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In this first in a series of articles created in partnership with Harvard Health Publications, a professor of psychiatry at Harvard Medical School discusses regret and its potential benefits. Regret needn't be a self-flagellating emotion, he says. In fact, when asked to rank negative emotions in terms of value, people placed regret at the top, crediting it with helping them make sense of life events and remedy what went wrong.

In January 2008, CBS anchor Katie Couric asked then-candidate Barack Obama what single book, apart from the Bible, he would bring with him to the White House. He cited Team of Rivals, Doris Kearns Goodwin's account of Abraham Lincoln's leadership during the Civil War. It was a signal that Obama intended to model his leadership during the current crisis on the style of his presidential predecessor from Illinois. By bringing heavyweight politicians who are themselves past and future presidential contenders into his cabinet, Obama has indeed reprised Lincoln's strategy of creating a team composed of his most able rivals. If the new U.S. president can learn from Lincoln so, too, can business executives now grappling with similar questions of how to lead in turbulent times. To draw out the lessons of Lincoln's administration, HBR senior editor Diane Coutu interviewed Goodwin, a Pulitzer Prize-winning historian whose other books include No Ordinary Time (about Franklin and Eleanor Roosevelt and their era), The Fitzgeralds and the Kennedys, and Lyndon Johnson and the American Dream. In their wide-ranging conversation, Goodwin discusses the advantages of forming an executive committee of strong-willed, forthright individuals who won't insulate a leader from uncomfortable but important dissent. She describes how Lincoln managed a group of people who were capable of taking over the top job - and sometimes plotting to do so. She sheds light on Lincoln's magic, which she says was not so much a matter of charisma as of emotional intelligence. And she takes the historian's long view on the current economic crisis and the opportunities for political and business leaders alike to take advantage of these extraordinary times.

Because no two recessions are exactly alike, marketers find themselves in poorly charted waters every time one occurs. But guidance is available, say Quelch and Jocz, who have studied marketing successes (by Smucker, Procter & Gamble, Anheuser-Busch, and others) as well as failures throughout past recessions and identified patterns in consumer and company behavior that strongly affect performance. Understanding consumers' changing psychology and habits, the authors argue, will enable firms to hone their strategies so they can both survive the current downturn and prosper afterward. Consumers in a recession can be divided into four groups: The slam-on-the-brakes segment, which feels the hardest hit, reduces all types of spending. Pained-but-patient consumers, who constitute the largest segment, also economize in each area, though less aggressively. Comfortably well-off individuals consume at near-prerecession levels but become a little more selective (and less conspicuous) about their purchases. Live-for-today consumers pretty much carry on as usual, responding to the recession mainly by extending their timetables for making major purchases. People may switch segments if their economic situations change for the worse. All groups prioritize consumption by sorting products and services into the following categories: essentials (central to survival or well-being), treats (justifiable), postponables (can be put off), and expendables (unnecessary or unjustifiable). As firms manage their marketing investments, they must simultaneously assess their brands' opportunities, allocate resources for the long term, and balance their budgets. Many make the mistake of cutting costs indiscriminately, which can jeopardize long-term performance. Instead, firms should streamline their product portfolios, improve the affordability of their offerings, and bolster customers' trust.

In tough times, many retailers focus on their most loyal customers. That seems sensible enough. But, paradoxically, your most loyal customers are not your best source of revenue growth in a recession. You're already collecting most of the money they're spending. If they suddenly spend 25% less, most of that will come out of what they spend in your stores. It's not likely that you'll pry away customers who are fiercely loyal to other retailers either. Your best opportunity lies with "switchers" - the people who spend money both in your shops and elsewhere. If you collect, say, only 20% of what they're spending today but can increase that to 30%, you'll still realize a net gain even if their total spending drops by 25%. Drawing on a study of more than 50 major U.S.-based retailers and over 20 years of global consulting experience, consultants Favaro, Romberger, and Meer set out five operating rules to help retail executives determine where to direct recession-squeezed resources for the biggest return. These rules basically boil down to: (1) Identify the people who are shopping both in your stores and in others'. (2) Figure out what they're buying elsewhere (or want and can't find at all) and adjust your offer so you can give it to them. (3) Analyze which of your costs contribute to producing the benefits the switchers want, then spend more on those activities and less on the ones that don't matter to them. (4) Organize your efforts efficiently by grouping your stores into clusters based on different populations of switchers. And, finally, (5) focus your customer research, merchandise-planning, performance management, and strategic-planning processes on the switchers. By following those rules, struggling retailers will discover that they have a larger universe of growth opportunities than they might think.

