Question: hello could you please write your own four paragraph 56...
Hello! Could you please write your own four paragraph (5-6 sentences per paragraph) take away or reflection of the below information? Please complete in 24 hours if possible. Thank you!
When managers and scholars talk about diversity’s impact on organizations and teams, they’re usually referring to the effects on collectivemaccuracy and objectivity, analytical thinking, and innovativeness. On “harder” measures of financial performance, researchers have struggled to establish a causal relationship with diversity—particularly when studying large companies, where decision rights and incentives can be murky, and the effects of any given choice on, say, profits or market share can be nearly impossible to pin down. So we’ve zeroed in on diversity’s effects in the venture capital industry, which presents fewer barriers to understanding. VC firms are fairly flat in structure, composed primarily of investment partners and relatively few junior professionals. Every investor is a decision maker, and choices have clear business consequences. We know which firms make what investments, and for the most part we can identify the individuals leading those investments, because they usually take seats on the boards of portfolio companies. Using publicly available information, we can analyze VC professionals’ “endowed traits,” such as gender and ethnicity, and “acquired traits,” such as schooling and work history. In other words, we can see how similar or different these decision makers are and compare the quality of their decisions on the basis of their investments’ performance. Because their incentives are aligned and readily discernible—compensation for VCs is largely determined by profit sharing, ensuring that they and their investment partners have the same goals—the analysis is not clouded by inscrutable interests. The goal of every venture capital investor and firm is to choose and groom the companies that will yield the best possible outcomes. All in all, we couldn’t have asked for a better “lab rat” than the VC world. Over the past several years one of us (Paul Gompers) has examined the decisions of thousands of venture capitalists and tens of thousands of investments, and the evidence is clear: Diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. And even though the desire to associate with similar people—a tendency academics call homophily—can bring social benefits to those who exhibit it, including a sense of shared culture and belonging, it can also lead investors and firms to leave a lot of money on the table. In this article we’ll describe the research behind those findings and provide recommendations for reaping the business benefits of diversity. Decision makers fare best when they openly acknowledge and address homophily early on, understand that small adjustments in mindset and behavior can have lasting ripple effects, and diversify their personal as well as professional networks.
THE IMPACT ON BUSINESS RESULTS
The gender and racial makeup of the venture capital industry is staggeringly homogeneous. A comprehensive data set of every VC organization and investor in the United States since 1990 shows that the industry has remained relatively uniform for the past 28 years. Only 8% of the investors are women. Racial minorities are also underrepresented—about 2% of VC investors are Hispanic, and fewer than 1% are black. Those groups have seen significantly increased representation in other fields and in advanced professional and scientific degree programs, but not in the VC industry. It’s against that backdrop that venture capitalists choose their collaborators at other firms, investing their money side by side and joining the boards that guide the start-ups. Most investors specialize in a particular industry or sector, so potential partners are easy for researchers like us to identify: They are investing in the same types of deals at around the same time. And venture capitalists are far more likely to partner with people if they share their gender or race. They’re also significantly more likely to collaborate with people if they share their educational background or a previous employer. Belonging to the same racial group increases the propensity to work together by 39.2%, and having a degree from the same school increases it by 34.4%. Not only is the likelihood of collaborating on any one deal greater, but VCs tend to keep teaming up with those who share their traits. What does all that mean for performance? How do the financial outcomes of homogeneous partnerships compare with those of diverse collaborations? The difference is dramatic. Along all dimensions measured, the more similar the investment partners, the lower their investments’ performance. For example, the success rate of acquisitions and IPOs was 11.5% lower, on average, for investments by partners with shared school backgrounds than for those by partners from different schools. The effect of shared ethnicity was even stronger, reducing an investment’s comparative success rate by 26.4% to 32.2%.
To understand why homogeneous teams have worse investment
outcomes, it’s critical to determine exactly when decision making
suffers. Interestingly, projects selected by both homogeneous and
diverse sets of investment partners were equally promising at the
time the decision to invest was made. Differences in decision
quality and performance came later, when the investors helped shape
strategy, recruitment, and other efforts critical to a young
company’s survival and growth. Thriving in a highly uncertain
competitive environment requires creative thinking in those areas,
and the diverse collaborators were better equipped to deliver it.
Of course, the industry’s homogeneity is continually reinforced by
individual firms’ hiring decisions. Because these organizations are
small (they usually have three to five investment professionals),
and spots open up infrequently (every two to four years), even a
slight preference for candidates who are similar to existing
partners has a lasting effect. Here’s just one example: Many
prominent venture capital firms were founded by Harvard Business
School alumni, and now nearly a quarter of all VCs with MBAs come
from Harvard. To put that into perspective, only 9% of VCs with
MBAs are from Wharton, and just 11% are from Stanford—both top-tier
schools. Prospects are even worse for female candidates. Remember
that only 8% of venture capital investors are women. It’s no
wonder, since nearly three-quarters of VC firms have never hired a
woman in that role. What separates that overwhelming majority from
that have hired women? One powerful factor is the gender of the partners’ children. When a firm’s partners have a higher proportion of daughters, the likelihood that a female investor will be hired goes up significantly. Simply replacing one son with a daughter would increase the probability of hiring a woman by 25%. Of course, we aren’t suggesting that male VCs should have daughters to reduce gender bias and increase diversity in their firms. But because the gender of one’s child isn’t a choice, the finding offers a tighter lens on diversity’s effects. When the “daughter effect” does bring more women into the fold, it has a strong impact on performance. Venture capital firms that increased their proportion of female partner hires by 10% saw, on average, a 1.5% spike in overall fund returns each year and had 9.7% more profitable exits (an impressive figure given that only 28.8% of all VC
investments have a profitable exit). The economic impact of diversity isn’t limited to the VC world. A recent NBER analysis of highly skilled occupations (in fields such as law, medicine, science, academia, and management) shows positive relationship between diversity and the value of goods and services produced in the United States. The study looks at GDP trends beginning in 1960, when significant barriers prevented white women, black women, and black men from entering those professions. Though we’re still nowhere near parity, gender and racial diversity have increased markedly in such fields over the past 50 years—and the U.S. economy has grown in that same period. Using a model that assumes innate skills are evenly distributed across gender and racial groups, the NBER analysis attributes about 25% of the GDP growth per capita to the uptick in white women and black Americans of both genders. In short, the authors argue, the United States began making better use of the talent at its disposal.