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Despite research showing that mergers and acquisitions rarely provide significant shareholder value, there is no sign of any slowing in the trend toward M&A. One of the major reasons why M&A tend, to fail, argue the authors, is that the process often puts extreme stress on senior management teams. By nature, the process is an adversarial one, with management on both sides advocating for their stakeholders. When the dust clears at the end of the process, management is left, as the authors say, "to navigate the challenging segue from ' 'tough negotiator' to ' 'trusted colleague.'" The authors draw on the experience of Hewlett-Packard, Cisco, General Electric and Adobe to propose six guidelines for improving relations between the senior management teams of both sides of the M&A equation. The first three guidelines should be undertaken as soon as possible in the integration process. The authors advise that you can reduce the defection of talented personnel by reducing role ambiguity as quickly as possible. They also urge due diligence about the talent you are acquiring as early in the process as possible, and preferably before the deal is finished. Third, they recommend allowing some "habits to die hard."Employees often rely on habits and long-standing procedures to remain comfortable, and many of them are what made the company successful in the first place. As the integration process continues, there are three more important guidelines to follow. First, acquirers should not tolerate "bad behavior" that can sabotage the integration process. Second, it is important to have patience with the new management team, as many of them will be in unfamiliar roles. Finally, the authors suggest that it is important to remember to celebrate the value of the deal for all involved. By trumpeting the value of the new team, you can increase communication and trust. Ultimately, this trust may lead to increased shareholder value for all involved.

This is an MIT Sloan Management Review article. The role of procurement within global companies has changed dramatically over the past 25 years from that of simply buying goods and services to overseeing an integrated set of management functions. This brings new challenges and opportunities to procurement. Offshoring and the increased emphasis on specialization and fragmentation of production enhance the strategic character of procurement decisions. Increasingly, procurement decisions have become intertwined with strategic management in general. In this article, the authors discuss the changes in procurement from the perspective of transaction cost economics. They separate transaction costs into "soft" and "hard" costs and differentiate between the internal and external factors that affect these costs. In making procurement decisions, the authors argue, managers need to consider the full range of cost elements. In addition to traditional transaction costs such as transport costs and tariffs, managers need to recognize such elements as cultural and legal differences, government regulation, social preferences, environmental issues, political stability and risks involved in unethical business behavior. The authors argue that knowing the risks and opportunities of the different exposures is a critical management competence. Although management decisions originate in many different parts of the company, procurement managers need to keep a close eye on the various cost exposures and flag concerns as they arise. Procurement, therefore, will need to become more closely connected with strategic decisions throughout the company. This broader view represents a major extension of the concept of total cost of ownership in procurement decisions. Global sourcing creates many new opportunities for value creation, which well-run companies must learn to take advantage of.

After Kaufman became a CEO, he was struck by how perfunctory the board was in its feedback on his performance. The chair of the compensation committee would pop by his office following the year-end board meeting, congratulate him on the company's making its numbers, and then hand him an envelope containing the details of his comp package before walking out the door. The entire exchange would last no more than 10 minutes. That sort of review was a big contrast from the intense evaluations Kaufman received as a senior executive--assessments based on input from many sources and on multiple dimensions of his performance. As chief executive, all of sudden his total worth was summed up in just three or four financial measures. Although CEOs should have autonomy, reducing performance management to only financial measures makes little sense. All the financial incentives in the world won't transform CEOs into better decision makers. And bad decisions can bring companies down. Boards have an obligation to shareholders to ensure that companies are led well, and the sooner they can spot problems with leaders' performance, the better. With that in mind, Kaufman encouraged Arrow Electronics, where he was CEO for 14 years, to adopt a formal process that obliged independent directors to talk to executives and observe operations firsthand. Directors considered CEO performance in five key areas: leadership, strategy, people management, operating metrics, and relationships with external constituencies. As a result, they picked up on problems Kaufman might not have noticed, provided counsel that made him a stronger leader--and avoided disasters along the way.

