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Ignoring OECD standards that require investors to conduct environmental and human rights due diligence can expose investors to substantial risks.
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Digital media have produced an explosion of nontraditional news outlets. When a crisis arises, managers must be aware of media controlled by various stakeholder groups, which may have significant influence on how the crisis evolves. Failure to recognize the power of stakeholder-controlled media has significantly affected the outcomes of past corporate crises. Companies need to know how stakeholders gained this power, how they use it, and what to do about it.
Although using nonfinancial metrics like customer satisfaction has become increasingly popular in assessing executive performance and determining compensation, the practice has some significant drawbacks. Not all metrics apply equally to all industries. Companies considering such metrics for strategic performance management frameworks should be mindful of the importance of knowing their strength as lead indicators and applying them appropriately.
It can be difficult for finance professionals to transition to broader leadership roles. Leadership development, it turns out, is different for people from finance backgrounds. But five changes in how they approach their job can help them succeed when taking on broader roles in an organization. Those changes include transitioning from being the expert to being someone who leverages expertise, and being able to unleash their thinking to see that a problem can have multiple plausible solutions.
The Winter 2016 issue of MIT Sloan Management Review explores how increased transparency — and, in particular, the ready flow of information in a digital world — is changing the environment in which corporations operate. Transparency also is changing the distribution of power between large organizations and those who challenge them. Executives need to anticipate the possibility that any issues related to their company could someday be public knowledge.
Could science-based industries benefit from a financing model similar to one used to make Hollywood movies? “We propose that a form of governance centered on the project rather than the company may be a more efficient way to organize innovation in science-based industries,” write the authors. Their proposal addresses the fact that traditional venture capital “wasn’t designed to deal with the costs, risks, and slow payout of science-based industries.”
Thanks to social media and an increasing flood of data, the capacity to generate causes and controversies almost instantly has become the new norm in today’s “super-transparent society.” Individuals and organizations produce a voluminous, mostly involuntary, “digital exhaust,” which reveals much more about them than they think it does. Most business leaders have not yet come to grips with the new reality — and what it means for their organizations.
In an adaption from his new book The Power of Resilience, MIT’s Yossi Sheffi explains how companies are learning to more quickly detect unanticipated problems that can interfere with their global operations. Sheffi looks at how leading companies are using an array of detection and response techniques, from sensors to supply chain control towers. These tools are helping companies become more resilient to disruptions such as hurricanes, the discovery of product contamination, and political events.
In an August 2015 webinar, MIT professor Yossi Sheffi, a renowned expert on supply chains, risk management, and resilience, shared insights and examples from his latest research and forthcoming new book, The Power of Resilience: How the Best Companies Manage the Unexpected. He offered insights on understanding and analyzing the types of risks companies face, as well as preparing for and coping with disruptions effectively.
In a volatile, global economy, supply chains have become increasingly vulnerable. Supply chain practices designed to keep costs low in a stable business environment can increase risk levels during disruptions. But companies can cultivate resilience to unexpected disruptions by understanding their vulnerabilities and developing specific capabilities to compensate for them. The authors identify and detail 16 capabilities companies can use to respond to particular vulnerability patterns.
Managers in some leading companies have pioneered a new approach to sustainability. In this approach, businesses have the potential to be rule makers as well as players in establishing environmental regulations. “There is an expression in Washington,” says DuPont’s Michael Parr, “that it is better to be at the table than on the menu.” Indeed, by engaging with government on the structure of the phaseout of air conditioning chemicals, DuPont helped bring an end to one profitable product life cycle and spawn another.
Deal markets can be “hot” or “cold,” and the state of the economy can bias executives’ evaluation of potential acquisitions. For instance, relying on discounted cash flow scenarios can bolster managers’ sense of confidence and create unrealistically low perceptions of uncertainty. Executives can mitigate valuation biases by having a checklist — the list tempers natural inclinations to focus on the value of growth options in “hot” markets and risk of investment in “cold” markets.
Global supply chains bring increased risks of disruption from events such as natural disasters. But by understanding and planning for such risks, Cisco Systems improved its own supply chain resilience. Its five-step process: identify strategic priorities; map the vulnerabilities of supply chain design; integrate risk awareness into the product and value chain; monitor resiliency; and watch for events. John Chambers, Cisco chairman and CEO, calls this type of risk management “a key differentiator.”
Is your company focused on creating value — or on siphoning it off from others? Capturing value from other stakeholders by manipulating the competitive market process to the company’s advantage exposes a company to reputational or legal risks. It also can undermine corporate values. Value extraction is typically easier than developing a competitive advantage through ongoing value creation. Companies can get hooked on the practice, to the detriment of real value creation.
The introduction of Google’s breakthrough wearable computer, Google Glass, creates numerous possibilities for risky behavior on the part of Glass users. Should companies on the cutting be held responsible for their customers’ poor judgment in using new tech? There are legal and social precedents that say they should, but business and corporate responsibility expert Christine Bader suggests ways companies can combat this problem.
Most managers know that they should protect their supply chains from serious and costly disruptions — but comparatively few take action. The dilemma is that solutions to reduce risk mean little unless they are evaluated against their impact on cost efficiency. To protect their supply chains from major disruptions, companies can build resilience by segmenting or regionalizing supply chains, and limit losses in performance by avoiding too much centralization of resources.
In business, a black swan is neither a bird nor a ballerina — it’s a very rare convergence of factors that leads to catastrophe. New research suggests that by exploiting all types of data, managers can help prevent some black swan events, and reduce the hazards of other risky blind spots. The caveat: less intuition, more data.
Standard & Poor’s estimated the short-term cost of the recent U.S. government shutdown at $24 billion. MIT Sloan professor and former IMF chief economist Simon Johnson discusses the potential long-term consequences if trust in U.S. currency is undermined by continuing political uncertainty.
The fifth annual global executive survey about sustainability and innovation conducted by MIT Sloan Management Review and the Boston Consulting Group suggests that climate change has yet to become a very urgent issue for most companies — and that only a minority of companies are preparing for its effects. In a preview of our upcoming report (due out in the fourth quarter of 2013) we present six charts that provide a snapshot of report statistics.
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