Can the Minerva Model of Learning disrupt higher Education...04-14

Traditional universities — including Ivy League schools — fail to deliver the kind of learning that ensures employability. That perspective inspired Ben Nelson, founder and CEO of the six-year-old Minerva Schools in San Francisco. His goal is to reinvent higher education and to provide students with high-quality learning opportunities at a fraction of the cost of an undergraduate degree at an elite school. While tuition at top-tier universities in the U.S. can run more than $40,000 a year, Minerva charges $12,950 a year, according to its website. In a recent test, its students showed superior results compared to traditional universities while also attracting a large number of applicants.

Minerva is a disruptor and the traditional university establishment needs to adapt to its model and perhaps improve on it, according to Jerry (Yoram) Wind, emeritus marketing professor at Wharton. Nelson, who was previously president of Snapfish, an online photo hosting and printing service, and Wind spoke to Knowledge@Wharton about why the higher education model needs to change, and how the Minerva model could help.

An edited transcript of the conversation follows.

Knowledge@Wharton: Jerry, where is the future of education headed?

Jerry Wind: The future is now. It has been here for a while, and with Minerva, Ben has recreated the university of the future. Ben, describe briefly the Minerva concept, and then go into the recent findings of the CLA report (Minerva’s Collegiate Learning Assessment test).

Ben Nelson: We refer to Minerva as having been built as an “intentional university.” Everything about the design of the institution, what we teach, how we teach and where we teach it is based on what we know, and through empirical evidence, is effective.

In what we teach, we are classical in our approach, even though we’re [also] modern and progressive in the way we teach. For example, if you think about the purpose of a liberal arts education, or what the great American universities purport to teach, they will say ‘We teach you how to think critically, how to problem-solve, how to think about the way the world works and to be global, and how to communicate effectively.

“Universities … basically teach you academic subject matter and they hope you pick up all of the other stuff by accident.”
–Ben Nelson

When you actually look at how universities attempt to do it, they basically teach you academic subject matter and they hope you pick up all of the other stuff by accident.

We decided to have a curriculum that teaches these things, that breaks down critical thinking, creative thinking, effective interactions, and effective communications into component parts. [We wanted to make] sure that we don’t just teach them conceptually, and don’t just teach them in a context, but actually explain the concept and then have our students apply them actively from context to context to context.

Knowledge@Wharton: Could you share an example of how you do that?

Nelson: One aspect of critical thinking, for example, is evaluating claims. There are various ways of evaluating claims. Sometimes you use logic, sometimes you use reasoning, which is different than logic, sometimes you do statistical analysis which is different than the other two, and sometimes you just think of a counter example.

Now there are different [types] of critical thinking. One example: making a decision tradeoff. Should we go down Path A or Path B? The technique for making a decision tradeoff is perhaps thinking through the cost-benefit analysis, which is a type of critical thinking.

If you say ‘I’m going to teach you critical thinking’ and you just try to teach it as a thing you will never succeed. [It is important to] go through it systemically and do the component parts – that’s the first aspect.

The second aspect is if you teach a person an idea, say evaluation of claims, the mind gets trained in a particular context. When somebody makes a claim, let’s say on an investment opportunity, or a political claim, the mind doesn’t really transfer those skills from one field to another. This is one of the fundamental problems of transferrable education. The way that you teach that is to provide exercise and applications in multiple fields.

How we teach is also radically different. The science of learning shows that the dissemination of information [through] lectures and test-based methodology simply doesn’t work. Six months after the end of a traditional lecture and test-based class, 90% of the material you were supposed to have learned is gone from your mind. In an active learning environment you struggle through information, and two years after the end of the class you retain 70%.

All of our classes, despite [being] small seminars with 15 to 19 students at a time, are done via live video online where there’s a camera pointed at every student’s face. The students are actively engaged with the materials, [and it is] not the professor lecturing — professors are not allowed to talk for more than four minutes at a time. The students get feedback on how they apply what they [learn].
“Six months after the end of a traditional lecture and test-based class, 90% of the material you were supposed to have learned is gone from your mind.”
–Ben Nelson

Lastly [it is about] where we teach. We have created a university that takes advantage of the best the world has to offer. Being a Penn graduate, I always gravitated towards the idea of the urban campus. Our students live in the heart of cities in residence halls together, and have a very strong community. They spend their first year in the heart of San Francisco, but over the next three years across six semesters, as a cohort, as a group, they will travel and live in six different countries. So in their second year they go to Seoul and Hyderabad, and then to Berlin and Buenos Aires, then London and Taipei, and come back to San Francisco for a month to manifest their education and graduate.
Wind: While the concept is appealing, does it work? Describe the CLA test, and then talk about the implications of [your approach].

