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The balanced scorecard revolutionized conventional thinking about performance metrics. When Robert Kaplan and David Norton first introduced the concept in 1992, companies were busy transforming themselves to compete in the world of information; their ability to exploit intangible assets was becoming more decisive than their ability to manage physical assets. The scorecard allowed companies to track financial results while monitoring progress in building the capabilities needed for growth. The tool was not intended to be a replacement for financial measures but rather a complement--and that's just how most companies treated it. Some companies went a step further, however, and discovered the scorecard's value as the cornerstone of a new strategic management system. In this article from 1996, the authors describe how the balanced scorecard can address a serious deficiency in traditional management systems: the inability to link a company's long-term strategy with its short-term financial goals. The scorecard lets managers introduce four new processes that help companies make that important link. The first process--translating the vision--helps managers build a consensus concerning a company's strategy and express it in terms that can guide action at the local level. The second--communicating and linking--calls for communicating a strategy at all levels of the organization and linking it with unit and individual goals. The third--business planning--enables companies to integrate their business plans with their financial plans. The fourth--feedback and learning--gives companies the capacity for strategic learning, which consists of gathering feedback, testing the hypotheses on which a strategy is based, and making necessary adjustments.

In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge. Yet, few managers understand the true nature of the knowledge-creating company--let alone know how to manage it. According to this 1991 article by Japanese organizational theorist Ikujiro Nonaka, the problem is that most Western managers define knowledge--and what companies must do to exploit it--too narrowly. They believe that the only useful knowledge is "hard" (read "quantifiable") data. And they see the company as a kind of machine for information processing. Nonaka shows us another way to think about knowledge and its role in business organizations. He uses vivid examples from highly successful Japanese companies such as Honda, Canon, NEC, and Sharp. Managers at these companies recognize that creating new knowledge is not simply a matter of mechanistically processing objective information. Rather, it depends on tapping the tacit and often highly subjective insights, intuitions, and ideals of employees. The tools for making use of such knowledge are often "soft"--such as slogans, metaphors, and symbols--but they are indispensable for continuous innovation. The reasons Japanese companies are especially adept at this holistic kind of knowledge creation are complex. But the key lesson for managers is quite simple: Much as manufacturers worldwide have learned from Japanese manufacturing techniques, companies that want to compete on the knowledge playing field must also learn from Japanese techniques of knowledge creation.

No one would run a business without accounting for its capital outlays. Yet in 1999, when this article was originally published, most companies overlooked one major capital component--the value of the earth's ecosystem services. It was a staggering omission: Calculations at that time placed the value of those services--water storage, atmosphere regulation, climate control, and others--at $33 trillion per year. Not accounting for that cost has led to waste on a grand scale, the authors maintain. This article shows how a few farsighted companies, like DuPont and Xerox, were able to find powerful business opportunities in conserving resources on a similarly grand scale. Their early embrace of natural capitalism is even more important to emulate today. Natural capitalism comprises four major shifts in business practices. The first involves dramatically increasing the productivity of natural resources--by as much as 100-fold. In the second stage, companies adopt closed-loop production systems that yield no waste or toxicity. The third stage requires a fundamental change of business model--from selling products to delivering services. For example, instead of selling light bulbs, a manufacturer sells lighting services, with both the seller and the customer benefiting from the development of extremely efficient, durable bulbs. The last stage involves reinvesting in natural capital to restore, sustain, and expand the planet's ecosystem. Because natural capitalism is both necessary and profitable, it will subsume traditional industrialism, the authors argue, just as industrialism subsumed agrarianism. And the companies that are furthest down the road will have the competitive edge.

The Internet goose has laid countless golden eggs, along with a growing number of rotten ones. But it's the rotten ones that now tempt commercial, governmental, and consumer interests to threaten the Internet's uniquely creative power. The expediently selected, almost accidentally generative properties of the Internet--its technical openness, ease of access and mastery, and adaptability--have combined, especially when coupled with those of the PC, to produce an unsurpassed environment for innovative experimentation. Those same properties, however, also make the Internet hospitable to various forms of wickedness: hacking, porn, spam, fraud, theft, predation, and attacks on the network itself. As these undesirable phenomena proliferate, business, government, and many users find common cause for locking down Internet and PC architecture in the interests of security and order. PC and Internet security vulnerabilities are a legitimate menace. However, the most likely reactions--if they are not forestalled--will be at least as unfortunate as the security problems themselves. Consider the growing profusion of "tethered appliances"--devices whose functions cannot readily be altered by their owners (think TiVo). Such appliances take Internet innovations and wrap them up in a neat, easy-to-use package, which is good--but only if the Internet and PC can remain sufficiently in the center of the digital ecosystem to produce the next round of innovations and to generate competition. People buy these devices for their convenience or functionality and may appreciate the fact that they are safe to use (they limit the damage users can do through ignorance or carelessness). But the risk is that users, by migrating to such appliances, will unwittingly trade away the future benefits of generativity--a loss that will go unappreciated even as innovation tapers off.