Multisided platforms can lower your transaction costs and increase customer reach. But powerful MSPs like Microsoft, Google, and Apple have also tended to extract most of the value from their platforms, mainly because companies that played with them didn't adequately understand their motives and operating strategies. As a result, firms can easily find themselves ceding control over customers to MSPs or being unwittingly turned into commodities. Hagiu and Yoffie, both professors at Harvard Business School, explore how MSPs can use their power to "hold up" companies that join them. The authors offer guidelines to help managers create an effective strategy for dealing with MSPs, identifying three basic issues that managers must address: (1) Whether to play with existing MSPs, build their own platform, or do both; (2) once they've concluded that at least one third-party MSP can benefit their business, deciding how many to join; and (3) figuring out how to play - that is, which features or services they should adopt and which they should reject in order to maintain their company's competitive advantage. Some companies that lack the power to influence an MSP's actions may have few options. But many firms - either on their own or in alliances - can make choices that will differentiate them from competitors and curb MSPs' power over their businesses.

Without question, internal collaboration can produce benefits for an organization. This doesn't mean, however, that the more your employees collaborate, the better off the company will be. It may, in fact, be worse off. The author, a professor at UC Berkeley and at Insead, offers a simple method for determining when collaborating on a project makes sense. He calls it calculating the collaboration premium - what's left after you subtract opportunity costs and collaboration costs from a project's expected financial return. The opportunity cost is what's lost by devoting resources to the collaboration project rather than to something else - particularly something that doesn't require collaboration. Collaboration costs arise from the challenges - conflict over goals and budgets, competing objectives, logistical roadblocks - involved in working across organizational boundaries. Sometimes those costs are so high that the project results in a collaboration penalty. The Norwegian company Det Norske Veritas (DNV) would have done well to apply Hansen's calculation before it launched a food-safety initiative combining the expertise, resources, and customer bases of two business units: standards certification and risk-management consulting. According to initial projections, from 2004 to 2008 the joint effort would quadruple the growth to be realized if the two units operated separately. Unfortunately, DNV hadn't formally evaluated food safety's potential relative to other promising sectors; the consulting unit might have more profitably pursued IT risk management on its own. Meanwhile, mistrust and quarreling between the two units scotched efforts to cross-sell, while conflicting goals and incentives pulled individual team members in opposing directions. Two years after launching the initiative, DNV abandoned it. The challenge is to cultivate not more collaboration but the right collaboration. Hansen's formula can get you started.

Understanding how competitors will respond to your actions should be a critical component of decision making. Few companies, however, incorporate such insights into their strategic decisions, in large part because most methods for obtaining them are complex and unreliable. The authors have drawn on their research and work with companies to develop an approach for predicting rivals' behavior that is both accurate and easy to apply. It involves considering just three questions: Will the competitor react at all? Few strategic planners consider the possibility that a rival may not respond to a company's competitive move. Yet 17% of the companies surveyed by the authors did not react to a rival's major initiative. Some competitors may not detect a company's move, while others may not feel threatened by it or may simply be unable to coordinate a timely response. What options will the competitor actively consider? Most companies seriously examine fewer than four response options, and it's likely that among them will be the most obvious, such as introducing a me-too product or matching a price change. To come up with a short list of options, companies will probably look at what they have done in similar situations. Which option will the competitor most likely choose? Your adversaries will choose the option that they consider to be most effective. It helps to know that in anticipating competitive behavior, most companies analyze only one round of moves and countermoves, and they evaluate their options using simple, short-term measures. The key is to get inside your rival's head and look at the situation from that perspective, not yours.

