Of diamonds and responsible eternities

Millennials, often described in media as hapless, poor and unfocused, reportedly dropped a cool $25 Billion on diamond jewellery in 2015. This indicator of current and future demand for sparklers notwithstanding, we are nearing the peak of natural diamond mining.

It raises the question as to why synthetic diamonds have not taken off.

After all, millennials as consumers are also focused on environmental consciousness and reportedly willing to pay a premium too. Further, laboratory-grown synthetic diamonds — not to be confused with diamond simulants, such as the non-precious cubic zirconia and the semi-precious white sapphire — are virtually indistinguishable from natural diamonds mined from the womb of the Earth in an energy intensive and ecologically intrusive process. The Gemological Institute of America now even certifies that the synthetic diamond you have just bought is real, authentic synthetic. Synthetic diamonds also come from a transparent supply chain with no human exploitation, which is an excellent reason to choose them.

Why then isn’t the world switching en masse to the more environmentally sensible option?

The answer lies in the deeper probing of what shapes our preferences. We don’t buy diamonds, diamonds are sold to us. There is hard nosed business behind shaping our desires even though the traditional reasoning behind engagement rings no longer holds water, and plenty of women can and do buy their own diamond rings.

The economics is simple enough. Synthetic diamonds sell at a considerable discount to real diamonds. Trade makes more money selling a real diamond than it does selling a synthetic one, even with a certificate. In turn, this means a consumer is likely to see many, many more real diamonds on offer than she will see synthetic ones. This shapes the consumer’s consideration set and undoubtedly influences what gets bought.

The value chain reason is more interesting. Making synthetic diamonds is a capital intensive business. The barriers to entry of a new player are significant. So unless the demand for synthetic diamonds is proven to exist, investment may not come pouring into the space. In a delicious but understandable irony and a strategic masterstroke, a De Beers group company owns a vast majority of patents in the manufacturing of synthetic diamonds. So while it is possible to manufacture synthetic diamonds, it may be darned hard to do so without committing patent violations. This is not trivial. From a consumer’s point of view, this changes nothing and everything at once. De Beers has invested in distribution as well as, since Frances Gerety’s virtually immortal “A diamond is forever” line in 1948, branding for diamonds. It would have been foolhardy and self-destructive, if De Beers did not try to hold on to those advantages.

The branding reason is, of course, the strongest.

Most diamond purchases are not rational purchases but rationalised, emotionally led buys. Feelings are notoriously difficult to dislodge and remarkably easy to hurt. For years, the intrinsically “forever” and “real” character of diamonds has been used as some kind of proof of eternal love and commitment. Would a synthetic diamond ring mean fewer flaws, more perfection but also fake, performative love on the cheap?

Here lies the opportunity.

The brand story for the category itself is ripe for change.

Millennials say they are willing to pay a premium for environmentally friendly products (though not always willing to make good on those intentions). If the positioning is right, synthetic diamonds need not be sold on the cheap. They could be positioned as the environmentally friendly, technologically advanced, ecologically savvy, energy conserving version of the gemstone for the new, tech-savvy generation, while their sparkle still remains celebratory.

Thanks to digital platforms, the engagement with millennials can be kept quite targeted and kept away from the prying eyes of the boomers or even Generation X, who may be confused by the messaging about synthetic diamonds or feel cheated.

Moves are afoot in the space already.

Until a few years ago, when I heard the word “diamonds”,  Dame Shirley Bassey’s booming “Diamonds are forever” rang in my ears. Mental concerts are a real thing, look them up.  The song is wall-to-wall marketing of the De Beers catchphrase of enviable longevity.

However nothing lasts forever, as the rock prophet Axl Rose reminds us.  Why then should sparklers bear this unfair burden of eternity and permanence?

Why not move the discourse from eternity and permanence to a more achievable and realistic exhortation to just “shine like a diamond”?

Move over Dame Shirley, Rihanna, the millennial maestra, is here.

 

The governance we need: a reflection

I have had both shared and personal reasons to have spent much of the last year reflecting on the nature of governance around us.

It was a year marked by sharp separation between opposing factions. This cleavage had long been in the making. The divide between the haves and the have-nots was growing with an empathy deficit. The difference between correct and manufactured reportage was lost. The political outcomes of both the EU referendum and the US presidential elections are being seen as a revolt against the soi disant elites, disconnected from the reality of the lives of many.

This is however not just an issue of national politics. A friend of mine informed me that today, January the 4th, the second working day of 2017, is “Fat Cat Wednesday.” Today the FTSE 100 CEO has apparently already earned the average annual salary of an average UK worker, a sum of £28,200.  The UK is one of the most unequal countries in the developed world. Even though the link between CEO pay and performance is “negligible” according to research, with 80% rise in pay delivering only 1% improvement in performance, the pay gap persists and is demotivating to over half the workforce. If we have learnt anything from the political seismic shocks of the year that just turned, we know this is an unsustainable state of affairs.

