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Taiwan's United Microelectronics Corporation (UMC), one of the world's leading semiconductor foundries, has grown dramatically in 16 years. UMC pursued a strategy of vertical disintegration as part of the chairman's vision of turning UMC into a pure-play foundry. This case discusses the major technological and competitive forces affecting the industry and looks at UMC's restructuring through the eyes of the chairman. The case provides enough detail to engage the class in a discussion of the merits of UMC's vertical disintegration strategy and the possible pitfalls of this approach going forward.

It happens all the time. Two parties with common interests fail to reach an agreement--about a sale, a merger, a technology transfer--because they have different expectations about the future. They are both so confident in their prediction, or so suspicious of the other side's motives, that they refuse to compromise. Such impasses are hard to break through. Fortunately, they can often be avoided altogether by using a straightforward but frequently overlooked type of agreement called a contingent contract. The terms of a contingent contract are not finalized until the uncertain event in question--the contingency--takes place. In some areas of business, such as compensation, contingent contracts are common: a CEO's pay is tied to the company's stock price, for instance. But in many business negotiations, contingent contracts are either ignored or rejected out of hand. That's a mistake, according to the authors. In an increasingly uncertain world, flexible contingent contracts can actually be more rational and less risky than rigid, traditional ones. In particular, contingent contracts offer six benefits: they enable a difference of opinion to become the basis of an agreement, not an obstacle to it; they cancel out the biases of negotiators; they level the playing field by reducing the impact of asymmetric information; they provide a means of uncovering deceitful dealings; they reduce risk by sharing it among parties; and they motivate parties to fulfill their promises. While contingent contracts are not appropriate in all instances, they are much more broadly applicable than managers may think.

Eager to stay ahead of fast-changing markets, more and more high-tech companies are going outside for competitive advantage. Last year in the United States alone, there were 5,000 high-tech acquisitions, but many of them yielded disappointing results. The reason, the authors contend, is that most managers have a shortsighted view of strategic acquisitions--they focus on the specific products or market share. That focus might make sense in some industries, where those assets can confer substantial advantages, but in high tech, full-fledged technological capabilities--tied to skilled people--are the key to long-term success. Instead of simply following the "buzz," successful acquirers systematically assess their own capability needs. They create product road maps to identify holes in their product line. While the business group determines if it can do the work in-house, the business development office scouts for opportunities to buy it. Once business development locates a candidate, it conducts an expanded due diligence, which goes beyond strategic, financial, and legal checks. Successful acquirers are focused on long-term capabilities, so they make sure that the target's products reflect a real expertise. They also look to see if key people would be comfortable in the new environment and if they have incentives to stay on board. The final stage of a successful acquisition focuses on retaining the new people--making sure their transition goes smoothly and their energies stay focused. Acquisitions can cause great uncertainty, and skilled people can always go elsewhere. In short, the authors argue, high-tech acquisitions need a new orientation around people, not products.

In 1998, Silicon Valley companies produced 41 IPOs, which by January 1999 had a combined market capitalization of $27 billion--that works out to $54,000 in new wealth creation per worker in a single year. Multiply the number of employees in your company by $54,000. Did your business create that much new wealth last year? Half that amount? It's not a group of geniuses generating such riches. It's a business model. In Silicon Valley, ideas, capital, and talent circulate freely, gathering into whatever combinations are most likely to generate innovation and wealth. Unlike most traditional companies, which spend their energy in resource allocation--a system designed to avoid failure--the Valley operates through resource attraction--a system that nurtures innovation. In a traditional company, people with innovative ideas must go hat in hand to the guardians of the old ideas for funding and for staff. But in Silicon Valley, a slew of venture capitalists vie to attract the best new ideas, infusing relatively small amounts of capital into a portfolio of ventures. And talent is free to go to the companies offering the most exhilarating work and the greatest potential rewards. It should actually be easier for large, traditional companies to set up similar markets for capital, ideas, and talent internally. After all, big companies often already have extensive capital, marketing, and distribution resources, and a first crack at the talent in their own ranks. And some of them are doing it. The choice is yours--you can do your best to make sure you never put a dollar of capital at risk, or you can tap into the kind of wealth that's being created every day in Silicon Valley.

Walk into any organization and you will get a snapshot of the company in action--people and products moving every which way. But ask for a picture of the company and you will be given the org chart, with its orderly little boxes showing just the names and titles of managers. Now there's a more revealing way to depict the people and operations within an organization--an approach called the organigraph. The organigraph is not a chart. It's a map that offers an overview of the company's functions and the ways that people organize themselves at work. Perhaps most important, an organigraph can help managers see untapped competitive opportunities. Drawing on the organigraphs they created for about a dozen companies, authors Mintzberg and Van der Heyden illustrate just how valuable a tool the organigraph is. For instance, one they created for Electrocomponents, a British distributor of electrical and mechanical items, led managers to a better understanding of the company's real expertise--business-to-business relationships. As a result of that insight, the company wisely decided to expand in Asia and to increase its Internet business. As one manager says, "It allowed the company to see all sorts of new possibilities." With traditional hierarchies vanishing and newfangled--and often quite complex--organizational forms taking their place, people are struggling to understand how their companies work. What parts connect to one another? How should processes and people come together? Whose ideas have to flow where? With their flexibility and realism, organigraphs give managers a new way to answer those questions.

