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Lots of time in the lab and the Eureka! moment are synonymous with innovation. Often, however, the best and most successful ideas are the result of mere plodding and some prosaic practices. This author describes four such practices and the key steps that can lead to successful innovation.

This is an MIT Sloan Management Review article. For most companies, the single largest cost category is the total spend with suppliers. However, figuring out how to identify the best areas for supply savings -and then how to measure and report them -presents major challenges. Both understatement and overstatement of supply savings gaps signal the wrong reality, leading to an overemphasis on low-yielding cost saving initiatives, misdirected corporate resources and employees being rewarded for the wrong behavior. Moreover, supply savings gaps conceal the strategic contribution suppliers can provide. In studying the supply management practices at 30 large North American and European companies, the authors identified a variety of measurement and reporting practices for supply savings. They conclude that correct measurement of supply savings is almost impossible and that there are frequently gaps between reported savings and reality. They explore why gaps exist, what practices lead to under- and overstatement of savings, the consequences of poor supply savings measurement and what can be done to recognize supply savings gaps. To overcome the measurement and reporting challenges, the authors recommend that executives do three things: Focus on the total cost of ownership; categorize the different types of savings; and hardwire savings to the budget.

This is an MIT Sloan Management Review article. Despite the importance of innovation to a business's success, only recently have companies not only established internal environments conducive to innovation but also begun identifying, cultivating and taking advantage of a wide variety of external sources for innovation. Among such sources, suppliers are recognized as having especially large innovation potential because they know what the companies - that is, their customers -are doing and need and also because mechanisms for knowledge transfer from supplier to customer are typically in place. However, while it is one thing for a mechanism to be available by which suppliers may transfer innovation to customers, it is quite another for the suppliers actually to do the transferring. The customer, the prime mover in building and maintaining the relationship, can move in two different ways to encourage the supplier to innovate to the customer's benefit. First, it should reduce or eliminate three kinds of problems: (1) conflicting objectives among the customer's functional areas, (2) excessive and often late engineering or specification changes and (3) price-reduction pressures on suppliers that consider only the customer's financial needs. Second and most importantly, the customer should initiate directly positive and trust-building activities.

This is an MIT Sloan Management Review article. The country's largest corporations have hit a road bump on their way toward factoring sustainability into their transportation choices. Despite pressures from customers and investors -and the prospect of evervolatile energy costs -just 9% of Fortune 500 companies include environmental goals in their public documents. A study of those 44 companies reveals some of the best practices that can help a business go the distance, ultimately working with its partners to rethink its entire transportation infrastructure. Companies must demonstrate three distinct levels of integration before they can embed the reduction of greenhouse gas emissions into their transportation strategies: establishing a foundation (acknowledging the problem), changing internal company practices (building an environmentally aware culture) and impacting supply chain practices (such as better vehicle utilization or more efficient routing). Within these categories, the tactics need to be measured by carefully calibrated metrics that can track both environmental and financial progress. As employees begin adapting their own decision making to the new priority -by, for instance, choosing videoconferencing instead of traveling -executives should spread such success stories, reinforcing the institutional preference.

This is an MIT Sloan Management Review article. The joint venture between Toyota and GM known as NUMMI yielded some surprising success stories, including the transformation of GM's worst plant into a world-class manufacturing model. Examining how this transformation took place provides insight into corporate-culture change and lean manufacturing. The most important and difficult "cultural shift"that has to occur in a lean-manufacturing transformation revolves around the entire concept of problems. What is our attitude toward them? What do we do when someone finds and exposes one? Making it easy to learn from mistakes means changing our attitude toward them. That is the lean cultural shift. The way to change culture is not first to change how people think, but instead to start by changing how people behave. Integrating quality, support and ownership into the job is vital. Those of us trying to change our organizations'culture need to define the things we want to do, establish the ways we want to behave and want others to behave, provide training and then do what is necessary to reinforce those behaviors.

