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Two-sided networks, or platforms, often enjoy significantly greater returns at scale than traditional value chains. Despite these advantages, many companies struggle to develop these platforms in a sustainable way. This largely stems from an assumption that products with network effects will operate in the same way as traditional products, leading managers to make highly flawed decisions. In this article, the authors draw on recent theoretical work to guide executives negotiating the challenges of two-sided networks, touching on how to develop a pricing scheme, how to manage "winner take all" dynamics, and how to address the threat of envelopment by an adjacent platform. There are no easy answers, but thinking through the challenges presented in this piece will give you the tools you need to move forward with confidence.

To be competitive, companies must grow innovative new businesses. Corporate entrepreneurship, however, isn't easy. New ventures face innumerable barriers and seldom mesh smoothly with well-established systems, processes, and cultures. Nonetheless, success requires a balance of old and new organizational traits--and unless companies keep those opposing forces in equilibrium, their new businesses will flounder. The authors describe the challenges companies face when they pursue new businesses, as well as the usual problematic responses to those challenges. Such companies, they say, must perform three balancing acts: 1) Develop strategy by trial and error, which includes narrowing potential choices, learning from small samples, using prototypes to test business models, tracking progress through nonfinancial measures, and knowing how and when to pull the plug on a new venture; 2) Find the best combination of old and new operational processes by staffing new ventures with "mature turks," changing veterans' thinking, knowing which capabilities to develop and which to acquire, and having old and new businesses share responsibility for operating decisions; 3. Strike the right balance of integration and autonomy by assigning both corporate and operating sponsors to new ventures, establishing criteria for handoffs to existing divisions, and using creative organizational structures. The authors provide a detailed look at IBM's Emerging Business Opportunity system, which manages all these balancing acts simultaneously.

In 1976, Genentech, the first biotechnology company, was founded by a young venture capitalist and a university professor to exploit recombinant DNA technology. Thirty years and more than $300 billion in investments later, only a handful of biotech firms have matched Genentech's success or even shown a profit. No avalanche of new drugs has hit the market, and the long-awaited breakthrough in R&D productivity has yet to materialize. This disappointing performance raises a question: Can organizations motivated by the need to make profits and please shareholders successfully conduct basic scientific research as a core activity? The question has largely been ignored, despite intense debate over whether business's invasion of basic science--long the domain of universities and nonprofit research institutions--is limiting access to discoveries, thereby slowing advances in science. Biotech has not lived up to its promise, says the author, because its anatomy, which has worked well in other high-tech sectors, can't handle the fundamental challenges facing drug R&D: profound, persistent uncertainty and high risks rooted in the limited knowledge of human biology; the need for the diverse disciplines involved in drug discovery to work together in an integrated fashion; and barriers to learning, including tacit knowledge and murky intellectual property rights, which can slow the pace of scientific advance. A more suitable anatomy would include increased vertical integration; a smaller number of closer, longer collaborations; an emphasis by universities on sharing rather than patenting scientific discoveries; more cross-disciplinary academic research; and more federal and private funding for translational research, which bridges basic and applied science. With such modifications, science can be a business.

This is an MIT Sloan Management Review article. According to conventional wisdom, companies resemble organisms destined to pass through the stages of start-up, scaling, maturity, and decline. In reality, business opportunities--and not firms--pass through these stages, and most organizations consist of multiple opportunities arrayed across the different stages of the life cycle. Executives who understand this crucial distinction can view their organization as a portfolio of opportunities that requires constant re-jiggering to balance the demands of the present with the promise of the future. The authors suggest that, when assessing any opportunity portfolio, executives should remain on the lookout for the following common pathologies: waiting too long to exit a declining business, failing to salvage usable pieces of a business that is shut down, shunning promising new markets because of an overly conservative fiscal approach, trying to scale too many business opportunities so that none of them receives the necessary resources, applying the same management style to business opportunities at different life cycle stages, and erring on the side of loss aversion.

This is an MIT Sloan Management Review article. Launching new ventures outside a corporation's core business is risky and failure prone, yet, it is often perceived as vital to innovation and organic growth. Can investing in new ventures add value to a company despite the risks? To explore that question, the authors conducted an in-depth study of corporate venturing at Nokia Corp. between 1998 and 2002. The research yielded a number of lessons about corporate venturing. For example, Nokia discovered that looking at the success or failure of an individual project as a business was the wrong way to evaluate the effectiveness of the venturing program. Whether they succeeded as businesses, Nokia's corporate ventures often added important capabilities to the core business, such as familiarity with a new customer segment for the company. In fact, seemingly unrelated investments sometimes led to technologies that later benefited the company's core business. The authors conclude that, to extract value from corporate ventures, companies must use different management practices than in their established businesses, structure new ventures so that they don't face pressure to deliver immediate results, and emphasize learning. Although 70% of Nokia's corporate venturing investments during the period studied were either discontinued or completely divested, the capabilities and technologies developed nonetheless played an important role in helping the company's core businesses respond to change.

