When Joseph Jimenez joined Novartis, in 2007, the company was facing a big challenge: Its blockbuster drug Diovan, which accounted for more than 20% of the pharmaceutical division's revenue, would lose its U.S. patent in 2012. His senior executives had some ideas for offsetting the loss--about 100 of them. From that list they chose three on which to focus: (1) The division invested significantly in testing Afinitor (a treatment for renal cell carcinoma that was nearly ready for market) in breast cancer. (2) It set up Novartis China Commercial University to screen, hire, and train several hundred salespeople for rapid expansion in high-growth markets. (3) It began to transition to an outcomes-based approach to selling medicine by offering to screen patients for responsiveness to new drugs before they're prescribed. Five years later, Jimenez writes, those efforts are beginning to pay off: Revenue is expected to remain stable even as Diovan gives way to generics.
When the history of an organization comes up, it's usually in connection with an anniversary--just part of the "balloons and fireworks" (as one business leader characterized his company's bicentennial celebration, knowing that the investment of time and money would have little staying power). A fast-changing world leaves little time for nostalgia and irrelevant details--or, worse, strategies for winning the last war. But the authors, business historians at the Winthrop Group, assert that leaders with no patience for history are missing a vital truth: A sophisticated understanding of the past is one of the most powerful tools they have for shaping the future. The job of leaders, most would agree, is to inspire collective efforts and devise smart strategies for the future. History can be profitably employed on both fronts. As a leader strives to get people working together productively, communicating the history of the enterprise can instill a sense of identity and purpose and suggest the goals that will resonate. In its most familiar form, as a narrative about the past, history is a rich explanatory tool with which executives can make a case for change and motivate people to overcome challenges. Taken to a higher level, it also serves as a potent problem-solving tool, one that offers pragmatic insights, valid generalizations, and meaningful perspectives--a way to cut through management fads and the noise of the moment to what really matters.
In this article Wessel and Christensen, both of Harvard Business School, introduce a way to work out how dangerous a disruption may be to your business. With a deep understanding of the jobs your company really does for customers and a clear take on both the advantages the disrupters have and the barriers they face, you can predict whether, to what extent, and how quickly an approaching disruption might displace your business model. Then you can take steps to maximize your core's strengths in response. The authors offer as an example the disruption of retail grocery stores. Although only about 1% of all groceries in the U.S. are currently bought online, the theory of disruption suggests that e-grocers will speed their delivery times, increase their product selection, and add features we can hardly imagine today in pursuit of new customers and higher profit margins. Nevertheless, of the three main jobs for which customers use retail grocers--stock up on nonperishables, shop for tonight's dinner, and grab an emergency item--only the first is vulnerable right now to the disrupters' extendable core: its ability to maintain radically lower prices as it creeps upmarket in search of more customers. That means traditional grocers need to focus on developing innovations to strengthen their hold on the other two.
Sooner or later, most companies will need to reinvent themselves in response to disruptive market shifts, technologies, or start-ups. But can a new business model quickly replace all the revenue an incumbent has lost to market upheaval? Only in rare instances, say the authors. That's why they propose that companies under assault pursue two distinct but parallel efforts: "Transformation A" should reposition the core business, adapting it to the altered environment. "Transformation B" should launch a separate, disruptive business that will be the source of future growth. That approach allows the company to realize the most value from its current assets and advantages, while giving the new initiative the time it needs to grow. This article walks readers through the dual transformations of three companies that were facing massive disruption: the Deseret News, which was losing advertising to online upstarts; Xerox, whose copier business had been eroded by Asian rivals; and Barnes & Noble, which was threatened by e-books. In each instance, a key to making the dual transformations work was the establishment of a "capabilities exchange," which allowed both efforts to share resources without interfering with the mission or operations of either. The results to date are promising: At all three firms, the core business is back on track, and the innovative initiative is demonstrating strong growth.
When Mick Mountz set out to build Kiva Systems, he knew he was attempting to disrupt long-standing incumbents in the material-handling industry--and he succeeded. There is no question that the company's armies of mobile robots upend the normal pick-and-pack process in an online retailer's warehouse. But Mountz explains that it wasn't enough to envision the novel approach, invent the required technology, and make it commercially viable--he had to do much more to help customers take on the risk of buying an unprecedented solution. He had to price it in a way that made his company, not the customer, bear the risk. He had to provide all components of the solution so that Kiva would be 100% responsible for its performance. And he had to design his organization to deliver the entire customer experience--from initial marketing contact to after-sales service. It all adds up to a daunting proposition for a new company--and begins to show why disruption is so hard to pull off. When a company must defy so many of its industry's norms to change the game, it's out there to sink or swim on its own.
