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Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here's why: They don't understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don't know how to build a new model when they need it. Drawing on their vast knowledge of disruptive innovation and experience in helping established companies capture game-changing opportunities, consultant Johnson, Harvard Business School professor Christensen, and SAP co-CEO Kagermann set out the tools that executives need to do both. Successful companies already operate according to a business model that can be broken down into four elements: a customer value proposition that fulfills an important job for the customer in a better way than competitors' offerings do; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition. Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way (as P&G did with its Swiffer mops), solve a problem that's never been solved before (as Apple did with its iPod and iTunes electronic entertainment delivery system), or serve an entirely unaddressed customer base (as Tata Motors is doing with its Nano-the $2,500 car aimed at Indian families who use scooters to get around). Capitalizing on such opportunities doesn't always require a new business model: P&G, for instance, didn't need a new one to leverage its product innovation strengths to develop the Swiffer. A new model is often needed, however, to leverage a new technology (as in Apple's case); is generally required when the opportunity addresses an entirely new group of customers (as with the Nano); and is surely in order when an established company needs to fend off a successful disruptor (as the Nano's competitors may now need to do).

Sustaining innovation, many agree, is crucial for a company's long-term success. But truly innovative people are rare: They have excellent analytic skills, never rest on their laurels, and can identify the solutions likeliest to win over top leadership. They are socially savvy and can bring a diverse group of constituents into alignment. They tend to be both charming and persuasive. The right talent-management procedures can help in spotting potential innovators. Reuters, for example, interviews candidates one-on-one and gives them complex, real-world scenarios in which they must reach and defend decisions, accommodate new information, and convincingly sell their point of view. Starwood and McDonald's require would-be innovators to lead cross-functional teams in developing promising ideas and then present those ideas to senior management. One global industrial products company in the UK insists that they do a stint in the sales department. Developing breakthrough innovators requires mentoring and peer networks. Mentors provide insight into the motivations, goals, mind-set, and budget constraints of managers in a variety of relevant functions. At Allstate, for example, the CEO coaches and supports the mentors themselves, sending a strong signal about the importance of the program. Peer networks provide a sense of solidarity and a uniquely fertile environment in which to exchange ideas, impart information, and instill hope. Companies that excel in developing innovative leaders often remove them from revenue-generating line positions and plant them in the middle of the organization, where they form "innovation hubs," with easy access to influentials, more autonomy, and broader job responsibilities. Practices like these keep companies open to new ideas and prepare them to respond nimbly to innovation from elsewhere in their industries.

Firms with ill-considered globalization strategies, say Alexander and Korine of London Business School, are poised to become targets for breakup or overhaul by activist shareowners. Yet many businesses (particularly in deregulated, service, and manufacturing industries) have made complacent assumptions about the need to go global and moved full steam ahead toward failure. If they had paused to answer three simple questions, they might well have avoided their missteps. Are there potential benefits for our company? Moves that make sense for some firms won't necessarily work for others. UK-based roof tile maker Redland learned that lesson when it tried leveraging its technical know-how beyond its home market - without realizing that building practices in certain countries provided very little demand for concrete roof tiles. The company was fully able to transfer the relevant technology, but there was no value in doing so in those markets. Do we have the necessary management skills? Even if potential benefits do exist for a company, it may not be in a position to realize them. Although industrial conglomerate BTR had developed a presence in many countries, each business unit was run more or less autonomously. As its customers globalized, they came to expect coordinated supply and support across borders. BTR was well positioned to deliver, but its ingrained culture blocked attempts at global integration. Will the costs outweigh the benefits? Global efforts can be rendered counterproductive through unanticipated collateral damage. TCL, a Chinese maker of electronics and home appliances, has expanded rapidly into the United States and Europe through a series of acquisitions and joint ventures. Along the way, the company's infrastructure has become unwieldy; the cost of managing it has outweighed the benefits of increased scale and resulted in large losses.

