In an era of tech innovation, whispers of declining research productivity – Irving Wladawsky-Berger

MIT Sloan Visiting Lecturer Irving Wladawsky-Berger

MIT Sloan Visiting Lecturer Irving Wladawsky-Berger

From The Wall Street Journal

Given the pace of technological change, we tend to think of our age as the most innovative ever. But over the past several years, a number of economists have argued that increasing R&D efforts are yielding decreasing returns.

Are Ideas Getting Harder to Find?, a recent paper by economists Nicholas Bloom, Charles Jones and Michael Webb from Stanford and John Van Reenen from MIT, shows that, across a wide range of industries, research efforts are rising substantially while research productivity is declining sharply.

Moore’s Law, the empirical observation that the number of transistors in a computer chip doubles approximately every two years, illustrates these trends. The paper points out that the number of researchers required to double chip density today is 18 times larger than those required in the early 1970s. In the case of Moore’s Law, research productivity has been declining at a rate of about 6.8% per year.

The authors conducted a similar in-depth analysis in the agricultural and pharmaceutical industries. For agricultural yields, research effort went up by a factor of two between 1970 and 2007, while research productivity declined by a factor of 4 over the same period, at an annual rate of 3.7 %. For pharmaceuticals, research efforts went up by a factor of 9 between 1970 and 2014 while research productivity declined by a factor of 5, an annual rate of 3.5%.

 

Read More »

Seeing past the hype around cognitive computing – Jeanne Ross

Jeanne Ross, Director & Principal Research Scientist at the MIT Sloan School's CISR

Jeanne Ross, Director & Principal Research Scientist at the MIT Sloan School’s CISR

From Information Management

Given the hype around artificial intelligence, you might be worried that you’re missing the boat if you haven’t yet invested in cognitive computing applications in your business. Don’t panic! Consumer products, vehicles, and equipment with embedded intelligence are generating lots of excitement. However, business applications of AI are still in the early stages.

Research at MIT Sloan’s Center for Information Systems Research (CISR) suggests that small experiments in cognitive computing may help you tap the significant opportunities AI offers. But it’s easy to invest huge amounts of cash and time in failed experiments so you will want to carefully target your investments.

The biggest impact from cognitive computing applications is expected to come from automation of many existing jobs. We expect computers to do—faster and cheaper—many tasks now performed by humans. Progress thus far, however, suggests that we have significant obstacles to overcome in our efforts to replace human intelligence with computer intelligence. Despite some notable exceptions, we expect the displacement of human labor to proceed incrementally.

The business challenge is to determine which applications your company is ready to cash in on while resisting the lure of tackling processes that you can’t cost-effectively teach machines to do well. We have studied the opportunities and risks of business applications of cognitive computing and identified several lessons. These lessons offer suggestions for positioning your firm to capitalize on the potential benefits of cognitive computing and avoid the pitfalls.

Read More »

Jack Ma is retiring. Is China’s economy losing steam? – Yasheng Huang

MIT Sloan Professor Yasheng Huang

MIT Sloan Professor Yasheng Huang

From New York Times 

GUANGZHOU, China — Earlier this month, Jack Ma announced that he was stepping down as executive chairman of Alibaba Group Holding Ltd, the world’s largest e-commerce company. His decision caught many by surprise. At an economic forum in Russia, President Vladimir V. Putin reportedly asked him, “You are still so young. Why are you retiring?”

Maybe Mr. Ma, 54, knows something that Mr. Putin does not. Two of the three forces, globalization and marketization, that have propelled Alibaba to its current $500 billion valuation are dissipating. The third force, technology, is mired in the trade war between China and the United States, and its prospects in China are now uncertain.

Alibaba didn’t just transform e-commerce in China; it transformed the entire economy by helping build up the private sector. Mr. Ma’s departure from the company now — though he claims to have been planning it for a while — adds to a gathering sense that China’s private sector, the engine of the economy, is losing steam — and faith.

