THINKING FORWARD – Ideas for your work from MIT Sloan School of Management

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Ideas for your work from
MIT Sloan School of Management | Office of Communications

+ THREE INSIGHTS FOR THE WEEK
April 11 – April 17, 2021

1. The post-pandemic world will reward leaders who can navigate a complex landscape of digital services to make decisions, monitor supply chains, and encourage innovation.

Here are five insights on digital leadership from MIT Sloan Management Review:

  • Digitally savvy leadership teams deliver competitive advantage. Revenue growth is 48% higher for firms whose leaders understand how emerging technologies will impact business success, and net margins are 15% higher.
  • Managers must be mindful of the cultural aspects of digital transformation. With an increasingly digital world blurring the lines among families, friends, and colleagues, leaders cannot ignore how these changes impact power and accountability dynamics within their organizations.
  • Global companies must encourage transparency in order to know what’s happening in all aspects of their supply chains, particularly around environmental and social issues that can quickly become liabilities.
  • Data leadership roles remain in flux. Half of data, technology, and analytics executives say their role is “nascent and evolving,” while one-third say the role is “successful and established.”
  • Companies should set a solid foundation for innovation long before founders leave. This will ensure that the firm’s so-called “innovation capital” isn’t solely linked to a charismatic founder.

 

2. Unshackled creativity might intuitively seem to be the best route to generating breakthrough ideas, but in fact some of the most innovative outcomes are born of constraint.

Writing in Harvard Business Review, MIT Sloan associate dean and professor of entrepreneurship Fiona Murray and senior lecturer Elsbeth Johnson make the case that the right limitations can force designers to radically reframe their problem and come up with something truly groundbreaking.

But the type and quality of constraints matter, the authors caution. Leaders typically impose two common constraints on their innovation teams: budget and risk. These often produce unintended negative consequences by narrowing innovation to tried and tested solutions.

A better approach: Constraining outcomes (“the new antibody test must have this level of sensitivity”), which focuses innovators on a clear end result, and constraining time (“we need a reliable test by Q2”).

The relationship between time pressure and performance is well established, the authors write, provided the deadline is appropriate for the desired outcome and there are real consequences to missing that date. “We all know the difference between a real deadline and a fake one,” the authors write.

 

3. Big data represents a big opportunity for Wall Street. It’s never been easier for investors to capture exorbitant amounts of data to analyze financial statements or interpret asset prices using algorithms. And traders often use big data when they engage in statistical high-frequency trading.

But how does statistical trading affect the markets? To find out, Maryam Farboodi, an assistant professor of finance at MIT Sloan, and co-author Laura Veldkamp, a professor of finance at Columbia Business School, developed a model that incorporated both statistical trading and fundamental trading — the classic way of trading, whereby traders analyze a company’s financial statements to forecast profitability.

The authors’ research showed that technological growth — defined as the improvement in the ability of a firm or traders to process data using algorithms — did indeed cause a shift to statistical trading.

But in the long run, the model indicated, both fundamental and statistical trades will keep growing, and price efficiency will keep improving.

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