This is an MIT Sloan Management Review article. Many suppliers serving business markets believe that practicing value-based pricing means finding out what the value of their offerings is relative to alternatives for their customers and then charging as high a price as they can. But the authors suggest that "charging what the market will bear" isn't always the right strategy. Instead, they argue that an organization should tailor its pricing to a more robust market strategy. "Unfortunately," the authors say, "when stripped of jargon and word-speak the ' 'market strategy' for many businesses is simply' 'Sell more!'" To counter this problem the authors suggest several questions that an organization should ask to improve its pricing strategy, including: What is the marketing strategy in this segment? What is the differential value that is transparent to target customers? What is the price of the next best alternative offering? What is the customer's expectation of a "fair" price? By asking these questions and others, an organization can choose a price point that provides the largest long-term value to the supplier. The benefits of this approach include improved relations with customers that often lead to longer-term, more profitable relationships. Using this approach, customers are also more willing to collaborate with suppliers, which can lead to shared data and improved products. According to the authors, suppliers that practice this kind of value-based pricing boost profits not only in the present, but they also set themselves up to profit over the long term.

This is an MIT Sloan Management Review article. In 2006 the world economy was booming, partly on the back of triple-A investment innovations. Then, suddenly, the boom ended. What fascinates the authors is the fact that almost no one saw the 2008 economic crisis coming. In this article, the authors come to terms with the reality that, in economics and business, accurate forecasts aren't possible. Therefore, they say, managers need to develop a different attitude about the future. The key is not to develop precise plans based on predictions but to have emergency plans for a variety of possibilities. The main thing is to stop believing your predictions about the future and to develop plans that are sensitive to surprises, whether they are future credit crunches or other unexpected events. The authors acknowledge that forecasters have produced excellent work over the years -both practical and academic. But forecasting models are not set up to cope with what they call the "big hairy coconuts"-the unexpected occurrences that are a fact of life in the real world of business. To compensate, they propose what they call "the three A's": Accept, assess and augment. First, managers have to accept that they're operating in an uncertain world; second, they need to assess their level of uncertainty; and third, they need to augment the range of uncertainty to compensate for risk.

This is an MIT Sloan Management Review article. Managers are increasingly recognizing that the benefits of traditional supply chains - reduced cost, faster delivery and improved quality - are no longer sufficient by themselves for the modern marketplace. A new paradigm is emerging of a more sophisticated supply chain, one that also serves as a vehicle for developing and sustaining competitive advantage by delivering specific outcomes. So concluded participants in the Supply Chain Management 2010 and Beyond research initiative - a four-year set of surveys and workshops on which this article is based. The authors report that the "supply chains of tomorrow" should achieve varying degrees of six basic outcomes, depending on their specific customer base and its set of needs. The first of these outcomes is "cost" (a composite of the heretofore sole objectives relating to monetary cost, delivery and quality). The others are responsiveness (the ability to change quickly in terms of volume, mix or location as a function of changing conditions), security (assurance that the supply chain's products will not be contaminated or otherwise unsafe), sustainability ("greenness," or environmental responsibility), resilience (the ability to recover quickly and cost-effectively from disruptions) and innovation (the supply chain as a source of new products and processes or improvements in existing ones).

MBA education has come under heavy criticism in recent years. The author argues that much of the criticism is fair, though superficial, focusing on the extent of ethics training or the lack of real-world experience embedded in MBA programs. The real problem, he says, is that MBA programs fail to prepare graduates to make smart decisions in the face of complexity and ambiguity. At its root, the reason MBA programs fail to produce better thinkers is structural, and it runs across three dimensions: where the curriculum's content should be deep, it is shallow; where it should be broad, it is narrow; and where it should be dynamic, it is static. The author shows how each of the three elements of a '3D' MBA is being developed at the Rotman School of Management at the University of Toronto.

Research in Cognitive Psychology and the newer field of NeuroEconomics consistently demonstrates that people violate the strictures of rationality on a regular basis. This literature has generated a lengthy list of irrational behaviors to which many of us are subject on any given day, whether we like to admit it or not. These well-documented violations of rationality have, in turn, spawned a list of biases that can be used to define 'rational thinking'. That is, we can assess degrees of rational thinking in terms of the number and severity of cognitive biases that an individual displays. The authors describe some of the most common biases that challenge rational thinking, in the hopes that a better understanding of them will foster more bias-free decision making. Topics covered include 'serial associative cognition', 'my-side processing' and 'mindware gaps'.

