The Knowledge Hub of IMD

Global Network for Advanced Management

The Global Network for Advanced Management (GNAM) includes 31 leading business schools from diverse regions, countries, cultures, and economies in different phases of development. Contributors from across this network offer perspectives on solutions to problems that are typically complex and global below.

How Big Data Gives Insight Into Investor Uncertainty

24 January 2022 • by HEC Paris

<p>Investor uncertainty plays a key role in economics, affecting asset prices and investment decisions. Getting a useful measure can be important to financial professionals and also government actors, to establish monetary policy. An HEC Paris researcher and two economists of the U.S. Federal Reserve’s Board of Governors found a new way to gauge uncertainty: using data on internet clicks related to specific news.</p> <p>In the wake of the 2008 recession, the U.S. Federal Reserve began slashing interest rates to almost zero to stimulate the economy, and didn’t reverse its course for seven years. At the end of 2015, there was a great deal of speculation in financial markets about what the Fed would do. The economy had been growing, so many investors believed that the central bank would end its stimulus program. Indeed, the November 2015 jobs report confirmed a strengthening in the U.S. labor market and Fed Chair Janet Yellen announced a rate hike in December. But that was not before months of investor unrest and uncertainty.</p> <p>Given how investor uncertainty can affect markets, and how an understanding of it can help fix asset prices and guide policy, we sought to establish a reliable measure of investor uncertainty and how this measure might relate to asset prices.</p> <h5><strong>The U.S. Labor Report and Treasury Bonds</strong></h5> <p>An understanding of investor uncertainty is important for several reasons. When there is greater uncertainty before a financial announcement, investors have a stronger reaction once the announcement is made. This can have a destabilizing effect on markets, therefore policymakers may want to avoid making aggressive moves in such an environment. In addition, there is evidence that firms cut their investments in uncertain times. And uncertainty also has a relation to the value of financial assets.</p> <p>We took a unique approach to measuring uncertainty, by examining internet click data, using investor interest in specific information: Every month the U.S. Bureau of Labor Statistics announces the nonfarm payroll data for the previous month (a report on employment in goods, construction and manufacturing companies). Financial professionals use this as a gauge of the labor market, and consequently as a predictor of the Fed’s actions. If there is greater unemployment than expected, the Fed might be expected to cut interest rates, and vice versa. </p> <p>Nonfarm payroll announcements take place at 8:30 a.m. on the first Friday of every month. Among all macroeconomic announcements, they have the biggest impact on U.S. Treasury bond yields. For this reason, we looked at news searches for nonfarm payroll data information, and how that might relate to Treasury prices.</p> <p><strong>Bitly Clicks as a Measure of Uncertainty</strong></p> <p>Bitly is a company that provides short URL links (SURLs) and a readership tracking system. SURLs are abridged versions of internet addresses (URLs). They are often created by journalists or news agencies to disseminate their articles, and then used by journalists and investors to share these articles. Using our data set of 70 million Bitly links created between 2012 and 2018, we measured investors' demand for information by counting clicks by individuals on news articles about nonfarm payroll.</p> <p>We found that ultimately investor uncertainty and their interest in nonfarm payroll news (and other important macroeconomic announcements) are positively correlated, including, for example, before the 2015 Fed rate hike. In that instance, we saw a strong spike in demand for information before the announcement. One implication is that investors' demand for information ahead of a news announcement is predictive of a stronger reaction of asset prices to news. Bearing this out, in our tests, the volatility of U.S. Treasury yields more than doubled when information demand for nonfarm payroll news was high before news releases. </p> <p>Importantly, we found that information demand is one of the few ways of predicting the sensitivity of U.S. Treasury yields to news, making Bitly data a potentially useful tool for financial professionals. Google Trends, for example, is a less reliable indicator of investor uncertainty about future interest rates than our measure of information demand.</p> <hr /> <p>Based on an interview with Thierry Foucault and his article “ <a href="">Demand for Information, Uncertainty and the Response of U.S. Treasury Securities to News.pdf</a> (958.3 KB) ", co-written with <a href="" target="_blank">Hedi Benamar</a> (senior economist at the Global Capital Markets section of the Division of International Finance and member of the Board of Governors of the Federal Reserve System, formerly Ph.D. student at HEC Paris) and <a href="" target="_blank">Clara Vega</a> (chief of the Risk Analysis Section, Research, and Statistics Division of the Board of Governors of the Federal Reserve System (FED)), published in the <em>Review of Financial Studies</em> in 2021.</p> <p><a href="">This article originally appeared on [email protected]</a>.</p>

Coming Home to the Humanities

27 September 2021 • by IE Business School

<p>María-Eugenia Marín considers how the humanities, which have been at the heart of education for millennia, are needed more than ever to help us understand the world around us with critical thinking and a human touch.</p> <p>“It is in Apple’s DNA that technology alone is not enough—it’s technology married with liberal arts, married with the humanities, that yields us the results that make our heart sing.”</p> <p>― Steve Jobs ―</p> <p>The humanities play a pivotal role in the evolution of society. History, philosophy, language, art, literature, and religion have molded cultures across time—continuously reshaping and transforming the way we live and experience the world—and will continue to do so far into the future. It is when we delve deeply into the humanities that we learn how to think critically and creatively, to ask questions and search for meaning, to express and reflect on feelings and emotions. They reveal to us where we have come from and shed light on where we are going. And in this way, the humanities serve as an ever-expanding intellectual foundation that can create an opening for engaged citizens who have a global and ethical mindset.</p> <p>Unlike the sciences, which are fact-driven and discipline-specific, the humanities are speculative and unpredictable. They include an intricate web of disciplines that come together to help us understand the multiple dimensions of the human experience. The humanities lend context and meaning to the sciences. This is true not only for the formal natural and life sciences, but also for the social and management sciences. The medical field must train healthcare professionals in the latest scientific knowledge and also provide them with a deep understanding of the human condition. Likewise, business leaders must master the technical tools of doing business while at the same time appreciate the socio-political, economic, and cultural context of where and with whom they operate. If we think about the sciences as a black and white photograph in desperate need of color, the humanities are the reds, the blues, the greens, and the yellows that bring that photograph to life.</p> <p>The humanities have been at the heart of education ever since the ancient Greeks first applied them to educate their citizens. Socrates, the father of Western philosophy, believed that self-examination using critical thought, asking questions, and nurturing curiosity and a sense of wonder were at the root of acquiring wisdom. In early modern universities dating back to 14th- and 15th-century Europe, humanism studies – <a href="" target="_blank">studia humanitatis</a> – transformed the curriculum and scholarship of the Middle Ages. Disciplines such as medicine, law, theology, mathematics, physics, and astronomy began to incorporate humanities by emphasizing critical thinking through translation, interpretation, and a broader reflection of classical texts that gave birth to new ideas. Teaching the art of speaking and writing with eloquence, the study of poetry and ethics, and the principles of self-knowledge and self-examination also formed part of this newly incorporated humanities curriculum. The critical mindset imparted by humanism served as a catalyst for changes in universities that led to a more creative university climate in 15th century Europe. This process set the foundation for what we today call the Humanities. Important historical figures such as <a href="" target="_blank">Andreas Vesalius</a>, Galileo Galilei, and Martin Luther were all products of a humanist education.</p> <p>If the humanities have formed a key and integral part of teaching and learning for more than seven centuries, why are they so undervalued in higher education today? The number of humanities majors in U.S. universities has been in continuous decline for the last 40 years, being replaced in the last decade by a growing number of STEM students. The COVID-19 pandemic has compounded this situation by putting many small colleges, the majority of them liberal arts colleges, in a state of financial upheaval. Sadly, some liberal arts institutions have even had to shut their doors.</p> <p>Some say that the financial crisis of 2008 turned students away from the humanities in fear of not finding a solid job; others say that the growing cost of education in the US is steering students into fields that offer a higher return on their investment upon graduation. Moreover, the rapid pace of globalization anchored on innovation and technology has shifted education to be STEM-focused. Subjects emphasizing science, technology, engineering, and mathematics have come to overshadow the humanities.</p> <p>There are sparks of hope, however. Just like what occurred in 15th-century European universities when humanism studies began to be integrated into a wide variety of classical fields, we are slowly beginning to see a greater integration of the humanities in several non-humanities fields. For example, the discipline of “medical humanities” is growing rapidly and argues that that the arts and humanities, through the study of culture, history, ethics, and behavior, “humanize” healthcare as well as provide tools by which to deconstruct, critique, and influence medical practices and priorities.</p> <p>Over the last eight years, all graduating medical students in Scotland have been given a copy of Tools of the Trade, a pocket-sized book of poems written to inspire young doctors to not forget that behind the diseases there are real people with real human needs like compassion and empathy. In the book’s foreword, Gavin Francis writes “there’s a great deal of science in medicine – science allied with a healthy dose of human kindness.”</p> <p>We are also seeing the integration of the humanities in the management sciences and even in the field of engineering. Business today is more than just understanding marketing, finance, operations, and other core areas; it is about human behavior, ethics, cultural differences, the global socio-political climate, as well as the need for reflective and empathic leadership, to list only a few. Similarly, engineering and the humanities have traditionally not been close friends, but there is also growing awareness that engineers need humanities training in subjects like ethics, philosophy, culture, history of technology, and design and critical thinking skills. According to American civil engineer Nathan W. Dougherty, “the ideal engineer is a composite… He is not a scientist, he is not a mathematician, he is not a sociologist or a writer; he may use the knowledge and techniques of any or all of these disciplines in solving engineering problems.” Of course, since Dougherty’s lifetime, many more women have entered the field.</p> <p>Thanks to our constantly changing technology-focused world, the humanities are needed in our classrooms now more than ever, to help us make sense of this world with balance, perspective, and most importantly, humaneness. The humanities need to be an essential part of a well-rounded education, one that starts in primary school and continues throughout a person’s life. Education is a personal journey and the humanities light our way. We are now confronting major global challenges that, yes, require global solutions. The current health crisis has clearly shown this. We must draw from the humanities to find inspiration and purpose and train a future generation of global reflective leaders that understand the complexities and inter-connectedness of the world we live in. Knowledge without critical reflection is nothing but an empty word.</p>

