Peter Senge, the author of The Fifth Discipline and The Necessary Revolution, talks about the challenges of leading organizations at a time when their supply chains need to be radically transformed. The first challenge is building an understanding of the larger system in which any organization exists. The second is learning to work with parties throughout that system, such as NGOs that can provide access to crucial knowledge and expertise. The third challenge is developing a different attitude about sustainability: Being "less bad" is not a vision that can inspire people to undertake large-scale change. These supply chain challenges are all leadership issues, but they are not restricted to chief executives. Leadership in this area can come from many places in the organization, including technical and process specialists, and even from the outside. What's important to effecting change across a supply chain is passion, an ability to form networks, organizational savvy, and a recognition of the realities, such as finite resources, that are now asserting themselves.
Few people outside the supply chain function used to care where products came from. Nowadays, everyone from company leaders to interest groups to consumers wants to know something, if not everything, about a product's origins. Steve New, of Oxford University, explores the technology, logistics, and inevitable opportunities and risks involved in exposing your supply chain to the world. The new tools for making supply chains transparent are proliferating. They range from sand-grain-size radio-frequency ID tags embedded in products, to customer-facing online databases that allow any comer to probe a product's history, to webcams that show what's going on at suppliers in real time. Managing such information so that it's accurate, useful, and secure is no small task. But complex as the logistics may be, the benefits to a company are often well worth the effort. Transparency, if wisely marketed, can win the confidence of consumers who are inclined to buy your products and even that of potentially hostile interest groups. An unfettered, granular view into your own operations can also help you identify problems and, ultimately, strengthen the efficiency and integrity of your supply chain. Nonetheless, power that's so accessible can easily be wrested from a company. Leaders must remain on top of the vast wells of supply chain information at their fingertips so that they can analyze-and then wisely reveal-what they find before outsiders do.
Conventional financial tools can lead to supply chain mistakes. Most managers use the discounted cash flow (DCF) model to help them make decisions such as where to locate a new manufacturing plant or whether to use a foreign or domestic supplier. But DCF typically undervalues flexibility-and as a result, companies may end up with supply chains that are low cost as long as everything proceeds according to plan but extremely expensive if problems arise. De Treville, of the University of Lausanne, and Trigeorgis, of the University of Cyprus, argue that you can avoid this pitfall by complementing a DCF analysis with a real options valuation. This technique lets you put a dollar figure on flexibility in the supply chain and helps you assess the value of having direct control. The authors explain how a real options approach helped the Swiss company Flexcell decide whether to locate a new plant at home or abroad. The CEO was able to show his board that the flexibility afforded by a factory near company headquarters would more than make up for the 15% per unit cost savings that would have been realized at a factory elsewhere. He also demonstrated that the costs resulting from a disruption to a Swiss plant would be much lower than those resulting from a disruption to a foreign plant. The decision to manufacture at home has paid off handsomely, especially in view of the uncertainties created by the current economic crisis.
Members of the HBR Advisory Council share their insights on the sustainability performance of their company's supply chains. Many say they feel hindered by forces beyond their control, such as cost, complexity, lack of information and know-how, and the sense that customers and investors are not deeply concerned about sustainability issues. And they overwhelmingly cite financial concerns as the chief obstacle to sustainability innovation in their supply chains.
Until a few years ago, General Electric believed that its products could virtually market themselves. Marketers had been limited to passively pushing information to those centrally responsible for innovation-typically in R&D or engineering-with the result that brilliant minds were languishing in dead-end jobs. When it came to discussions about corporate strategy, marketing wasn't at the table. But as GE's businesses matured, the company realized that it could no longer win simply by launching increasingly sophisticated technologies or taking existing technologies to new markets. To succeed, GE would need a marketing engine that could collaborate directly with customers and lead to new markets-one rooted in standards as rigorous as those for functions such as finance and human resources. CEO Jeff Immelt issued a mandate that marketing should be a vital operating function across GE and an engine for organic growth. The marketing team took on the challenge of identifying and codifying from scratch the skills it would need. The result was a marketing framework for the entire company along three dimensions: principles (creating a common language and standards), people (getting the right leaders in place), and process (including very specific measures for grading performance). Marketers took their place alongside technologists and had a voice earlier in the process, as GE's innovation expanded to include ideas grounded in customer needs and market trends.
These days more companies are inviting customers to help them design products. Now a few are taking things further and including their other stakeholders-employees, suppliers, distributors, and even regulators-in "co-creation" efforts, too. By focusing on improving the experiences of everyone involved, such firms are achieving breakthrough insights, lower costs, new revenues, and new business models. Consider how this worked at France's La Poste, which wanted to expand package delivery and banking services in light of a decline in its mail business. La Poste had three obstacles: unmotivated union tellers, customers disgruntled by long waits, and frustrated local managers, who felt caught in between. The company set some high-level goals and invited all three groups to decide how to reach them together. To get tellers' buy-in, La Poste gave them a say in their schedules. In workshops, the groups figured out when each office should be open and how its space should be configured. The results: a 50% decrease in waiting time, a jump in satisfaction for customers, soaring job satisfaction among tellers, and significant growth in package delivery and banking, despite the recession.