Nelson: The Collegiate Learning Assessment is provided by a third party nonprofit that has been testing and assessing students’ progress on critical thinking, problem-solving, scientific reasoning and effective communication skills for many years. It’s been administered to hundreds of thousands of students across hundreds of universities. It is administered to students at the beginning of their first year and at the end of their fourth year, and so you can measure [the] progress of students.

We provided [our students] the first-year test just before they started the first class at the beginning of the year. But rather than waiting four years, we gave our students the fourth-year test at the end of their first year, Eight months later, the results shocked us. Not only did our students after eight months have the highest composite score in the country compared to any other university that was assessing their students, the delta improvement they accomplished was higher than what the CLA has seen any university accomplish over four years.

Knowledge@Wharton: What drove those results?

Nelson: The silly answer would be to say, ‘Oh we’re brilliant and we’re great, and look at how amazing what we do is.’ The fact of the matter is we’ve got a lot of room to grow and improve. These results in many ways are much more damning of the existing system than they are generating praise for our brilliance.

We have taken publicly available scientifically published data on how the mind works. We’ve broken down the things that every university says that they teach or that they want to teach, and merely spent time putting together a curriculum that does that, and we’ve offered it to students. We’ve just done what anybody who would rationally approach trying to create a solution to a problem do.

I would bet you that if you had 100 institutions or 100 groups of people that were to do the same thing we would have done from scratch, we would have probably been better than some of them, maybe most of them, but not all of them. There would be some that on their first try would be even better than [us].

Wind: This is the value of idealized design. As opposed to trying to fix the current educational system by adding another course or trying to create a cross-disciplinary course, [Minerva] reexamines the whole purpose of education.

They didn’t go far enough, which is they are still within an academic context, and probably they will relax the academic context that is [with] semesters and the like, and get even better results. But even within this academic context and constraints, what they have done is amazing  –  the curriculum, the concept, and the way it’s developed for the benefit of the learner, and not the benefit of the faculty.

The [first] implication is, if you had a choice and you wanted to go to a university now, where would you go? If you want really great education, go to Minerva; [but if] you want to network, go to one of the top five schools — Penn, Harvard, Princeton, Yale and MIT. Minerva offers probably a different network than the traditional ones because it is a network of people who are willing to do it.

Nelson: Last year, for our third class ever, we received 20,400 applications. That is more applicants than MIT or Dartmouth got. The network you get in a Wharton or Harvard or Yale or what-have-you is [of] a certain kind. It is overwhelmingly American, [with] 80% or 90% from the U.S., and usually from particular socioeconomic backgrounds. Even though there is some diversity, it’s heavily weighted [in favor of that profile].

The Minerva network is radically different because 80% of our students are not from the U.S. — they come from 61 countries. We received these 20,000 applications from 179 countries. The experience and the network you build as you travel and live as a resident in these seven countries is unparalleled. If you want a global footprint, that’s what we provide.

Wind: The current educational system does not work. Implication two is that [universities] have to realize that they are being disrupted. At this stage [it is on a] small scale, but if other universities start adopting it, it can [become] large scale. [Minerva is] the disruptor here, and the signal to the legacy universities is, our model does not work. Stop trying to fix it by adding another Band-Aid, but try to rethink the educational system. And here you have a wonderful blueprint that works.

Nelson: We just wrote a book called Building the Intentional University, which is a blueprint for how other universities can create their own Minervas or reform in that sense. We are a residential university that grants undergraduate degrees with 120 credit hours, with majors and minors and electives and a general education curriculum. We are plug-and-play for universities. We offer potential salvation from disruption.

“The future is now. It has been here for a while, and with Minerva, Ben has recreated the university of the future.”
–Jerry (Yoram) Wind

What I have worried about is the other kind of disruptive force that can attack universities [and be] destructive, in the sense that in six months you get a high school degree, go to a boot camp and then get a six-figure job being a software programmer. We have put together an educational experience that enables university graduates to be better prepared than [with that] six-month boot camp. Because they are able to do higher level problem solving, they are going to be [software] architects as opposed to the programmers. They’re going to the ones that in a world of Watson and artificial intelligence and outsourcing are going to be much more future-proof.

Wind: An increasing number of people view employability as being critical, and a traditional university degree does not guarantee employability, [but] the new non-degree programs guarantee you a [job] position.