Nowadays, virtually no companies innovate alone. Firms team up with a variety of partners, in a wide number of ways, to create new technologies, products, and services. But what is the best way to leverage the power of outsiders? To help executives answer that question, Pisano, of Harvard Business School, and Verganti, of Politecnico di Milano, developed a simple framework focused on two questions: Given your strategy, how open or closed should your network of collaborators be? And who should decide which problems to tackle and which solutions to adopt? There are four basic modes of collaboration, say the authors. An elite circle is a closed network with a hierarchical governance: One company selects the participants, defines the problem, and chooses the solution. For instance, Alessi, an Italian home-products company, invited 200 outside experts in postmodern architecture to contribute ideas for new home-product designs. An innovation mall is hierarchical but open: Anyone can post a problem or propose solutions in it, but the company posting the problem chooses the solution. An example is InnoCentive.com, an eBay-like site where companies post scientific challenges. An innovation community is open and decentralized: Anyone can propose problems, offer solutions, and decide which ideas to use - as happens in the open-source software community Linux. A consortium is a private group of participants that operate as equals and jointly select problems, decide how to conduct work, and choose solutions. IBM has set up a number of consortia with other companies to develop next-generation semiconductor technologies. No one approach is superior; each involves strategic trade-offs. When choosing among modes, firms must weigh their advantages and challenges, and assess which will work best with their strategy, capabilities, structure, and assets.

As U.S. nonprofits take on an increasing share of society's work, they face mounting pressure from stakeholders - donors, boards, employees - to show results. To make the greatest possible impact, they need to explicitly state the outcomes they're aiming for and how they plan to accomplish those goals. The authors, of the Bridgespan Group, say organizations should start by rigorously addressing a few interdependent questions: Which results will we hold ourselves accountable for? How will we achieve them? What will the results really cost, and how can we fund them? How do we build the organization we need to deliver those results? Together, those questions provide a framework for developing pragmatic, specific plans of action. Rheedlen Centers for Children and Families stepped up its performance by using such a framework. Ten years ago, the agency offered a host of programs - including an initiative called the Harlem Children's Zone - designed to improve the lives of poor children in devastated U.S. communities. Despite Rheedlen's efforts, supported by a $7 million budget, the prospects for Harlem's children appeared to be getting worse. So the organization changed its name simply to the Harlem Children's Zone, and linked its mission to a concrete statement of intended impact: namely, that 3,000 children, ages 0 to 18, living in the zone should have demographic and achievement profiles consistent with those found in an average U.S. middle-class community. HCZ's leaders discontinued or transitioned out of activities that were not in line with that outcome and took on new ones that were. They also diversified HCZ's funding, shook up and expanded the management ranks, and invested money in evaluating results. Over the past five years, HCZ has added 10,500 children to the population it serves and almost $40 million dollars to its budget.

When car rental companies sign you up for insurance unless you actively decline it, or software vendors recommend you click "next" for a quick install, they're choosing default options for you - covertly or overtly guiding your choices. Well-designed defaults benefit both company and consumer, simplifying decision making, enhancing customer satisfaction, reducing risk, and driving profitable purchases. Ill-conceived defaults can leave money on the table, fuel consumer backlashes, put customers at risk and trigger lawsuits - costing companies dearly. Despite those high stakes, management pays little attention to default policies. Setting defaults requires companies to balance a complex array of interests, including customers' wishes and the company's desire to maximize profits while minimizing risk. At a basic level, defaults can serve as manufacturer recommendations, and more often than not we're happy with what we get. Most companies also strive to set defaults in ways that align with customers' preferences. In its online auto configurator, for example, Audi preselects silver metallic as the default color because it's the most popular. Of course, defaults can be nefarious as well. They have caused many of us to purchase unwanted extended warranties or to inadvertently subscribe to mailing lists, for example. The authors provide a taxonomy of default types and guidance on when - and when not - to use each type. They range from "benign defaults," representing a company's best guess about which single product configuration would be most acceptable to most customers, to "adaptive defaults" that change depending on individual customers' stated preferences.