In search of lessons to apply in our own careers, we often try to emulate what effective leaders do. Roger Martin says this focus is misplaced, because moves that work in one context may make little sense in another. A more productive, though more difficult, approach is to look at how such leaders think. After extensive interviews with more than 50 of them, the author discovered that most are integrative thinkers--that is, they can hold in their heads two opposing ideas at once and then come up with a new idea that contains elements of each but is superior to both. Martin argues that this process of consideration and synthesis (rather than superior strategy or faultless execution) is the hallmark of exceptional businesses and the people who run them. To support his point, he examines how integrative thinkers approach the four stages of decision making to craft superior solutions. First, when determining which features of a problem are salient, they go beyond those that are obviously relevant. Second, they consider multidirectional and nonlinear relationships, not just linear ones. Third, they see the whole problem and how the parts fit together. Fourth, they creatively resolve the tensions between opposing ideas and generate new alternatives. According to the author, integrative thinking is an ability everyone can hone. He points to several examples of business leaders who have done so, such as Bob Young, co-founder and former CEO of Red Hat, the dominant distributor of Linux open-source software. Young recognized from the beginning that he didn't have to choose between the two prevailing software business models. Inspired by both, he forged an innovative third way, creating a service offering for corporate customers that placed Red Hat on a path to tremendous success.

Despite the great sums of money companies dedicate to talent management systems, many still struggle to fill key positions--limiting their potential for growth in the process. Virtually all the human resource executives in the authors' 2005 survey of 40 companies around the world said that their pipeline of high-potential employees was insufficient to fill strategic management roles. The survey revealed two primary reasons for this. First, the formal procedures for identifying and developing next-generation leaders have fallen out of sync with what companies need to grow or expand into new markets. To save money, for example, some firms have eliminated positions that would expose high-potential employees to a broad range of problems, thus sacrificing future development opportunities that would far outweigh any initial savings from the job cuts. Second, HR executives often have trouble keeping top leaders' attention on talent issues, despite those leaders' vigorous assertions that obtaining and keeping the best people is a major priority. If passion for that objective doesn't start at the top and infuse the culture, say the authors, talent management can easily deteriorate into the management of bureaucratic routines. Yet there are companies that can face the future with confidence. These firms don't just manage talent, they build talent factories. The authors describe the experiences of two such corporations--consumer products icon Procter & Gamble and financial services giant HSBC Group--that figured out how to develop and retain key employees and fill positions quickly to meet evolving business needs. Though each company approached talent management from a different direction, they both maintained a twin focus on functionality (rigorous talent processes that support strategic and cultural objectives) and vitality (management's emotional commitment, which is reflected in daily actions).

Why do companies bind customers with contracts, bleed them with fees, and baffle them with fine print? Because bewildered customers, who often make bad purchasing decisions, can be highly profitable. Most firms that profit from customers' confusion are on a slippery slope. Over time, their customer-centric strategies for delivering value have evolved into company-centric strategies for extracting it. Not surprisingly, when a rival comes along with a friendlier alternative, customers defect. Adversarial value-extracting strategies are common in such industries as cell phone service, retail banking, and health clubs. Overly complex product and pricing options, for example, may have been designed to serve various segments. But in fact they take advantage of how difficult it is for customers to predict their needs (such as how many cell phone minutes they'll use each month) and make it hard for them to choose the right product. Similarly, penalties and fees, which may have been instituted to offset the costs of undesirable customer behavior, like bouncing checks, turn out to be very profitable. As a result, companies have no incentive to help customers avoid them. Tactics like these generate bad publicity and fuel customer defections, creating opportunities for competitors. Virgin Mobile USA, for example, has lured millions of angry cell phone customers away from the incumbents by offering a straightforward plan with no hidden fees, no time-of-day restrictions, and no contracts. ING Direct, now the fourth-largest thrift bank in the United States, offers accounts with no fees, no tiered interest rates, and no minimums. In industries where squeezing value from customers is commonplace, companies that dismantle these harmful practices and design a transparent, value-creating offer can head off customer retaliation and spur rapid growth.

Of all the risks of doing business in China, the greatest is the threat posed by environmental degradation. And yet it's barely discussed in corporate boardrooms. This is a serious mistake. Multinationals may be more concerned with intellectual property rights violations, corruption, and potential political instability, but the Chinese government, NGOs, and the Chinese press have been focused squarely on the country's energy shortages, soil erosion, lack of water, and pollution problems, which are so severe they might constrain GDP growth. What's more, the Chinese expect the international community to take the lead in environmental protection. If that doesn't happen, multinationals face clear risks to their operations, their workers' health, and their reputations. In factoring environmental issues into their China strategies, foreign firms need to be both defensive, taking steps to reduce harm, and proactive, investing in environmental protection efforts. Coca-Cola, for example, installed state-of-the-art bottling plants in China that operate with no net loss of water resources. Mattel increased the safety of its Barbie-manufacturing process to protect workers' health. With its efforts to reduce greenhouse gas emissions, GE is shrinking its environmental footprint in China; more proactively, GE is working closely with the Chinese government and scientists to develop clean coal, water purification, and water reuse technologies. In considering the value of such efforts, companies can not only factor in reduced risk but also increased opportunity, as they use innovations designed for the Chinese market in the rest of the world. The bottom line: How well multinationals address environmental issues in China will affect their fortunes in one of the most important economies in the world.