We are at an historical inflection point whichever way we look.

If governance is all about building stable organisations – whether national entities, for-profit businesses or non-profits, educational institutions or anything else – it is self-evident that we need a different kind of governance.

We need governance that reaches across the aisles and engages, to heal and possibly to collaborate – whether it is Hillary Clinton gracefully attending Donald Trump’s inauguration despite the bitter and personal campaign both fought, or business people such as PepsiCo CEO Indra Nooyi agreeing to serve on the economic advisory council in the Trump administration despite her criticism of the language used for women and minorities.

We need governance to listen and to understand one another’s concerns, which may necessitate learning how the other side uses the same words in the same language to mean different things.

We need governance that may seek efficiency but not at the cost of efficacy, because organisations are not dumb legal entities but living breathing ones, working within the ambit of their wider societal contracts.

We need governance to be anti-fragile, both in its intentions and its recognition of consequentiality of various choices, over time and not just in the immediate quarter that follows.

We need governance that is true, inclusive, collaborative stewardship for all.

If the last line reminds you of Edmund Burke’s view of social contracts, let’s not forget his words which may as well be about the governance we now need: “All that is necessary for evil to succeed is that good men do nothing.”

(Disclaimer: These are my own views and do not reflect the views of the boards of either JP Morgan US Smaller Co.s Investment Trust or BeyondMe, where I serve as a non-exec director.)

Of pigs and predictions

The Trump victory has left many of my friends reeling and in disbelief. It has also already brought out criticism of pollsters and polling data. Some sceptical ones go a step further and condemn all prediction makers, and mock machine learning and artificial intelligence. This condemnation is foolish and tantamount to throwing the baby out with the bathwater.

Prediction models turn on data, collected from the right questions being asked of the right statistical sample of people. Reductive questions generate neat data sets which then provide all the right answers.

But as experienced market research people will tell you, far fewer people, than those who enthusiastically nod and say they will purchase a new product, actually do. It is not that people are lying, it is just that human beings tend to give answers to please the asker. On politics and other emotionally charged matters, this tendency to give socially acceptable answers to minimise confrontation is especially pronounced. People also change their minds over time.

If the outcomes of any large exercise, where people actually make active choices, shock us it is worth remembering that the only truth is revealed preference i.e. what our actual choices reveal about our preferences. Human beings do not always seek to maximise utility, often preferring to use simplifying shorthand or heuristics to make decisions. The heuristics could have encoded in them experience and knowledge, as well as prejudices and received wisdom.

The concept of revealed preference is, of course, flawed too. If I pick Candidate A over Candidate B, it does not say I prefer Candidate A, merely that I prefer Candidate A to Candidate B. In the future, if Candidate A is up against Candidate C, I may pick Candidate C not because of Candidate C’s superiority over Candidate A but because my preferences are not immutable. Faced with more than two options, we have a way to simplify the choice for ourselves as well as I have written here.

It may sound nihilistic to suggest predictive modelling is not really reliable. But if we are relying on flawed and mutating preferences, and treating them as immutable truths in our analysis, how can methodologies and predictive models generate anything reliable?

It would be akin to putting lipstick on a pig. We would have used up lipstick but the pig would still be a pig.

In the last UK general elections, the Brexit campaign, and now the US general elections, predictions have failed to, er, predict anything reliable.

It is time we learnt to judge differently — by expanding our comfort zones, by listening more, by asking and seeking to understand more, by being healthily sceptical, and by bringing critical thinking lenses to all those pursuits.

For now, if your side won, good for you. The advice to try and understand the other point of view applies to you too. But if your side didn’t win, dry your eyes, dust yourself up, and go out and talk to someone who is not cohabiting your comfort zone.

The narratives we hear will have rough edges, and not the cleanliness or reductiveness of survey questions. But that texture is the stuff understanding is made of. Less data, more understanding. That is what we need.

Luxury’s talent conundrum

A version of this essay appeared on Hudson Walker International’s Opinion section published on November the 4th, 2016.

The Luxury sector is facing headwinds. Single digit growth seems here to stay. The behaviour and the expectations of the elusive but coveted millennial consumer remain somewhat a mystery with conflicting trends emerging. For instance, millennials seem disinterested in owning houses and cars, but are nonetheless happy dropping $25 Bn on diamond jewellery. The luxury consumer is globally mobile and digitally savvy, thus requiring brands to think of narratives that remain relevant and accessible in the many contexts in which the consumer might encounter the brand. The traditional luxury maison with its aura of exclusivity is also under challenge from the small, nimble luxury brand that not only knows where to find the new consumer but also to serve her well with messages and products that appeal to her, and do so in an agile manner. The emergence of these new brands is not unrelated to the technological developments challenging and reshaping the entire luxury value chain.

