Most corporations are not as skilled at selling off assets as they are at buying them, often divesting at the wrong time or in the wrong way. Either is a very expensive mistake. A Bain & Company study has found that over the last 20 years, corporations that took a disciplined approach to divestiture created nearly twice as much value for shareholders as the average firm. In this article, Bain partners Mankins, Harding, and Weddigen set out the four straightforward rules those effective divestors follow. First: Just as they have acquisition teams, smart divestors have full-time divestiture groups, which continually screen their companies' portfolios for likely businesses to sell off and think through the timing and implementation steps needed to maximize value in each particular case. Second: They choose their divestiture candidates objectively. Too many firms rush to sell in economic downturns, when prices are low. Thoughtful divestors will sell only those businesses that do not fit with the corporation's core and are not worth more to themselves than they are to any other company. Third: Successful divestors consider how to structure a deal and to whom they will sell as carefully as they consider what units to sell and when. And they are as meticulous about planning the implementation of a deal as savvy acquirers are about postmerger integration. Fourth: They make a compelling case for how, and how quickly, the deal will benefit the buyer, and they make sure the selling unit's employees will be motivated to stay on and realize that value. Using these four rules, companies as diverse as Textron, Weyerhaeuser, Ford, Groupe Danone, and Roche have become "divestiture ready": consistently able to sell at the right time and in the right way to create the most value for their shareholders.
In today's innovation-driven economy, understanding how to generate great ideas has become an urgent managerial priority. Suddenly, the spotlight has turned on the academics who've studied creativity for decades. How relevant is their research to the practical challenges leaders face? To connect theory and practice, Harvard Business School professors Amabile and Khaire convened a two-day colloquium of leading creativity scholars and executives from companies such as Google, IDEO, Novartis, Intuit, and E Ink. In this article, the authors present highlights of the research presented and the discussion of its implications. At the event, a new leadership agenda began to take shape, one rooted in the awareness that you can't manage creativity - you can only manage for creativity. A number of themes emerged: The leader's job is not to be the source of ideas but to encourage and champion ideas. Leaders must tap the imagination of employees at all ranks and ask inspiring questions. They also need to help their organizations incorporate diverse perspectives, which spur creative insights, and facilitate creative collaboration by, for instance, harnessing new technologies. The participants shared tactics for enabling discoveries, as well as thoughts on how to bring process to bear on creativity without straitjacketing it. They pointed out that process management isn't appropriate in all stages of creative work; leaders should apply it thoughtfully and manage the handoff from idea generators to commercializers deftly. The discussion also examined the need to clear paths through bureaucracy, weed out weak ideas, and maximize the organization's learning from failure. Though points of view varied, the theories and frameworks explored advance the understanding of creativity in business and offer executives a playbook for increasing innovation.
If you run a big company, you might think it's nearly impossible to grow profits organically. Think again, say MacMillan, of the University of Pennsylvania's Wharton School, and Selden, of Columbia Business School. Locked inside your firm's customer records is a wealth of information about what your customers need and how to make more of them profitable to you. Tapped strategically, this information can generate enormous value for your company and give you a big leg up on potential invaders. The authors call it the incumbent's advantage. Using the hypothetical example of Mix C-Ment, based on the real experience of concrete manufacturer CEMEX, the authors walk through a step-by-step tutorial on strategic customer segmentation. They demonstrate how investing in and applying research about particular customers' needs for tailored products, marketing support, and technical services can greatly increase profits. But that requires seeing these offerings not as mere allocated costs but as deliberately invested resources. To exploit your incumbent's advantage, build a modest customer-characteristics database and rank your customers according to profitability. Then analyze in detail the needs and behavior of the most and least profitable 20% - and strategically use what you find. This customer-centric approach to your information should have as its counterpart a corporate structure in which cross-functional teams assigned to specific customer segments make smart resource investments using your evolving knowledge about each segment's needs and performance. Getting your customer information and your organization to work together in this way is the key to preserving your firm's dominance while increasing profits at every step of the process.
