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Too many companies have run into trouble because their boards won't stand up to management. Good governance requires a balance of power between the board and the CEO and a healthy tension between them, says former Medtronic CEO William George.

It's one thing for people to believe in providing superior customer service; it's quite another to keep busy, ambitious, and largely autonomous managers focused on delivering it. Here's how they did it at Enterprise Rent-A-Car.

After more than 10 years of operation, the Women's Thrift Cooperatives (WTCs) in the impoverished Karimnagar and Warangal districts of Andhra Pradesh are an established part of the lives of their women members. As such they represent opportunities and challenges for the women and the non-governmental organization, the Cooperative Development Foundation (CDF), which planted the seed for their growth and has since supported them with technical assistance. The cooperatives are savings institutions that also lend money to their members and they rely solely on the spread between the interest they pay on the savings and the interest they earn on their loans to support their operations. In recent years the fund utilization of the thrifts has decreased, leading to some concern about their financial sustainability. The members and CDF are attempting to do something about this by starting a dairy cooperative to sell milk in the city of Warangal - the women will use the proceeds from loans from the thrifts to finance their milk purchases. There is also concern that the thrifts' accounting practices are disguising some loans in default, resulting in an overly rosy financial picture. CDF and the leadership of the cooperatives have to work out how to get the thrifts to recognize the losses that the defaults constitute without undermining their faith in the thrifts. And finally, there is pressure on the CDF from the leadership themselves to relax its rule, which the thrifts freely adopted, that prohibits leadership participation in electoral politics. The thrifts have provided a fertile training ground for women to become involved in the public life of the village, and they are now in demand as candidates for political office, given the early 1990s Indian constitutional amendments that set aside one-third of all local council seats for women. HKS Case Number 1656.0

In 1995 Haiti's banking sector undergoes reformtwo important aspects of which are a lowering of the reserve requirement on banks and a lifting of the interest rate ceiling on loans. These reforms give banks the opportunity to expand their lending activities, but who to lend to? Some banks turn to the informal sector, which dominates the Haitian economy, and to microfinance as a way to serve entrepreneurs working in this sector. Pierre-Marie Boisson, Chief Economist of Sogebank, the largest bank in Haiti, begins selling the idea of microfinance to his board of directors in the late 1990s. By 2000 the new microfinance affiliate of Sogebank, Sogesol, opened its doors for business. A year later it has 2,200 active clients and has extended over 4,500 loans. As expected Sogesol is incurring losses, but it had built a sound operational base with the help of Accion International, which is a part-owner and technical assistance provider. Its challenge for the coming year is to further improve its productivity to maximize the number of clients each of its loan officers serves and to expand beyond metropolitan Port-au-Prince to Haiti's provincial towns. Beyond these internal challenges, Sogesol faces two external threats. Competition from other microfinance providers not only threatens its market share, but, more ominously, threatens to create overindebtedness of entrepreneurs in the informal sector. The solution to this problem is a credit bureau system that allows lenders to share information about their borrowers. But a central bank effort in the mid-1990s to institute such a system failed, and it is unclear who will lead a renewed effort. The other external threat Sogesol faces is the uncertain regulatory environment in which it is operating. Haiti has no microfinance regulations, and Sogesol is operating under the umbrella of Sogebank's bank regulations. HKS Case Number 1657.0

Why is it that two firms can use the Internet in the same way (e.g., to reach new customers) and achieve very different outcomes? How can firms better allocate and subsequently leverage the investments they make in Internet technologies? This article shows that e-commerce technologies cannot be successfully leveraged without considering the organizational relationships in which the technologies are being embedded. By properly matching the B2B context with Internet technologies, firms can be in a better position not only to achieve significant economic outcomes, but also to attain sustainable competitive advantages, improve coordination and collaboration processes, and decrease channel resistance.

This study profiles the changing demographics and unique consumption patterns of the African-American consumer segment of the financial services market. When it comes to the selection and purchase of financial products and services, African-American consumers differ markedly from their white counterparts. This is especially apparent in the case of relatively high-risk, high-return financial assets, resulting in a diminished rate of wealth accumulation over time in African-American households. This article offers suggestions to marketers seeking to render more effective service to this attractive and growing segment of the financial services marketplace. For example, promotional materials should reflect the key role of African-American women in determining household consumption patterns. Moreover, successful marketing to African-American households requires a strong educational component.

In both the business press and academic journals, corporate leadership typically is portrayed as a solo activity, the responsibility of one person at the top of an organizational hierarchy. However, evidence shows that shared leadership is not only common in the corporate world, it is often more effective than the storied "one-man shows." Ongoing research at the University of Southern California's Center for Effective Organizations pinpoints several factors needed to make joint leadership a success. Where two--or more--individuals share leadership, it turns out that making the arrangement work is more complicated than simply "divvying up the tasks." For example, sharing the limelight seems harder than sharing responsibility.

