Describes the current status of IT applications at the second largest container shipping company in the world: China-based COSCO. Describes the challenges the company has faced in dealing with its development and shows a series of organizational and application challenges it must select from in the future. Shows the growing IT sophistication of large, state-owned enterprises in China.
This disguised case examines the highly provocative issue of outsourcing to a low-cost country based on a thorough analysis of competitive cost drivers. The case demonstrates that labor cost is only one potential advantage and that transportation cost and other factors could more than offset labor savings in some product lines.
Options are contracts that give the right, but not the obligation, to either buy or sell a specific underlying security for a specified price on or before a specific date. Explains the basis of options, covering fundamentals such as option terminology, the payoff schemes of options, parameters that influence their value, the put-call parity, and the upper and lower bounds of options prices. Presents problems for students to solve.
For every option, a fair price has to be established. But how do you actually price an option? Assuming a basic knowledge of options, this note covers two pricing methods: the binominal tree and the Black-Scholes/Merton formula.
Mike Valenti, founder and president of Michael's Homestyle Pasta of Connecticut, has just finished a four-hour conference call with his top managers, his lawyer and Fred Jones, the Quality Assurance manager at Southern Pasta Company. Michael's had acquired Southern, a Florida firm, three weeks earlier, on December 10, 2001. It had taken the quality assurance manager until early in the morning of New Year's Eve day, Monday, 2001, to admit to Ted Brewer, V.P. of Operations for Michael's, that he had been falsifying safety inspections of Southern products. He told Brewer that the seafood stuffed pasta shells leaving the Southern plant had been contaminated with salmonella. Much of the last batch of product had been sent to Southern's largest customer, a national chain of 200 restaurants. Michael's had purchased Southern, in no small part, to capture this account. Jones stated that the president of Southern, an Austrian national, had coerced him into falsifying the quality control reports. Brewer has told Valenti that some of the tainted product had been stopped before it was shipped. The discussion leads to options that the management team could follow. Since New Year's Eve is one of the largest sales days of the year for restaurants, Valenti knows that he has to do something quickly. He also knows that, regardless of what he does, the reputation and future of his company rest on the outcome of his actions. He is considering what to do at the end of the case, late in the afternoon of New Year's Eve day.
Jim Hargrove, the marketing director of $820 million Neptune Gourmet Seafood, is having a bad week. Neptune is the most upmarket player in the $20 billion industry, and the company is doing everything it can to preserve its premium image among customers. But Neptune's recent investment in state-of-the-art freezer trawlers, along with new fishing regulations, is resulting in catches that are bigger than ever. Though demand is at an all-time high, the company is saddled with excess inventory--and there's no relief in sight. Neptune's sales head, Rita Sanchez, has come up with two strategies that Hargrove feels would destroy the company's premium image: cut prices or launch a new mass-market brand. Not many executives in the company are in favor of cutting prices, but it's clear that Sanchez is gaining ground in her bid to launch a low-priced brand. Reputation worries aside, Hargrove fears that an inexpensive brand would cannibalize the company's premium line and antagonize the powerful association of seafood processors. How can he get others to see the danger, too? Commenting on this fictional case study in R0504A and R0504Z are Dan Schulman, the CEO of Virgin Mobile USA, a wireless voice and data services provider; Dipak C. Jain, a professor of marketing and the dean of the Kellogg School of Management at Northwestern University; Oscar de la Renta, chairman, and Alexander L. Bolen, CEO, of Oscar de la Renta Ltd., the New York-based luxury goods manufacturer; and Thomas T. Nagle, the chairman of the Strategic Pricing Group, a Massachusetts-based management consultancy that specializes in pricing.
It's hard to find a better exemplar for competition than chess. Even people who have scant knowledge of the game instinctively recognize that chess is unusual in terms of its intellectual complexity and the strategic demands it places on players. Can strategists learn anything from chess players about what it takes to win? To find out, HBR senior editor Diane L. Coutu talked with Garry Kasparov, the world's No.1 player since 1984. Kasparov believes that success in both chess and business is very much a question of psychological advantage; the complexity of the game demands that players rely heavily on their instincts and on gamesmanship. In this wide-ranging interview, Kasparov explores the power of chess as a model for business competition; the balance that chess players strike between intuition and analysis; the significance of his loss to IBM's chess-playing computer, Deep Blue; and how his legendary rivalry with Anatoly Karpov, Kasparov's predecessor as World Chess Champion, affected his own success. Kasparov also shares his solution to what he calls the champion's dilemma, a question for all world masters, whether they are in business, sports, or chess: Where does a virtuoso go after he has accomplished everything he's ever wanted to, even beyond his wildest imagination?
