A town, "Michigan's little Bavaria," discusses word-of-mouth referral. Enables students to calculate the value of word-of-mouth and understand how to increase it.
Ford encourages its independent dealers to consolidate, showing them the benefits size can bring both to themselves and their customers. Now, consolidated dealerships improve customer service and reduce costs.
Describes the situation at WebSpective, a software company that develops products to help companies manage the network of servers that support their Websites. Describes the use of "concept engineering" tools to interview customers, determine their needs and the resulting product requirements, and prioritize these requirements as the basis for a product and marketing strategy.
It happens all the time. Two parties with common interests fail to reach an agreement--about a sale, a merger, a technology transfer--because they have different expectations about the future. They are both so confident in their prediction, or so suspicious of the other side's motives, that they refuse to compromise. Such impasses are hard to break through. Fortunately, they can often be avoided altogether by using a straightforward but frequently overlooked type of agreement called a contingent contract. The terms of a contingent contract are not finalized until the uncertain event in question--the contingency--takes place. In some areas of business, such as compensation, contingent contracts are common: a CEO's pay is tied to the company's stock price, for instance. But in many business negotiations, contingent contracts are either ignored or rejected out of hand. That's a mistake, according to the authors. In an increasingly uncertain world, flexible contingent contracts can actually be more rational and less risky than rigid, traditional ones. In particular, contingent contracts offer six benefits: they enable a difference of opinion to become the basis of an agreement, not an obstacle to it; they cancel out the biases of negotiators; they level the playing field by reducing the impact of asymmetric information; they provide a means of uncovering deceitful dealings; they reduce risk by sharing it among parties; and they motivate parties to fulfill their promises. While contingent contracts are not appropriate in all instances, they are much more broadly applicable than managers may think.
Hiring good people is tough, but keeping them can be even tougher. The professionals streaming out of today's MBA programs are so well educated and achievement oriented that they could do well in virtually any job. But will they stay? According to noted career experts Timothy Butler and James Waldroop, only if their jobs fit their deeply embedded life interests--that is, their long-held, emotionally driven passions. Butler and Waldroop identify the eight different life interests of people drawn to business careers and introduce the concept of job sculpting, the art of matching people to jobs that resonate with the activities that make them truly happy. Managers don't need special training to job sculpt, but they do need to listen more carefully when employees describe what they like and dislike about their jobs. Once managers and employees have discussed deeply embedded life interests--ideally, during employee performance reviews--they can work together to customize future work assignments. In some cases, that may mean simply adding another assignment to existing responsibilities. In other cases, it may require moving that employee to a new position altogether. Skills can be stretched in many directions, but if they are not going in the right direction--one that is congruent with deeply embedded life interests--employees are at risk of becoming dissatisfied and uncommitted. And in an economy where a company's most important asset is the knowledge, energy, and loyalty of its people, that's a large risk to take.
Eager to stay ahead of fast-changing markets, more and more high-tech companies are going outside for competitive advantage. Last year in the United States alone, there were 5,000 high-tech acquisitions, but many of them yielded disappointing results. The reason, the authors contend, is that most managers have a shortsighted view of strategic acquisitions--they focus on the specific products or market share. That focus might make sense in some industries, where those assets can confer substantial advantages, but in high tech, full-fledged technological capabilities--tied to skilled people--are the key to long-term success. Instead of simply following the "buzz," successful acquirers systematically assess their own capability needs. They create product road maps to identify holes in their product line. While the business group determines if it can do the work in-house, the business development office scouts for opportunities to buy it. Once business development locates a candidate, it conducts an expanded due diligence, which goes beyond strategic, financial, and legal checks. Successful acquirers are focused on long-term capabilities, so they make sure that the target's products reflect a real expertise. They also look to see if key people would be comfortable in the new environment and if they have incentives to stay on board. The final stage of a successful acquisition focuses on retaining the new people--making sure their transition goes smoothly and their energies stay focused. Acquisitions can cause great uncertainty, and skilled people can always go elsewhere. In short, the authors argue, high-tech acquisitions need a new orientation around people, not products.
