This is an MIT Sloan Management Review article. Global information technology networks can lower costs, increase quality, reduce response times, and disperse risks. But agile IT networks require an immense amount of hands-on management, and micromanagement can significantly increase transaction costs and erode any potential savings. Much of the micromanagement is a result of the learning curve and the labor-intensive nature of managing budding relationships with new partners. The authors use data derived from interviews with clients and suppliers to identify 15 emerging best practices in dealing with offshore suppliers of IT throughout each of the phases of development. In the early stages of developing an offshore IT network, the authors suggest that selecting the appropriate location for your offshore activities is critical and that it may be best to begin with several smaller pilot programs. As offshoring efforts become more mature, the authors recommend diversifying your supplier portfolio to spread risk and maximize competition. They also discuss how to structure contracts and break up projects in ways that provide incentives and protect intellectual property. The article describes several practices that allow for more value-added practices once a full and mature global network exists, including how to overlap networks to best facilitate supplier-to-supplier knowledge transfer.
This is an MIT Sloan Management Review article. Traditionally, executives are expected to create the vision for the organization they lead; the leaders' vision is then disseminated throughout the ranks. However, such top-down vision creation may mean that not all employees wholeheartedly embrace the vision they are given. An alternative approach to vision creation is found in the concept of "meaning-making." A meaning-maker is a member of a group who articulates what the group is trying to accomplish in its work. Meaning-makers are typically deeply engaged in their work settings, are observant people who listen well, and are in tune with a group's or an organization's rhythm. Using techniques such as images, humor, or a new perspective on a situation, they are able to express a group's collective insight. For example, a pizza restaurant company was floundering until one of the senior managers articulated the idea that the company was not in a restaurant business so much as in a distribution business. This new model galvanized the organization, and local managers sought new outlets to distribute the company's pizza. Managers who are meaning-makers also may help others to articulate the meaning of the group's work, and such managers tend to embody a flexible style of leadership that recognizes that leadership is expressed in how people interact.
This is an MIT Sloan Management Review article. When people think of services, they often think about offerings that are neutral or routine. These tend to be services they use regularly--for example, dry cleaning, haircutting, or gardening. However, there is a third type of service that is not often considered or well understood. The authors refer to these as "negative" services because they are related to events most people hope they will not have to deal with: toothaches, leaky roofs, or collision repairs, for example. Because the events that trigger the need for negative services are not everyday occurrences, many people are not equipped to diagnose the needs or to make informed judgments about the solutions required; furthermore, even after the service has been provided, most people are in a poor position to judge its quality or the price they paid for it. Many kinds of companies in many industries, including health care, insurance, household repair, pest control, and ambulance use, offer negative services. Companies hoping to build positions in negative services face two major challenges: how to access inexperienced customers who are not in a strong position to evaluate the service being provided and may have a poor idea of its cost; and how to organize and deploy their services to meet customer needs when demand is unpredictable.
This is an MIT Sloan Management Review article. Faced with the prospects of slow growth, commoditization, and global competition, companies like General Electric Co., Microsoft Corp., and Ford Motor Co. have now emphasized innovation as critical to their future success. But what exactly is innovation? Although the subject has risen to the top of the CEO agenda, many companies have a mistakenly narrow view of it. They might see "innovation" as synonymous with "new product development" or traditional "research and development." But such myopia can lead to the systematic erosion of competitive advantage. As a result, companies in a given industry can come to resemble one another over time. In actuality, business innovation is far broader in scope than product or technological innovation. In fact, a company can innovate along any of 12 different dimensions with respect to its (1) offerings, (2) platform, (3) solutions, (4) customers, (5) customer experience, (6) value capture, (7) processes, (8) organization, (9) supply chain, (10) presence, (11) networking, and (12) brand. Nissan Motor Co., for example, has innovated along the platform dimension, using essentially the same small engine block to power a variety of models, including an upscale mid-size sedan, a large sedan, luxury sedans, a minivan, and a sports coupe. Enterprise Rent-A-Car has innovated along the customers and presence dimensions, placing car rental locations in the neighborhoods where people live and work rather than at airports. Together, the 12 dimensions of innovation can be displayed in a new framework called the "innovation radar," which companies can use to manage the increasingly complex business systems through which they add value.