Weak Links in the Supply Chain

10 September 2021 • by IE Business School

<p>When the Covid-19 pandemic struck the vast majority of companies and institutions were simply not ready for it, despite the multiple warning signs that began months prior.</p> <p>What started as a disruption to supply chains in medical products and equipment at the beginning of 2020 has progressively expanded into all industries to a level that now the chip scarcity has forced the automobile industry worldwide to stall or temporarily idle production.</p> <p>The severity of the disruption is such that in anticipation of what might come later, on February 24th 2021, the US President signed an Executive Order to review supply chain risks of high-priority industries to avoid future shortages of products affecting strategic areas of defense, communications, technology, food, and public health. In the light of the severity of the crises, the Biden administration is even considering subsidizing semiconductor manufacturing facilities. Europe has not been any luckier. The EU is studying the possibility of creating semiconductors to reduce dependence on Asia, aiming at 20% of the world’s production by 2030.</p> <p>However, the disruption goes far beyond the car manufacturers, beyond affecting personal computers, electronics, home appliances, and again threatening medical equipment suppliers. Learning from the supply chain difficulties that companies faced during the hardest time of the pandemic and the still visible consequences, is key in preparing for the numerous vulnerabilities of complex global supply chains. There are five areas to pay attention to adjust quickly to the volatile market conditions.</p> <p><strong>The Importance of a Flexible Supply Chain</strong></p> <p>During the pandemic, many companies earned the hard way the importance of a flexibly designed supply chain. By deploying responsive capabilities, production can be adapted to a sudden demand fluctuation, customization needs, or changes in product design. For example, a modular production approach at the design, organizational, and manufacturing level can avoid the failure of one part affecting the entire system. By standardizing components and the interfaces between components, product design can embed coordination and avoid coupling while reducing cost and improving response time. This is a much-needed strategy for companies that rely on single sourcing for key components or with main suppliers that are concentrated in a particular geographical area.</p> <p>There are multiple examples of successful flexibility practices that were in response to Covid-19. With the aid of digital tools, Ford Motors was able to quickly repurpose one of their UK engine production facility to produce medical ventilators. This required the company to both expand its already existing supply chain and to go through the re-certification process for the new product design. The luxury conglomerate LVMH reconfigured its perfume production lines in France and started to manufacture hand gel in just 72 hours, while Nike rerouted products that were aimed at brick-and-mortar stores to e-commerce channels.</p> <p>However, companies also found there is a limit to flexibility. Managing a large variety of options comes with its own set of difficulties, for example adjusting to demand of different product options when that demand becomes unbalanced, it is not always possible or it would simply consume too much time. In this situation, companies should consider the trade-offs between product variety and flexibility and limit. This may reduce the company’s offerings but it will help streamline their production facilities, reduce downtime in the logistics chain, and maintain a satisfied customer base. In fact, companies like Procter & Gamble, Mondelez, and Coca-Cola are reevaluating their product complexity by focusing on the most important SKUs and investing in making their supply chain simpler in response to the disruptions suffered by the pandemic.</p> <p><strong>The Importance of a Revenue Assurance Supply Chain</strong></p> <p>Rethinking the way supply chains evaluate their suppliers and inventory policies is required discussion that can help in the trade-off between efficiency and resilience. By considering additional variables of sourcing strategies, such as cost of quality, lead times, technological value, and logistics costs, companies can prepare themselves to respond in times when their competitors may struggle. However, companies may need to review inventory policies or sourcing strategies because, although these measures increase the resilience of supply chains, they may do so at the expense of efficiency. Supply chain managers may find compromise in holding an intermediate inventory, especially when there is no alternate supplier, or by securing strategic stocks through pre-arrangements with their main and alternate suppliers.</p> <p>Kellogg’s, for example, gained market share during the crisis by responding faster than their competitors. The company’s nimble reaction was possible thanks to its inventory holdings of grains  and quick shift to a previously identified local provider of cardboard. While this preparation might have seemed redundant or unnecessary in  quiet times, it  paid out during the pandemic disruption by buying them time to quickly reorganize their supply chain. Some companies are shifting manufacturing steps to more local suppliers. This not only makes supply chains shorter but allows a much faster ramp up in production and delivery times.</p> <p><strong>The Importance of a Visible Supply Chain</strong></p> <p>Having a visible supply chain starts by identifying all players involved and determining critical components as well as origin of supply. Traditionally, most companies have limited supply chain mapping to tier-one suppliers, underestimating the impact of a disruption on a tier-2 or tier-3 supplier. During the Covid-19 pandemic, Dun & Bradsteed identified that at least five million companies, including almost all Fortune 1000, had one or more tier-2 and tier-3 suppliers in the affected region of Wuhan. Mapping should not stop with the identification of sub-tier suppliers.</p> <p>To maximize supply chain performance and decision making, suppliers’ inventory status should be visible in real-time, as should production schedules, shipment information, and any disruptions. Visibility is not only about a deep knowledge of one’s own supply chain, but an understanding of industry competitors and adjacent industries.  Why? Because the long-term success of supply chain depends on a collaborative business ecosystem. For example, during the months of lockdown, gasoline demand decreased and this not only resulted in a sharp fall on gasoline production but on the availability of one of its byproducts: ethanol. Ethanol is a key component in the production of CO2, which is required for the carbonation of soft-drinks and beers. As a result, CO2 suppliers increased their prices by about 25% and some breweries had to go on allocation.</p> <p><strong>The Importance of Logistics</strong></p> <p>Having goods manufactured by suppliers is worthless if the product cannot reach consumers.  That’s why it’s essential to also work with the logistics and transportation partners within the supply chain. Covid-19 is an example of a global disruption that impacted the transportation of both components and end-products, with supply chains being impacted by events such as port congestion, border delays, decrease in the recurrent transportation mode capacity, driver shortage, and unprecedented delivery surge. Agreements with strategic logistic partners to secure both capacity and priority can help protect a dexterous strategy during periods of disruption.</p> <p>Technological and automotive industries are among those that have suffered the most as they rely heavily on air-cargo shipments – a transportation mode that has massively dropped its cargo capacity due to travel bans and unprecedented passenger flights cancellation that have translated in fare increments of up to 220%. Similarly, the drop in demand resulted in less ocean cargo routes and with higher unpredictability. Companies that had the flexibility to change to multimodal alternatives have been able to outperform their competitors. For example, now that the medical emergency has subsided, PPE and other related medical equipment is being transported by train between China and Europe. Lockdown products, such as laptops, fitness equipment, printers, and other electronic goods, have experienced a huge surge in rail transportation because they were not suitable for air transport but were in high and urgent demand. Real-time visibility of what is happening in the transit period, such as tracking time, airport congestion and border closures, can allow companies to dynamically manage the supply chain in order to quickly react and anticipate disruptions like a change in transport modes or a rerouting.</p> <p><strong>The Importance of Supply Chain Risk Management (SCRM)</strong></p> <p>Companies with a mature risk management approach are better prepared to respond to disruptions regardless of the depth of the crisis. However, even though many organizations have implemented some sort of SCRM or Business Continuity Plan (BCP) process, few actually understand where the risks truly lie and thus their SCRM is limited to a few reactive measures. A proactive approach to risk management would involve all functions of the supply chain with a dedicated multidisciplinary risk management team. Some of the proactive strategies could include real-time event monitoring and supply chain visibility, multi-sourcing and buffer strategies, investment in manufacturing capacity of critical elements, evaluation of partners based on their SCRM plans, development of solid communication channels, and creation of awareness and transparency of the entire supply chain vulnerabilities. While the existence of a SCRM plan cannot completely avoid the impact of a global crisis like Covid-19, the past reveals that only those companies with mature SCRM plans that combine proactive and reactive measures can overcome the consequences of disruptions in a fast and favorable way.</p> <p>Beatriz Acero is a postdoctoral researcher at IE Business School.  Elena Revilla is a professor of operations and technology management at IE Business School where she is currently analyzing the integration of knowledge into collaborative supply chains.</p> <p>This article was <a href="">originally published on IE Insights</a>, the thought leadership publication of IE University, in June 2021.</p>

Will There Ever be a ’United States of Europe?’ A New Paper from UBC Sauder Weighs in