Nearly half of new job openings from 2010 through 2020 will be middle-skills positions in fields such as computer technology, nursing, and high-skill manufacturing. They require postsecondary technical education and training, and they're increasingly hard to fill. As federal funding for job training declines, Kochan, Finegold, and Osterman urge companies to take the lead in closing the middle-skills gap. Getting there, they argue, will require local business leaders to work with one another, educational institutions, and in some cases, unions. Available models include apprenticeship programs, such as those spearheaded by the Center for Energy Workforce Development; partnerships like those between Kaiser Permanente and its employee unions; sector-based regional initiatives, such as Boston-based SkillWorks; and collaborations with higher-education consortia that embrace strong ties to industry. Effective collaborative training programs involve employers in designing and funding the initiatives and in finding jobs for graduates. They integrate classroom education with opportunities to apply new skills in actual or simulated work settings. And they start graduates down a clear career path. These best practices, with leadership from the private sector, should be the cornerstones of a national job-training strategy.
What's the best way to lift people out of poverty? The social entrepreneurs in the new "impact sourcing" industry believe the answer is providing work, not aid. Their organizations hire people at the bottom of the pyramid to perform digital tasks such as transcribing audio files and editing product databases. Essentially, they do business process outsourcing that also boosts economic development. Samasource, a San Francisco-based nonprofit, is one of the leaders in this new field. It has developed a model that addresses the challenges that impact sourcing faces: inexperienced workers; customers who make decisions on price, not social impact; and the cost of building the necessary IT infrastructure. One way Samasource overcomes hurdles is by teaming up with local entrepreneurs. The local partners run the service centers and cover the $25,000 needed to set each one up, and Samasource helps them win customers like LinkedIn and Google, prep and scope projects, hire and train staff, and measure success. Samasource's model is especially attractive because it has achieved big results with a small staff. Though it has only 30 employees, the nonprofit has created 16 centers that have paid more than $2 million to 3,000-plus employees.
Innovations that radically redefine how a service is delivered can create tremendous value for customers and for providers. But they require deep insight into clients' needs and the revising of basic assumptions. It's possible, for example, that a doctor can treat more than one patient at a time. Organizations can redefine service delivery along four dimensions. A change in one may unlock--or block--possibilities for innovation in the others. 1) The structure of the interaction. Sometimes the service becomes more valuable to clients if they share it with others or if multiple providers coordinate closely to deliver it. 2) The service boundary. If a segment of clients uses the same complementary services and has trouble accessing them, a provider might consider integrating them into its offering. 3) The allocation of tasks. Who actually delivers the service? Employees' expertise might not match their assigned tasks. 4) The delivery location. This should be defined by the client's needs, not the provider's.
When Panasonic started selling home appliances in the Chinese market a few decades ago, its only attempt at localization was to offer less expensive versions of developed-market offerings. But as the Chinese middle class began to emerge, Panasonic's leaders discovered that local competitors such as Haier were quickly outpacing the Japanese company. While the home appliance market in China grew at 20% to 30% annually, Panasonic's growth in China stayed flat. Panasonic's leaders realized that they needed to engage more deeply with that market and learn to bridge two strategies that are often seen as mutually exclusive: finding competitive advantage through integrated, worldwide operations and focusing locally to meet consumers' particular needs. As a result of efforts such as the creation of a China Lifestyle Research Center, ideas began flowing freely between China and the home office in Japan. The company soon embarked on initiatives to understand consumers all over the world, and Panasonic's leaders began rethinking the company as a global, rather than a Japanese, powerhouse.
Most people are born creative. But over time, a lot of us learn to stifle those impulses. We become warier of judgment, more cautious, more analytical. The world seems to divide into "creatives" and "noncreatives," and too many people resign themselves to the latter category. And yet we know that creativity is essential to success in any discipline or industry. The good news, according to authors Tom Kelley and David Kelley of IDEO, is that we all can rediscover our creative confidence. The trick is to overcome the four big fears that hold most of us back: fear of the messy unknown, fear of judgment, fear of the first step, and fear of losing control. The authors use an approach based on the work of psychologist Albert Bandura in helping patients get over their snake phobias: You break challenges down into small steps and then build confidence by succeeding on one after another. Creativity is something you practice, say the authors, not just a talent you are born with.
Brooks and Tyler are first cousins who are running Erbe, a line of sustainably produced herb-infused vodkas. Brooks put up all his savings--$250,000--to get started, and just a month later Tyler quit a lucrative private equity job to join the new venture. The time has come to decide how to divide the remaining 90% stake in Erbe (the company's investors hold 10%). Brooks feels he's entitled to the lion's share; Tyler believes he should get half. With commentary from Courtney Reum, the founder of Veev Spirits (on which this case is based), and Jon Olinto, a cofounder of b.good, a chain of high-quality fast-food restaurants.
Brooks and Tyler are first cousins who are running Erbe, a line of sustainably produced herb-infused vodkas. Brooks put up all his savings--$250,000--to get started, and just a month later Tyler quit a lucrative private equity job to join the new venture. The time has come to decide how to divide the remaining 90% stake in Erbe (the company's investors hold 10%). Brooks feels he's entitled to the lion's share; Tyler believes he should get half. With commentary from Courtney Reum, the founder of Veev Spirits (on which this case is based), and Jon Olinto, a cofounder of b.good, a chain of high-quality fast-food restaurants.
