A description of the events leading to the collapse of China Aviation Oil under US$550m of derivative trading losses and subsequent attempts to identify the causes and save the company from liquidation via a debt restructuring scheme of arrangement.

This is an MIT Sloan Management Review article. Global sourcing is an advanced but complex approach to sourcing and supply management. Uses survey research to gauge the extent to which companies are currently practicing global sourcing, which involves integrating and coordinating common items, materials, processes, technologies, designs, and suppliers across worldwide buying, design, and operating locations. In a sample consisting of supply executives primarily from large, North American-based multinationals, particularly manufacturers, the majority of survey respondents said their companies practice some form of international purchasing, a less integrated and coordinated approach than global sourcing. However, more than 70% of managers surveyed said that their companies plan to use global sourcing in the future. Identifies a set of features common among companies that excel at global sourcing: executive commitment to global sourcing; rigorous and well-defined global sourcing processes; availability of resources needed for the global sourcing initiative, including access to qualified personnel and budgets; information technology systems that support data analysis on a worldwide level; organizational design features that support the initiative, such as an executive committee that oversees global sourcing; structured approaches to communication, such as regular strategy review sessions; and methodologies for measuring savings from global sourcing.

This is an MIT Sloan Management Review article. The authors analyzed 50 cases of successful sustainable enterprise in developing countries and developed a conceptual framework called the Sustainable Local Enterprise Network (SLEN) model. Successful sustainable enterprises in developing countries often involve informal networks that include businesses, not-for-profit organizations, and local communities. These networks can lead to virtuous cycles of reinvestment in an area's financial, social, human, and ecological capital. Successful SLENs require at least one business enterprise to ensure the network's financial sustainability and serve as its anchor; however, a cooperative or a profitable social enterprise launched by a nongovernmental organization may play that anchor role. Although multinational corporations were sometimes part of the SLENs studied, entrepreneurs, nonprofits, and sustainable local businesses were more common. Concludes with recommendations for fostering the development of SLENs, such as setting up training programs in sustainable entrepreneurship in developing countries.

This is an MIT Sloan Management Review article. Many companies leave risk management and business continuity to security professionals, business continuity planners or insurance professionals. Argues that building a resilient enterprise should be a strategic initiative that changes the way a company operates and increases its competitiveness. Reducing vulnerability means both reducing the likelihood of a disruption and increasing resilience. Resilience, in turn, can be achieved by either creating redundancy or increasing flexibility. Redundancy is the familiar concept of keeping some resources in reserve to be used in case of a disruption. Although necessary to some degree, redundancy represents pure cost with no return except in the eventuality of disruption. Contends that significantly more leverage, not to mention operational advantages, can be achieved by making supply chains flexible. Flexibility requires building in organic capabilities that can sense threats and respond to them quickly. Drawing on ongoing research at the MIT Center for Transportation and Logistics, the authors describe how resilient companies build flexibility into each of five essential supply chain elements: the supplier, conversion process, distribution channels, control systems, and underlying corporate culture.

This is an MIT Sloan Management Review article. The practice of pushing product by building inventory in anticipation of demand has fallen out of favor in recent years. Many companies prefer to build product only in response to actual demand. This permits firms to avoid costly supply and demand mismatches. Given how successful product-based firms have been with this approach, it is only natural to wonder how it would apply to service firms. Some argue that services cannot be inventoried. Yet, this view relies on an extremely narrow definition of inventory as finished product waiting for customers. In practice, the authors say, inventory also serves as a way to store work that functions as "service inventory." As with physical inventories, service inventories allow firms to buffer their resources from the variability of demand and reap benefits from economies of scale while benefiting customers. By using the correct form of service inventory, companies have the opportunity to offer better quality, faster response times and more competitive pricing. Using examples from the travel, hospitality, and insurance industries, discusses how service firms can use inventory as a strategic lever in designing and managing service offerings.

This is an MIT Sloan Management Review article. In a recent survey, 72% of board directors indicated that their performance ought to be evaluated. Yet only 21% of the boards of public companies actually conduct such assessments. Part of the problem is that organizations often don't know how best to implement a board self-evaluation procedure, so many simply avoid the practice. Others have implemented the process only to become frustrated because it took so much time and produced so few results. To investigate the different self-evaluation practices used, the authors studied eight boards that have engaged in the process for at least two annual cycles. They found two high-level variables in the protocol for self-evaluations: the structure of the data collection methodology (low vs. high) and the confidentiality of data (unimportant vs. important). These dimensions define quadrants of four different approaches to self-evaluation: informal, legalistic, trusting, and systematic. Each approach has important implications for a company's board rating, directors, and officers insurance and various other issues.