The Roman Republic embraced a system of co-leadership that thrived for over four centuries before dissolving into the dictatorship of the Empire. Many modern firms are evolving in the opposite direction, as sole leadership structures are replaced or augmented by shared leadership. This modern evolution has been prompted by the increasing prevalence of job sharing and teams in the workplace, joint leadership in the family, and complex technology and massive mergers in the marketplace. This article identifies ten key lessons that the republicans of Rome understood and that are extremely relevant for the modern organization attempting to institute or sustain co-leadership. These ten lessons find parallels in the successes and failures of co-leadership at such firms as Goldman Sachs, Citigroup, Unilever, and DaimlerChrysler.

Based on a survey of 317 firms and in-depth cases on 6 firms, this article examines the management of the most intangible asset of the firm--its knowledge. This article examines the sources, uses, and outcomes of knowledge and shows how successful firms acquire and absorb more information and know-how. More importantly, these firms have more effective decision-making processes that enable them both to create new knowledge and to apply this knowledge to generating more innovation in products and processes. Greater levels of innovation, in turn, lead to improved market and financial performance. This article identifies eight key lessons for knowledge managers and demonstrates how rather than attempting to manage knowledge, firms should measure the change in the innovative outputs that arise from their knowledge management strategies and practices.

This is an MIT Sloan Management Review article. In an often overemphasized focus on efficiency, many companies turn to packaged information technology systems to manage business processes. University of Michigan Business School professors C.K. Prahalad and M.S. Krisnhan suggest they should be more concerned with strategy--and getting line managers and IT managers to use information systems in ways that facilitate strategic change. A new applications-portfolio scorecard helps managers assess information infrastructure before making investments. Six key considerations are: each IT application's role in strategy, whether the knowledge embodied in the application (say, salaries in a payroll application) is stable or evolving, how much change will be needed, where the application will be sourced, whether the data are proprietary or public, and the application's freedom from conformance defects. Those parameters differ for different functions. Only those companies that deeply analyze what they need from each IT application will acquire the right portfolio. The authors' work with 500 executives reveals that few managers believe their information infrastructure can handle the pressures from deregulation, globalization, ubiquitous connectivity, and the convergence of industries and technologies. Though fully aware their organizations lack rapid-response capability or flexibility, the managers rarely knew how to fix the disconnection between the quality of IT infrastructures and the need for strategic change. Considering that information-infrastructure expenditures are generally 2% to 8% of companies' revenues, new measures to address the disconnection are essential. A corresponding change in the mind-sets and skill sets of smart line managers and IT managers also helps improve overall competitiveness.

This is an MIT Sloan Management Review article. Why do your customers choose to buy from you rather than from your competition? For the past three years, marketing professors Mark Vandenbosch and Niraj Dawar have posed that question to more than 1,500 senior executives in interviews and group discussions. And despite the vast range of industries represented by the executives they probed, the responses they got were remarkably similar: Customers often value how they interact with their suppliers as much or more than what they actually buy. As the main drivers of customer choice, the executives cited cost-oriented factors such as convenience, ease of doing business, and product support and risk-oriented factors such as trust, confidence, and the strength of relationships. Strategies built around reducing customers' interaction costs and risk offer a systematic way to tap into new sources of customer value while avoiding the often futile attempt to compete on product innovation. The authors illustrate five different strategies that some companies are using to build a sustainable advantage.

This is an MIT Sloan Management Review article. When companies first plunged into e-commerce, they thought success meant cutting out middlemen. That approach didn't work, in part because e-businesses misunderstood the role of intermediaries. Middlemen are not costly, necessary evils. They solve problems for customers and, in so doing, enable sales and create value for producers. INSEAD's Philip Anderson and Erin Anderson show how intermediaries are helping smart companies realize the promise of the Web. They explain intermediaries' nine ways of adding value, suggesting that three will change, three will survive in a new form, and three (reducing uncertainty about quality, preserving customer anonymity, and tailoring offerings to customer needs) present growth opportunities. Middlemen can co-opt the Internet by offering services that would be too difficult for individual producers to provide. However, the authors caution, intermediaries must be open to new ways of doing business with suppliers and vice versa. The Web transforms but does not eliminate the advantages of the middleman's central lookout position. But what was once thought of as a straight distribution channel from supplier through middleman to customer is now more accurately described as a service hub. The player that takes the customer order--possibly a Web site--occupies the center and interacts with many partners. The authors specify appropriate, fair incentives (for example, Ethan Allen's quasi-independent furniture stores that customers browse before buying directly from the manufacturer's Web site automatically receive a 10% tip). And they describe service-hub management that will generate enough trust to permit producers to get closer to customers--indirectly.