Many internet superstars owe much of their success to the active and passive contributions made by countless people from outside their organizations. Think, most obviously, of Facebook profiles, eBay goods, YouTube videos, Wikipedia entries, and, less obviously, of the aggregated buying behavior underlying Amazon recommendations and the donated use of personal-computer resources underpinning Skype's internet-based phone network. Cook, the founder of Intuit (maker of financial software products such as Quicken and TurboTax), challenges traditional companies to tap this emerging source of value by actively creating what he calls user contribution systems. The user can be a customer, employee, sales prospect - or someone with no previous connection to the company at all. The contribution can be actively offered work, expertise, or information, as well as passive or even unknowing contributions, such as behavioral data that are gathered automatically as a by-product of a transaction or an activity. The system is the method, usually internet based, by which contributions are aggregated and made useful to others. Such a system creates value for a business as a consequence of the value it delivers to customers. In this article, Cook describes the personal journey that led him to see the tremendous value in user contributions. He creates a taxonomy of the systems that can capture user contributions and shows the variety of ways in which companies from Honda to Procter & Gamble to Hyatt Hotels are leveraging them. And, drawing on his successes and failures in trying to put them to work at Intuit, he offers advice on how business leaders can catalyze action to create user contribution systems in their own organizations.

In the face of the recent institutional breakdown of trust in business, managers are losing legitimacy. To regain public trust, management needs to become a true profession in much the way medicine and law have, argue Khurana and Nohria of Harvard Business School. True professions have codes, and the meaning and consequences of those codes are taught as part of the formal education required of their members. Through these codes, professional institutions forge an implicit social contract with society: Trust us to control and exercise jurisdiction over an important occupational category, and, in return, we will ensure that the members of our profession are worthy of your trust - that they will not only be competent to perform the tasks entrusted to them, but that they will also conduct themselves with high standards and great integrity. The authors believe that enforcing educational standards and a code of ethics is unlikely to choke entrepreneurial creativity. Indeed, if the field of medicine is any indication, a code may even stimulate creativity. The main challenge in writing a code lies in reaching a broad consensus on the aims and social purpose of management. There are two deeply divided schools of thought. One school argues that management's aim should simply be to maximize shareholder wealth; the other argues that management's purpose is to balance the claims of all the firm's stakeholders. Any code will have to steer a middle course in order to accommodate both the value-creating impetus of the shareholder value concept and the accountability inherent in the stakeholder approach.

Redefining the terms of competition for a market sector, an industry, or an entire global ecosystem is a tall order. It means attracting thousands of participants, galvanizing their efforts, and retaining their commitment for the long haul. Hagel, Brown, and Davison, of the Deloitte Center for Edge Innovation, provide a blueprint for this daunting task of shaping strategy as technology-driven infrastructures constantly change. The authors discuss three elements that, no matter the industry, are vital in shaping strategy. A shaping view, or rallying cry to potential participants, clarifies the market opportunity, makes sense of fundamental forces, identifies rewards, and highlights the shared nature of risk. Bill Gates, of course, succeeded with his view of desktop computing, and more recently Salesforce.com's Marc Benioff has held out a new model for delivering enterprise software. A shaping platform, like that of Google's AdSense, clearly defines standards and practices that help organize and support the activities of many participants, enabling them to do more with less. Specific shaping acts and assets convince participants that the shaper has the muscle to pull off its initiatives, as Facebook has done by showcasing its relationship with Microsoft. The three elements together allow a shaper to quickly mobilize a critical mass of participants and, thereby, unleash powerful network effects that can yield big rewards during periods of rapid change. Almost any company will benefit from an attempt to shape strategy, say the authors, but they recognize that not every business is ultimately a shaper. By participating in other firms' shaping strategies, they show, a company can still find plenty of opportunities to create value.

Most corporations are not as skilled at selling off assets as they are at buying them, often divesting at the wrong time or in the wrong way. Either is a very expensive mistake. A Bain & Company study has found that over the last 20 years, corporations that took a disciplined approach to divestiture created nearly twice as much value for shareholders as the average firm. In this article, Bain partners Mankins, Harding, and Weddigen set out the four straightforward rules those effective divestors follow. First: Just as they have acquisition teams, smart divestors have full-time divestiture groups, which continually screen their companies' portfolios for likely businesses to sell off and think through the timing and implementation steps needed to maximize value in each particular case. Second: They choose their divestiture candidates objectively. Too many firms rush to sell in economic downturns, when prices are low. Thoughtful divestors will sell only those businesses that do not fit with the corporation's core and are not worth more to themselves than they are to any other company. Third: Successful divestors consider how to structure a deal and to whom they will sell as carefully as they consider what units to sell and when. And they are as meticulous about planning the implementation of a deal as savvy acquirers are about postmerger integration. Fourth: They make a compelling case for how, and how quickly, the deal will benefit the buyer, and they make sure the selling unit's employees will be motivated to stay on and realize that value. Using these four rules, companies as diverse as Textron, Weyerhaeuser, Ford, Groupe Danone, and Roche have become "divestiture ready": consistently able to sell at the right time and in the right way to create the most value for their shareholders.