Why is it that effective business start-ups frequently grow into corporate giants, but effective new nonprofits rarely reach national scale? Because, say Harvard Business School's Kaplan and Grossman, the mechanisms and institutions that channel money and information between donors and nonprofits are underdeveloped. They don't provide reliable data on performance and don't hold organizations accountable for producing results. So inefficient nonprofits swallow up dollars that effective ones could use to serve more constituents. The good news is, that's beginning to change: A new generation of charitable foundations and intermediaries is measuring the impact of donations and targeting the highest-performing nonprofits. Taking a page from mutual funds and venture capital firms in the private sector, the new intermediaries conduct extensive due diligence on nonprofits and demand hard data on outcomes achieved. A few pioneers provide ongoing support, helping grantees develop action plans, detailed frameworks to measure impact, and strategic advice. If practices like these spread, we could soon see a social capital market that delivers real returns on donors' dollars.
Media entrepreneur Kramer looks at three French companies that use low-tech ways to better connect with customers. Luxury-goods maker Boucheron hosts intimate dinners with a small number of key customers; Nespresso's French subsidiary is making big investments in telephone call centers-despite the fact that most orders come through other channels-and training staff members to spend more time talking to customers; and Vente-Privee treats its key suppliers like customers, forging personal connections with them. Kramer argues that even in an era when so many companies are obsessed with social networking and trying to amass millions of followers on Twitter and Facebook, the deepest relationships between businesses and customers continue to be formed offline, where they are better able to engage in true dialogue.
When it comes to gaining buy-in for a new idea, we've been taught to focus on getting the idea right instead of on making sure people understand and support it. That, explains Kotter, has left us unprepared to deal with the attacks that can kill off even the most carefully developed concepts. In this edited interview, the leadership expert discusses various idea-killing attacks and offers some rules for responding to them. Whether you're working on a small deal with just a few players or a large-scale change effort in an organization of thousands, you're in the "murky land of human nature and group dynamics," Kotter says. People's anxieties and opinions color the way they react to new ideas. Kotter and Lorne Whitehead have identified four common ways that people shoot down ideas: fear-mongering, death by delay, confusion, and ridicule. Marginalizing the troublemakers might seem like the obvious response, but Kotter and Whitehead have found that people who were effective at gaining support for their ideas invited naysayers to critique their ideas and treated them with respect. They also communicated clearly and simply, never let the disagreement become personal, attended to the entire group instead of just to the most vocal critics, and prepared responses to a variety of potential attacks. Learning how to win buy-in for an idea is a basic life skill, Kotter says-one that is as relevant to a student working on a group project as it is to an executive in a business setting.
Michael Mack was a prototypical success story-after getting his Harvard MBA, he worked for a top-tier consulting firm and next made a move into entrepreneurship as the owner of a growing restaurant chain. Then, to his shock, his board fired him. That setback sent him on a personal journey that made him a much wiser leader.
The CEO of a watchband manufacturer based in Seoul is considering opening a factory in the Kaesong Industrial Complex (KIC), a South Korean manufacturing zone in North Korea. Such an operation is appealing on several counts: The costs of labor are low, capital risk is also low because of South Korean government guarantees, and the KIC, as the largest area of economic cooperation between the two Koreas, could be a step toward a unified peninsula. But there are substantial risks as well, concerning South Korean employees' safety, the treatment of North Korean workers by their government, the human rights situation generally in the North, and the uncertainties of dealing with a volatile regime. Are the potential economic benefits worth the human risks? And should politics and national pride factor into the decision? Two commentaries accompany the case, one from Youssef Nasr, a former senior executive in the HSBC Group, and one from Ian Bremmer, the president of Eurasia Group.
The CEO of a watchband manufacturer based in Seoul is considering opening a factory in the Kaesong Industrial Complex (KIC), a South Korean manufacturing zone in North Korea. Such an operation is appealing on several counts: The costs of labor are low, capital risk is also low because of South Korean government guarantees, and the KIC, as the largest area of economic cooperation between the two Koreas, could be a step toward a unified peninsula. But there are substantial risks as well, concerning South Korean employees' safety, the treatment of North Korean workers by their government, the human rights situation generally in the North, and the uncertainties of dealing with a volatile regime. Are the potential economic benefits worth the human risks? And should politics and national pride factor into the decision? Two experts comment on this fictional case study in products R1010P and R1010Z.
The CEO of a watchband manufacturer based in Seoul is considering opening a factory in the Kaesong Industrial Complex (KIC), a South Korean manufacturing zone in North Korea. Such an operation is appealing on several counts: The costs of labor are low, capital risk is also low because of South Korean government guarantees, and the KIC, as the largest area of economic cooperation between the two Koreas, could be a step toward a unified peninsula. But there are substantial risks as well, concerning South Korean employees' safety, the treatment of North Korean workers by their government, the human rights situation generally in the North, and the uncertainties of dealing with a volatile regime. Are the potential economic benefits worth the human risks? And should politics and national pride factor into the decision? Two commentaries are attached to the case in R1010P and included in R1010Z, one from Youssef Nasr, a former senior executive in the HSBC Group, and one from Ian Bremmer, the president of Eurasia Group.