10 September 2021 • by UBC Sauder School of Business

<p>It was 1849 when author-turned-politician Victor Hugo famously prophesied a “United States of Europe” — a tightly integrated group of nations founded on peace, open trade and shared ideas. In the century that followed, Germany and France went to war three times; in 1946, Winston Churchill repeated the call to “build a kind of United States of Europe."</p> <p>In 1957, six European countries formed the European Economic Community, and in 1993 the European Union came into force, creating a new level of integration among its member nations.</p> <p>UBC Sauder School of Business’ Keith Head, the HSBC Professor in Asian Commerce and Professor in the Strategy and Business Economics Division, began tracking European integration in 1998, and his latest paper, titled The United States of Europe: A Gravity Model Evaluation of the Four Freedoms, explores how successful the endeavour has been.</p> <p>For the study, he and co-author Professor Thierry Mayer, from Sciences Po in Paris, measured the movement of goods, people, services and capital — and looked at how everything from cars to pasta can get in the way.</p> <p>We recently sat down with Professor Head to learn more about this concept, why it is important and what we can learn from it.</p> <p><strong>What inspired you to look at the idea of a United States of Europe?</strong></p> <p>There were papers that talked about the European Union as a failure because it didn’t have a federal government like the United States — but there are other ways to think about whether the European Union has been successful. An obvious one is that it was created to prevent wars, and it has been spectacularly successful at that. If you look at how many times the French, the Germans and the English went to war before the European Union was created, it's a pretty sorry affair. Millions of people died because of that.</p> <p>The idea of unification was also motivated by a long-running desire to create a gigantic market where people would be able to freely buy goods, and workers and capital could move to wherever they were most employable. So we were really interested in whether that part had been achieved.</p> <p><strong>How did you go about it?</strong></p> <p>In 1957, six countries — Belgium, France, Italy, Luxembourg, the Netherlands and West Germany — signed the Treaty of Rome, and they expressed their objectives in terms of what they called “the four freedoms”: the movement of people, goods, services and capital. Most of the work in economics has been about movement of goods, because it's where we have the best data, but we felt like it would be a real omission if we didn't also look at what’s happening with people, services and capital, even though they’re more challenging to measure.</p> <p>We used the latest techniques to measure that rate of progress and present it graphically. In the U.S. they track trucking and trains using something called the Commodity Flow Survey, and it looks at how goods move from state to state. So the idea was to look at the states as if they were countries, and compare them with the European Union to see which is more integrated; then we realized we could apply that to the other freedoms as well. I don't think anybody had ever done that.</p> <p><strong>What did you find?</strong></p> <p>We found goods had made a lot of progress, and that the progress has been fairly steady during the entire life of the European Union. There was a big burst of progress when they got rid of their tariffs, but then things slowed because it took a lot of work to integrate trade.</p> <p>They had to do things like agree on what is the meaning of beer, because in Germany, beer is something that has four ingredients — malt water, barley, and hops. If it has something like rice in it, which Budweiser does, it isn’t beer from their point of view. The Italians have similar views of what pasta is. They said if it's not made with durum semolina, it's not pasta. So you had to sort of get people to agree on basic ideas like that, and that was hard. These are very distinct cultures with distinct heritages.</p> <p>What got us really excited is when we compared it to the data for the U.S., we found there isn't really any major difference left. In recent data, the importance of borders in Europe isn’t notably larger than the importance of borders in the U.S.</p> <p><strong>What about prices of those goods?</strong></p> <p>The European Commission had been upset about the big differences in the prices of cars, and they started keeping track of car price data and publishing it. In the U.S., there's the Consumer Expenditure Survey that tracks what people pay for their cars, and we were able to break that down by state. We show the dispersion in car prices across states wasn't very different from dispersion in car prices across the European Union after Europe integrated. So that was a key piece of evidence that pointed to the success of creating freedom of movement and goods.</p> <p><strong>You also look at the movement of people, what did you find?</strong></p> <p>That area didn't show as much progress. In principle, people can go anywhere they want within Europe, but the vast majority stay in the country where they were born. We framed it as a tax, and measured how much loss to your well-being you experience when you cross a border, and in Europe it’s much, much higher. In the early phase of integration, you saw migration from places like Spain and Portugal over to the richer countries, and you still see migration from Eastern Europe into the rest of Europe — that was one of the issues that was important in Brexit. But the old idea that Europeans don't move is basically true in the data.  </p> <p><strong>How did you measure the movement of capital?</strong></p> <p>The data isn’t as good on the movement of capital, so we measured it by looking at mergers and acquisitions. From what we could find, national borders in Europe don’t matter any more than state borders in the U.S., so in that category, it looks like mission accomplished: there’s open and free movement.</p> <p><strong>What are some other reasons why Europe might unite?</strong></p> <p>When leaders first started the European Union, the fundamental thing was this desire to make war not only unthinkable, but materially impossible. So the industries they focused on were iron and steel, because iron and steel were the backbone of fighting: tanks, rifles, etc. They brought iron and steel under common control, where no country could be self-sufficient in those things. From there, it really wasn't clear what they wanted. In some countries, there was very much a desire to move towards more political unification; in other areas, like the UK, they basically just wanted the economic benefits, not political unification.</p> <p>So there's always been this tension between people who just want the economic benefits and want their nation to continue more or less independently, and people who believe in the idea of a European army, for example, and a European foreign policy. But agreeing on what the European foreign policy would be has proven notoriously difficult, so they haven't gotten very far.</p> <p><strong>What are some reasons why they haven’t united?</strong></p> <p>Initially, the great pitfall that was cited during the Brexit campaign was that you weren't able to control your own borders, and in the U.S., it happens with respect to Mexico. But for Mexico, there's legal and illegal migration; it's certainly not free. Within the European Union, you can go wherever you like. After the Brexit referendum, that issue went off the front burner, and they ended up focusing on a vague idea of sovereignty.</p> <p>For example, in my mother's village in England, a woman told her "The European regulations tell us that we can't have curved cucumbers." That rule about the curvature of cucumbers is seen as an example of the overreach of these faceless bureaucrats down in Brussels — and [British Prime Minister] Boris Johnson talked about being required to put freezing packages on kippers. But freezing fish before you put it in the mail probably makes sense, and cucumbers can't be excessively curved because of a business regulation designed to fit more cucumbers in a crate. Still, that kind of example was seized upon by people who felt sovereignty was being lost. That’s not hugely prevalent in the rest of Europe, though; it seems to be mainly a phenomenon of the English.</p> <p>The most interesting recent case was with Covid, when it seemed like the Brits moved very quickly and nimbly to get large amounts of vaccine, and the European Union moved in a slow and bureaucratic way. So many people thought, “Here's an example of how too much political unification can be a bad thing, because it makes it hard for countries to show individual initiative to get things done.” I don't know how it will all shake out, but last winter it seemed like a pretty good argument for why too much integration could have a downside.</p> <p><strong>How much of a role does language play in keeping countries apart?</strong></p> <p>When we looked at people's migration, language has a very big role. Language has a role in trade too. But even considering the language issue, there's still a big role for national borders. People in Austria don't just get up and go to Germany.</p> <p><strong>Why is that?</strong></p> <p>We could speculate that it has to do with networks of family and friends that people don't want to leave behind, and that networks have a strong national character. If you went around Vancouver and asked “How many people do you know in Ontario?” and then asked, “How many people do you know in Washington State?” generally you'll find that even though Washington State is less than 100 kilometers away, they're going to have much thicker network of friends and family in Ontario, thousands of kilometers away.</p> <p>The other thing is there are professional rules. So for example, to become a hairdresser in France, you've got to go through a whole rigmarole. It'd be very hard for somebody who didn't go through that whole process to set up shop and become a hairdresser in Paris. Same with lawyers, doctors and other professions. So those professional accreditation systems are a big deal.</p> <p><strong>Brexit represented the opposite of integration. Is it a sign of things to come?</strong></p> <p>It doesn't seem like any other exit movements are particularly strong right now. I spent last year in Spain, and the issue there is whether the country itself will hold together — but there's zero interest in Spain leaving the European Union. And in the UK now, the question is whether Scotland, Wales and Northern Ireland will still be part of the UK in the future. So the sub-national exits almost seem more important than the idea of whole countries leaving the European Union. The financial crisis really put that to the test, when the problems with Greece began spilling over to the other countries with big debt problems — Portugal, Italy, and Spain. Many economists even predicted they would give up the Euro, but they all ended up staying on it, which showed the idea of being in Europe, as symbolized by the Euro, was pretty important to people.</p> <p><strong>Will we ever see a United States of Europe?</strong></p> <p>To some extent, we already have it. There is the European Parliament. The European Commission makes regulations; my favorite was when they got rid of roaming charges on cell phones. We don't even have that in the United States. But could the European Union look like Canada, where the provinces have a fair bit of power over things, like health and vaccines? It’s all a continuum of what makes a country, and if you think about the independence the provinces have here – it's pretty high. But that's a long way from having only one representative at the UN, like Canada does. I don't think we're ever going to see that.</p> <p><strong>What should we learn from all of this?</strong></p> <p>I think that the bottom line is that some people perceive the European Union as a failure, but we think if you judge it through the right lens, it's been very successful — and we think that lens is benchmarking the degree of economic openness.</p> <p>The second thing is that even in this day and age, when it comes to people moving around Europe, there's still a lot of friction — so even though people complain about people from other places, the actual mobility of people remains quite low, even in a region where people have the legal right to go where they want.</p> <p><strong>Why is this important to Canadians?</strong></p> <p>How united we are with the U.S. and how united we are with other provinces is something that's always bothering Canadians. There are a lot of Canadians who would like to be closer to the U.S., and a lot of other Canadians who think that's the last thing we should do – so it's very polarizing.</p> <p>Our relationships to other provinces are also a little strange. There are still interprovincial barriers to business that economists complain about, and in many respects, we are not an especially integrated country. So I think these issues of how much integration we want should resonate for Canadians, and seeing how Europe has developed a different approach to these problems is fascinating.  </p> <p>Interview languages: English, Spanish, Portuguese</p> <p><em>This article was<span> </span><a href="">originally published on UBC Sauder's website</a><span> </span>on August 31, 2021.</em></p>