In today's innovation-driven economy, understanding how to generate great ideas has become an urgent managerial priority. Suddenly, the spotlight has turned on the academics who've studied creativity for decades. How relevant is their research to the practical challenges leaders face? To connect theory and practice, Harvard Business School professors Amabile and Khaire convened a two-day colloquium of leading creativity scholars and executives from companies such as Google, IDEO, Novartis, Intuit, and E Ink. In this article, the authors present highlights of the research presented and the discussion of its implications. At the event, a new leadership agenda began to take shape, one rooted in the awareness that you can't manage creativity - you can only manage for creativity. A number of themes emerged: The leader's job is not to be the source of ideas but to encourage and champion ideas. Leaders must tap the imagination of employees at all ranks and ask inspiring questions. They also need to help their organizations incorporate diverse perspectives, which spur creative insights, and facilitate creative collaboration by, for instance, harnessing new technologies. The participants shared tactics for enabling discoveries, as well as thoughts on how to bring process to bear on creativity without straitjacketing it. They pointed out that process management isn't appropriate in all stages of creative work; leaders should apply it thoughtfully and manage the handoff from idea generators to commercializers deftly. The discussion also examined the need to clear paths through bureaucracy, weed out weak ideas, and maximize the organization's learning from failure. Though points of view varied, the theories and frameworks explored advance the understanding of creativity in business and offer executives a playbook for increasing innovation.

If you run a big company, you might think it's nearly impossible to grow profits organically. Think again, say MacMillan, of the University of Pennsylvania's Wharton School, and Selden, of Columbia Business School. Locked inside your firm's customer records is a wealth of information about what your customers need and how to make more of them profitable to you. Tapped strategically, this information can generate enormous value for your company and give you a big leg up on potential invaders. The authors call it the incumbent's advantage. Using the hypothetical example of Mix C-Ment, based on the real experience of concrete manufacturer CEMEX, the authors walk through a step-by-step tutorial on strategic customer segmentation. They demonstrate how investing in and applying research about particular customers' needs for tailored products, marketing support, and technical services can greatly increase profits. But that requires seeing these offerings not as mere allocated costs but as deliberately invested resources. To exploit your incumbent's advantage, build a modest customer-characteristics database and rank your customers according to profitability. Then analyze in detail the needs and behavior of the most and least profitable 20% - and strategically use what you find. This customer-centric approach to your information should have as its counterpart a corporate structure in which cross-functional teams assigned to specific customer segments make smart resource investments using your evolving knowledge about each segment's needs and performance. Getting your customer information and your organization to work together in this way is the key to preserving your firm's dominance while increasing profits at every step of the process.

Why is that question in the past tense? Because individuals can no longer feel confident that the details of their lives - from identifying numbers to cultural preferences - will be treated with discretion rather than exploited. Even as Facebook users happily share the names of their favorite books, movies, songs, and brands, they often regard marketers' use of that information as an invasion of privacy. In this wide-ranging essay, McCreary, a senior editor at HBR, examines numerous facets of the privacy issue, from Google searches, public shaming on the internet, and cell phone etiquette to passenger screening devices, public surveillance cameras, and corporate chief privacy officers. He notes that IBM has been a leader on privacy; its policy forswearing the use of employees' genetic information in hiring and benefits decisions predated the federal Genetic Information Nondiscrimination Act by three years. Now IBM is involved in an open-source project known as Higgins to provide users with transportable, potentially anonymous online presences. Craigslist, whose CEO calls it "as close to 100% user driven as you can get," has taken an extremely conservative position on privacy - perhaps easier for a company with a declared lack of interest in maximizing revenue. But TJX and other corporate victims of security breaches have discovered that retaining consumers' transaction information can be both costly and risky. Companies that underestimate the importance of privacy to their customers or fail to protect it may eventually face harsh regulation, reputational damage, or both. The best thing they can do, says the author, is negotiate directly with those customers over where to draw the line.

