Lisa Suennen: A Venture Capitalist’s Take on Fixing Health Care

It’s no secret that the United States health care system remains a dysfunctional mess. Despite some improvement since passage of Affordable Care Act, the US spends still spends far more per person than any other wealthy nation in the world and often gets poorer results.

About 13 percent of Americans are still uninsured. Meanwhile, the United States has the lowest average life-expectancy of any wealthy industrialized nation and ranks higher than most on infant mortality, heart disease, diabetes, and a host of other of troubling health indicators.

Is there hope? Lisa Suennen, a veteran health care venture capitalist and author, as well as a lecturer at Berkeley-Haas’s Graduate Program in Health Management, is optimistic.

For all the problems, she argues, health care in the United States offers enormous opportunities at the intersection of business and social impact. For those who want to do well by doing good, she says, health care is at an ideal juncture for improving both efficiency and health care outcomes.

“It won’t be easy, and it won’t be fast,” Suennen cautions. “This requires blowing up a lot of old business models, and nobody is going out quietly. But we have a confluence of trends that we haven’t had before. It’s almost a perfect storm to make some major strides forward.”

The elements of that perfect storm include inexpensive new technologies for monitoring health and delivering care; brutal economic and financial pressures to become more efficient; new knowledge about behavioral economics that can spur people to take better care of their own health; and a set of regulatory changes that encourage better alignment of incentives among the players in the system.

SONY DSC

Suennen knows her subject. Since January, she has been managing partner at Venture Valkyrie Consulting, which advises corporations and institutional investors in areas such as digital health care strategy, health technology innovation and new business models for delivering healthcare.

From 1998 through the end of 2013, she was a co-founder and general partner of Psilos Group Managers, a health-care venture capital firm with $600 million under management. Earlier in her career, Suennen spent almost a decade as a top executive at Merit Behavioral Healthcare, a firm that specialized in behavioral healthcare insurance, and helped it grow from a start-up to a firm with 35 million beneficiaries and $800 million in revenue.

Suennen is a prolific and often acerbic author and commentator on the challenges facing health care. She is the co-author, with Dr. David Shaywitz, of Tech Tonics: Can Passionate Entrepreneurs Health Health Care with Technology? She also writes a blog called Venture Valkyrie. Among her recent posts: Digital Health: What the Hell?, The eHarmonizing of Healthcare, and one about the similarities between venture capital and Las Vegas.

In August, a health care website named Suennen one of 15 “disruptive women in health care” to watch over the next year.

Suennen sees several areas of opportunity. The first is in new outpatient technology, such as biosensors, that make it possible to remotely monitor a patient’s health, analyze the effectiveness of medications, and even improve the delivery of medications. The new technologies can reduce costs, improve understanding of what works for individuals, and produce better outcomes.

Another big arena is finance and payments: tying payments more closely to health care outcomes, increasing transparency in prices, and creating a marketplace for services that is simpler, easier to navigate, and more financially rational.

“Shopping for health care should be much more like shopping on Amazon,” Suennen suggests. “Can you imagine if you went online to Amazon for a book, but didn’t know where to look for what you wanted, couldn’t figure out the price, didn’t know what the return policy was – and it was expensive on top of all that? You probably wouldn’t come back. But people face that at hospitals and with insurers, and yet come back again and again.”

Better models are on their way. Suennen is on the board of PokitDok, a venture-backed healthcare information technology firm that not only helps people search for specific health care services but allows them to get firm price quotes. It can even sort out insurance benefits and arrange payments. Walgreen’s, the retail chain, offers clinics in stores that feature a wealth of basic services and easy-to-read price lists.

Another form of innovation comes from Big White Wall, a company based in the United Kingdom that provides a new way for people to seek out mental health care, peer support, and reliable information, without stigma and with far less confusion than most people experience today.

“People seeking healthcare services deserve a good consumer experience,’’ says Suennen. “They want to find options easily. They want to know if a doctor is practicing the current state of the art. They want reasonable and reliable measures of quality and price. They want to be treated with respect and like valued customers.”

Suennen has mixed emotions about the Affordable Care Act (ACA), noting that it falls far short of its intended goal of providing universal health care – the norm in almost every other wealthy industrialized nation. “It’s well-intentioned and the goals are right, but the execution has been rough at best.”

Despite the flaws, however, she says the ACA has created an accelerant to enable for-profit businesses and entrepreneurs to produce big improvements and make money at the same time.

“The opportunities are there and many are trying hard to capitalize on them,” Suennen says. “It is a time of prolific and much-needed healthcare innovation.”

A Big Year Ahead for the Institute

By Laura Tyson

Greetings to all as we begin a new academic year at the Berkeley-Haas Institute for Business and Social Impact.

There are many exciting developments to share with the IBSI community.

*New leaders at two pillars of the Institute – Robert Strand at the Center for Responsible Business and Ben Mangan at the Center for Nonprofit and Public Leadership

*New initiatives in social entrepreneurship

*A seven-week speaker series this fall that features innovators and thought leaders at the cutting edge of business and social impact

It’s a very busy time. Let me start by welcoming two highly accomplished new leaders.