This is an MIT Sloan Management Review article. The growing popularity of mobile hand-held devices is opening up intriguing new possibilities for what the authors refer to as "brand in the hand" marketing. Because individuals can be, and often are, connected anytime and anyplace, mobile marketing can be used to collect data through the wireless Internet to determine not only the exact location of a consumer at a given time, but also why that individual might be there. With that information, more meaningful or relevant advertising messages or promotions can be delivered to the consumer on a mobile device. Before companies rush into this new marketing arena, though, they need to understand some fundamental issues. How does mobile marketing differ from traditional approaches? When should a company pursue a brand in the hand initiative? Does mobile marketing have to be integrated within an overall marketing strategy and, if so, how? Moreover, how should companies address privacy issues? These are of particular concern, in part because of the personal nature of mobile devices.

For years, companies have expanded their product lines in an attempt to better meet the needs of diverse customers. Typically, they do so by adding new flavors, package sizes, formulations, features, and options. As a result, whereas The Coca-Cola Company once sold a single formulation of cola, it now sells more than ten. It has long been believed that product variety is beneficial to consumers, and that a wider assortment will logically better-meet their varied preferences than a narrower assortment. However, the authors call this 'variety-is-good' belief into question, showing that in cases where 'choice deferral' is an option, adding a second attractive alternative to what had been a one-alternative consideration set increases the frequency of not making a choice. The results they present speak to the potential negative impact of product assortment on consumer choice - an effect they refer to as 'overchoice'. Four strategies are described that confront the negative effects of overchoice.

Firms that grow very rapidly -defined as having a sales growth rate of at least 20 per cent per year for four consecutive years - are attracting considerable interest from both the private and public sectors. These firms can provide high returns for investors and become lucrative clients of consultants and banks, while governments tend to focus on their value as job creators. How can we effectively support such rapid growth firms? In search of answers, the authors studied three principal groups or 'communities of practice' that are knowledgeable about - and have a vested interest in the success of - rapid growth firms: external resource providers such as venture capitalists, bankers and consultants, whose beliefs can influence both rapid-growth firm owners and policy makers seeking advice; government policy makers, whose beliefs influence the programs, policies, and allocation of public resources (if any) targeted towards rapid growth firms; and founders of rapid growth firms, whose beliefs about growth have direct consequences for the ways in which they manage their firms. In the end they find that owners of rapid-growth firms are often skeptical of assistance offered by one of these groups, and that another can help by developing a network-based approach to policy initiatives.

This case illustrates the financial, strategic, and managerial challenges faced by a manufacturer of audio amplifiers and vacuum tubes in the Czech Republic. Eunice Kron became CEO of KR Audio Electronics when her husband, the founder of the company, died unexpectedly. From 1996 until her husband's death in 2002, Eunice Kron had been only marginally involved in the business, writing letters, translating documents and answering phone calls. When her husband died, Eunice decided to manage the company herself, despite the skepticism of suppliers and customers. Eunice solicited payments and orders herself, and traveled to electronics tradeshows to learn about the industry and court potential buyers. KR's engineering team continued its technology innovations and developed new products. In 2002 and 2003, the SARS epidemic, the U.S. involvement in the war in Iraq, and the devaluation of the dollar on the international currency market had an adverse impact on the company's ability to sell its products. As losses mounted, Eunice was not sure how or if she should continue to keep the business afloat. In 2004, Eunice is faced with the decision of whether to hire a young man to help market KR's products at the upcoming audio show in Las Vegas. Ultimately, she must decide how to proceed for the longer-term: should she continue to manage the company herself, try to find a partner, or sell out.

