MIT Sloan Executive Education innovation@work Blog

In the two-day executive education program, Strategic Cost Analysis for Managers, MIT Sloan Professor John Core and co-lecturer Christopher Noe focus on how to use internal accounting information for decision making—a particularly pertinent topic for mid-level managers who need to think about why information was prepared the way it was, as well as how they can use the information most effectively.

“Companies make mistakes all the time with this kind of internal accounting information, which has been prepared for some other purpose than what they are using it for. This course teaches you how to be disciplined about thinking about the information you have.”

In addition, the program covers subjects such as fixed and variable costs and delves into the common pitfalls that can occur if managers use information without thinking through what they actually have. “In decision making, you need to think about what costs are going to change as a result of your decision and not assume they are going to go up one-to-one.” This applies to managing people and employee pay scales.

One highly visible example of how internal accounting is affecting corporate decision-making relates to CEO pay levels. According to new data, not only are CEOs and other C-level execs earning higher salaries, they’re also raking in bigger and better perks. Core says that long-term incentive plans in the U.S. are using act-based performance measures more than they used to, which, in turn, is changing the way top executives are being evaluated and compensated. Also, recent changes in accounting regulations in the U.S. have made it more attractive to use accounting based-measures as opposed to stock-based measures.

“A lot of people think that CEOs make way too much money. But when you think about it carefully, it’s not inappropriate that they get paid well, because of the scope of their position and the fairly rare talent it takes to be able to run an organization well.”

Today's workforce is a mix of four generations—Veterans, Baby Boomers, Generation X, and Generation Y—sometimes collaborating, other times colliding. Stereotypes for how these different age groups act, interact, and conduct themselves in the workplace are plentiful, but most would agree that Gen Y—the millennials—are currently, for better or worse, the center of attention. Why all the commotion?

For starters, millennials have officially surpassed Baby Boomers as the nation’s largest living generation, according to population estimates released by the U.S. Census Bureau. Millennials, typically defined as those ages 19-35 in 2016 (born 1981-1997), are now 75 million strong.

But most importantly, Millennials will soon lead the world of business, and after them their successors, Gen Z. They will be leading in a world that has grown increasingly global, complex, and even tumultuous. Today’s business world requires more of leaders than ever before. MIT Sloan Professor John Van Maanen, an organizational theorist, uses an acronym to describe this world of which millennials will be at the helm: VUCCA. It stands for volatile, uncertain, complex, chaotic and ambiguous (with one more C than the more common VUCA), and it's a big part of why today's leaders need to teach tomorrow's.

"We don't know where big data is taking us. We don't know what's happening with climate change, political instability. It is an unknown world," Van Maanen said during a panel discussion on leadership at the MIT Sloan CFO Summit last fall. It’s evident that teaching leadership skills is critical in a changing world, but coaching Millennials comes with a set of unique challenges.

1. Millennials are moving targets for training. “Millennials expect to work for 12 to 15 organizations over their careers, versus three or four 20 years ago,” Van Maanen said (see Gallup for more).
2. Leadership is becoming more and more distributed. Many organizations’ hierarchical structures are flattening. Companies are becoming more flexible and diverse, with employees working from around the world. When there are technically no titles and no bosses, everyone needs to step up and be the leader. Also, leadership lessons that work in the U.S. or Europe might not apply as easily in countries that have been through political or cultural upheaval, have different cultural norms, or use technology to a different or lesser extent.

This week, MIT Sloan Executive Education is hosting Mass Innovation Nights 101 (#MIN101), the Boston region’s premier monthly startup showcase and networking event. This month’s event, to be held on Wednesday, August 9^th, will be held at MIT’s Samberg Conference Center and will feature new startups influencing innovation and tackling process improvement.

“Over the last eight years, we’ve built a successful social media-powered group that has worked together to support local entrepreneurs,” said Bobbie Carlton, Founder of Innovation Nights and Innovation Women. “It’s really a great example of how much a group can accomplish working together, without huge budgets and expensive tools.” Carlton adds, “as a major global driver of innovation, MIT is a natural partner for us.”

