In many industries today--including aerospace, electronics, chemicals, software, global construction, global investment and commercial banking, and international manufacturing--even simple product or service innovations can become complicated, because so many companies now operate in ecosystems made up of powerful and highly interconnected stakeholders. That means you can't focus exclusively on the customer and yourself: You need value propositions that stakeholders in your ecosystem can also buy into, which vastly complicates the process of identifying innovation opportunities. The authors have developed a tool-based ideation process that a major pharmaceutical company has rolled out worldwide. They describe the six steps in the process: (1) Identify key stakeholders and their most pressing needs; (2) outline stakeholder consumption chains; (3) categorize features of the current offer and build offer profiles; (4) create growth opportunity profiles; (5) map stakeholder tensions; and (6) choose your best opportunity.

Entrepreneurs can play a central role in finding solutions to the world's toughest social problems. The failure rate for start-ups, however, is high. And new ventures in emerging economies face such challenges as uncertain prices and costs, nonexistent or unreliable infrastructure, and unpredictable competitive responses. The authors offer guidelines for launching successful businesses in uncertain markets. One of those guidelines, discovery-driven planning (a well-known process developed by MacMillan and Rita Gunther McGrath), helps managers test their assumptions about preliminary business models and revise them on the basis of emerging data. The remainder were informed by the authors' efforts, with the Wharton Societal Wealth Program, to help launch socially beneficial ventures in Africa and the United States. Those guidelines include outlining the minimum number of people a venture should serve and the minimum level of profitability it should achieve; identifying important stakeholders; planning how to terminate the venture in an acceptable manner; and anticipating unintended consequences of the enterprise. The lessons aren't just for entrepreneurs. The management teams of multinationals, foundations, and NGOs can apply them to any challenging and highly uncertain business situation. In doing so, they can better control their costs, minimize the effects of surprises, and increase their impact on society.

Today's sky-high personal debt levels portend a freeze in consumer spending and a rise in defaults. They could threaten your company - even if you don't sell to consumers. Two experts explain how to calculate your firm's risk.

The degree to which consumers have come to depend on easy, inexpensive credit is a far greater threat to the economy than most realize. To pay it off, the average U.S. consumer would have to hand over every penny of his take-home pay for 16 months. And in all that time he wouldn't be able to buy anything else--no clothes, food, coffee, nothing. Okay, so no one is going to do that. But what will people do? Individual decisions to cut back on consumption--or perhaps run up the credit cards to the max and then declare bankruptcy--will translate in the aggregate into tremendous volatility and risk for the companies customers buy (or suddenly stop buying) from. In fact, warn investment banker Jarvis and Wharton professor MacMillan, the profits and cash flows of nearly all U.S. companies are built directly or indirectly on consumer spending, and the connection is not always obvious. How many loyal supermarket customers are quietly opting to pay for their food with their credit cards rather than their debit cards? How many consumers will tap their home-equity lines of credit to pay for their next vacation? How many companies are unaware of their indirect connection to these debt-laden consumers through their distributors, retailers, and financial institutions? Those directly involved in the credit industry itself should be bracing for record numbers of bankruptcies. Those companies, like the auto dealers, that finance consumer purchases directly should be working flat out to reduce their dependence stream. And any company whose customers--or whose customers' customers--pay with credit need to be bolstering their reserves, now. The authors detail a tool that will let you measure the level of your company's exposure to consumer credit, analyze how sensitive your firm is to sudden changes in default rates, and determine what steps you can take to mitigate your risk. Managers that ignore the warning signs and leave their company vulnerable have only themselves to blame.

Two professors who have studied how leaders regain momentum in uncertain times suggest four ways to get your employees to face their fear, outrun hesitant competitors, and seize advantage.

Downturns naturally reshape customers' needs. While competitors mindlessly cut costs, you should divide your customer base into new segments, whose emerging needs you can serve - and invest in - profitably. You'll increase market share and market capitalization.

