m. to
“THEY DON’T CARE ABOUT TRADITIONAL SUCCESS.”
Sure, polling says millennials care a lot about bettering the world, but they’re also less likely than other generations to value corporate social responsibility. And more likely to say a thirst for competition gets them out of bed in the morning.
4. ALWAYS HAVE A SIDE HUSTLE projects have real beneﬁts. “Twenty years ago you needed an internship at Vogue, and today you have Nasty Gal, and she’s the voice of a generation,” says Glickman, referring to Nasty Gal founder Sophia Amoruso, who started her buzzy online fashion company on eBay when she was bored with her job checking student
EASY ACCESS to online publishing, e-commerce, and an entire Internet full of potential consumers has lowered the barriers to entry for starting new ventures—so much so that it can seem as if everyone under 30 keeps one going in addition to a day job: a politics blog, a band, a ﬂedging startup. These passion
… and more likely to freelance.
1 a.m. most nights when he gets away from his job at a real estate software startup, he runs his own company that sells novelty shredded-currency products. The signature item is a sleep mask stuﬀed with the paper strings of destroyed dollar bills (obtained legally from the Treasury Department). “I’m running it the way that I want to run it,” Gonzalez says of his company, Money Never Sleepz. Eventually he plans to work for himself. “Working for a traditional company—I never wanted that lifestyle or career.” Plus, his company was proﬁtable as of late 2015, and the extra cash he makes selling shredded cash doesn’t hurt.
But for those who do take full-time jobs, pay is sinking.
AGE OF FREELANCER WORKERS
ALL U.S. WORKERS
MEDIAN EARNINGS FOR FULLTIME WORKERS, AGES 18 TO 34 Inﬂation adjusted
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M I L L E N N I A L E M P LOY E E S
“THEY ALL LIVE IN CITIES.”
Young people are more likely to live in cities now than 20 years ago — if they’re rich. Poorer millennials are choosing suburbs, and overall they’re moving out of cities at a faster rate than they’re moving in. About 21% say they want an urban environment; 49% don’t.
“THEY’RE OVEREDUCATED, CODDLED BRATS.”
Spoiled? Not exactly. Fully 16% of millennials live in poverty, and most don’t have bachelor’s degrees.
5. OVERCOME YOUR STEREOTYPE ONSIDER
these laments about young workers, all taken from the pages of this august publication: 1. “Loyalty. Gratitude. Fortitude. They’re dead, man.” 2. “You might want to laugh derisively the ﬁrst time one of your youngest subordinates tells you he intends to work a mere 40-hour week so he can go scuba diving and learn a non-Indo-European tongue.” And 3. “We’re dealing with a lot of tender little egos. They have to be told they’re loved quite frequently.” Sound familiar? Those complaints could be plucked from almost any column about millennials today— except they weren’t. The ﬁrst two complaints were written in 1998 and 1990 about Gen X. And the third? It was written in 1969—about the baby boomers.
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Many of the faults typically associated with millennials have more to do with being young than with being born during the ’80s or ’90s. Still, generational diﬀerences do plague oﬃces. “Whenever I get together with a bunch of other founders and CEOs, one popular topic of conversation is the millennials,” says 42-year-old Mark Organ, CEO of marketing software company Inﬂuitive. “ ‘Expletive millennials.’ A lot of people are having real challenges with attracting and managing them.” Luckily, low expectations mean it can be easy for driven employees to impress supervisors. “If they expect you to be entitled or have your face buried in your iPhone all day, it’s good for you to defy that stereotype,” says Lindsey Pollak, the Hartford’s millennial workplace expert. “Talk to as many people face-to-face
as you can.” A bonus tip for the text-addicted: “Have a strong voicemail message to show that you respect that form of communication,” Pollak advises. When it comes down to it, millennials want a lot of the same things as other employees: They want to work with people they like, in comfortable surroundings (for example, remotely—from bed), and they want a good sense of how they’re doing and where they’re going. A genuine generational diﬀerence, says Jennifer Deal, senior research scientist at the Center for Creative Leadership, is that they often have the chutzpah to ask for what they want, without necessarily paying their dues ﬁrst. But in a workplace where pay is languishing, pensions are dead, and skills are rapidly evolving, the “whiny” millennial might be exactly what everyone needs.