In 1998, Silicon Valley companies produced 41 IPOs, which by January 1999 had a combined market capitalization of $27 billion--that works out to $54,000 in new wealth creation per worker in a single year. Multiply the number of employees in your company by $54,000. Did your business create that much new wealth last year? Half that amount? It's not a group of geniuses generating such riches. It's a business model. In Silicon Valley, ideas, capital, and talent circulate freely, gathering into whatever combinations are most likely to generate innovation and wealth. Unlike most traditional companies, which spend their energy in resource allocation--a system designed to avoid failure--the Valley operates through resource attraction--a system that nurtures innovation. In a traditional company, people with innovative ideas must go hat in hand to the guardians of the old ideas for funding and for staff. But in Silicon Valley, a slew of venture capitalists vie to attract the best new ideas, infusing relatively small amounts of capital into a portfolio of ventures. And talent is free to go to the companies offering the most exhilarating work and the greatest potential rewards. It should actually be easier for large, traditional companies to set up similar markets for capital, ideas, and talent internally. After all, big companies often already have extensive capital, marketing, and distribution resources, and a first crack at the talent in their own ranks. And some of them are doing it. The choice is yours--you can do your best to make sure you never put a dollar of capital at risk, or you can tap into the kind of wealth that's being created every day in Silicon Valley.
Walk into any organization and you will get a snapshot of the company in action--people and products moving every which way. But ask for a picture of the company and you will be given the org chart, with its orderly little boxes showing just the names and titles of managers. Now there's a more revealing way to depict the people and operations within an organization--an approach called the organigraph. The organigraph is not a chart. It's a map that offers an overview of the company's functions and the ways that people organize themselves at work. Perhaps most important, an organigraph can help managers see untapped competitive opportunities. Drawing on the organigraphs they created for about a dozen companies, authors Mintzberg and Van der Heyden illustrate just how valuable a tool the organigraph is. For instance, one they created for Electrocomponents, a British distributor of electrical and mechanical items, led managers to a better understanding of the company's real expertise--business-to-business relationships. As a result of that insight, the company wisely decided to expand in Asia and to increase its Internet business. As one manager says, "It allowed the company to see all sorts of new possibilities." With traditional hierarchies vanishing and newfangled--and often quite complex--organizational forms taking their place, people are struggling to understand how their companies work. What parts connect to one another? How should processes and people come together? Whose ideas have to flow where? With their flexibility and realism, organigraphs give managers a new way to answer those questions.
In 1987, John Peterman started the J. Peterman Co. with a $500 investment and a $20,000 unsecured loan. What began with an ad in the New Yorker and a single product prospered for years. But in 1998, the company slid harrowingly into bankruptcy proceedings. What happened? As Peterman tells it, it all started with a trip he took to Jackson Hole, Wyoming, where he bought a coat. It was a long, sweeping cowboy duster, and he liked the way wearing it made him feel. He suspected that other people would like to buy something that made them feel romantic and individualistic, too. He was right. With Don Staley writing the copy, Peterman issued the first catalog in 1988. It contained just seven items. By 1989, the company did $4.8 million in sales; by 1990, that figure had grown to $19.8 million. But the business model was always implicit--a mistake. They should have developed a precise mission statement. In hindsight, Peterman says, it would have been easy. The business concept could have been summed up in six words: unique, authentic, romantic, journey, wondrous, and excellent. The most successful items evoked all of those things. The business grew, and as more items were added to the catalog and the retail stores expanded, everyone in the company had difficulty focusing. Rapid expansion in the late 1990s brought more staff, more backers, more risk, more rules, and less focus. Time ran out when a cash-flow crisis ultimately squeezed the life out of the company. Looking back, Peterman draws a number of transferable lessons about creating a dream and building a culture, and about the nature of trust and control in a growing organization.
Software applications are now a mission-critical source of competitive advantage for most companies. They are also a source of great risk, as the Y2K bug has made clear. Yet many line managers still haven't confronted software issues--partly because they aren't sure how best to define the quality of the applications in their IT infrastructures. Some companies such as Wal-Mart and the Gap have successfully integrated the software in their networks, but most have accumulated an unwieldy number of incompatible applications--all designed to perform the same tasks. The authors provide a framework for measuring the performance of software in a company's IT portfolio. Quality traditionally has been measured according to a product's ability to meet certain specifications; other views of quality have emerged that measure a product's adaptability to customers' needs and a product's ability to encourage innovation. To judge software quality properly, argue the authors, managers must measure applications against all three approaches. Understanding the domain of a software application is an important part of that process. The domain is the body of knowledge about a user's needs and expectations for a product. Software domains change frequently based on how a consumer chooses to use, for example, Microsoft Word or a spreadsheet application. The domain can also be influenced by general changes in technology, such as the development of a new software platform. Thus, applications can't be judged only according to whether they conform to specifications. The authors discuss how to identify domain characteristics and software risks and suggest ways to reduce the variability of software domains.
