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This is an MIT Sloan Management Review article. Responding to competitive pressures, a growing number of corporate managers are dismantling organizations and cultures that were built on selling particular products and replacing them with new structures designed to be more responsive to customer needs. The push to restructure around customers is more than a new management fad. It is supported by success stories at companies including IBM, Cummins India, Fidelity Investments, and Imation. Companies transitioning from product-oriented to customer-centered organizations progress along a continuum. They begin with informal coordination to overcome the deficiencies of product or functional silos, adding integrating functions (such as key account managers and customer segment task forces) as needed. The market logic for becoming customer focused is often compelling. In surveying 347 companies, the author found that companies that embraced this approach saw accountability for customer relationships improve, and information about customers was more readily shared. These companies were also easier to do business with, according to customers. However, the author found that transforming product-centered cultures can be difficult and that the potential benefits do not necessarily translate into superior performance.

This is an MIT Sloan Management Review article. Launching new ventures outside a corporation's core business is risky and failure prone, yet, it is often perceived as vital to innovation and organic growth. Can investing in new ventures add value to a company despite the risks? To explore that question, the authors conducted an in-depth study of corporate venturing at Nokia Corp. between 1998 and 2002. The research yielded a number of lessons about corporate venturing. For example, Nokia discovered that looking at the success or failure of an individual project as a business was the wrong way to evaluate the effectiveness of the venturing program. Whether they succeeded as businesses, Nokia's corporate ventures often added important capabilities to the core business, such as familiarity with a new customer segment for the company. In fact, seemingly unrelated investments sometimes led to technologies that later benefited the company's core business. The authors conclude that, to extract value from corporate ventures, companies must use different management practices than in their established businesses, structure new ventures so that they don't face pressure to deliver immediate results, and emphasize learning. Although 70% of Nokia's corporate venturing investments during the period studied were either discontinued or completely divested, the capabilities and technologies developed nonetheless played an important role in helping the company's core businesses respond to change.

This is an MIT Sloan Management Review article. As businesses add more and more products to their portfolios, they face diminishing returns on variety and greater costs in bringing their products to market. As a result, managers must balance the costs and benefits of variety in determining their product lineups. The authors worked with a wide range of businesses and discovered that a widespread approach, whereby low-volume products are cut first, is often ineffective. As an alternative, the authors discuss five critical lessons for maximizing the value and effectiveness of variety management, and present a process for making value-driven variety management successful. First, all products are not created equal. Both complexity costs and benefits may vary considerably for different types of product variants. Second, be exhaustive. The impact on any one cost area may be insignificant. It is the compound effect of the impact that creates the complexity monster. Third, take a return on investment view. A business case for adding variety should consider impact of both one-time and recurring costs over the whole product life cycle and balance this against the incremental benefits over the product life cycle. Fourth, tailor the variety-management strategy to the type of complexity cost. Fifth, reduce product complexity costs without reducing product complexity.

This is an MIT Sloan Management Review article. There are now at least 10 separate schools of thought regarding strategy and more than a dozen common definitions of the term. To clarify and deepen our understanding of corporate strategy, the author suggests general guidelines that set the boundaries of the discipline to facilitate future executive decisions. The author argues that strategy comprises three objectives: creating value, handling imitation, and shaping a perimeter. The ability to sustain value creation, whether from the customer's or the shareholder's perspective, is the ultimate goal of any strategy. Concepts such as benchmarking, differentiation, core competencies, unique resources, institutionalism, and competitive rivalry are all connected with the ability to prevent, implement, or leverage imitation. Decisions about diversification, outsourcing, vertical integration, internationalization, and positioning are all linked with the search for a profitable perimeter.

This is an MIT Sloan Management Review article. Conflict is inevitable in any large organization, and these conflicts, particularly in the board of directors, can often be costly to a firm both in terms of real dollars and in lost organizational focus. However, drawing on best practices in conflict management, the author suggests that organizations can take a comprehensive approach to settle conflict quickly inside the board, making use of four resources available to any organization. The first is the board itself. Directors and boards should take the lead in addressing their own problems and disagreements using the most constructive approaches possible. Boards also need to establish a set of internal and external resources. Internally, they can rely on resources such as general counsel, the chief ethics officer, and the organizational ombudsman. Externally, organizations can rely on mediation and arbitration as well as investigative counsel. In cases of last resort, the board can rely on public resources such as the courts and government agencies. However, this approach may not be enough. The authors suggest a new role: the board ombudsman, for a highly competent, independent, and confidential resource who can help directors and boards to solve problems through effective, informal methods, such as assisted negotiation or shuttle diplomacy.