Knowledge@Wharton: Three or four years ago, a big potential disruptor was the so-called MOOC, or the Massive Open Online Course. A number of platforms came up [such as] Coursera, Udacity and EdX. It seemed like they were going to be disruptive, but that doesn’t seem to have happened. What happened with that so-called disruption and why did it fail?

Nelson: The jury is still somewhat out on that, and let me give you an example of what I think is happening on the surface. MIT had a master’s program in supply chain logistics, and it cost $60,000 for a two-semester program. As an experiment, [they put the] first semester on MOOCs, and rather than charging $30,000 for it, [gave] it away for free. If you want to get credit for it pay $250, [write] an exam, and then if you score well you [go] to campus, do a one-semester supplement, pay $30,000 and get a master’s degree.

This [halves] the cost of higher education for a master’s degree. Imagine if the Ivy League – or any university – [extended that to] all the courses they give academic credit for. Of the $250,000 that they are used to collecting and are reliant on [for each degree course, they] can only collect $100,000 because $150,000 is effectively given away for free. So far no university has an incentive to rock the boat too much on this. [However,] just because the disruption does not happen immediately doesn’t mean it won’t happen.

Wind: The concern is that especially for the leading universities, it’s an excuse not to innovate. They are saying, ‘Look how innovative we are; we have MOOCs, or we offer classes on Coursera,’ and basically the rest of the education stays exactly the same way as it was before. Some of the findings suggest that less than 5% of the people who start ever finish the courses on Coursera or EdX. But there are some encouraging signs that if you add to the traditional Coursera course or EdX interaction, and if you provide some more gamification principles in terms of getting involved, you can increase the numbers significantly.

The advantage of this — with MIT, Stanford, Penn and other universities putting all of these courses online — is that the role of the faculty becomes easier as a curator. This is the fundamental change that we have to see in education.

Knowledge@Wharton: [In addition to] a network, one other factor that the Ivy League universities offer is the brand. When you have this innovative model like Minerva, how do you establish a brand that is acceptable to students as well as employers?

Nelson: Minerva was built as a positive brand. When you meet somebody at Minerva you know that they have … been given systematic frameworks of analysis that they can apply effectively to the rest of the world. Our challenge is to propagate that brand, to get people aware of it. The good news is that the internet is a very good way of disseminating information. Brand building in today’s world doesn’t take centuries; it doesn’t even take decades.

Wind: The final word on branding is always [from] the consumer. One, the best carrier of the brand, and especially on the positive side, would be the alumni. So the value of the degree, the value of the Minerva experience is a function of how good the alumni are. Two, a lot [depends] of the employability and demand for the Minerva students.

Nelson: It’s too early to tell.

Manmohan Singh donates 3,500 books from his personal library to his alma mater 04-12

India's former Prime Minister Dr Manmohan Singh has donated 3,500 books from his personal collection to his alma mater Panjab University (PU).

According to university authorities, the arrangements would soon be made to transport books and memorabilia, photographs and paintings from New Delhi to the university campus.

As per the IANS report, the books and other objects will be kept in the Guru Teg Bahadur Bhawan on the university campus.

Here's what the professor of Department of History told IANS:

"The 3,500 books and memorabilia, which include photographs and paintings, will be housed in Guru Teg Bahadur Bhawan. Until the place is ready for the installation, books and memorabilia will be kept in the main library," she said.

"It will be developed as a library where there would be a reading area where anybody can come and have a look at the material," she added.

India's former Prime Minister Dr Manmohan Singh has donated 3,500 books from his personal collection to his alma mater Panjab University (PU).

According to university authorities, the arrangements would soon be made to transport books and memorabilia, photographs and paintings from New Delhi to the university campus.

As per the IANS report, the books and other objects will be kept in the Guru Teg Bahadur Bhawan on the university campus.

Here's what the professor of Department of History told IANS:

"The 3,500 books and memorabilia, which include photographs and paintings, will be housed in Guru Teg Bahadur Bhawan. Until the place is ready for the installation, books and memorabilia will be kept in the main library," she said.

"It will be developed as a library where there would be a reading area where anybody can come and have a look at the material," she added. 

View at the original source

The Airbnb Effect: Cheaper Rooms for Travelers, Less Revenue for Hotels 03-06

Hotels enjoy their highest profits when rooms are most in demand, like during holidays and big events. Unfortunately for them, Airbnb is taking away some of that pricing power, according to new research by Chiara Farronato and Andrey Fradkin. 

Image credit : Shyam's Imagination Library

Airbnb is revolutionizing the lodging market by keeping hotel rates in check and making
additional rooms available in the country's hottest travel spots during peak periods when hotel rooms often sell out and rates skyrocket, a new study shows.

