As the Internet and megamergers radically transform the rules for doing business, the Sloan School of Management and the global accounting firm Arthur Andersen have launched a five-year, $10 million research program to advance understanding of the sources of economic and social value in the new economy.
The collaboration was announced January 28 in conjunction with the World Economic Forum's annual meeting in Davos, Switzerland. The program, to be called the New Economy Value Research Lab, will be located at Sloan.
"Fast-changing technology, globalization, electronic commerce and Internet information technology are displacing the old rules of business design, valuation and performance measurement," said Richard Schmalensee, dean of the Sloan School. "The New Economy Value Research Lab will be among the first centers in the world to perform rigorous corporate and academic research to determine what the new rules are as we move forward in this shifting business landscape.
"Arthur Andersen's and Sloan's combined resolve provide the perfect mix for this type of research on creating, managing and measuring true value in the changing economy and on understanding the impact of technology. We are delighted to partner with Arthur Andersen with its vast experience working with companies worldwide."
"MIT provides the world's finest intellectual capital, as well as unparalleled access to research resources," said Richard Boulton, managing partner for strategy and planning at Arthur Andersen. "When combined with Arthur Andersen's global experience in working with leading companies, our partnership with MIT will generate dynamic, fresh thinking for companies in today's fast changing economic environment.
"The research that will be done at the lab closely parallels Arthur Andersen's strategy to be the partner for success in the new economy, focusing on the growing importance of intangible assets including brands, relationships and knowledge," Mr. Boulton added. "This initiative supports our continuing drive to transform our assurance and risk consulting services to meet the risk management and information needs of businesses today."
Arthur Andersen's views on how to create value in the new economy are set out in the firm's new book Cracking the Value Code: How Successful Businesses are Creating Wealth in the New Economy, written by Boulton and Arthur Andersen partners Steve Samek and Barry Libert.
The Sloan/Arthur Andersen research initiative will concentrate in four areas: how businesses are investing in different assets to create economic value, how the financial markets value businesses in the new economy, risk management in today's changing business environment, and performance measurement and financial reporting of all assets. In addition to studying Internet companies, the research lab will focus on other industries in which business models are undergoing rapid change, including telecommunications, health care and pharmaceuticals.
"The program initially will be devoted to developing new techniques and approaches to business valuation," said S.P. Kothari, the Gordon Y Billard Professor of Accounting and Finance and director of the new lab. "We will then extend those new methods to specific industry contexts and work with people from throughout MIT who are engaged in studying those industries."
"This is the first initiative of its kind to really concentrate on how business and social trends come together and have an impact on how organizations create value," said Barry Libert of Arthur Andersen, who along with Professor Kothari will provide strategic direction to the lab.
The New Economy Value Research Lab is the latest addition to a group of multidisciplinary research collaborations that Sloan is establishing with organizations such as Arthur Andersen. Last spring MIT started a $15 million research partnership including Sloan, the Department of Electrical Engineering and Computer Science and the Media Lab, coupled with $5 million in support for a new educational program in financial engineering and technology innovation and management. Another such program is the Center for eBusiness@MIT, which was also launched last year and now has sponsorship of more than $4 million per year from nearly 20 sponsors.
To communicate the relevance and implications of the New Economy Value Research Lab's findings to business people, the lab will host an annual professional conference to supplement an academic research conference. The first academic conference is expected to be held in mid-2001 jointly with the Journal of Accounting and Economics based at the Simon School of Business of the University of Rochester. The lab also intends to bring together industry and academic collaborators through a series of industry roundtables.
Arthur Andersen has more than 77,000 employees in more than 80 countries with expertise in assurance, tax, consulting and corporate finance. The company, which had 1999 revenues of more than $7 billion, is a business unit of Andersen Worldwide.
A version of this article appeared in MIT Tech Talk on February 9, 2000.