No question, Galen McDowell knew how to sell. He quickly hooked a big-league outfit, Kinan Motors, as a potential customer. He invited their representatives to come take a tour of the company and, while they were in town, visit the Red Ruby Club. The Red Ruby? That's a strip club. Galen assured CEO Bob Carlton that it was upscale and full of businesspeople. He said his reps had often made use of the club to woo important accounts away from rivals. As if to prove his point, Kinan quickly signed a multimillion-dollar contract with OptiMotors after the visit. Then April Hartley, Bob's first salesperson, quit. She had tried to build relationships with customers, but the really big accounts, it seemed, were looking for "more exciting stuff" than she could give them. Now Joan Warren--another saleswoman, and one who would happily close a deal anywhere she got the chance--is complaining because Galen won't let her go to the club with him. "I won't stand by and be disadvantaged simply because I'm a woman," she says. When does client entertainment cross the line? In R0604A and R0604Z, four experts discuss this fictional case study: John Brown, the director of institutional sales and customer relations at Fortis Investments; Katherine Frank, a former dancer who is now an author and postdoctoral fellow at the University of Wisconsin-Madison; Das Narayandas, a professor of business administration at Harvard Business School; and Denise Rousseau, a professor at Carnegie Mellon's Heinz School of Public Policy and Tepper School of Business.
In this wide-ranging conversation, Robert A. Caro shares his insights about the nature of power, the complexity of ambition, and the role that the greater good can play in the making of a leader. Power doesn't always corrupt, he insists. But what it invariably does is reveal a leader's true nature. "Today, when CEOs have acquired more and more power to change our lives," Caro says, "they have become like presidents in their own right, and they, too, need to align themselves with something greater than themselves if they hope to become truly great leaders."
What could be harder than turning around a seemingly wildly successful company by imposing a centralized framework on a heretofore radically decentralized, antiestablishment, free-spirited organization? That was the challenge GE alumnus Robert Nardelli faced when he abruptly succeeded Home Depot's popular founders, Bernie Marcus and Arthur Blank, as the top executive in December 2000. Talk about a shock: No one expected Marcus and Blank, both in their 50s, to leave. And, as Nardelli himself acknowledges, the last thing anyone wanted was an outsider who would "GE-ize their company and culture." But despite its glossy high-growth exterior, Home Depot was standing on shaky financial footings. Rapid expansion had stretched cash flow, inventory turns, profits, and store manager ranks thin. Each store's vaunted independence was making the company as a whole highly inflexible, unable to take advantage of economies of scale. What so effectively got Home Depot from zero to $50 billion in sales wasn't going to get it to the next $50 billion. The story of the vision, strategy, and leadership skills Nardelli used to move Home Depot to the next level has been told. But vision, strategy, and leadership alone--while necessary--are not enough. Typically, culture change is unsystematic and, when it works, is based on the charisma of the person leading the change, Ram Charan says. "But Home Depot shows--in perhaps the best example I have seen in my 30-year career--that a cultural transition can be achieved systematically." In this article, Charan lays out the panoply of tools that, wielded in a coordinated and systematic fashion, enabled Home Depot to get a grip on its freewheeling culture so that the company could reap--and sustain--the advantages inherent in its size. Many an up-and-coming company would do well to look to this model to gain similar advantage when the time comes to exchange the thrill of entrepreneurial spirit for the strength of established power.