Jack Emmons, the CEO of Voici Brands, knew his apparel company needed a supply chain overhaul. Over the past couple of years, sales had dropped because of late deliveries, stock-outs, and other supply problems. Meanwhile, a major competitor had significantly reduced its time to market and boosted its bottom line by outsourcing all its product lines to a dazzlingly efficient "supply chain city" in Shanghai. Unfortunately, Jack's company was just too decentralized to use the supply chain city. Each of Voici's five units was like a subsidiary, with its own legacy, management, and suppliers. The unit heads wouldn't sit still for a supply chain consolidation; they had worked too hard to forge vendor relationships. Inspired by a magazine article, Jack decided to appoint a supply chain czar to oversee changes in logistics and procurement. He could hire Ravi Chandry, an aggressive outsider who had centralized supply chain operations for the world's second-largest snack food and beverage company. Or he could promote Tony Rini, a highly capable, trustworthy Voici veteran who had no experience consolidating supply operations but could win hearts and minds. Ravi told Jack that only a Rottweiler could do the job right. Tony lobbied for a more cautious approach: Start with low-hanging fruit, get a few quick wins, then move on to other areas. What kind of leadership will get Voici's units to pull together? Commenting on this fictional case study in R0509A and R0509Z are Shakeel Mozaffar, group vice-president of Global Supply Chain at ICI in London; Robert W. Moffat, Jr., senior vice-president of Integrated Supply Chain at IBM; John D. Blascovich, a vice-president of Chicago-based A.T. Kearney and head of its sourcing practice in North America; and Nick LaHowchic, president and CEO of Limited Logistics Services, an internal service subsidiary of Limited Brands in Columbus, Ohio.

When Chris Sullivan and three friends opened the first Outback Steakhouse in March 1988, in Tampa, Florida, they were hoping it would be successful enough to spawn a few more and maybe some other kinds of restaurants as well. Since then, their chain of Australia-themed restaurants has grown to some 900 locations and counting--plus another 300 or so "concept" restaurants that operate from under Outback's corporate umbrella. Growth like that doesn't happen accidentally, Sullivan says, but it certainly wasn't part of the original plan. In this first-person account, Outback's chairman describes the organization's formula for growth and development, which is consciously rooted in the founders' belief in putting people first. They've created an organizational model in which field managers make most of the decisions, garner the rewards, and live with the consequences. Specifically, the founders believe that the most effective way to make customers happy is first to take care of the people who cook for them, serve them, and supervise operations at the restaurants. Outback servers have fewer tables to worry about than those at other restaurant chains; the cooks have bigger, cooler, better-equipped kitchens; and the supervisors work their way up the ranks toward an equity stake in the restaurant or region they run. There are no administrative layers between field managers and the executives at headquarters. Giving employees good working conditions and the chance to become owners has proved to be good business: Turnover among hourly employees is low, and Outback and its subsidiaries opened 120 restaurants last year, increasing sales by 20.1%. The company must grow to keep offering career opportunities to its workers; in turn, those opportunities ensure that Outbackers remain committed to making customers happy and the company successful.

Advising CEOs sounds like a dream job, but doing so can be perplexing and perilous. At times, the questions you must ask yourself--about your own motivations and loyalty--can be thornier than the organizational problems that clients face. David Nadler knows, because he has been asking himself such questions for a quarter century while advising the chiefs of more than two dozen corporations. If you're an adviser to CEOs, recognizing the pitfalls of your role may help you sidestep them. And understanding a problem's nuances and implications may help you uncover a solution. The challenges facing consultants include: The loyalty dilemma: Is my ultimate responsibility to the CEO, who pays for my services, or to the institution, which pays for his? Today's shorter CEO tenures and greater board oversight have diminished the top leader's power and autonomy; it's now routine for a CEO adviser to have conversations with directors about the CEO's performance. To defuse loyalty issues, the adviser should raise them with the executive at the outset of the relationship. The overidentification dilemma: How do I immerse myself in the CEO's worldview without making it my own? CEOs can be enormously persuasive, but if you don't push back, you're not doing your job. The trick is to ask probing questions without shaking the CEO's confidence that you fully comprehend the forces that shape her views. The friendship dilemma: If the CEO and I like each other, can we--should we--become friends? A successful, long-term advisory relationship with a CEO requires a strong personal connection; in some cases, that becomes a friendship. But the best relationships are characterized by the participants' clear-eyed recognition of each other's frailties--tempered, of course, by genuine affection and easy rapport.

