This article presents a comprehensive framework for value creation in the multibusiness company. It addresses the most fundamental questions of corporate strategy: What businesses should a company be in? How should it coordinate activities across businesses? What role should the corporate office play? How should the corporation measure and control performance? Through detailed case studies of Tyco International, Sharp, the Newell Company, and Saatchi and Saatchi, co-authors David Collis (Yale School of Management) and Cynthia Montgomery (Harvard Business School) demonstrate that the answers to all those questions are driven largely by the nature of a company's special resources--its assets, skills, and capabilities. These range along a continuum from the highly specialized at one end to the very general at the other. A corporation's location on the continuum constrains the set of businesses it should compete in and limits its choices about the design of its organization. Applying the framework, the authors point out the common mistakes that result from misaligned corporate strategies. The company examples demonstrate that one size does not fit all. One can find great corporate strategies all along the continuum.
This article defines and explains the four essential elements of persuasion. Business today is largely run by teams and populated by authority-averse baby boomers and Generation Xers. That makes persuasion more important than ever as a managerial tool. But contrary to popular belief, author Jay Conger (director of the University of Southern California's Marshall Business School's Leadership Institute) asserts, persuasion is not the same as selling an idea or convincing opponents to see things your way. It is instead a process of learning from others and negotiating a shared solution. To that end, persuasion consists of these essential elements: establishing credibility, framing to find common ground, providing vivid evidence, and connecting emotionally. Credibility grows, the author says, out of two sources: expertise and relationships. The former is a function of product or process knowledge and the latter a history of listening to and working in the best interest of others. But even if a persuader's credibility is high, his position must make sense--even more, it must appeal--to the audience. Therefore, a persuader must frame his position to illuminate its benefits to everyone who will feel its impact. Persuasion then becomes a matter of presenting evidence--but not just ordinary charts and spreadsheets. The author says the most effective persuaders use vivid--even over-the-top--stories, metaphors, and examples to make their positions come alive. Finally, good persuaders have the ability to accurately sense and respond to their audience's emotional state. Sometimes, that means they have to suppress their own emotions; at other times, they must intensify them. Persuasion can be a force for enormous good in an organization, but people must understand it for what it is: an often painstaking process that requires insight, planning, and compromise.
This article provides a fresh look at strategy, showing that what counts isn't just growth but profitable growth. In charting strategy, many managers focus on revenue growth, assuming that profits will follow. But that approach is dangerous: today's deep revenue pool may become tomorrow's dry hole. To create strategies that result in profitable growth, managers need to look beyond revenues to see the shape of their industry's profit pool. The authors, both consultants at Bain & Co., define an industry's profit pool as the total profits earned at all points along the industry's value chain. Although the concept is simple, the structure of a profit pool is usually quite complex. The pool will be deeper in some segments of the value chain than in others, and depths will vary within an individual segment as well. Segment profitability may, for example, vary widely by customer group, product category, geographic market, and distribution channel. Moreover, the pattern of profit concentration in an industry will often be very different from the pattern of revenue concentration. The authors describe how successful companies have gained competitive advantage by developing sophisticated profit-pool strategies. They explain how U-Haul identified new sources of profit in the consumer-truck-rental industry; how Merck reached beyond its traditional value-chain role to protect its profits in the pharmaceuticals industry; how Dell rebounded from a misguided channel decision by refocusing on its traditional source of profit; and how Anheuser-Busch made a series of astute product, pricing, and operating decisions to dominate the beer industry's profit pool. The companies with the best understanding of their industry's profit pool, the authors argue, will be in the best position to thrive over the long term.