When corporate leaders or the organizations they represent mess up, they face the difficult decision of whether to apologize publicly. A public apology is a risky move. It's highly political, and every word matters. Refusal to apologize can be smart, or it can be suicidal. Readiness to apologize can be seen as a sign of character or one of weakness. A successful apology can turn enmity into personal and organizational triumph--whereas an apology that's too little, too late, or too transparently tactical can open the floodgates to individual and institutional ruin. Because the stakes are so high, Barbara Kellerman says, leaders should not extend public apologies often or lightly. One or more of the following conditions should apply: The apology is likely to serve an important purpose; the offense is of serious consequence; it's appropriate that the leader assume responsibility for the offense; the leader is the only one who can get the job done; and the cost of saying something is likely lower than the cost of staying silent. The author draws her conclusions from hard data and abundant anecdotal evidence, examining notoriously bad apologizers as well as exceptionally good ones. While selectivity is key, good apologies usually do work. What constitutes a good apology? Acknowledgment of the mistake or wrongdoing, acceptance of responsibility, expression of regret, and assurance that the offense will not be repeated.
Standardization has been a powerful strategy in consumer markets, but it's reached the point of diminishing returns. And diversity is not the only chink in standardization's armor: Attempts to build stores in remaining attractive locations often meet fierce resistance from community activists. From California to Florida to New Jersey, neighborhoods are passing ordinances that dictate the sizes and even architectural styles of new shops. Building more of the same--long the cornerstone of retailer growth--seems to be tapped out as a strategy. Of course, a company can't customize every element of its business in every location. Strategists have begun to use clustering techniques to simplify and smooth out decision making and to focus their efforts on the relatively small number of variables that usually drive the bulk of consumer purchases. The customization-by-clusters approach, which began as a strategy for grocery stores in 1995, has since proven effective in drugstores, department stores, mass merchants, big-box retailers, restaurants, apparel companies, and a variety of consumer goods manufacturers. Clustering sorts things into groups, so that the associations are strong between members of the same cluster and weak between members of different clusters. In fact, by centralizing data-intensive and scale-sensitive functions (such as store design, merchandise assortment, buying, and supply chain management), localization liberates store personnel to do what they do best: Test innovative solutions to local challenges and forge strong bonds with communities. Ultimately, all companies serving consumers will face the challenge of local customization. We are advancing to a world where the strategies of the most successful businesses will be as diverse as the communities they serve.
High-definition televisions (HDTVs) should, by now, be a huge success. Philips, Sony, and Thompson invested billions of dollars to develop TV sets with astonishing picture quality. From a technology perspective, they've succeeded: Console manufacturers have been ready for the mass market since the early 1990s. Yet, the category has been an unmitigated failure because critical complements such as studio production equipment were not developed or adopted in time. Underperforming complements have left console producers in the position of offering a Ferrari in a world without gasoline or highways--an admirable engineering feat, but not one that creates value for customers. The HDTV story exemplifies the promise and peril of innovation ecosystems--the collaborative arrangements through which firms combine their individual offers into a coherent, customer-facing solution. When they work, innovation ecosystems allow companies to create value that no one firm could have created alone. The benefits of these systems are real. But for many organizations, the attempt at ecosystem innovation has been a costly failure. This is because, along with new opportunities, innovation ecosystems also present a new set of risks that can brutally derail a firm's best efforts. Innovation ecosystems are characterized by three fundamental types of risk: initiative risks--the familiar uncertainties of managing a project; interdependence risks--the uncertainties of coordinating with complementary innovators; and integration risks--the uncertainties presented by the adoption process across the value chain. Firms that assess ecosystem risks holistically and systematically will be able to establish more realistic expectations, develop a more refined set of environmental contingencies, and arrive at a more robust innovation strategy. Collectively, these actions will lead to more effective implementation and more profitable innovation.
