When it comes to improving business performance, managers have no shortage of tools and techniques from which to choose. But what really works? What's critical, and what's optional? Two business professors and a former McKinsey consultant set out to answer those questions. In a groundbreaking, five-year study that involved more than 50 academics and consultants, the authors analyzed 200 management techniques employed by 160 companies over 10 years. Their findings at a high level? Business basics really matter. In this article, the authors outline the management practices that are imperative for sustained superior financial performance--their "4+2 formula" for business success. They provide examples of companies that achieved varying degrees of success depending on whether they applied the formula, and they suggest ways that other companies can achieve excellence. Without exception, the companies that outperformed their industry peers excelled in what the authors call the four primary management practices: strategy, execution, culture, and structure. And they supplemented their great skill in those areas with a mastery of any two of four secondary management practices: talent, leadership, innovation, and mergers and partnerships. A company that consistently follows this 4+2 formula has a better than 90% chance of sustaining superior performance, according to the authors.
The evidence is disturbingly clear: Most major business initiatives--mergers and acquisitions, capital investments, market entries--fail to pay off. Economists would argue that the low success rate reflects a rational assessment of risk, with the returns from a few successes outweighing the losses of many failures. But two distinguished scholars of decision making, Dan Lovallo of the University of New South Wales and Nobel laureate Daniel Kahneman of Princeton University, provide a very different explanation. They show that a combination of cognitive biases (including anchoring and competitor neglect) and organizational pressures lead managers to make overly optimistic forecasts in analyzing proposals for major investments. By exaggerating the likely benefits of a project and ignoring the potential pitfalls, they lead their organizations into initiatives that are doomed to fall well short of expectations. The biases and pressures cannot be escaped, the authors argue, but they can be tempered by applying a very different method of forecasting--one that takes a much more objective "outside view" of an initiative's likely outcome. This outside view, also known as reference-class forecasting, completely ignores the details of the project at hand; instead, it encourages managers to examine the experiences of a class of similar projects, to lay out a rough distribution of outcomes for this reference class, and then to position the current project in that distribution.
Supply chain management is all about software and systems, right? Put in the best technology, sit back, and watch as your processes run smoothly and the savings roll in? Apparently not. When HBR convened a panel of leading thinkers in the field of supply chain management, technology was not top of mind. People and relationships were the dominant issues of the day. The opportunities and problems created by globalization, for example, are requiring companies to establish relationships with new types of suppliers. The ever-present pressure for speed and cost containment is making it even more important to break down stubbornly high internal barriers and establish more effective cross-functional relationships. The costs of failure have never been higher. The leading supply chain performers are applying new technology, new innovations, and process thinking to far greater advantage than the laggards, reaping tremendous gains in all the variables that affect shareholder value: cost, customer service, asset productivity, and revenue generation. And the gap between the leaders and the losers is growing in almost every industry. This roundtable gathered many of the leading thinkers and doers in the field of supply chain management, including practitioners Scott Beth of Intuit, Sandra Morris of Intel, and Chris Gopal of Unisys. David Burt of the University of San Diego and Stanford's Hau Lee bring the latest research from academia. Accenture's William Copacino and the Warren Co.'s Robert Porter Lynch offer the consultant's perspectives.
Just a few years ago, the U.S. stock market was the envy of the world. Thanks to new technology, friendly regulation, and the innovativeness of the financial services industries, it was open to anyone, anywhere, anytime. Americans poured into the market by the millions, and the more they invested, the more liquid, accessible, and attractive the markets became. The world is much less jealous today. Belatedly, investors have come to recognize that the vaunted business models of the new economy were more effective at consuming capital than generating it. The recent stock market and corporate governance failures, the authors argue, are rooted in regulatory and market changes introduced 20 years ago. These were intended to reduce the cost of financial information and increase liquidity--enhancements that the regulators believed would improve both investor access to the market and efficiency in pricing. The goal of liquidity was achieved, but the changes also triggered a race for the bottom in the auditing profession, destroyed the economics of investment analysis, and discouraged professional investors from relying on their own rational judgment. In this article, the authors explore what went wrong and outline their ideas for radical reform. They propose putting the country's stock exchanges in charge of the audit process; creating a new Investors Union modeled on the highly successful Consumers Union; and introducing a graduated tax on trading in pension savings.