Ben ManganBen Mangan, Executive Director of the Center for Nonprofit and Public Leadership

Ben is a social entrepreneur in his own right, a popular lecturer at the Center for Nonprofit and Public Leadership, and a regular commentator for Huffington Post, SFGate, LinkedIN, and other outlets.

Ben is the co-founder and former chief executive of EARN, a thriving nonprofit organization that offers matching contributions, guidance and innovative technology to help low-wage workers build savings for the future. Since its launch in 2002, EARN has helped thousands of people save millions of dollars for education, first homes and even start-up micro-businesses. EARN’s innovation and success has attracted much national media attention, including from Forbes, the Los Angeles Times, and National Public Radio.

Having grown up poor himself, Ben brings passion and urgency to developing opportunities for those not born into affluence. As he warned at the Clinton Global Initiative America’s 2012 conference, too many Americans “remain on a treadmill of sorts, working harder and harder but not going anywhere economically.”

Earlier in his career, Ben was director of organizational strategy for Breeze.com, an international micropayments company.   Before that, he was the Midwest Practice Leader for Ernst & Young’s Public-Private Development Group in Chicago. Since 2011, Ben has won rave reviews for his classes on nonprofit leadership.   He succeeds Nora Silver, CNPL’s founding executive director, who stepped down after 11 years to focus fulltime on teaching and research.

As Nora herself remarked, “Given his clear passion for working with students, his deep experience with social enterprise, and his love of teaching, Ben is exactly what we sought.”

Robert StrandRobert Strand, Executive Director of the Center for Responsible Business

Robert, who comes to us from the Copenhagen Business School in Denmark, has deep experience as both a business executive and an academic in the areas of corporate social responsibility (CSR) and sustainable business.   He succeeds Jo Mackness, who had led the center since 2008 and was promoted this year to chief operating officer of Berkeley-Haas.

Born and raised in Wisconsin, Robert earned an MBA at the University of Minnesota and worked for more than a decade at IBM and Boston Scientific. Upon becoming a Fulbright Scholar to Norway, Robert became immersed in the study of corporate social responsibility across Scandinavia and went on to earn a Ph.D. at Copenhagen Business School.

For the past five years, Robert was Assistant Professor of Leadership and Sustainability at Copenhagen’s Centre for Corporate Social Responsibility. He was also director of the Nordic Network for Sustainability.

Robert’s work focuses on the strategic aspects of CSR and corporate ethics – topics at the heart of our own center’s mission – and on comparisons between U.S. and Scandinavian approaches. He is a frequent contributor to both peer-reviewed academic journals and major newspapers such as the Financial Times.

Robert is naturally in sync with Berkeley-Haas’s defining principles – especially thinking beyond yourself and questioning the status quo. He is passionate about redefining business leadership to encompass a broad engagement with stakeholders, and he is convinced that Haas is ideally positioned to lead the way.

“Haas has the opportunity to take a global leadership position to radically redefine the dominant narrative of business,’’ he said in an interview with Christina Meinberg of the Center for Responsible Business.

I couldn’t agree more.

New Initiative: Social Lean LaunchPad

Berkeley-Haas has a rich tradition in social entrepreneurship — our students have founded many pioneering social ventures over the years, from Fair Trade USA and World of Good to Revolution Foods.

This year we are building on this tradition with the introduction of a new course—the Social Lean LaunchPad—that applies nationally recognized lean launch principles and techniques in entrepreneurship to mission-driven social enterprises. The coursem developed by Jorge Calderon, will train entrepreneurs who want to tackle social and environmental problems with innovative, scalable, market-based solutions.

Like the original Lean Launch framework, the Social Lean approach avoids the focus on traditional, detailed business plans. Aspiring entrepreneurs prepare one-page business models – a Lean Canvas – and then systematically test and revise their models through feedback from potential customers, beneficiaries, outside experts, and other stakeholders.

The Social Lean framework adds three new knowledge elements: social venture design; the social entrepreneurial mindset; and social venture management.

Taught by Jorge Calderon and William Rosenzweig, the course will guide interdisciplinary teams of students from concept prioritization through social venture design and launch preparation.

The goal is for students to develop scalable solutions to complex social or environmental problems, to acquire a strong grasp of best practices, and to appreciate the complexity and the rewards of launching social ventures.

The Global Social Venture Competition

Now entering its 16th year, the Global Social Venture Competition is a world-wide student-led competition to discover and reward path-bending new social ventures. Coordinated by Berkeley-Haas, which hosts the final round of the competition each spring, the GSVC provides mentoring, exposure and $50,000 in prize money.

In 2014, the competition attracted nearly 600 entries from 50 nations.   The winner was Sampurn(e)arth of India, which develops profitable and environmentally sustainable strategies for recycling solid waste.

This year, the GSVC Haas team is beginning a two-year effort to refine and revise the competition process. In line with the Lean Launch approach, GSVC at Haas is moving away from business plans to shorter “pitch decks” that are similar to what real-life entrepreneurs present to potential investors.   As part of that change, the GSVC leaders at Haas want to help other teams refine and revise their plans over the course of the year.

This is a complex transition, in part because the structured Lean Launch process requires more mentoring and work at the regional and local levels. The Haas GSVC team works with 17 universities around the world to identify the finalists who travel to Berkeley each spring.