Jim Reynolds Jr. founded Loop Capital in 1997 as an investment bank specializing in bond sales for municipalities. Ten years later, with thirteen offices and almost 100 employees, Loop Capital was a national company and had brokered more than $800 billion of underwritings in equity, tax-exempt, and taxable fixed income markets. In the process of building its municipal finance and equity trading businesses, Loop Capital had developed close relationships with a number of government officials, large institutional money managers, and corporate executives. These customers began asking Loop Capital for help with other financial services, leading the firm to build corporate finance, tax-exempt, and taxable fixed-income platforms so it could offer a wider array of investment services. Municipal and corporate finance as well as equity, taxable, and tax-exempt trading were generating positive cash flow. In a field where failures were frequent, Loop Capital was thriving, and Reynolds saw great but untapped potential in the company's future. Over the past several years, Loop Capital had served as financial advisor to several municipalities that wanted to lease or sell public assets such as airports, toll roads, and seaports. Now he confronted several intriguing questions: Should he launch a $700 million infrastructure fund to invest in the types of deals the firm had helped structure? Did it make sense to invest in order to staff, market, and support the start-up of this new fund? If the fund was launched, should Loop Capital commit to the 1% investment likely to be required as the fund's general partner?
Rufus Rivers, managing director and co-head of mezzanine investing at The Carlyle Group, is reviewing two employment offers he recently received. One came from RLJ Equity Partners, a private equity firm headquartered in the metropolitan Washington, D.C., area. The other came via Glocap Search, a New York-based executive search firm specializing in placing top private equity executives in premier venture capital roles. The Glocap recruiter had told Rivers that he had been selected as the leading candidate for a position with an established Boston-area venture capital firm that had several exciting investment prospects. In the next few days, Rivers needs to consider his personal and professional interests and make a decision: Should he go to Washington, go to Boston, or stay put-and on what terms?
The case discusses the operational, strategic, and financial turnaround at Solo Cup, a manufacturer of disposable dining wares. Solo Cup's troubles were compounded by the acquisition of a larger rival, Sweetheart Company, which had its own problems and presented issues of merger integration that management could not solve. David Garfield, a managing director at turnaround consulting firm Alix Partners, must first recognize Solo Cup's core competencies in order to determine the appropriate change in strategic course, strip out the assets that no longer support the operations necessary for that strategy, and monetize them in order to rationalize its balance sheet. This case teaches that a three-pronged approach will invariably produce greater results than any one-dimensional turnaround.
HP sells configure-to-order products. With millions of part combinations going into an order, the challenge is deciding which parts to keep in the portfolio to balance costs with revenues. The case explains how one would approach this problem before product introduction, but focuses on managing the existing portfolio.
Global Connect, a major telecommunications service provider, partners with national cable providers to bundle media and telecom services offered through voice over Internet protocol (VoIP). Global Connect provides the VoIP physical infrastructure that enables cable providers to offer VoIP phone service to their end customers. VoIP cable services are growing at a faster rate than anticipated, leaving Global Connect incapable of meeting contractual agreements with the cable partners and preventing them from capturing substantial VoIP market opportunities. Students are asked to improve the configuration of work at this service organization by identifying the types of waste in the current process. Process improvements use lean tools and their impact is quantified using time and capacity analysis.
This case documents the history and development of philanthropic work in providing quality education by CARE (Cooperation for Advancement Rehabilitation and Education) under the leadership of its chairperson, Seema Aziz. Seema started CARE in 1988 as a small voluntary effort to help the flood victims of the Sheikhupura town, Lahore (Pakistan) and later directed the organization's focus towards providing quality education to underprivileged children. After over a decade of efforts which led to the establishment of 6 CARE owned schools and adoption of 20 schools from the Government of Punjab, Seema was faced with an important decision which would shape the future of CARE. In September 2002, the government of Punjab offered CARE to adopt another 140 government schools. The offer had left Seema at a crossroads as accepting the offer would achieve CARE's mission by accelerating the process of spreading education. However, it would invite challenges associated with managing a rapidly growing organization, providing for additional funds and other organizational resources, and establishing a professional and well motivated Human Resource base to support the expansion decision which would have to be taken within a few months. On the other hand, refusing the government's offer would enable Seema to take CARE through a gradual process of growth ensuring control over policymaking and implementation, minimizing risks related to financial sustainability, building organizational and human resource capacities and above all preparing leadership capabilities necessary for a growing organization. For Seema it was indeed a tough decision. She felt that as she contemplated the offer to prepare CARE to take up the challenge, thousands of children lost hope for basic education and an opportunity to live like the privileged part of the society. While Seema's heart was truly tempted to take up the government's offer, her mind was well aware that she must choose her options wisely.