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Cultural differences can influence business negotiations in unexpected ways, as many a hapless deal maker has learned. But the differences extend well beyond surface behaviors, such as proper table manners and the exchange of business cards--and even beyond deeper cultural characteristics, such as attitudes about relationships and deadlines. Indeed, there's another, equally treacherous aspect to cross-border negotiation: the ways that people from different regions come to agreement or the processes involved in negotiations. Decision-making and governance processes can vary widely from culture to culture, not only in terms of legal technicalities but also in terms of the behaviors and core beliefs that drive them. Numerous promising deals have failed because people ignored or underestimated the powerful differences in process across cultures. In this article, James Sebenius offers ways in which negotiators can prepare for such cultural differences. A useful approach, he says, is to map out the decision-making process--including who's involved, what formal and informal roles people play, and how a resolution is actually reached. With that knowledge, you can design a strategy that anticipates obstacles before they arise. Those negotiations that might otherwise have failed because people ignored or underestimated powerful disparities in process will, in the end, yield a meaningful "yes."

Large companies have long sensed the potential value of investing in external start-ups, but more often than not, they fail to get it right. Remember the dash to invest in new ventures in the late 1990s and the hasty retreat when the economy turned? This article presents a framework that will help a company decide whether it should invest in a particular start-up by first understanding what kind of benefit might be realized from the investment. The framework--illustrated with examples from Intel, Lucent, and others--explains why certain types of corporate VC investments proliferate only when financial returns are high, why other types persist in good times and in bad, and why still others make little sense in any phase of the business cycle. The framework describes four types of corporate VC investments, each defined by its primary goal--strategic and financial--and by the degree of operational linkage between the start-up and the investing company. Driving investments are characterized by a strong strategic rationale and tight operational links. Enabling investments are also made primarily for strategic reasons, but the operational links are loose. Emergent investments, which are characterized by tight operational links, have little current--but significant potential--strategic value. Passive investments, offering few potential strategic benefits and only loose operational links, are made primarily for financial reasons. Passive corporate VC investments dry up in a down economy, but enabling and driving investments usually have more staying power. That's because their potential returns are primarily strategic, not financial. In other words, they can foster business growth. Emergent investments may make sense even in a weak market because of their potential strategic value--that is, their ability to help companies identify and spark the growth of future businesses.

Despite all of the time, money, and energy that executives pour into corporate change programs, the stark reality is that few companies ever succeed in genuinely reinventing themselves. That's because the people at those companies rarely master the art of transformational learning--that is, eagerly challenging deeply held assumptions about a company's processes and, in response, altering their thoughts and actions. Instead, most people just end up doing the same old things in superficially tweaked ways. Why is transformational learning so hard to achieve? HBR senior editor Diane Coutu explores this question with psychologist and MIT professor Edgar Schein, a world-renowned expert on organizational development. In sharp contrast to the optimistic rhetoric that permeates the debate on corporate learning and change, Schein is cautious about what companies can and cannot accomplish. Corporate culture can change, he says, but this kind of learning takes time, and it isn't fun. In this article, he describes two basic types of anxiety--learning anxiety and survival anxiety--that drive radical relearning in organizations. Schein's theories spring from his early research on how American prisoners of war in Korea were brainwashed by their captors. Heavy socialization is back in style in U.S. corporations today, Schein says, even if no one is calling it that.