When a change initiative falters, the knee-jerk response can be to blame those who won't get on board. Jeffrey Ford, of the Ohio State University, and Laurie Ford, of Critical Path Consultants, examine why that type of reaction is not only pointless but potentially destructive. Drawing on their years of research and consulting work, the authors recommend seeing resistance for what it really is - feedback - and propose five ways for leaders to use that feedback to effect change more productively. Boost awareness. In the early stages, if the only way to keep the conversation about change alive is to entertain highly charged discussions, so be it. A complete lack of feedback can sound the death knell for change. Return to purpose. Employees need to know not only what will change but why the new reality will be better. Don't be shy about offering explanations as directly as possible. Change the change. People who resist change are often the ones most concerned about getting things right. Give them the chance to help you make a good change initiative better. Build participation and engagement. Heed feedback even when it doesn't seem likely to yield objective improvements. The ownership people feel when you adopt their best ideas will pay off in ways you often cannot foresee. Complete the past. A legacy of bad change can inhibit your change effort, even if you had nothing to do with the unfortunate history. Acknowledging - and, if possible, correcting - past change failures is often essential to future success.

Marketers in a variety of industries are trying to increase customer loyalty, marketing efficiency, and brand authenticity by building communities around their brands. Few companies, however, understand what brand communities require and how they work. Drawing from their research as well as their experience at Harley-Davidson, the authors dispel some common misconceptions about brand communities and offer design principles, cautionary tales, and new approaches to leveraging those communities. For instance, many managers think of a brand community in terms of marketing strategy. In fact, for a community to have the greatest impact, it must be framed as a corporate strategy. Realizing this, Harley-Davidson, for example, retooled every aspect of its organization to support building and maintaining its brand community and treated all community-related activities not just as marketing expenses but as a companywide investment. Another common misconception is that a brand community exists to serve the business. An effective brand community exists to serve its members, who participate in order to fulfill many kinds of needs, such as building relationships, cultivating new interests, and contributing to society. Strong communities work to understand people's needs and to engage participants by offering a variety of roles. Finally, managers often think that a brand community must be tightly controlled. In reality, a robust community defies managerial control. Effective brand stewards can, however, create an environment in which a community can thrive - by, for example, designing multiple experiences that appeal to different audiences. The authors offer an online "Community Readiness Audit" that can help you find out if your organization is up to the task of building a brand community.

We believe that the practice of threat as a negotiation tactic is essentially without merit. While its risks are outsized, its benefits are few, if any. This renders threat utterly bankrupt as a strategy. Herein, we explore the drawbacks of threat as a negotiation tactic, and offer a series of practice pointers relevant to threat and its potential defenses.

When a firm chooses to enter or continue business in a foreign market, it becomes exposed to associated political risks which should be assessed and managed. Help is available for becoming aware of the level of macro political risk; that is, the political risk across industries or all businesses in entire countries or geographic regions. Yet, surprisingly little guidance exists by which to identify and assess firm-specific political risks, termed micro political risk. Herein, we offer some new perspectives on the nature of micro political risk within a host country, illustrating how it stems from economic, societal, and governmental forces. We have compiled a number of firm-specific variables which can affect the firm's micro political risk profile, and advance an innovative methodology by which executives can address these variables and develop an assessment of their firm's micro political risk. Examples of micro political risk situations are provided, along with discussion of implementing the proposed methodology.      

A series of visits to a Fortune 500 wholesale distribution company of technology products revealed a changing perspective regarding building and implementing reverse logistics programs. Five major initiatives define the reverse logistics program design process at this company: (1) Gain senior management support and turn reverse logistics into a company-wide initiative; (2) Involve your customers in the reverse logistics design process; (3) Give distinct recognition to the employees involved in handling returns within the firm; (4) Implement carefully developed written rules and procedures that reflect both internal and external concerns; and (5) Assign strict responsibility for the execution of the reverse logistics program. The study follows these five major considerations in more detail. The interviews and observations at this particular firm provide guidelines for managerial decisions relating to reverse logistics.     

A situational theory of leadership attempts to match a particular leadership style or type to specific external circumstances. The general idea is that one type of leadership will be effective in one situation, but a different type of leadership will be effective in another situation. Historically, situational theories of leadership have been too abstract to apply to specific situations. Nevertheless, the concept of situational leadership retains considerable intuitive appeal. In this article we draw on our previous research about situational leadership during resuscitation in a trauma center, in order to derive a general strategy of how a leader can best develop his or her own personal theory of leadership which best works for their unique circumstances. The core of the strategic approach involves: (1) defining goals for a specific situation, (2) defining potential leadership types, (3) identifying situational conditions, (4) matching a leadership style to the particular situation, and (5) determining how the match between leadership style and situation will be made. The medical trauma center we profile provided an interesting example of how leaders considered elements of the situation to guide their own leadership.