Like many other industries being redefined by technology and the warp speed of the web, the luxury sector too is facing a talent shaped challenge. The sector however remains quite conservative in where it sources talent, privileging industry embeddedness over attracting outsiders. These outsiders may come in and ask uncomfortable questions but they also have the ability and aptitude to shape the future of the industry. The need for luxury sector leadership to shake up their thinking on talent is apparent.

But how can they do it? Well, here are some ways to examine the existing thinking critically.

Consider whom you are attracting. While seeking to fill a position, if the hiring manager in the luxury maison sees applications from only those already working within industry, there is a problem. Pretty much every other industry has had to learn, some grudgingly, others more willingly, ways to reach out to active and passive talent where the talent hangs out and to make their brands more relevant to those professionals who would not otherwise consider them as possible employers.

Ask whether you are hiring for what they can do for the maison, or for what they have already done in their careers. This is trickier than it looks at first pass. Research suggests men are often hired for potential while women have to have proven it before. The luxury sector overwhelmingly sells to women, who have increasing economic power as well as alertness to governance issues in companies they buy from. The hiring-for-potential-or-proof challenge is exacerbated when companies are hiring for a future that is not fully spelt out and is unfurling as we watch. If you are seeking to acquire skills that are themselves nascent, consider that those skills may well have been acquired and demonstrated outside formal employment. As the boundaries between work and non-work areas of life dissolve, it is worth remembering that we bring our whole selves to wherever we go. Hiring conversations need to evolve from the curriculum vitae to exploring the passions of the individuals in their life. This will have to become normal as people pursue and build many careers within their professional lives, which brings me to the next point.

Before even seeking new talent, think deeply about how you will retain them, once they are hired. The adage that “employees do not leave companies, they leave their managers” needs modification. Employees leave in pursuit of fresh challenges knowing well that having multiple careers is now not a novelty but the default, and that only they themselves are responsible for shaping their work life. This challenge is multiplied manifold when the talent freshly hired is a a star and aware of her star power. Monetary and non-monetary incentives are the hygiene factors. Retention is about giving them something to believe in, something that lifts the game daily from mundane transactions to an opportunity to make a meaningful difference.

Lest this monograph should make these challenges sound insurmountable, I should add that this is where a seasoned and well-networked headhunter comes in. A good headhunter serves as the consigliere or consigliera to the maison. He or she understands the essence of the luxury brand, and can communicate it faithfully to a prospective candidate in a manner that bridges elegantly the gap between the narrative of the brand and its salience to a candidate’s aspirations. This is a crucial skill as a luxury mason’s success in attracting, hiring and retaining talent now depends on how well the leadership articulates their vision of the future and demonstrates that it is in line with the future emerging before our eyes.

The industry whose mainstay is heritage and craftsmanship is up against rapid technological and socio-political change. Something’s got to give for the industry to remain relevant and thrive. Talent is where the solution to that conundrum lies.

Empathy as luxury?

“Empathy is luxury. Think about it. If you have the time to read about other points of view, you have the luxury of time, that you can spend on reading other perspectives and build empathy.”, said my interlocutor, an entrepreneur building a platform for contrarian views. I am paraphrasing a bit but we had been talking about how to break the filter bubble that the liberal metropolitan elite inhabit. Better people than I are already exploring how the word “elite” came to be associated pejoratively with liberal, metropolitan persons.

Research evidence from the USA and the UK however shows us that the poor, who do not have spare time since more time spent working is more money, are more charitable and more community minded. In other words, the poor display more empathy. How can empathy be a “luxury” then?

I believe in the essentialness of empathy though I arrive at it from another perspective.

I see myself as a part of a whole, whether that whole be our neighbourhood or the planet. As such my being empathetic is nothing more than my honouring my self.

She wasn’t convinced.

Further expounding on how I got to this framing of this world, I found that it may have come from imbibing some of the Hinduistic philosophical and cultural values amidst which I grew up in India. The idea of the unity of the macro- and the microcosms of our being is embedded in Aham Brahmasmi, “I am the infinite reality”. The idea is also embedded in the greeting Namaste, “I bow to the divine in you”. The idea of consequentiality of our actions naturally follows, often stated controversially in the western world as “Karma is a bitch”.

It is trivially evident that neither business nor humanity can act as if their shared linkages and connectivity do not matter, and as if they can thrive or even survive without one another.

Both spiritually and rationally, empathy is therefore not a luxury in my view.

The idea of luxury as empathy however appeals to me. More on which, later.