What makes a company strategically agile--able to alter its strategies and business models rapidly in response to major changes in its market space, and to do so repeatedly without major trauma? Three years of in-depth case research on a dozen large companies worldwide showed the authors that one key factor is a new leadership model at the top. Senior executives at agile companies assume collective rather than individual responsibility for results. They build interdependencies among units and divisions, motivating themselves to engage with one another, and carefully manage their dealings to promote collaboration that is frequent, intense, informal, open, and focused on shared issues and the long term. Challenges to conventional thinking are encouraged. This is the new deal, and it's not easy to strike, because it requires executives to act in ways that are far from comfortable. After all, the corporate ladder at most firms favors independent types with a deep need for power and autonomy. At executive meetings, disagreement is suppressed or expressed passive-aggressively, eroding any real sense of belonging to a team. Switching to the new deal almost always requires a huge shift in the company's culture, values, and norms of interaction. The authors describe three approaches to making the shift: Executives can be given formal responsibility not for a business unit but for different stages in the company's value chain. This worked well for SAP, which has a relatively focused business portfolio. When a company's portfolio is less uniform, like Nokia's, business and functional units can be organized to crisscross on a matrix. And when a company is widely diverse, like easyGroup, it can emphasize the learning opportunities that units with common business models may share.

Companies seeking new ideas or product concepts from outside sources may find the "innovation bazaar," with its wide array of choices and methods of acquiring them, a confusing, chaotic place. Nambisan and Sawhney have crafted a conceptual guide for managers who understand the importance of going outside their firms for innovation but are uncertain about how to do it. The authors' "external sourcing continuum" shows at a glance how shopping for, say, raw ideas compares with shopping for market-ready products in terms of cost, risk, multiplicity of options, and speed of commercialization. Raw ideas, whether acquired directly from the inventor or through a patent broker, licensing agent, or some other intermediary, tend to be low cost but high risk and take a long time to bring to market. Market-ready products, often acquired as stand-alone businesses through a venture capitalist or business incubator, are more expensive and narrow one's choices, but they can be launched quickly and with less risk. Between these two approaches lies a third, facilitated by the "innovation capitalist." This new kind of intermediary provides client companies with access to a broad range of innovative product or technology ideas that are nearly market ready, thereby mitigating early-stage risks and lowering the time to market without significantly increasing acquisition costs. The authors compare the advantages and disadvantages of using intermediaries associated with the three approaches and provide a checklist of factors to consider when placing your company on the external sourcing continuum. If you've been oriented toward one end of the continuum or the other, you can increase your options and your flexibility by expanding into the middle.

The challenges of coming up with fresh ideas and realizing profits from them are different for every company. One firm may excel at finding good ideas but have weak systems for bringing them to market. Another organization may have a terrific process for funding and rolling out new products and services but a shortage of concepts to develop. In this article, Hansen and Birkinshaw caution executives against using the latest and greatest innovation approaches and tools without understanding the unique deficiencies in their companies' innovation systems. They offer a framework for evaluating innovation performance: the innovation value chain. It comprises the three main phases of innovation (idea generation, conversion, and diffusion) as well as the critical activities performed during those phases (looking for ideas inside your unit; looking for them in other units; looking for them externally; selecting ideas; funding them; and promoting and spreading ideas companywide). Using this framework, managers get an end-to-end view of their innovation efforts. They can pinpoint their weakest links and tailor innovation best practices appropriately to strengthen those links. Companies typically succumb to one of three broad "weakest-link" scenarios. They are idea poor, conversion poor, or diffusion poor. The article looks at the ways smart companies--including Intuit, P&G, Sara Lee, Shell, and Siemens--modify the best innovation practices and apply them to address those organizations' individual needs and flaws. The authors warn that adopting the chain-based view of innovation requires new measures of what can be delivered by each link in the chain. The approach also entails new roles for employees--"external scouts" and "internal evangelists," for example. Indeed, in their search for new hires, companies should seek out those candidates who can help address particular weaknesses in the innovation value chain.

Organizations that fear sharing their data with aggregators might be surprised to learn they can benefit from letting other firms disseminate their information online.

CEOs looking for ways to improve ROI should examine the practices of similar companies in other industries.

Despite Africa's regional poverty, the continent's gross national income per capita is greater than India's. That represents a huge potential market for enterprises worldwide.

If Marketing and Finance can learn to get along, both can advance their agendas.

Portable media players are helping employees make productive use of their downtime, as businesses learn how to train people via pod cast.

Often, executives who are hired from outside a firm fail because they can't fit in with its culture. Here's how to help them avoid missteps.

Most organizations bend over backward to avoid failure. They shouldn't, says economist Paul Ormerod. History shows that failure and success are inherently random, so firms should innovate and adapt.

Studies show that the more staffers' opinions of a company outshine customers', the greater that company's sales growth will be.

Should service firms show clients their inner workings or keep their cards close? Recent research touts the benefits of letting customers know how firms operate.