Most senior managers want their product development teams to create breakthroughs--new products that will allow their companies to grow rapidly and maintain high margins. But more often they get incremental improvements to existing products. That's partly because companies must compete in the short term. Searching for breakthroughs is expensive and time consuming; line extensions can help the bottom line immediately. In addition, developers simply don't know how to achieve breakthroughs, and there is usually no system in place to guide them. By the mid-1990s, the lack of such a system was a problem even for an innovative company like 3M. Then a project team in 3M's Medical-Surgical Markets Division became acquainted with a method for developing breakthrough products: the lead user process. The process is based on the fact that many commercially important products are initially thought of and even prototyped by "lead users"--companies, organizations, or individuals that are well ahead of market trends. Their needs are so far beyond those of the average user that lead users create innovations on their own that may later contribute to commercially attractive breakthroughs. The lead user process transforms the job of inventing breakthroughs into a systematic task of identifying lead users and learning from them. The authors explain the process and how the 3M project team successfully navigated through it. In the end, the team proposed three major new product lines and a change in the division's strategy that has led to the development of breakthrough products. And now several more divisions are using the process to break away from incrementalism.

When most people think about business innovation, they think of product development. But consultants at the Doblin Group take a broader view. They've created a way to map innovativeness across ten categories, from business models to processes to brands.

A team of MIT researchers has created an electronic "process repository" that enables managers to easily explore different options for performing common tasks.

The founder of English Street has decided to take the company to a group of venture capitalists. English Street is an Internet company that provides multimedia content for teaching English to Hong Kong and China residents. She has developed the idea of English Street into a prototype Web site, and is putting together a prospectus (proposal) for a presentation to obtain funding for full development of her business plan.

A group of Trojan Technologies, Inc. employees grappled with the issue of how to structure the business to interact effectively with its customers and manage the company's dramatic growth. The London, Ontario manufacturer of ultraviolet water disinfecting systems believed that strong customer service was key to its recent and projected growth and had come to the realization that changes would have to be made to continue to achieve both simultaneously. The group hoped to develop a structure to address these issues. The executive vice president was to lead the development and implementation of the new structure. The transition to the new structure was to coincide with the new fiscal year.

This exercise allows students to assess probability distributions (.05, .25, .50, .75, .95 fractiles) for 10 uncertain quantities and to calibrate the reliability of their assessments.

When Dick Calder is named head of the CIA's Directorate of Administration (DA) in 1995, he faces the task of leading a beleaguered organization through a difficult period. As the unit responsible for providing its more glamorous intelligence-gathering and analyzing counterparts with administrative services-ranging from logistics support to telephones to personnel services-it has borne the brunt of a decade of agency budget cuts. Other directorates are not sympathetic, however, and view the DA as wasteful and unresponsive. In hopes of improving the DA's services and its customers' level of satisfaction, Calder proposes a novel solution to the directorate's woes: budget "givebacks." Under this cost-recovery scheme, the DA would give its budget back to the "mission" directorates, which would then purchase support services from the DA or, if they chose, another provider. Calder reasons that the specter of competition would improve the DA's delivery of services; at the same time, it would encourage the other directorates to buy more prudently, in line with the agency's shrinking service budget, particularly because they would be allowed to retain any savings they realized. It is a radical proposal for an inherently conservative agency-one, moreover, whose covert mission makes unusual demands on the deliverer of the most routine services. This series of organizational change cases follows Calder's efforts to implement budget givebacks in the DA. They detail his strategy for winning support for his idea, the experiences of several pilot giveback programs he initiates, and the sharp resistance he encounters both within the DA and from the other directorates. Together, the cases raise questions about adaptation to a changing political and fiscal environment, as well as the management of innovation in an organization deeply skeptical of change. HKS Case Number 1515.0

When Dick Calder is named head of the CIA's Directorate of Administration (DA) in 1995, he faces the task of leading a beleaguered organization through a difficult period. As the unit responsible for providing its more glamorous intelligence-gathering and analyzing counterparts with administrative services-ranging from logistics support to telephones to personnel services-it has borne the brunt of a decade of agency budget cuts. Other directorates are not sympathetic, however, and view the DA as wasteful and unresponsive. In hopes of improving the DA's services and its customers' level of satisfaction, Calder proposes a novel solution to the directorate's woes: budget "givebacks." Under this cost-recovery scheme, the DA would give its budget back to the "mission" directorates, which would then purchase support services from the DA or, if they chose, another provider. Calder reasons that the specter of competition would improve the DA's delivery of services; at the same time, it would encourage the other directorates to buy more prudently, in line with the agency's shrinking service budget, particularly because they would be allowed to retain any savings they realized. It is a radical proposal for an inherently conservative agency-one, moreover, whose covert mission makes unusual demands on the deliverer of the most routine services. This series of organizational change cases follows Calder's efforts to implement budget givebacks in the DA. They detail his strategy for winning support for his idea, the experiences of several pilot giveback programs he initiates, and the sharp resistance he encounters both within the DA and from the other directorates. Together, the cases raise questions about adaptation to a changing political and fiscal environment, as well as the management of innovation in an organization deeply skeptical of change. HKS Case Number 1516.0