Recapture the freedom you had in your youth. But without your youth. Or your hair.
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a cornerstone for safety of your principal. Potential Regular Predictable Income Municipal bonds typically pay interest every six months unless they get called or default. That means that you can count on a regular, predictable income stream. Because most bonds have call options, which means you get your principal back before the maturity date, subsequent municipal bonds you purchase can earn more or less interest than the called bond. According to Moody’s 2012 research,* default rates are historically low for the rated investmentgrade bonds favored by Hennion & Walsh. Potential Triple Tax-Free Income Income from municipal bonds is not subject to federal income tax and, depending on
where you live, may also be exempt from state and local taxes. Triple tax-free can be a big attraction for many investors in this time of looming tax increases. About Hennion & Walsh Since 1990 Hennion & Walsh has specialized in investment grade tax-free municipal bonds.The company supervises over $2 billion in assets in over 15,000 accounts, providing individual investors with institutional quality service and personal attention. Our FREE Gift To You We’re sure you’ll want to know more about the beneﬁts of tax-free Municipal Bonds. So our experts have written a helpful Bond Guide for investors. It’s free and comes with no obligation whatsoever.
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Call (800) 316-2804 © 2015 Hennion and Walsh. Securities offered through Hennion & Walsh Inc. Member of FINRA, SIPC. Investing in bonds involves risk including possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, bond prices fall, and when interest rates fall, bond prices rise. *Source: Moody’s Investor Service, March 7, 2012 “U.S. Municipal Bond Defaults and Recoveries. 1970–2011.” Past performance is not guarantee of future results.
BOOK EXCERPT: THE LUCKY YEARS
THE DOCTOR WILL SEE YOU (AND YOUR DATA) NOW THE SECRETS TO YOUR HEALTH AND LONGEVITY ARE HIDING WITHIN YOU. AT LONG LAST, WE HAVE A CHANCE TO REVEAL—AND SHARE—THEM. AN EXCERPT FROM THE LUCKY YEARS. By
DAVID B. AGUS, MD
Today when you go to the doctor for a wellness checkup, you make an appointment far in advance and then visit the doctor’s office to get your data collected, including blood pressure, weight, and other routine lab tests. The only preparation you make beforehand is probably mental: organizing any questions you might have for your doctor and trying not to feel nervous about the visit. Several days after your appointment, someone in your doctor’s office calls you back with the results of any tests or lab work that was performed. Sometimes no one even bothers to call you if everything comes back as “normal.” A future doctor’s visit, on the other hand, will be all about putting the data collected into context so you can know what’s best for you. You won’t go there to collect data. Instead, you will go in with your data. Some examples that I foresee: A week prior to your appointIllustration by MIKE MCQUADE
ment, you will mail a biochip to your doctor’s office that contains a drop of blood from a ﬁnger prick that can be analyzed. Your smartphone and other portable devices, some of which will be wearable like watches or bracelets, will be equipped with all sorts of technologies to measure various features about your health. They can listen to your heart and send an EKG to your doctor, as well as transmit the sounds of your heart to a sound cloud to compare and analyze against people who
share the same age and lifestyle. They can perform a retinal scan and detect an impressive array of potential problems, from high blood pressure and diabetes to cancer. The data will also have context. What did your blood pressure do when you were upset after a telephone call? How high did your pulse rate go with exercise? What was your heart-rate variability, which is a marker for stress? If you’re pregnant, those routine prenatal exams will also be transformed through technology, allowing you to monitor the health of your baby all on your own and send data to your obstetrician for review. You won’t even need to undergo an invasive amnio-
centesis or chorionic villus sampling to examine the chromosomes of the fetus. Instead, a small sample of blood will reveal everything a mother-to-be would want to know about her developing baby—and even more about herself. A new type of prenatal test widely available and intended to ﬁnd genetic ﬂaws in a fetus through the mother’s blood can also reveal previously undiagnosed cancer in the mother. This was an unexpected ﬁnding by scientists recently who were looking for a less invasive way to test a fetus—a prime example of the serendipity that often occurs in medicine. With all these innovations, your doctor won’t have to spend much time
collecting your information during your appointment. He or she will sit there with you and devise a game plan based on the data you provided before stepping foot in the office. The whole notion of even going to the doctor when you are sick may change. If you think about it, it actually doesn’t make much sense. When you don’t feel well, you have to drive to an office and sit in a waiting room with others who may not like your