The collective behavior of people in crowds, markets, and organizations has long been a mystery. Why, for instance, do employee bonuses sometimes lead to decreases in productivity? Why do some products generate a tremendous buzz, seemingly out of nowhere, whereas others languish despite multimillion-dollar marketing campaigns? How could a simple clerical error snowball into a catastrophic loss that bankrupts a financial institution? Traditional approaches like spreadsheet and regression analyses have failed to explain such "emergent phenomena," says Eric Bonabeau, because they work from the top down, trying to apply global equations and frameworks to a particular situation. But the behavior of emergent phenomena, contends Bonabeau, is formed from the bottom up--starting with the local interactions of individuals who alter their actions in response to other participants. Together, the myriad interactions result in a group behavior that can easily elude any top-down analysis. But now, thanks to "agent-based modeling," some companies are finding ways to analyze--and even predict--emergent phenomena. This article discusses emergent phenomena in detail and explains why they have become more prevalent in recent years. In addition to providing real-world examples of companies that have improved their business practices through agent-based modeling, Bonabeau also examines the future of this technology and points to several fields that may be revolutionized by its use.

For most companies, organization design is neither a science nor an art; it's an oxymoron. Organizational structures evolve in fits and starts, shaped more by politics than by policies. Although most executives can sense when their organization designs are not working well, few take meaningful action, partly because they lack a practical framework to guide them. The authors of this article provide just such a framework; they present nine tests that can be used either to evaluate an existing organization design or create a new one. Four "fit" tests offer an initial screen: The market advantage test asks whether a design directs sufficient management attention to the company's sources of competitive advantage; the parenting advantage test determines whether the design gives enough attention to the corporate-level activities that provide real value to the company; the people test shows whether the design reflects the employees' strengths; and the feasibility test looks at constraints that may impede implementation. Five "good design" tests can help a company refine its prospective design. The specialist cultures test ensures that there's sufficient insulation for units that need to be different from the prevailing culture; the difficult-links test determines whether a design offers solutions for potentially problematic unit-to-unit links; the redundant-hierarchy test asks whether the design has too many parent levels; the accountability test looks at whether every unit has suitable controls; and the flexibility test ensures that the design lets the company adapt to change. Once a design is altered, the tests should be repeated. Organizational decisions are inevitably complex, and tweaking one part of the design may produce unanticipated consequences elsewhere.

Jared Gordan, the president of the Industrial Products Division for Compunext, is a first-rate manager. In just three years, he's turned around a flagging division and increased sales and profits by 50%--a dramatic shift from five years earlier, when analysts were suggesting that the company sell the division. But that's not all. In addition to being a turnaround expert, Jared has shown a special aptitude for recruiting and developing talent. Many executives have noticed this faculty, and--unfortunately for Jared--those running Compunext's biggest, most glamorous divisions are poaching his best managers. In fact, Industrial Products has just been raided for the tenth time in two years, and Jared is spitting mad. This time, the Telecommunications Division has wooed--and won--Stan Simpson, Industrial Products' VP of sales. Jared, right or wrong, confronts Hank Dodge, president of Telecommunications, for not coming to him before offering Stan the job. Still furious, Jared then meets with Sue Patel, Compunext's VP of human resources, to discuss what can be done to avoid future raids. Does Jared have good reason to be angry? What lies at the root of the problem, and how can Jared solve it? In R0203A and R0203Z, Peter Browning, Frank Morgan, Hubert Saint-Onge, and Charles H. King weigh in on this fictional case study.

Jared Gordan, the president of the Industrial Products Division for Compunext, is a first-rate manager. In just three years, he's turned around a flagging division and increased sales and profits by 50%--a dramatic shift from five years earlier, when analysts were suggesting that the company sell the division. But that's not all. In addition to being a turnaround expert, Jared has shown a special aptitude for recruiting and developing talent. Many executives have noticed this faculty, and--unfortunately for Jared--those running Compunext's biggest, most glamorous divisions are poaching his best managers. In fact, Industrial Products has just been raided for the tenth time in two years, and Jared is spitting mad. This time, the Telecommunications Division has wooed--and won--Stan Simpson, Industrial Products' VP of sales. Jared, right or wrong, confronts Hank Dodge, president of Telecommunications, for not coming to him before offering Stan the job. Still furious, Jared then meets with Sue Patel, Compunext's VP of human resources, to discuss what can be done to avoid future raids. Does Jared have good reason to be angry? What lies at the root of the problem, and how can Jared solve it? In R0203A and R0203X, Peter Browning, Frank Morgan, Hubert Saint-Onge, and Charles H. King weigh in on this fictional case study.

