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Spreadsheet supplement for case 706-496.

The world's leading cosmetics companies are competing with--and buying--local cosmetics firms for a share of China's vanity cash. French cosmetics giant L'Oreal is grabbing a major share of the Chinese make-up market. The company recently announced its acquisition of Chinese cosmetic brand Yue-Sai. The surprising announcement came just 45 days after L'Oreal made a successful bid for Raystar Cosmetics (Shenzhen) Co. Ltd's skin-care brand, Mininurse, at the beginning of the year. L'Oreal has been very successful in China's high-end and middle-segment cosmetic markets. The recent two acquisitions, however, indicate that L'Oreal is focusing more on the mass market and shows its determination to step up the pace of its growth in China. It also indicates how red-hot the cosmetics trade has become in China. What competition is situation L'Oreal facing? How can L'Oreal retain its leading position in China? Is it through more acquisitions or improving on its own products? What will be the impact of the future tariff reduction?

Resina is a global manufacturer of resins and surfacing solutions headquartered in Helsinki, Finland, with three production facilities and 12 sales offices in China. The head of Asia Pacific for Resina needs to decide what should be done about Beijing and Guangdong. Should Beijing remain in operation, be shut down, or moved to another area where demand for liquid bulk resins is stronger. Similar options exist in Guangdong. In aiming towards profitable operations, he needs to consider the buoyancy of local demand, Resina's partner in Beijing, local and foreign competitors, and appropriate managers in each operation.

New products don't always mean increased profits. At Clorox, a formal process for determining which products to cut has boosted SKU sales and margins.

This is an MIT Sloan Management Review article. For both manufacturing companies and service firms, the basis of competition is shifting fast. Manufacturers are finding they must compete by selling services; service firms now have to provide products as well as services. The emerging battleground is known as "integrated solutions," and it is where leading companies such as IBM, General Electric, Rolls Royce, and EDS already compete aggressively. However, the integrated solutions approach is not simply a matter of blending products and services. Customers are buying guaranteed solutions for trouble-free operations. So the key is to develop and deploy the right capabilities--and to structure the organization so these capabilities match customer needs. This article offers a blueprint for implementing integrated solutions, drawing on extensive research on such companies as Alstom Transport, Cable & Wireless, Thales, Ericsson, and Atkins. The article highlights the importance of four prerequisite capabilities and shows the organization structures necessary for success--structures that are no longer bounded by product, service, or geographic lines. The article then lays out three levels of organizational capability to chart the journey that integrated solutions providers must take.

This is an MIT Sloan Management Review article. Faced with the prospects of slow growth, commoditization, and global competition, companies like General Electric Co., Microsoft Corp., and Ford Motor Co. have now emphasized innovation as critical to their future success. But what exactly is innovation? Although the subject has risen to the top of the CEO agenda, many companies have a mistakenly narrow view of it. They might see "innovation" as synonymous with "new product development" or traditional "research and development." But such myopia can lead to the systematic erosion of competitive advantage. As a result, companies in a given industry can come to resemble one another over time. In actuality, business innovation is far broader in scope than product or technological innovation. In fact, a company can innovate along any of 12 different dimensions with respect to its (1) offerings, (2) platform, (3) solutions, (4) customers, (5) customer experience, (6) value capture, (7) processes, (8) organization, (9) supply chain, (10) presence, (11) networking, and (12) brand. Nissan Motor Co., for example, has innovated along the platform dimension, using essentially the same small engine block to power a variety of models, including an upscale mid-size sedan, a large sedan, luxury sedans, a minivan, and a sports coupe. Enterprise Rent-A-Car has innovated along the customers and presence dimensions, placing car rental locations in the neighborhoods where people live and work rather than at airports. Together, the 12 dimensions of innovation can be displayed in a new framework called the "innovation radar," which companies can use to manage the increasingly complex business systems through which they add value.

Standardization has been a powerful strategy in consumer markets, but it's reached the point of diminishing returns. And diversity is not the only chink in standardization's armor: Attempts to build stores in remaining attractive locations often meet fierce resistance from community activists. From California to Florida to New Jersey, neighborhoods are passing ordinances that dictate the sizes and even architectural styles of new shops. Building more of the same--long the cornerstone of retailer growth--seems to be tapped out as a strategy. Of course, a company can't customize every element of its business in every location. Strategists have begun to use clustering techniques to simplify and smooth out decision making and to focus their efforts on the relatively small number of variables that usually drive the bulk of consumer purchases. The customization-by-clusters approach, which began as a strategy for grocery stores in 1995, has since proven effective in drugstores, department stores, mass merchants, big-box retailers, restaurants, apparel companies, and a variety of consumer goods manufacturers. Clustering sorts things into groups, so that the associations are strong between members of the same cluster and weak between members of different clusters. In fact, by centralizing data-intensive and scale-sensitive functions (such as store design, merchandise assortment, buying, and supply chain management), localization liberates store personnel to do what they do best: Test innovative solutions to local challenges and forge strong bonds with communities. Ultimately, all companies serving consumers will face the challenge of local customization. We are advancing to a world where the strategies of the most successful businesses will be as diverse as the communities they serve.