Brooks and Tyler are first cousins who are running Erbe, a line of sustainably produced herb-infused vodkas. Brooks put up all his savings--$250,000--to get started, and just a month later Tyler quit a lucrative private equity job to join the new venture. The time has come to decide how to divide the remaining 90% stake in Erbe (the company's investors hold 10%). Brooks feels he's entitled to the lion's share; Tyler believes he should get half. With commentary from Courtney Reum, the founder of Veev Spirits (on which this case is based), and Jon Olinto, a cofounder of b.good, a chain of high-quality fast-food restaurants.
Frank Barnaba has rescued people from human trafficking situations for decades and received an award from President Reagan for his work. Now retired, he has started the Barnaba Institute to continue his humanitarian mission. As its president, Frank is involved in providing direct services to victims of sex trafficking, often in dangerous urban environments in the Northeast. The Barnaba Institute not only provides necessities, such as clothing, to victims, but also education and training about the scope and dangers of human trafficking to other organizations and the general public. Contacts with many organizations, such as Covenant House, the largest nonprofit child services agency in the U.S., have provided a forum for Frank's outreach and rescue techniques. Barnaba Institute's executive director, however, is concerned not only with accomplishing the organization's mission, but with finding adequate resources. Having used up the "seed" funding during its first three years, the executive director must now review its choices for continuing into the future.
Aguas Danone de Argentina (ADA) faced an adverse scenario. Argentina was undergoing its worst economic crisis in history, and bottled water sales were dwindling (replaced by utility network running water). The company needed to boost its revenues through new, innovative, more value-added product development. Argentina displayed a significant interest in fitness. By means of several market research studies, ADA managed to identify a segment whose needs were unmet by existing products and brands. New product launches were planned to target that segment. This case describes the dilemmas faced by ADA and the decisions required to formulate and pursue a strategy for new product launching and brand extension in adverse scenarios. More specifically, this case provides an opportunity to discuss how a new product category can be created to address market downturns. This case describes events that took place in 2002. Research interviews were started in 2004, but the case was published in 2009-12, because Danone delayed its disclosure permission for strategic and competitive reasons. On account of its richness and original contents, the authors decided to write the case despite this delay. This case is also available in Portuguese and Spanish
Wendy Lull, President of the non-profit Seacoast Science Center (SSC), was considering a substantial increase in the admission fee for the SSC facility in early 2008. The SSC's mission, "To create connections to nature through personal experience," was carried out through educational programs and exhibits targeting all ages. A number of new exhibits brought the flora and fauna of the seacoast of New Hampshire vividly to life, and illustrated many aspects of humans' interactions with the sea. Lull reviewed the changes since the SSC had become independent in 2001. There had been two major expansions, the most recent being an interactive learning studio that had opened in November 2007. She felt that the fee increase would help to cover a persistent $50,000 deficit in operating income. However, a fee increase might reduce visitation, which was already growing slowly, at best. A more fundamental strategic question might be whether the SSC should seek to grow, and if so, how.
This case discusses the events following the 2006 $33.2 billion buyout of Hospital Corporation of America (HCA) by a consortium of private equity firms, including Bain Capital, KKR, and Merrill Lynch's private equity arm. The case highlights some of the core features of private equity investing. The first objective of the case is to allow students to understand a range of issues associated with the process of exit through an initial public offering. Understanding the economics of leveraged recapitalizations- including leveraged dividend payouts to financial sponsors and the opportunistic 2011 repurchase of Merrill Lynch's $1.5 billion stake-is the second objective of this case. The case protagonist is the management of HCA.
The case follows leading Scandinavian media company Bonnier as it establishes a designated R&D division for the first time. The case, in particular, focuses on its first flagship project, called Mag+, in which it creates a digital platform for publishing digital magazines on the iPad. The case is intended, in part, as an introduction to the challenges media companies face due to the disruptive effects of digitalization, where traditional products and services are challenged by new digital category breakers such as the iPhone, Hulu, or Netflix. To this end, it offers a short tour of the changing print media landscape and reviews major upheavals in its business models. The Bonnier case illustrates how to engage in and manage a radical digital innovation process. In particular, it discusses the challenges associated with responding to the disruptive effects of digitalizing printed magazines. It illustrates concrete challenges that the Bonnier R&D manager Sara Öhrvall needs to tackle as she starts as the first R&D manager at Bonnier.
Shelby Givens, a recent business school graduate, returned home to Raleigh, North Carolina to help rescue her family's ailing and outdated bowling alley, Westlake Lanes. Although she cut costs and addressed inefficiencies, moving the business from near-bankruptcy to profitability in nine months, market conditions threatened the long-term viability of the business. Givens then sold her family on a new, more youth-oriented concept, an urban lounge called Sugar Bowl that could generate sizable revenues from the food and beverage businesses already embedded in Westlake Lanes. The case follows Givens as she builds Sugar Bowl into a turnaround story through shrewd decision-making in finance, operations, and marketing while contending constantly with challenging surprises and disappointments. The case also captures Givens's reflections on how the entrepreneurial drive that has motivated her. Sugar Bowl may be taught alone or after "Westlake Lanes" (4431), which follows Givens through the initial turnaround process.