This article provides invaluable advice on the complexities of value-chain analysis. Many managers chart strategy without a full understanding of the sources and distribution of profits in their industry. Sometimes they focus their sights on revenues instead of profits, mistakenly assuming that revenue growth will eventually translate into profit growth. In other cases, they simply lack the data or the analytical tools required to isolate and measure variations in profitability. In this Manager's Tool Kit, the authors (both consultants at Bain & Co.) present a way to think clearly about where the money's being made in any industry. They describe a framework for analyzing how profits are distributed among the activities that form an industry's value chain. Such an analysis can provide a company's managers with a rich understanding of their industry's profit structure--what the authors call its profit pool--enabling them to identify which activities are generating disproportionately large or small shares of profits. Even more important, a profit-pool map opens a window onto the underlying structure of the industry, helping managers see the various forces that are determining the distribution of profits. As such, a profit-pool map provides a solid basis for strategic thinking. Mapping a profit pool involves four steps: defining the boundaries of the pool, estimating the pool's overall size, estimating the size of each value-chain activity in the pool, and checking and reconciling the calculations. The authors briefly describe each step and then apply the process by providing a detailed example of a hypothetical retail bank. They conclude by looking at ways of organizing the data in chart form as a first step toward plotting a profit-pool strategy.
China is an alluring market for multinational companies, but those based in the United States have suffered from the foreign-policy demands that their government has imposed on relations with this emerging giant. The author, a former undersecretary of commerce in the Clinton administration and now dean of the Yale School of Management, reviews two new books that help point the way to a consistent foreign policy in the interests of both government and business. Big Dragon, by Daniel Burstein and Arne de Keijzer, takes a broad look at China and persuasively argues for a cooperative foreign policy that respects the country's power without treating it as an adversary. Greg Mastel's Rise of the Chinese Economy, which focuses on trade issues, delivers an important warning that the developed countries need China to reduce government intervention in its economy before they can safely integrate it into the World Trade Organization. Such change, Mastel says, would require a total restructuring of China's totalitarian political system; he urges the West to push China forward now, using WTO admittance as a lever. Whether we push China forward or not, Garten adds, the sheer size of the country combined with its serious internal strains means that it is likely to disrupt the world economy in a number of ways, and he advises companies on ways to minimize their risk. He recommends that companies maintain a wide portfolio of investments in China, appoint sophisticated government-relations managers, and invest heavily in local communities and projects of broad interest to the country.
The influence of history on an organization is a powerful but often overlooked force. Managers, in their haste to build companies, frequently fail to ask such critical developmental questions as, Where has our organization been? Where is it now? and What do the answers to these questions mean for where it is going? Instead, when confronted with problems, managers fix their gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity. In this HBR Classic, Larry Greiner (professor of management and organization at the University of Southern California's Marshall School of Business) identifies a series of developmental phases that companies tend to pass through as they grow. He distinguishes the phases by their dominant themes: creativity, direction, delegation, coordination, and collaboration. Each phase begins with a period of evolution, steady growth, and stability, and ends with a revolutionary period of organizational turmoil and change. The critical task for management in each revolutionary period is to find a new set of organizational practices that will become the basis for managing the next period of evolutionary growth. Those new practices eventually outlast their usefulness and lead to another period of revolution. Managers therefore experience the irony of seeing a major solution in one period become a major problem in a later period. Originally published in 1972, the article's argument and insights remain relevant to managers today. Accompanying the original article is a commentary by the author updating his earlier observations.
In this article, Jeffrey Pfeffer (Thomas D. Dee Professor of Organizational Behavior at Stanford Business School) identifies widely accepted "fictions" about pay, disproves them with evidence, and then offers advice on how managers should pay their employees, and why. Every day, executives make decisions about pay, and they do so in a landscape that's shifting. As more and more companies base less of their compensation on straight salary and look to other financial options, managers are bombarded with advice about the best approaches to take. Unfortunately, much of that advice is wrong. Indeed, much of the conventional wisdom and public discussion about pay today is misleading, incorrect, or both. The result is that business people are adopting wrongheaded notions about how to pay people and why. In particular, they are subscribing to six dangerous myths about pay: 1) Labor rates are the same as labor costs; 2) Cutting labor rates will lower labor costs; 3) Labor costs represent a large portion of a company's total costs; 4) Keeping labor costs low creates a potent and sustainable competitive edge; 5) Individual incentive pay improves performance; and 6: People work primarily for the money. The author explains why these myths are so pervasive, shows where they go wrong, and suggests how leaders might think more productively about compensation. With increasing frequency, the author says, he sees managers harming their organizations by buying into--and acting on--these myths. Those that do, he warns, are probably doomed to endless tinkering with pay that at the end of the day will accomplish little but cost a lot.