If you run a big company, you might think it's nearly impossible to grow profits organically. Think again, say MacMillan, of the University of Pennsylvania's Wharton School, and Selden, of Columbia Business School. Locked inside your firm's customer records is a wealth of information about what your customers need and how to make more of them profitable to you. Tapped strategically, this information can generate enormous value for your company and give you a big leg up on potential invaders. The authors call it the incumbent's advantage. Using the hypothetical example of Mix C-Ment, based on the real experience of concrete manufacturer CEMEX, the authors walk through a step-by-step tutorial on strategic customer segmentation. They demonstrate how investing in and applying research about particular customers' needs for tailored products, marketing support, and technical services can greatly increase profits. But that requires seeing these offerings not as mere allocated costs but as deliberately invested resources. To exploit your incumbent's advantage, build a modest customer-characteristics database and rank your customers according to profitability. Then analyze in detail the needs and behavior of the most and least profitable 20% - and strategically use what you find. This customer-centric approach to your information should have as its counterpart a corporate structure in which cross-functional teams assigned to specific customer segments make smart resource investments using your evolving knowledge about each segment's needs and performance. Getting your customer information and your organization to work together in this way is the key to preserving your firm's dominance while increasing profits at every step of the process.

The major reason for failure in initiating new growth projects in uncertain environments is the basic tenet of classic project management-the initial strategy is assumed to be correct, and large sums are expended without dealing with the fundamental assumptions. Discovery-driven planning is vastly different from conventional planning. In conventional planning, success means delivering numbers close to what you thought you would deliver. In discovery-driven planning, success means generating the maximum amount of useful learning for the minimum expenditure. Discovery-driven planning is most useful when the situation is highly uncertain.

No matter how hard companies try, their approaches to innovation often don't grow the top line in the sustained, profitable way investors expect. For many companies, there's a huge difference between what's in their business plans and the market's expectations for growth (as reflected in firms' share prices, market capitalizations, and P/E ratios). This growth gap springs from the fact that companies are pouring money into their insular R&D labs instead of working to understand what the customer wants and using that understanding to drive innovation. As a result, even companies that spend the most on R&D remain starved for both customer innovation and market-capitalization growth. In this article, the authors spell out a systematic approach to innovation that continuously fuels sustained, profitable growth. They call this approach customer-centric innovation, or CCI. At the heart of CCI is a rigorous customer R&D process that helps companies to continually improve their understanding of who their customers are and what they need. By so doing, they consistently create or improve their customer value proposition. Customer R&D also focuses on better ways of communicating value propositions and delivering the complete experience to real customers. Because so much of the learning about customers and so much of the experimentation with different segmentations, value propositions, and delivery mechanisms involve the people who regularly deal with customers, it is essential for frontline employees to be at the center of the CCI process. Simply put, customer R&D propels the innovation effort away from headquarters and the traditional R&D lab out to those closest to the customer. Using the example of the luggage manufacturer Tumi, the authors provide a step-by-step approach for achieving true customer-centric innovation.

If company leaders were granted a single wish, it would surely be for a reliable way to create new growth businesses. Business practitioners' overwhelming interest in this subject prompted the authors to conduct a three-year study of organizational growth--specifically, to find out which growth strategies were most successful. They discovered, somewhat to their surprise, that even companies in mature industries found rich new sources of growth when they reconfigured their unit of business (what they bill customers for) or their key metrics (how they measure success). In this article, the authors outline these and other moves companies can make to redefine their profit drivers and realize low-risk growth. They offer plenty of real-world examples. For instance, once a conventional printing house, Madden Communications not only prints promotional materials for customers but also manages the distribution and installation of those materials on-site. Its revenues grew from $10 million in 1990 to $133 million in 2004, in an industry that many had come to regard as hopelessly mature. The authors also suggest ways to identify your unit of business and associated key metrics and recognize the obstacles to changing them; review the key customer segments you serve; assess the need for new capabilities and the potential for internal resistance to change; and communicate to internal and external constituencies the changes you wish to make in your unit of business or key metrics.