contagious runny nose. In fact, there are now several startup companies with doctors on call to come to your house on a moment’s notice so you can get medical assistance at home. Many of those old-fashioned house calls will be virtual—part of the rapidly growing ﬁeld of telemedicine, which promises to bring doctors and nurses to you rather than having you travel to their offices or enter an ER for care. In some cases it entails live video consultations with doctors available 24 hours a day, who can offer advice, prescribe medicine, and suggest follow-up care. Some towns have installed kiosks where patients can enter and have their vital signs checked while talking with a doctor at a distant major university. All of this will help achieve the best outcome if used correctly. I realize that there’s already some debate about whether doctors will want to deal with copious amounts of data provided by the patient, but that information ultimately helps reduce errors. A blood-pressure reading at noon in the doctor’s office is metric, but imagine coming in with three months’ worth of data: measuring it at bedtime, early in the morning, and when you are relaxed with a glass of wine. More data means less room for error. You may have missed the time of day when your blood pressure spikes if your physician took only one reading in his office. The slope, or the trend, in your data is more illuminating than a single data point. And the amount of data doesn’t have to be overwhelmingly large; the basics will suffice. As straightforward as it sounds, data is becoming one of the most powerful health care tools around—helping to generate a staggering volume of new knowledge and technologies in medicine. Scientists are developing drugs to reverse once-fatal ailments such as heart disease and ﬁguring out how to
January 1, 2016
BOOK EXCERPT: THE LUCKY YEARS
Three Takeaways From the Digital Health Revolution
ance your blood sugar, and lose extra weight without classic dieting; when to stop consuming caffeine during the day lest you sleep poorly; whether you can beneﬁt PROTEIN POWER Proteins, the dynamic from a particular mediworkhorses in our cation without side efbodies, will likely tell us fects; what time of day more about our daily is ideal for you to be outhealth and medical risks side or to break a sweat; than our genes will. why you wake up rouGERMS OF KNOWLEDGE tinely at 3:10 a.m. and From a mere drop of how to stop that cycle; blood we can now dewhich songs synchrotect every viral infection nize with your heart rate we’ve ever had—and that may reveal hidden to calm it down; when links to chronic disease. to go for a walk or otherwise engage in a stressMORE IS MORE reducing activity beWith enough data, error cause it’s the time of day goes away. Though each human being is a unique when your stress levels and complex system, peak; and how much associations found in you should be worried “the many” may tell us about your levels of insomething important ﬂammation. You’ll be about each one. able to leverage associations made by virtue of aggregate data sets. AGGREGATE So if you’re a 36-year-old female DATA SETS WILL SAVE YOU who played soccer in your youth but DATA-INFORMED VISITS with your doctor smoked until you were 30, you’ll be are just a part of this new era. Anable to compare your health proﬁle other key element here is that all your with others who have engaged in simidata—stripped of information that lar behaviors. And not only will your can identify you to outsiders—can go DNA be part of your data, but also the into a centralized database, which will active conversations that are taking create an anonymized proﬁle of you place in your body that can be detected compared to others with similar feathrough a variety of measurements, tures. That database can give you adfrom basic hormones that ﬂuctuate vice about what to do based on your through the day to the proteins found information and what you might exin your blood that follow a pattern and pect to happen, much in the way you’d may, for instance, indicate a heightplug a car into a computer to diagnose ened risk for X or the need to treat Y. mechanical issues. Proteomics, the study of the body’s Imagine being able to learn, for exproteins, is a rapidly expanding new ample—based on your unique biology ﬁeld at the center of some of the reand within the context of a vast datasearch I’m conducting. We’re explorbase of human experience, what to eat ing how proteins compose the body’s (or not eat) to avoid migraines, balharness a person’s immune system to melt away cancer. They are designing computer applications to help us regularly and effortlessly track key features of our biological functions, including blood sugar, sleep quality, heart rate, blood pressure, stress levels, mileage, moods, and even risk for problems ranging from depression to dementia. For the ﬁrst time, we have at our disposal all the information we need to design much better health for ourselves—and, in turn, the health of the planet. Put simply, people living in the 21st century are the most fortunate of all previous generations. Welcome to what I call the Lucky Years.