That's bad news for hotels, which have traditionally earned their biggest margins when rooms were scarce and customers were forced to pay higher rates—such as in Midtown Manhattan on New Year's Eve. And it's good news for travelers who don't have to pay through the roof to get a roof over their heads during holidays or for big events.

"The benefits to travelers and the reduction in pricing power of hotels is really concentrated in particular cities during certain times," says Chiara Farronato, a co-author of the study. "When hotels are fully booked, Airbnb expands the capacity for rooms."

Released today, the research shows that in the 10 cities with the largest Airbnb market share in the US, the entry of Airbnb resulted in 1.3 percent fewer hotel nights booked and a 1.5 percent loss in hotel revenue.

The paper, The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb, was written by Farronato, a Harvard Business School assistant professor, and Andrey Fradkin, postdoctoral fellow at the Initiative on the Digital Economy at the Massachusetts Institute of Technology.

"You might find a Fifth Avenue apartment or a place by the beach at a more reasonable price than you would if Airbnb wasn't an option"

Competition between traditional hotels and Airbnb is intensifying. Last Friday, Airbnb announced it is expanding its "experiences" offerings to an additional 1,000 cities. Meanwhile, the lodging industry is not only adding its own offerings, but stepping up lobbying efforts in local and federal circles for stricter regulations governing Airbnb.

The study focused on data from 2014, and the impact on hotels could be even greater today given Airbnb's strong growth since then.

In addition to access to more rooms, travelers reaped other rewards in places where Airbnb competed with hotels, the study shows. During busy travel times, guests enjoyed an average "consumer surplus" of $57 per night. This surplus didn't necessarily amount to more money in a visitor's pocket, but it did mean better accommodations at more reasonable prices, Farronato explains.

"Consumers don't always pay a lower price," Farronato says. "What changes is the quality of the listings. You might find a Fifth Avenue apartment or a place by the beach at a more reasonable price than you would if Airbnb wasn't an option. Or a listing might have additional amenities, like a kitchen. And if you still prefer a hotel room, competition from Airbnb means you'll pay a lower price for it."

Airbnb's rapid growth

Airbnb, an online community marketplace where people can list and book short-term lodging accommodations around the world, was founded in 2008 and has grown rapidly at a time when plenty of other industry-disrupting platforms have flourished, including Uber, Craigslist, and Spotify.

Airbnb offers listings in 191 countries, and its total number of listings—4 million-—is higher than the top five major hotel brands combined.

To compare the performance of hotels versus Airbnb, the researchers used hotel data from STR, which tracks more than 161,000 hotels, as well as proprietary data provided by Airbnb, creating "the perfect setup to study market competition between new online platforms and traditional service providers," Farronato says. They studied prices and occupancy rates in 50 major US cities between 2011 and 2014, targeting markets with the largest number of hotels.

During the study period, Airbnb made a relatively small dent in the overall short-term accommodations market. Its rooms represented 4 percent of all guests and less than 1 percent of total housing units across all cities. And Airbnb didn't have much effect on hotel occupancy rates overall. Since Airbnb bookings occurred especially when hotels were already near full capacity, a large share of these bookings—between 40 and 60 percent—would not have been made at hotels if Airbnb wasn't an option.

The San Francisco-based home-sharing platform still made its mark on the hotel industry, however. The researchers found that Airbnb's growth through 2014 reduced hotel variable profits by up to 3.7 percent in the 10 US cities with the largest Airbnb presence.

This effect was particularly strong in cities with limited hotel capacity during peak demand days. On those days, hotel room prices were affected relatively more than occupancy rates, meaning that a hotel in one of these cities might still be fully booked during a peak period, but the competition from Airbnb may have forced the hotel to lower its rates for those rooms.

Airbnb rooms were more plentiful in cities with a big demand for accommodations, as well as areas with higher-priced hotels, like New York, Los Angeles, and San Francisco. In other places such as Oklahoma City and Memphis, however, listings were sparse by comparison.

"It's important to note that not all cities are affected by Airbnb," Farronato says. "In Atlanta or Houston, there are enough hotel rooms to satisfy the demand, so peer hosts don't find it attractive to enter the market as much there."

Within each city, more Airbnb rooms cropped up during popular travel periods, such as Christmas and the summer. Sports games, festivals, and other events also led to a spike in listings. In Cambridge, Mass., the biggest listing period came during college graduation time.

