Weekly Business Insights

People today are much cleverer than they were in previous generations. A study of 72 countries found that average IQs rose by 2.2 points a decade between 1948 and 2020. This stunning change is known as the “Flynn effect” after James Flynn, the scientist who first noticed it. Flynn was initially baffled by his discovery. It took millions of years for the brain to evolve. How could it improve so rapidly over just a few decades?

The answer is largely that people were becoming better nourished and mentally stimulated. Just as muscles need food and exercise to grow strong, so the brain needs the right nutrients and activity to develop. Kids today are much less likely to be malnourished than they were in past decades, and more likely to go to school. Yet there is no room for complacency.

In rich countries, educational attainment has levelled off, and what can be done about it. But in poor and middle-income countries, we face graver problems, as many children are still too ill-fed to reach their cognitive potential.

Globally, 22% of under-fives—roughly 150m children—are malnourished to the point of stunting. That means their brains are likely to be stunted, too. Half the world’s children suffer micronutrient deficiency, which can also impede brain development. Poor nutrition and a lack of stimulation can translate into a loss of as many as 15 IQ points. This has woeful consequences: one study found stunting led to incomes being 25% lower. Damage incurred during the “golden window” of the first 1,000 days after conception is likely to be permanent.  The world grows enough food, but several obstacles stop nutrients getting into young brains. One is war.  Another is disease. Poverty is a big part of the problem.

Many parents, even in middle-income countries, think it is enough to stuff an infant with stodgy carbohydrates but neglect protein and micronutrients. Sexism plays a role, too. In patriarchal societies, husbands often eat first, wolf the tasty protein and leave their pregnant wives with iron deficiency.

Demography adds urgency. Fertility is highest in countries where malnutrition is most widespread. Unless nutrition improves, the next generation will face greater cognitive challenges than the present one. That would be a dire outcome, especially because it is so easy to avoid. The World Bank estimates that it would cost a mere $12bn a year to fight malnutrition “at scale”. That is slightly more than a third of what America wastes on farm subsidies.

Several tactics would work. The simplest is to fortify basic foods, such as flour, with micronutrients, such as iron, zinc and folic acid. This is cheap and can make a big difference. Adding iodine to salt has made cretinism (a severe form of mental retardation) a thing of the past in places where it was once common. Nearly three-quarters of countries mandate that at least some mass-produced foods are fortified, but rice is usually not.  Another method is to give small sums of money to poor families with infants or pregnant mothers. Some schemes make handouts conditional on other things that might help children, such as vaccinations or teaching parents about nutrition and hygiene.

During cherry blossom season this spring, travel agency Remote Lands took a family of six on a monthlong trip to Japan that included private helicopter rides, VIP tickets to a sumo wrestling tournament, a private tea ceremony led by a renowned master and meetings with top textile and lacquerware artists. The price: $500,000. “Before, it was bragging rights for Americans to say, ‘Oh, I went to Europe to ski in Val d’Isère,’” says Catherine Heald, founder of the New York agency specializing in bespoke luxury vacations. “Now the bragging rights go for skiing in Japan or to charter a deluxe yacht trip in Thailand.”

Heald’s business is booming as wealthy travelers vacation with a vengeance following the pandemic. A cornerstone of that rebound is the newfound cachet of Asia, where a slew of pricey hotels and resorts have opened in recent years to serve flush travelers. And once on the ground, they’ll find a growing range of activities such as sailing trips with private dive guides in Indonesia and train excursions with spas and fine dining across Singapore and Malaysia.

Luxury travel in Asia—worth about $271 billion in 2023—accounts for a fifth of the global luxe tourism market, with growth expected to clock almost 9% annually through the end of the decade.  

Asians are splurging, too: China’s biggest online travel agency, Trip.com, saw demand for premium tours more than double in the first four months of 2024 from the same period a year earlier. And 68% of high-net-worth consumers in Asia Pacific expect to spend more on leisure travel in the next year, with nearly three-fourths planning a holiday in the region.

Remote Lands’ multiweek trips to Asia typically top $100,000 for a couple—about 40% more than in 2019. And a 15-day journey through Nepal, Bhutan, India and Sri Lanka by custom-outfitted Airbus business jet—at a cost of $109,000 per person—is sold out and has a waitlist. “Demand is over the roof,” Heald says.

