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The board of the European Middle and High School is engaged in a negotiation with an investment bank to lease a building that it needs in order to expand the size of the school. The negotiator for the investment bank has made a tough offer to the School which is under pressure to accept it. At the moment of the decision, the board discovers it will have to make additional investments in the property. Should it go ahead and accept the deal? What are the financial and business considerations? Is the negotiator for the investment bank right to try to extract the best deal for his company?

This is an MIT Sloan Management Review article. For many years, multinational corporations could compete successfully by exploiting scale and scope economies or by taking advantage of imperfections in the world's goods, labor, and capital markets. But these ways of competing are no longer as profitable as they once were. In most industries, multinationals no longer compete primarily with companies whose boundaries are confined to a single nation. Rather, they go head-to-head with a handful of other giants. Against such global competitors, it is hard to sustain an advantage based on traditional economies of scale and scope. MNCs must seek new sources of competitive advantage. Whereas multinationals in the past realized economies of scope principally by utilizing physical assets and exploiting a companywide brand, the new economies of scope are based on the ability of business units, subsidiaries, and functional departments within the company to collaborate successfully by sharing knowledge and jointly developing new products and services. Collaboration can be an MNC's source of competitive advantage because it does not occur automatically--far from it. Indeed, several barriers impede collaboration within complex multiunit organizations. To overcome those barriers, companies will have to develop distinct organizing capabilities that cannot be easily imitated. The authors develop a framework that links managerial action, barriers to interunit collaboration, and value creation in MNCs to help managers understand how collaborative advantage can work. The framework conceptualizes collaboration as a set of management levers that reduce four specific barriers to collaboration, leading in turn to several types of value creation.

This is an MIT Sloan Management Review article. Brands are an indispensable part of modern business. That is true in large measure because of a brand's remarkable efficiency in "aggregating" consumers--reaching large numbers of people with a promise to deliver a clearly stated benefit that sets it apart from competitors. But the information revolution is undermining the logic of aggregation, the very source of brand power. In fact, it is becoming evident that in an information-rich environment, consumer disaggregation is vastly more efficient and profitable than aggregation. Using customized publications, e-mail, direct mail, Web sites, and call centers that are based on a common platform of consumer information, companies are demonstrating that they can effectively and efficiently drive consumer behavior through two-way communications. Common underlying databases ensure that each interaction is personalized, regardless of the channel through which it occurs. And each interaction with the consumer builds the consumer database further, making future interactions even richer. The implications of the information revolution for the role of brands in business are far-reaching. Many of the strategic and tactical tasks entrusted to brands can now be performed better, less expensively, and more profitably at the level of consumer segments. And companies' brand-centric structures are not suited to marketing initiatives that are based on reaching segments or individuals. Given this changed environment, the author calls on companies to rethink three core areas of brand management: the consumer relationship, the channel relationship, and the organization of brand management. He draws on detailed examples involving Kraft, Procter & Gamble, and Tesco.

This is an MIT Sloan Management Review article. Although large-scale risks such as war, terrorism, and natural disaster garner media attention, it is the everyday, small-scale risks associated with opacity--a lack of transparency in countries' legal, economic, regulatory, and governance structures--that can confound global investment and commerce. The authors offer new research that identifies the causes and measures the effects of this phenomenon across 48 countries. The research draws upon 65 objective variables from 41 sources, including the World Bank, the International Monetary Fund, the International Securities Services Association, the "International Country Risk Guide," and country regulators. The authors' methodology projects which aspects of a country's economy carry the greatest risk and then, by assessing and comparing the costs of those risks on a country-by-country basis, they create an overall Opacity Index. Next, they correlate the Opacity Index to a variety of other indicators, including a country's income level, economic development and foreign investment, entrepreneurship, and access to capital and lending and equity markets. The authors conclude that opacity strongly correlates overall with slower growth and less foreign direct investment in nearly all markets, and they suggest how information about opacity and its contributing factors can enhance both managerial and national policy decisions alike.

This is an MIT Sloan Management Review article. Companies tend to assume that little can be done to reduce product costs once a design is set. This belief has shaped many cost management programs across diverse products' life cycles. Because of it, firms often focus on cost reduction during the design phase and cost containment during manufacturing. But are much of a product's costs truly locked in during design? Recent research suggests otherwise. In an extensive field study at the consumer products division of Olympus Optical Co. Ltd., the authors found that the company is able to obtain significant cost reductions in manufacturing. Indeed, the research demonstrated that costs can be aggressively managed throughout the product life cycle. Furthermore, the authors found that Olympus Optical applies various cost management techniques in an integrated manner, with the outputs of some techniques acting as inputs to others, thereby increasing the program's overall effectiveness. The observations suggest that companies competing aggressively on cost might consider adopting some form of an integrated cost management program that spans the entire product life cycle.