Alibaba is China’s globalization story par excellenceFounded in 1999, the company created a website that allowed people outside China to buy directly from Chinese exporters. At that time, China was opening up but foreign buyers were hampered by their lack of knowledge of Chinese suppliers. Alibaba set up a program called TrustPass, allowing third parties to verify the quality and trustworthiness of Chinese suppliers. This system enabled foreign buyers to bypass the slow and often bureaucratic state-owned intermediaries that typically performed verification, and it eased Chinese companies’ access to the global marketplace.

Alibaba also tapped international capital markets. The company’s founders hailed from modest backgrounds and had little capital, but they benefited from liberal policies that China had put in place as it was negotiating to join the World Trade Organization (which it did join, in 2001). During the company’s early years, its leaders turned to foreign suppliers of capital, such as Goldman Sachs, SoftBank and Fidelity Investments. Later on, Yahoo also provided funding.

In the early 2000s, Alibaba structured its investment arrangements via what are known as “variable interest entities.” V.I.E.s are intermediary structures in which foreign firms can invest to acquire contractual rights over revenues generated by Alibaba. They were an innovative solution to help foreigners navigate China’s murky legal system while bringing critical financing to Chinese high-tech entrepreneurs.

But today globalization is under assault. The Chinese government is enforcing more strictly regulations over V.I.E.s that it had long ignored, creating uncertainty for foreign investors. And the trade war between the United States and China is disrupting Chinese exports, threatening the supply chains of which Alibaba is an integral component.

Alibaba has elevated China’s private entrepreneurs in another way: by providing direct financing to them. China has a massive banking system, but it is almost entirely organized to support the less efficient state-owned enterprises, leaving China’s dynamic private sector chronically short of capital and credit. Alibaba, through its financing operations, has stepped in to provide much-needed capital, especially to China’s very small businesses.

Read the full post at New York Times.

Yasheng Huang is the International Program Professor in Chinese Economy and Business and a Professor of Global Economics and Management at the MIT Sloan School of Management. 

The startup that not only created itself, but its environment – Georgina Campbell Flatter

Georgina Campbell Flatter, Executive Director at MIT Legatum Center, Senior Lecturer in Technological Innovation, Entrepreneurship, and Strategic Management

From Forbes Mexico

Entrepreneurs are increasingly vital change agents in the developing world. Not only do they take on vexing social challenges like access to better healthcare and cleaner water, they’re also the engine propelling the economy and the potential antidote to a looming jobs crisis.  According to the United Nations, we’ll need 470 million jobs between now and 2030 to support new entries into the labor market. Those jobs won’t come from established companies, but rather entrepreneurs who are creating high-growth businesses.

To build a sustainable and scalable venture, entrepreneurs must innovate to compete within their market, but some will go much further than that to maximize their impact. Some will transform—even help create—the very ecosystem in which they operate.

A great example is Play Business, Mexico’s first equity-based crowdfunding site. The founders were motivated by the knowledge that Mexico was emerging as an innovation hub for Latin America, with up to 110,000 new engineers graduating from colleges every year. Moreover, Mexico’s 4 million small and medium enterprises (SMEs) constituted 72% of the country’s new job creation. And yet this critical economic engine had little access to capital—nearly 80% of SMEs were completely self-financed.

This lack of capital meant that potential innovations, which might create jobs and improve lives, were being lost. Play Business, launched in 2014, offered a solution. As Play Business cofounder and MIT Sloan alumna Fernanda de Velasco put it, “We would enable common people to invest in uncommon startups.”

Since there were no laws in Mexico around equity crowdfunding, Play Business was at first able to operate with few restrictions, but the founders also knew this could quickly change, especially as fintech grew and new governments (potentially more aggressive toward the financial industry) were elected. Fernanda’s team decided to be proactive and approach Mexico’s government about creating new regulations. This was a gamble, to say the least. The prevailing wisdom among emerging market entrepreneurs was that it was best to develop your venture while staying under the government’s radar. Concerned naysayers warned Fernanda that working with the government could result in requests for bribes, or worse, a set of intractable regulations that would kill her business.