When Dick Calder is named head of the CIA's Directorate of Administration (DA) in 1995, he faces the task of leading a beleaguered organization through a difficult period. As the unit responsible for providing its more glamorous intelligence-gathering and analyzing counterparts with administrative services-ranging from logistics support to telephones to personnel services-it has borne the brunt of a decade of agency budget cuts. Other directorates are not sympathetic, however, and view the DA as wasteful and unresponsive. In hopes of improving the DA's services and its customers' level of satisfaction, Calder proposes a novel solution to the directorate's woes: budget "givebacks." Under this cost-recovery scheme, the DA would give its budget back to the "mission" directorates, which would then purchase support services from the DA or, if they chose, another provider. Calder reasons that the specter of competition would improve the DA's delivery of services; at the same time, it would encourage the other directorates to buy more prudently, in line with the agency's shrinking service budget, particularly because they would be allowed to retain any savings they realized. It is a radical proposal for an inherently conservative agency-one, moreover, whose covert mission makes unusual demands on the deliverer of the most routine services. This series of organizational change cases follows Calder's efforts to implement budget givebacks in the DA. They detail his strategy for winning support for his idea, the experiences of several pilot giveback programs he initiates, and the sharp resistance he encounters both within the DA and from the other directorates. Together, the cases raise questions about adaptation to a changing political and fiscal environment, as well as the management of innovation in an organization deeply skeptical of change. HKS Case Number 1516.1

Presents the new pay-for-performance scheme adopted by General Motors (GM) in its 1999 reorganization of its sales and marketing organization. Once in operation, many administrative problems developed requiring a reconsideration of the scheme's basic architecture.

Anthony Ng, the general manager of Kowloon Development Co. Ltd., has been approached by a real-estate agent proposing a new development project for possible investment by Kowloon Development. Although the project is attractive, there are a number of associated uncertainties that complicate Ng's decision about whether or not to recommend investment. He has only a few days to review the proposal and make a decision before the next board meeting.

One of Canada's high-tech success stories, Bombardier, changed the airline industry with the introduction of its short-haul turbo-prop planes and jets in the early 1990s. By the mid-1990s, a new player from Brazil, Embraer, had entered the market and was capturing a lot of business from Bombardier. Bombardier claimed that the success of Embraer was due to unfair subsidies through a government program, so Bombardier challenged the policies through the WTO. Embraer charged back that Bombardier had long received subsidies through Canadian government loans and grants. In an industry which was expected to double in the next five years, the stakes were high. This case discusses the dispute resolution process within the WTO, and the impacts that subsidies and WTO subsidy restrictions may have on industry structure.

Tom Barnes, executive director of Asiasports Ltd., was evaluating several options for growth for the sports management company. Asiasports principal sports properties were the South China Ice Hockey League and the World Ice Hockey 5's tournament, both based in Hong Kong. Among the alternatives available: Barnes could develop hockey in other countries in Southeast Asia; he could acquire new sports properties; or he could expand into in-line hockey promotion in Hong Kong.

A group of Trojan Technologies Inc. employees grappled with the issue of how to structure the business to effectively interact with their customers and manage the company's dramatic growth. The London, Ontario manufacturer of ultraviolet water disinfecting systems believed that strong customer service was key to its recent and projected growth, and had come to the realization that changes would have to be made to continue to achieve both simultaneously. The group hoped to develop a structure to address these issues. The executive vice-president was to lead the development and implementation of the new structure. The transition to the new structure was to coincide with the new fiscal year.

Most executives have a big, hairy, audacious goal. They write vision statements, formalize procedures, and develop complicated incentive programs--all in pursuit of that goal. In other words, with the best of intentions, they install layers of stultifying bureaucracy. But it doesn't have to be that way. In this article, Jim Collins introduces the catalytic mechanism, a simple yet powerful managerial tool that helps translate lofty aspirations into concrete reality. Catalytic mechanisms are the crucial link between objectives and performance; they are a galvanizing, nonbureaucractic means to turn one into the other. What's the difference between catalytic mechanisms and most traditional managerial controls? Catalytic mechanisms share five characteristics. First, they produce desired results in unpredictable ways. Second, they distribute power for the benefit of the overall system, often to the discomfort of those who traditionally hold power. Third, catalytic mechanisms have teeth. Fourth, they eject "viruses"--those people who don't share the company's core values. Finally, they produce an ongoing effect. Catalytic mechanisms are just as effective for reaching individual goals as they are for corporate ones. To illustrate how catalytic mechanisms work, the author draws on examples of individuals and organizations that have relied on such mechanisms to achieve their goals. The same catalytic mechanism that works in one organization, however, will not necessarily work in another. Catalytic mechanisms must be tailored to specific goals and situations. To help readers get started, the author offers some general principles that support the process of building catalytic mechanisms effectively.