January 1, 2016
language and ultimately shape the language of health. Proteomics allows us to eavesdrop on that cellular conversation, which can inform better ways to prevent and treat disorders and diseases. Unlike your relatively static DNA, your proteins are incredibly dynamic. They change minute by minute in your body depending on what’s going on internally. I can’t determine from sequencing your DNA if you’ve just had a cocktail, what kind of foods you like to eat, when you last ﬂexed some serious muscle, how well you slept last night, or if you are under a lot of stress. But your proteins, on the other hand, can tell. They can speak on your body’s behalf, divulging information that’s hard to ﬁnd elsewhere. Through proteomics, I can start to look at and measure the “state” of your body. And it’s that 30,000foot view that allows me to take in the whole picture, at a moment in time. DNA, while powerful and revelatory in its own right, cannot offer this. Stephen J. Elledge is a professor of genetics at Harvard Medical School and Brigham and Women’s Hospital in Boston. His research is leading to tools for tracking patterns of disease in different populations. His work is ultimately helping us understand the differences between the young and the elderly, as well as people from various parts of the world. A test he has recently developed, for example, could be used to ﬁnd out whether viruses—or the body’s immune response to them—have a hand in chronic diseases, including cancer. This test, called VirScan, requires just a drop of blood and can broadcast nearly every virus a person has been exposed to throughout life, past and present. First reported about in the journal Science in 2015, VirScan can currently identify more than a thousand strains of viruses from 206 species, which reﬂects the entire human “virome,” or all the viruses known to infect humans, from the common cold to HIV. The test works by detecting antibodies, which are the body’s defense mechanisms against an invader. They are highly speciﬁc proteins that the im-
THE DRAMATIC RISE IN THE USE OF EVEN BASIC ELECTRONIC MEDICAL RECORDS (EMR) SYSTEMS IN THE U.S. HAS CREATED AN UNPRECEDENTED OPPORTUNITY FOR LEARNING, SAYS AGUS.
mune system manufactures to combat germs such as viruses. And once you are exposed to a virus and have an immune response, the antibodies stay around and provide a “record” that you were exposed to that virus. The application of this type of test will be astounding. We will be able to learn all kinds of things from documenting people’s exposures to disease. Some have compared this technology to the development of the electron microscope, which allowed us to have more resolution at the micro level and “see” things previously invisible. One application, for example, will be mapping out historical and current patterns of disease and seeing how certain diseases are affected by the type of antibodies a person has. We’ve long suspected that viruses may contribute to chronic ailments such as heart disease, asthma, and autoimmune diseases, the last of which are characterized by a glitch in the immune system that leads it to produce antibodies that mistake a person’s own cells for foreign invaders and attack them. There’s a lot we still don’t know about the relationship between, say, overcoming a ﬂu bug and being diagnosed with Type 1 diabetes or multiple sclerosis later on. But no such viruses or antibodies have ever been identiﬁed in terms of these diseases, and the research in this realm has been tricky. To look for them, we’ve had to single out suspect viruses and test for them individually. But with a test like VirScan, we can look at the big picture and use all that “big data” to ﬁnd correlations
have been the destiny of our species for millennia. But there’s a catch to beneﬁting from this new era. You as an individual and we as a society stand at a historic crossroads. Only those who learn how to think, act, and behave certain ways will reap the beneﬁts of the tremendous opportunities afforded us through the power of these medical revolutions. Andy Grove, the former CEO of Intel and a pivotal early mentor of mine, once referred to an inﬂection point in the development of technology—a critical moment when the curve of progress vs. time changes, the things that used to work don’t work anymore, and new, necessary technologies become available. Individuals (or companies) that adapt to the shift and use those emerging technologies are wildly successful, and those that don’t adapt fail. This concept is often used in business circles, but it applies to matters of health as well. The slope of the curve of progress vs. time in medicine is changing rapidly, and we all must adjust our thinking and behavior to take advantage of what the Lucky Years offer to ﬁght against disease and premature death. The Lucky Years is about this inﬂection point that is happening in health—and how to respond appropriately to the ongoing revolution. The costs of not doing so are too high.
