Companies make capital investments to create and exploit profit opportunities. Opportunities are options--rights but not obligations to take some future action. The old net present value presumption that investment decisions are either reversible or now-or-never propositions turns out to be flawed. Irreversibility, uncertainty, and the choice of timing alter the investment decision in critical ways. Investment expenditures are irreversible when they are specific to a company or to an industry. The simple NPV rule should be modified: Instead of being merely positive, the present value of the expected stream of cash from a project must exceed the cost of the project by an amount equal to the value of keeping the investment option alive. Because they create and preserve options, decisions such as those to test a market or conduct R&D enhance a company's flexibility and should be made more readily than a naive NPV would suggest; but decisions that reduce flexibility should be made more hesitantly and be subjected to stiffer hurdle rates than the cost of capital.

The technological possibilities of the virtual organization are seductive. But its managerial and personal implications require rethinking old notions of control. As it becomes possible for more work to be done outside the traditional office, trust will become more important to organizations. Handy proposes seven rules of trust. Trust is not blind: It needs fairly small groupings in which people can know each other well. Trust needs boundaries: Define a goal, then leave the worker to get on with it. Trust demands learning and openness to change. Trust is tough: When it turns out to be misplaced, people have to go. Trust needs bonding: The goals of small units must gel with the larger group's. Trust needs touch: Workers must sometimes meet in person. Trust requires leaders. Virtuality's Three I's (information, ideas, intelligence) can improve quality of life. The question Handy asks is, Will they be for everyone? He believes the potential exists for the Three I's to benefit not just organizations but also those with whom they do business and society as a whole.

Once the rage of Western capitalism, leveraged buyouts have lost their glamour and much of their respectability. Suggest an LBO as a healthy way to create value, and most people will assume you are just trying to stimulate lively conversation. Propose it as a means of improving operating performance by restoring strong, constructive relationships among owners, managers, and other corporate stakeholders, and you may be viewed as a refugee of the 1980s, deluded by the decade of greed. Although some LBOs may have deserved the criticism they have received, the overall perception about them is distorted, the authors contend. Their research at one LBO firm, Clayton, Dubilier & Rice (CD&R), reveals an approach to ownership and governance that challenges the dominant view. Instead of finding impersonal transactions in which buyers put a lid on investment, growth, and managerial autonomy, the authors found that chief executives had more freedom to exercise discretion under LBO ownership than they had had under corporate ownership. CD&R's experience over more than a decade offers insights into what constitutes best practice in the ownership and governance of corporate enterprises.

Executives pondering which parts of their information technology (IT) function should be outsourced and which should be kept in-house usually ask themselves, Does the particular IT operation provide a strategic advantage or is it a commodity that doesn't differentiate us from our competitors? If it is a strategic service, they keep it in-house. If it is a commodity--especially one that a supplier claims it can provide inexpensively--they outsource it. If only the decision were that simple. Between 1991 and 1993, the authors studied 40 U.S. and European companies that had grappled with the issue of outsourcing IT. Their conclusion: The strategic-versus-commodity approach usually led to disappointments. Instead, the authors argue, a company's overarching objective should be to maximize flexibility and control so that it can pursue different options as it learns more or as its circumstances change. The way to accomplish that goal is to maximize competition. Managers should not make a onetime decision whether to outsource. They should create an environment in which potential suppliers--external as well as internal--are constantly battling to provide IT services.

Although reviled in the business press as short-term fads, rewards programs are gaining popularity. Rewards can and do build customer loyalty. Unfortunately, they are widely misunderstood and often misapplied. A rewards program needs to share value in proportion to the value the customer loyalty creates for the company. A company must first make sure that its rewards align with company capabilities, then take into account the five elements that determine value to a customer: cash value, choice, aspirational value, relevance, and convenience. Any company can attain access to the full set of capabilities. Some businesses choose to band together with others in a rewards network. The authors detail the ways American Express, General Motors, State Farm, Neiman Marcus, Saks Fifth Avenue, MCI, Air Miles, and others are building customer loyalty.

No industrialized nation can be an economic island, yet Japan continues to behave like one. When foreign goods and services--such as food, airline tickets, and postal service--are priced much lower than those provided in Japan, the government's response is to tighten regulations or make it illegal for Japanese companies and consumers to buy those goods. Consumers have paid for such protections through higher-priced goods, smaller living spaces, and longer commutes. The results are clear when one looks at the decreasing affluence of each successive generation--from those who rebuilt the country after World War II and reaped the promise of a good life to the Nintendo kids who have replaced family and country with on-line relationships. With the youngest generation, the frayed thread of culture and values that has bound the generations has finally snapped. Interactive games have given Nintendo kids the opportunity, not readily available in Japanese culture, to experiment with different roles and outcomes and to believe that they can control their own fate. As they grow up, their economic and political decisions will force their government to participate in the global economy.