Free-of-charge and open to the public, monthly Mass Innovation Nights events feature business experts, networking, tabletop demos, and presentations from the winners of an online vote taken before the event. Here are the innovations participating in Mass Innovation Nights 101:

• Openbridge is an integration platform that helps teams harness the power of performance data across a variety of sources, including social networks, video platforms, and web analytics tools.
• TwelveJobs uses detailed information from job seekers and employers to algorithmically help find the perfect match.
• WatchRx uses a smartwatch to help the elderly take their medications on time and to live independently in their homes as long as possible.
• Vinolytics simplifies wine management, offering what to drink when, what it is worth, where it comes from and how to buy or sell it.

Back in 1976, when eight-year-old Christopher Noe pocketed his first $2 dollar bill, little did he know the impact it would have on his professional career. Fast forward four decades and that bill— along with a collection of others Noe has accumulated through the years—has been a central prop in Noe’s 20 years of teaching at MIT Sloan.

“I have a lucky $2 bill that I carry in my wallet and use in the classroom to illustrate a concept in accounting called fair value,” says Noe, who explains the concept in layman’s terms as “an unbiased estimate of the potential market price of a good, service, asset, or liability.” Fair-value accounting is often contrasted with historical-cost accounting, and the two approaches are often debated in academic and business circles.

Noe, who teaches in the MIT Sloan Executive Education course, Strategic Cost Analysis for Managers, recounts a serendipitous moment while teaching during which he pulled the bill out of his wallet and was delighted to see a half dozen students do the same. One of those students was so interested in the unusual bill that he began a blog on the topic, which attracted the attention of a documentary filmmaker John Bennardo. The filmmaker included Noe and his MIT Sloan lecture in his film, “The Two Dollar Bill Documentary.” Bennardo filmed Noe asking students what the $2 bill is worth—a topic that always results in an interesting class debate. Typically, a student might answer that the bill is worth $2. Noe will agree, but points out that his 1976 bill is nearly 40 years old. Someone will then look it up on eBay and say it’s worth $8 as a collectible.

So, which is more correct? There’s not one final answer, and therein lies the illustration of the distinction between historical-cost and fair-value accounting.

There is no shortage of innovation advice—you have surely heard the persistent drumbeat, “disrupt or be disrupted,” for example. Conventional wisdom says that there are two types of innovation: incremental or radical. But this is a false dichotomy.

According to David Robertson, MIT Lecturer and author of The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation, there is another way to innovate. This distinctive approach, which Robertson refers to as the Third Way, improves the value of a core product by innovating around it.

This third strategy consists of creating a family of complementary innovations around a product or service, all of which work together as a system to carry out a single strategy or purpose. And crucially, unlike disruptive or radical innovation, innovating around a key product does not change the central product in any fundamental way. While continual improvement of your product is, of course, a good thing, Robertson encourages respect for what made that product great in the first place.

“People will tell you to drop your core product and go ‘disrupt,’ … but it didn’t work for LEGO!” says Robinson. “Innovation can be damaging.”

Robertson is referring to LEGO’s reaction to competitive threats and market shifts in the late 1990s that caused the company to innovate away from its signature snap-together bricks in favor of diverse new products, including a line of toys designed around two blockbuster movie franchises, Harry Potter and Stars Wars. When no new movies from either franchise appeared in 2003 or the first half of 2004, however, a harsh reality was revealed: the bottom had dropped out for LEGO. Its attempts to create revolutionary change almost pushed the company into bankruptcy.

In the wake of that disaster, the company examined its series of failed experiments, and one bright spot emerged—a quirky construction toy called Bionicle, which differed in three key ways from what the company had done before: the plastic pieces were used to construct action figures; the toy came with a LEGO-created story of heroes battling villains to the save the world; and the plastic pieces were surrounded by complementary innovations, from new packaging to comics to an array of licensed merchandise.

The latest fashion trends can be found in couture magazines and the runway at Bryant Park, but did you know that you can also spot the latest innovations in fashion here at MIT?

In fact, MIT has a long history at the intersection of high fashion, high tech, and innovation—from our pioneering efforts in textile programing, adaptive clothing for people with disabilities, wearable computing, new biologic fabric that literally breathes, and the many successful ventures spun out of our Martin Trust Center for Entrepreneurship.

A surge of startups

For years, fashion-minded MIT students and alumni have been creating companies targeting niche consumer styles and voids in the retail industry. These companies include everything from traditional ventures in textiles and garments to tools that enhance the online shopping experience to completely reinventing the stiletto.