Is branding an effective tool for generating shareholder wealth for companies that are active in a business-to-business environment? Or, do other factors such as innovation and manufacturing efficiency-or the lack thereof-create or destroy shareholder wealth? Based on an examination of almost 1,700 companies listed either on the United States or European stock exchanges, this study reveals this crucial relationship could be described as a W-shaped curve with five distinctive phases, depending on the strategic branding position of the company. Used strategically, business-to-business (B2B) companies with a balanced corporate brand strategy, generally yield a return to their shareholders that is 5%-7% higher. It is therefore vital that key executives, including the board of directors, systematically assess and monitor the strategic branding position of their company and how their branding investments are performing against key competitors. This study reveals that shareholders should insist on systematic performance feedback from the corporation regarding all key items in the balance sheet-it - including branding. As disclosed herein, very few of the companies analyzed possessed an optimal balance between branding and financial performance.     

Brand extensions are always tempting to marketers, and in the case of luxury brands the allure is particularly strong. While the path to luxury brand success may be partly paved with extensions, there are even more examples of brand extension disasters that litter the way. Brand extensions continue to be among the most researched and studied phenomena in marketing. When it comes to luxury brands, however, the factors that lead to successful extension have received far less attention. In this article, we consider the notion of perceived premium degree of the brand as a function of its category, and what we term the degree of adjacency between its product categories. Building on our research, which found that a luxury brand's perceived premium degree has a different impact on profitability depending on whether or not the brand is spread across adjacent product categories, we demonstrate when luxury brand extensions work-and when they fail. Perhaps most importantly, we herein introduce the premium adjacency matrix as a tool for luxury brand managers to consider in formulating extension strategies.      

Over the past eight years Brazilian energy giant Petrobras has transformed itself from a notorious environmental offender into a global leader in sustainability. In this article the CEO, a onetime leftist activist who believes business should drive social improvement, describes how the company turned itself around. When Gabrielli took the reins, Petrobras was coming out of a tumultuous period. The state-owned monopoly had become a publicly traded corporation competing in an open market, and its operations were expanding rapidly. During this time a series of disastrous oil spills and accidents took place. In response, Philippe Reichstul, one of Gabrielli's predecessors, launched a $4 billion program for environmental and operational safety, comprising more than 4,000 projects. Under Gabrielli's stewardship, the company approached environmental performance issues in three ways: improving its own culture and operations, influencing its suppliers, and championing renewable-energy development. At the center of its strategy is a program built on a set of requirements for performance in 15 areas. Among them is the stipulation that Petrobras's managers lead by example. Environmental policy is a boardroom consideration, and the company's top managers visibly demonstrate their commitment by joining the teams that go out into the field to audit health, environmental, and safety compliance. Promoting environmentally sound behavior outside the company is another key requirement. To this end, Petrobras is pitting the firm's thousands of Brazilian suppliers against one another in a battle to see who's greenest. The company has devised a system to measure and monitor their environmental performance - and awards contracts to the high scorers. It has also set its sights on becoming a world leader in biofuel, building a huge R&D network that stretches across Brazil and around the globe.

Even as discretionary budgets are drying up, some B2B vendors have found a way to reach their customers' resource owners and motivate them to buy. They do this by identifying a thorny issue in the customer's company or industry and developing an original, compelling point of view about it. They pitch this point of view to a carefully chosen line executive in one crucial meeting and then prove its worth with a short diagnostic study. This is the essence of what the authors, all managing directors at TCG Advisors, call provocation-based selling. Sybase, a data management and mobility company, was successful with this approach in the summer of 2008, as it tried to pry business out of financial services clients that were severely cutting their operating costs. Instead of probing for what those clients thought they might need, Sybase salespeople pointed out what they should be worried about: an industrywide failure to manage risk comprehensively. By revealing the scale of the threat and the opportunity, Sybase was able to sell its Risk Analytics Platform, a new tool for integrating risk management. Provocation-based selling doesn't align with the customer's outlook; it provides a new angle on the situation. It doesn't identify and respond to the customer's "pain points"; it outlines a problem the customer hasn't yet put a name to. Framing a provocation creates a readiness to listen, and a diagnostic study converts the dialogue into a contract. The provocation-based sales cycle is resource intensive but appreciably shorter than that for solution-based selling - and it leads to significant business opportunities.