For over a century, start-ups began by focusing on their home markets. More and more, however, are now being born global - chasing opportunities created by distance, learning to manage faraway operations, and hunting for the planet's best manufacturing locations, brightest talent, most willing investors, and most profitable customers wherever they may be - from day one. That's not easy. In his research, Harvard professor Isenberg has found that global start-ups face three challenges. First are the logistical problems and psychic barriers created by distance and by differences in culture, language, education systems, religion, and economic development levels. Even something so basic as accommodating the world's various workweek schedules can put a strain on a small start-up's staff. Second is managing the challenges (and opportunities) of context - that is, the different nations' political, regulatory, judicial, tax, and labor environments. Third, like all new ventures, global start-ups must find a way to compete with bigger incumbents while using far fewer resources. To succeed, Isenberg has found, global entrepreneurs must cultivate four competencies: They must clearly articulate their reasons for going global, learn to build alliances with more powerful partners, excel at international supply chain management, and create a multinational culture within their organization. Entrepreneurs shouldn't fear the fact that the world isn't flat. Being global may not be a pursuit for the fainthearted, but even start-ups can thrive by using distance to gain competitive advantage.

The Chinese financial system has historically been one of secrecy, distrust, and corruption. The process does not align with the western standards of transparency and auditing. In contrast to the transaction-based business culture of the West, Chinese business society is relationship-based (quanxi), which still seems to play a key role in the credit decision. With the growth of the emerging middle class, access to financial instruments such as credit cards, life insurance, stock purchases, and the like will play a greater role in the life of the Chinese consumer. Based on these forecasts, the authors recommend seven actions to manage financial activities in China, all of which are explored within this article.     

Corporate social responsibility (CSR) looks at how firms treat their stakeholders. One key stakeholder group that is frequently overlooked is the firm's shareholders. All too often, the corporate social responsibility literature focuses on customers, employees, and the natural environment, but rarely on shareholders. The focus of this article is the impact of the firm on its shareholders as expressed through its corporate governance practices. If a firm can't treat its shareholders well, what hope is there for the other stakeholders? Herein, we argue that there are market forces at work which reinforce good CSR behavior.     

A number of small enterprises are affected-often in dramatic ways-by the increasing presence of MNCs in their home markets. Small enterprise often find themselves facing a very difficult set of choices as they consider whether and how they should engage with the MNCs. This article critically evaluates the strategies smaller enterprises are adopting in a globalizing world. The most effective strategy for globalization is through partnerships with local MNC subsidiaries-in their own backyard-which can then be leveraged to generate opportunities on a global scale. This analysis particularly emphasizes the need for small enterprises to use to their advantage the points of difference (i.e., asymmetry) between them and the MNCs with whom they partner.

The rise of social movements targeting multinational companies on issues of social and environmental responsibility has generated new global supply chain standards. Tied to the wide range of sustainability standards is the growth of partnerships between multinationals (MNCs) and non-governmental organizations (NGOs). However, these standards may unintentionally impose conditions that may exclude small-scale firms in developing countries from global supply chains, thus negatively affecting the poorest developing country producers, from what is known as the "bottom of the pyramid." This article examines how standard making and implementation resulting from MNC-NGO alliances can create conditions that foster inclusion and upgrading of small-scale producers in a supply chain. It demonstrates that including poorer producers from developing economies requires an active assistance approach to address the complex challenges of creating more responsible supply chains.

Information systems (IS) backsourcing is a business practice in which a company takes back in-house assets, activities, and skills that are part of its information systems operations that were previously outsourced to one or more outside IS providers. Backsourcing often represents a response to the problems with the outsourcing arrangement as well as to new opportunities generated by internal or environmental changes in the business situation. The problems are manifested in escalating costs, poor service quality, loss of control over outsourced activities, and a know-how mismatch on the part of the provider. Opportunities arise from internal organizational changes such as new executives and redefinition of the role of IS as well as environmental changes such as mergers, acquisitions, and divestitures. This article provides insights into reasons for backsourcing, possible responses to the problems and opportunities associated with it, and offers suggestions for managing a smooth transition to in-house operations.

What happens when small iconic socially oriented businesses are acquired by large corporations? Such mergers create significant opportunities for creating both business value and substantially expanded social value, but they also pose unusually difficult challenges because the merging entities are often strikingly different in philosophy and operating styles as well as in scale. This article examines three examples-Ben and Jerry's acquisition by Unilever, Stonyfield Farm by Groupe Danone, and Tom's of Maine by Colgate-to ascertain what is distinctive about the merger process and to analyze the elements critical to success. The article offers suggestions on how other companies considering similar arrangements might best manage the process of courtship, developing agreements, and executing effectively within the newly merged entities.