Why is that question in the past tense? Because individuals can no longer feel confident that the details of their lives - from identifying numbers to cultural preferences - will be treated with discretion rather than exploited. Even as Facebook users happily share the names of their favorite books, movies, songs, and brands, they often regard marketers' use of that information as an invasion of privacy. In this wide-ranging essay, McCreary, a senior editor at HBR, examines numerous facets of the privacy issue, from Google searches, public shaming on the internet, and cell phone etiquette to passenger screening devices, public surveillance cameras, and corporate chief privacy officers. He notes that IBM has been a leader on privacy; its policy forswearing the use of employees' genetic information in hiring and benefits decisions predated the federal Genetic Information Nondiscrimination Act by three years. Now IBM is involved in an open-source project known as Higgins to provide users with transportable, potentially anonymous online presences. Craigslist, whose CEO calls it "as close to 100% user driven as you can get," has taken an extremely conservative position on privacy - perhaps easier for a company with a declared lack of interest in maximizing revenue. But TJX and other corporate victims of security breaches have discovered that retaining consumers' transaction information can be both costly and risky. Companies that underestimate the importance of privacy to their customers or fail to protect it may eventually face harsh regulation, reputational damage, or both. The best thing they can do, says the author, is negotiate directly with those customers over where to draw the line.
Ruffin CEO Bill Bronson is on a mission. Counterfeits of his company's adventure gear and clothing are on the rise, and Bronson is hell-bent on stopping them. He has hired top-notch investigators to track down the criminals, invested in technology that will help distinguish his products from look-alikes, and pushed online vendors to stop selling fakes. All of that has cost a lot of money, however, and the problem seems to be getting worse. How far should Bronson take his campaign? Three experts comment on this fictional case study in R0810A and R0810Z. Giorgio Brandazza, a professor at SDA Bocconi School of Management, fought a similar battle as an executive at Calvin Klein. He advises Ruffin to mitigate the effects of copycats by building up the strength of its brand. For one thing, the company should increase its retail presence in countries where it is plagued by fakes. Single-brand stores will allow Ruffin to guarantee customers they're getting authentic goods, showcase its products in distinctive ways, and build strong relationships with consumers. J. Merrick "Rick" Taggart, president of Victorinox Swiss Army in North America, recommends zeroing in on the worst counterfeiting offenders. A resource Ruffin should take advantage of, he says, is customs and border patrol officers; if the company frequently communicates with them about ports of entry and consignee and consignor data, these officials can more easily sniff out illegal activity. The foundation for any good defense against counterfeiters, says Candace S. Cummings, general counsel of VF Corporation, is instituting tight controls over the company's supply chain and distribution process. That means, among other things, choosing manufacturing partners carefully and having strict contracts with distribution partners that, for example, prohibit products from going anywhere but outlets the company trusts.
Ruffin CEO Bill Bronson is on a mission. Counterfeits of his company's adventure gear and clothing are on the rise, and Bronson is hell-bent on stopping them. He has hired top-notch investigators to track down the criminals, invested in technology that will help distinguish his products from look-alikes, and pushed online vendors to stop selling fakes. All of that has cost a lot of money, however, and the problem seems to be getting worse. How far should Bronson take his campaign? Three experts comment on this fictional case study in R0810A and R0810Z. Giorgio Brandazza, a professor at SDA Bocconi School of Management, fought a similar battle as an executive at Calvin Klein. He advises Ruffin to mitigate the effects of copycats by building up the strength of its brand. For one thing, the company should increase its retail presence in countries where it is plagued by fakes. Single-brand stores will allow Ruffin to guarantee customers they're getting authentic goods, showcase its products in distinctive ways, and build strong relationships with consumers. J. Merrick "Rick" Taggart, president of Victorinox Swiss Army in North America, recommends zeroing in on the worst counterfeiting offenders. A resource Ruffin should take advantage of, he says, is customs and border patrol officers; if the company frequently communicates with them about ports of entry and consignee and consignor data, these officials can more easily sniff out illegal activity. The foundation for any good defense against counterfeiters, says Candace S. Cummings, general counsel of VF Corporation, is instituting tight controls over the company's supply chain and distribution process. That means, among other things, choosing manufacturing partners carefully and having strict contracts with distribution partners that, for example, prohibit products from going anywhere but outlets the company trusts.
Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence. Instead of improving the company's position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving. Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy. Students will take the view that Paul "Flip" Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.
Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence. Instead of improving the company's position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving. Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy. Students will take the view that Paul "Flip" Huffard, lead consultant from Blackstone LP, had in determining the valuation and new capital structure of the company. These decisions would be critical, as they affected what each creditor class would receive and whether Winn-Dixie could emerge from bankruptcy.
This is an MIT Sloan Management Review article. The IBM Innovation Jam was the largest-ever event to promote networked idea generation. More than 150,000 IBM employees, stakeholders and vendors participated in two three-day online events to foster innovation and help IBM bring products to market faster. Using Web sites, wikis, forums and other online tools, Jam participants generated literally hundreds of thousands of new business ideas. From those ideas, IBM focused on several major topics for the second part of the Jam and invited its employees to build on the ideas within those topics. As a result of this process, 10 distinct businesses were funded. However, it wasn't these successes that make the Jam interesting, argue the authors; it was the difficulties that IBM faced in implementing the Jam. Given unique access to the Jam, the authors discuss the complications inherent in collaborating with so many people. In particular, it was hard to sustain individual "conversations" in the collaborative process. Rather than building on each other's ideas, many participants -- because of excitement about their own ideas -- would "hijack" a thread or take it in an unintended direction. Some great ideas were left to wither on the vine. The authors discuss other attempts at large-scale collaboration, including some by Dell and Starbucks. These include the use of promotion tools to ensure that "good" ideas are seen and captured by as many eyes as possible. The pros and cons of these methods are discussed as well, and the authors provide a framework for thinking about how an organization can collaborate with its stakeholders.
This is an MIT Sloan Management Review article. Past research is clear on the benefits of high-performing, or "star," workers. Star computer programmers, for example, are more productive than average ones by a ratio of eight to one. But reaping the benefits of such talent is not so simple. Say you hire a number of stars. How can you guarantee that they will be able to replicate their success in a new environment -- in short, how portable are they? In the past, portability has been viewed as an attribute of a person, team or organization, but it can also be looked at as an attribute of a position. Specifically, certain jobs do require different levels of company-specific human capital, thus making some workers less portable than others. Consequently, organizations should not think of talent management as a simple "build versus buy" dichotomy. Rather, there are some positions for which they can buy, and others for which they must build. Within investment banks, for example, the retail brokers (who handle individual clients) work primarily on their own. In contrast, institutional salespeople (who sell to major institutional investors such as Putnam, Vanguard and Fidelity) are more likely to perform their jobs in teams. Thus, retail brokers are more portable and can easily be hired from the outside. Institutional salespeople, however, should be developed from within, and efforts should be made to retain them. Understanding such differences is crucial for companies attempting to attain sustainable competitive advantages that derive from human capital. The authors' research, which has probed the application of human capital theory to talent portability, should help companies recognize that an entire class of factors -- specific roles within an organization -- greatly determines the portability of performance. With that knowledge, executives can gain a deeper understanding of the pros and cons of hiring certain star employees.
This is an MIT Sloan Management Review article. The way we think about strategy is woefully incomplete, the authors contend. The traditional idea of focusing on the positioning of products (or services) underplays much of what most would agree makes a company truly competitive. Not only does it give short shrift to what a company knows, it ignores completely the fact that in today's dynamic economy, organizations have to continually reinvent who they are and what they do in large and small ways. And one important means of doing so is through innovation. An effective strategy, then, is comprised of three key components: product/market, knowledge and innovation positions. But even if a company masters the three strategic positions of product/market, knowledge and innovation independently, it is still at risk. Only when all three positions are aligned and mutually reinforcing can a strategy succeed. In adopting the notion of alignment, organizations need to view each position -- product/market, knowledge and innovation -- as aspects of an organization's overall strategy. Creating an integrated strategy thus requires focusing not on each position separately, but rather on all three positions simultaneously. The authors introduce the notion of competing based not only on what an organization makes or the service it provides, but on what it knows and how it innovates. Each aspect represents a competitive position that must be evaluated relative to the capabilities of the organization and to others in the marketplace battling for the same space. And each component must not only be aligned with the other two, but it needs to be adjusted as circumstances warrant. When done correctly, organizations -- such as Buckman Laboratories, which is profiled here -- thrive. When done badly, the company can suffer, and perhaps fatally so, as the history of Polaroid points out.