How Ghana is Proposing to Take Control of its Upstream Oil and Gas Resources

7 September 2021 • by University of Ghana Business School

<p>Professor Robert E. Hinson argues that there are tremendous development and learning opportunities the Ghana National Petroleum Corportation can take advantage of to become a truly significant oil and gas player in Africa.</p> <p><strong>Ghana as an Oil and Gas Destination</strong></p> <p>Egbert Faibille, CEO of the Petroleum Commission of Ghana, in <a href="">an August 2021 article</a> notes that under the auspices of the minister of energy, and built against a backdrop of reformed market-driven policies, the commission has positioned Ghana as a highly competitive destination for upstream investment, leading to the rapid increase in oil and gas exploration and development. He notes further that by ensuring an investor-friendly business climate, Ghana now boasts the participation of some of the world’s most significant oil majors like Aker Energy and Camal Energy. He notes finally that Ghana represents one of Africa’s most successful new markets with world-class projects establishing the country as a regional oil, gas, and power hub.</p> <p><strong>Ghana and COVID-19 Recovery – The Role of the Ghana National Petroleum Corporation (GNPC)</strong></p> <p>For Ghana, a small West African country still reeling from the economic effects of COVID-19 like everyone else, US $18 billion could be key to economic redemption. That figure is what the Boston Consulting Group estimates Ghana could make if its national oil company, the Ghana National Petroleum Corporation (GNPC), goes ahead with a plan to acquire significant stakes in two offshore blocks, by buying shares in Aker/AGM. More than just laying the path to economic redemption, the proposed stake increase will finally secure Ghana a seat at the table and ultimately create a viable path to put Ghanaians in full control of their oil resources.</p> <p>I conceptualize this proposed plan to acquire significant stakes in two offshore blocks, by buying shares in Aker/AGM within a social learning theory lens and argue that GNPC can acquire new behaviors by observing and imitating their partners. Social learning theory hypothesizes that new behaviors can be acquired by observing and imitating others (Bandura 1971) and that learning is a cognitive process that takes place in a social context and can occur purely through observation or direct instruction, even in the absence of motor reproduction or direct reinforcement (Bandura 1963). I argue in this article, therefore, that the decision by the Ghana National Petroleum Corporation in Ghana to acquire significant stakes in two offshore blocks by buying a stake in Aker Energy will significantly improve its capabilities for upstream oil exploration.</p> <p><strong>The Aker Energy AS Brand</strong></p> <p>Aker Energy AS was founded in February 2018 and is established as the newest member of the Aker Group. The company aims to become the offshore oil and gas operator of choice in Ghana. Aker Energy’s LinkedIn profile describes the organization as one that is characterized by the entrepreneurial and flexible organization that is synonymous with member companies of the Aker Group. Aker Energy is operational with offices in Oslo and Accra, the capital of Ghana, and holds a 50 per cent participating interest in the Deepwater Tano Cape Three Points block in Ghana, including the Pecan development project. Other partners are Lukoil (38%), Fueltrade (2%), and Ghana National Petroleum Corporation (10%). The Tano Basin offshore Ghana is a prolific petroleum region and the DWT/CTP block is centrally located within this basin. Seven successful exploration wells and eight appraisal wells on the block have proved a significant resource base as well as a high upside.</p> <p><strong>Ghana at an Energy Crossroads</strong></p> <p>Today, Ghana is at a crossroads. The energy transition has accelerated the withdrawal from non-core areas for the super-majors and IOCs, and, unfortunately, very few areas in Africa are on the priority list for these companies. Capital is being shifted from investments in fossil fuel into renewables. Long cycle, capital intensive projects offshore are the least popular for the moment. BP is not entering into new countries. TOTAL withdrew from its acquisition of Oxy’s stake in Jubilee and TEN. Ghana is left with three comparatively smaller companies in country: ENI, Tullow, and Aker, and a production that is steadily declining. By some industry sources, the current three producing fields in Ghana would have reduced their production by 80% by 2035. All of the undiscovered oil in Ghana is at stake.</p> <p>There is a very desperate need for Ghana to comprehensively mine its oil resources before 2050 when the Paris Agreement stipulates we should all go green and as a consequence, GNPC has to step up. But where does Ghana start from? The national oil company, GNPC, has existed for decades and is part of all the petroleum agreements in the country. It has several hundred employees. Still, it does not have any operational capacity and is only able to assume the passenger role in field development and production. It needs a partner. Just as the likes of Statoil in Norway were trained by the American oil companies in the 1970s, GNPC is in need of a trainer—a mentor; a partner.</p> <p>This was the backdrop against which GNPC reached out to Aker and AGM. After careful consideration, Parliament gave its bi-partisan support for GNPC to negotiate with Aker a transaction that delivers on Ghana’s long-standing ambition to control its own resources. If successful, the transaction will be a landmark one; potentially, the most important acquisition any Ghanaian company has made at any point in time.</p> <p><strong>Conceptualizing the Aker Energy-Ghana National Petroleum Corporation (GNPC) Marriage as a Development and Learning Opportunity</strong></p> <p>Development and learning opportunities occur in a multiplicity of ways and these include improvements in corporate orientation, technical, and soft skills as well as improvements in revenue-generating capacity. I will discuss the potential benefits of the GNPC-Aker marriage in the light of these potential development and learning opportunities.</p> <p><strong>Improvements in Corporate Orientation</strong></p> <p>The economic and social challenges that characterize the continent of Africa could be argued to be partly because of the systemic weaknesses and poor performance of public sector institutions in that region. In an assessment of countries’ performance in the Ibrahim Index of African Governance (IIAG) over the period of 2006 to 2015, for example, Ghana was reported as “the fifth most deteriorated country on the continent” in terms of the provision of sustainable economic opportunities to citizens. The first clear learning opportunity will be the introduction of new public management principles into GNPC by virtue of Aker’s 175-year history of professional service delivery in the oil and gas space. In conversations with some managers at Aker, it was revealed that there is a comprehensive corporate culture reorientation program to bring the GNPC corporate ethos up to the standards of Petroliam Nasional Berhad in Malaysia, for example. Petroliam Nasional Berhad is a premier national oil and gas operator who makes energy investments both in hydrocarbon and renewables across the globe and maximizes value through their integrated business model.</p> <p><strong>Technical and Soft Skills Development</strong></p> <p>In conversations with the management of Aker Energy, it was revealed that the proposed Aker/GNPC colloboration will lead to the creation of a joint operator company in the DeepWater Tano/Cape Three Points and South DeepWater Tano oil fields in Ghana, operated by Aker and its affiliate AGM, respectively, and this will give GNPC hands-on experience in exploration and production in some of the most promising oil fields in Ghana. In conversations with GNPC management as well, they also admitted the deep technological transfer that could take place if they acquired the stake in Aker Energy.</p> <p><strong>Improvements in Revenue-Generating Capacity</strong></p> <p>In the proposed acquisition of the stake in Aker Energy by GNPC the following financial contributions could be made to the Ghanaian economy:</p> <ul> <li><a name="_Hlk79764809" id="_Hlk79764809">US$18 billion of net cash flow from the acquired stakes, tax, royalties, and the current stakes held by GNPC </a></li> <li>US$40 to 50 billion to the GDP of Ghana over the life of the fields</li> <li>Up to 12,000 new jobs in Ghana, according to a Boston Consulting Group assessment of the proposed collaboration</li> </ul> <p><strong>Conclusions</strong></p> <p>There are some debates surrounding what GNPC should be paying for the stake they want to acquire in order that they become a significant player in the oil and gas space in Ghana. This is despite the fact that GNPC has hired a third party independent expert, Lambert Energy, which has determined the value of the stakes GNPC is to acquire at US$2 billion. The Parliament of Ghana has set the maximum purchase price at US$1.1 billion, almost 50% below Lambert Energy, creating a substantial margin of error to avoid GNPC overpaying.</p> <p>Additionally, it is also important to point out that recently, the ministers of finance and energy went to Parliament to seek a loan ceiling to enable them negotiate in line with the higher policy shift for GNPC to be an operator and for Ghana to take charge of its own upstream destiny in the face of the energy transitions in the global north. In this regard, Parliament only approved a loan ceiling. Cabinet approved and asked for Parliament to approve the loan ceiling mandate and tasked the two ministers to go and negotiate a price. Government has not accepted the Aker price as a <em>fait accompli.</em></p> <p>For me, when all the payment and pricing issues have been settled, there are tremendous development and learning opportunities the GNPC can take advantage of to become a truly significant oil and gas player in Africa, and this is what all well-meaning Ghanaians should be pushing for. </p> <p><strong>References</strong></p> <p>Bandura, Albert (1971). "Social Learning Theory" (PDF). General Learning Corporation. Archived from the original (PDF) on 24 October 2013. Retrieved 25 December 2013. </p> <p>Bandura, Albert (1963). <em>Social Learning and Personality Development</em>. New York: Holt, Rinehart, and Winston.</p>

How Governments Can Take Action Against Fake News

12 May 2021 • by HEC Paris

<p>The COVID-19 pandemic has touched almost all countries around the world. The crisis marks an undefined period of uncertainty and fear among citizens around the globe. Such prolonged conditions of uncertainty and fear amongst people has triggered a surge in the amount of fake news circulating on the Internet. Research from HEC Paris highlights the urgent need to arrest the growing “infodemic” of fake news, which has increased significantly during the current COVID-19 pandemic. There is a clear need for governments to plan and invest in tools for identifying misinformation and improving online accountability, especially during times of a crisis.</p> <p><strong>Propensity of Fake News Related to COVID-19 Varies by Country</strong></p> <p>Despite the global bearing of the coronavirus pandemic, there is a significant variance in the propensity of COVID-19 related fake news instances across nations (<a href="" target="_blank">Brennen et al., 2020</a>). Reports by the <a href="" target="_blank">Poynter Institute for Media Studies</a> show that more than half of the COVID-19-related fake news until July 2020 originated from four countries, namely – Brazil, India, Spain, and the United States. The incidence of fake news is low in less polarized European nations such as Denmark, Germany, and Netherlands, where citizens prefer consuming objective news, and the Nordic countries, where media literacy is high (<a href="" target="_blank">Newman et al., 2020</a>). Fake news propensity is high in countries where the uncertainty about online information is high and national institutions are relatively weaker, such as Brazil, Kenya, and South Africa (<a href="" target="_blank">Newman et al., 2020</a>). </p> <p><strong>Designing Appropriate Policies to Protect Citizens</strong></p> <p>For better pandemic preparedness and control, it is necessary to mitigate fear among people, manage rumors, and dispel misinformation (<a href="" target="_blank">Sakurai and Chughtai, 2020</a>; <a href="" target="_blank">Islam et al., 2020</a>). Hence, from a policy perspective, it is of utmost importance to appreciate the <a href="" target="_blank">mechanisms propelling the production and consumption of fake news</a>. Given the large variance in the COVID-19-related fake news volumes across nations and the potential damage that such misinformation can cause, we conducted research to understand the factors contributing to fake news propensity across countries. Such knowledge can help governments better understand the fake news phenomenon and design appropriate misinformation-related policies to protect their citizens (<a href="" target="_blank">Fleming, 2020</a>; <a href="" target="_blank">Laato et al., 2020</a>). </p> <p>A prolonged state of heightened uncertainty and fear is upsetting for citizens, who want reassurance and predictability in times of crisis (<a href="" target="_blank">Ågerfalk et al., 2020</a>). We posit that informational and institutional resources in a nation are the two key resources that citizens draw upon to counter the uncertainties and fears emanating from the pandemic situation, and to better appreciate the current and future implications of the crisis. Informational resource comprises all the available information to the citizens through government and non-government channels such as Internet, mobile phones, and other forms of technological connectivity (<a href="" target="_blank">Schedler, 2013</a>). Institutional resource, on the other hand, is the institutional and governance framework in a country, which is the second key resource that the citizens use to better assess the meaning of the crisis (<a href="" target="_blank">Shirish et al., 2017</a>). </p> <p>We offer preliminary insights into the national-level technological and institutional determinants of fake news propensity. We identify the informational resource of mobile connectivity in a nation as a potential playground for the spread of COVID-19-related fake news. Instead of providing an informational coping mechanism to the citizens during a crisis, mobile Internet access may aggravate the propagation of fake news. We also find that the institutional resource of political freedom in a nation contributes to fake news propensity. In consonance with past instances of political parties using political freedom to manipulate public opinion by spreading misinformation, political parties and politicians can influence and shape public opinion by spreading fake news. On the contrary, the institutional resource of media and economic freedom guaranteed by the national institutional structures can prevent citizens from becoming the victims or perpetrators of fake news. Summarizing, our results establish the <a href="" target="_blank">key role of mobile connectivity and political freedom in increasing fake news</a> spread in a nation, whereas the economic and media freedom is shown to curb its spread. </p> <p>Governments across the world consider fake news as a socio-technical phenomenon requiring contextualized policy and advice tools to combat its spread. Our findings do underline the need for governments to reflect and reorient their strategies related to mobile Internet connectivity by taking preventive measures to avoid misuse of this potent medium for the spread of misinformation during a crisis. Our study reiterates the need for governments and policymakers to assess the impact of infrastructural technologies in a holistic manner, considering their possible negative effects. It is imperative for governments to understand and develop an effective mobile Internet policy that can provide the right information to the citizens yet arrest the spread of misinformation. This would allow governments to leverage mobile connectivity not only for maintaining public health and citizen protection services, but also for fighting against fake news propensity. We recommend increased government presence on social media platforms, such as Twitter, Facebook, WhatsApp, and Instagram, as this could help in providing credible local content about the pandemic and information on related governmental actions, in real-time to the citizens.</p> <p><strong>Using Nordic Countries as a Model to Strengthen Media and Economic Freedom</strong></p> <p>The second key strategy could be to strengthen media and economic freedom in their countries, which has been shown to contain fake news propensity during the current pandemic. As a crisis preparedness measure, we recommend bolstering government communication strategies that increase media and economic freedom perceptions to arrest uncertainty perceptions from crippling the national peace and prosperity when an exceptional crisis such as COVID-19 strikes. We have seen that prior experience with the SARS outbreak and legitimacy perceptions in governmental agencies acted as a buffering resource to several Asian countries such as Singapore, Japan, and China, which could quickly mobilize their agencies to plan and execute coherent, multi-pronged policies to combat the COVID-19 pandemic compared to many countries in North America and Europe. Similarly, the already existing strong media literacy polices in the Nordic countries such as Finland buffered the citizens from falling prey to fake news consumption and propagation. We thus believe that along with media freedom, governments should make efforts to boost media literacy among its citizens, which should act as a counter-surveillance measure against fake news perpetrators in times of crisis. Educational institutions and the governments should prioritize media literacy so that people become educated to follow authentic news and exercise discretion in what they watch and read.</p> <p>Results from our study indicate that economic freedom as an institutional resource acts as a protective national-level capability that can offer collective resilience against fake news propensity. Hence, from a policy perspective, governments should undertake proactive efforts to build economic freedom perceptions among its citizens as a crisis preparedness measure.</p> <p>Lastly, our results inform the policymakers that fake news propensity, especially in times of crisis, can be a challenge for democratic systems. Hence, there is a pressing need for democratic countries to ensure suitable checks and balances on the spread of fake news by political parties. Countries need to develop politically neutral and federated systems to restrain the menace of fake news. A multi-pronged governmental approach integrating Internet security, proactive citizen communication, citizen digital and media literacy training along with the necessary institutional trust building efforts could perhaps curb fake news from further fueling fear and uncertainty during unprecedented crises situations such as COVID-19.</p> <hr /> <p>Article by Shirish C. Srivastava, based on his research paper, “<a href="" target="_blank">Impact of Mobile Connectivity and Freedom on Fake News Propensity during the COVID-19 Pandemic: A Cross-Country Empirical Examination</a>”, co-authored by Anuragini Shirish of Institut Mines-Télécom Business School, Paris-Saclay University, and Shalini Chandra of SP Jain School of Global Management of Singapore, and published online in the <em>European Journal of Information Systems</em> in February 2021. You can download the full research article <a href="" target="_blank">here</a>. </p> <p><em>This article was <a href="">originally published on [email protected]</a> on April 26, 2021.</em></p>