At the core of your company, there is a group of people who seem to call the shots--or, rather, all the shots seem to be called for their benefit. This core group can't be found on any organization chart. It exists in people's hearts and minds. It comprises the people whose perceived interests and needs are taken into account as decisions are made throughout the organization. In the best organizations, the core group can be a resource: Members represent the unique values and knowledge that distinguish their companies. When core groups display independence, creativity, and power, the rest of the company follows. Such behavior on the part of the company, in turn, creates value for shareholders, especially over the long term. But because of the core group's enormous power, members need to make themselves aware of the signals they send, both intended and unintended. For better and for worse, the core group reinforces whatever it pays attention to. If you do not know who constitutes the core group in your organization, or what the members stand for, you may find that leading will be extremely difficult--even if you are ostensibly the person in charge.
Most companies make charitable donations, but few approach their contributions with an eye toward enhancing their brands. Those that do take such an approach commit talent and know-how, not just dollars, to a pressing but carefully chosen social need and then tell the world about the cause and their service to it. Through the association, both the business and the cause benefit in ways they could not otherwise. Organizations such as Avon, ConAgra Foods, and Chevrolet have recognized that a sustained cause-branding program can improve their reputations, boost their employees' morale, strengthen relations with business partners, and drive sales. And the targeted causes receive far more money than they could have from direct corporate gifts alone. The authors examine these best practices and offer four principles for building successful cause-branding programs. First, they say, a company should select a cause that advances its corporate goals. Second, a business should commit to a cause before picking its charitable partners. Third, a company should put all its assets to work, especially its employees. And fourth, a company should promote its philanthropic initiatives through every possible channel.
Stress is rampant, stress is growing, and stress hurts the bottom line. A 1999 study of 46,000 workers revealed that health care costs are 147% higher for those who are stressed or depressed, independent of other health issues. But what exactly is stress? It usually refers to our internal reaction to negative, threatening, or worrisome situations--a looming performance report, say, or interactions with a dismissive colleague. Accumulated over time, negative stress can depress you, burn you out, make you sick, or even kill you--because it's both an emotional and a physiological habit. Of course, many companies understand the negative impact of cumulative stress and offer programs to help employees counteract it. The problem is that employees in the greatest need of help often don't seek it. Since 1991, the authors have studied the physiological impact of stress on performance, at both the individual and organizational levels. Their goal largely has been to decode the underlying mechanics of stress. After working with more than 50,000 workers and managers in more than 100 organizations, the authors have found that learning to manage stress is easier than most people think. They have devised a scientifically based system of tools, techniques, and technologies that organizations can use to reduce employee stress and boost overall health and performance.
Lynne Tabor, an IT manager at manufacturing giant MMI, has a great team. Everyone works hard and gets along, except Max Dyer, a talented programmer who is terrible in the interpersonal skills department. Three years ago Tabor reworked his job after employees complained that he was unengaged and even belligerent. Since then, he's been a solid worker, putting in extra hours and meriting good performance evaluations. But recently, Dyer's coworkers have noticed a change for the worse in him. Everyone at MMI is on edge after a round of layoffs. Reports of a workplace shooting in Seattle are all over the news. One coworker finds Max pinning up a certificate from a shooting range in his cubicle, and another worries that they will all end up as statistics of office violence. They want to know how Tabor plans to ensure their safety. Dyer thinks his coworkers are out to get him. They believe he fits the profile of a man on the edge. But what can Tabor do about an employee who has never made so much as a veiled threat to anyone? In R0307A and R0307Z, commentators James Alan Fox, a professor of criminal justice at Northeastern University; Steve Kaufer, a cofounder of the Workplace Violence Research Institute; Christine Pearson, a management professor at Thunderbird; Christine Porath, a professor of management and organizational behavior at the University of Southern California's Marshall School of Business; and Ronald Schouten, the director of the Law and Psychiatry Service at Massachusetts General Hospital, offer advice on this fictional case study.
Lynne Tabor, an IT manager at manufacturing giant MMI, has a great team. Everyone works hard and gets along, except Max Dyer, a talented programmer who is terrible in the interpersonal skills department. Three years ago Tabor reworked his job after employees complained that he was unengaged and even belligerent. Since then, he's been a solid worker, putting in extra hours and meriting good performance evaluations. But recently, Dyer's coworkers have noticed a change for the worse in him. Everyone at MMI is on edge after a round of layoffs. Reports of a workplace shooting in Seattle are all over the news. One coworker finds Max pinning up a certificate from a shooting range in his cubicle, and another worries that they will all end up as statistics of office violence. They want to know how Tabor plans to ensure their safety. Dyer thinks his coworkers are out to get him. They believe he fits the profile of a man on the edge. But what can Tabor do about an employee who has never made so much as a veiled threat to anyone? In R0307A and R0307Z, commentators James Alan Fox, a professor of criminal justice at Northeastern University; Steve Kaufer, a cofounder of the Workplace Violence Research Institute; Christine Pearson, a management professor at Thunderbird; Christine Porath, a professor of management and organizational behavior at the University of Southern California's Marshall School of Business; and Ronald Schouten, the director of the Law and Psychiatry Service at Massachusetts General Hospital, offer advice on this fictional case study.
