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Rakesh Gupta sits in his new office at Nariman Point, Mumbai contemplating the future of OceanCove, which in the last two years has grown from a single seafood restaurant to a chain of five restaurants. Aware that aggressive expansion is planned in 2002 and worried about the recent proliferation of moderately expensive restaurants serving international cuisine in India, Gunta must consider a proposal to increase the size of the existing restaurants from 120 seats to 160 seats. His immediate concern is whether accepting this proposal will necessitate changing OceanCove's operating processes.

In 2002, Hong Kong civil servants were the envy of many people. Their salaries, fringe benefits, and employment terms compared favorably with international standards. However, as civil servants staggered from one disaster and mistake to another, the public had an impression that their performance did not match their liberal remuneration. While private sectors were announcing massive layoffs, pay cuts, and reduced benefits in the sluggish economy, the Hong Kong government was under pressure to reduce civil service pay, and, at the same time, to increase public accountability and improve performance.

mGAMES is a manufacturer of game-based software for portable computers, PDAs, and cell phones. The company's new CEO was just informed of a potential hostile takeover of the company by a major PDA manufacturer. At the same time, he received a phone call from a senior executive at a Scandinavian telecommunications company expressing interest in forming a partnership. With all of this happening, the CEO faces growing pressure from the company's chairman to address ongoing performance problems. In a complex and changing environment, he must choose which customer group (traditional handheld gaming device manufacturers, telecom manufacturers, or PDA manufacturers) to focus on.

In late September 1999, representatives from Telstri, Japan Telecom, and Teleglobe met to discuss the structure of the Australia-Japan Cable (AJC) project, a $520 million submarine cable system that would run from Australia to Japan. The sponsors, excited by the possibility of large returns, needed to move quickly to capitalize on the projected shortfall in Australia's broadband capacity. As telecommunications carriers, the sponsors needed additional capacity to serve their retail and wholesale customers. As cable system owners, they wanted to earn an appropriate return on their invested capital while mitigating ownership risks. The need to move quickly in the face of significant demand, competition, and technological uncertainty made it particularly risky to invest at this time.

Supplements the (A) case.

In 2002, Great Dakota Bank's retail division is considering how heavily it should be promoting the company's online banking service. A recent promotional campaign appears to have significantly increased enrollments in online banking, but it is unclear whether the bank should continue to trade promotional incentives for online subscriptions. Contains data that force students to consider the impact of adding a new low-cost channel (the Internet) on consumer behavior; this analysis raises questions about whether the new channel does, in fact, lower the cost to serve customers.

Introduces the central concepts involved in determining customer lifetime value, with detailed analysis and examples from the realm of direct marketing. Implications for marketing strategy and customer relationship management are briefly discussed.

Spreadsheet supplement for case 503019.

Supplements the case.

Describes the challenges Steve Grossman, a fourth-generation owner of a small commercial printing company, must face amid industry consolidation, technological changes, and his own run for public office.

Managing conflict and differences has always been an essential, but challenging, skill for effective managers to master. This case was designed to build expertise in conflict management and assertiveness. Grounded in the pedagogy of experiential learning, the case consists of three role-play scenarios that exemplify three challenging business situations. In each scenario, two individuals are faced with a possible difference in perspective or goals. The role-play requires students to assume the role of one of the individuals, and each scenario requires another student to initiate the discussion.

Sparta Glass Products has been losing significant market share over the last several quarters in the non-glare-glass market, with a price 10% above the competition. Lowering the price is under consideration. Unfortunately, fully allocated costs are such that the lower price results in a loss. Issues to be discussed and analyses to be conducted include the relevant costs for the decision and the reactions from competitors.

This technical note explains how group membership affects who a person thinks she or he is and how that person behaves in organizations. Hofstedes's levels of identity model are introduced and a simple description of Social Identity Theory is laid out. This note is a helpful tool for discussions about group differences because it argues that identification as a group member is not inconsistent with also being a unique individual. The note was written for use in Interpersonal Behavior and can be useful in a range of organizational behavior courses.

HomeStar's reputation for being "the first, the best, the only" name in appliances is under threat. For the second time in six months, upstart competitor Vanguard has pulled off a market coup: Its retro line of refrigerators, ranges, and dishwashers is a huge hit. Meanwhile, HomeStar's latest big idea--jumbo appliances--is bombing. CEO Hal Marden is chagrined: How did the company lose its edge? Kelly Dowd, HomeStar's head of marketing, blames Charlie Hamad, the company's chief engineer. Charlie is so focused on developing smart appliances--products that can cook, clean, and even shop--that he's lost touch with the changing marketplace, Kelly complains. Global competition is growing, and consumers' tastes are changing. Now, more than ever, churning out new products is critical to HomeStar's success. But Charlie, a 27-year veteran who has spearheaded almost every major technological advance in the industry, pooh-poohs the new, flashy products: "Form over function. Nothing new there but a fancy paint job and higher prices." Hal is torn. Charlie is a hero to him, but what if the market doesn't go for networked appliances? The company simply can't afford to put all its eggs in one basket. What's more, the biggest trade show of the year is just six months away, and HomeStar has nothing new to offer. Vanguard, meanwhile, is making product announcements every quarter. Is it time for Charlie to move on? How can HomeStar get its R&D efforts back on track? In R0208A and R0208Z, four commentators--Ideo's Tom Kelley, Whirlpool's Philip Pejovich, Thayer School of Engineering's Lewis Duncan, and Ealing Studios' John Kao--offer advice in this fictional case study.