Grant Newman, CEO of Regional Medical Center (RMC), expected the worst from the meeting that was scheduled to begin in less than an hour. The anesthesiologists were at the end of their rope, and the hospital's surgeons and obstetricians were pretty riled up too. Eighteen months earlier, Newman had made the decision to outsource RMC's anesthesia services, and he had signed a contract with Physicians Development Services (PDS), a contract management company. At the time, PDS seemed a good fit. It had a reputation for providing high-quality physicians both on a permanent basis and for temporary assignments. Unfortunately, however, PDS was undercapitalized and chronically mismanaged. PDS's paychecks to the anesthesiologists began arriving late and then bounced several times over a three-month period. In addition, the contract between the anesthesiologists and PDS had expired three months earlier, and the anesthesiologists were providing services without a contract. What can Newman do to resolve this conflict? In 95309 and 95309Z, Ken Alvares, Anthony R. Kovner, Joellin Comerford, Rudy Puryear, Vaughn Hovey, Tom Chapman, and Gary P. Pisano offer advice on this fictional case study.

Grant Newman, CEO of Regional Medical Center (RMC), expected the worst from the meeting that was scheduled to begin in less than an hour. The anesthesiologists were at the end of their rope, and the hospital's surgeons and obstetricians were pretty riled up too. Eighteen months earlier, Newman had made the decision to outsource RMC's anesthesia services, and he had signed a contract with Physicians Development Services (PDS), a contract management company. At the time, PDS seemed a good fit. It had a reputation for providing high-quality physicians both on a permanent basis and for temporary assignments. Unfortunately, however, PDS was undercapitalized and chronically mismanaged. PDS' paychecks to the anesthesiologists began arriving late and then bounced several times over a three-month period. In addition, the contract between the anesthesiologists and PDS had expired three months earlier, and the anesthesiologists were providing services without a contract. What can Newman do to resolve this conflict? In 95309 and 95309Z, Ken Alvares, Anthony R. Kovner, Joellin Comerford, Rudy Puryear, Vaughn Hovey, Tom Chapman, and Gary P. Pisano offer advice on this fictional case study.

Grant Newman, CEO of Regional Medical Center (RMC), expected the worst from the meeting that was scheduled to begin in less than an hour. The anesthesiologists were at the end of their rope, and the hospital's surgeons and obstetricians were pretty riled up too. Eighteen months earlier, Newman had made the decision to outsource RMC's anesthesia services, and he had signed a contract with Physicians Development Services (PDS), a contract management company. At the time, PDS seemed a good fit. It had a reputation for providing high-quality physicians both on a permanent basis and for temporary assignments. Unfortunately, however, PDS was undercapitalized and chronically mismanaged. PDS's paychecks to the anesthesiologists began arriving late and then bounced several times over a three-month period. In addition, the contract between the anesthesiologists and PDS had expired three months earlier, and the anesthesiologists were providing services without a contract. What can Newman do to resolve this conflict? In 95309 and 95309Z, Ken Alvares, Anthony R. Kovner, Joellin Comerford, Rudy Puryear, Vaughn Hovey, Tom Chapman, and Gary P. Pisano offer advice on this fictional case study.

The economic distress of America's inner cities may be the most pressing issue facing the nation. The lack of businesses and jobs in disadvantaged urban areas fuels not only a crushing cycle of poverty but also crippling social problems such as drug abuse and crime. And, as inner cities continue to deteriorate, the debate on how to aid them grows increasingly divisive. The efforts of the past several decades to revitalize inner cities have failed. The time has come to recognize that revitalizing the inner cities will require a radically new approach. While social programs will continue to play a critical role in meeting human needs and improving education, they must support--and not undermine--a coherent economic strategy. The question we should be asking is how inner-city-based businesses and nearby employment opportunities for inner city residents can proliferate and grow. A sustainable economic base can be created in the inner city, but only as it has been created elsewhere: through private, for-profit initiatives and investment based on economic self-interest and genuine competitive advantage.