Asian hoteliers have under construction more than 3,600 projects totaling 700,000 rooms, a record level, and about 15% of that is geared toward the luxury market. In Europe, by contrast, fewer than 800 projects, with 117,000 rooms, are being built. “Luxury travelers want to experience something different  and Asia offers a diversity of experiences—beach, mountains, cities and great food and culture.”  Understanding that the average age for luxury consumers in Asia Pacific is younger than in other parts of the world, Asia is expanding its luxury portfolio for the future.

Generative AI models have made it simpler and quicker to produce everything from text passages and images to video clips and audio tracks. Texts and media that might have taken years for humans to create can now be generated in seconds.

But while AI’s output can certainly seem creative, do these models actually boost human creativity?  That’s what two researchers set out to explore in new research published in Science Advances, studying how people used OpenAI’s large language model GPT-4 to write short stories.  The model was helpful—but only to an extent. They found that while AI improved the output of less creative writers, it made little difference to the quality of the stories produced by writers who were already creative. The stories in which AI had played a part were also more similar to each other than those dreamed up entirely by humans. 

The research adds to the growing body of work investigating how generative AI affects human creativity, suggesting that although access to AI can offer a creative boost to an individual, it reduces creativity in the aggregate. 

To understand generative AI’s effect on humans’ creativity, we first need to determine how creativity is measured. This study used two metrics: novelty and usefulness. Novelty refers to a story’s originality, while usefulness in this context reflects the possibility that each resulting short story could be developed into a book or other publishable work. 

The findings make sense, given that people who are already creative don’t really need to use AI to be creative, says Tuhin Chakrabarty, a computer science researcher at Columbia University, who specializes in AI and creativity but wasn’t involved in the study. 

There are some potential drawbacks to taking advantage of the model’s help, too. AI-generated stories across the board are similar in terms of semantics and content, Chakrabarty says, and AI-generated writing is full of telltale giveaways, such as very long, exposition-heavy sentences that contain lots of stereotypes. “These kinds of idiosyncrasies probably also reduce the overall creativity,” he says. “Good writing is all about showing, not telling. AI is always telling.”

For many people, small business is a part of their everyday life: the corner bodega, the dog walker, the food truck, the plumber. In the US, people trust small businesses more than any other institution. “They are the one thing, literally, that we interact with every single day, and they make a big difference to the lives of people.

As the United Nations marks Micro, Small and Medium-sized Enterprises Day on June 27, McKinsey looks at its McKinsey Global Institute’s (MGI) first-time report on this small, but mighty, business sector. The analysis ranges from sole proprietors to mid-size companies of 200+ employees. It goes broad, spanning 16 countries, and deep, covering 200 plus subsectors.  In this post, the researchers share what they learned from their research.

But micro, small, and medium-size enterprises (MSMEs) are only half as productive as large companies, and even less so in emerging economies. If we can raise their productivity to top-quartile levels relative to large companies, that is equal to 5 percent of GDP in advanced economies and 10 percent in emerging economies. They have an important role to play in long term prosperity, resilience, and growth. You can’t really lift productivity systematically unless you take the MSME sector with you.

Creating and increasing linkages between small and large companies is actually a win-win situation. A lot of large companies would think about it as a bit of a philanthropic act: “You’re doing it from the goodness of your heart.” But actually no. There’s a true business case for working with smaller companies. You reduce the risk in your supply chain; small companies have local insight and resources; greater flexibility; and access to certain skills. That’s incredibly powerful.

More than a set formula, there are universal principles. One of them is to think about: which intangible is really the critical one? Is it capital? Is it technology?  Skills? Access to global markets? Because each business is quite different in terms of these things.  The second is really being thoughtful about the power of those networks. Because almost nowhere is it the case that small businesses can flourish without very meaningful relationships with productive larger businesses.  Sometimes they are highly functioning as collectives of small businesses: that is, with each other. But often, they are interacting with a larger company, as a consumer or a buyer.

From the perspective of associations, policymakers and large companies, there’s a lot you can do. It’s basically a combination of better access to the intangibles. Leaders should focus on creating the “economic fabric” where both MSMEs and large companies can perform well.