Television in India has been around for just over four decades. For the first 17 years, transmission was restricted to black and white, and sales figures of television sets were minimal. The liberalization of the Indian economy, however, brought with it many changes, including the entry of a number of global players in manufacturing and broadcasting. In a span of just over 10 years, the broadcasting industry grew from a single public service provider to a thriving sector with over 300 channels beamed across India. Sales of televisions, though characterized by a low penetration rate, also continued to grow steadily. By 2005, India's potential as one of the world's largest viewerships was attracting the attention of international media giants. Paradoxically, infrastructure and the prevailing regulatory environment brought into question the abeyant growth of the industry. This was especially so for rural India, which is typically characterized by low levels of disposable income. Looking at the industry from broadcasting and manufacturing perspectives, this note explores the dynamics, challenges, and prospects of Indian television.

In June 2005, Koldo Saratxaga, the leader of Basque-based luxury coach manufacturer Irizar, decided to leave after 14 years at the helm of the worker-owned cooperative. Under Saratxaga's stewardship, Irizar was saved from near bankruptcy in 1991 and has become a highly profitable industry leader with a 23.9% compound annual growth rate since 1991. The company opened a number of manufacturing sites as far-reaching as Mexico, Morocco, India, Brazil, China, and South Africa. Irizar calls itself "a project based on people" and has realized its success through a business model characterized by a narrow product focus, strict quality adherence, an empowered workforce, and a truly customer-centric organization. Irizar's model is completely different from that of most other coach manufacturing firms given the absence of unions, departments, and hierarchy. All activities are carried out by self-managed teams (teams, for example, are responsible for setting their own work schedules and objectives). Although Irizar's model has worked fantastically well for over 14 years (since Sarataga's arrival), the question now is: Will the company continue to thrive without Saratxaga? Or is Irizar's success due to Saratxaga's leadership?

Harley-Davidson Co. exemplifies a remarkable management-led business transformation of a long standing manufacturing company. The company successfully met global competition and continues to innovate to maintain its market position.

The chairman and chief executive officer of Sun Microsystems Inc., is struggling to take the company he co-founded in a profitable direction. There is strong evidence that a new strategy is necessary. Segments of Sun's business are growing but "open source" solutions and commoditization of products are driving revenues toward zero. Decisions involve market focus, pricing, and investment in new technologies. Illustrates the role of management preferences and the limits to an executive's span of attention/control. Both the chairman's and Sun's success is contingent upon an accurate assessment of the industry and the relative position of partners as well as the ability to generate creative solutions.

Euronex.liffe, a derivatives trading exchange, launches matching, clearing, and confirmation services for the over-the-counter market. This combination of services creates a new platform for a market that potentially cannibalizes its current exchange-based services. Is this good idea? Does the design of this new combination of services make sense? Is it the best positioned among other exchanges and services to the derivatives trading market to launch this new platform?

An abstract is not available for this product.

For generations, Procter & Gamble generated most of its phenomenal growth by innovating from within--building global research facilities and hiring the best talent in the world. Back when companies were smaller and the world was less competitive, that model worked just fine. But in 2000, newly appointed CEO A.G. Lafley saw that P&G couldn't meet its growth objectives by spending greater and greater amounts on R&D for smaller and smaller payoffs. So he dispensed with the company's age-old "invent it ourselves" approach to innovation and instead embraced a "connect and develop" model. By identifying promising ideas throughout the world and applying its own capabilities to them, P&G realized it could create better and cheaper products, faster. Now, the company collaborates with suppliers, competitors, scientists, entrepreneurs, and others (that's the connect part), systematically scouring the world for proven technologies, packages, and products that P&G can improve, scale up, and market (in other words, develop), either on its own or in partnership with other companies. Thanks partly to this connect-and-develop approach, R&D productivity at Procter & Gamble has increased by nearly 60%. In the past two years, P&G launched more than 100 new products for which some aspect of development came from outside the company. Among P&G's most successful connect-and-develop products to hit the market are Olay Regenerist, Swiffer Dusters, the Crest SpinBrush, and the Mr. Clean Magic Eraser. Most companies are still clinging to a bricks-and-mortar R&D infrastructure and to the idea that their innovation must principally reside within their own four walls. Until they realize that the innovation landscape has changed and acknowledge that their current model is unsustainable, top-line growth will elude them.

