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The Takeaways: MIT Sloan Faculty Members Offer Their Perspectives

Our faculty members generate distinctive and celebrated research that analyzes today’s business challenges and develops transformative solutions and insights. Collected here are perspectives from faculty members pulled from various media sources.

To learn more, check out:
MIT Sloan Experts Blog
http://mitsloanexperts.mit.edu/

Finance Matters:
The MIT Sloan Finance Group Blog
http://mitsloan.mit.edu/finance/blog/

MIT Sloan Newsroom
http://mitsloan.mit.edu/newsroom

William AuletWilliam Aulet



Matt Marx and Bill Aulet on the United States’ loss of global talent...
“Innovation-driven entrepreneurs are the engine of a vibrant economy. Their high levels of education and their pursuit of global markets and rapid expansion create jobs and economic prosperity. And many of them, such as these MIT students, were not born in the United States.”

“ U.S. Immigration Policy Is Killing Entrepreneurship. Here’s What to Do About It,”
Forbes Leadership Forum, January 9, 2013
Matthew Marx is the Alvin J. Siteman (1948) Career Development Professor of Entrepreneurship and William Aulet is a Senior Lecturer and the Managing Director of the Martin Trust Center for MIT Entrepreneurship

Caroline Flammer on business values...
“ ‘Companies reported to behave responsibly towards the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant stock price decrease.’ In general, she argues that corporate social responsibility ‘generates new and competitive resources for firms.’ ”

“A CFO Questions Business Values,”
CFO Magazine, December 19, 2012
Caroline Flammer is a Lecturer in Global Economics and Management

Why digital maturity matters—“Digerati” drive true value from investments

George Westerman
December 19, 2012
Two years of study with more than 400 firms around the world shows how you can achieve a measurable digital advantage over your competitors.

This research, conducted by the MIT Sloan Center for Digital Business in cooperation with research sponsor Capgemini Consulting, shows that the digital advantage is not about luck or about the industry your firm is in. It is not just about how much cool digital stuff firms are doing. Companies that manage their digital activities in a certain way are 26 percent more profitable than their industry peers, and outperform on other measures as well.

In year one, we interviewed 157 senior executives in 50 large companies to understand how they are using social media, mobile, analytics, and embedded devices to change their businesses. We found that 70 percent were already using these technologies to change internal processes, customer engagement, or business models. But they are getting wildly different results.

The difference? Digital maturity. This year’s survey of nearly 400 firms shows that digitally mature companies do more than just invest in digital technologies. They also have the leadership skills—vision, governance, engagement, and IT/business relationships—to turn digital investment into digital transformation.

Digital maturity matters. It matters in every industry. And the approaches used by digitally mature companies are available to any company that has the leadership drive to do so.

MIT Sloan Experts Blog
George Westerman is an MIT Sloan Research Scientist

David McLean on making financial markets work better...

“Academics are interested in testing market efficiency, and predicting stock returns is one way to do that. The point of these papers is not to claim, ‘Hey, here’s this great way to make a lot of money.’ I think this research shows that markets want to be efficient, but there are costs and risks associated with getting there, so the market doesn’t end up in a perfectly efficient place.”

“Got a Market-Beating Strategy? Keep It To Yourself,” Financial Times, January 14, 2013
R. David McLean is a Visiting Associate Professor of Finance

Yasheng Huang



Yasheng Huang on China’s challenge...

“Chinese leaders want economic growth to come from innovations based on technology and science—a laudable goal. But it can’t be achieved by simply adding a massive dose of R&D spending to China’s current growth model. Technology-based growth requires protection for intellectual property, freedom to think and challenge authority, and a government with limited reach and power. In other words, it requires Western institutions.”

“China’s Challenge,” Technology Review, January 2, 2013
Yasheng Huang is the International Program Professor in Chinese Economy and Business

Containing contagion: “There is no replacement for good macro-fundamentals”
Kristin Forbes
November 1, 2012

Contagion, a phenomenon where financial tumult in one country or region spreads to another country, is now a fact of life. The globalization of finance has, in many ways, made contagion inevitable. The world has become much more integrated through trade, investors, and banks, and these ties have caused countries’ financial markets to move together more closely during good times and bad.