And that's the beauty of Airbnb for hosts: They can respond quickly to market conditions, keeping their homes for private use when prices are low and hosting travelers only when the demand for rooms—and the payoff from renting them—is highest.

"As a host, you might not want to risk renting out your place for just $80 a night," Farronato says. "But when the pope comes to Philly, and hotel prices are $200, it becomes worth your while to put your spare room out for rent. Airbnb hosts are in this sweet spot where they can take advantage of only the high-demand periods and stay out of the market at other times."

Hotels fight back

Lodging groups have not taken Airbnb's incursions lightly. Starting in 2016, the American Hotel and Lodging Association backed efforts by the Federal Trade Commission and the state of New York to investigate Airbnb's impact on local housing prices, according to The New York Times. The AHLA also launched a campaign to portray Airbnb hosts as being, in reality, commercial operators looking to compete illegally with hotels.

As margin pressure increases from Airbnb properties over time, hotels will be forced to step up the competition even more. The problem: fixed investment costs. The demand for rooms is always fluctuating, but it's not efficient for hotels to build enough capacity to satisfy the peaks, so they are challenged with finding the right middle ground.

"When the pope comes to Philly, and hotel prices are $200, it becomes worth your while to put your spare room out for rent"

"If you have too much capacity, you will have a lot of empty rooms most of the time," Farronato says. "And if you have too little capacity, you won't be able to satisfy the demand, and Airbnb hosts will come in and drive prices down when demand is high."

Farronato said home-sharing platforms are likely to gain even more ground over time as consumers become increasingly aware of their benefits, so it's important for hotels to find creative ways to compete. At the same time, as cities add home-sharing regulations, both the benefits of Airbnb to consumers and hosts, as well as the effects on hotels, will likely become less pronounced.

Just as Airbnb is adding experience packages to its home-rental offerings, so too are hotels such as Marriott International. And maybe hotels could even find ways to alter their building spaces on the fly to accommodate the peaks and valleys of consumer demand.

"You could have rooms that quickly and dynamically change from hotel rooms into conference rooms. So you can have this flexible capacity of rooms that are available on New Year's Eve, but become conference spaces at other times," Farronato says. "It requires a whole new way of designing things. It's all worth thinking about."

Reproduced from Harvard Business Working Knowledge

Behavioral science in business: Nudging, debiasing, and managing the irrational mind 03-05

Behavioral science has become a hot topic in companies and organizations trying to address the biases that drive day-to-day decisions and actions.

Image credit : Shyam's Imagination Library

Although humans are known to be irrational, they are at least irrational in predictable ways. In this episode of the McKinsey Podcast, partner Julia Sperling, consultant Magdalena Smith, and consultant Anna Güntner speak with McKinsey Publishing’s Tim Dickson about how companies can use behavioral science to address unconscious bias and instincts and manage the irrational mind. Employing techniques such as “nudging” and different debiasing methods, executives can change people’s behavior—and have a positive effect on business—without restricting what people are able to do. 

Podcast transcript

Hello and welcome to this edition of the McKinsey Podcast with me, Simon London. It’s not new news that a lot of what drives human behavior is often unconscious and often irrational. We go back to the end of the 19th century and find Sigmund Freud trying to describe our unconscious and intervene on at least what he thought was more or less a scientific basis.

The good news is that our understanding of the unconscious mind has come a long way, grounded in decades of basic research into what drives ordinary, everyday human behavior. These are the biases, the heuristics, the rules of thumb that determine the great majority of our day-to-day decisions without us even being aware. So, yes, we can agree with Freud that we are often irrational, but as today’s behavioral scientists like to say, we are predictably irrational. What can be predicted can be managed, at least to some degree.

Today’s conversation is hosted by my McKinsey Publishing colleague Tim Dickson. You’ll be hearing Tim in conversation with Julia Sperling, who is a neuroscientist by training and a McKinsey partner based in Frankfurt. Tim will also be speaking with Magdalena Smith, an organization and people-analytics expert based in London, and Anna Güntner, who is a consultant based in Berlin. Without further ado, over to Tim.

Tim Dickson: Julia, Magdalena, and Anna, thanks so much for being here today.

Julia Sperling: Great pleasure.

Anna Güntner: Happy to be here.

Magdalena Smith: Thank you for having us.

Tim Dickson: The study of human behavior isn’t really new, and it’s been widely accepted since at least Sigmund Freud that a lot of what drives human behavior is in fact unconscious. So, Julia, what’s new about behavioral science, and why should executives take note?

