Leadership

The editors of the MIT Sloan Management Review are pleased to announce the winners of this year's Richard Beckhard Memorial Prize, awarded to the authors of the most outstanding MIT SMR article on planned change and organizational development published from Fall 2007 to Fall 2008.

Managers will never be able to predict the future as clearly as The Amazing Kreskin. But by making a deliberate effort, they can develop the clairvoyance they--and those around them--already possess into a potent competitive weapon. Because their antennae are always aloft, executives naturally detect weak signals as they drift in and out of range from the outer edges of their marketplace. How they find, keep and make sense of those faint clues can make all the difference when it comes to getting an early start on confronting a threat or exploiting an opportunity. In this article, the authors draw from their research into companies that learn from the future. They outline the specific skills managers need to develop--and those they had better lose--to correct their fuzzy vision of what's ahead. First, the authors identify the different breeds of biases that most managers don't even realize they have, and provide them with the tools to rout out such distortions. Then they outline nine proven and practical strategies managers can use to find, understand and make use of the most meaningful distant data. Confronting reality isn't as straightforward as hushing hunches in favor of high-minded analysis; there has to be room for both. Finally, the authors encourage executives to consider new information within the context of as many wider views of the future marketplace as they can find--tapping the farsighted folks at their company and in their industry. By learning how to extract meaning, managers will grow to understand that the future is plainly ours to see, no matter what the song says. What takes work is piecing those glimpses into a plausible panorama so that managers can see where their company strategy fits--before anyone else does.

As we sift though the debris of today's crisis, economists and policy makers alike are trying to assess why risk management systems and regulatory constraints didn't kick in before the global economy became engulfed in a tsunami of red ink. But economist Andrew W. Lo, the Harris & Harris Group Professor at MIT's Sloan School of Management, director of the school's Laboratory of Financial Engineering and founder and chief scientific officer of AlphaSimplex Group LLC, an investment adviser in Cambridge, Massachusetts, is less surprised than most seasoned observers. Lo has studied the connections between financial decision making, neuroscience and evolutionary psychology for over a decade. Among his findings are that professional traders, far from being cool-headed and rational, can become transfixed by extreme price movements, their decision-making capabilities temporarily hijacked by emotions such as fear and anxiety. In Lo's view, "behavioral blind spots" (which he defines as evolutionarily hard-wired reactions to perceived risks and rewards) are particularly dangerous during periods of economic extreme: bubbles and crashes. During these times, he says, "market forces cannot be trusted to yield the most sensible outcomes." In an interview with SMR editors, Lo says that balance sheets and income statements are adequate for measuring a company's profits and losses, but provide no information about future risk. He discusses a number of topics relevant to the financial crisis, including the inadequacies of corporate governance, the weakness of standard accounting practices to assess corporate risk and the need for better information and frameworks to inform risk-based decisions. In Lo's view, the financial crisis of 2008-2009 has tested two core ideas: the belief that corporate governance systems are designed to maximize shareholder wealth, and the assumption that markets and businesses will always react rationally to environmental change. If the latter were true, he says, Bear Stearns, Lehman Brothers and other financial institutions would have seen different outcomes.

Companies are on the lookout for new forms of competitive advantage. One emerging possibility: the idea that a company's management model can become a source of advantage.

Despite research showing that mergers and acquisitions rarely provide significant shareholder value, there is no sign of any slowing in the trend toward M&;A. One of the major reasons why M&;A tend, to fail, argue the authors, is that the process often puts extreme stress on senior management teams. By nature, the process is an adversarial one, with management on both sides advocating for their stakeholders. When the dust clears at the end of the process, management is left, as the authors say, "to navigate the challenging segue from 'tough negotiator' to 'trusted colleague.' " The authors draw on the experience of Hewlett-Packard, Cisco, General Electric and Adobe to propose six guidelines for improving relations between the senior management teams of both sides of the M&;A equation. The first three guidelines should be undertaken as soon as possible in the integration process. The authors advise that you can reduce the defection of talented personnel by reducing role ambiguity as quickly as possible. They also urge due diligence about the talent you are acquiring as early in the process as possible, and preferably before the deal is finished. Third, they recommend allowing some "habits to die hard." Employees often rely on habits and long-standing procedures to remain comfortable, and many of them are what made the company successful in the first place. As the integration process continues, there are three more important guidelines to follow. First, acquirers should not tolerate "bad behavior" that can sabotage the integration process. Second, it is important to have patience with the new management team, as many of them will be in unfamiliar roles. Finally, the authors suggest that it is important to remember to celebrate the value of the deal for all involved. By trumpeting the value of the new team, you can increase communication and trust. Ultimately, this trust may lead to increased shareholder value for all involved.

At top companies, where the inspired use of metrics helps to identify potential leaders and develop their skills, the answer is yes.