Addressing Fear in the Workplace: Making Teams Stronger and More Productive in Difficult Times

8 March 2021 • by University of Cape Town Graduate School of Business

<p>Fear is rising in workplaces around the world—both for those working from home and in offices. A recent study shows 63% of South Africans are concerned they may lose their jobs in the next 12 months. Reassuring employees and creating psychological safety at work is one way to support and strengthen teams in these highly uncertain times.</p> <img alt="anxious person" data-entity-type="file" data-entity-uuid="b97aafbe-f290-409c-b265-309291c5b117" src="" class="align-center" width="1200" height="1000" /> <p><em>By Hamieda Parker</em></p> <p>In a busy South African hospital recently, teams of nurses and doctors were given an unusual task—figuring out who could build the tallest freestanding structure out of nothing but sticks of spaghetti and then balance a marshmallow on top. They had 20 minutes to figure it out.</p> <p>These were stressed individuals, not used to working together or communicating this much under normal circumstances, let alone on such a seemingly random task, and they were feeling somewhat tense. But this would soon change. Their manager commented afterward: “My staff all went into it with apprehension and anxiety and fear of the unknown, and all of them without fail came out of it with a different vibe. They just had energy. It changed them. I don’t know how, in less than half an hour, but they definitely came out with a positive outlook.”</p> <p>The marshmallow challenge is a well-known design-thinking challenge used to foster team cohesion and communication. In this instance it formed part of a UCT Graduate School of Business study into how the creation of psychological safety in workplaces can improve team morale and performance. Research has shown that creating a space where people feel safe to voice opinions, make mistakes, and risk ridicule when offering an idea can have a significant effect on teams. Quite simply, an environment of trust and mutual respect is crucial if you want to get things done.</p> <p>Anyone who works with teams will know that building these kinds of safe spaces can be difficult at the best of times. And the challenges of COVID-19 have arguably made it even harder. As workplaces have migrated to virtual platforms, team cohesion has taken a knock. One study has found that up to 45% of people working remotely in teams feel less connected to colleagues due to the COVID-19 pandemic.</p> <p><strong>An Expanded Skill Set Needed for 2021</strong></p> <p>As managers and leaders look toward 2021, they may need to expand their skill sets to include a specific focus on psychological safety, specifically how this pertains to new structures and operations. And a good place to start is to focus on virtual meetings and interactions between colleagues.</p> <p>“Detecting social cues or non-verbal agreement [in virtual meetings] is nearly impossible,” writes Edmondson, author of the book <em>The Fearless Organization: Creating Psychological Safety in the Workplace for Learning, Innovation, and Growth</em>. In a recent article, she notes, “Team members may feel isolated without the natural support of an ally nodding from across the table. And distractions (emails, texts, doorbells, children, pets) are everywhere.”</p> <p>Fortunately, she says, there are simple ways to ensure all voices are heard. Encouraging the hand raise in a virtual meeting, using yes/no answers, and anonymous polls in an online meeting can help elicit responses to perhaps sensitive questions. Creating smaller breakout groups to discuss issues can also be helpful. Team leaders need to familiarize themselves with their meeting tools and use them to their advantage.</p> <p>After a virtual meeting, managers can also reach out to talk to participants who were quiet during the session. There are a host of communication tools—from phone or email to WhatsApp—that can be used to check in and give feedback. The important thing is to keep the lines of communication open and free-flowing—in both directions.</p> <p><strong>The Quality of Interaction is Important</strong></p> <p>One study on Google’s Project Aristotle revealed that the best teams were not more skilled or had smarter people—but did have higher-quality interactions. This can seem problematic for those managing remote teams, but in most cases, it really means getting people to talk more, to be genuine and authentic when communicating with each other, and investing time and effort into finding out how colleagues are doing.</p> <p>Harvard Business School Professor Tsedal Neeley believes communication between colleagues should not go down just because they are working remotely. She notes that scheduled virtual coffee breaks are a great way to communicate and should be done regularly, as if people were at the office. She says, “There’s ample research showing that virtual teams can be completely equal to co-located ones in terms of trust and collaboration.”</p> <p>GitLab, a company that has only remote-working teams with employees in 39 countries, had put virtual coffee breaks in place before COVID-19. CEO Sid Sijbrandij believes that face-to-face interactions are perhaps even more important in a remote environment as they “help prevent potential burnout and isolation.”</p> <p>The investment in developing safe and trusting workspaces, whether remote or otherwise, is undeniably worthwhile. A 2017 Gallup report showed that if organizations improve psychological safety, it could lead to a 12% increase in productivity. A practical example of what this looks like in the real world can be seen in supermarket chain Tesco in the UK, where a cash-out staff member 20 years ago felt confident enough to voice a new idea to a visiting board director—the concept of cash back at the check-out. In the space of only a few months, the supermarket chain saved millions by cutting down on funds sent to banks while increasing customer satisfaction.</p> <p>The UCT GSB hospital study adds to this existing field of knowledge by establishing that not only do performance and team learning behavior significantly improve with psychological safety—but stress and anxiety are also reduced. After the intervention, teams at the hospital communicated better, and staff interacted more freely and felt more engaged and less anxious. This is especially significant, given the current context.</p> <p>As the pandemic continues to cause uncertainty and upheaval in professional as well as personal lives, leaders and mangers can play a key role in helping to reduce anxiety by consciously building more psychologically safe workplaces. This will likely benefit both their individual team members and the organization as a whole and could prove to be a key differentiator in helping to build organizational resilience in these difficult times.</p> <p><em>Dr Hamieda Parker is an associate professor at the UCT GSB. She lectures on the Operations Management and Global Supply Chain Management on the MBA and Postgraduate Diploma in Management Programme. This study draws on a paper co-authored with GSB alumnus Dr. Earle du Plooy. The paper is titled“Team-Based Games: Catalysts for Developing Psychological Safety, Learning, and Performance.”</em></p>