• Ministry of Supply, co-founded by a group of MIT Sloan students and an MIT engineering alumnus, uses thermal analysis, robotic engineering, and advanced materials to design better-fitting men’s business attire. The company has developed a rapidly growing science-based clothing line and the industry’s first 3-D robotic knitting machine.

• AHAlife is a curated online marketplace of thousands of luxury fashion items and other high-end products. AHAlife re-creates the in-store experience of discovery while shopping online by featuring quality, well-crafted products with a story.

• Sundar, a global mobile search engine startup for sourcing materials and suppliers, was incubated at MIT and founded by MIT Sloan alumnus Jag Gill. “Our mission is to streamline the discovery and sourcing process by providing sophisticated search, curation, and data-driven insights on what to purchase, produce, and stock to buyers and sellers 24/7,” said Gill in this Forbes feature.

A minisurge of MIT start-ups like these in recent years is driven by a budding category of fashion industry entrepreneurs. “About two years ago, we thought these companies were outliers,” said Bill Aulet, Managing Director of the Martin Trust Center for MIT Entrepreneurship, in this Boston Globe article. “Now the pace has definitely picked up.”

Blockchain technology is hard to understand and even harder to predict. But given the promise of blockchain and its golden child, Bitcoin, you’d be wise to start making sense of it now. For the uninitiated, this recent article from the MIT Sloan Newsroom sheds helpful light on these intertwined terms. We’ve also blogged about crypotechnology previously, in posts related to Bitcoin’s role in digital strategy and its meteoric rise in value in 2016.

The MIT Media Lab's Digital Currency Initiative describes blockchain as a decentralized public ledger of debits and credits that no one person or company owns or controls; its users control it directly. This system lets people transfer money without a bank, for example, or write simple, enforceable contracts without a lawyer.

“Blockchain technology is particularly useful when you combine a distributed ledger together with a cryptotoken (as in Bitcoin),” explains MIT Sloan Assistant Professor Christian Catalini. “Suddenly you can bootstrap an entire network that can achieve internet-level consensus about the state and authenticity of a block’s contents in a decentralized way … This is one step away from a distributed marketplace, and will enable new types of digital platforms.”

Blockchain and business

Blockchain and cryptocurrencies have enormous potential impact on global enterprises.

When Bitcoin was introduced in 2008, the Internet saw the effects of a drastic reduction in the cost of verification and the cost of networking. “For the first time in history, value could be reliably transferred between two distant, untrusting parties without the need of a costly intermediary,” writes Catalini in a research paper on the economics of blockchain.

We’ve had a century-long love affair with the car and, for the most part, it’s been a great ride. But our relationship with automobiles is changing.

In the U.S., recent studies suggest that Americans are buying fewer cars, driving less, and getting fewer licenses with each passing year. People are more attached to their smartphones than their cars; millennials in particular value cars and car ownership much less than they value technology. Combine this disenchantment with the fact that, in many cities around the world, cars are not always the quickest mode of travel. And, of course, emissions from the rapidly growing number of cars threaten the planet. It makes one wonder: is our global love affair with vehicles cooling?

We recently spoke with MIT Professor Charles Fine about his new book, slated to hit the stands in September: Faster, Smarter, Greener: The Future of the Car and Urban Mobility. Fine teaches operations strategy and supply chain management in MIT's Communications Futures Program, and he is Faculty Director of the MIT Sloan Executive Education program, Driving Strategic Innovation: Achieving High Performance Throughout the Value Chain. His research focuses on supply chain strategy and value chain roadmapping, with an emphasis on fast clockspeed manufacturing industries. Fine's work has supported the design and improvement of supply chain relationships for companies in electronics, automotive, aerospace, communications, and consumer products.

Faster, Smarter, Greener brings Fine’s research into the future, envisioning a new world of urban mobility that is connected, heterogeneous, intelligent, and personalized—what Fine and his coauthors Venkat Sumantran and David Gonsalvez refer to as the CHIP architecture. This architecture embodies an integrated, multimode mobility system that builds on ubiquitous connectivity, electrified and autonomous vehicles, and an open, entrepreneurial marketplace.