No matter how hard companies try, their approaches to innovation often don't grow the top line in the sustained, profitable way investors expect. For many companies, there's a huge difference between what's in their business plans and the market's expectations for growth (as reflected in firms' share prices, market capitalizations, and P/E ratios). This growth gap springs from the fact that companies are pouring money into their insular R&D labs instead of working to understand what the customer wants and using that understanding to drive innovation. As a result, even companies that spend the most on R&D remain starved for both customer innovation and market-capitalization growth. In this article, the authors spell out a systematic approach to innovation that continuously fuels sustained, profitable growth. They call this approach customer-centric innovation, or CCI. At the heart of CCI is a rigorous customer R&D process that helps companies to continually improve their understanding of who their customers are and what they need. By so doing, they consistently create or improve their customer value proposition. Customer R&D also focuses on better ways of communicating value propositions and delivering the complete experience to real customers. Because so much of the learning about customers and so much of the experimentation with different segmentations, value propositions, and delivery mechanisms involve the people who regularly deal with customers, it is essential for frontline employees to be at the center of the CCI process. Simply put, customer R&D propels the innovation effort away from headquarters and the traditional R&D lab out to those closest to the customer. Using the example of the luggage manufacturer Tumi, the authors provide a step-by-step approach for achieving true customer-centric innovation.
Even as loyalty programs are launched left and right, many are being scuttled. How can that be? These days, everyone knows that an old customer retained is worth more than a new customer won. What is so hard about making a simple loyalty program work? Quite a lot, the authors say. The biggest challenges include clarifying business goals, engineering the reward structure, and creating incentives powerful enough to change buying behavior but not so generous that they erode margins. Additionally, companies have to sort out the puzzles of consumer psychology, which can result, for example, in two rewards of equal economic value, inspiring very different levels of purchasing. In their research, the authors have discovered patterns in what the successful loyalty programs get right and in how the others fail. Together, their findings constitute a toolkit for designing something rare indeed: a program that won't do you wrong. To begin with, it's important to know exactly what a loyalty program can do. It can keep customers from defecting, induce them to consolidate certain purchases with one seller (in other words, win a greater share of wallet), prompt customers to make additional purchases, yield insight into their behavior and preferences, and turn a profit. A program can meet these objectives in several ways--for instance, by offering rewards (points, say, or frequent-flier miles) divisible enough to provide many redemption opportunities but not so divisible that they fail to lock in customers. Companies striving to generate customer loyalty should avoid five common mistakes: Don't create a new commodity, which can result in price wars and other tit-for-tat competitive moves; don't cater to the disloyal by making rewards easy for just anyone to reap; don't reward purchasing volume over profitability; don't give away the store; and, finally, don't promise what can't be delivered.
In the wake of a series of gross corporate abuses around the turn of the century, Congress passed Sarbanes-Oxley, which was intended to make corporate governance more rigorous, financial practices more transparent, and management criminally liable for lapses. The first year of implementation was costly and onerous, far more so than companies had been led to expect. In the view of a few open-minded firms, however, the second year of compliance turned out to be not only less costly and less onerous (as doing something for the second time usually turns out to be), but a source of valuable insights into operations, which management has translated into improved efficiencies and cost savings. The areas of improvement go well beyond technical statutory compliance. They include a strengthened control environment; more reliable documentation; increased audit committee involvement; better, less burdensome compliance with other statutory regimes; more standardized processes for IT and other functions; reduced complexity of organizational processes; better internal controls within partner companies; and more effective use of both automated and manual controls. The result is not only shareholder protection, the official purpose of the act, but also enhanced shareholder value. More than a year since the first deadline arrived, Sarbanes-Oxley still inspires fear--of enforcement actions, of the stock market's reaction to a deficiency, and of personal liability. Fear can be a powerful generator of upstanding conduct. But businesses run on discovering and creating value. Companies need to start viewing Sarbanes-Oxley as an ally in that effort.