But the Play Business team had already determined that staying under government’s radar, though it had short-term advantages, would never allow them to achieve their desired impact. “We wanted to fund more than just 10-15 companies,” Fernanda said, “We wanted to fund thousands. Our goal was to systematically create startups in Mexico.” By creating protections for consumers and a set of rules for honest businesses to follow, sensible regulatory laws could effectively create and stabilize the crowdfunding market.

Because Play Business demonstrated transparency at the outset and was able to show that its interests aligned with the government’s, the company was allowed to collaborate in drafting the new legislation. This proved vital when, for example, legislators planned to include a provision that would have forbid Play Business from accepting even a partial equity fee.

Once Fernanda’s team explained how this would render incentive-based models like Play Business’ useless, and would hurt the industry generally, the legislators revised it. The government appreciated that her team was seeking to change the legal system not just to benefit their own business, but to create an entirely new funding stream for entrepreneurs.

After two years, the collaboration between Play Business and the Mexican government finally paid off. Last February, a bill to regulate the fintech sector including crowdfunding was approved by Mexico’s lower house of Congress, the final step in becoming law. It will serve as the industry’s foundation. The benefits include reduced operations risk for businesses, more transparency for digital platforms, higher security and protection for consumers, and increased confidence in alternative financing models. It also reduces uncertainty, which could attract higher capital investments in the sector.

More recently, in recognition of their legislative leadership, Play Business was one of six private sector representatives—and the only startup—invited to join the Mexican government’s newly formed Financial Innovation Group.

Today, Play Business has 55,000 users (adding nearly 1,300 users each month) with 15,000 active investors and 3,500 startups on the platform. Of those startups, 180+ have raised capital and 105 have been successfully funded. This means that $7.5 million in venture investment has been delivered. Play Business has also enabled the formation of over 1,500 new jobs.

According to Fernanda, the new market will certainly create competition, and in fact a few of the startups Play Business has helped fund are potential competitors. Yet that’s all part of the plan, and the Play Business team is confident they are poised to compete in the fair and healthy marketplace they helped create.

The maxim “A rising tide lifts all boats” is often invoked to defend controversial economic policies, but perhaps it’s more aptly applied to the Play Business mindset, and to similar entrepreneurs who actively work to raise the water level even as they build the best boat.

Read the original post at Forbes Mexico.

Georgina Campbell Flatter is Executive Director of The Legatum Center for Entrepreneurship and Development at MIT and a Senior Lecturer at MIT Sloan School of Management. She mentored Fernanda de Velasco, who was a Legatum Fellow, during her time as an MBA student at MIT Sloan.

With better leadership, Sears could’ve been a contender – Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

MIT Sloan Senior Lecturer Sharmila Chatterjee

From The Hill

When I arrived in the U.S. for graduate school in the mid-1980s, I asked my host family in a Philadelphia suburb where to shop to outfit my dorm room. They didn’t skip a beat: “Sears,” they said. “It has everything you need.”

To say that I was in awe of Sears would be an understatement. Having grown up in small cities in India that were dominated by mom and pop stores, I’d never seen anything like it. I bought pillows and bed sheets; a hot pot, microwave, a mini fridge; and also rain boots, socks, and a pair of earrings. I remember thinking, “This is the American store of my dreams.”

So last week’s news that Sears filed for bankruptcy struck a personal chord. The company has been under pressure for years: shuttering stores, jettisoning assets and taking on ever more debt. Finally, facing a $134 million payment that it could not afford, Sears capitulated.

The main culprit, according to media coverage, was the rise of online shopping and Amazon. Amazon, of course, has become the familiar villain in these tales — allegedly responsible for the death of many once-dominant American retailers, from Toys “R” Us to Sports Authority to Radio Shack.

But considering e-commerce accounts for only 9 percent of all retail sales, that explanation rings hollow. The truth is, Sears’s bankruptcy is of its own making. Its management, led by Eddie Lampert — Sears’s chairman and its biggest individual creditor and shareholder, made a series of missteps that ultimately crippled the iconic chain.

These include focusing too narrowly on cutting costs at the expense of investing in the in-store experience, spinning off key brands and competing on price.

Read More »