The Toyota Production System is a paradox. On the one hand, every activity, connection, and production flow in a Toyota factory is rigidly scripted. Yet at the same time, Toyota's operations are enormously flexible and responsive to customer demand. How can that be? After an extensive four-year study of the system in more than 40 plants, the authors came to understand that at Toyota it's the very rigidity of the operations that makes the flexibility possible. That's because the company's operations can be seen as a continuous series of controlled experiments. Whenever Toyota defines a specification, it is establishing a hypothesis that is then tested through action. This approach--the scientific method--is not imposed on workers, it's ingrained in them. And it stimulates them to engage in the kind of experimentation that is widely recognized as the cornerstone of a learning organization. The Toyota Production System grew out of the workings of the company over 50 years, and it has never actually been written down. Making the implicit explicit, the authors lay out four principles that show how Toyota sets up all its operations as experiments and teaches the scientific method to its workers. The first rule governs the way workers do their work. The second, the way they interact with one another. The third governs how production lines are constructed. And the last, how people learn to improve. Every activity, connection, and production path designed according to these rules must have built-in tests that signal problems immediately. And it is the continual response to those problems that makes this seemingly rigid system so flexible and adaptive to changing circumstances.
Most senior managers want their product development teams to create breakthroughs--new products that will allow their companies to grow rapidly and maintain high margins. But more often they get incremental improvements to existing products. That's partly because companies must compete in the short term. Searching for breakthroughs is expensive and time consuming; line extensions can help the bottom line immediately. In addition, developers simply don't know how to achieve breakthroughs, and there is usually no system in place to guide them. By the mid-1990s, the lack of such a system was a problem even for an innovative company like 3M. Then a project team in 3M's Medical-Surgical Markets Division became acquainted with a method for developing breakthrough products: the lead user process. The process is based on the fact that many commercially important products are initially thought of and even prototyped by "lead users"--companies, organizations, or individuals that are well ahead of market trends. Their needs are so far beyond those of the average user that lead users create innovations on their own that may later contribute to commercially attractive breakthroughs. The lead user process transforms the job of inventing breakthroughs into a systematic task of identifying lead users and learning from them. The authors explain the process and how the 3M project team successfully navigated through it. In the end, the team proposed three major new product lines and a change in the division's strategy that has led to the development of breakthrough products. And now several more divisions are using the process to break away from incrementalism.
For the most part, Glamor-a-Go-Go's board has been thrilled with CEO Joe Ryan's performance. Ryan, after all, had transformed the private-label cosmetics company into a retail powerhouse with flashy outlets from New York to Los Angeles. In addition to saving the company from bankruptcy shortly after his arrival in 1992, Ryan had made Glamor-a-Go-Go a fun and exciting place to work, increasing workers' wages and creating boundless opportunities for anyone willing to work hard and think out of the box. He had also brought more women and people of color on board. And he had made many employees wealthy, with generous stock giveaways and options for the most senior employees down to the most junior. Glamor-a-Go-Go's stock price had grown tenfold during Ryan's tenure. But Ryan's personal affairs were beginning to call into question his leadership abilities. The local paper's gossip column recently ran a photo of Ryan--a married man--leaving a gala event with a beautiful young woman from the company, with the headline "Who's That Girl?" Indeed, rumors about Ryan's philandering were starting to take on a harsher edge. Some people believed his secretary left because Ryan had sexually harassed her. Others believed a mailroom employee had been promoted to factory supervisor because of her affair with the CEO. Having warned Ryan several times about his alleged infidelities, the board is stuck. What should it do about Ryan's extracurricular behavior? Does Ryan's personal behavior even affect the company? Is what Ryan does outside the office the board's concern? In 99511 and 99511Z, commentators Freada Kapor Klein, Mitchell Kapor, Burke Stinson, Patrick Carnes, Daryl Koehn, and Lisa A. Mainiero offer advice on this fictional case study.
For the most part, Glamor-a-Go-Go's board has been thrilled with CEO Joe Ryan's performance. Ryan, after all, had transformed the private-label cosmetics company into a retail powerhouse with flashy outlets from New York to Los Angeles. In addition to saving the company from bankruptcy shortly after his arrival in 1992, Ryan had made Glamor-a-Go-Go a fun and exciting place to work, increasing workers' wages and creating boundless opportunities for anyone willing to work hard and think out of the box. He had also brought more women and people of color on board. And he had made many employees wealthy, with generous stock giveaways and options for the most senior employees down to the most junior. Glamor-a-Go-Go's stock price had grown tenfold during Ryan's tenure. But Ryan's personal affairs were beginning to call into question his leadership abilities. The local paper's gossip column recently ran a photo of Ryan--a married man--leaving a gala event with a beautiful young woman from the company, with the headline "Who's That Girl?" Indeed, rumors about Ryan's philandering were starting to take on a harsher edge. Some people believed his secretary left because Ryan had sexually harassed her. Others believed a mailroom employee had been promoted to factory supervisor because of her affair with the CEO. Having warned Ryan several times about his alleged infidelities, the board is stuck. What should it do about Ryan's extracurricular behavior? Does Ryan's personal behavior even affect the company? Is what Ryan does outside the office the board's concern? In 99511 and 99511Z, commentators Freada Kapor Klein, Mitchell Kapor, Burke Stinson, Patrick Carnes, Daryl Koehn, and Lisa A. Mainiero offer advice on this fictional case study.