Julia Sperling: Of course, you’re right. Human psychology has been explored and used for management purposes for the past, I’d say, over 100 years already. You’re also right that Freud gave us a very deep insight into the human mind and how it works. The issue had always been, though, that while Freud’s insights have been very useful, they have been very hard to implement because they were so deep and hard to grasp and hard to alter.

Now we have the insights that people are predictably irrational, but we also have the tools coming out of it to help alter behavior and to help guide behavior. What we use is the insight not only from behavioral sciences but also from neurosciences, most recently.

I can tell you the human brain is spectacular. At any point in time, over 11 million bits of information hit our brain, and it’s able to filter them down to about 50 only. Then seven to ten of them can be kept in short-term memory. Of course, with this enormous filtering exercise that it does, we cannot consciously make choices all the time. A lot has to happen very unconsciously. And, by the way, that’s a very different unconscious from the unconscious that Freud has been talking about.

Tim Dickson: So, Julia, what are the main applications of behavioral science for companies?

Julia Sperling: Well, number one, performance management. You can identify factors that actually hinder performance as well as those that foster it. Money, as we should already know, is not always the best motivator. The second piece is recruiting and succession planting. Here, machine learning has a much stronger ability to predict future success than those that have been, for example, choosing or selecting CVs in the past. And then last, cultures, be it for merger management, a general cultural change that you could see with bringing agility or more diversity to an institution, or something as targeted as introducing a safety culture, for example.

“With nudges—subtle interventions based on insights from psychology and economics—we can influence people’s behavior without restricting it.”

Tim Dickson: Anna, I know you’re an expert on nudging. Can you tell us exactly what nudging is and a little bit of the context for a company thinking about this?

Anna Güntner: The general idea behind nudging as well as debiasing is that people are predictably irrational. Now, with nudges—subtle interventions based on insights from psychology and economics—we can influence people’s behavior without restricting it.

With a nudge, we could get people to do whatever is best for them, without prohibiting anything or imposing fines or restricting their behaviors in any other hard way. In terms of nudging, there are different applications for companies. One certainly is marketing, and marketers have been using similar approaches for a long, long period of time.

Tim Dickson: What do you say if executives are squeamish about this and worry about nudging behaviors—changing behaviors—that may potentially be used for malignant purposes and worry that they might find sensitivities among their employees?

Julia Sperling: It highly depends on what type of nudge is used and the intent with which you use it. It is much more a function of, is the behavior that you’d like to see in your company something that is in line with your company values, that is in line with what your company stands for? That’s the decision executives have to make. Nudging is then merely a technique to make this behavior more likely, but it’s a choice of the behavior that makes the difference.

Anna Güntner: Another area of application, in particular, is safety culture. In terms of irrational thinking, this of course is absolutely something irrational—to risk your life by not sticking to the procedures.

With behavioral science, companies are able to go away from the backward-looking approach, where after something happens, you try to understand what the reasons were and take them out, to something forward looking, where you try to not attack people’s mind-sets but to change the environment in a way that becomes simpler and more intuitive for people to follow safety procedures.

One of the problems that construction companies have is that managers, once they become promoted, stop wearing the helmet, as a sign of superiority to the workers. A nudge that’s implemented by some companies is that the managers get a helmet of a different color. They use the same status bias but in a different way to help people to stick to safety procedures.

Tim Dickson: Understood. So that’s about unleashing particular behaviors. But sometimes you have to fight behaviors and biases. Magdalena, I know that’s something that you know about, and you’ve seen this in action in the workplace. Can you talk about that aspect of the situation?

Magdalena Smith: As Anna mentioned, we’re not always rational, and sometimes that rationality—or lack of rationality, rather—has a real impact on the decisions that we make. That can be extremely costly for organizations.

We have recently worked on an incredibly interesting project, where we worked with a global asset manager trying to identify the decision-making biases that their fund managers have and thereby also see what impact they have on the underlying performance of the funds.

We did that by using the data available in trading and looking at their behavior, looking at individual trades. In combination with this and analyzing the underlying decision-making process in more detail, we could identify which trades were less optimal than others.

Looking at those and looking at the potential improvement of those, if you reduced the effect, it really could show you the direct dollar impact that overcoming these biases had. They were significant. You’re talking about 100 to 200 basis points per year for a fund manager and an extra alpha on an equity fund. That is billions for a company like this over the next three to four years.

“If you want to have a diverse set of leaders in the future, you have to be aware of those little biases and fight them.”