This is an MIT Sloan Management Review article. Natural disasters, labor disputes, terrorism, and more mundane risks can seriously disrupt or delay the flow of material, information, and cash through an organization's supply chain. The authors assert that how well a company fares against such threats depends on its level of preparedness and the type of disruption. Each supply chain risk--forecasts, information systems, intellectual property, procurement, inventory, and capacity--has its own drivers and effective mitigation strategies. To avoid lost sales, increased costs, or both, managers need to tailor proven risk-reduction strategies to their organizations. Managing supply chain risk is difficult, however. Dell, Toyota, Motorola, and other leading manufacturers excel at identifying and neutralizing supply chain risks through a delicate balancing act: keeping inventory, capacity, and related elements at appropriate levels across the entire supply chain in a rapidly changing environment. Organizations can prepare for or avoid delays by "smart sizing" their capacity and inventory. The manager serves as a kind of financial portfolio manager, seeking to achieve the highest achievable profits (reward) for varying levels of supply chain risk. The authors recommend a powerful "What if?" team exercise called "stress testing" to identify potentially weak links in the supply chain. Armed with this shared understanding, companies can then select the best mitigation strategy.

This is an MIT Sloan Management Review article. In recent years, gray markets--in which a firm's products are sold or resold through unauthorized dealers--have become ubiquitous. They exist for tangible products (lumber and electronic components) and intangibles (broadcast signals, IPOs); for massive goods (automobiles and heavy construction equipment) and for light, easily shipped products (watches and cosmetics); for the mundane (health and beauty aids) and the life saving (prescription drugs). Gray markets aren't going away soon. Although they ebb and flow as exchange rates, price differentials, and supply conditions change, surveys confirm the increasing incidence and scope of gray markets. In many situations, their sales outstrip authorized sales. An inability to compete with gray markets can wreak havoc on firms and industries. Unfortunately, because it is so hard to get data on gray market activity and what firms are doing to deal with it, there is little published guidance to help managers. The sale of legitimate products in the wrong place or through the wrong channel poses unique problems to companies. But there are unique solutions that can successfully manage them. Using several examples that show the scope and complexity of the gray market problem, the authors explain how managers can apply a framework based on sensing, speed, and severity to manage it. They also point out scenarios in which gray markets are actually helpful and should be tolerated.

This is an MIT Sloan Management Review article. Although the pursuit of opportunity promises outsized rewards to entrepreneurs and established enterprises, it also entails great uncertainty. The critical task of entrepreneurship lies in effectively managing the uncertainty inherent in trying something new. Some entrepreneurs foolishly try to ignore uncertainty; others go to the opposite extreme of attempting to avoid it altogether by believing naively that every contingency can be anticipated. Instead, entrepreneurs should manage uncertainty by taking a disciplined approach. Over the past five years, the author conducted systematic research into how entrepreneurs manage the inevitable risks while pursuing opportunities. A synthesis of the research revealed that discipline--and its byproduct, the successful management of uncertainty--comes through the adoption of an iterative experimentation model. In this three-step process, an entrepreneur formulates a working hypothesis about an opportunity, assembles the resources to test the hypothesis, and finally designs and runs real-world experiments. Depending on the results of a round of experimentation, the entrepreneur may revise the hypothesis and run another experiment, harvest the value created through a sale, or abandon the hypothesis and pull the plug. The model provides insights into some of the most daunting questions entrepreneurs face--including how to screen an opportunity, how much money to raise, when to make key hires, and how to use limited resources most efficiently.

This is an MIT Sloan Management Review article. Green marketing has not lived up to the hopes and dreams of many managers and activists. Although public opinion polls consistently show that consumers would prefer to choose a green product over one that is less friendly to the environment when all other things are equal, those "other things" are rarely equal in the minds of consumers. For example, when consumers are forced to make trade-offs between product attributes or helping the environment, the environment almost never wins. And hopes for green products also have been hurt by the perception that such products are of lower quality or don't really deliver on their environmental promises. And, yet, the news isn't all bad, as the growing number of people willing to pay a premium for green products--from organic foods to energy-efficient appliances--attests. How, then, should companies handle these issues? They must always keep in mind that consumers are unlikely to compromise on traditional product attributes, such as convenience, availability, price, quality, and performance. It's even more important to realize, however, that there is no single green marketing strategy that is right for every company. The authors suggest that companies should follow one of four strategies, depending on market and competitive conditions, from the relatively passive and silent "lean green" approach to the more aggressive and visible "extreme green" approach--with "defensive green" and "shaded green" in between.