Today, you are about as safe in a U.S. hospital as you would be parachuting off a bridge or a building. But it doesn't have to be that way. Right now, some hospitals are making enormous short-term improvements, with no legislation or market reconfiguration and little or no capital investment. Instead of waiting for sweeping changes in market mechanisms, these institutions are taking an operations approach to patient care. In case after detailed case, this article describes how doctors, nurses, technicians, and managers are radically increasing the effectiveness of patient care and dramatically lowering its cost by applying the same capabilities in operations design and improvement that drive the famous Toyota Production System. They are removing ambiguity in the output, responsibilities, connections, and methods of their work processes. These changes--which can be done in the course of an ordinary workday, sometimes in a matter of hours--are designed to make the following crystal clear: Which patient gets which procedure (output)? Who does which aspect of the job (responsibility)? Exactly which signals are used to indicate that the work should begin (connection)? And, precisely how is each step carried out (method)? Equally important, managers are being transformed from rescuers who arrive with ready-made solutions into problem solvers who help colleagues learn the experimental method. Thus, these hospitals are breaking free of the work-around culture that routinely obscures the root causes of so many problems, creates so much waste, and leads to so many unnecessary deaths.

The aim of strategy is to master a market environment by understanding and anticipating the actions of other economic agents, especially competitors. A firm that has some sort of competitive advantage--privileged access to customers, for instance--will have relatively few competitors to contend with, because potential competitors without an advantage, if they have their wits about them, will stay away. Thus, competitive advantages are actually barriers to entry and vice versa. In markets that are exposed, by contrast, competition is intense. If the incumbents have even brief success in earning greater than normal returns on investments, new entrants will swarm in to grab a share of the profits. Sooner or later, the additional competition will push returns as far down as the firms' costs of capital. For firms operating in such markets, the only choice is to forget about strategy and run the business as efficiently as possible. Barriers to entry are easier to maintain in a competitive arena that is "local," either in the geographic sense or in the sense of being limited to one product or a handful of related ones. The two most powerful competitive advantages--customer captivity and economies of scale--are more achievable and sustainable in circumscribed markets of this kind. Their opposites are the open markets and host of rivals that are features of globalization. Companies entering such markets risk frittering away the advantages they secured on smaller playing fields. If a company wants to grow but still obtain superior returns, the authors argue, the best strategy is to dominate a series of discrete but preferably contiguous markets and then expand only at their edges. Wal-Mart's diminishing margins over the past 15 years are strong evidence of the danger of proceeding otherwise.

In many walks of life--and business is no exception--there are high achievers who believe that they are complete fakes. To the outside observer, these individuals appear to be remarkably accomplished; often, they are extremely successful leaders with staggering lists of achievements. These neurotic impostors--as psychologists call them--are not guilty of false humility. The sense of being a fraud is the flip side of giftedness and causes a great many talented, hardworking, and capable leaders to believe that they don't deserve their success. "Bluffing" their way through life (as they see it), they are haunted by the constant fear of exposure. With every success, they think, "I was lucky this time, fooling everyone, but will my luck hold? When will people discover that I'm not up to the job?" In his career as a management professor, consultant, leadership coach, and psychoanalyst, Manfred F. R. Kets de Vries has found neurotic impostors at all levels of organizations. In this article, he explores the subject of neurotic imposture and outlines its classic symptoms: fear of failure, fear of success, perfectionism, procrastination, and workaholism. He then describes how perfectionist overachievers can damage their careers, their colleagues' morale, and the bottom line by allowing anxiety to trigger self-handicapping behavior and cripple the very organizations they're trying so hard to please. Finally, Kets de Vries offers advice on how to limit the incidence of neurotic imposture and mitigate its damage through discreet vigilance, appropriate intervention, and constructive support.

Successful executives who cut their teeth in stable industries or in developed countries often stumble when they face more volatile markets. They falter, in part, because they assume they can gaze deep into the future and develop a long-term strategy that will confer a sustainable competitive advantage. But visibility into the future of volatile markets is sharply limited because of the many different variables at play. Factors such as technological innovation, customers' evolving needs, government policy, and changes in the capital markets interact with one another to create unexpected outcomes. Over the past six years, Donald Sull, an associate professor at London Business School, has led a research project examining some of the world's most volatile markets, from national markets like China and Brazil to industries like enterprise software, telecommunications, and airlines. One of the most striking findings from this research is the importance of taking action during comparative lulls in the storm. Huge business opportunities are relatively rare; they come along only once or twice in a decade. And, for the most part, companies can't manufacture those opportunities; changes in the external environment converge to make them happen. What managers can do is prepare for these golden opportunities by managing smart during the comparative calm of business as usual. During these periods of active waiting, leaders must probe the future and remain alert to anomalies that signal potential threats or opportunities; exercise restraint to preserve their war chests; and maintain discipline to keep the troops battle ready. When a golden opportunity or "sudden death" threat emerges, managers must have the courage to declare the main effort and concentrate resources to seize the moment.