Leaders tend to be so immersed in the specifics of strategy that they rarely stop to think how much of their reasoning is done by analogy. As a result, they miss useful insights that psychologists and other scientists have generated about analogies' pitfalls. Managers who pay attention to their own analogical thinking will make better strategic decisions and fewer mistakes. Charles Lazarus was inspired by the supermarket when he founded Toys R Us; Intel promoted its low-end chips to avoid becoming like U.S. Steel; and Circuit City created CarMax because it saw the used-car market as analogous to the consumer electronics market. Each example displays the core elements of analogical reasoning: a novel problem or a new opportunity, a specific prior context that managers deem to be similar in its essentials, and a solution that managers can transfer from its original setting to the new one. Analogical reasoning is a powerful tool for sparking breakthrough ideas. But dangers arise when analogies are built on surface similarities. Psychologists have discovered that it's all too easy to overlook the superficiality of analogies. The situation is further complicated by people's tendency to hang on to beliefs even after contrary evidence comes along and to seek only the data that confirm their beliefs. Four straightforward steps can improve a management team's odds of using an analogy well: Recognize the analogy and identify its purpose; thoroughly understand its source; determine whether the resemblance is more than superficial; and decide whether the original strategy, properly translated, will work in the target industry.
Most developmental psychologists agree that what differentiates one leader from another is not so much philosophy of leadership, personality, or style of management. Rather, it's internal "action logic"--how a leader interprets the surroundings and reacts when his or her power or safety is challenged. Relatively few leaders, however, try to understand their action logic, and fewer still have explored the possibility of changing it. They should, because leaders who undertake this voyage of personal understanding and development can transform not only their own capabilities but also those of their companies. The authors draw on 25 years of consulting experience and collaboration with psychologist Susanne Cook-Greuter to present a typology of leadership based on the way managers personally make sense of the world around them. David Rooke and William Torbert classify leaders into seven distinct action-logic categories: Opportunists, Diplomats, Experts, Achievers, Individualists, Strategists, and Alchemists--the first three associated with below-average performance, the latter four with medium to high performance. These leadership styles are not fixed, the authors say, and executives who are willing to work at developing themselves and becoming more self-aware can almost certainly move toward one of the more effective action logics. A Diplomat, for instance, can succeed through hard work and self-reflection at transforming himself into a Strategist. Corporations that help their executives and leadership teams to examine their action logics can reap rich rewards.
Corporate treasurers and chief financial officers have become adept at quantifying and managing a wide variety of risks: financial, hazard, and operational. To defend themselves, they use tried-and-true tools such as hedging, insurance, and backup systems. Some companies have even adopted the concept of enterprise risk management, integrating available risk management techniques in a comprehensive, organizationwide approach. But most managers have not addressed in a systematic way the greatest threat of all: strategic risks--the array of external events and trends that can devastate a company's growth trajectory and shareholder value. For example, a new technology may overtake your product. Gradual shifts in the market may slowly erode one of your brands beyond the point of viability. The key to surviving these strategic risks, the authors say, is knowing how to assess and respond to them. In this article, they lay out a method for identifying and responding to strategic threats. They categorize the risks into seven major classes and describe a particularly dangerous example within each category. The authors also offer countermeasures to take against these risks and describe how individual companies have deployed them to neutralize a threat and, in many cases, capitalize on it. Besides limiting the downside of risk, strategic risk management forces executives to think more systematically about the future, thus helping them identify opportunities for growth.
Companies have poured enormous amounts of money into customer relationship management, but in many cases the investment hasn't really paid off. That's because getting closer to customers isn't about building an information technology system. It's a learning journey that begins with the creation of a companywide repository containing every customer interaction with the company, organized by customer. Communal coordination is what's called for at this stage, as each group contributes its information to the data pool separately from the others and then taps into it as needed. In the second stage, one-way serial coordination from centralized IT through analytical units and out to the operating units allows companies to go beyond just assembling data to drawing inferences. In stage three, companies shift their focus from past relationships to future behavior. Through symbiotic coordination, information flows back and forth between central analytic units and various organizational units like marketing, sales, and operations, as together they seek answers to questions like "How can we prevent customers from switching to a competitor?" and "Who would be most likely to buy a new product in the future?" In stage four, firms begin to move past discrete, formal initiatives and, through integral coordination, bring an increasingly sophisticated understanding of their customers to bear in all day-to-day operations.