While exposure to the international economy is hard to completely avoid, some types of contagion are temporary and even avoidable. According to my recent research, which was presented at the annual meeting of central bankers at Jackson Hole, Wyoming, this summer, one lesson from Europe’s financial crisis is that an over-leveraged banking system increases vulnerability to contagion. In fact, leverage appears to be a more significant determinant of country vulnerability than the total international exposure of a country’s banking system. This suggests that limiting leverage and implementing strict capital requirements should be considered as a policy to decrease the risk of contagion in the future.

There is a lesson here for foresighted U.S. policymakers. The best approach to minimizing the threat of contagion is through fundamental structural reforms before a negative shock occurs and financial infection from a troubled foreign economy is imminent. A top priority for Washington lawmakers should be to reduce leverage in the banking system and reduce overall government debt levels. Policymakers should also avoid policies that give preferential treatment to debt over equity, as well as support portfolio investors’ efforts to diversify and invest abroad.

MIT Sloan Experts Blog
Kristin Forbes is the Jerome and Dorothy Lemelson Professor of Management

Fiona Murray and Bill Aulet on why all jobs are not created equal...
“Small business creation is an important part of job creation, but it is only a part of what is needed to create large transformations in the economy. Innovation-driven companies—that start small but have the aspiration and potential to grow—will ultimately generate the new jobs and exports that economies need to drive prosperity.”

“Not All Jobs Are Created Equal,”
The Boston Globe, October 17, 2012
Fiona Murray is the David Sarnoff Professor of Management of Technology and the Faculty Director of the Martin Trust Center for MIT Entrepreneurship

What is the true cost of government-backed credit?

Deborah Lucas
November 13, 2012
The U.S. government is arguably the largest financial institution in the world. If you add the outstanding stock of government loans, loan guarantees, pension insurance, deposit insurance, and the guarantees made by federal entities such as Fannie Mae and Freddie Mac, you get to about $18 trillion of government-backed credit. Through those activities, the government has a first-order effect on the allocation of capital and risk in the economy.

The question of what those commitments cost the public is important; accurate cost assessments are necessary for informed decisions by policymakers, effective program management, and meaningful public oversight. My research and that of others has shown that if one takes a financial economics approach to answering that question—one that is consistent with the methods used by private financial institutions to evaluate such costs—it leads to significantly higher estimates than the approach currently used by the federal government.

At the core of the problem are the rules for government accounting, which by law require that costs for most federal credit programs be estimated using a government borrowing rate for discounting expected cash flows, regardless of the riskiness of those cash flows. That practice systematically understates the cost to the government because it neglects the full cost of risk to taxpayers, who are effectively equity holders in the government’s risky loans and guarantees.

An alternative approach to cost estimation—a fair value approach based on market prices—would fully take into account the cost of risk. Fully accounting for the cost of risk makes a significant difference: An estimate of the official budgetary cost of credit programs in 2013 shows them as generating savings for the government of $45 billion, whereas a fair value estimate suggests the programs will cost the government about $12 billion.

Finance Matters: The MIT Sloan Finance Group Blog
Deborah Lucas is the Sloan Distinguished Professor of Finance

Simon Johnson

Simon Johnson on the United States’ position in the world economy...
“So, while no country will rise up to take America’s place as the world’s leading economy, its global position is indeed threatened—by its own reluctance to have an honest conversation about the federal budget and by the unwillingness of its political leadership to confront powerful interests on Wall Street.”

“Will 2013 Mark the Beginning of American Decline?,”
Bloomberg View, December 23, 2012
Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship

Thomas Malone on creating more intelligent organizations...
“It’s also possible for groups of people to work together in ways that seem pretty stupid, and I think collective stupidity is just as possible as collective intelligence. Part of what I want to understand and part of what the people I’m working with want to understand is what are the conditions that lead to collective intelligence rather than collective stupidity.”

“Creating More Intelligent Organizations,”
Wall Street Journal, December 28, 2012
Thomas Malone is the Patrick J. McGovern (1959) Professor of Management and the Director of the MIT Center for Collective Intelligence