Companies often apply consumer marketing solutions in business markets without realizing that such strategies only hamper the acquisition and retention of profitable customers. Unlike consumers, business customers inevitably need customized products, quantities, or prices. A company in a business market must, therefore, manage customers individually, showing how its products or services can help solve each buyer's problems. And it must learn to reap the enormous benefits of loyalty by developing individual relationships with customers. To achieve these ends, the firm's marketers must become aware of the different types of benefits the company offers and convey their value to the appropriate executives in the customer company. It's especially important to inform customers about what the author calls nontangible, nonfinancial benefits--above-and-beyond efforts, such as delivering supplies on holidays to keep customers' production lines going. The author has developed a simple set of devices--the benefit stack and the decision-maker stack--to help marketers communicate their firm's myriad benefits. The vendor lists the benefits it offers, then lists the customer's decision makers, specifying their concerns, motivations, and power bases. By linking the two stacks, the vendor can systematically communicate how it will meet each decision maker's needs. The author has also developed a tool called a loyalty ladder, which helps a company determine how much time and money to spend on relationships with various customers. As customers become increasingly loyal, they display behaviors in a predictable sequence, from growing the relationship and providing word-of-mouth endorsements to investing in the vendor company. The author has found that customers follow the same sequence of loyalty behaviors in all business markets.

Internet telephony, or VoIP, is rapidly replacing the conventional kind. This year, for the first time, U.S. companies bought more new Internet-phone connections than standard lines. The major driver behind this change is cost. But VoIP isn't just a new technology for making old-fashioned calls cheaper, says consultant Kevin Werbach. It is fundamentally changing how companies use voice communications. What makes VoIP so powerful is that it turns voice into digital data packets that can be stored, copied, combined with other data, and distributed to virtually any device that connects to the Internet. And it makes it simple to provide all the functionality of a corporate phone--call features, directories, security--to anyone anywhere there's broadband access. That fosters new kinds of businesses such as virtual call centers, where widely dispersed agents work at all hours from their homes. The most successful early adopters, says Werbach, will focus more on achieving business objectives than on saving money. They will also consider how to push VoIP capabilities out to the extended organization, making use of everyone as a resource. Deployment may be incremental, but companies should be thinking about where VoIP could take them. Executives should ask what they could do if, on demand, they could bring all their employees, customers, suppliers, and partners together in a virtual room, with shared access to every modern communications and computing channel. They should take a fresh look at their business processes to find points at which richer and more customizable communications could eliminate bottlenecks and enhance quality. The important dividing line won't be between those who deploy VoIP and those who don't, or even between early adopters and laggards. It will be between those who see VoIP as just a new way to do the same old things and those who use it to rethink their entire businesses.

Jack Emmons, the CEO of Voici Brands, knew his apparel company needed a supply chain overhaul. Over the past couple of years, sales had dropped because of late deliveries, stock-outs, and other supply problems. Meanwhile, a major competitor had significantly reduced its time to market and boosted its bottom line by outsourcing all its product lines to a dazzlingly efficient "supply chain city" in Shanghai. Unfortunately, Jack's company was just too decentralized to use the supply chain city. Each of Voici's five units was like a subsidiary, with its own legacy, management, and suppliers. The unit heads wouldn't sit still for a supply chain consolidation; they had worked too hard to forge vendor relationships. Inspired by a magazine article, Jack decided to appoint a supply chain czar to oversee changes in logistics and procurement. He could hire Ravi Chandry, an aggressive outsider who had centralized supply chain operations for the world's second-largest snack food and beverage company. Or he could promote Tony Rini, a highly capable, trustworthy Voici veteran who had no experience consolidating supply operations but could win hearts and minds. Ravi told Jack that only a Rottweiler could do the job right. Tony lobbied for a more cautious approach: Start with low-hanging fruit, get a few quick wins, then move on to other areas. What kind of leadership will get Voici's units to pull together? Commenting on this fictional case study in R0509A and R0509Z are Shakeel Mozaffar, group vice-president of Global Supply Chain at ICI in London; Robert W. Moffat, Jr., senior vice-president of Integrated Supply Chain at IBM; John D. Blascovich, a vice-president of Chicago-based A.T. Kearney and head of its sourcing practice in North America; and Nick LaHowchic, president and CEO of Limited Logistics Services, an internal service subsidiary of Limited Brands in Columbus, Ohio.