The Luck Bluff

23 October 2020 • by ESMT Berlin

<p>Chance favors the bold, so the saying goes, but often when other systemic factors have cleared the path ahead.</p> <p><em>By Tammi L. Coles</em></p> <p>In his 2005 bestselling book <em>Blink</em>, Canadian journalist Malcolm Gladwell noted a seemingly bizarre fact about his work with Fortune 500 leaders. “In the U.S. population, about 14.5 percent of all men are six feet or taller. Among CEOs of Fortune 500 companies, that number is 58 percent. Even more striking, in the general American population, 3.9 percent of adult men are six foot two or taller. Among my CEO sample, almost a third were six foot two or taller.”</p> <p>Were the fortunes of multibillion-dollar corporations really being left to the luck of the genetic draw?</p> <p>Some ten years ago, <a href="">ESMT Associate Professor Chengwei Liu</a> was undertaking his graduate work in management studies at Cambridge when, by chance, he, too, fell into the path of luck. “When I asked entrepreneurs in the area to explain their successes, they always referred to this idea of luck,” recounted Liu. “They were very lucky at one point in their career, and that enabled their success.” Liu wanted to study the phenomenon more closely but struggled to imagine the practical implications of his research in the real-world business landscape. “What should we tell managers?” he asked, “That they should be lucky?”</p> <p>Still Liu decided luck was worth a closer examination. His research into the impact of luck showed that, one, and somewhat counterintuitively, luck could be studied in systemic ways and, two, that business leaders can strategize with luck. The key, however, is not to pursue luck. “Luck by definition is an unsystematic factor beyond our control or foresight,” said Liu. “So, if we take the definition of luck seriously, there should be no way to get luckier than others, right?” Instead, the power of luck is in using others’ belief in luck to your own advantage.</p> <p><strong>Baseball, before and after Moneyball</strong></p> <p>Last year, the Washington Nationals claimed their championship in the World Series, their first in the Major League Baseball franchise. But well before the Nationals secured its place in baseball lore, the Oakland Athletics—more fondly called the Oakland A’s—changed baseball forever.</p> <p>As the story goes, the A’s had far less to spend on player recruitment than their franchise peers. Rather than accept their down-on-their-luck circumstances, the Athletics general manager, Billy Beane, approached the problem in ways that seemed at least unconventional if not wrong-headed. Rather than relying on talent scouts to trust their instincts in the selection of players, focusing on perceived skills in fielding or batting, the A’s began drafting players with prowess in other areas. Rather than batting averages, they asked how often the hitters were getting to base.</p> <p>The turn to using sabermetrics, the empirical analysis of baseball statistics that measures in-game activity, paid off handsomely for the Athletics. Their high game victories and low payroll payouts set them apart in baseball because, at the time, no other teams were using such statistically driven methods. This all changed with the publication of <em>Moneyball</em> by financial journalist Michael Lewis. The 2003 report on how the A’s had successfully used sabermetrics ripped away the magic veil to reveal the power of analytics. The A’s exploited the biases that other teams had for players with similarities to previous star players and their pursuit of luck—the chance that a scout could “spot a winner.” And what they proved is that even players who don’t have “the look” could win the day on the baseball diamond.</p> <p><strong>The Diamond in the Rough</strong></p> <p>Luck has important implications for business and for society. Should the richest be taxed? In the U.S., belief in the American Dream holds powerful economic sway. Why punish a worker who has made their wealth with the blood, sweat, and tears of hard labor? Don’t they deserve to reap what they have sown?</p> <p>“The conventional wisdom of luck is that if you work harder, you’ll get luckier. But some of my research actually demonstrates that may not always be the case,” said Liu.</p> <p>For the average entrepreneur, skill, effort, and persistence will lead to good product design outcomes and sustainable business models. Chance favors the bold, so the saying goes, but often when other systemic factors have cleared the path ahead. According to a 2005 report by Wojciech Kopczuk and Joseph P. Lupton of the National Bureau of Economic Research, nearly 50 percent of wealth is inherited and not self-made. “These pre-success dynamics means there’s very little we can learn from outlier or exceptional performance,” said Liu. “You can imitate everything Bill Gates did for Microsoft, but you cannot imitate his initial fortune by being born in a rich family or having the connection to the IBM president through his mother. If you imitate Gates or other billionaires, the consequence will likely be systematic disappointment.”</p> <p>Liu’s research into the performance of similar cases of “brilliant randomness” delved into the music industry’s production of stars. Someone with a hit among the top three singles on Billboard would be considered by most people to be a star, worthy of pursuit by the average music producer. What Liu’s research found, however, was that these top artists performed poorly with each subsequent single released—dropping from the top to a mid-range position on Billboard. Those climbing the charts were, by contrast, the musicians who had previously only achieved a modest position.</p> <p>If you’re a producer, instead of focusing on the luck of the stars who landed among the top of the charts, says Liu, invest your bets in the mid-level performers. “They have better future performance and, predictably, they are ignored or underestimated by your rivals.” As with the Oakland A’s, the return on investment is higher where data and analytics—not luck—reveal actual value.</p> <p><em>Chengwei Liu joined ESMT Berlin as an associate professor of strategy and behavioral science in 2019. Liu’s forthcoming book, <a href="" rel="noopener" target="_blank">Luck</a>, will be published by Routledge in December 2020.</em></p> <p>This article <a href="">originally appeared</a> on the ESMT Berlin website.</p>

