Four ways technology will change how people do business – Thomas Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From MIT Sloan Custom Studio

Technology platforms and the IoT are clearly changing the structure of organizations — and the valuation of companies today is out of line with the numbers of jobs they create. In the past, the General Motors, and even the Googles, created lots of new jobs and the valuation of the company reflected this — but compare Netflix, just 3,700 employees, with its old-world equivalent, Blockbuster, which at its peak had $7 billion in revenue and 60,000 employees. Today, Netflix has a larger market capitalization. The world is changing — and the question is, will we create enough good quality jobs to meet the needs of the workforce of the future?

There’s an old Japanese phrase that came out of robotics work in the 1980s and 1990s in manufacturing that technologists ought to begin to understand and build into their work: “It’s workers who give wisdom to machines.” People give wisdom to the technology and then technology can in turn enhance human judgment. We can solve big problems in the world and create big opportunities and the next generation of inventions and jobs.

But it will mean some major changes to how businesses are run — and how companies view (and use) technology.

Technology is a tool — not a goal.

It’s not technologies that will solve future challenges — it’s how we use them that counts. That means we have to start with human and societal problems, and figure out how to put technology to work to address and complement what we can do together with other institutions. We must define the questions we ask of technologists and not view technology as an autonomous, deterministic force, but as an asset that is mobilized to address these important issues. Most important, we have to educate technologists and not leave them to define the objectives of the technology. If we do, they will define it very narrowly and squeeze out as much human variabilities as possible, which would lead us to false solutions. A broad participation in defining the problems will enable us to find our way to a better world for everyone.

Technology platforms need to be designed with stakeholders in mind.

There’s no single deterministic model or market design for digital platform design. Uber uses data to control its customers and driver workforce. What would be different about the experience for drivers, and maybe customers, if that information was decentralized so they could maximize their own incomes and improve their own livelihoods? We have to think about how we design these new platforms, so the benefits are more broadly shared across the different stakeholders.

In the long run, a good business model is one where the more your customers and employees know how the company works and have information to control their actions, the more committed they will be to building the business to benefit both themselves and the organization that’s providing that information. We’ve got to think about ways customers, employees, even public/private partnerships can share information to use these technologies much more holistically than for some specific stakeholder. In this way, customers become part of the innovation cycle. Maybe not the first mover for innovation but the second generation, and that will create new jobs, opportunities and applications.

It’s not about technology per se, it’s the interactions with people that use them and organizational designs that drives high levels of productivity, customer service and innovation. The new, flexible enterprise also has to draw on people outside the organization more fully. We must ask what’s in it for various stakeholders, and have them contribute to further development and inventions. If they are invested in it and see joint gains, it continues a positive cycle of innovation.

As organizational structures become more flexible, corporations will need to adapt.

A flexible corporate structure will need a lot more coordination across groups and different bodies of expertise. That means the “solid,” functional firms — finance, operations, HR, marketing and so on — are really going to be challenged to work out how the discovery and deployment of new apps will involve people across functions.

That doesn’t mean the old-world corporation is defunct. We still need people who have specialized knowledge in IT and marketing, but the productivity comes in linking them. Knowledge bases won’t go away, but the people and skills most valuable in the future (and incomes already reflect this) are the ones that have hybrid skills with technology know-how and figure out how to apply to functional areas. HR people won’t only specialize in compensation and performance management, but also know how to utilize technology to better design how we do our work.

With a lot of knowledge at the edges of organizations, strategy has to keep an eye on what the business is trying to achieve and ask how to be successful on a financial and sustainable basis, as well as when it needs to ally with others outside its traditional boundaries. This remains the role of the CEO and the board. However, they also have to rely on information flowing up rather than dictating what will be. That day is over.

The relationship between companies and workers is changing, too.

Technology is leading to a more decentralized workplace, with the flexibility to work in different places at different times. But do we have the managerial wisdom to take advantage of the new norm? There’s still the legacy of Frederick Winslow Taylor’s management control thinking: “If you’re not in the office, I don’t trust you’re not at home playing computer games.” The distributed workplace calls for a mindset change in management to ensure that we work with people and don’t compensate them for the amount of time spent in the office, but for the contribution they make and the work they do. If we can get over this managerial hurdle, we can take advantage of distributed workplaces.

We have to get over the notion that it’s all about shareholder value and the shorter term, and instead invest for the long term and listen to employees. This means finding ways to expand and create value, but also discovering ways to distribute value more equitably. At MIT, we have a good companies and good jobs initiative, and are going to hold a series of multi-stakeholder forums around these broad questions: What makes a company a great place from the standpoint of financial return, but also good for jobs and career opportunities?