Research by esteemed academics has uncovered a wide variety of biases that plague decision makers on a regular basis. Thanks to them, we know that predictable errors lead people to commit sub-optimal acts on a regular basis, ranging from undersaving for retirement to engaging in needless conflict and accepting the wrong jobs. Unfortunately, we have yet to uncover systematic strategies to help people overcome these biases and behave more optimally. The authors get started on this path, focusing on strategies that can lead to better decisions, which involve leveraging the human tendency to default to 'Type 1' -- or automatic -- mental processing.

In recent years, designers have been applying their skills to a host of problems that were once the territory of business strategists and approached through analysis. With this shift has come the realization that a design-based approach, or 'design thinking', is well suited to tackling some of the most complex challenges organizations face. The authors, both of whom work for renowned design firm IDEO, argue that the first step is for managers to understand the differences in the ways that they and designers go about solving problems. Managers, they say, tend to follow a very analytical process, making decisions by understanding all of the available options and rigorously determining the best path forward. In contrast, designers prototype and iterate ideas, learning as they go and often developing new ideas and understanding of the problem along the way. They detail the designer's approach - which includes embracing constraints and 'building to decide', showing how this leads to 'evolution through design'.

The author and design practitioner describes how to go about creating new businesses or reinventing existing ones. He argues that the best way to manage the inherent uncertainty of innovation is to look beyond the existing data to find out where value truly resides for your business. One of the most effective methods for doing that, he says, is to create an 'opportunity map' -- a visual representation of the business landscape that guides future strategy by synthesizing met and unmet consumer needs, emerging discontinuities such as cultural and technology trends, both direct and indirect competitive activity, and internal and external competitive competencies. This approach, he says, can help leaders navigate complexity and chart a path to future growth.

Some of the toughest decisions in life are so-called 'should vs. want' decisions: you know that you should be exercising at the gym, but you would rather go to the movies with friends. It is not that people don't know what they should be doing, they simply behave in a seemingly irrational manner when faced with tempting consumption opportunities. The authors introduce the Theory of Decision Points, which suggests that external interventions can help individuals curb excessive consumption by providing them with an opportunity to pause and think about consumption. They show that in the case of individuals who are seeking to control consumption, decision points can snap them out of an automatic mode to a more deliberative decision-making mode.

Whether your aim is to lose weight, save for retirement or quit smoking, most of us have a clear idea of the long-term goals that we would like to achieve for ourselves. Unfortunately, most of us also fail to implement the requisite course of action to produce these outcomes. Why don't we simply make the decisions necessary to make our goals a reality? The authors argue that Behavioral Economics can provide solutions to problems that predictably arise from individual behavior. Not only does it acknowledge that human behavior is often far from optimal, but it also identifies a variety of decision errors and biases that contribute to departures from optimality. The authors show that many of the same decision errors that produce self-destructive behavior in the first place can actually be used to people's individual and collective benefit.

A large body of research shows that people prefer 'smaller, sooner' payoffs to 'larger, later' payoffs when the smaller payoffs are imminent, i.e. when the 'sooner' of the 'smaller' is pretty close to 'right now'. However, when both payoffs are distant in the future, people tend to prefer the larger payoff, even though the time lag from the smaller to the larger payoff would be the same as before. In other words, something, somewhere makes people 'flip' their preferences. The author argues that this human tendency - called Hyperbolic Discounting -- is equally prevalent in senior management teams, and that it manifests itself in various types of behavior, including 'itches', addictions, delusions, sellouts and 'Utopian dystopias'.

HBR's annual ideas collection, compiled in cooperation with the World Economic Forum, offers 10 fresh solutions with the potential for a huge positive impact on business and the world. Teresa M. Amabile and Steven J. Kramer reveal what their research shows is the true key to employee motivation-and it's not what most managers focus on providing. Ronald Dixon proposes that the real performance breakthrough in health care will come when the medical community adopts the everyday communications technologies patients already use. Lawrence M. Candell asks why the U.S. has a Lincoln Laboratory to put public-spirited experts across the table from profit-motivated defense contractors, but no such entity to do the same in the financial sector. Eric Bonabeau, Alpheus Bingham, and Aaron Schacht urge players in the pharmaceutical industry to treat drugs as information assets; big pharma could orchestrate drug-development networks to promote innovation. Jack D. Hidary describes a market solution to achieve what no government handout can in the greening of existing buildings. Robert E. Litan and Lesa Mitchell advocate that universities' technology transfer offices loosen their monopolistic grip on their scientists' taxpayer-funded discoveries. Bill Jensen and Josh Klein urge frustrated professionals to "hack work" by adopting the mind-set and tool kit of the hacker to achieve the positive outcomes their employers want but make difficult to achieve. Sendhil Mullainathan notes that we have the tools to spot bubbles about to burst, but individual firms have little incentive to sound the alarm. Why not appoint a "bubbles committee"? Paul Romer proposes that "charter cities" be established to show the citizens of failed and languishing states the merits of market economies and to provide an option for change. Carne Ross questions why only nation-states are allowed to shape international affairs and reveals the need for independent diplomacy.