The spin-off of Iridium, a global telecommunications system, represented a significant business risk for Motorola, as many talented Motorola executives joined the venture in the late 1990s. This bold technology gamble suffered from numerous marketing missteps, which led to Iridium's bankruptcy in August 1999.

The Denver office of Clarion Co., a $30 million, full-service marketing firm, has always been a politics-free zone. Nonwork conversations revolve around families, romances, and the state of the powder at Aspen. If the office sometimes seems detached from the wider world, no one cares. But that all changes with the arrival of Marcus Lippman. A senior project manager hired away from a rival firm in Chicago, Marcus is both charming and aggressive about meeting his new colleagues. During morning encounters in the mail room or kitchenette, he often alludes to the day's headlines. In particular, Marcus follows the presidential campaign with an avidity his colleagues reserve for the fate of contestants on American Idol. Those informed enough to respond, generally do so. Over time, others join in. Politics soon enters the office bloodstream. Employees sense a new energy, a feeling of engagement that intensifies as the campaign season progresses. Many employees make contacts in the business community as they pursue extracurricular political activities. But there are downsides as well. Out-of-control e-mail debates sap productivity. Feelings get hurt. And general manager Joan Mungo discovers that political views play an important part in determining who rises to power in the company. As tensions mount, Joan wonders: Should she do something to stanch political debate and, if so, what? Commenting on this fictional case study in R0410A and R0410Z are Brian Flynn, the CEO of Schlossberg:Flynn, a business development consulting firm; Frank Furedi, a professor of sociology at the University of Kent in England; Paula Brantner, the program director at Workplace Fairness, a nonprofit organization; and James E. Rogers, the CEO of Cinergy, a diversified energy company.

Employers are beginning to realize that they face a nearly invisible but significant drain on productivity: presenteeism, the problem of workers being on the job but, because of illness or other medical conditions, not fully functioning. By some estimates, the phenomenon costs U.S. companies over $150 billion a year--much more than absenteeism does. Yet, it's harder to identify. You know when someone doesn't show up for work, but you often can't tell when, or how much, poor health hurts on-the-job performance. Many of the health problems that result in presenteeism are relatively benign. Research in this emerging area of study focuses on such chronic or episodic ailments as seasonal allergies, asthma, headaches, depression, back pain, arthritis, and gastrointestinal disorders. The fact is, when people don't feel good, they simply don't perform at their best. Employees who suffer from depression may be fatigued and irritable--and, therefore, less able to work effectively with others. Those with migraine headaches who experience blurred vision and sensitivity to light, not to mention acute pain, probably have a hard time staring at a computer screen all day. A number of companies are making a serious effort to determine the prevalence of illnesses and other medical conditions that undermine job performance, calculate the related drop in productivity, and find cost-effective ways to combat that loss. Indeed, researchers have discovered that presenteeism-related declines in productivity sometimes can be more than offset by relatively small investments in screening, treatment, and education. So organizations may find that it pays to make targeted investments in employees' health care--by covering the cost of allergy medication, for instance, or therapy for depression.

As a newly minted CEO, you may think you finally have the power to set strategy, the authority to make things happen, and full access to the finer points of your business. But if you expect the job to be as simple as that, you're in for an awakening. Even though you bear full responsibility for your company's well-being, you are a few steps removed from many of the factors that drive results. You have more power than anybody else in the corporation, but you need to use it with extreme caution. In their workshops for new CEOs, held at Harvard Business School in Boston, the authors have discovered that nothing-not even running a large business within the company-fully prepares a person to be the chief executive. The seven most common surprises are: You can't run the company. Giving orders is very costly. It is hard to know what is really going on. You are always sending a message. You are not the boss. Pleasing shareholders is not the goal. You are still only human. These surprises carry some important and subtle lessons. First, you must learn to manage organizational context rather than focus on daily operations. Second, you must recognize that your position does not confer the right to lead, nor does it guarantee the loyalty of the organization. Finally, you must remember that you are subject to a host of limitations, even though others might treat you as omnipotent. How well and how quickly you understand, accept, and confront the seven surprises will have a lot to do with your success or failure as a CEO.