Marketplace businesses can achieve some of the strongest competitive positions imaginable—think Amazon, Booking.com, Mercado Libre, Pinduoduo, and YouTube. The primary reason is that they benefit from network effects: The more buyers who join a marketplace, the more attractive it is for sellers to join, and vice versa. That’s why entrepreneurs are seeking to build, and venture capitalists are seeking to invest in, the next Airbnb, Uber, or Twitch. And it helps explain why marketplaces cover every imaginable sector.  Many established companies are also building marketplaces around their successful products in order to catalyze growth and enhance defensibility.

But not all marketplaces have the potential to defend against wannabe competitors—a fact that is often not fully understood or appreciated.   Some important questions to consider when hoping to build a large and defensible marketplace.

1. How Significant Are the Potential Network Effects?  Investors, entrepreneurs, and managers typically use a variety of metrics to track the progress of a marketplace.  Those metrics should be part of the dashboard for every marketplace investor, entrepreneur, and manager. However, we need to ask a more fundamental question, which is also harder to answer precisely: Assuming that all goes well, how great are the network effects a marketplace could create?  That’s why we should prefer to focus on a more direct assessment: How much additional revenue can the marketplace bring to sellers?  Of course, a fundamental difficulty is that the revenue potential for sellers may be hard to evaluate, especially in the early stages.  To get a sense of the long-run revenue potential created by a marketplace, the question to ask isn’t How much will buyers spend on the service as it is currently provided? Rather, it’s What might they spend if untapped supply is made available through the marketplace?
2. How Fragmented Is the Marketplace?  A marketplace’s value is not just proportional to the value of transactions; it also depends on the number of transactions and the number of participants that are being connected. The more participants there are and the greater the number of potential transactions, the more valuable the marketplace’s search and discovery functions.
3. How Differentiated Do Sellers or Products Seem to Buyers?  Network effects are stronger when sellers are differentiated in the eyes of buyers than when they are interchangeable providers of a commodity service.  That’s because additional sellers and greater variety give buyers a better chance of discovering their ideal match. And if rival entrants can get started by drawing from the same pool of undifferentiated suppliers, the eventual result will be price competition, decreasing the incumbent’s defensibility.
4. How Much Value Can the Marketplace Add?  Marketplaces can add value in two basic ways: by enabling discovery (that is, when buyers find sellers or products they didn’t know about, and sellers find new buyers) and by making it easier, faster, and more reliable to complete transactions on the platform than it is on alternatives.  The more discovery a marketplace enables and the more it improves transactions, the stronger its network effects will be. However, not all marketplaces have the potential to do those things.
5. Are the Network Effects Local or Global?  At first glance local network effects may seem preferable in building a marketplace. They make it easier to attract a critical mass of buyers and sellers within an area. By contrast, marketplaces with global network effects usually take longer to reach critical mass, but they are stronger and more defensible than city-level or local networks.
6. How Difficult Is It to Switch Platforms?  Marketplace network effects are less defensible when buyers and sellers find it easy to “multihome”—use multiple platforms for the same offering. 

These questions are aimed at determining the potential strength and defensibility of a given marketplace’s network effects.  Their answers can help investors and entrepreneurs determine which opportunities are best to focus on and which to avoid.

Bank of America analyst Michael Hartnett popularized the “Magnificent Seven” as a stock term just over a year ago. The movie-inspired moniker refers to Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, which accounted for half of the S&P 500’s total gains last year, according to a report from Morgan Stanley. Like the acronym FAANG before it, the “Magnificent Seven” has served as a strategy for some investors—raising the question of how much longer this particular basket of stocks will have an outsize influence.

Whether the term—a reference to an acclaimed 1960 western that Hartnett used in a May 2023 note to investors—has outgrown its relevance is up for debate. What’s not is that shareholders have been rewarded with a combined annualized return of over 46% in the last five years, compared to just over 13% for the S&P.

Angelo Zino of CFRA Research said he expects the earnings trajectory of these seven names to continue to outperform the market over the next decade.  “They’re what we view as growth at a reasonable price,” Zino said.  Those high-quality earnings, Zino said, have been especially attractive in a high-interest rate environment, even before the artificial intelligence boom captivated markets.  Magnificent Seven present both AI opportunity and defensive play.