Managers have gone overboard with process standardization. Many processes - such as leadership training or auditing - are more art than science. Imposing rigid rules on them squashes innovation, reduces accountability, and harms performance. Tuck professors Hall and Johnson advise companies to rescue artistic processes from the tide of standardization with a three-step approach. 1. Identify what should and shouldn't be art. Companies need art in variable environments (if, say, raw materials aren't uniform) and when customers value distinctive output. If those two conditions aren't present, mass processes (which eliminate variation) or mass customization (which controls it) will be required. Steinway & Sons, for instance, uses artistic processes to make concert pianos. Not only does the wood used in soundboards differ, but professional musicians appreciate the instruments' unique "personalities." Ritz-Carlton adopted an artistic approach to service after discovering that tightly defined procedures weren't meeting the needs of its diverse customer base. Once employees were allowed to improvise, customer satisfaction improved. 2. Develop an infrastructure to support art. Artists require proper training and metrics that help them maximize value for customers (such as continual customer feedback). Scientific processes can provide a stable platform for artists to work upon, but art and science should never be intertwined. Firms also must institute ways to mitigate failures, which are inevitable with variation. 3. Periodically reevaluate the division between art and science. Managers must ask: What new technologies can make a science of art? Do my customers value variation? How do the costs and opportunities of art and science stack up? Art and science both have important roles to play in business processes. They need not be at odds but must be carefully harmonized.

In tough economic times, some companies have outmaneuvered rivals to become market leaders through value-for-money strategies. That is, they have enabled recession-hit consumers to economize (do less and spend less), become more efficient (do the same for less), or become more effective (do more but spend no more). To implement such a strategy, argue this British professor and Chinese academic, companies must go beyond refining cost-cutting capabilities to develop expertise in cost innovation. That may not be good news for many U.S., European, and Japanese corporations, because multinationals from emerging markets, which have long experience with value-conscious customers, have already built cost-innovation capabilities that are unlocking mass markets in both developing - and developed - countries. Some, like battery maker BYD, have learned to sell high-tech products profitably at mass-market prices through a combination of lower labor costs and manufacturing innovations. Others, like drinks purveyor United Spirits, have dominated industries by blanketing sizable niches in their home markets with a full range of products or customized options. And still others, like appliance manufacturer Haier, have used low-price offerings to turn small, unguarded niches into mass markets in developed countries. In response, the authors argue, Western companies should turn to developing countries for vital lessons in lowering the cost of building brands and developing and manufacturing products. They should enter into alliances with emerging giants to gain cost-innovation capabilities. And they should use their superior financial strength to beat emerging giants at their own game of growing mass markets in developing countries. Multinationals that fail to learn from emerging rivals are unlikely to weather the recession well - or stay competitive for very long.

Rotate up-and-comers through various functions, business units, and locations, conventional wisdom suggests, and you'll give them a chance to round out their skills and prepare for general management. However, mobility as a leadership development strategy can go wrong in many ways. It can disrupt operations and undermine accountability, demoralize managers who don't get to change roles, and cost a lot to implement. Perhaps worst of all, it can become an end in itself, causing other strategic and operational aims to get lost in the shuffle. Mobility can be an excellent development tool when companies use it wisely - as Marriott International, Corning, and UnitedHealth Group have done. The authors cite these successes and several failures, and offer a framework for solving the mobility equation in a way that's right for your organization. Developing an appropriate mobility strategy entails answering three questions: What kind of mobility? Mobility for whom? And how much mobility? Your answers will depend on your company's circumstances and overarching objectives. For instance, to figure out what kind, you'll need to consider that changing a manager's function within a unit may help that person acquire the knowledge and skills to run that unit one day, whereas switching someone to a different unit may help develop broader leadership capabilities. To decide for whom, you can try "sponsored mobility," which means directing investments toward a chosen few individuals; "contest mobility," which means opening up opportunities to many; or a combination of the two. The approach you choose will depend partly on how robust a system you already have for identifying and retaining high potentials. Finally, to determine how much, you'll need a solid fix on which areas of the enterprise require the developmental benefits of mobility. Targeted analysis will show the likely impact on retention, promotions over time, and operational efficiency.