Most executives would say that adding a point of growth and gaining a point of operating-profit margin contribute about equally to shareholder value. Margin improvements hit the bottom line immediately, whereas growth compounds value over time. But the reality is that the two are rarely equivalent. Growth often is far more valuable than managers think. This article presents a new strategic metric, called the relative value of growth (RVG), which gives managers a clear picture of how growth projects and margin improvement initiatives affect shareholder value. Using basic balance sheet and income sheet data, managers can determine their companies' RVGs, as well as those of their competitors. Calculating RVGs gives managers insights into which corporate strategies are working to deliver value and whether their companies are pulling the most powerful value-creation levers. The author examines a number of well-known companies and explains what their RVG numbers say about their strategies. He reviews the unspoken assumption that growth and profits are incompatible over the long term and shows that a fair number of companies are effective at delivering both. Finally, he explains how managers can use the RVG framework to help them define strategies that balance growth and profitability at both the corporate and business unit levels.
To find the secrets of business success, what could be more natural than studying successful businesses? In fact, nothing could be more dangerous, warns this Stanford professor. To generalize from the examples of successful companies is to reach conclusions from an unrepresentative data sample, falling into the classic statistical trap of selection bias. Drawing on a wealth of case studies, for instance, one researcher concluded that great leaders share two key traits: They persist, often despite initial failures, and they are able to persuade others to join them. But those traits are also the hallmarks of spectacularly unsuccessful entrepreneurs. To discover what makes a business successful, then, managers should look at both successes and failures. Otherwise, they will overvalue risky business practices, seeing only those companies that won big and not the ones that lost dismally. They will not be able to tell whether their current good fortune stems from smart business practices or from coasting on past accomplishments or good luck. Fortunately, economists have developed relatively simple tools that can correct for selection bias even when data about failed companies are hard to come by.
Many executives take for granted that the first company in a new product category gets an unbeatable head start and reaps long-lasting benefits. But that doesn't always happen. The authors of this article discovered that much depends on the pace at which the category's technology is changing and the speed at which the market is evolving. By analyzing these two factors, companies can improve their odds of succeeding as first movers with the resources they possess. Gradual evolution in both the technology and the market provides a first mover with the best conditions for creating a dominant position that is long lasting (Hoover in the vacuum cleaner industry is a good example). In such calm waters, a company can defend its advantages even without exceptional skills or extensive financial resources. When the market is changing rapidly and the product isn't, a first entrant with extensive resources can obtain a long-lasting advantage (as Sony did with its Walkman); a company with only limited resources probably must settle for a short-term benefit. When the market is static but the product is changing constantly, first-mover advantages of either kind--durable or short-lived--are unlikely. Only companies with very deep pockets can survive (think of Sony and the digital cameras it pioneered). Rapid churn in both the technology and the market creates the worst conditions. But if companies have an acute sense of when to exit, then a worthwhile short-term gain is possible. Before venturing into a newly forming market, analyze the environment, assess your resources, then determine which type of first-mover advantage is most achievable.
Jim Hargrove, the marketing director of $820 million Neptune Gourmet Seafood, is having a bad week. Neptune is the most upmarket player in the $20 billion industry, and the company is doing everything it can to preserve its premium image among customers. But Neptune's recent investment in state-of-the-art freezer trawlers, along with new fishing regulations, is resulting in catches that are bigger than ever. Though demand is at an all-time high, the company is saddled with excess inventory--and there's no relief in sight. Neptune's sales head, Rita Sanchez, has come up with two strategies that Hargrove feels would destroy the company's premium image: cut prices or launch a new mass-market brand. Not many executives in the company are in favor of cutting prices, but it's clear that Sanchez is gaining ground in her bid to launch a low-priced brand. Reputation worries aside, Hargrove fears that an inexpensive brand would cannibalize the company's premium line and antagonize the powerful association of seafood processors. How can he get others to see the danger, too? Commenting on this fictional case study in R0504A and R0504Z are Dan Schulman, the CEO of Virgin Mobile USA, a wireless voice and data services provider; Dipak C. Jain, a professor of marketing and the dean of the Kellogg School of Management at Northwestern University; Oscar de la Renta, chairman, and Alexander L. Bolen, CEO, of Oscar de la Renta Ltd., the New York-based luxury goods manufacturer; and Thomas T. Nagle, the chairman of the Strategic Pricing Group, a Massachusetts-based management consultancy that specializes in pricing.