The COVID-19 Crisis and the Informational Efficiency of the Ghana Stock Exchange

4 August 2020 • by University of Ghana Business School

<p>Scholars at the University of Ghana Business School pinpoint changes that could improve the liquidity and informational efficiency of the Ghana Stock Exchange as the country faces the economic impact of the COVID-19 global pandemic.</p> <p>The COVID-19 crisis that originated in Wuhan, China, has spread across the globe and led to the deaths of thousands of people across the world. At the time of writing, more than 4.34 million people had contracted the virus worldwide with more than 297,200 deaths (World Health Organization, 2020). Through its apocalyptic nature, many economies have seen rising levels of unemployment and losses in revenue for many sectors without any fundamental weakness in their economies. As several companies are shutting down because of the mandatory stay-at-home policies imposed by the countries in which they operate and the disruptions in the supply chain arising from the reliance on intermediate goods from affected regions, global production and trade have already been affected tremendously. Even for the companies that have to continue production because of their involvement with essential commodities, their employees have had to face the difficult choice between shielding their lives or their livelihoods. For many, it appears choosing their lives over their livelihoods makes more sense, as the fear of losing their lives through the pandemic remains a scary prospect.</p> <p>The slowdown in economic activity, coupled with restrictions placed on movement, both locally and internationally, is definitely having a toll on the production and profitability of companies worldwide. Some companies have come close to bankruptcy. For example, Virgin Australia announced that it had gone into voluntary administration due to the halt in flights and the closure of borders across the world. Many other companies are facing dire financial circumstances, particularly those with inadequate liquidity. A number of companies have come to the stock markets to raise capital to bolster their equity and liquidity positions. Further, to conserve liquidity, a number of companies have decided not to pay dividends. In the banking industry, regulators have advised and, in some cases, instructed banks not to pay dividends. In Australia, the Australian Prudential Regulation Authority (APRA) advised banks in Australia to consider not paying dividends to their shareholders. In Ghana, the Bank of Ghana (BOG) took a stronger position by asking banks not to pay dividend to their shareholders. Given the heightened level of uncertainty, a number of companies have also withdrawn their earnings guidance.</p> <p>As events unfold each day, the global financial environment remains uncertain, increasing the risk perception of market participants. Some market participants have shifted their investments from equity and private bond markets to the holding of government bonds, cash, and other safe assets such as gold that seem safer under the current circumstance. Indeed, gold prices have skyrocketed, rising from about $1,500 in January to about $1,700 in April (<a href=""></a>). So far, the outbreak of COVID-19 has had an unprecedented effect on the volatility of several markets. The increased volatility in markets has been picked up by volatility indicators such as the VIX Index (see Figure 1).</p> <p><strong>Figure 1: VIX Index</strong></p> <figure role="group" class="align-center"> <img alt="Source: CBOE ( Retrieved on 27th April 2020" data-entity-type="file" data-entity-uuid="76a5bd21-eb18-4272-9b1c-54528c66d771" src="" width="451" height="299" /> <figcaption>Source: CBOE (<a href="">…</a>). Retrieved on 27th April 2020</figcaption> </figure> <p>The crisis has affected financial markets across the world. Some central banks indicated their willingness or commitment to provide an almost endless supply of money. The governor of the Bank of England, for example, indicated that the bank was willing to print additional money if needed (Sky News, 2020). Central banks have rushed to reduce interest rates and, in some cases, have entered into a negative interest rate territory. In Ghana, the Bank of Ghana reduced its monetary policy rate by 150 basis points. It dropped its benchmark rate from 16% to 14.5% at its last meeting in March 2020. It also reduced the reserve requirements that banks have to hold from 10 to 8%, among other measures (see <a href=""></a>). Central banks have also engaged in unconventional monetary policies such as quantitative easing by buying government bonds in the second markets. This has led to an increase in bond prices and a fall in long-term interest rates. This fall in long-term interest rates is expected to make borrowing cheaper for firms, so that investment activity will not be severely affected. The increased investment by firms is then expected to revive the economy.</p> <p>Further, many governments have also implemented stimulus packages to prevent their economies from sliding into deep recessions. For example, the Trump administration in the United States put in place a stimulus package worth more than $2.7 trillion, which represents more than 11% of GDP (<a href=""></a>). In Australia, stimulus packages covering both expenditure and revenue measures amount to about A$194 billion, representing about 9.9% of GDP (<a href=""></a>). In Ghana, the government has set aside GHc$10.6 billion under the Coronavirus Alleviation Programme to support sectors such as the pharmaceutical industry and small businesses (<a href=""></a>).   </p> <p>Major stock markets across the world have experienced severe declines due to the pandemic. For example, the S&P 500 experienced a loss of 13.10% in March 2020. The S&P 200 in Australia, the FTSE 100 in the U.K, the Nikkei 225 in Japan, the DAX in Germany, the SSE in China, and the CAC 40 in France experienced declines of 21.15%, 14.77%, 9.27%, 17.41%, 5.14%, and 18.83%, respectively, in March 2020. In West Africa, the Ghana Stock Exchange (GSE), the BVRM for the French speaking West African nations, and the Nigeria Stock Exchange (NSE) experienced declines of 2.36%, 9.77%, and 17.49% in March 2020 respectively. Thus, the GSE experienced the lowest decline. This was despite the fact that cases in Ghana outweighed those in Cote D’Ivoire in absolute terms and were similar to that in Nigeria in absolute terms. The cases in Ghana, however, far outweigh those in Nigeria in relative terms, given that Nigeria has a larger population compared to Ghana.</p> <p>Unlike most stock markets across the world, the Ghana Stock Exchange did not experience much volatility. The standard deviation of market returns based on our calculations was only 0.76% between January and April 2020. The GSE seems to be artificially calm compared to the heightened volatility experienced across the major markets. This artificial calm has implications for risk management of financial institutions such as the banks listed on the GSE. Low trading volumes and little movements in the stock prices of these institutions mean that standard deviations, correlations, value at risk (VaR) and expected shortfall (ES) measures will be artificially low. Further, the illiquidity of the market implies that investors would not want to invest in initial public offers (IPOs). This will prevent new firms from listing on the market. Trading and liquidity contribute to market efficiency as has been shown by previous studies (see Chung and Hrazdil, 2010).</p> <p>The GSE never entered into bear territory (a loss of more than 20%) between January and March 2020. Our calculations show that the cumulative daily losses in January, February and March were -1.81%, -0.12%, and -2.34%, respectively. The largest single day decline in the index between January and March was -1.11%. The largest single day gain in the index during the same period was 1.93%. Appendix 1 shows that the GSE Composite index fell by 1.91%, 0.01%, and 2.36% in January, February, and March, respectively. This compares to a return of -0.59%, -8.70%, and -13.10% for the SP 500 in January, February, and March, respectively. Figure 1.1 provides the trend in the GSE Composite Index between May 2019 and April 2020.</p> <p><strong>Figure 2: Movement in the Ghana Stock Exchange (May 2019 – April 2020)</strong></p> <p> </p> <figure role="group" class="align-center"> <img alt="Source: Ghana Stock Exchange" data-entity-type="file" data-entity-uuid="739607cf-a512-4b2f-9784-a909298ceb8e" src="" width="451" height="148" /> <figcaption>Source: Ghana Stock Exchange</figcaption> </figure> <p>In addition, very few trades took place on the GSE between January and March 2020. Specifically, the total volume traded in January, February and March were 53.9 million, 28.7 million and 14.1 million. Interestingly, while trading activity heightened across the world, the opposite was observed on the GSE. Trading activity actually declined over the period. Could it be that the GSE is providing an indication that COVID-19 in Ghana is not as serious as COVID-19 in other countries? The analysis above suggests that this is not the case. Further, assuming that the Ghanaian stock market is efficient, this observation may not be entirely correct as the level of activity observed on the market has been low.</p> <p>The announcement by the Ghanaian president of fiscal measures and social distancing measures (March 16, 2020) to reduce the impact of the virus should have reflected on the market, unless the market believed that the measures were insufficient in which case the market should have probably declined. On this day, there was no change in the market index. Further, the announcement of monetary policy measures (March 18, 2020) such as the decline in the policy rate and reductions in the reserve requirement amongst others should probably have led to an increase in the market index. On the contrary, the market declined on this day. Further, the closure of the Ghanaian borders on the March 23, 2020 is another key event that ordinarily will reflect in stock market activity. The data shows that there was no change in the market index on this day. Finally, stock markets have begun to rise and look beyond the bad economic data being reported in anticipation that lockdown measures will substantially be eased across the world. In Ghana, the President announced the lifting of partial lockdown measures on April 23, 2020. The market rose by about 2.69% on this day. On the whole, it seems that the GSE did not respond to key measures announced during this crisis period. The current analysis, if anything, suggests that there has not been much improvement in the efficiency of the GSE. Indeed, a number of previous studies have shown that the GSE is not efficient (Awiagah and Choi, 2018; Ayentimi and Naa-Idar, 2013; Ntim et al., 2007; Osei, 2002). Figure 3 shows the daily returns on the GSE between January and May 2020.</p> <p><strong>Figure 3: Daily GSE Returns</strong></p> <img alt="Daily GSE Returns" data-entity-type="file" data-entity-uuid="dbb14896-3a5b-43c6-a64d-466d7c000de3" src="" class="align-center" width="451" height="159" /> <p>So, what can be done to make the GSE more efficient? We believe that pension funds have a big role to play in improving the informational efficiency of the stock market in Ghana. Pension funds are custodians of long-term capital and can afford to invest in long-term assets such as stocks given the long-term nature of their liabilities. Unfortunately, it appears that most pension funds invested primarily in short-term money market instruments over the last few years given the high yields (Ghana Business Development Review, 2016). Fortunately, given that interest rates are generally coming down and that there has been a trend toward disinflation, we hope that this provides sufficient incentives for pension funds to rebalance their portfolios towards the capital markets. This should improve the liquidity and informational efficiency of the Ghana Stock Exchange. Further, it will encourage more companies to list on the market to raise capital. We believe that this would lead to further growth and development of the Ghanaian economy as has been shown by the finance and growth literature (see for example Beck et al., 2015; Beck and Levine, 2004; King and Levine, 1993; McKinnon, 1973; Schumpeter, 1912).</p> <p><strong>References</strong></p> <p>Awiagah, R., & Choi, S. S. B. (2018). Predictable or Random?-A Test of the Weak-Form Efficient Market Hypothesis on the Ghana Stock Exchange. Journal of Finance and Economics, 6(6), 213-222.</p> <p>Ayentimi, D. T., Mensah, A. E., & Naa-Idar, F. (2013). Stock market efficiency of Ghana stock exchange: An objective analysis. International Journal of Management, Economics and Social Sciences, 2(2), 54-75.</p> <p>Bank of Ghana. (2020, March 18). NOTICE NO. BG/GOV/SEC/2020/01: Guidance on the Utilisation of Capital and Liquidity Releases to Banks And SDIs. Retrieved from Bank of Ghana: <a href=""></a></p> <p>Beck, T. and Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking and Finance, 28(3):423–442</p> <p>Beck, T., Lu, L., and Yang, R. (2015). Finance and growth for microenterprises: Evidence from rural china. World Development, 67:38–56.</p> <p>Chung, D., & Hrazdil, K. (2010). Liquidity and market efficiency: A large sample study. Journal of Banking & Finance, 34(10), 2346-2357.</p> <p>Ghana Business Development Review. (2016). Ghana Business Development Review. Legon: University of Ghana Business School.</p> <p>King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The quarterly journal of economics, 108(3), 717-737.</p> <p>McKinnon, R. I. (1973). Money and Capital in Economic Development (Washington: Brookings Institute).</p> <p>Ntim, C. G., Opong, K. K., & Danbolt, J. (2007). An emperical re-examination of the weak form efficient markets hypothesis of the Ghana Stock Market using variance-ratios tests. African Finance Journal, 9(2), 1-25.</p> <p>Osei, K. A. (2002). Asset pricing and information efficiency of the Ghana Stock Market. AERC.</p> <p>Schumpeter, J. A. (1912). 1934. The theory of economic development.</p> <p>Sky News. (2020, March 18). Coronavirus: 'Radical' money printing plan being considered by the Bank of England. Retrieved from Sky News: <a href=""></a></p> <p>World Health Organization. (2020, May 5). Coronavirus disease (COVID-19) outbreak situation. Retrieved from World Health Organization: <a href=""></a></p> <p><strong>Appendices</strong></p> <p><strong>Appendix 1: Selected Markets Across the World</strong></p> <table> <tbody> <tr> <td> <p>Market</p> </td> <td colspan="2"> <p>JANUARY</p> </td> <td colspan="2"> <p>FEBRUARY</p> </td> <td colspan="2"> <p>MARCH</p> </td> </tr> <tr> <td> <p> </p> </td> <td> <p>Change in Market Index (%)</p> </td> <td> <p>Change in Market Capitalization ($)</p> </td> <td> <p>Change in Market Index (%)</p> </td> <td> <p>Change in Market Capitalization ($)</p> </td> <td> <p>Change in Market Index (%)</p> </td> <td> <p>Change in Market Capitalization ($)</p> </td> </tr> <tr> <td> <p>SP 500 – U.S</p> </td> <td> <p>-0.59%</p> </td> <td> <p>-0.04T</p> </td> <td> <p>-8.70%</p> </td> <td> <p>-2.25T</p> </td> <td> <p>-13.10%</p> </td> <td> <p>-3.05T</p> </td> </tr> <tr> <td> <p>DJIA – US</p> </td> <td> <p>-1.34%</p> </td> <td> <p> </p> </td> <td> <p>-10.28%</p> </td> <td> <p> </p> </td> <td> <p>-14.35%</p> </td> <td> <p> </p> </td> </tr> <tr> <td> <p>NASDAQ – US</p> </td> <td> <p>1.23%</p> </td> <td> <p>347.51 B </p> </td> <td> <p>-6.78%</p> </td> <td> <p>-887.54 B</p> </td> <td> <p>-11.16%</p> </td> <td> <p>-1.38 T</p> </td> </tr> <tr> <td> <p>SP 200 – Australia</p> </td> <td> <p>4.98%</p> </td> <td> <p>38.92 B</p> </td> <td> <p>-8.21%</p> </td> <td> <p>-120.5</p> </td> <td> <p>-21.15%</p> </td> <td> <p>-278.016 B</p> </td> </tr> <tr> <td> <p>FTSE 100 – UK</p> </td> <td> <p>-4.19%</p> </td> <td> <p>-101.50 B</p> </td> <td> <p>-10.18%</p> </td> <td> <p>-279.90 B</p> </td> <td> <p>-14.77%</p> </td> <td> <p>-412.85 B</p> </td> </tr> <tr> <td> <p>NIKKEI 225 – JAPAN</p> </td> <td> <p>-0.49%</p> </td> <td> <p>-156.93 B</p> </td> <td> <p>-7.57%</p> </td> <td> <p>-717.15 B</p> </td> <td> <p>-9.27%</p> </td> <td> <p>-330.11 B</p> </td> </tr> <tr> <td> <p>Hang Seng – Hong Kong</p> </td> <td> <p>-6.86%</p> </td> <td> <p>-274.44 B</p> </td> <td> <p>-0.23%</p> </td> <td> <p>-25.95 B</p> </td> <td> <p>-9.49%</p> </td> <td> <p>-369.38 B</p> </td> </tr> <tr> <td> <p>Kospi – South Korea</p> </td> <td> <p>-3.73%</p> </td> <td> <p>-39.82 B</p> </td> <td> <p>-4.77%</p> </td> <td> <p>-72.75 B</p> </td> <td> <p>-12.14%</p> </td> <td> <p>-612.38 B</p> </td> </tr> <tr> <td> <p>DAX – Germany</p> </td> <td> <p>-1.90%</p> </td> <td> <p>-40.34 B</p> </td> <td> <p>-8.77%</p> </td> <td> <p>-159.65 B</p> </td> <td> <p>-17.41%</p> </td> <td> <p>-275.11 B</p> </td> </tr> <tr> <td> <p>CAC 40 – France</p> </td> <td> <p>-3.49%</p> </td> <td> <p>-71.70 B</p> </td> <td> <p>-8.80%</p> </td> <td> <p>-207.30 B</p> </td> <td> <p>-18.83%</p> </td> <td> <p>-381.57 B</p> </td> </tr> <tr> <td> <p>SSE  -Shanghai Composite Index (China)</p> </td> <td> <p>-2.93%</p> <p> </p> </td> <td> <p>-121.13 B</p> </td> <td> <p>6.02%</p> <p> </p> </td> <td> <p>-158.37 B</p> </td> <td> <p>-5.14%</p> <p> </p> </td> <td> <p>-213.99 B</p> </td> </tr> <tr> <td> <p>JSE – South Africa</p> </td> <td> <p>-2.99%</p> <p> </p> </td> <td> <p>-16.87B</p> </td> <td> <p>-10.89%</p> <p> </p> </td> <td> <p>-105.40B</p> </td> <td> <p>0.46%</p> <p> </p> </td> <td> <p>-111.97B</p> </td> </tr> <tr> <td> <p>BVRM – French Speaking West Africa</p> </td> <td> <p>-2.98%</p> <p> </p> </td> <td> <p> </p> </td> <td> <p>-4.01%</p> <p> </p> </td> <td> <p> </p> </td> <td> <p>-9.77%</p> <p> </p> </td> <td> <p> </p> </td> </tr> <tr> <td> <p>NSE  - Nigerian Stock Exchange</p> </td> <td> <p>7.35%</p> </td> <td> <p>5.8 B</p> <p> </p> </td> <td> <p>-8.12%</p> </td> <td> <p>-5.9T</p> <p> </p> </td> <td> <p>-17.49%</p> </td> <td> <p>-12 B</p> <p> </p> </td> </tr> <tr> <td> <p>GSE - Ghana Stock Exchange</p> </td> <td> <p>-1.99%</p> <p> </p> </td> <td> <p>-$7.8 million</p> </td> <td> <p>-0.01%</p> <p> </p> </td> <td> <p>-$32 million</p> </td> <td> <p>-2.36%</p> <p> </p> </td> <td> <p>-$50.7 million</p> </td> </tr> </tbody> </table> <p><em>Sources: Yahoo Finance;;</em></p>