This is an MIT Sloan Management Review article. There are now at least 10 separate schools of thought regarding strategy and more than a dozen common definitions of the term. To clarify and deepen our understanding of corporate strategy, the author suggests general guidelines that set the boundaries of the discipline to facilitate future executive decisions. The author argues that strategy comprises three objectives: creating value, handling imitation, and shaping a perimeter. The ability to sustain value creation, whether from the customer's or the shareholder's perspective, is the ultimate goal of any strategy. Concepts such as benchmarking, differentiation, core competencies, unique resources, institutionalism, and competitive rivalry are all connected with the ability to prevent, implement, or leverage imitation. Decisions about diversification, outsourcing, vertical integration, internationalization, and positioning are all linked with the search for a profitable perimeter.

This is an MIT Sloan Management Review article. The success of the IKEA Group, the world's largest furniture retailer, is generally attributed to its highly innovative strategy. Through global sourcing of products and customer self-service in the areas of furniture delivery and assembly, IKEA achieves a low-cost position that enables it to charge low prices. Meanwhile, IKEA's use of Scandinavian design and an innovative retail environment increase customers' perception of receiving good value. By examining the history of IKEA, the author concludes that, while founder Ingvar Kamprad initially had a general vision, many important details of IKEA's strategy were developed through experimentation and adaptation to market circumstances rather than through preplanned strategy formulation. In academic literature, this approach to strategy is known as logical incrementalism. The author suggests that IKEA's experiences in strategy development demonstrate the importance of starting with a clear vision but refining it over time; experimenting constantly and being willing to make mistakes; seeking to turn problems into opportunities; and learning from other people's ideas.

An abstract is not available for this product.

SAP seeks growth in the small- and medium-sized enterprise market. To do so, it has created a platform strategy with SAP Netweaver. What are the advantages and challenges for an incumbent entering a new market? What are the benefits and challenges of implementing a platform strategy?

How do companies develop a strategy that is both low-cost and differentiated without becoming squeezed in the middle? Describes how Teva, Israel's first and largest multinational, achieved its globally dominant position in generic pharmaceuticals, an industry that has undergone significant change over the last 20 years. Examines its strategies to defend itself against both low-cost competitors from India and other emerging markets as well as Big Pharma companies, which are adopting increasingly aggressive tactics in genetics.

Pricing is one of the most complex decisions facing any company. Along with a lack of academic interest (especially among marketing academics) in the field of pricing, this complexity has contributed to the dominance of simplified, cost-based formulas when levying prices. Proffers an alternative approach based on the concept of contribution margin and the need to take into consideration only those costs that are related directly to a specific pricing decision, an approach that is especially useful when a company decides to change its prices. Moreover, an empirical study regarding the practical use of this approach is also presented.

In January 2006, the president of Friendster needs to choose between two strategic options to revive the company. Friendster started the social networking industry in 2003, but has been overtaken by MySpace and Facebook. The two options are: 1) offer new features to help members enhance their offline lives, such as arranging events with their friends; and 2) offer features, such as the ability to import friends' blogs, pictures, recommendations, and feeds, to help members manage their experiences with their online friends. The two choices have very different value propositions and have very different competitive implications. Also describes the dynamics of relationships inside Friendster and discusses how these dynamics prevented Friendster from maintaining its leadership position. As such, allows for integration of organization and strategy in an entrepreneurial setting, and should be taught with LinkedIn (A) to facilitate cross-case comparisons.

The founder, chairman, and managing director wants to make Biocon, Ltd. one of the top 10 biotech firms by 2015. The company has dealt in low-risk enzymes and generic drugs for many years. In order for the company to grow, the chairman believes that Biocon must enter the riskier business of drug discovery and development. Without making large investments in new capabilities, the company cannot become a top 10 biotech firm.

Although Wal-Mart, the world's largest company by revenue, was into its 9th year of operations in China, its stores were still losing money. It had created a miracle in the U.S. retail industry by revolutionizing the sector's business model and successfully implementing its model through innovative practices that enabled it to sell national brands at "Every Day Low Prices". The challenge Wal-Mart faced was whether it could transport its successful model to win in a market with many differing characteristics which threatened its low-cost structure and which could nullify its competitive advantage. Concerned with the application of established domestic business models in international expansion. Also sheds light on other globalization issues such as market entry strategy, localization vs. standardization, the effect of regulation changes on the competitive landscape, and firm performance.

Dan Williams, known for his work on mobile phones when he was at Motorola, talks about evolution in design.