This is an MIT Sloan Management Review article. In recent years, the need to develop next-generation leaders--people who can translate strategy into results and core values into day-to-day behaviors--has become the paramount challenge for many CEOs and their top teams. Yet, most executives admit that they are failing at the effort. For more than a decade, Douglas A. Ready, founder of the Massachusetts-based International Consortium for Executive Development Research, has led a series of large-scale studies to identify the most pressing leadership development challenges in more than 40 global companies. He has found that storytelling by a company's senior executives is a powerful way of developing new leaders. In a corporate setting, storytelling is hard work that requires careful planning and preparation; it does not involve "winging it" or telling war stories about past successes. Identifies and explains the five ingredients of effective stories and presents a case study. Outlines how top teams can implement a storytelling leadership program.

This is an MIT Sloan Management Review article. The product development process is often seen as an undependable black box that rarely produces results that exceed business expectations. Traditional financial models have limited success exposing the numerous product development risks that underlie the assumptions in a typical business case. Applying the same rules to development as they do to research, managers often accept unpredictable performance as normal. Most companies' evaluation and approval processes are driven by accounting-based metrics such as discounted cash flow or net present value (NPV) that make understanding the underlying risks of development difficult for decision makers. When risk is discussed in the business case, technology uncertainty is often confused with product development risk, and the narrative discussion of risk is designed more to persuade than inform. In this environment, decision makers are often hard-pressed to evaluate the potential commercial success of the new product development investment. With an approach called "net present value, risk-adjusted," author Craig R. Davis, CFO of product development consulting firm Product Genesis, offers an operational framework that gives decision makers quantitative tools to evaluate relative project risks. He shows how to integrate these tools into existing stage-gate methodologies to create a risk-adjusted NPV that considers the impacts of product portfolio, user needs, and technical and marketing risks. The framework also provides insights into the value of additional research in advance of full commitment to development. The framework provides a vocabulary appropriate for complex technology products in medical, commercial, and industrial products but is easily adapted to the unique terms, methods, and measures for each risk assessment area.

Cynthia Mitchell has finally gotten a plum management opportunity at AgFunds, a Houston-based company that provides financial services to farmers and farmer-owned cooperatives. Peter Jones, regional vice president, has recruited Cynthia to revive the Arkansas district, which has been losing customers for 15 years. The sales force there isn't bad; it's just been poorly managed by an indifferent boss for too long. Still, Cynthia knows she'll need at least one powerhouse sales rep to get things back on track. She thinks she's found that person in Steve Ripley, this year's top trainee at AgFunds, who is inexplicably available three months after the training period is over. In the interview, he proves to be ambitious, intelligent, and personable. But several of Cynthia's colleagues suggest that Steve might not be the best fit for the job: He's a black man in a company whose customer base is mostly conservative and white. Uncomfortably recalling her own experiences at AgFunds--she'd been rejected for a position in a territory that was deemed too unfriendly to female sales representatives--Cynthia addresses the issue with Peter. The mostly white farmers in Cynthia's district just won't trust their books to a black professional, Peter explains. And other minority professionals at AgFunds have derailed their careers trying to make inroads in unfriendly districts. "Steve deserves to start out in a more hospitable district. Once the right opportunity opens up, he'll be hired, and he'll do brilliantly," Peter reassures Cynthia, but she's still uncertain. Should she ignore her customers' biases and hire Steve, possibly setting him up to fail? Or would it be better to let Steve wait for a friendlier opportunity? In R0207A and R0207Z, experts David A. Thomas, Herman Morris, Jr., Daryl Koehn, Alicia Leung, and Glenn C. Loury comment on this fictional case study.

Businesses spend billions on health insurance. And what do they get for their money? A lot of unhappy employees. Workers fret about the quality of the care they receive, the burden of their out-of-pocket expenses, and the gaps in their coverage. For businesses, health care has become a lose-lose proposition: They pay way too much, and they get way too little. The problem is that the health care industry has been shielded from consumer pressure--by employers, insurers, and the government. As a result, costs have exploded even as choices have narrowed. But if companies embrace a new model of health coverage--one that places control over both costs and care directly into the hands of employees--the competitive forces that spur productivity and innovation in consumer markets can be loosed upon the inefficient, tradition-bound health care system. Moving to consumer-driven health care requires that companies revamp their health benefits in six ways: Give employees incentives to shop intelligently; offer a real choice of insurance plans; charge employees prices that accurately reflect the company's costs; let providers set their own prices; adjust payments for each enrollee based on need; and provide relevant information.

