Vision Statement

By Howard Frank, Dean
Robert H. Smith School of Business

Business Challenges

Challenges exist everywhere. Here are some that business schools must address in their courses, research, and partnership strategies.

Financial Markets: Well-developed financial systems require efficient mechanisms to transfer capital across time and between people, to pool capital, and to manage risk. These mechanisms promote efficiency and economic growth by ensuring that the best ideas and projects can be financed in the most effective ways and that transaction costs can be minimized. A key driver of the efficiency of financial systems is the quality and timeliness of the flow of information among providers of capital, financial intermediaries, and employers of capital. This allows parties to observe and manage risks better in financial transactions, leading to more efficient allocation of capital.

Lowered Barriers to Entry and Execution Costs: Digitization has had a dramatic impact on the gathering, transmission, and processing of information. This has led to significant advances in the operation of financial markets, the nature of financial transactions, and the behavior of various financial market participants. Some of the most salient changes are noted below: Financial markets have become more efficient and transparent through the use of electronic trading platforms and global information transmission systems that provide timely information to investors. Technology has lowered barriers to entry, and new electronic marketplaces (ECNs), such as Island, are now competing for trades with the more-established exchanges, resulting in lower execution costs for investors. Large exchanges are responding to this by introducing a sophisticated new technology, such as NASDAQ’s Super Montage system. Investor behavior has changed as a result of the increased availability of information from free and fee-based Internet sources, as well as from the technology-induced ability to place trades. This includes trading activities, such as program trading and day trading.

New Investment Structures: Sophisticated mathematical models that require considerable computational power are now routinely used to value fixed-income and derivative securities. This has enabled the design of new securities that can now be more accurately valued and hedged. Credit and valuation models can now be more accurately tested and calibrated using larger and timelier information on borrowers (individuals, corporations, and governments). More precise risk-management models permit financial intermediaries and corporations to measure and hedge their exposures accurately.

New Behaviors: There is now a critical need to understand better how firms should invest in and value intangibles, such as knowledge or human capital. Digital-driven advances in supply chain management have forced firms to revisit traditional solutions to risk management and shareholder value creation. The need for interdisciplinary research and training to address such problems in corporate management has become significantly more important. The behavior of various participants in financial markets (both individual and institutional investors) must be better understood as a result of research based on more readily available data on investor trades or positions, and on other information, such as analyst recommendations. Many of these advances are still in their early phases of development, but they are expected to progress rapidly.

e-Service: The World Wide Web is the most prominent recent manifestation of the digital economy, and companies are still trying to grasp its implications. Early applications on the Web sought either to reduce costs and increase efficiency by automating customer contact or to sell physical goods via the new channel. The greatest potential of the Web lies in its ability to expand service to the customer and increase revenues. The service revolution and the information revolution are two sides of the same coin, and the ability to manage the ongoing information exchange to provide better service for customers is the Web’s greatest contribution.

Customer Management: New capabilities for communication, data storage, and data analysis make possible the management of customer relationships to an extent not possible in the past. The emphasis in marketing is changing from products, transactions, and aggregate expenditures, to customers, relationships, and one-to-one marketing. Relating marketing actions to customer lifetime value makes it possible to use customer equity as a unifying strategic framework.

Marketing Return on Investment: Increased availability of customer information, coupled with advances in computation and statistical methods, makes it possible for companies to relate marketing actions to financial outcomes via the unifying framework of customer equity. This, in turn, makes it possible to trade off competing marketing initiatives on the basis of return on investment, with ROI generated from the discounted net present value of the changes in revenue streams and cost streams. This makes marketing strategy financially accountable.

Scientific Retailing: The availability of scanner panel data, both at the store level and at the customer level, makes it possible for retailers and manufacturers to quantify the profitability of retailing strategies, including advertising, promotions, and shelf-space allocations.

Supply Chain Management: Better information exchange between supply chain partners is a critical element of an integrated supply chain, as it provides more up-to-date information and allows for more accurate inventory responses to changes in demand and, thus, more appropriate inventory levels. Innovative information technologies provide the capabilities to transfer more accurate and up-to-date information, resulting in better visibility of demand and inventory throughout the supply chain. In summary, the importance of both information technology and supply chain management to organizational performance and competitiveness is widely recognized. However, the small percentage of firms at “world-class” supply chain levels suggests that substantial barriers exist regarding the integration of logistics activities and the adoption of supply chain technology, and that well-prepared students can add great value to the organizations that hire them.

Globalization: Developments in information and communications technologies are fundamentally changing the nature of globalization in the 21st century. Gone are the days when international trade was largely between firms in raw materials or finished goods. Today, more than 50%—and a rising proportion—of international trade consists of intermediate goods and services being traded intra-firm between dispersed subsidiaries of the corporation. Consider, for example, the case of Texas Instruments, one of whose recent chips was conceived jointly with engineers from Sweden’s Ericsson, designed in Nice, France, using TI software from Houston, produced in Japan and Dallas, tested in Sweden, and commercially exploited in markets all over the world. As an even more interesting example, consider the present-day case of Boston’s Massachusetts General Hospital. On an ongoing basis, every night, almost the entire radiology function of MGH moves to India. It’s easier and cheaper to get better radiologists in India during that country’s daytime than during nighttime in Boston. Such complex globalization would be simply infeasible without the power of digital technologies.

Labor Markets: Digital technologies are radically changing the structure and dynamics of labor markets, intra-firm as well as inter-firm, domestically as well as globally. As firms move increasingly to soliciting applications and resumes over the Web, they and the applicants have easier access to each other. On the one hand, this development has the potential to make the labor markets more efficient; on the other hand, it poses a challenge for firms to ensure that what they gain in terms of the number of applicants is not lost due to poorer quality processing of the incoming applications. Along similar lines, digital technologies are making intra-firm labor markets more rational and efficient. On the global dimension, as the Massachusetts General Hospital example illustrates, digital technologies are creating a situation whereby engineers, architects, and even radiologists in the U.S. are increasingly competing with those from other nations.

Knowledge Mobilization: In business strategy and economics, it is widely recognized that, for most firms, sustainable competitive advantage derives primarily from intangible assets, such as human knowledge and competencies, rather than from tangible assets, such as land, buildings, and equipment. As firms compete with each other ever more vigorously, the need to create and mobilize knowledge across human and organizational units has become increasingly important. Accordingly, knowledge management, through the implementation and utilization of IT-based knowledge management systems, has become an increasingly salient tool in the competitive armor of firms.

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