This article argues that a good strategic plan must be written in a narrative form that tells an exciting, detailed, nuanced story. Virtually all business plans are written as a list of bullet points. Despite the skill or knowledge of their authors, these plans usually aren't anything more than lists of "good things to do." Rarely do these lists reflect deep thought or inspire commitment. Worse, they don't specify critical relationships between the points, and they can't demonstrate how the goals will be achieved. 3M executive Gordon Shaw began looking for a more coherent and compelling way to present business plans. He found it in the form of strategic stories. Telling stories was already a habit of mind at 3M. Stories about the advent of Post-it Notes and the invention of masking tape help define 3M's identity. They're part of the way people at 3M explain themselves to their customers and to one another. Shaw and his coauthors examine how business plans can be transformed into strategic narratives. By painting a picture of the market, the competition, and the strategy needed to beat the competition, these narratives can fill in the spaces around the bullet points for those who will approve and those who will implement the strategy. When people can locate themselves in the story, their sense of commitment and involvement is enhanced. By conveying a powerful impression of the process of winning, narrative plans can mobilize an entire organization.
No doubt about it, the top managers in this fictitious case study agree, Wellington Associates is a great place to work. Analysts at the high-tech consulting firm enjoy some of the best pay in the industry. And their benefits are extensive: flextime, liberal educational opportunities, comprehensive medical and dental coverage, generous vacation leave, and even on-site day care. So it came as something of a shock to CEO Jane Wellington and her top executives when HR chief Elvin Cusack started out the weekly senior-management meeting by declaring that the United Office Workers Union had begun organizing the support staff. Turns out, Cusack explained, that the company looks very different from the support staff's point of view. Although their starting salaries are indeed competitive, raises average a mere 2% to 3%, and promotions to professional ranks are rare. Medical and dental coverage take a greater chunk out of clerical pay than out of the larger professional salaries, and the cost of the day care center is pretty much out of reach for the support staff. Flextime is impractical for workers who need to be in the office to answer phones and to file papers. Worse, the support staff is expected to accommodate the analysts' flexible schedules; if an analyst decides to work late to finish a project, the secretary has to stay as well. What to do? Suggestions ranged from "fire 'em" to "say nothing before calling in legal counsel." Five commentators examine Wellington's options and its legal obligations. In 98311 and 98311Z, Susan Schurman, Marick F. Masters, Robert S. Atkin, Jacqueline M. Blanchard, and Fern Feil examine Wellington's options and its legal obligations.
No doubt about it, the top managers in this fictitious case study agree, Wellington Associates is a great place to work. Analysts at the high-tech consulting firm enjoy some of the best pay in the industry. And their benefits are extensive: flextime, liberal educational opportunities, comprehensive medical and dental coverage, generous vacation leave, and even on-site day care. So it came as something of a shock to CEO Jane Wellington and her top executives when HR chief Elvin Cusack started out the weekly senior-management meeting by declaring that the United Office Workers Union had begun organizing the support staff. Turns out, Cusack explained, that the company looks very different from the support staff's point of view. Although their starting salaries are indeed competitive, raises average a mere 2% to 3%, and promotions to professional ranks are rare. Medical and dental coverage take a greater chunk out of clerical pay than out of the larger professional salaries, and the cost of the day care center is pretty much out of reach for the support staff. Flextime is impractical for workers who need to be in the office to answer phones and to file papers. Worse, the support staff is expected to accommodate the analysts' flexible schedules; if an analyst decides to work late to finish a project, the secretary has to stay as well. What to do? Suggestions ranged from "fire 'em" to "say nothing before calling in legal counsel." In 98311 and 98311Z, Susan Schurman, Marick F. Masters, Robert S. Atkin, Jacqueline M. Blanchard, and Fern Feil examine Wellington's options and its legal obligations.
