from the world's big
Why women make businesses more profitable
When it comes to the workplace, more diversity means more money.
- While the workplace is slowly diversifying, some industries have been slow to change.
- A growing body of research is uncovering that workplaces with greater diversity actual perform better. One of the clearest examples of this effect is in venture capitalism, where nearly all venture capitalists are white, male, Harvard graduates.
- When VC firms hire more women, their effectiveness and profitability explodes.
One of the big questions that any society needs to answer is how open and diverse they wish to be. Whether you're talking about immigration, college admissions, or workplace diversity, our culture helps inform how many "others" we're willing to let in.
There's a variety of perspectives on this issue, but the data is clear in at least one aspect: When it comes to business, more diversity is objectively better. Research has shown that companies with greater gender, racial, and ethnic diversity earn more.
One recent study, publishing during the summer, demonstrates this effect particularly well. Economist Paul Gompers and research associate Silpa Kovvali examined the success of venture capital (VC) firms and the proportion of women those firms employed, adding to the growing consensus among experts that having different faces in the workplace is good for business.
Why venture capital?
VC firms aren't going to be winning any awards for diversity any time soon. For the most part, VC firms have stayed fairly homogenous since the 1990s — the earliest point where we started collecting reliable data. About 2 percent of VC investors are Hispanic, 1 percent are black, and 8 percent are women. Not only that, but about a quarter of all venture capitalists graduate from Harvard, dwarfing other, equally prestigious schools. It's an industry for white dudes who graduated from Harvard Business School, which makes it the perfect place to study what happens when you let an outsider into the club.
Human beings have a tendency towards homophilia; we like people who are similar to us. In some ways, having a highly homophilic group can be a good thing. Groups with similar members have a sense of shared purpose, and group members coordinate exceptionally well on tasks. In their sample of 42,000 VC firms, Gompers found that VC firms were highly homophilic. "We really saw how powerful the force of 'birds of a feather flocking together' was," he told Forbes. "The more similar you are to someone, the more likely you are to work with them."
However, the problem with highly homophilic organizations and industries is that they are prone to groupthink. After all, part of how you think about the world depends on where you came from. Without different perspectives to counter your own, you can easily find yourself overlooking opportunities, ignoring threats, and just generally misconstruing how the world truly is. Gompers summed it up thusly:
"There is a lot of psychological research showing that your background influences the way you frame problems. […] If I am in a firm with five white guys who all went to Harvard, it's likely we are going to see the world in the same way and make more mistakes. [Diversity] can help you avoid blind spots."
A change of perspective
In VC firms, the impact of extra diversity was incredibly strong. More diverse firms made successful investments 32.2 percent of the time compared with homogenous VC firms' 26.4 percent. What's more, when VC firms increased the number of female partners, Gompers and Kovvali's research showed a 1.5 percent increase in overall fund returns each year and 9.7 percent more profitable exits. That last number is particularly impressive considering that only 28.8 percent of VC firms make profitable exits. Keep in mind, too, that most VC firms don't have any female partners at all. So, for some firms in the sample, hiring just one woman as a firm partner dramatically boosted their performance.
The boost in performance, however, didn't arise because diverse VC firms were picking better investment opportunities than homogenous firms. In fact, the quality of their investments were just about equally attractive at the time. The difference came about because of what happened after identifying an investment opportunity. After investing in a start-up company, VC firms shape the young company's strategy and tactics to maximize the likelihood that their investment pays off; more diverse VC firms tended to be more creative and effective in this regard.
Precisely because VC firms tend to be homogenous, they made the perfect lab rat to look at what diversity can do for a company. Because different perspectives can be incorporated into strategy, a diverse business can be more agile, better prepared for otherwise unexpected outcomes, and more creative in how it operates.
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Construction of the $500 billion dollar tech city-state of the future is moving ahead.
- The futuristic megacity Neom is being built in Saudi Arabia.
- The city will be fully automated, leading in health, education and quality of life.
- It will feature an artificial moon, cloud seeding, robotic gladiators and flying taxis.
The Red Sea area where Neom will be built:
Saudi Arabia Plans Futuristic City, "Neom" (Full Promotional Video)<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="c646d528d230c1bf66c75422bc4ccf6f"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/N53DzL3_BHA?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
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Frequent shopping for single items adds to our carbon footprint.
- A new study shows e-commerce sites like Amazon leave larger greenhouse gas footprints than retail stores.
- Ordering online from retail stores has an even smaller footprint than going to the store yourself.
- Greening efforts by major e-commerce sites won't curb wasteful consumer habits. Consolidating online orders can make a difference.
A pile of recycled cardboard sits on the ground at Recology's Recycle Central on January 4, 2018 in San Francisco, California.
Photo by Justin Sullivan/Getty Images<p>A large part of the reason is speed. In a competitive market, pure players use the equation, <em>speed + convenience</em>, to drive adoption. This is especially relevant to the "last mile" GHG footprint: the distance between the distribution center and the consumer.</p><p>Interestingly, the smallest GHG footprint occurs when you order directly from a physical store—even smaller than going there yourself. Pure players, such as Amazon, are the greatest offenders. Variables like geographic location matter; the team looked at shopping in the UK, the US, China, and the Netherlands. </p><p>Sadegh Shahmohammadi, a PhD student at the Netherlands' Radboud University and corresponding author of the paper, <a href="https://www.cnn.com/2020/02/26/tech/greenhouse-gas-emissions-retail/index.html" target="_blank">says</a> the above "pattern holds true in countries where people mostly drive. It really depends on the country and consumer behavior there."</p><p>The researchers write that this year-and-a-half long study pushes back on previous research that claims online shopping to be better in terms of GHG footprints.</p><p style="margin-left: 20px;">"They have, however, compared the GHG emissions per shopping event and did not consider the link between the retail channels and the basket size, which leads to a different conclusion than that of the current study."</p><p>Online retail is where convenience trumps environment: people tend to order one item at a time when shopping on pure player sites, whereas they stock up on multiple items when visiting a store. Consumers will sometimes order a number of separate items over the course of a week rather than making one trip to purchase everything they need. </p><p>While greening efforts by online retailers are important, until a shift in consumer attitude changes, the current carbon footprint will be a hard obstacle to overcome. Amazon is trying to have it both ways—carbon-free and convenience addicted—and the math isn't adding up. If you need to order things, do it online, but try to consolidate your purchases as much as possible.</p><p>--</p><p><em>Stay in touch with Derek on <a href="http://www.twitter.com/derekberes" target="_blank">Twitter</a>, <a href="https://www.facebook.com/DerekBeresdotcom" target="_blank">Facebook</a> and <a href="https://derekberes.substack.com/" target="_blank">Substack</a>. His next book is</em> "<em>Hero's Dose: The Case For Psychedelics in Ritual and Therapy."</em></p>
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