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.
This is an MIT Sloan Management Review article. The role of procurement within global companies has changed dramatically over the past 25 years from that of simply buying goods and services to overseeing an integrated set of management functions. This brings new challenges and opportunities to procurement. Offshoring and the increased emphasis on specialization and fragmentation of production enhance the strategic character of procurement decisions. Increasingly, procurement decisions have become intertwined with strategic management in general. In this article, the authors discuss the changes in procurement from the perspective of transaction cost economics. They separate transaction costs into "soft" and "hard" costs and differentiate between the internal and external factors that affect these costs. In making procurement decisions, the authors argue, managers need to consider the full range of cost elements. In addition to traditional transaction costs such as transport costs and tariffs, managers need to recognize such elements as cultural and legal differences, government regulation, social preferences, environmental issues, political stability and risks involved in unethical business behavior. The authors argue that knowing the risks and opportunities of the different exposures is a critical management competence. Although management decisions originate in many different parts of the company, procurement managers need to keep a close eye on the various cost exposures and flag concerns as they arise. Procurement, therefore, will need to become more closely connected with strategic decisions throughout the company. This broader view represents a major extension of the concept of total cost of ownership in procurement decisions. Global sourcing creates many new opportunities for value creation, which well-run companies must learn to take advantage of.
Despite a tradition of high household savings, Japan has supported a dynamic and technically sophisticated consumer lending sector. The high profitability of the sector has periodically attracted interest from domestic banks as well as international investors. Most recently, in 1998 and 2000 respectively, GE Capital and Citi Financial both acquired Japanese consumer lending companies. In 2006, when the Japanese Supreme Court rules that one of the big Japanese consumer lenders must repay a borrower for "excess interest payments," the US firms must decide how to respond.
Since the 1980's, Procter & Gamble had leveraged its purpose, values, and principles (PVP) to create a global company. When P&G faced difficult times in 2000, the new CEO, A.G. Lafley, leveraged the PVP to drive P&G's turnaround, integrate global operations, and guide decision-making in all facets of the business. But the Gillette acquisition posed a new challenge.
A.G. Lafley and P&G leaders decided to approach the Gillette integration differently from previous mergers. Using P&G's purpose, values, and principles (PVP) it treated the acquisition as a merger which sought to take the "best of both" from each company. In the integration's first phase, prior to the change of control, the strategy achieved successes while creating some unexpected challenges. How should the integration leaders address these challenges moving forward?
P&G had used its purpose, values, and principles (PVP) to prepare for the physical integration of Gillette prior to the change of control. The execution of these plans posed numerous challenges in global business units as well as in individual country organizations. While managers sought to maintain business momentum during the transition, corporate leaders were intent on continuing to use Gillette as a catalyst of change.
After arriving in 2001 as the first outsider Chairman and CEO in Gillette history, Jim Kilts had led a remarkable turnaround. But by late 2004 he had to make a difficult decision. To better position the 104-year-old, Boston-based company, he opted to sell it to Cincinnati-based Procter & Gamble. How should Kilts lead the transition?
PlanetTran is an environmentally-friendly car service that utilizes a fleet of hybrid cars in providing livery service to corporations and individuals. The founder, Seth Riney, is evaluating outside funding options in order to expand the company, and has met several local venture capital (VC) firms, Riney must decide if the dilution he would have to undergo in order to accept a substantial capital investment was worth the added upside to the company that both he and the VCs envisioned.