As has been the case since it began in 1999, GSVC remains a student-led event. The Lester Center, IBSI and a dedicated Advisory Board help the students attract financial sponsors, coordinate with regional partners, line up mentors and judges, and organize the final two-day competition.

Incorporating the Social Lean tools and methodologies in the GSVC, we can help social innovators develop even sharper and bolder ideas in the years ahead. Look out!

The Social Impact Speaker Series

Working with a student team in charge of the Social Sector Speakers’ Series, IBSI will host seven panels this fall that will highlight the many alternative pathways to careers with social impact. The series is an opportunity for students to learn about the possibilities as well to network with others in the Haas community who share their interests.

I will launch the series this Thursday, Aug. 28, with an introduction to the faculty, staff and programs in social impact at the Haas School.

In the subsequent weeks, panels will feature practitioners of corporate social responsibility programs at companies such as Google and Levi Strauss; a broad variety of social impact investors; and entrepreneurs who have started social ventures in sustainable foods and wellness.

Click HERE for the schedule.

All of these initiatives, along with others still to be announced, will further secure Berkeley-Haas’s position as national leader at the intersection of business and social impact. Stay tuned.

 

Appreciation: Priya Haji, Champion of “Inspired Competition”

The world of social entrepreneurship, and all those who believe in redefining business, lost a pioneer this summer.

Priya Haji photo
Priya Haji, a Berkeley-Haas graduate who launched no fewer than five thriving social enterprises, died unexpectedly in July of an apparent pulmonary embolism. She was 44, the mother of two children, and the CEO of her most recent venture – SaveUP, Inc.

“She was the best social entrepreneur of our generation – that’s who we lost,’’ said Van Jones, the long-time environmental and human rights advocate, and a formidable social entrepreneur himself, who spoke at a Haas memorial for Priya. “Nobody even comes close.”

Priya was a force of nature who found new ways to tap the power of markets and entrepreneurship in addressing difficult social problems. Her ventures provided health care for the poor in Texas; treatment for alcohol and drug addiction in East Palo Alto; market access to craftspeople in low-income countries; and help for Americans with crippling personal debt.

Beyond the organizations she created, which are still strong, she left a major legacy in the models she honed for what she called “inspired competition.”

“What if you could have a profit-making business that drives itself and is actually creating good in the process?” she asked the audience at a TED talk in 2011. “Is that possible? Can we even do that?”

The answer was yes. Three things were key, she argued: building up a market of informed and socially aware consumers; delivering entrepreneurial products; and providing clear standards for ethical labor and environmental practices. With those elements in place, she argued, more and more for-profit companies would see social responsibility and sustainable business as part of their competitive strategies.

Priya started her career early.

At 16, she helped her father, a family doctor, open a free health clinic in their hometown of Bryan, Texas. As a 21-year-old undergraduate at Stanford University, she co-founded Free at Last, an addiction treatment center in East Palo Alto. That center combined a community-based approach with long-term programs, including for housing and training, to help addicts rebuild their lives. It was a sharp break from the conventional wisdom, which held that the key to treatment was in taking people out of their communities and the problems that came with them.

Today, the center is recognized for helping reduce both drug addiction and crime in East Palo Alto, and it has become a national model for treatment.

“The best thing about being 21 is that you don’t know that something is impossible,” Priya recounted in 2011. “We had an idea that, in a community of African-Americans and Latinos, the community’s own members could heal itself. When you think you see the problem differently and you see a solution, and you just go for it, what we ended up building became a national model program.”

In 2001, Priya came to Berkeley-Haas for an MBA, explaining that she wanted to develop the skills to scale up new strategies and organizations for bringing about constructive change.

In 2004, one year after graduating from Berkeley-Haas, she co-founded World of Good, an online marketplace in partnership with eBay that connects artisans in low-income developing nations with retailers and consumers in the United States. The venture has lifted incomes for tens of thousands of craftspeople in more than 70 countries, especially producers who are certified as paying livable wages and employing sustainable environmental practices. In 2010, eBay acquired World of Good.

In 2011, Priya launched SaveUP, a website and personal-finance app that offers rewards and prizes to people who build up savings or reduce debt. Each time customers reduces their debt, for example, they get credits that they can use to enter contests or lotteries that offer prizes. In its first two years, the company estimates, it has helped Americans pay down $856 million in debt and build up $1.2 billion in savings.

Anyone who knew Priya remembers her for her passion, audacity, determination, and pragmatic brilliance. She embodied all of Berkeley-Haas’s defining principles: Beyond Yourself; Question the Status Quo; Confidence Without Attitude; and Always a Student. Just a few months before she died, Priya came back to Haas to participate in an “all-star” panel at the annual Global Social Venture Competition.

We at the Institute for Business and Social Impact join many others in mourning the loss of Priya.

But we also recognize that she greatly advanced our understanding about new strategies for addressing the world’s difficult challenges. We will be learning from her for years to come.

Perception and Reality: Why Women are More at Risk of Being Duped in Business

Do gender stereotypes about female gullibility make women more likely to be deceived in business negotiations? New research, led by Laura Kray of Berkeley-Haas, indicates that the answer is yes.