Some organizations repeatedly come up with great ideas, even though each act of innovation is really a leap of imagination that can't be taught or predicted. But even if they can't exactly replicate those successes, can other organizations learn from them? HBR's editors asked 16 innovation experts--leaders but not necessarily inventors themselves--one question: "What's the one thing you've done that most inspired innovation in your organization?" Some of them--like Nolan Bushnell, who founded Atari; CEO Michael Dell; and venture capitalist Esther Dyson--emphasize the importance of letting people experiment and take risks. Hal Tovin, an executive vice president of a financial group, and John Talley, a pharmaceutical researcher, believe that hiring people with widely divergent skills and talents sets the stage for increased innovation. Larry Keeley, the president of an innovation strategy firm, encourages others to innovate in customer service, business models, and networking. Luciano Maiani, the director general of the European Organization for Nuclear Research (CERN), states the case for pure science by claiming that it drives innovation as much as markets do. These experts and others pull back the curtain on the mysteries of innovation.

If you're like most managers, you've worked with people who swear they do their most creative work under tight deadlines. You may use pressure as a management technique, believing it will spur people on to great leaps of insight. You may even manage yourself this way. If so, are you right? Not necessarily, these researchers say. When creativity is under the gun, it usually ends up getting killed, the authors say. They recently took a close look at how people experience time pressure, collecting and analyzing more than 9,000 daily diary entries from individuals who were working on projects that required high levels of creativity and measuring their ability to innovate under varying levels of time pressure. The authors describe common characteristics of time pressure and outline four working environments under which creativity may or may not flourish. High-pressure days that still yield creativity are full of focus and meaningful urgency--people feel they are on a mission. High-pressure days that yield no creativity lack such focus--people feel they are on a treadmill, forced to switch gears often. On low-pressure days that yield creativity, people feel as though they are on an expedition--exploring ideas rather than just identifying problems. And on low-pressure days that yield no creative thinking, people work on autopilot--doing their jobs without engaging too deeply. Managers should avoid extreme time pressure when possible.

"The fastest way to succeed," IBM's Thomas Watson, Sr., once said, "is to double your failure rate." In recent years, more and more executives have embraced Watson's point of view, coming to understand what innovators have always known: Failure is a prerequisite to invention. Although companies may grasp the value of making mistakes at the level of corporate practices, they have a harder time accepting the idea at the personal level. In this article, psychologist and former Harvard Business School professor Richard Farson and co-author Ralph Keyes discuss how companies can reduce the fear of miscues. What's crucial is the presence of failure-tolerant leaders--executives who, through their words and actions, help employees overcome their anxieties about making mistakes and, in the process, create a culture of intelligent risk-taking that leads to sustained innovation. Drawing from their research in business, politics, sports, and science, the authors identify common practices among failure-tolerant leaders. These leaders break down the social and bureaucratic barriers that separate them from their followers. They engage at a personal level with the people they lead. They take a nonjudgmental, analytical posture as they interact with staff. They openly admit their own mistakes. And they try to root out the destructive competitiveness built into most organizations. Above all else, failure-tolerant leaders push people to see beyond traditional definitions of success and failure. They know that as long as a person views failure as the opposite of success, rather than its complement, he or she will never be able to take the risks necessary for innovation.

In most companies, investments in innovation follow a boom-bust cycle. For a time, the cash flows. Then, as the economy sours or companies rethink their priorities, the taps go dry. But when research budgets are slashed, the strong projects are often abandoned along with the weak ones. When disruptive changes in the competitive landscape come, companies are caught flat-footed. Sustainable innovation requires a new approach: Instead of being largely isolated projects, innovation initiatives need to gain access to the insights and capabilities of other companies. But how can businesses traffic in such sensitive information without giving their competitors an advantage? The answer, the author contends, lies in a practice that's been common since the Middle Ages: the use of independent intermediaries to facilitate the exchange of sensitive information among companies without revealing the principals' identities or motives and without otherwise compromising their interests. A network of innovation intermediaries would be in a unique position to visualize new opportunities synthesized from insights and technologies provided by several companies--ideas that might never occur to businesses working on their own.

How much of innovation is inspiration, and how much is hard work? The answer lies somewhere in the middle, says management thinker Peter Drucker. In this HBR classic from 1985, he argues that innovation is real work that can and should be managed like any other corporate function. Success is more likely to result from the systematic pursuit of opportunities than from a flash of genius. Indeed, most innovative business ideas arise through the methodical analysis of seven areas of opportunity. Within a company or industry, opportunities can be found in unexpected occurrences, incongruities of various kinds, process needs, or changes in an industry or market. Outside a company, opportunities arise from demographic changes, changes in perception, or new knowledge. There is some overlap among the sources, and the potential for innovation may well lie in more than one area at a time. Innovations based on new knowledge tend to have the greatest effect on the marketplace, but it often takes decades before the ideas are translated into actual products, processes, or services. The other sources of innovation are easier and simpler to handle, yet they still require managers to look beyond established practices, Drucker explains. The author emphasizes that innovators need to look for simple, focused solutions to real problems.

As companies try to keep pace with rapid changes in technology and cope with unstable business environments, their research departments have to do more than simply invent new products. They must design the new technological and organizational architectures that make a continuously innovating company possible. In this 1991 article, John Seely Brown, then director of Xerox's Palo Alto Research Center (PARC), describes the business logic behind this distinctive vision of research's role and the ways Xerox PARC tried to realize that vision. Its researchers developed prototypes of new work practices as well as new technologies and products. They designed new uses for technology to encourage the local innovation that, they found, occurs naturally at all levels of any big company. And they experimented with new techniques for what the author terms "coproducing" technological and organizational innovations with Xerox's customers. Xerox's business is technology, but Seely Brown argues that any company, no matter what its business, must eventually grapple with the issues he raises. The successful company of the future must understand how people really work and must adapt its technology to the work rather than the other way around. It must know how to create an environment that allows for continuous innovation by all employees. McKinsey Award Winner.