THE LUCKY YEARS
gr a phic source: u.s. depa rt men t of he a lth a nd hu m a n serv ices
AN INFLECTION POINT
SHARE OF OFFICE-BASED PHYSICIANS WITH ELECTRONIC MEDICAL RECORD SYSTEMS
ﬁnding could have come from simply knowing what people buy and consume (lots of products made with artiﬁcial sweeteners) and their health proﬁles (lots of insulin resistance and diabetes).
between certain viral infections and the future risk of diseases. The technology might even help answer questions about cancer, which operates differently in different people. Perhaps the reason lies in which antibodies a person has and when they developed, which in turn affects an individual’s response to treatment. Data mining for disease patterns won’t always have to rely on bodily ﬂuids or invasive testing. There will be lots of opportunities to ﬁnd connections in our complex biology from even the most uncomplicated observations. Case in point: In 2014 it was discovered that artiﬁcial sweeteners wreak havoc on the body, disrupting its microbial inhabitants, known collectively as the microbiome. That, in turn, can affect metabolism and blood-sugar balance. Although it was exploring the microbiome that ﬁnally gave us this insight, we could have known years ago about the relationship between drinking diet soda and increased risk for diabetes if another type of database had been in place to collect the information. Such a huge
Excerpted from The Lucky Years: How to Thrive in the Brave New World of Health by David B. Agus, MD, which is being published by Simon & Schuster on Jan. 5, 2016. Copyright © 2016 DAVID B. AGUS, MD , is a professor of medicine and engineering at the
University of Southern California’s Keck School of Medicine and Viterbi School of Engineering, where he leads USC’s Westside Cancer Center and Center for Applied Molecular Medicine. He is the bestselling author of The End of Illness and A Short Guide to a Long Life.
THE LUCKY YEARS: INTERVIEW
CAN BIG DATA SAVE YOUR LIFE?
IT JUST MIGHT, SAYS DAVID B. AGUS, MD. THE BESTSELLING AUTHOR MAKES THE CASE TO FORTUNE WHY ALL AMERICANS—AND THEIR EMPLOYERS—SHOULD JOIN THE HEALTH DATA REVOLUTION. OUR EDITED CONVERSATION.