The paper is based on a trio of empirical studies of gender perceptions in negotiations that involved car sales, antique furniture, and real estate.

Among the findings:

*Women are likely to be seen as less competent than men at negotiation and as less likely to scrutinize a deal for signs of deception.

*Though women are more conditioned than men to display warmth and kindness, being perceived as “nice” isn’t a major liability in negotiations. In fact, negotiators who perceive their counterparts as warm are more likely to raise their ethical standards.

*The mere perception that women are more gullible exposes them to more deception in reality. Though it’s not clear that women actually are easier to mislead, the perception itself prompts more of their counterparts in negotiations to make misleading and even blatantly false claims. As a result, women are deceived more often than men.

Kray co-authored the paper with Alex B. Van Zant, a Ph.D. candidate at Berkeley-Haas, and Jessica A. Kennedy, a Ph.D. graduate of Berkeley-Haas and now an assistant professor at Vanderbilt University.

The first study measured gender stereotypes in the context of buying and selling cars. The study entailed 131 men and women at a marketing research firm, all of whom were asked to imagine themselves trying to sell a car. They were also asked whether they saw women or men as easier to mislead, and whether it was easier to mislead people who displayed warmth or competence.

The respondents, men and women alike, gave men the edge in spotting deception. Kray and her colleagues then tried to dissect the characteristics that fuel those stereotypes. The participants expected men to communicate more business competence, and they expected this perception to work in men’s favor during negotiations.

By contrast, participants expected women to display warmth and kindness – but they did NOT think the display of warmth necessarily implies more gullibility.

“The perception of being nice is less of a liability in a potentially deceptive situation than is appearing incompetent,’’ the researchers concluded.

In a second study, participants were asked to imagine themselves trying to sell an expensive antique chair that had a damaged leg. The participants were told that the damage had been concealed by a temporary fix, but that the leg would wobble as soon as the chair was used. The participants predicted that female buyers would be less likely than males to scrutinize the chair for such a defect, and they predicted that sellers were more likely to lower their ethical standards with buyers perceived to be incompetent.

In the third study, drawing an exercise involving nearly 300 MBA students, participants were paired up in the roles of real estate agents on opposite site of property sale. The selling agents were under instructions to sell the property to a buyer with a “tasteful” and preferably residential purpose. The buy-side agent, however, was representing a person who wanted to build a high-rise hotel.

The students acting as the buyers’ agents were given three options. They could be honest, saying they were not allowed to discuss their client’s intentions – which would raise obvious suspicions. They could be vague or ambiguous about the meaning of words like “residential.” Or they could outright lie.

Two independent judges coded the responses on a five-point scale of deceptiveness. Most of the buy-side agents gave responses that were in the middle-range — vague or ambiguous. But the relatively small percentage of people who blatantly lied were significantly more likely to lie if their counterparts were female. And people who gave the most honest answer were more likely to do so if their counterpart was a man.

This gender bias in deception patterns was also evident in self-reported lie admissions: buyers admitted lying more to women than they did to men.

“We found that women’s disproportionate exposure to deception lured them into more deals under false pretenses than men,” Kray and her colleagues write.

The researchers note that the women in that last study weren’t any more honest than the men. Women and men both seemed to share the perception that women were easier to mislead – and they were both more likely to seize the opportunity.

The researchers caution that the studies don’t prove that women are in truth more gullible than men. Rather, they show that the perception of women’s gullibility generates more attempts to mislead them. It’s still an open question as to whether women would prove better or worse at ferreting out deception if they were deceived at the same rate as men.

Either way, however, gender stereotypes about low competence and high gullibility have a pernicious effect on women. Women are more likely than men to experience deception in face-to-face negotiations, and they are more likely than men to be lured into deals under false pretenses.

How Mark Zuckerberg Can Help the Bay Area’s Poorest Schools

By Kristiana Raube

Wicked public challenges, such as providing high-quality education or breaking the cycle of poverty, require collaboration between all sectors – government, philanthropists, for-profit businesses, and the communities themselves.

But harnessing all those elements is harder than it sounds, even when you have a dedicated source of funding for an ambitious new effort.

The Bay Area is about to become a laboratory for exactly this kind of opportunity and challenge. Mark Zuckerberg, the founder of Facebook, has pledged $120 million over five years to revitalize public schools in several of this region’s most underserved communities.

Public Schools California

It’s a courageous and praiseworthy move by Zuckerberg and his wife, Priscilla Chan. Unfortunately, as they themselves know first-hand, money and good intentions do not guarantee success. Since 2010, the couple has pumped $100 million into an attempt to radically revamp the schools of Newark, N.J.

But as the New Yorker magazine reported in May, that effort has produced a lot of conflict and local criticism without – at least so far – significant improvements in educational outcomes.

It’s wrong to dismiss the Newark effort as a failure. Impoverished school districts face a complex tangle of challenges, from budget woes to social turmoil. There are no simple solutions, and almost any proposed reform will spark conflict. Even if a reform is exactly what a school district might need, it still takes years to produce a measurable improvement in overall student performance.

But since Zuckerberg and Chan are taking a second bite of the apple, it’s important to reflect on the lessons so far about the interplay between private and public efforts in solving public problems. This is a precious opportunity, but it’s an easy one to fritter away.