Modern capitalism can be broken down into two major eras. The first, managerial capitalism, began in 1932 and was defined by the then radical notion that firms ought to have professional management. The second, shareholder value capitalism, began in 1976. Its governing premise is that the purpose of every corporation should be to maximize shareholders' wealth. If firms pursue this goal, the thinking goes, both shareholders and society will benefit. Though that is the theory, in reality shareholders have not been better off since they became the center of the business universe. From 1933 to the end of 1976, when they were allegedly playing second fiddle to professional managers, shareholders of the S&P 500 earned compound annual real returns of 7.6%. From 1977 to the end of 2008, S&P 500 shareholders did considerably worse - earning real returns of 5.9% a year. Putting shareholders first forces managers into playing a game in which they focus on managing shareholder expectations rather than on managing the business. The main principle behind shareholder value capitalism is inherently flawed, and it's time we abandoned it and made a shift to a new era: customer-driven capitalism. Companies that make customers their top priority, as P&G and J&J do, generate returns that are just as high as, if not higher than, those of shareholder-focused companies, and can sustain them for longer. If companies put the customer first, they will make better decisions, because they can focus on improving operations and products and services, rather than on spinning lines to shareholders.

Ask any CEO who has overseen a corporate transformation what should have been handled differently, and you are likely to get this answer: "We should have - and could have - moved faster." Such executives have a long list of regrets: They wish they had unified the leadership team right away. They wish they had quickly drummed up support for the new vision. They wish they hadn't waited so long to test their assumptions and refine their key initiatives. And they wish they had generated visible returns early on. Transformation launches must be bold and rapid to succeed. Yet embedded in most organizations are six kinds of "speed brakes" that can slow things down to a grinding pace. During business-as-usual periods, these brakes may be irritating, but their effects on performance are reasonably benign. When a bold transformation is required, however, any one of them can derail the larger effort. To accelerate transformations, managers need to release each of the following brakes, in this order. Speed Brake #1: Cautious management culture-To address this problem, compel all executives to confront reality and agree on ground rules for working together. Speed Brake #2: Business-as-usual management process-Run a no-slack launch on a parallel track with other systems; secure early, visible victories. Speed Brake #3: Initiative gridlock-Limit the company to three or four initiatives. Speed Brake #4: Recalcitrant executives-Compress launch to quickly engage key executives and to identify and confront those not on board. Speed Brake #5: Disengaged employees-Rapidly cascade the changes to all employees to boost engagement. Speed Brake #6: Loss of focus during execution-Anticipate and defuse postlaunch blues, midcourse overconfidence, and the presumption of perpetual motion.

It's time to reinvent the way companies develop strategy. Traditional strategy frameworks operate under the assumption that industries have distinct boundaries and that companies know who their rivals, customers, and suppliers are. Moreover, those frameworks create categories and visual representations that are static, using, for instance, maps and comparative value curves. Today, as the competitive landscape is continually redrawn and most industries are in a constant state of flux, the existing strategy tools do not offer much help. Instead of using maps, graphs, and numbers, executives should use words to write a playscript: a narrative that sets out the cast of characters in a sector, the way in which they are connected, the rules they observe, the plots in which they play a part, and how they create and capture value as the sector changes. Playscripts force companies to focus on the causes of change, and they allow companies continually to assess the relevance of their strategies. They also acknowledge that strategy could involve changing a company's links to other players. Companies can follow a three-step process to reinvent their strategies using playscripts. Step 1: Write the current playscripts for your company and your sector. Step 2: Rewrite your company's playscript and perhaps the playscript for the entire sector, focusing on how you could change the way value is created and which elements of the plot you could influence. Step 3: Future-proof your playscript by considering how customers' needs are evolving and building relationships that can reinforce your position.