Julia Sperling: I have a lot of clients asking—in particular with regard to their diversity efforts—how they can minimize unconscious bias. It starts with the recruiting processes, behavioral design of how to make them function in a way that doesn’t favor those—we call it a “mini me” bias—who have always been recruited to the company before and would be recruited all the time again. Because again, our human brain is biased, and we enjoy having those that remind ourselves of us around us.

If you want to replicate a homogenous leadership group again and again and again, don’t intervene. But if you want to have a diverse set of leaders in the future, you have to be aware of those little biases and fight them, as we said, right at the start of your recruiting process.

In Germany, together with about 20 other companies, we work in an initiative called Chefsache that wants to bring more women into leadership positions and create gender balance. As one of the focus topics, we looked into unconscious bias within talent processes. When you look into recruiting, for example, even with the best intentions, there was what we talked about—this mini-me bias. People make choices, make biased choices, and might miss out on talent because of those.

One of the debiasing techniques that we use, for example, is that after we’ve seen a case and we have a team speak about what they’ve seen, we now never let the most senior person in the room speak first, because there’s something called the “sunflower” bias, which is once the sun speaks, the flower follows. That means that in this group, people would more likely adopt [the senior person’s position], maybe even a different position from the one that they had before.

Another intervention is to combat the bias that occurs—in recruiting, for example—called groupthink. You make people fill out a statement on the candidate themselves before they enter the group discussions, because science has also shown that once a group starts adopting a certain opinion, it’s very hard for the individuals that haven’t spoken yet to bring in another thought or have another opinion. There we’d say, never let the most senior person in the room speak first. Make sure that everyone notes the opinion right after having seen the recruitment candidate and before sharing their opinion.

Magdalena Smith: One of the areas that is growing very fast within debiasing and within nudging is the concept of advanced analytics and machine learning. That has particularly been used, for example, when it comes to identifying talents, behaviors, and future potentials and very much used in trying to identify who the great performers are going to be in the future and where they can be found.

To follow on in your example regarding recruitment, we’ve seen a global service company that wanted to make the recruitment process more efficient. The way they did this was by acknowledging which type of candidate would automatically go through to a round of interviews.

This automatically put forward the top 5 percent of candidates. One of the very positive side effects of this, which wasn’t actually planned, but it was fantastic, was that the number of women that were put through to the first interviews increased massively.

Tim Dickson: But technology has its own biases as well. What would you say to that?

Magdalena Smith: If we look at what machine learning is, machine learning is trying to find objective insights using data through algorithms, advanced statistical algorithms. Unfortunately, somehow those algorithms have to be programmed, and they’re programmed by humans.

What you very quickly see is that assumptions come into the algorithms. You also see areas where assumptions are made in the sense that you have missing data. You have to impute numbers where you either put a value on it or an assumption that then gets amplified throughout.

Julia Sperling: That’s why you can—and have to—check very carefully whether your algorithms are working. By the way, when we use them in succession planning, for example, or when we use them in recruiting even, we always advise our clients to do a look back in the past and see whether those algorithms, if they have been used already in recruiting, would have predicted the success of those in their positions right now.

Magdalena Smith: Absolutely.

Julia Sperling: Right? So, one has to reality check very carefully every algorithm one puts in place. That’s one very practical example of how to do it.

Tim Dickson: Let’s talk about a different area of application, for example, merger management. I think you’ve seen biases at work and how to counteract them in that situation, Anna.

Anna Güntner: In merger management, the challenge that a lot of mergers—we could even say every merger—faces is that you try to bring together two different cultures and two different corporate cultures and get them to function as one. In that case, there are many biases, especially the in-group out-group bias, that are at play.

But there are also tools—debiasing techniques but also nudging techniques—that can help us prime or create a new common identity. These can be very simple interventions like, for example, if you think about how to bring together new teams. What can you do to force the exchange between people who barely know each other?

Tim Dickson: Julia, you mentioned the context of performance management. Anna, I know you have an example of a counterintuitive insight from that area.

Anna Güntner: In traditional management approaches, we tend to assume that money is the biggest motivator—that if you pay your employees more, then they will work more. Now we know that money is actually the hygienic factor. You have to pay them enough, but there are different things that motivate them, like, for example, meaningful acknowledgment of the social factor and extrinsic motivation. If it’s given for something that in the beginning was not for sale or if it’s too low, it can even reduce intrinsic motivation, like enjoyment or self-fulfillment of work. Also, we know that so-called performance-based teams, where you are paid depending on the result of your work, are actually detrimental for creative work because it makes people think narrowly in a particular direction, whereas for creativity you need to think broadly.

“One of the insights from behavioral economics that a lot of companies are now exploring is to separate developmental feedback from evaluative feedback.”