As Zuckerberg and Chan themselves have remarked, even $120 million is a “drop in the bucket.” The Oakland school district’s annual school budget alone is more than $1 billion.

The real opportunity here is for innovation, for testing promising ideas and building on the results.

Governments have the scale to reach the entire public, but they are inherently risk-averse and weak on innovation. Philanthropists like Zuckerberg and Chan have more freedom, and can play a role similar to that of venture capitalists. They can provide seed funding for new strategies, and accept the risk that many of their projects will not work out as hoped. If a project does produce measurable benefits, however, it offers a template that countless other school districts to replicate at much less risk than if they had started out from scratch.

If Newark showed one thing, it was the dangers of over-confidence. Then-mayor Cory Booker declared at the outset that “we know what works.”

That should have been a red flag. No matter how good an idea might be, it’s dangerous to impose it from the top down. It’s crucial to listen to people in the community – parents, teachers, local community leaders. If people in the community feel that a reform is being imposed on them from outside, even great ideas will either be blocked at the outset or wither and die from apathy. Even altruistic reformers can provoke powerful resentment among parents and educator.

It’s important to remember that parents, teachers and local community leaders have crucial knowledge. They are the ones on the front lines, and they understand the nuances of the challenges in a particular neighborhood or school. These are also the people who have the highest stakes in their schools, and they will be around long after the philanthropic money has been spent.

To their credit, Zuckerberg and Chan are thinking along these lines. In a column for the San Jose Mercury News, they emphasized the importance of “listening to the needs of local educators and community leaders so that understand the needs of students that others miss.” They also seem to be targeting modest goals: grants to provide more computers and connectivity; teacher training; leadership training for principals; programs to ease the transition between middle and high school.

All this is good. Ironically, however, the new risk may be excessive humility.

If Zuckerberg and Chan’s foundation, Startup:Education, simply supports a wish-list from local school administrators, it’s easy to imagine their money being frittered away with almost nothing to show at the end.

There is no shortage of genuine bread-and-butter needs. California ranks almost dead last among the nation’s 50 states in per-capita spending on public schools. Schools need everything from computers and books to lab equipment and teachers’ aides.

Those aren’t problems that philanthropists can solve with a one-shot injection of money. They require ongoing funding from local, state and federal taxpayers. “Philanthropy is no substitute for government funding. You can’t say that loud enough,” Robert W. Conn, president of the Kavli Foundation, told the New York Times.

What philanthropists can and should be doing is underwriting innovation and bold ideas. Today’s schools still tend to be based on assumptions about the workplace of the 1950’s and 1960’s rather on than today’s hyper-connected and fast-changing information economy. Educators themselves need training to keep up and catch up with the changing nature of work itself.

We are all groping for answers, especially for students who wrestle with huge social and financial obstacles in their day-to-day lives. But that isn’t a reason to think small. It’s a reason to focus on the big questions, try bold ideas that schools can’t or won’t try themselves, measure the results, and learn from both the successes and failures.

Over the long-term, those are the kinds of investments that will really pay off.

How Our “Better Angels” Can Affect Economic Decisions

By Ernesto Dal Bó

Do moral ideas have power? We would like to think so. We all appeal to certain actions being “right” as a way to justify why we want certain things done. And implicitly, we expect those moral appeals  to carry force, to disarm opposition, to persuade, and to drive changes in the concrete world of policy, conflict, jobs, and money.

The ubiquitous nature of moral appeals can be puzzling to an economist: We have traditionally assumed that we live in a material world, and that material incentives are the most powerful driver of actions.

That said, behavioral economics and the exploration of non-material motivations have taught us much over the past two decades. Economists now accept the fact that individuals can be altruistic, and that they are sensitive to the intentions and motivations of those with whom they interact. We have learned that we are highly social animals: We care strongly about what others do, and we are reluctant to fall out of line.

Experiments in psychology and economics have shown that it is possible to affect behavior by indicating that a particular action is popular. For example, hotels have found that a good way to save money on laundry is to get customers to re-use their towels, and an effective way of achieving this is to tell customers that the vast majority of other customers re-use their towels.

But manipulating beliefs about what “the majority does” appeals to a herd mentality, which can often lead people to immoral acts. To me and my brother Pedro Dal Bó, an economist at Brown University, it seemed crucial to learn whether strictly moral ideas can be used to affect behavior. Could we prove that pure moral suasion, which is so widely attempted, actually works? And could we do this by invoking unadulterated ethical principles, devoid of any herd mentality or social components?

For me, this was a personal question. Every spring, I teach Ethics to nearly 240 Berkeley-Haas MBA students. If ethical discourse has no impact on behavior, why train people to think and express clear moral ideas?
As strange as it may sound, a rigorous, experimental investigation of the power of strictly moral ideas to affect behavior had never been conducted. My brother and I performed a series of experiments in Berkeley’s XLab, the results of which we recently published in the Journal of Public Economics.

In our experiments, subjects played games where everyone did better when individuals cooperated but each person had a material incentive to withdraw cooperation for the sake of individual profit. Individuals got to interact a total of 20 times. Halfway through their play, some people were randomly “treated,” as in a clinical trial, with moral messages. One message was based on the Golden Rule, that you should treat others as you would want others to treat you. Another was based on the utilitarian principle that an action is moral if it benefits the overall group. Other subjects were treated with different, non-moral messages.