The importance of large-cap stocks to the market is not a new phenomenon. A January report from Vanguard found that out of thousands of stocks, only 72 had accounted for half of the market’s total returns since 1926. The trend held even when excluding the explosion of mega-cap tech growth that has inspired several acronyms over the last decade.

CNBC’s Jim Cramer popularized the term FANG (for Facebook parent Meta, Amazon, Netflix, and Google parent Alphabet) in 2013. Eventually, a second A was included to include Apple.

That term would eventually give way to the Magnificent Seven, a gorup of companies who boast a combined market capitalization of over $16 trillion and loom large in not just the markets but daily life.   This visibility helps makes these stocks a relative safety net for investors.  All seven companies, Zino said, have massive ecosystems that will presumably become only easier to monetize in the age of AI.

Leadership is not a static attribute that one simply acquires and retains without change. Instead, it is a dynamic identity that evolves through experiences, learning, and personal growth.  Understanding how leadership identity forms and evolves over time can offer valuable insights into developing effective and adaptive leaders.

Early Influences and the Formation of Leadership Foundations.  The foundation of leadership identity often begins forming in early childhood and adolescence. During these formative years, individuals are influenced by family dynamics, educational environments, and early social interactions.  These experiences are crucial, as they help future leaders understand the importance of empathy, negotiation, and adaptability. By the time individuals reach young adulthood, they typically have a preliminary understanding of their leadership style and capabilities, although this understanding is still in a nascent stage.

Growth Through Experience and Reflection.  As individuals move into adulthood and begin their professional careers, their leadership identity continues to evolve through real-world experiences. The workplace is a critical arena for this development, offering numerous opportunities and challenges that test and refine one’s leadership abilities. Early career roles—often as team members rather than leaders—allow individuals to observe and learn from established leaders. These observations can be both positive and negative, providing a rich tapestry of examples from which to draw.  Taking on leadership roles, even in a limited capacity, is where the true evolution of leadership identity begins. New leaders quickly realize that theoretical knowledge and observed behaviors must be adapted to their unique circumstances and personality. This period is often marked by trial and error, as emerging leaders experiment with different approaches to see what works best for them and their teams.  Mentorship plays a pivotal role during this phase.  Reflection is another key component of leadership development at this stage.

Maturity and the Continual Adaptation of Leadership Identity.  As leaders gain more experience and ascend to higher levels of responsibility, their leadership identity matures and becomes more nuanced. This maturity is characterized by a deeper understanding of the complexities of leadership—including the impact of organizational culture, the importance of strategic thinking, and the need for adaptability in the face of change.  Experienced leaders understand that leadership is not about exerting control but about empowering others. They focus on building strong, cohesive teams, fostering a culture of collaboration and innovation, and developing future leaders. This shift from a self-centered to a team-centered approach marks a significant evolution in leadership identity.  At this stage, leaders also recognize the importance of emotional intelligence.  Furthermore, seasoned leaders often take on the role of mentors themselves, passing on their knowledge and experience to the next generation of leaders.

CEOs have plenty of obvious benchmarks for assessing how the company is doing: winning a huge customer, hitting sales forecasts, securing funding, and increasing market share are just a few. The metrics for assessing how that same organization functions day-to-day are practically clandestine in comparison.  According to Rob Bier’s book Smooth Scaling: 20 Rituals to Build a Friction-Free Organization, if you’re losing a little bit of momentum each day (through bad meetings, poorly defined goals, or other things that cause organizational friction) over time, you will have lost a lot of ground without understanding how it happened.  Bier, a celebrated leadership coach and advisor to fast-moving global companies, shared with the author how organizations can scale quickly without losing their way.