Another assumption that you would typically have is that you need to give people honest feedback. You need to tell them what they’re doing well, what they’re doing not so well, and how to improve it. But there is a lot of research that shows that people shut off and even try to avoid those from whom they have received such constructive feedback. One of the insights from behavioral economics that a lot of companies are now exploring is to separate developmental feedback from evaluative feedback.

Tim Dickson: Taking a step back and thinking about some of the broader challenges for CEOs and senior executives coming to this for the first time, what would you list as the key challenges?

Anna Güntner: One of the challenges is that you need to adopt the so-called evidence-management mind-set. You need to be ready to test the things that you promote, debiasing algorithms or nudging or anything else, based on large samples of data rather than doing it the way it is usually done—in the past or even today—when a lot of intelligent people get in the room, discuss, and then come out with a decision, which is then rolled out all across the organization.

If we take the example of nudging, it’s rather like running an A/B test. You have one group of people who don’t get exposed to a nudge and the other group of people who get exposed to the nudge. Then you can measure the difference in behavior that hopefully occurs between these two groups and also assess the profit impact.

So that’s one. Number two is that it’s still not very intuitive for many companies to think in terms of behaviors. Very often, we think in terms of KPIs [key performance indicators]—for example, customer satisfaction or sales—so it takes some conscious effort to bring it down to the kind of behavior you’re trying to change.

Julia Sperling: Very often, behaviors are being put into one box together with mind-sets, and core businesses are going to be put into a very different box. Putting those boxes together into one and showing how behaviors—and it’s nothing but behaviors that ultimately drive an outcome in an organization—can be assessed, can be influenced, can be elicited, can be fostered, etcetera, in the same stringent way as some business processes can be new for many executives.

Magdalena Smith: I’d like to add that debiasing is hard. It’s difficult. Just knowing that you have certain biases isn’t sufficient. A lot of people acknowledge that biases have a massive effect on decision making but don’t acknowledge first that they have biases themselves, which is a bias in its own way. That’s overconfidence. Even once you’ve identified a certain bias, you often need some form of external help. For example, in hospitals, they use checklists in order to make sure they don’t miss anything, they don’t make certain assumptions about things. These are props that can help them overcome some of these biases that they may have, or assumptions they make about patients, that are helpful.

There was some very interesting research coming out of the United States last year that showed the number of mistakes that were made in hospitals between the eight years of 2000 to 2009 in taking people in for accidents and emergencies. There were hundreds and thousands of mistakes being done that they specifically put down to biases, the main one being “anchoring” and assuming that they’ve seen the first kind of information that comes, and they stick to that rather than explore any other problems they could have. They estimated that this had an impact of 100,000 lives a year. Being able to save another 100,000 people a year— I think that should be motivation enough to try to use these kinds of methodologies.

Julia Sperling: This is becoming a hot topic more and more. When you look at international institutions, they’re not only starting to deploy those approaches on larger scales. They’re even building their own behavioral-insights unit. They are actively recruiting behavioral psychologists, behavioral economists to work with them. Those units are being built as we speak.

“You need to have a deep understanding of your business and the opportunity to truly understand the precise behavior that leads to the unwanted outcomes.”

Tim Dickson: Is it a question of hiring behavioral economists, or can companies generate an understanding themselves and do this themselves without the very deep academic understanding of this field?

Julia Sperling: It takes a couple of different skills. Number one, it takes a deep understanding of analytics and the ability to use data at scale; as Anna mentioned, do you compare A to B when you do nudging? You need to be able to set up these types of trials and to be able to process them properly. There is an analytical capability that you need to have and you need to build.

Number two, and this might be the even more challenging one, is you need to have a deep understanding of your business and the opportunity to truly understand the precise behavior that leads to the unwanted outcomes or the precise behavior that gives you exactly the outcome that you want. So, you need a deep understanding of your business, the way that your people are currently behaving, and the way you would need them to behave in order to fulfill the strategic and organizational goals that you have.

And then, of course number three, you need these professions that I’ve been talking about before. You need those that come up with a whole library—and McKinsey has one with over 150 different interventions that are linked to certain nudges that have proved to work in companies in the past. You deploy this database, then, to the precise behavior that you’ve identified that yields the business outcome. And you use the analytics to track the impact over time. Those are the three main capabilities that you need to build.

Tim Dickson: I’m afraid that’s all we have time for. But thanks very much to Julia Sperling, Magdalena Smith, and Anna Güntner for a fascinating discussion. Thanks to you, our listeners, for joining us. 

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