As a way to value growth opportunities, real options have had a difficult time catching on with managers. Many CFOs believe the method ensures the overvaluation of risky projects. This concern is legitimate, but abandoning real options as a valuation model isn't the solution. Companies that rely solely on discounted cash flow (DCF) analysis underestimate the value of their projects and may fail to invest enough in uncertain but highly promising opportunities. CFOs need not--and should not--choose one approach over the other. Far from being a replacement for DCF analysis, real options are an essential complement, and a project's total value should encompass both. DCF captures a base estimate of value; real options take into account the potential for big gains. This is not to say that there aren't problems with real options. As currently applied, they focus almost exclusively on the risks associated with revenues, ignoring the risks associated with a project's costs. It's also true that option valuations almost always ignore assets that an initial investment in a subsequently abandoned project will often leave the company. In this article, the authors present a simple formula for combining DCF and option valuations that addresses these two problems. Using an integrated approach, managers will, in the long run, select better projects than their more timid competitors while keeping risk under control. Thus, they will outperform their rivals in both the product and the capital markets.

Competition among multinationals these days is likely to be a three-dimensional game of global chess: The moves an organization makes in one market are designed to achieve goals in another in ways that aren't immediately apparent to its rivals. The authors--all management professors--call this approach "competing under strategic interdependence," or CSI. And where this interdependence exists, the complexity of the situation can quickly overwhelm ordinary analysis. Indeed, most business strategists are terrible at anticipating the consequences of interdependent choices, and they're even worse at using interdependency to their advantage. In this article, the authors offer a process for mapping the competitive landscape and anticipating how your company's moves in one market can influence its competitive interactions in others. They outline the six types of CSI campaigns--onslaughts, contests, guerrilla campaigns, feints, gambits, and harvesting--available to any multiproduct or multimarket corporation that wants to compete skillfully. Using data they collected from their studies of consumer-products companies Procter & Gamble and Unilever, the authors describe how to create CSI tables and bubble charts that present a graphical look at the competitive landscape and that may uncover previously hidden opportunities. Smaller organizations that compete with a portfolio of products in just one national or regional market may find the CSI mapping process just as useful for planning their next business moves.

Most profitable strategies are built on differentiation: offering customers something they value that competitors don't have. But most companies concentrate only on their products or services. In fact, a company can differentiate itself at every point where it comes in contact with its customers--from the moment customers realize they need a product to service to the time when they dispose of it. The authors believe that if companies open up their thinking to their customers' entire experience with a product or service--the consumption chain--they can uncover opportunities to position their offerings in ways that neither they nor their competitors thought possible. The authors show how even a mundane product such as candles can be successfully differentiated. By analyzing its customers' experiences and exploring various options, Blyth Industries, for example, has grown from a $2 million U.S. candle manufacturer into a global candle and accessory business with nearly $500 million in sales and a market value of $1.2 billion.

A successful strategy for selling your products or services depends on your ability to get into the minds of your targeted customers. But sometimes the customers themselves do not know what is in their minds. A simple tool called the ACE (Attribute Categorization and Evaluation) Matrix can help managers understand customers' behavior and bring hidden product attributes to the surface. It helps companies see that a product may have different salient attributes for different customer segments. The matrix gives companies an iterative process for validating assumptions about product attributes and for monitoring changes that occur because of competition.

Smart companies may incur huge losses when they enter unknown territory--new alliances, markets, products, technologies. Failures could be prevented or their cost contained if managers approached innovative ventures with the right planning and control tools. Discovery-driven planning is a practical tool that acknowledges the difference between planning for a new venture and for a more conventional business. Using Kao Corp.'s entry into floppy disks, the authors present a step-by-step approach to help companies think differently about planning. Managers should begin with the bottom line and work their way up the income statement, first determining a new venture's profit potential.

Entrepreneurs draw up business plans for new ventures to make marketing, pricing, financial, and other projections. More often than not, though, their estimates bear little relationship to reality. Planning for new enterprises differs fundamentally from planning for existing companies, given the inherent instability of start-ups. Entrepreneurs should summarize milestone events in a project's plan in order to learn about the enterprise's viability and make adjustments in strategy and goals as necessary. Examples of ten milestones a new product or service might experience are included.