No doubt about it, the top managers in this fictitious case study agree, Wellington Associates is a great place to work. Analysts at the high-tech consulting firm enjoy some of the best pay in the industry. And their benefits are extensive: flextime, liberal educational opportunities, comprehensive medical and dental coverage, generous vacation leave, and even on-site day care. So it came as something of a shock to CEO Jane Wellington and her top executives when HR chief Elvin Cusack started out the weekly senior-management meeting by declaring that the United Office Workers Union had begun organizing the support staff. Turns out, Cusack explained, that the company looks very different from the support staff's point of view. Although their starting salaries are indeed competitive, raises average a mere 2% to 3%, and promotions to professional ranks are rare. Medical and dental coverage take a greater chunk out of clerical pay than out of the larger professional salaries, and the cost of the day care center is pretty much out of reach for the support staff. Flextime is impractical for workers who need to be in the office to answer phones and to file papers. Worse, the support staff is expected to accommodate the analysts' flexible schedules; if an analyst decides to work late to finish a project, the secretary has to stay as well. What to do? Suggestions ranged from "fire 'em" to "say nothing before calling in legal counsel." In 98311 and 98311Z, Susan Schurman, Marick F. Masters, Robert S. Atkin, Jacqueline M. Blanchard, and Fern Feil examine Wellington's options and its legal obligations.
Diamond Technology Partners, a consulting firm based in Chicago, was founded in 1994 by Mel Bergstein and Chris Moffitt, with investment from founding partners and Safeguard Scientifics. In April 1996, just after fiscal year-end, the two largest clients withdrew from projects representing 50% of the previous quarter's revenues. A few weeks earlier, management had put together a $50 million revenue forecast for the year, had hired 28 new employees to start the following September, and had promised employees year-end bonuses. Management also anticipated that the company would go public within the next 12 months. Bergstein wonders whether there is a future for Diamond.
Describes the various legal forms of organization including proprietorships, partnerships, limited partnerships, corporations, and limited liability companies. Explains the tax and liability attributes of each form, as well as other issues, which may influence the choice of legal form.
The Mexico-U.S. border environmental situation is outlined in this note which provides background information on the region. The nature and extent of the pollution problem and a brief overview of the current system of environmental regulation and enforcement in Mexico and under the North American Free Trade Agreement is also reviewed. The note also provides two caselets of companies operating in the border region. The principle objective of this note is to familiarize students with some of the major debates surrounding the relationship between globalization (expansion of international trade and investment) and the natural environment. It offers the chance for students to learn about the Mexican-U.S. border situation and to consider both the causes of and possible solutions to the serious and complex pollution problem in the region.
The president and general manager of Township Motors, a franchised dealership, was considering two proposals for a new body shop facility. He has to decide whether to accept a loan at 15 per cent interest for ten years, or to lease the building and land for a ten-year period, with payment at year end.
The assistant engineer in the Thermal Treatment Department of a state-owned enterprise in China has received approval for the formation of a new quality control group to reduce the high defect rate of a critical part. The total quality concept is presented within the context of a specific quality problem, which encourages students to both assess the company's quality system and apply quality improvement tools to this particular problem. This case is the first of a three part series that applies the principles and tools of total quality management in a Chinese setting. This case can either be used independently or in combination with the (B) case, 9A98D002 and (C) case, 9A98D003.
After selecting the quality control group members, the assistant engineer and his group begin data collection and need to construct a cause-and-effect diagram to develop an action plan. This case should be used in conjunction with case (A), 9A98D001.
The quality control group has implemented several countermeasures, and the results have been monitored and reported. A final examination is necessary to assess whether this type of problem is likely to recur, and where further improvement can be made in the company's quality systems. This case is designed to be used in conjunction with the (A) case, 998D001 and the (B) case, 998D002.