1. Business results don’t measure today’s health.  Because most leaders don’t know how to assess the day-to-day performance of their organizations, they focus on the easiest-to-see business results.  Going about it this way has two problems. First, these results are a lagging indicator. The work your teams are doing now may not translate into measurable success or failure in the marketplace for many months or even years. You can’t afford to wait that long to know whether your people and processes are operating at peak effectiveness or not.  Second, business results are not totally in your control. Many factors, including those well beyond your ability to influence, will ultimately determine your company’s performance: macroeconomic conditions, financial markets, changes in industry trends or regulations, and what your competitors do.
2. High performance requires integrating Productivity and Positivity.  Most companies want to have a thriving people-centric culture as well as a productive one.  For Bier, that is what he calls “positivity.”  It boils down to ensuring your employees are happy.  The problem, Bier says, is that many organizations are confused about what making employees happy really means. So they focus on making them happy to come to work – by giving them fancy offices, free snacks, or expensive training programs. Because these solutions cost money, many organizations invest in these things when times are good but cut back as soon as times are bad.  This inconsistent approach breeds cynicism, Bier says, but in reality, it makes sense since senior executives are rightly questioning deep down whether these investments actually produce better results.
3. Instead of making people happy to come to work, make them happy doing the work.  Perks like free lunch and nice décor are beside the point, according to Bier. Instead of making people happy to come to work, make them happy doing the work.  Bier points out that the main driver of how much people enjoy doing their work is the quality of their interactions – if you love working with your team, you have an open, high-trust relationship with your manager, and your cross-functional team has healthy and constructive debates, then doing the work is the fun part.
4. Work experience is driven by the quality of human interactions.  Sustainable work performance is the sweet spot where Productivity and Positivity are both high–where your team achieves great things and feels good about how they achieved them. Nothing determines how people feel about their work more than the quality of the interactions they have with their colleagues.  “Leaders should focus on the quality of the conversation happening. This gets harder as the numbers grow, but the culture depends on it,” Bier says.  By investing in teaching people how to hold conversations of all types that are consistently productive and positive, leaders can build a high-performing culture that propels itself, where increased positivity drives productivity and increased productivity drives positivity.

Based on his experience of selling technology products and his daughter’s recent experience of buying a car, he could see some familiar sales tactics (and mistakes) playing out.  Here are some of his reflection on these similarities between the two different sales situations, but at the same time informing us about the Ubiquitousness of these tactics across the industries.

1. Playing the waiting game.  All this went down after my daughter had spent hours on the lot. It was getting late in the day on a Saturday, and the manager knew she was hoping to get it done. At some level, the manager was wearing her down and playing out the clock, playing the “waiting game.” It didn’t work in this case, but often, this notion of using time as a weapon can be very effective. Utilizing time as a strategic element in the negotiation process can be effective, but it must be used carefully and respectfully. Pushing too hard on time constraints can backfire.
2. Closing the deal by changing the sales lineup.  When the salesperson reached his personal negotiation line or felt he would lose her, he brought in his manager. In addition to adding some time to the clock, this step created a new opportunity for a new dynamic. The dealership never really wants a potential buyer to walk out the door, so if one person doesn’t get the job done, it’s always worth trying someone else. Involving a manager or company administrator in the negotiation process can create new dynamics and opportunities for closing a deal.
3. Proposing your best and final offer.  Although I laughed hysterically when I heard about the red stamp, I soon realized it was actually a smart move. Once upon a time, I’m guessing some sales and marketing people sat in a room, and someone said, “I have an idea — let’s make a red stamp that says final and use that during negotiations.” Everyone probably laughed, and they would have said, “No, I’m serious!” And then everyone thought about it and agreed, as funny of an idea as it was, it actually made sense. It’s one thing to tell someone something verbally, but when it’s “official” and in red ink on paper, it’s human nature to believe it and take it as indisputable. Using psychological sales tactics to create a Fear Of Missing Out (FOMO) effect, such as a “Final Offer” stamp, can be effective in conveying seriousness and finality, but you have to honor your word, or you will likely lose credibility.
4. Trying a shutdown move too soon.  Understanding the customer’s needs, discussing the product’s value and building rapport and trust can be crucial in successful sales.
5. Putting an out-of-reach offer on the table.  In negotiation, it’s important to understand the other party’s budget and limits before making an offer. Being aware of their constraints will increase the likelihood of closing a deal.
6. Saying your offer is “final” when it’s not.  If you offer something of value at a good price and tell them it’s “final” (which the author personally doesn’t recommend as a sales tactic), then stand by it and mean it. Your word has to mean something.  If a “final offer” is presented, standing by it as your final word is essential. If adjustments are needed, they should include additional incentives or value to maintain trust and credibility.