A silo is a metaphor for an organizational unit that has its own management team and lacks the motivation or desire to work with or even communicate with other organizational units. Organizations have a collection of silos that include product silos (business units defined by product or service offerings) and country silos (geographic silos defined by countries or regions). Today, communication and brand building involve a variety of fast-changing modalities that do not lend themselves to the silo world. Customers are demanding silo-spanning offerings and services. There is just too much at stake to allow silo interests to inhibit or prevent the effort toward achieving brand and marketing synergies across the organization. Recognizing that autonomous silo organizations are no longer a viable option, there are a host of firms that are developing, expanding, or energizing the corporate Chief Marketing Officer (CMO) position and creating or enhancing the supporting central marketing group. Efforts by a CMO and his or her team to gain credibility, traction, and influence represents a formidable task in the face of silo indifference or resistance. This article examines how silo barriers to the creation of great marketing and marketing organizations can be reduced or eliminated, leading to stronger offerings and brands and effective synergistic marketing strategies and programs.

The next U.S. administration will face enormous challenges to world peace, the global economy, and the environment. Exercising military and economic muscle alone will not bring peace and prosperity. According to Nye, a former U.S. government official and a former dean at Harvard University's John F. Kennedy School of Government, the next president must be able to combine hard power, characterized by coercion, and what Nye calls "soft" power, which relies instead on attraction. The result is smart power, a tool great leaders use to mobilize people around agendas that look beyond current problems. Hard power is often necessary, Nye explains. In the 1990s, when the Taliban was providing refuge to Al Qaeda, President Clinton tried - and failed - to solve the problem diplomatically instead of destroying terrorist havens in Afghanistan. In other situations, however, soft power is more effective, though it has been too often overlooked. In Iraq, Nye argues, the use of soft power could draw young people toward something other than terrorism. "I think that there's an awakening to the need for soft power as people look at the crisis in the Middle East and begin to realize that hard power is not sufficient to resolve it," he says. Solving today's global problems will require smart power - a judicious blend of the other two powers. While there are notable examples of men who have used smart power - Teddy Roosevelt, for instance - it's much more difficult for women to lead with smart power, especially in the United States, where women feel pressure to prove that they are not "soft." Only by exercising smart power, Nye says, can the next president of the United States set a new tone for U.S. foreign policy in this century.

"This war for talent is like nothing we've ever seen before," write the authors, who have spent decades studying talent management and leadership development. Recently they interviewed executives at more than 20 global companies to identify strategies for attracting talent in developing economies - where, they learned, brand, opportunity, purpose, and culture play out in particular ways. A desirable brand affiliation in conjunction with inspirational leadership appeals to eager young high potentials suddenly awash in possibilities. Opportunity should imply an accelerated career track - or at least a fast-paced acquisition of skills and experience. Purpose ought to benefit a job candidate's home country and express the value of global citizenship. A company's culture should be meritocratic, value both individual and team accomplishments, and follow through on promises implied in recruitment. The authors claim that emerging markets pose special challenges for foreign multinationals. For instance, talent strategies that work at home will probably need extensive tailoring to succeed in the developing world, and an overreliance on fluency in English may impede spotting talent. It's critical to develop a core of local talent and to embrace and leverage diversity. In the talent race, a local company that creates genuine opportunities and exhibits the desired cultural conditions will often win out over a Western multinational offering higher pay.

During his nearly 14 years at the helm of networking giant Cisco Systems, Chambers has developed an uncanny ability to sense market trends long before others do. He predicted, for instance, that voice transmission would become free long before computer networks could even carry it. And Cisco was one of the first to shift from call centers to web-based customer service. Seeing the future is essential for a company that must start developing a product some six years before it goes to market. How does Chambers do it? He looks for what he calls "market transitions" - subtle social, economic, or technological signs of an impending disruptive shift - which, he says, start turning up five to seven years before the market actually grasps their significance. The move to open-source software development was one that Chambers saw and Microsoft did not. Early on, Chambers learned to sense market transitions by listening closely to customers, connecting individual dots of behavior into patterns that indicated future trends. Later, he realized he needed to turn Cisco's management processes upside down to benefit from that foresight. In this interview, Chambers describes how he was able to surrender his role as a command-and-control CEO and institute a collaborative decision-making model that allows the company to respond speedily to emerging transitions. Managers throughout Cisco now form cross-functional teams, working together to identify and exploit new opportunities quickly. The model allows Cisco to simultaneously implement 22 major sales initiatives as effectively as most companies do one or two.