FORTUNE: You write eloquently about
January 1, 2016
points in these databases, we can start to learn more and learn faster. And associations we never dreamed about can be discovered and tested. With enough data, error goes away. FORTUNE: In the aggregate, this is “big data.” But on an individual basis, this is someone’s very personal health record. Someone who’s carrying a gene, say, that greatly raises his risk of developing cancer might worry about having that information leaked to a future employer. AGUS: Importantly, the Genetic Information Nondiscrimination Act, signed by President Bush in 2008, makes it illegal to discriminate on the basis of an existing or genetic condition. And I respect that there are real concerns out there, but there’s a prevailing myth too—this notion that health care data is special and has to be kept sealed in a box. When I explain to patients what can be done with this information, nobody has ever told me, “Don’t share my data.” We bank online and use our ATM cards every day. Putting anonymized health care data into a data set will soon feel as normal. FORTUNE: How will this data stem rising health care costs? AGUS: Well, for companies, healthier employees cost less— which is why I think we’re going to start seeing a new role in corporate America: the chief health officer. Chief technology officers came in place a decade ago because of the boom in technology. Twenty years ago, nobody had a CTO. Now everybody does. I want companies to have CHOs to start looking at this explosion of new knowledge in preventive care and treatment and start to prepare the company, to change the corporate mind-set—so instead of just having a “mindfulness room” in the office or putting a few healthy menu offerings in the cafeteria, they are really getting employees focused on the fundamentals of health. For companies, part of the job now is that education. We are now all part of a critically important enterprise, which is to improve health care in our country. FEEDBACK
photogr a phs courtesy of fortu ne v ideo
a new revolution in medical technology—but much of the technology you describe is actually just data, right? We’re either learning to use that data better or aggregating it in a way that tells us something new. AGUS: That’s right. When you search on Google, your search today is better than your search yesterday— because Google sifts through billions upon billions of data points nonstop and improves everyone’s search. Until very recently, when most doctors saw a patient, it was largely the same as it was a decade ago. All of a sudden, though, that’s changing. More than 80% of physicians in the U.S. now use some form of electronic medical records [see chart on previous page]. Thanks to these large data sets, we now have the ability to look for trends and associations that we would have utterly missed a decade ago. And when you have an entire medical record, there’s context around the data—we can learn immediately from it. A recent study mining EMRs, for instance, showed that women with ovarian cancer who were on certain blood-pressure drugs called beta blockers actually lived longer. We may never have made that association based on biology, but that association now is going to be tested, and it may tell us something important about how to treat such patients. FORTUNE: Historically, we’ve gotten new information about how to treat patients from clinical trials, which can often take years to oﬀer any answers. How is that changing? AGUS: Clinical trials remain very important. But they’re not the only way we can learn. When we do trials, we might study anywhere from a hundred to a thousand people and ask a couple of discrete questions. Now, when you’ve got millions to tens of millions of data
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OR CIALIS for once daily use is a lower dose you take every day: • Take 1 CIALIS tablet every day at about the same time of day. You may attempt sexual activity any time between doses. • If you miss a dose, take it when you remember, but do not take CIALIS more than once each day. For both ED and symptoms of BPH, CIALIS is taken once daily. • Take 1 CIALIS tablet every day at about the same time of day. You may attempt sexual activity any time between doses. • If you miss a dose, take it when you remember, but do not take CIALIS more than once each day. What Should I Avoid While Taking CIALIS? • Do not use other ED medicines or ED treatments. • Do not drink too much alcohol (for example, 5 glasses of wine or 5 shots of whiskey), as it can increase your chances of getting a headache or getting dizzy, increasing your heart rate, or lowering your blood pressure. What Are the Possible Side Effects of CIALIS? The most common side effects with CIALIS are headache, indigestion, back pain, muscle aches, flushing, and stuffy or runny nose. These side effects usually go away after a few hours. Men who get back pain and muscle aches usually get them 12 to 24 hours after taking CIALIS. Back pain and muscle aches usually go away within 2 days. Uncommon side effects include: • Erection that won’t go away. If you experience an erection lasting more than 4 hours, seek medical help right away to avoid permanent damage. • Color vision changes, such as seeing a blue tinge or having difficulty telling the difference between the colors blue and green. • The following events have been reported in men taking oral ED medicines, including CIALIS: (1) sudden decrease or loss of vision in one or both eyes; (2) sudden loss or decrease in hearing, sometimes with ringing in the ears and dizziness. It is not possible to determine whether these events are related directly to the medicines, other health conditions, or to a combination of these. If you experience a sudden decrease or loss in vision or hearing, stop taking CIALIS and call a healthcare provider right away. These are not all the possible side effects of CIALIS. For more information, ask your healthcare provider or pharmacist. You are encouraged to report negative side effects of prescription drugs to the FDA. Visit www.fda.gov/medwatch, or call 1-800-FDA-1088. Still have questions? This is only a summary of important information. Talk to your doctor or pharmacist for more complete information or visit www.cialis.com, or call 1-877-CIALIS1 (1-877-242-5471). * The brand listed is a trademark of its respective owner and is not a trademark of Eli Lilly and Company. The maker of this brand is not affiliated with and does not endorse Eli Lilly and Company or its products. TD CON BS 16SEP2015 Rx only CIALIS® (tadalafil) is a registered trademark of Eli Lilly and Company.