The reality is, if we don’t start to engage in this way and have a social contract where people feel their interests are being served, we are going to have an explosion. It happened with Brexit, it happened in the 2016 U.S. election. A new social contract must be based on trust, mutual interest and listening to each other, creating value together and negotiating how to distribute value more equitably. Use the knowledge of the workforce by all means, but we can’t have a world of winners and losers.

This article is excerpted and modified from Telefonica and MIT Sloan Leaders Consider Distributed Future

Thomas Kochan is the Co-director, MIT Sloan Institute for Work and Employment Research, where he is Professor of Work and Employment Research.

Create a finance committee at every public company – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From CFO

Almost all boards of U.S. public companies now have three committees that meet immediately before every board meeting and report to the full board — audit, compensation, and nominating-governance. Committees have become the workhorses of the governance process: with their small size and expert support, they can do more in-depth analysis of complex topics than the full board of directors.

However, since the passage of the 2002 Sarbanes-Oxley Act, the duties of the audit committee, especially, have become so large and complex that it cannot seriously assess broader financial issues.

Audit committees continue to perform the traditional functions of appointing the company’s independent auditor and reviewing its financial statements. But audit committees now have a long list of other obligations — including oversight of complaints by whistle blowers and violations of ethics codes; approval of non-audit functions by auditors; and review of the management report and auditor attestation on internal controls. The audit committee also holds private sessions with both external and internal auditors as well as the chief financial officer and the head of compliance/risk.

In other words,  audit committees are overburdened by their increased obligations to oversee the details of the reporting and compliance processes. As a result, the audit committee no longer has enough time to seriously consider broader financial topics. If directors are going to have meaningful input into the broad financial issues faced by any public company, they need to form a finance committee with the time and expertise to address the issues.

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Can Uber evolve – quickly? – Court Chilton

MIT Sloan Senior Lecturer Court Chilton

From Entrepreneur

I’m a huge fan of Uber and use its services all the time. Still, I can’t deny it’s been a tough couple of weeks for Uber. A blog post by a woman employee who credibly seems to be claiming sexual harassment and retaliation for making those claims was widely covered in the media. Days later, a video that showed the CEO arguing vehemently with an Uber driver about rates went viral. Plus, revelations about “grey-balling” — preventing certain people from accessing the Uber system — put the company in an unfavorable light with a number of different stakeholders.

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The democracy of data: how Venezuelans can stand up to government lies – Alberto Cavallo

MIT Sloan Assoc. Prof. Alberto Cavallo

From infobae

Venezuela, once one of Latin America’s wealthiest countries, appears to be teetering on the brink of collapse. Its economy is shrinking. Food is in short supply. Its currency—the bolivar—is virtually worthless, and inflation appears to be out of control. But, in light of the fact that the country’s Central Bank stopped publishing inflation data in December 2015, no one has an accurate picture of just how dire the situation is.

This dearth of inflation data may seem like an academic problem, but in actual fact, economic indicators are no small things. Without official statistics, it’s impossible to draw accurate conclusions about the wellbeing of the Venezuelan people. The lack of data has consequences on a micro level, too. The inflation rate, for instance, is a vital number for anyone who wants to negotiate a wage, decide on an affordable rent, or make any savings or financial plans for the future.

With a government intent on suppressing important information, many Venezuelans are angry. As a native from Argentina —another Latin American country that lied about inflation in the past—I feel their pain. As an economist, I urge them to fuel their frustration into action.

Earlier this year, my colleagues and I started a project to measure inflation in Venezuela using a new and highly effective technique: crowdsourcing with mobile phones. My team developed a special app for android phones that allows people in the country to report the prices of everyday products and services. We then aggregate the data to estimate the level of inflation. Over the past five months, we have collected more than 3,000 observations from 1,000 products in 10 cities around the country.

Our data indicates that Venezuela’s inflation rate is about 25% on a monthly basis, which represents one of highest rates in the world.

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ICYMI: The #MITSloanExperts “Future of Financial Regulation” Twitter chat

MIT Sloan Prof. Deborah Lucas

Pensions & Investments Editor Amy Resnick

“Are new regulations creating new problems for the housing market?”

“Has the federal government now become the subprime market?”

“Could the financial crisis happen again any time soon?”

These were just a few of the questions tackled by Deborah Lucas, the Distinguished Professor of Finance at MIT’s Sloan School of Management and the Director of the MIT Golub Center for Finance and Policy, during the #MITSloanExperts Twitter chat on October 30.

Joined by host Amy Resnick, editor of Pensions & Investments, she asked Lucas questions about the future of financial regulation and housing market finance reform, as well as ideas for fostering stronger ties between the regulatory and the academic communities.

Did you miss the chat? That’s OK, but we’ve encapsulated everything in the Storify below.

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