For the most part, Glamor-a-Go-Go's board has been thrilled with CEO Joe Ryan's performance. Ryan, after all, had transformed the private-label cosmetics company into a retail powerhouse with flashy outlets from New York to Los Angeles. In addition to saving the company from bankruptcy shortly after his arrival in 1992, Ryan had made Glamor-a-Go-Go a fun and exciting place to work, increasing workers' wages and creating boundless opportunities for anyone willing to work hard and think out of the box. He had also brought more women and people of color on board. And he had made many employees wealthy, with generous stock giveaways and options for the most senior employees down to the most junior. Glamor-a-Go-Go's stock price had grown tenfold during Ryan's tenure. But Ryan's personal affairs were beginning to call into question his leadership abilities. The local paper's gossip column recently ran a photo of Ryan--a married man--leaving a gala event with a beautiful young woman from the company, with the headline "Who's That Girl?" Indeed, rumors about Ryan's philandering were starting to take on a harsher edge. Some people believed his secretary left because Ryan had sexually harassed her. Others believed a mailroom employee had been promoted to factory supervisor because of her affair with the CEO. Having warned Ryan several times about his alleged infidelities, the board is stuck. What should it do about Ryan's extracurricular behavior? Does Ryan's personal behavior even affect the company? Is what Ryan does outside the office the board's concern? In 99511 and 99511Z, commentators Freada Kapor Klein, Mitchell Kapor, Burke Stinson, Patrick Carnes, Daryl Koehn, and Lisa A. Mainiero offer advice on this fictional case study.
The 1990s have been a great time to be in business--unless, that is, you happen to be a manufacturer. As business value has flowed steadily downstream, from producing goods to servicing them, most manufacturers have struggled, unable to boost their profits or stock prices. A few manufacturers, though, are thriving. They've gone beyond the factory gates and have begun competing in downstream markets--where the money is. The authors describe four business models for successful downstream moves. The embedded-services model involves using new technologies to build services into products; Honeywell, for instance, offers a product that ties airplane subsystems together through the use of microprocessors. The comprehensive-services model involves providing a set of services that spans the entire product life cycle, as GE is doing for railroads. The integrated-solutions model is a matter of combining products and services into a single offering, as Nokia has done by helping its cellular-carrier customers deploy their networks. The fourth model, distribution control, involves taking control of lucrative distribution activities; Coke's control of 70% of its U.S. bottling and distribution is a prime example. Moving downstream requires manufacturers to shift their strategic focus from achieving operational excellence to gaining customer allegiance. It also calls for new skills and performance measures. But the rewards can be substantial. Downstream markets often generate 10 to 30 times more revenues than the underlying product sales--and they tend to have higher margins and require fewer assets as well.
On Monday, November 16, 1998, the day before Daimler-Benz would officially merge with Chrysler, Dr. Kurt Lauk, head of Daimler-Benz' commercial vehicles division (CVD) reflected on the organizational changes he had directed over the course of the previous two years to make CVD more competitive in an era of industry-wide globalization. To unite an extremely decentralized organizational structure at Daimler, Lauk initiated a worldwide reorganization and the integration of the company's manufacturing operations. He encouraged individual units within CVD to look for collaborative opportunities that would enable the division to realize global scale economies. Although Lauk promoted a global perspective within CVD, he believed that the business units could compete effectively only if they were allowed considerable autonomy to respond to their own unique market conditions. Lauk was proud of the achievements resulting from these directives. However, pressing concerns overshadowed his satisfaction. Although the CVD was profitable overall, its Power Train Unit continued to lose money. In addition, Lauk was concerned about Daimler's progress in building adequate distribution channels in the Asian region. Finally, Lauk considered the impact of the merger with Chrysler on CVD and the general uncertainty concerning how a more centralized organization would affect the CVD.
When most people think about business innovation, they think of product development. But consultants at the Doblin Group take a broader view. They've created a way to map innovativeness across ten categories, from business models to processes to brands.