Cochin International Airport opened in 1999 to widespread acclaim as the first and only airport to be constructed and operated by a private company in India. By 2001 the airport was generating enough revenue to cover its operating costs, but not enough to service its debt or to pay dividends to its shareholders. The airport company was already in technical default to its lenders, and its Managing Director had to figure out quickly how to improve profits or to convince shareholders to make further large infusions of equity. This case is intended to support a discussion of the advantages and disadvantages of having private companies build and operate major infrastructure facilities, such as airports. It was developed for use in an executive program on the privatization and regulation of infrastructure and utilities, but it could also be used in Master's level courses on privatization, infrastructure, and industrial policy. HKS Case Number 1650.0

The March 2002 decision by President George W. Bush to impose tariffs on some imported steel capped a long-running campaign by the US steel industry and its unions for assistance in dealing with surges of low-priced imported steel, often said to be sold in the US below its cost of manufacture. The Bush decision came as a surprise to many convinced that a free trade-oriented administration would not adopt measures likely to be viewed as protectionist. This case provides definitive historical context for those seeking to understand the Bush decision. It uses the long-running dispute over whether steps should be taken to limit the quantity of steel imported by the US as a window on the wide range of laws, factors, and players who influence the making of American trade policy. The case traces the steel dispute through the late 20th century, with particular focus on the Clinton administration. It provides a primer on trade laws-particularly the roles of the Commerce Department, which determines whether illegal "dumping" (selling below cost of production or home market price) of imported goods has occurred, and the International Trade Commission, the quasi-judicial federal agency which rules on whether imports have injured a domestic industry. HKS Case Number 1651.0

Just as they can fail to recognize their weaknesses, leaders sometimes underrate their strengths--and everyone pays the price. Positive feedback can help bring executives' perceptions in line with reality.

Consumers are finding it hard to distinguish among competing products. The fault lies partly with marketers and ad agencies, but ultimately it's the CEO's job to stop brand dilution.

In this conversation, McKinsey's T. Michael Nevens takes the wraps off the "productivity paradox" and explains why competition and innovation, not IT, are the real drivers of productivity.

Business decisions based on poor valuation practices can create significant losses. Here's a straightforward set of calculations that will help your company assess the impact of its valuation decisions on shareholder returns.

A practical guide to managing time. Reviews the major reasons why time is not effectively used.

Quack.com was in dire straits. An early entrant in the voice portal market, Quack was quickly running out of money. The company's management team had just returned from a road show for a second round of venture financing, but they had been unsuccessful. To exacerbate this issue, Quack's two major competitors had each received substantial funding. At the current burn rate, Quack could survive on its bridge financing for only three more months. Moreover, after the first few months of running the voice portal, Quack's business-to-consumer model for voice portals was already showing signs of weakness. Quack's management believed the failure of its road show could be related to its B2C focus. The company was facing many major decisions that would reshape and dictate the future of the firm. This case deals with the possible options for new strategic direction.

Supplements the (A) case.

Describes some of the difficulties of working with one's relatives in the family firm, especially with one's brother(s). Examines some of the reasons for the difficulties and proposes ways of dealing with them.

Reviews the many great managerial benefits of having an explicit, communicated, and understood company mission and guidelines.

Presents the solutions to questions 1 through 4 of the problem set. To be handed out in class. A rewritten version of an earlier supplement.

In early 2001, makers of AIDS drugs were suing to prevent developing countries from violating their patents. The issue was driven by price. The developing countries could not afford the market price for these drugs. At the same time, the drug companies were reluctant to sell drugs at or below cost in one country and at 10 to 20 times cost in another country. Using a series of published articles, this case outlines the pressures facing the drug companies and asks the question, "How should they respond?"