We can no longer discuss globalization in the future tense. Firms now operate in a global competitive landscape, one that is vibrantly dynamic and continuously changing. Herein, we examine this global landscape in its current form, and the changes we expect to occur over the next few decades. Based on these analyses, we identify firm strategies that are necessary to be successful in this challenging competitive landscape.

This article embarks on a road trip to NASCAR, the National Association for Stock Car Auto Racing, to take a close look at why cheating occurs within that organization. Two arguments drive the article, namely that NASCAR (1) may not be able to stop cheating particularly within the current context, and (2) might not want or be motivated to stop cheating. Obstacles complicating NASCAR's efforts to stop cheating include the long-standing culture of unethical behavior within stock car racing, and the inconsistent imposition of punishments by NASCAR which drivers and race teams perceive as favoritism and unfair treatment. Yellow flags that raise caution include pressure from unwavering fans, and the friction between innovation and maintaining parity among teams. Proposed solutions include changing the culture within the NASCAR community, as well as developing ethical role models, both of which require major action by NASCAR's top managers to signal the importance of ethical behavior. Other key stakeholders such as sponsors and fans must create incentives and rewards for ethical behavior, and consider reducing or ending support for drivers and teams that engage in unethical conduct. Our analysis and recommendations have broad applications because NASCAR is an archetype of a large organization attempting to reduce cheating and unethical behavior.

The ability to interact effectively in multiple cultures is not a skill possessed by all; yet, it is becoming more important in today's global business world. Recently, this skill has been labeled cultural intelligence (CQ), and has caught the attention of business leaders and researchers alike. While previous studies have examined potential outcomes of cultural intelligence, possible antecedents are examined herein. This investigation generates some insight regarding the impact of cultural exposure on CQ, as well as developing an understanding of how the depth of cultural exposure influences a person's cultural intelligence. Findings indicate that certain types of exposures to other cultures (such as education abroad and employment abroad) and the level of exposure from these experiences increases cultural intelligence. These findings are critical for multinational firms as managers hire, promote, train, and prepare employees for international assignments. Additionally, some have discussed how cultural intelligence is a critical skill for global business leaders, and it seems likely that CQ will become increasingly important due to the rise of diversity in the workforce.

Discussions about transfer pricing normally presume the firm's objective is to maximize profit while making the best use of existing capacity. This article differs by exploring the impact of transfer pricing on capital budget decisions. In decentralized firms, decision authority for investment is assigned to division managers whose capital budgets include revenues from internal transfers. When a selling division is under capacity, economic theory recommends a transfer price based on differential cost. Here the seller generates sufficient revenues to recoup operating costs, but not enough to recover capital costs. Consequently, division managers will reject some investments that otherwise would have increased corporate shareholder value. Market-based transfer pricing overcomes this conflict by allocating savings on inter-company transactions to the selling division. However, market transfer pricing may result in shortfalls to corporate profit. Nonetheless, we argue in favor of the use of transfer pricing on the presumption that long-term value creation takes precedence over short-term profit.

Compared to offline media communications, business-to-consumer (B2C) websites possess unique characteristics that affect the likelihood of generating emotional reactions to the web experience itself, the brand, fellow customers, and employees of the firm. The emotion-causing antecedents elucidated in this article are the website's vividness, interactivity, challenge, interaction speed, machine memory, and allowable social interactions. Depending on how a website performs on these dimensions, positive or negative emotions may result. For example, using machine memory to automatically generate purchase recommendations based on prior consumption patterns may be perceived as pleasantly surprising, while a firm sending unsolicited emails based on a user's cookie trail may be annoying. Regardless of the valence of the resultant emotion, the feelings generated may attach to the brand. Because a goal of brand managers is to get consumers to associate positive emotions with a brand, a pre-condition to developing and managing a website is understanding these emotion evoking antecedents and their ramifications.

As more and more firms move activities offshore to countries that are distantly located from their home base of operations, the initial advantages of making this move are increasingly tempered by realities on the ground. For firms contemplating offshoring today, it is important to weigh the advantages and disadvantages of undertaking or extending this strategy in light of what we now know. Broadly speaking, successful offshoring must begin with an understanding of the market and competitive pressures that encourage offshoring, and then build on recognition of how these pressures can be addressed using or modifying the offshoring options currently practiced. Our discussion of these issues is based on analysis of offshoring of IT-enabled services by Fortune Global 500 firms in such areas as software development and business processes that support customer interaction.