When it comes to management styles, newer isn't always better, or so chef Anthony Bourdain tells us in his best-seller Kitchen Confidential and in this conversation with HBR associate editor Gardiner Morse. But his old-fashioned approach--complete with a rigid hierarchy and a sacrosanct code of conduct--produces a counterintuitive result. Bourdain's kitchen at brasserie Les Halles in New York is a politically incorrect, frenzied workplace that demands and cultivates hard work, high performance, and unqualified loyalty. Bourdain runs his kitchen according to the old-school ethic developed by legendary chef Auguste Escoffier. Escoffier developed the "brigade system" after serving in the army during the Franco-Prussian War and ran his kitchens with a command structure much like the army's. According to Bourdain, the military model works because when people are laboring under extreme conditions, they come to feel that they are members of an elite. Bourdain's kitchen is a little society that depends on the kind of loyalty and mutual dependence needed in any crisis situation. And Bourdain "returns loyalty with absolute loyalty." Equally so, he lays down the law about lines that cannot be crossed. His kitchen allows people many personal freedoms but within a rigid framework. Workers must be punctual, take care of their work areas, and focus on making a great product every time. Protected by their highly structured work relationships, people become free to say what they think. Ego simply disappears because it's unnecessary and unwelcome, and resentments aren't allowed to simmer. Most of all, Bourdain says, the mix of informality and order serves to build great teams.

On September 11, 2001, in the space of a few horrific minutes, Americans realized the fragility of trust. The country's evident vulnerability to deadly terrorism rocked our faith in the systems we rely on for security. Our trust was shaken again only a few months later with the stunning collapse of Enron, forcing us to question many of the methods and assumptions underpinning the way we work. These two crises are obviously very different, yet both serve as reminders of the perils of trusting too much. The new doubtfulness runs contrary to most management literature, which has traditionally touted trust as an organizational asset. It's an easy case to make. When there are high levels of trust, employees can fully commit themselves to the organization because they can be confident that their efforts will be recognized and rewarded. Trust also means that leaders don't have to worry so much about putting the right spin on things. They can act and speak forthrightly and focus on essentials. In short, trust is an organizational superglue. Nevertheless, two decades of research on trust and cooperation in organizations have convinced social psychologist Roderick Kramer that--despite its costs--distrust can be beneficial in the workplace. Kramer has observed that a moderate form of suspicion, which he calls prudent paranoia, can in many cases prove highly beneficial to the distrustful individual or organization. In this article, he describes situations in which prudent paranoia makes sense and shows how, when properly deployed, it can serve as a powerful morale booster--even a competitive weapon--for organizations.

At a time when companies are poised to seize the growth opportunities of a rebounding economy, many of them, whether they know it or not, face a growth crisis. Even during the boom years of the past decade, only a small fraction of companies enjoyed consistent double-digit revenue growth. And those that did often achieved it through short-term measures--such as mergers and inflated price increases--that don't provide the foundation for growth over the long term. But there is a way out of this predicament. The authors claim that companies can achieve sustained growth by leveraging their "hidden assets," a wide array of underused, intangible capabilities and advantages that most established companies already hold. To date, much of the research on intangible assets has centered on intellectual property and brand recognition. But in this article, the authors uncover a host of other assets that can help spark growth. They identify four major categories of hidden assets: customer relationships, strategic real estate, networks, and information. And they illustrate each with an example of a company that has creatively used its hidden assets to produce new sources of revenue. Executives have spent years learning to create growth using products, facilities, and working capital. But they should really focus on mobilizing their hidden assets to serve their customers' higher order needs--in other words, create offerings that make customers' lives easier, better, or less expensive. Making that shift in mindset isn't easy, admit the authors, but companies that do it may not only create meaningful new value for their customers but also produce double-digit revenue and earnings growth for investors.

Who wouldn't want loyal customers? Surely they should cost less to serve, they'd be willing to pay more than other customers, and they'd actively market your company by word of mouth, right? Maybe not. Careful study of the relationship between customer loyalty and profits plumbed from 16,000 customers in four companies' databases tells a different story. The authors found no evidence to support any of these claims. What they did find was that the link between customers and profitability was more complicated because customers fall into four groups, not two. Simply put: Not all loyal customers are profitable, and not all profitable customers are loyal. Traditional tools for segmenting customers do a poor job of identifying that latter group, causing companies to chase expensively after initially profitable customers who hold little promise of future profits. The authors suggest an alternative approach, based on well-established "event-history modeling" techniques, that more accurately predicts future buying probabilities. Armed with such a tool, marketers can correctly identify which customers belong in which category and market accordingly. The challenge in managing customers who are profitable but disloyal--the "butterflies"--is to milk them for as much as you can while they're buying from you. A softly-softly approach is more appropriate for the profitable customers who are likely to stay loyal--your "true friends." As for highly loyal but not very profitable customers--the "barnacles"--you need to find out whether they have the potential to spend more than they currently do. And, of course, for the "strangers"--those who generate no loyalty and no profits--the answer is simple: Identify early and don't invest anything.