Jim Hargrove, the marketing director of $820 million Neptune Gourmet Seafood, is having a bad week. Neptune is the most upmarket player in the $20 billion industry, and the company is doing everything it can to preserve its premium image among customers. But Neptune's recent investment in state-of-the-art freezer trawlers, along with new fishing regulations, is resulting in catches that are bigger than ever. Though demand is at an all-time high, the company is saddled with excess inventory--and there's no relief in sight. Neptune's sales head, Rita Sanchez, has come up with two strategies that Hargrove feels would destroy the company's premium image: cut prices or launch a new mass-market brand. Not many executives in the company are in favor of cutting prices, but it's clear that Sanchez is gaining ground in her bid to launch a low-priced brand. Reputation worries aside, Hargrove fears that an inexpensive brand would cannibalize the company's premium line and antagonize the powerful association of seafood processors. How can he get others to see the danger, too? Commenting on this fictional case study in R0504A and R0504Z are Dan Schulman, the CEO of Virgin Mobile USA, a wireless voice and data services provider; Dipak C. Jain, a professor of marketing and the dean of the Kellogg School of Management at Northwestern University; Oscar de la Renta, chairman, and Alexander L. Bolen, CEO, of Oscar de la Renta Ltd., the New York-based luxury goods manufacturer; and Thomas T. Nagle, the chairman of the Strategic Pricing Group, a Massachusetts-based management consultancy that specializes in pricing.
This is an MIT Sloan Management Review article. In an attempt to increase both efficiency and service quality, more and more companies are outsourcing to third-party suppliers some key business processes, such as human resources, information technology, and procurement. The universe of potential suppliers is diverse and growing, made up of locally based specialists, offshore providers with comparatively low labor costs, and global suppliers who are able to apply sophisticated management techniques and technology. The challenge for clients is to understand their own requirements and to identify providers whose capabilities and objectives are best aligned with their particular needs. Draws on extensive research to identify three potentially critical areas of supplier competency: delivery competency, transformation competency, and relationship competency. By benchmarking supplier capabilities against its strategic and operational intent, a company can work to establish relationships that support its business objectives.
This is an MIT Sloan Management Review article. Information technology is undergoing an inexorable shift from being an asset that companies own to being a service that they purchase from utility providers. Three technological advances are enabling this change: virtualization, grid computing, and Web services. Virtualization erases the differences between proprietary computing platforms, enabling applications designed to run on one operating system to be deployed elsewhere. Grid computing allows large numbers of hardware components, such as servers or disk drives, to effectively act as a single device, pooling their capacity and allocating it automatically to different jobs. Web services standardize the interfaces between applications, turning them into modules that can be assembled and disassembled easily. The resulting industry will likely have three major components. At the center will be the IT utilities themselves--big companies that will maintain core computing resources in central plants and distribute them to end users. Serving the utilities will be a diverse array of component suppliers--the makers of computers, storage units, networking gear, operating and utility software, and applications. And finally, large network operators will maintain the ultra-high-capacity data communication lines needed for the system to work. IT's shift from an in-house capital asset to a centralized utility service will overturn strategic and operating assumptions, alter industrial economics, upset markets, and pose daunting challenges to every user and vendor.
This is an MIT Sloan Management Review article. Forming close relationships with suppliers or customers is a popular business strategy, but such partnerships can be problematic. Many close business relationships--whether joint ventures or loose alliances--fail. Describes a phenomenon called the "dark side" of close relationships and maintains that close relationships that seem quite stable can, in fact, be vulnerable to decline and destruction. Draws on surveys of business relationships and other examples. The same factors that strengthen a partnership can also open the door to relationship problems. For example, when an automaker and a supplier built up personal relationships between employees at the two firms to facilitate their alliance and just-in-time manufacturing process, the trust and personal relationships also enabled the supplier more easily to cut corners in the production process. Discusses strategies to prevent the dark side from taking over a business relationship--for example, to ensure that both parties in the relationship make investments in it, in effect swapping "mutual hostages." In cases where damage to the relationship already exists, possible strategies include rotating in new personnel, reconfiguring the relationship, or terminating it.