The Data Duels of Decision Making

15 July 2020 • by ESMT Berlin

<p>In this interview, Francis de Véricourt, professor of management science at ESMT Berlin, tests the claims of AI superiority to human creativity. Can data-mining machines outperform their human masters? Not in decision making. At least, not for now.</p> <p><strong>Q. You are teaching students about decision science to affect leadership decisions. How well has it been received?</strong></p> <p>A. The research on decision science has become more and more popular. We have learned that when we make decisions, we are subject to what are called decision traps or decision biases—we are making mistakes without being aware of it. Our brain is making inconsistent choices for us—sometimes these are choices against our values or assumptions that contradict each other. The idea, then, is to use math to try to protect ourselves against these decision traps. Mathematical frameworks impose consistencies on our choices, helping us to approach decisions in coherent ways.</p> <p>But that’s not the only approach. You could use a team to constrain your decisions, to de-bias yourself. You have your beliefs but, in a team, someone who has different beliefs can readjust your beliefs or challenge your assumptions.</p> <p>In the same way, you can use math. And you can use other kinds of processes that constrain you to question your assumptions and to be consistent. That’s how I teach it.</p> <p><strong>Q. In a recent interview with Brand Eins, you spoke about the impact of AI and machine learning on decisions. You shared an example from a doctor’s office and the diagnosis of a mole on the skin. How are we achieving this? Is medical science already moving ahead with AI-driven decision making?</strong></p> <p>A. In the medical sphere, there has been success and there has been failure. What seems to be working in machine learning is the diagnostic aspect, not the treatment aspect. IBM, for example, has tried to develop big computers to cure cancer. There is a lot of data but it is not working as well as in diagnostics.</p> <p>There are deeper questions to raise about healthcare and machine learning. Are you giving up your decision making power to a machine that makes a diagnosis or (at some later point) a recommendation for your treatment? The choice for a machine versus a human creates other big questions. Is it ethical? Is it better? When should you do it? Does it mean that future doctors are only going to be there to make you feel good—to be warm and caring—while the treatments will be done by your iPhone or centralized somewhere else?</p> <p>This is a question that will be true for all of us, not just doctors. For me, will it mean students don’t need professors? Will we only provide some coaching sessions? Maybe machine learning will mean they learn in front of their computers. And what about falling in love? Do you need algorithms that match you or do you still need human social networks?</p> <p>The main question that healthcare issues illustrate is “What’s going to be our role as humans?” There’s no going back. What is sure is that machine learning will take over more and more of the tasks that we are doing now, in the same ways that computers took over much of what our parents and grandparents did before. The difference between machine learning and computers, however, is in decisions. Computers helped us with writing, calculations, presentations, and many other tasks. But what is new with the advancement of machine learning is that algorithms and machines are slowly starting to take over some of our most important decisions.</p> <p><strong>Q. Is this because the machine is setting aside some of the biases and focused only on the optimal answer in a way that we humans aren’t capable of?</strong></p> <p>A. A machine is not a living entity. The efficiency of the machine is, in the end, the data not the algorithm. Of course, the algorithm helps. But it is the data on which it is trained that matters more. For instance, we have biases—strong biases—that the machine doesn’t make disappear.</p> <p>For instance, the social biases we have are often captured by the data on which computers are trained. The more data you have and the better quality of your data, the better it’s going to be. But the machine is not going to tell you “these are the best things to do,” rather “this is the conclusion from the massive amount of data I have.” That’s the closest that there is. Why? Nobody knows. The machine does not know. Even the programmer does not know.</p> <p>A great example of that is AlphaGo. Three years ago, this Google/DeepMind machine learning program won against amazing players—Go grandmasters. They use their intuition to play. There is no way to be a Go grandmaster without having deep intuition and creativity. Gameplay is so complex that you cannot program all of the possible moves. Yet Google machine learning beat the best players in the world. Just using data and game simulations, AlphaGo won. The thing is, nobody understands the strategy of this machine. There are no explanations for the underlying strategy—there is none, just the data.</p> <p>Humans still have an advantage, though. Our computing capacity and ability to handle large amounts of data is no match for a computer. Yet we have the ability to use representations, to develop models of problems. We managed to put a man on the moon on almost our first attempt, and we found what we were expecting to find. No big surprises. Yet, we did not have any firsthand data point since nobody had gone there before. We could do that because of our ability to create representational models about how the universe works. A machine would have had to learn by much trial and error and likely killed billions of humans in the same attempt.</p> <p><strong>Q. There’s so much talk these days about data privacy. Concerns about data quality—“garbage in, garbage out”—also undermine public trust in machine learning and artificial intelligence. How do we address this resistance?</strong></p> <p>A. If there’s resistance, it’s also for good reasons. Machine learning is a tool. We use “artificial intelligence” as a metaphor. It makes it seem more alive than it is. But in the end, what matters is what we do with it.</p> <p>There are applications that I find extremely scary – China’s application of facial recognition, for example. You can also cheat the machine – you can use another machine to create a fake image of yourself, to make believe that you are someone else. I think we haven’t even scratched the surface of what is possible, yet.</p> <p>In terms of business models and the economic side of things, data has become gold. As a researcher 15 years ago, you could approach a company, try your best, and have a reasonable chance that they give you some data to work with. In the eyes of the company, they worried a little about what you might find or about data leakage. But then it was “it’s okay, it’s just data.”</p> <p>But, now, it’s much harder to get to the very same data. There is an awareness that data used for research can be used for other purposes. You can use it to make money. Or to learn something that you didn’t know before. The rise of machine data has propelled the notion that any data you have – even if you do not know now what you’re going to do with it—should be stored away in a treasure chest. How do I get the data? How do I protect it? The more data you have, the wealthier you are. Don’t give it away because, who knows, there may be value there that you can exploit or sell later.</p> <p>When we consumers use Google, we give away a lot of our data. If I gave you the dollar value of this data, you might actually realize that the services of Google are particularly prohibitive. Google Maps is in fact extremely expensive because we’re giving up a lot about ourselves.</p> <p><strong>Q. If you move people away from being machine reliant, what’s left? In the AlphaGo situation, you mentioned the role of intuition. Can you develop someone’s trust in their intuition?</strong></p> <p>A. Yes, thank God, you can! [Laughs]</p> <p>The key to develop your intuition is to have unambiguous and immediate feedback about your decisions. And that’s why it’s very hard, in fact, for managers to develop good intuition, despite some of their own beliefs.</p> <p>If you’re an emergency room doctor who sees many, many patients, your decisions have immediate consequences. So you see right away, if you were wrong or if you were right. It’s sometimes ambiguous, but often if you say, “Oh, we need to do XYZ,” and it fails, you have immediate feedback.</p> <p>But let’s say you are a doctor working elsewhere in the same hospital but not in the emergency room. You believe that one of your patients has pneumonia, so you order an X-ray. But then you go home because you are done with your day. In the meantime, someone else was responsible for the care of that patient. You may never even know the result of the X-rays you ordered. Or, if you do get that feedback some days later, you will have forgotten what made you reach the pneumonia conclusion at that time.</p> <p><strong>Q. Are there processes that companies can put in place to create more opportunities for this kind of feedback?</strong></p> <p>A. It is less a definitive process than an approach: we need to be extremely careful not to simply reward outcomes.</p> <p>We tend to evaluate our decisions based on the success or failure of our results. CEOs know that they need to show success, whatever the reasons. The results of the decisions matter more than how you make the decisions. So, if you’re successful in whatever you do, you get your bonus and, with it, the implicit message that you will be rewarded regardless of the why. You may have been successful for all sorts of other reasons than your decisions. It could have been luck, for example. The reward creates the wrong incentive and prevents you from learning from your mistakes in the decision-making process.</p> <p>When we do look, we look at the decisions when something has gone wrong. In a crash, you really want to know what’s going on and, along with it, who is to blame – usually the wrong person. Bad outcomes sometimes force you to go deeper. But with good outcomes, we do not care much. We celebrate and move on. Yet, we may have just been lucky this time and failing to recognize this possibility makes us unduly overconfident for the future.</p> <p><em><a href="">This interview was originally published on EMST.Berlin</a>.</em></p>

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