Historically, product design has most often been considered a process for creating functional differentiation through added features, superior performance, and so forth. However, with the advent of more design-oriented companies, such as Apple, Dyson, and others, design is increasingly being seen as an important strategic tool in creating preference and deeper emotional value for the consumer. In this research, we show how different design elements may be used strategically to create two very different outcome chains from a consumer's perspective. This work shows that certain design elements are more likely to create functional product differentiation and transactional consumer outcomes, while other design strategies tap a more emotional form of value creation. As we show, an emotional focus in value creation is more likely to create desired and powerful outcomes such as loyalty, joy of use, and even passion. Given current business trends towards relationship-based customer management, this emphasis on emotional value creation through product design is particularly relevant. In order to make these ideas actionable, we offer specific product design strategies that managers can use to enhance the transactional and relational value of their customer relationships.

Football is indeed the quintessential model for modern-day talent-Dependant business. Football managers have always needed to solve the foremost people management dilemma of how to most effectively manage talent. However, talent alone is not enough. In an early example from English football in the 1930s, in the words of Arsenal's Herbert Chapman, the manager's task is to use that talent to "organize victory." Countless examples can be cited from the history of the game of football where clubs and national teams fielding line-ups of what was considered to be the best and, therefore, the most expensively paid talent in the game at that time failed to live up to expectations. In contrast, other examples from football can be cited where a team of medium-quality, average-costing talent has consistently outperformed more-illustrious rivals. In most cases, the difference can be attributed to the lack or presence of an effective manager.

The information that top managers receive is rarely unfiltered. Unpopular opinions are censored. Partisan views are veiled as objective arguments. Honest mistakes are made. The manager is then left to sort it all out and come to a wise conclusion. Few people know how to get an accurate read on a situation like documentarian Errol Morris. He is the award-winning director of such films as The Thin Blue Line and this year's Standard Operating Procedure, an exploration of the elusive truth behind the infamous photographs taken at Abu Ghraib prison. The Guardian has ranked him among the world's top 10 directors, crediting him with "a forensic mind" and "a painter's eye." In this article, Morris talks with HBR's Lisa Burrell about how he sorts through ambiguous evidence and contradictory views to arrive at the real story. "I don't believe in the postmodern notion that there are different kinds of truth," he says. "There is one objective reality, period." Getting to it requires keeping your mind open to all kinds of evidence- not just the parts that fit with your first impressions or developing opinions-and, often, far more investigation than one would think. If finding the truth is a matter of perseverance, convincing people of it is something of an art, one with which Morris has had much experience not only as a documentarian but also as a highly sought-after director of TV ads for companies like Apple, Citibank, Adidas, and Toyota. He holds up John Kerry's 2004 bid for the U.S. presidency as a cautionary tale: Kerry struck voters as inauthentic when he emphasized only his military service and failed to account for his subsequent war protest. Morris would have liked to interview him speaking in his own words-natural, unscripted material-so that his humanity, which seemed to get lost in the campaign, could emerge.

For three months this spring, HBR Green hosted a six-part series of online commentary and discussion exploring best practices and new thinking in green business strategy. Leaders of the business world-including Brian Walker, CEO of Herman Miller; Judith Samuelson, an executive director at the Aspen Institute; and Stuart Rose, chief executive of Marks & Spencer-asked provocative questions about how environmental issues are affecting key corporate disciplines: operations, corporate governance, marketing, ethics, leadership, and supply chain management. Featured contributors and readers from around the globe-executives of companies large and small, consultants, heads of utilities, academics-answered with robust and lively commentaries. Their contributions taught us that in marketing green products, companies must not lose sight of the basic reasons consumers buy them in the first place; that products that are green from the ground up have fundamentally different economics and markets from products that start dirty and are cleaned up by reengineered processes; that global pooling and exchange of technology are vital to cleaning up supply chains and reducing worldwide greenhouse gas emissions; that going green requires a sustained and unified effort from a diverse set of companies, customers, suppliers, workers, nonprofits, governments, and NGOs. And, as the highlights collected in this special section reveal, no company, industry, or executive will remain untouched.