We found something a hard core economist should find surprising: Compared to non-moral messages, the “immaterial” moral messages made people more cooperative… but only for a while. On its own, the moral appeal lost much of its impact as the game went on. But that changed when the game allowed players to punish those who had been uncooperative. Under the punishment option, people could reduce the returns to people who cooperated very little. When that option was available, moral suasion worked permanently. In other words, we found a powerful interactive effect between a very material element of punishment and the very non-material element of moral sensibility.

We then investigated the mechanisms behind the moral suasion effect. It’s possible that exposure to moral ideas makes us more cooperative, regardless of what others do. Another possibility is that moral suasion leads us to expect better behavior from others, and we become more cooperative because we want to be “closer to the pack.”

With two additional experiments, we demonstrated the presence of both effects. Moral suasion does change our preferences, but it is much more powerful when people know that others are getting the same message. This implies the existence of a “moral social multiplier.”

These findings have important implications for the management of organizations: Moral discourse can be an effective way to promote cooperation, especially when everyone knows that shirkers can be punished and that everyone got the memo.

The more general takeaway is that moral ideas can be wielded to affect material outcomes. In a recent book, Steven Pinker claims that what President Lincoln called “the better angels of our nature” have played a gradual role in making the world a less violent place. Our findings suggest that we can talk to those better angels and put them to work for the common good.

Berkeley-Haas Takes Stock of Its Broader Mission

It’s no secret that one of Berkeley-Haas’s defining characteristics is its emphasis on placing business in the larger context of social and environmental responsibility.

The school’s four defining principles, starting with “Question the Status Quo” and “Beyond Yourself,” are imbued with the idea of redefining business leadership and looking for ways to alter the trajectory of trends that are increasingly unsustainable.

But the range of programs and activities tied to that broader mission is so wide that even people immersed in the Berkeley-Haas community have only a fragmentary sense of what’s happening or who is driving it.

The Institute for Business and Social Impact — which includes the Center for Responsible Business, the Center for Nonprofit Leadership and Management, the Graduate Program in Health, and the Global Social Venture Competition – is a big part of that effort.

But the broader mission to spur “path-bending” leadership permeates every corner of the school. It is embedded in the core curriculum as well in electives and our experiential courses in applied innovation. It is a major focal point of research, in areas as diverse as clean technology, sustainable business products, social entrepreneurship, and poverty reduction. It is part of a constant dialogue that occurs through conferences, speakers series, published research business-plan competitions and student-run activities.

Now there is more complete picture. Earlier this month, the school submitted a comprehensive report on its efforts to carry out the United Nations Principles on Responsible Management Education – or PRME.

Under PRME, business schools around the world have pledged to promote and advance principles aimed at developing leaders and strategies to address urgent global problems, from climate change to entrenched poverty. Business schools that sign on to the PRME principles are required to document their progress, as well as the work they believe still needs to done, every two years. Berkeley-Haas signed on in 2012, and this is its first report.

The new report is packed with information, starting with a description of how the school’s defining principles and values shape admissions, the curriculum, research and student activity.

As the report makes clear, this is both a top-down and a bottom-up effort. Berkeley-Haas has a long tradition of social sector innovation and the development of new strategies to harness the power of markets toward a more sustainable future.

“We see it as our responsibility to equip each student with the tools and the mindset to become an innovative leader and to make that difference, one at a time,’’ writes Dean Richard Lyons in an introductory message. “We have codified a culture that values questioning the status quo and becoming stewards of something larger than ourselves.”

The report notes that Berkeley-Haas both requires and enables business students to assume their broader responsibilities. The curriculum includes required courses on ethics, for example, as well as a vast array of electives and courses in applied innovation. But students themselves play a leading role through dozens of student-run organizations. The annual Global Social Venture Competition, in which social-enterprise start-ups from dozens of countries compete for $50,000 in awards, is one of many such efforts.

That is just the tip of the iceberg. Berkeley-Haas is a hub for public-private partnerships in clean technologies; cutting-edge research on new strategies for poverty reduction and health care; new studies on the role of women in business; and new ways to challenge conventional wisdom.

The report cautions that this remains a work in progress, and it outlines objectives for the years ahead. But it leaves no doubt that the defining principle of “beyond yourself” is deeply and permanently embedded in the Berkeley-Haas DNA.

Laura Tyson: The Government as Venture Capitalist

The American public’s attitude toward government, writes Laura Tyson in a new column for Project Syndicate, recalls a classic scene in Monty Python’s “Life of Brian.”

“What have they ever given us in return?” fulminates John Cleese, playing a Judean revolutionary. “The aqueduct,” concedes a sheepish co-conspirator. “And sanitation,” says a second, as others pipe up with more examples.

“All right,” Cleese erupts in exasperation. “But apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, the fresh-water system, and public health, what have the Romans ever done for us?”

The scene captures America’s cantankerous and contradictory zeitgeist. On one hand, public trust in government is at an all-time low. On the other hand, Americans are deeply frustrated with gaping holes in health care, education, equality of opportunity, infrastructure, and environmental protection – goods and services traditionally provided by government.