Multinational corporations from developed and developing economies alike are aggressively expanding their global presence, particularly in emerging markets. Industry traits largely determine the winners - but that needn't always be the case, say Ghemawat, of IESE Business School, and Hout, of the University of Hong Kong. Companies can break the pattern by anticipating or creating new customer segments, managing cost convergences, or reworking the value chain. Some established MNCs are succeeding in production- and logistics-oriented businesses, where local rivals usually have an advantage. One way is by using technology and capital to accelerate segments' growth. Samsung, Sharp, and others surprised Chinese producers with vicious price competition in flat-screen TVs, which quickly collapsed the demand for conventional TVs, bottoming out Chinese profits. Another way established MNCs are beating emerging players is on costs, as home appliance companies in the United States did when Haier tried to enter the U.S. market for midsize refrigerators. Conversely, some emerging-market challengers are outperforming established MNCs in knowledge- and brand-intensive industries. Bharti Airtel has built the largest mobile-services operation in India by specializing in a limited part of the value chain (customer care and the regulatory interface) and outsourcing the rest, which freed up capital, made Bharti's cost structure more variable, and allowed the company to radically undercut advanced-market prices. Firms such as India's Suzlon Energy are also spotting opportunities to bundle ancillary services and products in which they have an advantage. The authors point to these examples and others to suggest that conditions are right for aggressive global players to move outside their industry comfort zones.

In the continuing quest for business growth, many CEOs are turning to their CIOs and IT organizations because technology is absolutely essential to two compelling sources of growth: innovation and enterprise integration. The speed of innovation often depends on the ability to coordinate across organizational boundaries. Innovations cannot reach a sufficient level of scale and impact unless they are integrated into the larger operations of the corporation. And yet, say recently retired Harvard Business School dean Cash, Oxford dean Earl, and nGenera director of research Morison, the two endeavors remain "unnatural acts": Far too many large businesses are better at stifling innovation than at capitalizing on it, better at optimizing local operations than at integrating them for the good of the enterprise and its customers. To make both pursuits seem more natural, the authors recommend creating two dedicated, IT-powered teams: a distributed innovation group (DIG) and an enterprise integration group (EIG). The DIG serves as the center of expertise for innovation techniques, considers new uses for technology already being developed inside the company, looks for new developments outside the company, and provides experts for internal innovation initiatives. The EIG selects the most promising from among competing integration projects, provides resources to give them a strong start, and then folds them into the operating model of the enterprise. Without such agencies, the authors maintain, innovation and integration won't spread far enough or fast enough throughout a large organization to keep pace with the smaller, younger, more technology-based competitors to which innovation and integration come much more naturally.

Free customers who are subsidized by paying customers are essential to a vast array of businesses, such as media companies, employment services, and even IT providers. But because they generate revenue only indirectly, figuring out the true value of those customers - and how much attention to devote to them - has always been a challenge. Traditional customer-valuation models don't help; they focus exclusively on paying customers and largely ignore network effects, or how customers help draw other customers to a business. Now a new model, devised by professors Gupta, of Harvard Business School, and Mela, of Fuqua School of Business, takes into account not only direct network effects (where buyers attract more buyers or sellers more sellers) but also indirect network effects (where buyers attract more sellers or vice versa). The model calculates the precise long-term impact of each additional free customer on a company's profits, factoring in the degree to which he or she brings in other customers - whether free or paying - and the ripple effect of those customers. The model helped an online auction house make several critical decisions. The business made its money on fees charged to sellers but recognized that its free customers - its buyers - were valuable, too. As competition heated up, the company worried that it wasn't wooing enough buyers. Using the model, the business discovered that the network effects of buyers were indeed large and that those customers were worth over $1,000 each - much more than had been assumed. Armed with that information, the firm increased its research on buyers, invested more in targeting them with ads, and improved their experience. The model also helped the company identify the effects of various pricing strategies on sellers, showing that they became less price-sensitive over time. As a result, the company raised the fees it charged them as well.