Marketed by: Lilly USA, LLC Indianapolis, IN 46285, USA Find additional information at www.cialis.com Copyright © 2003, 2015 Eli Lilly and Company. All rights reserved. CIALIS® (see-AL-iss) (tadalafil) Tablets
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January 1, 2016
while you were out
American workers aren’t getting enough done. It’s a problem that a smartphone ban and a commitment to more potent body odor might solve. By Stanley Bing
It enables folks to reach me anytime for productive labor. By noon I have been reached by my wife, who is an excellent raconteur, by my friend Osborne, who is separating from his spouse, and by a guy from Petaluma who seems to have stepped in cow ﬂop and needs a hand reestablishing professional equanimity. Only the last of these conversations, in truth, was productive. Note to self: Turn off smartphone. But wait. That same intelligent implement gives me the power to work day and night, increasing the ways I can beneﬁt the shareholders we love. Unfortunately, it also sports a terriﬁc camera, access to my music in the cloud, and a host of helpful apps. Right now I’m on level 314 of Two Dots. It’s totally immersive. Watch out for the in-app purchases, though. That furshlugginer game has cost me upwards of $500 already in power-ups. Of course, that’s nothing compared with the more than a thousand bucks I’ve spent on body armor in Inﬁnity Blade. Note to self: Erase all apps. And how about email? How much of my in-box is a waste of time? Sixty percent? Eighty percent? Could intense, nonvirtual interface be the only productive alternative to digital brain frizz? Yes! Meetings! Although, come to think of it, I had so many meetings yesterday I didn’t get to anything I wanted to do. Not productive! Note to self: Work longer hours to undo the accumulation of duties produced by the ubiquity of meetings. Work through breakfast! Lunch! Dinner! Okay, let’s see what we’ve got here. Sleep very little. Avoid unnecessary social interactions. Eliminate timewasting technology. Eschew meetings. Do lunch. Yeah. I can do all that. You can too, I’ll bet. And then—voilà!— we’ll achieve great heights together! And we’ll do all this because … because … Hmm. Note to self: Investigate correlation between productivity and compensation. Follow Stanley Bing at stanleybing.com and on Twitter at @thebingblog.
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illustr ation by gu y shield
LIKE MANY IN OUR current predicament—so much work, so little time— I have felt my personal productivity ﬂagging of late. Industrywide numbers bear out the sorry fact that, in this regard, I am part of a trend: Productivity has plateaued. As a workforce, we wheezed over the invisible ﬁnish line of 2015. Sure, there is consternation as to the reasons for this functional droop, but in truth, what does it matter? There are no excuses. There is just a huge opportunity to do things with more energy, style, and efficiency. First, I’m going to get up earlier in order to lengthen the hours in which I provide value to the company. Right now I usually bolt upright at 6:02 each morning. Obviously, I’m going to have to get the party started sooner. Note to self: Set alarm for 4:30. Want to join me? Next, my Fitbit and I like to take a walk right after waking, because I don’t want to die anytime soon, which would be the antithesis of productivity, I think. During this hour, which will now take place in the stone dark (see above), I have yet to achieve anything productive. So from now on I promise to be one of those people who plod around with a headset on, jabbering to somebody. Note to self: Find co-workers who either like working at 4:30 a.m. or reside in Bengaluru. No matter how absurdly early I get to the office, chances are I’ll ﬁnd several co-workers already meandering around blearily on their way to their productivity-enhancing, openplan cubicles. We all see one another and nod without speaking, trying to establish a bit of personal space without the beneﬁt of walls. In spite of those honest attempts, I know I will be drawn into social intercourse. If I’m going to blast out of the gate, it’s clear I’m going to have to establish boundaries on this egalitarian factory ﬂoor. Note to self: Be ruder. Keep your head down. Look into the establishment of a physical frontier. Towers of books? Sheetrock? Body odor? Fortunately, we are all blessed with technologies designed to boost effectiveness. But do they do so? Take my smartphone.
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