How to unlock solutions?

Tyson cautions that the blanket distrust of government is misplaced. Like it or not, she writes, the reality is that there really are “public goods’’ – health care, universal education, infrastructure, security – that neither the marketplace nor the nonprofit sector can provide on its own. The United States has seen a surge ambitious private activity, such as billion-dollar efforts by non-profits like the Bill and Melinda Gates Foundation and Bloomberg Philanthropies, to address social problems. These new efforts also include social-enterprise start-ups and impact-investing platforms that seek both social and financial returns.

But while these private and nonprofit initiatives generate crucial innovation, Tyson writes, only government has the resources to implement the best strategies on an national scale.

One answer, Tyson argues, is to put the government in the role of venture capitalist. Its task would be less to design and implement top-down programs than to solicit, support, evaluate and scale up successful strategies developed by state and local governments, businesses and non-profits. Tyson cites a growing number of examples of how this is already happening.

The US Department of Education’s Race to the Top Fund spurred local school innovation by offering $4 billion in grants to districts that developed the most successful reforms. The federal government also operates Challenge.gov, an Internet platform to facilitate new prize competitions aimed at solving complex problems. After the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, the Obama administration teamed up with the X-Prize Foundation to offer a $1.4 million prize to the group that produced the most efficient oil-recovery solution. The winning approach was three times as efficient as the industry’s previous best rate. Since 2011, some 50 public agencies have sponsored more than 260 challenges over Challenge.gov.

Federal, state and local government agencies are also turning to “pay for performance” contracts, sometimes known as social-impact bonds. In a social-impact bond, the government contracts with an outside provider to achieve a measurable social goal (like reducing recidivism among juvenile offenders), and private impact investors finance the program’s upfront costs. The government promises a return to investors if the program’s targets are achieved. The key idea is that the government acts as a catalyst for new ideas and then helps scale up the strategies that demonstrate real results.

With the government acting as a venture capitalist, the private sector can create effective new programs to address social problems. But scaling up good programs will require government resources. The Gates Foundation may devise breakthrough innovations for public schools; but, even with its billions of dollars, it lacks the resources to revitalize education at the national or even the state level. As former New York City Mayor Michael Bloomberg recently observed, philanthropists should test innovative policy ideas and then rely on government money to implement them widely.

Only governments can provide public goods and address social challenges on a national scale. But there are numerous ways in which governments can work with non-profits, investors, businesses, and citizens to find the best ways to achieve these goals – and thus restore public trust in government itself.

Prize-Driven Innovation Gets a New Push From an Unexpected Sponsor

By Paul Jansen

Prize competitions for innovation have a long history of producing beneficial change – from the 18th-century Longitude Prize, which enabled more accurate transoceanic navigation, to Napoleon’s food preservation prize that led to long shelf-life canned foods, and the Braent Prize that produced a cure for cholera. But as the use of patents and research grants grew, prizes became more peripheral to innovation.

Today, however, prize competitions are booming again – and government is embracing them to better tap the creativity and skills of the public at large.

In 2009, a team from McKinsey took a fresh look at whether prizes still had relevance as a tool to drive social change and innovation. You can read our report here. We discovered a thriving ecosystem of organizations that used incentive prizes to drive innovation by tapping the power of the crowd to solve tough problems. These organizations, be they nonprofits like the XPrize Foundation or for-profits like Innocentive or Netflix, embraced incentive prizes for the simple reason that they work. That’s because, almost by definition, prizes pay only for desired results rather than for noble but unsuccessful attempts. The power of prizes to stimulate innovation comes from their ability to mobilize resources, intellectual as well as financial, and their power to draw attention that can influence the perceptions and actions of targeted communities.

Government agencies played a role in all this, but it was still limited at the time of our report. Our research showed about 17% of new prize capital from 2000 to 2007 came from government sponsors. But it was the signing of the America Competes Reauthorization Act in 2010, and the creation of Challenge.gov, that unleashed federal agencies. The new law gave government departments the authority to uses prizes to leverage solvers around the world. Agencies embraced the tool, as well as the challenge.gov platform and the technical support provided by experienced prize designers from NASA.

According to Challenge.gov, 260 prizes, sponsored by more than 50 agencies, have been offered since the site opened in early 2011. The prizes vary greatly in intent and prize value. At one end of the spectrum is the Department of Energy’s $15 million Bright Tomorrow Light Prize seeks to substantially accelerate America’s shift from inefficient, dated lighting products to innovative, high-performance alternatives. On the other end is the National Institute of Health’s Center for Scientific Review, which launched a $10,000 challenge to uncover the best ideas for detecting possible bias in the peer review of scientific grants.

It’s not only the federal government that has gotten into the prize act. In July 2012, the Mayor’s Office of New Urban Mechanics in Boston launched a project called Street Bump, an app that allows drivers’ smartphones to automatically report road hazards to the city as soon as the phone picks up the distinctive “thud” vibration of a pothole. Initially, however, the app generated too many false reports, which caused the city to waste scarce resources chasing down non-existent potholes. The city contracted with InnoCentive to improve Street Bump, which launched a $25,000 prize to its network of over 400,000 solvers. Good ideas came in from many sources and the result, while still not perfect, is a large improvement. According to the Street Bump website, thousands of bumps have been accurately detected. It’s a quantum leap over the manual, antiquated method of reporting potholes that is still being used by most public works departments.

