What machine learning will mean for asset managers – Robert Pozen and Jonathan Ruane

MIT Sloan Senior Lecturer Robert Pozen

Robert Pozen, Senior Lecturer, MIT Sloan School of Management

Jonathan Ruane, Lecturer at the MIT Sloan School of Management, Digital Fellow at MIT’s Initiative on the Digital Economy

From Harvard Business Review

Some industry experts argue that machine learning (ML) will reverse an increasing trend toward passive investment funds. But although ML offers new tools that could help active investors outperform the indexes, it is unclear whether it will deliver a sustainable business model for active asset managers.

Let’s start with the positives

A form of artificial intelligence, ML enables powerful algorithms to analyze large data sets in order make predictions against defined goals.  Instead of precisely following instructions coded by humans, these algorithms self-adjust through a process of trial and error to produce increasingly more accurate prescriptions as more data comes in.

ML is particularly adaptable to securities investing because the insights it garners can be acted on quickly and efficiently. By contrast, when ML generates new insights in other sectors, firms must overcome substantial constraints before putting those insights into action.  For example, when Google develops a self-driving car powered by ML, it must gain approval from an array of stakeholders before that car can hit the road.  These stakeholders include federal regulators, auto insurers, and local governments where these self-driving cars would operate.  Portfolio managers do not need regulatory approval to translate ML insights into investment decisions.

In the context of investment management, ML augments the quantitative work already done by security analysts in three ways:

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Spark team creativity by embracing uncertainty – Aithan Shapira

Aithan Shapira, Lecturer, MIT Sloan School of Management

From MIT Sloan Management Review

As an artist who also works for a business school, I often talk with managers about how to inspire more creativity from their teams. It’s not that these managers don’t appreciate their left-brained, analytically oriented employees. On the contrary: They value their logic and practicality. Still, they lament, something is missing. Managers today seek inspired ideas, inventive solutions, ingenuity, originality, and new pathways to innovation. But their teams are not delivering.

The problem is not that professionals lack creative impulses but that they are too focused on getting the creative process right. For example, in supporting organizations that are implementing agile methodologies, I work with many teams so consumed by getting their chapters aligned or doing their sprints correctly that they miss the opportunities that spark imagination. They avoid the unknown — the uncertainty that breeds creativity.

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When Boeing’s 737 Max returns to the skies, it will be flying full – Arnold Barnett

Arnold Barnett, George Eastman Professor of Science and Statistics, MIT Sloan School of Management

From RealClear Markets

Someday, more than a year after its second disastrous crash, the grounded Boeing 737 MAX will return to the skies. But will it be awash in empty seats when it does so? If recent surveys are to be believed, the answer is clearly yes. A December 2019 poll conducted by Bank of America estimated that only 20% of Americans would readily board the relaunched MAX. (This figure excludes the 50% of respondents who had not heard of the MAX controversy, but one assumes that these people rarely if ever fly.). Boeing’s own surveys in December 2019 imply that more than 40% of potential air travelers now plan to steer clear of the MAX. Montana Senator Jon Tester probably spoke for many when he declared that “I would walk before I was to get on a 737 MAX.”

To be sure, discrepancies often arise between what people tell pollsters and what they actually do. But is that likely to occur here? In fact, one can make a plausible case both for and against a large passenger boycott of the revived MAX. It is useful to consider the arguments on both sides, and then to hazard a best guess about what might happen.

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Why company culture matters for strategic results – Donald Sull

Donald Sull, Senior Lecturer, MIT Sloan School of Management

From MIT Sloan Management Review

You don’t have to look far in the news headlines to find examples of how a good corporate culture can turbocharge performance, while a bad culture can wreak havoc on a company’s reputation and results.

Relying on culture — rather than detailed rules or micromanagement — to shape behavior provides employees the flexibility to seize unexpected opportunities, adapt to local circumstances, and respond quickly to shifting market conditions. Corporate culture, like an organization’s strategic priorities or objectives and key results, represents a powerful way to align behavior with a company’s strategy and mission while allowing employees to exercise judgment and initiative. Culture, in short, is critical to striking the balance between strategic alignment and organizational agility.

With the Culture 500 tool, managers and employees can explore how culture compares among more than 500 leading companies. For leaders, this interactive framework provides an actionable way to think about culture along nine key dimensions, to provide clarity on where companies are leading and lagging when it comes to aligning culture with strategic results.

Read the full post at MIT Sloan Management Review.

Donald Sull is a Senior Lecturer at the MIT Sloan School of Management and cofounder of CultureX.

In the age of online shopping, don’t count out brick-and-mortar stores – Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

Sharmila C. Chatterjee, Senior Lecturer, MIT Sloan School of Management

From USA Today

As the unofficial start to holiday shopping approaches, retail prognosticators are calling for a holly jolly season for e-commerce—and a less merry one for brick-and-mortar stores.

This year, for the first time, American consumers plan to do more of their holiday shopping online than in physical stores, according to PricewaterhouseCoopers. A Deloitte study predicts that customers will spend on average $879 online and $541 in shops.

Based on these forecasts, e-commerce appears in prime position to soon dominate the holiday retail landscape. We can kiss goodbye traditional stores. Right?

Not so fast. Brick-and-mortar stores are making a comeback. By focusing on customer service, integrated business models, and innovative partnerships, many chains — including Target, Kohl’s, Madewell and Best Buy — are likely to post strong holiday sales. Meanwhile, e-commerce may be in for a reckoning. Signs indicate that the lightning fast delivery speeds customers have come to expect from internet vendors, namely Amazon, are not sustainable.

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