Despite a long-term decline in the circus industry, Cirque du Soleil profitably increased revenue 22-fold over the last 10 years by reinventing the circus. Rather than competing within the confines of the existing industry or trying to steal customers from rivals, Cirque developed uncontested market space that made the competition irrelevant. Cirque created what the authors call a blue ocean, a previously unknown market space. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In red oceans-that is, in all the industries already existing-companies compete by grabbing for a greater share of limited demand. As the market space gets more crowded, prospects for profits and growth decline. Products turn into commodities, and increasing competition turns the water bloody. There are two ways to create blue oceans. One is to launch completely new industries, as eBay did with online auctions. But it's much more common for a blue ocean to be created from within a red ocean when a company expands the boundaries of an existing industry. In studying more than 150 blue ocean creations in over 30 industries, the authors observed that the traditional units of strategic analysis-company and industry-are of limited use in explaining how and why blue oceans are created. The most appropriate unit of analysis is the strategic move, the set of managerial actions and decisions involved in making a major market-creating business offering. Creating blue oceans builds brands. So powerful is blue ocean strategy, in fact, that a blue ocean strategic move can create brand equity that lasts for decades.

It's fairly obvious: To make intelligent investments within your organization, you need to understand how your whole industry is changing. But such knowledge is not always easy to come by. Companies misread clues and arrive at false conclusions all the time. To understand truly where your industry is headed, you have to take a long-term, high-level look at the context in which you do business, says Boston University professor Anita McGahan. She studied a variety of businesses from a cross section of industries over a 10-year period, examining how industry structure affects business profitability and investor returns. Her research suggests that industries evolve along one of four distinct trajectories--radical, progressive, creative, and intermediating--that set boundaries on what will generate profits in a business. These four trajectories are defined by two types of threats. The first is when new, outside alternatives threaten to weaken or make obsolete core activities that have historically generated profits for an industry. The second is when an industry's core assets--its resources, knowledge, and brand capital--fail to generate value as they once did. Industries undergo radical change when core assets and core activities are both threatened with obsolescence; they experience progressive change when neither is jeopardized. Creative change occurs when core assets are under threat but core activities are stable, and intermediating change happens when core activities are threatened while core assets retain their capacity to create value. If your company's innovation strategy is not aligned with your industry's change trajectory, your plan for achieving returns on invested capital cannot succeed, McGahan says. But if you understand which path you're on, you can determine which strategies will succeed and which will backfire.

Building a strong supply chain is essential for business success. But when it comes to improving their supply chains, few companies take the right approach. Many businesses work to make their chains faster or more cost effective, assuming that those steps are the keys to competitive advantage. To the contrary: Supply chains that focus on speed and costs tend to deteriorate over time. The author has spent 15 years studying more than 60 companies to gain insight into this and other supply chain dilemmas. His conclusion: Only companies that build supply chains that are agile, adaptable, and aligned get ahead of their rivals. All three components are essential; without any one of them, supply chains break down. Great companies create supply chains that respond to abrupt changes in markets. Agility is critical because in most industries, both demand and supply fluctuate rapidly and widely. Supply chains typically cope by playing speed against costs, but agile ones respond both quickly and cost efficiently. Great companies also adapt their supply networks when markets or strategies change. The best supply chains allow managers to identify structural shifts early by recording the latest data, filtering out noise, and tracking key patterns. Finally, great companies align the interests of the partners in their supply chains with their own. That's important because every firm is concerned solely with its own interests. If its goals are out of alignment with those of other partners in the supply chain, performance will suffer. When companies hear about the triple-A supply chain, they assume that building one will require increased technology and investment. But most firms already have the infrastructure in place to create one. A fresh attitude alone can go a long way toward making it happen.