So what is the future of prize use by government? Eighteen prize competitions are currently open on Challenge.gov right now. Some competitions will fail to deliver the desired result, because they are poorly designed or marketed. Other prizes will go unclaimed. Not every problem has a quick solution. But government at all levels seems to be getting a good return on the investment in prizes, in part because they tap into the power of crowds to attract unconventional ideas from unexpected sources. As a result, we are likely to see more prize competitions in our future – some of which may be waiting for your own ideas.

 

Beyond Good Intentions: The Business Value of Reducing Solid Waste

By Omar Romero-Hernandez, Tiger Li, Tanya Shiu and Jorge Zapata Barbara.

Each year, the world’s human population generates well over 1 billion tons of solid waste, and that volume is on track to grow 70 percent by 2025. A growing share of that is in plastics and organics, which are recycled much less than paper or glass, and in complex waste such as electronics.
This rising mountain is a major issue for governments around the world, especially for those in developing nations. It’s also a growing concern for corporations, which want to reduce the direct costs of waste and get ahead of ever-tougher government regulation. Many companies also worry about potential damage to their brands and public reputations.

Yet our research shows a startling missed opportunity. Over 90 percent of Fortune 75 companies publish corporate social responsibility reports, and the vast majority of those reports include initiatives to reduce and recycle solid waste. Yet less than one quarter of these firms report to profit directly from those practices.

This doesn’t have to be the case.

We have been studying best practices at the Institute for Business and Social Impact, with funding support from the Sustainable Products and Solutions Program at the Haas School of Business. We find that smart companies are turning waste into sources of new revenue, increased efficiency, and higher profit. Over the longer term, these strategies strengthen a company’s brands and public reputation.

Put simply, investing in waste reduction offers solid returns.

Solid waste trends
We find three key ways that companies can reap direct value from smarter waste management:

*By selling waste during or after the product manufacturing process, producing a new revenue stream;
*By eliminating waste through better designs or leaner operations, which reduces cost.
*By preparing in advance for changes in consumer behavior and regulations, which enhances a company’s brand and reduces the risk of being strait-jacketed into inefficient solutions.

General Motors earns $1 billion a year from recycling and re-use activities, including $20,000 a month just from recycling cardboard. At a factory in Rochester, NY, GM earns 2 cents per pound of cardboard instead of paying 3 cents per pound to dump it at a landfill.

Texas Instruments re-sells more than 20 tons a year of scrap silicon wafers to manufacturers of solar voltaic equipment. Instead of paying for disposal, it generates as much as $3 million a year in additional revenue.

Coca-Cola has saved $180 million over two years – and a substantial amount of post-consumer waste –by reducing the weight of its bottles and cans. It has reduced the weight of its plastic bottles by 25 percent; the weight of its aluminum cans by 30 percent; and the weight of its 8-oz. glass bottles by 50 percent.

But there is more to this story than the direct cost savings or revenue enhancement. Consumers are increasingly interested in sustainability issues, and companies know this. In a recent Nielsen survey of consumers around the world, two-thirds of respondents said they preferred to buy products from companies that give back to society.
More than half said they were willing to pay more for products from companies that do so. Governments, grappling with increasingly scarce landfill space and with public pressure, are imposing stricter regulations. Wealthy nations already have high recycling rates and rising landfill costs, but fast-growing developing nations are now moving in the same direction.

Smart companies are getting out in front of these trends. Apparel manufacturers, led by Patagonia, have joined the Sustainable Apparel Coalition, which quantifies the environmental impact of a product’s materials and packaging. Patagonia went a step further in 2011, launching its “Don’t Buy This Jacket” advertising campaign, which encouraged consumers to repair and re-use their clothing for years or even decades.

All of this constitutes an emerging field of competitive activity. Some strategies contribute immediately to a company’s bottom line. Others contribute to the company’s long-term strength and brand identity.

The key is to recognize that the opportunities are real. Our research indicates that, overall, companies are doing less than they can or should be doing. That may be because investing in leaner production or lighter packaging is still managed as a solid waste affair instead of being part of the firms strategic plan, run by the executive arm of corporate director. In very few occasions, waste management initiatives may be at the cost of not seem to generate any returns (that is very unlikely, over a holistic analysis).

But it’s clear that waste is a resource with hidden value. It’s also clear that waste-reduction expertise is a competitive advantage in its own right. The earlier a company invests in it, the bigger its competitive advantage and the higher those returns will be down the road.


Omar Romero-Hernandez is faculty member on Corporate Sustainability at the Berkeley Haas School of Business, and leader of the Sustainable Product and Solutions Program at the Center for Responsible Business, which is part of the Berkeley-Haas Institute for Business and Social Impact.
Tiger Li is a 2015 MBA candidate at the Berkeley Haas School of Business.
Tanya Shiu is a research data analyst at the Sustainable Product and Solutions Program at the Berkeley Haas Center for Responsible Business.
Jorge Zapata Barbara is a 2014 MBA graduate at the Berkeley Haas School of Business.