No question, Galen McDowell knew how to sell. He quickly hooked a big-league outfit, Kinan Motors, as a potential customer. He invited their representatives to come take a tour of the company and, while they were in town, visit the Red Ruby Club. The Red Ruby? That's a strip club. Galen assured CEO Bob Carlton that it was upscale and full of businesspeople. He said his reps had often made use of the club to woo important accounts away from rivals. As if to prove his point, Kinan quickly signed a multimillion-dollar contract with OptiMotors after the visit. Then April Hartley, Bob's first salesperson, quit. She had tried to build relationships with customers, but the really big accounts, it seemed, were looking for "more exciting stuff" than she could give them. Now Joan Warren--another saleswoman, and one who would happily close a deal anywhere she got the chance--is complaining because Galen won't let her go to the club with him. "I won't stand by and be disadvantaged simply because I'm a woman," she says. When does client entertainment cross the line? In R0604A and R0604Z, four experts discuss this fictional case study: John Brown, the director of institutional sales and customer relations at Fortis Investments; Katherine Frank, a former dancer who is now an author and postdoctoral fellow at the University of Wisconsin-Madison; Das Narayandas, a professor of business administration at Harvard Business School; and Denise Rousseau, a professor at Carnegie Mellon's Heinz School of Public Policy and Tepper School of Business.
No question, Galen McDowell knew how to sell. He quickly hooked a big-league outfit, Kinan Motors, as a potential customer. He invited their representatives to come take a tour of the company and, while they were in town, visit the Red Ruby Club. The Red Ruby? That's a strip club. Galen assured CEO Bob Carlton that it was upscale and full of businesspeople. He said his reps had often made use of the club to woo important accounts away from rivals. As if to prove his point, Kinan quickly signed a multimillion-dollar contract with OptiMotors after the visit. Then April Hartley, Bob's first salesperson, quit. She had tried to build relationships with customers, but the really big accounts, it seemed, were looking for "more exciting stuff" than she could give them. Now Joan Warren--another saleswoman, and one who would happily close a deal anywhere she got the chance--is complaining because Galen won't let her go to the club with him. "I won't stand by and be disadvantaged simply because I'm a woman," she says. When does client entertainment cross the line? In R0604A and R0604Z, four experts discuss this fictional case study: John Brown, the director of institutional sales and customer relations at Fortis Investments; Katherine Frank, a former dancer who is now an author and postdoctoral fellow at the University of Wisconsin-Madison; Das Narayandas, a professor of business administration at Harvard Business School; and Denise Rousseau, a professor at Carnegie Mellon's Heinz School of Public Policy and Tepper School of Business.
Quality Wireless has received customer complaints about long hold times at its call center. To address these complaints, it put into place certain process changes at its call center. After one month, the company will now decide whether improvement has taken place.
This case is about an affluent and educated woman who decided to start her own organization to support young mothers. Shortly after the birth of her first child, Karin Marques stopped working full-time and soon felt the pangs of "maternal isolation" that mothers commonly report. Finding no satisfaction in the already-existing network of Mothers' Centers, which were geared more towards childcare, Karin formulated a concept for a mothers' center that would "provide support to women before, during, and after their maternity leave." By adopting a theme of "equal opportunities for men and women" - a priority for European Union Member States and an area where the Czech nation planned to grow - Karin registered Klub K2 as a non-governmental (non-profit) organization (NGO), and hoped to access funding from foundations or the European Union. The thematic focus Karin has chosen - women's reentry to the labor market after maternity leave - is a hot-button issue, particularly in new European Union Member States. Yet as Karin's start-up costs rose, and some members of her team of instructors backed out, Karin wondered how all of the pieces would come together by the time she was ready to launch her organization.
In 2002, Brazilian-based Petrobras joined the Argentine fuel retail (gas stations) market. The venture faced several challenges. On the one hand, Argentina was undergoing one of the most severe economic and social crises in history. On the other, the local fuel market was dominated by a few players with brands that held significant consumer mindshare over many years. Additionally, employee morale at Eg3, the company acquired by Petrobras to enter the local market, was besieged by uncertainty and disillusionment as a result of a string of mergers and acquisitions and underlying H.R. management remoteness. Finally, the company's Brazilian origin could jeopardize its appeal for Argentine consumers, given the cultural and sports-based (soccer) rivalry between these neighboring countries. The case presents this scenario and calls for decisions as to which market segment(s) it should target, how it should brand its stations, and what other related marketing decisions it should make given it domestic and international ambitions. This case received the 2007 Curtis E. Tate Jr. Award for the best case published in Case Research Journal and is also available in Spanish and Portuguese versions.