The news media and the government are entwined in a vicious circle of mutual manipulation, mythmaking, and self-interest. Journalists need crises to dramatize the news, and government officials need to appear to be responding to crises. Together, they have woven a web of lies and have misled an increasingly skeptical public. Three books--News and the Culture of Lying: How Journalism Really Works, by Paul H. Weaver; Who Stole the News?: Why We Can't Keep Up with What Happens in the World, by Mort Rosenblum; and Tainted Truth: The Manipulation of Facts in America, by Cynthia Crossen--all deal with the corruption of the press. The news media's focus on facades rather than issues reflects a culture obsessed with personalities and a public plagued with a short attention span. What passes as business news is often corporate propaganda taken from press releases. While many of the reforms offered by the books' authors--such as breaking up media monopolies and reverting to drab reports of events and issues rather than stories of people and crises--are sensible, they are unlikely ever to come about. For years to come, businesses are likely to need more corporate propagandists, not fewer.

A manufacturer of cable TV transmission equipment is faced with redesigning its network of international plants that make set-top converters and decoders. One possibility is to have each plant dedicated to manufacturing and engineering support for different product lines. Another is to operate only one "full service" plant, with engineering and ramp-up capability for all product lines and a set of low-overhead, high-volume satellite plants. Depending on what is decided, the company will probably end up closing a different plant. Students must analyze the impact of various sources of market and technological change in order to develop a good manufacturing network strategy for a firm in this fast-changing environment.

Explores the problem of French unemployment on the eve of the presidential elections of 1995. Traces the development of social and economic policies under President Mitterrand and surveys leading explanations for the nation's mounting unemployment crisis. One major theme concerns possible contradictions between France's commitment to European integration and its commitment to expansive social protection for French citizens. Another important theme relates to the apparent tradeoff between jobs and wages, which has characterized most of the developed economies since the mid-1970s.

How can framing--alternative description of an object, event, or situation--can be used effectively in negotiation? A real estate dialog is used to illustrate three common varieties of framing: losses versus gains; short and long horizons; and aggregation and segregation.

Describes how first or opening offers can be used effectively in negotiation. Examines how opening offers serve as an anchor, changing one side's perception of the other side's bottom line and hence the set of possible outcomes.

Set in 1993, this series of cases (A, B, C, D, and B [Abridged]) concerns the strategic alliance between the automotive businesses of AB Volvo, the largest industrial group in Scandinavia, and Renault S.A., the largest enterprise in France. This alliance was one of the most prominent failures of multinational business integration seen in recent years. The aim of this series is to explore three broad themes: strategic alliances, leadership of corporate transformation, and governance and investor relations. The A case reviews the original formation of the strategic alliance in 1990 and its status as of March 1993, when the probability of Renault's privatization increased. The tasks for the student in the A case are to assess the origins and current health of the strategic alliance and to recommend responses to the impending privatization of Renault.

Illustrates the various ways in which Choice Hotels, the franchiser for seven mid-market hotel chains, can realize economies of scope across its multiple products. Also provides an opportunity to discuss the benefits and limitations of various organizational forms (particularly, the franchise form) as a means of realizing these economies of scope. In adapting to a maturing U.S. hotel market, Choice has to confront the realization that the competitive environment and its choice of organizational form impose restrictions on the ways in which it can realize these economies of scope.

Minnetonka Corp. which was founded in 1964, began as a niche player in the gift soap and novelty toiletries markets. In 1980, it entered--and managed to capture a piece of--the mass bar-soap market with pump-dispensed Softsoap liquid soap. In 1984, the company took on the toothpaste market with plaque-fighting, pump-dispensed Check-Up. This time, success was more fleeting. Minnetonka launched the hugely successful Obsession fragrance in 1985, following up with Eternity in 1988. Minnetonka's various businesses were sold over the period 1987 to 1989. Analysis suggests that the key is the use of scope--starting a new game linked to an existing game in which rival players are already established. Analysis indicates that rivals may then deliberately choose to delay imitating the innovator if they view the innovation as: 1) sufficiently unlikely to succeed in the marketplace, and 2) sufficiently close a substitute to their existing products. A rewritten version of an earlier case.

This case presents financial statements and selected ratios for seven unidentified nonprofit organizations and asks that each set of financial information be matched with one of the following nonprofit entities: a public television station, a suburban hospital, a metropolitan art museum, a health insurer, a municipal government, a social service organization, and a private college.

Describes the strategic and organizational challenges of turning a fledgling enterprise into a self-sustaining business. In contrast to traditional life-cycle models, the note argues that businesses evolve in idiosyncratic ways. Therefore the leaders of young businesses have to develop strategies while taking into account the whole situation (rather than a "stage of growth") and after consideration of a broad mix of options. Furthermore, success in attaining sustainability is as much a matter of execution as it is of picking the right growth strategy.