Intel and Microsoft neither buy from nor sell to each other directly, but they are undeniably in business together. They are probably the world's most widely known pair of complementors--companies that independently provide complementary products or services to mutual customers. Complementors increase the value of each other's offerings and the size of the total market. So it's not surprising that so many just assume that their interests are aligned. Nothing could be further from the truth. Discord can develop in many areas, such as pricing, technology, standards, and control of the market--both in terms of which company has the most influence over customers and which one gets the biggest slice of the pie. The issue of pricing perfectly captures this tension. Ideally, you'd like to price your goods high while your complementors price theirs low. Airlines, for instance, would be happy to see vacation lodgings go for a song, while destination resorts could raise rates and still fill their rooms if customers could fly there for free. The first step in managing relationships with complementors is to develop a deep understanding of their economics, their strategies and goals, their existing capabilities, their incentives for cooperation, and any potential areas of conflict. Then, to gain the upper hand, companies can use a variety of tools that fall into two main categories: hard power (inducements or coercion to get what you want) and soft power (persuasion through indirect means to get others to want what you want). The authors explain how to build both hard power and soft, illustrate the strengths and limits of each, and offer guidelines for choosing one over the other. Conflict among complementors is inevitable, but together, hard and soft power can help companies manage the dark side of complementor relationships and take full advantage of the opportunities that cooperation should create.

In this follow-up piece to his article "Hardball: Five Killer Strategies for Trouncing the Competition" (HBR, April 2004), George Stalk Jr. of the Boston Consulting Group offers another approach for prevailing over rivals. Strategic hardball is about playing rough and tough with competitors; strategic curveball is about outfoxing them. It involves getting rivals to do something dumb that they otherwise wouldn't (that is, swing at a pitch that appears to be in the strike zone but isn't) or not do something smart that they otherwise would (that is, fail to swing at a pitch that's in the strike zone but appears not to be). Stalk describes four types of curveball: First, draw your rival out of the profit zone. Lure competitors into disadvantageous areas--for example, by competing for, but intentionally failing to win, the business of less profitable customers. Second, borrow techniques from unexpected places. Using the hardball tactic of plagiarizing good ideas, put rivals off balance by importing techniques from other industries--for example, employing the retailer's hard sell in the stodgy world of retail financial services. Third, disguise how you attain your success. Veil your methods by achieving an advantage through unlikely means--for example, generating product sales through your service operations. Finally, let rivals misinterpret the reasons for your success. Allow them to act on conventional but incomplete explanations for your success--for example, squeezing costs rather than aggressively utilizing assets. The author provides extended examples of these curveball strategies in action at companies such as the industrial-cleaning chemical supplier Ecolab and the Australian airline Jetstar.

PC maker Lenovo started out as a distributor of equipment made by IBM and other companies; now it has formed a joint venture with IBM and will eventually affix its own logo to its computers. Shanghai Automotive Industry Corp. (SAIC) started out manufacturing vehicles for Volkswagen and GM; now it's preparing to sell its own cars in China, Europe, and North America. Lenovo and SAIC represent a host of formerly anonymous makers of brand-name products that are breaking out of their defined roles and pushing the brands themselves aside. In this article, the authors explore the double-edged relationships original equipment manufacturers (OEMs) forge with their contract manufacturers (CMs). On the one hand, an OEM can reduce its labor costs, free up capital, and improve worker productivity by outsourcing all the manufacturing of a product. The company can then concentrate on value-adding activities--research and development, product design, and marketing, for instance. On the other hand, an OEM that retains a CM may find itself immersed in a melodrama replete with promiscuity (the ambitious CM pursues liaisons with other OEMs), infidelity (the OEM's retailers and distributors shift their business to the upstart CM), and betrayal (the brazen CM transmits the OEM's intellectual property to the OEM's rivals or keeps it for itself when the contract is up). OEMs cannot simply terminate their outsourcing arrangements--they need CMs to keep specializing, adding value, and staying competitive. But OEMs can manage these relationships so that they don't become weak or the CMs too strong. Doing so requires modesty about revealing trade secrets; caution about whom one consorts with; and a judicious degree of intimacy, loyalty, and generosity toward partners and customers.

Blind reliance on customer loyalty as a universal goal will put you out of business, warn the authors. Any loyalty initiative needs to begin with an understanding of the profitability of individual customers. Their investigation revealed more than 50 commonly-held beliefs about customer loyalty that turned out to be oversimplifications, exaggerations or just plain lies. The difficult truth is that the links between customer loyalty and business profitability are far more complex than we have been led to believe. The authors provide the top ten key misunderstandings surrounding this widely-coveted phenomenon and provide advice for firms to counter each.

Describes the U.S. Health Care industry and WellPoint's background, market growth strategies, and potential as an investment option.