For the past three decades, the torrid pace of GDP growth in China has fascinated companies around the world. Western companies, in particular, have viewed the Middle Kingdom as a production powerhouse, a multinational marketer's dream come true, or an increasingly capable competitor in branded goods marketing. But are those views grounded in reality? To find out, the Gallup Organization undertook an ambitious 10-year, nationwide survey of Chinese consumers and employees. The group found that many of the perceptions held by companies outside--and even inside--China are inaccurate. Specifically, the findings belie at least four commonly held notions. The first is that the Chinese people, unmoored from collectivism, are now focused chiefly on working hard and getting rich. The second is that the Chinese workers now flooding the factories and offices of large cities are highly ambitious and actively engaged. The third is that the new prosperity in China allows consumers there to buy much of what they want. And the fourth is that there remains an endless hunger for household basics. Indeed, the survey found that most Chinese citizens are more interested in expressing their individuality than in getting rich. It also showed that Chinese workers are not as engaged by their jobs as the world might think. What's more, with the average citizen making less than $1,800 per year, only the affluent have extra money to spend. Finally, the average Chinese consumer is more interested in buying luxury and entertainment items than in purchasing basic household goods. The Gallup survey provides much-needed scope and depth of hard data documenting the Chinese consumer--giving policymakers and executives the tools to manage the opportunities and challenges in China.

Throughout most of modern business history, corporations have attempted to unlock value by matching their structures to their strategies: Centralization by function. Decentralization by product category or geographic region. Matrix organizations that attempt both at once. Virtual organizations. Networked organizations. Velcro organizations. But none of these approaches has worked very well. Restructuring churn is expensive, and new structures often create new organizational problems that are as troublesome as the ones they try to solve. It takes time for employees to adapt to them, they create legacy systems that refuse to die, and a great deal of tacit knowledge gets lost in the process. Given the costs and difficulties involved in finding structural ways to unlock value, it's fair to raise the question: Is structural change the right tool for the job? The answer is usually no, Kaplan and Norton contend. It's far less disruptive to choose an organizational design that works without major conflicts and then design a customized strategic system to align that structure to the strategy. A management system based on the Balanced Scorecard framework is the best way to align strategy and structure, the authors suggest. Managers can use the tools of the framework to drive their unit's performance: strategy maps to define and communicate the company's value proposition and the scorecard to implement and monitor the strategy. In this article, the originators of the Balanced Scorecard describe how two hugely different organizations--DuPont and the Royal Canadian Mounted Police--used corporate scorecards and strategy maps organized around strategic themes to realize the enormous value that their portfolios of assets, people, and skills represented. As a result, they did not have to endure a painful series of changes that simply replaced one rigid structure with another.

A long-term study finds that offshoring can support, or even enhance, companies' growth strategies.

Cross-border mergers and acquisitions are gaining momentum in China. To be successful, acquiring companies must understand certain M&A idiosyncrasies that are specific to China.

In face of globalization, outsourcing, changing regulations, and rapid technological innovations, companies in the 2000s were increasingly challenged to devise and implement adaptable business models. This entailed putting in place enterprise applications that were open-source, simple to implement, and easy to integrate within and without the organizational bounds. Because traditional enterprise resource planning (ERP) systems were generally complex, proprietary, and difficult to install, ERP systems providers had to reposition themselves strategically. SAP, the leading company in this space, faced this challenge by transforming itself from a closed-source software developer to an open-source software integrator. By opening up its proprietary software products as an open development and integration platform, SAP allowed its customers to modify their ERPs to suit their specific needs. This new strategy, however, would fundamentally affect the company's business architecture. In other words, SAP had to rethink how it would define its value proposition, identify and target its customers, deploy its resources, configure its business processes, manage its alliances, and develop and maintain its profit and growth engines. How could the company pull off this repositioning initiative? Would it be able to attract the global army of independent developers in supporting its new software platform strategy? How would the ongoing consolidation in the software industry affect the Company's new strategy? How would the main competitors such as Oracle, IBM, Microsoft, and a host of companies emerging in India react?

In 1996, Kari Stefansson launched a new kind of biotechnology company and a whole new way of attacking diseases. Based in Iceland, his firm, deCODE Genetics, plans to identify the individual genetic markers that lead to society's most prevalent diseases. To do so, it plans to create an unrivaled database of genetic and medical information, drawing on Iceland's unique genealogical records and patient information from a countrywide medical database. But when patient advocate groups form to oppose the plan, deCODE is forced to change its strategy.