Just five years ago, salespeople at Whirlpool were in the habit of referring to their supply chain organization as the "sales disablers." Now the company excels at getting products to the right place at the right time while managing to keep inventories low. How did that happen? In this first-person account, Reuben Slone, Whirlpool's vice-president of global supply chain, describes how he and his colleagues devised the right supply chain strategy, sold it internally, and implemented it. Slone insisted that the right focal point for the strategy was the satisfaction of consumers at the end of the supply chain. Most supply chain initiatives do the opposite: They start with the realities of a company's manufacturing base and proceed from there. Through a series of interviews with trade customers large and small, his team identified 27 different capabilities that drove industry perceptions of Whirlpool's performance. Knowing it was infeasible to aim for world-class performance across all of them, Slone weighed the costs of excelling at each and found the combination of initiatives that would provide overall competitive advantage. A highly disciplined project management office and broad training in project management were key to keeping work on budget and on benefit. Slone set an intense pace--three "releases" of new capabilities every month--that the group maintains to this day. Lest this seem like a technology story, however, Slone insists it is just as much a "talent renaissance." People are proud today to be part of Whirlpool's supply chain organization, and its new generation of talent will give the company a competitive advantage for years to come.

The strength of the American economy does not rest on its manufacturing prowess, its natural resources, or the size of its market. It turns on one factor--the country's openness to new ideas, which has allowed it to attract the brightest minds from around the world and harness their creative energies. But the United States is on the verge of losing that competitive edge. As the nation tightens its borders to students and scientists and subjects federal research funding to ideological and religious litmus tests, many other countries are stepping in to lure that creative capital away. Ireland, Canada, Australia, New Zealand, Denmark, and others are spending more on research and development and shoring up their universities in an effort to attract the world's best--including Americans. If even a few of these nations draw away just a small percentage of the creative workers from the United States, the effect on its economy will be enormous. In this article, the author introduces a quantitative measure of the migration of creative capital called the Global Creative-Class Index. It shows that, far from leading the world, the United States doesn't even rank in the Top 10 in the percentage of its workforce engaged in creative occupations. What's more, the baby boomers will soon retire. And data showing large drops in foreign-student applications to U.S. universities and in the number of visas issued to knowledge workers, along with concomitant increases in immigration in other countries, suggest that the erosion of talent from the United States will only intensify. To defend the U.S. economy, the business community must take the lead in ensuring that global talent can move efficiently across borders, that education and research are funded at radically higher levels, and that we tap into the creative potential of more and more workers. Because wherever creativity goes, economic growth is sure to follow.

In an increasingly diverse business environment, managers must be able to navigate the thicket of habits, gestures, and assumptions that define their coworkers' differences. Foreign cultures are everywhere--in other countries, certainly, but also in corporations, vocations, and regions. Interacting with individuals within them demands perceptiveness and adaptability. And the people who have those traits in abundance aren't necessarily the ones who enjoy the greatest social success in familiar settings. Cultural intelligence, or CQ, is the ability to make sense of unfamiliar contexts and then blend in. It has three components--cognitive, physical, and emotional/motivational. Although it shares many of the properties of emotional intelligence, CQ goes one step further by equipping a person to distinguish behaviors produced by the culture in question from behaviors that are peculiar to particular individuals and those found in all human beings. In their surveys of 2,000 managers in 60 countries, the authors found that most managers are not equally strong in all three of these areas of CQ. The authors have devised tools that show how to identify one's strengths and developed training techniques to help people overcome weaknesses. They conclude that anyone reasonably alert, motivated, and poised can attain an acceptable level of CQ.

The Denver office of Clarion Co., a $30 million, full-service marketing firm, has always been a politics-free zone. Nonwork conversations revolve around families, romances, and the state of the powder at Aspen. If the office sometimes seems detached from the wider world, no one cares. But that all changes with the arrival of Marcus Lippman. A senior project manager hired away from a rival firm in Chicago, Marcus is both charming and aggressive about meeting his new colleagues. During morning encounters in the mail room or kitchenette, he often alludes to the day's headlines. In particular, Marcus follows the presidential campaign with an avidity his colleagues reserve for the fate of contestants on American Idol. Those informed enough to respond, generally do so. Over time, others join in. Politics soon enters the office bloodstream. Employees sense a new energy, a feeling of engagement that intensifies as the campaign season progresses. Many employees make contacts in the business community as they pursue extracurricular political activities. But there are downsides as well. Out-of-control e-mail debates sap productivity. Feelings get hurt. And general manager Joan Mungo discovers that political views play an important part in determining who rises to power in the company. As tensions mount, Joan wonders: Should she do something to stanch political debate and, if so, what? Commenting on this fictional case study in R0410A and R0410Z are Brian Flynn, the CEO of Schlossberg:Flynn, a business development consulting firm; Frank Furedi, a professor of sociology at the University of Kent in England; Paula Brantner, the program director at Workplace Fairness, a nonprofit organization; and James E. Rogers, the CEO of Cinergy, a diversified energy company.