In-N-Out Burger is a fast-food chain with 171 company-owned locations in three states--California, Nevada, and Arizona. It has an extremely hardcore customer base and the company appears to be in good financial health. The primary issue in this case concerns expansion: how quickly should the company expand and should that growth occur regionally or nationally? A secondary issue involves the question of brand stewardship, namely, who is in the best position to steward the brand as it continues to grow over the next decade?
Habitat for Humanity underwent a brand valuation study and found that its brand was worth $1.8 billion, equivalent to Starbucks. Senior management reviews the issues facing the organization; students are afforded insights into what drives brand value for a major nonprofit and what is critical for building and protecting brand value.
By 2003, India had been growing at almost 6% annually since 1992, after it suffered a financial collapse, abandoned import substitution, and moved gradually to adopt the Washington Consensus. Now, financial controls and competition barriers are less burdensome, inflation is lower, and the current account is balanced. However, the finance minister faces difficulties with massive fiscal deficits and continuing disturbances with Pakistan that seem to deter foreign direct investment (FDI). The question facing him is whether India can reduce these deficits (in the face of a 2004 election) or whether to let them slide, hoping that India's entrepreneurs and high-tech southern states will carry the day.
The president of Ford Argentina has to decide on the e-business approach at this subsidiary of Ford Motor Co. The approach must take into consideration the ambitious global e-business transformation proposed by the parent company within the context of a major economic crisis suffered in Argentina.
From March to May 2003, Hong Kong's tourism industry underwent a serious downturn during the outbreak of SARS in the territory, which caused 1,755 cases in Hong Kong before July. There was practically no inbound tourism between April 2 and May 23, during which the World Health Organization advised the public to consider postponing all but essential travel to Hong Kong. Then, in a dramatic twist, the industry received a significant boost in late July, when residents of four nearby mainland Chinese cities were allowed to apply to visit Hong Kong on an individual basis as part of the mainland and Hong Kong Closer Economic Partnership Arrangement. Formerly, mainland Chinese tourists could visit Hong Kong only with tour groups. By September, tourists from the major cities of Beijing, Shanghai, Guangzhou, and Shenzhen could also visit Hong Kong on an individual basis. Mainland tourists literally began to flood in as a result, bringing up total visitor arrival figures to a level that even surpassed pre-SARS statistics. Greater easing of travel restrictions was expected in the first half of 2004. How could Hong Kong's SMEs, much battered by the economic woes in recent years that were capped by the SARS attack, capitalize on the new opportunities offered by the liberalization of mainland travel?
The sauce company Lee Kum Kee, one of the best known Hong Kong brands, had a long history that began in 1888 and was run by the same family for four generations. The company was founded by Lee Kam Sheung as a small oyster sauce manufacturer in Guangdong Province, China. It relocated to Macau in the early 1900s and moved once more to Hong Kong after World War II; it remained based there in the decades afterwards. Lee Kum Kee was already expanding beyond the Guangdong-Macau-Hong Kong distribution network in the 1920s to North America, when it was also making shrimp paste. In the 1970s and 1980s, after the torch passed to third-generation leader Lee Man Tat, there was rapid geographical market and product diversification. Lee Man Tat's sons, who were educated in the West, inherited the leadership from their father in the 1990s, and the pace of modernization and diversification continued while the company's marketing strategy remained vigorous and adaptable. The company overcame a consumer confidence crisis--called the 3-MPCD crisis--in the late 1990s and early 2000s and continued to thrive. By early 2003, Lee Kum Kee had already developed more than 200 sauces. Its distribution network covered 60 countries in five continents, and its products were available in more than 80 countries. What lessons about strategic brand management can we learn from the way Lee Kum Kee developed, maintained, and expanded the reach of its products over a whole century? What lessons about crisis management does the company's handling of the 3-MPCD crisis offer?
The Pasteur Institut is implementing a proactive commercialization strategy under the direction of Christian Policard. Highlights the government's innovation policy and the role that the Pasteur Institut can play in shaping it. Also addresses issues relating to higher education and life-sciences research in France.