This is an MIT Sloan Management Review article. The success of the IKEA Group, the world's largest furniture retailer, is generally attributed to its highly innovative strategy. Through global sourcing of products and customer self-service in the areas of furniture delivery and assembly, IKEA achieves a low-cost position that enables it to charge low prices. Meanwhile, IKEA's use of Scandinavian design and an innovative retail environment increase customers' perception of receiving good value. By examining the history of IKEA, the author concludes that, while founder Ingvar Kamprad initially had a general vision, many important details of IKEA's strategy were developed through experimentation and adaptation to market circumstances rather than through preplanned strategy formulation. In academic literature, this approach to strategy is known as logical incrementalism. The author suggests that IKEA's experiences in strategy development demonstrate the importance of starting with a clear vision but refining it over time; experimenting constantly and being willing to make mistakes; seeking to turn problems into opportunities; and learning from other people's ideas.

In corporate America, the use of 360-degree feedback continues to rise. Is this tool, though, all it purports to be? Used with caution, the feedback process can provide meaningful information for both the organization and the individuals involved. Misuse of the process, however, can lead to hurt feelings, increased anxiety, and even loss of key personnel. Showcases key research findings on best practices for using the 360-degree feedback process, especially regarding intended use of feedback, aligning performance measures with organizational goals, and selecting and training participants.

Scholarly literature has discussed why entities make voluntary accounting changes, and practice grapples with which change might be appropriate and when. Regulators have set forth a requirement that public companies file preferability letters with the Securities and Exchange Commission indicating the auditor's support for the particular change. Descriptive profiling of these letters from 1992 through 2004 leads to prescriptions that address practice challenges and regulators' expectations. Broad policy questions involve whether such changes ought to be permitted and what independence considerations arise as managers, directors, auditors, and regulators discuss and sometimes disagree on the preferred accounting principles.

Pricing is one of the most complex decisions facing any company. Along with a lack of academic interest (especially among marketing academics) in the field of pricing, this complexity has contributed to the dominance of simplified, cost-based formulas when levying prices. Proffers an alternative approach based on the concept of contribution margin and the need to take into consideration only those costs that are related directly to a specific pricing decision, an approach that is especially useful when a company decides to change its prices. Moreover, an empirical study regarding the practical use of this approach is also presented.

Companies strive to create fiercely loyal, profitable customers, but the authors shows that this can only be achieved by rethinking the existing logic about customer loyalty; integrating your loyalty efforts with product-offering development, marketing, and sales; and close collaboration between the strategy and design functions of an organization. Cultivating loyalty requires ambition and risk-taking, but will ultimately provide your company with valuable and sustained relationships. Included is a four-step process for defining the appropriate levers, design interventions, and organizational strategy for creating fiercely loyal customers.

Despite engaging with other people on a regular basis, individuals vary significantly in their willingness to trust. For some, trusting intentions are central to their conceptions of their social selves; while for others, the social world takes second place to their individually-motivated concerns. Despite these differences, extrinsic motivations (i.e., the tangible benefits that result from trusting) provide strong motivations to establish mutual trust and/or mutually-trusting reciprocal actions. The authors present the Motivated Attributions Model, with explains the conditions under which acts of trust are most likely. One immediate implication of their Model is for individuals in potentially-trusting relationships to seriously consider the effects of their motivations, their dependencies, their need to see themselves positively, and their inability to fully understand their counterparts' perceptions.

Blind reliance on customer loyalty as a universal goal will put you out of business, warn the authors. Any loyalty initiative needs to begin with an understanding of the profitability of individual customers. Their investigation revealed more than 50 commonly-held beliefs about customer loyalty that turned out to be oversimplifications, exaggerations or just plain lies. The difficult truth is that the links between customer loyalty and business profitability are far more complex than we have been led to believe. The authors provide the top ten key misunderstandings surrounding this widely-coveted phenomenon and provide advice for firms to counter each.

The ability to place workers into jobs with which they identify is central to what makes organizations work. The authors discuss the limits of monetary incentives and the power of an identity-enhanced economic model to encourage a new view of a variety of management policies, organizational behaviors, and employment policies. They argue that identity is the next step in the evolution of the economic modeling of organizations, and show that the simplest representation of an organization is equated to its physical capital: a more sophisticated view adds the specific human capital of employees to the description of the firm. Insofar as the firm can profitably motivate its employees through such attachments, these investments should be considered a part of the capital of the organization, its motivational capital.

The emerging concept of corporate citizenship entails membership in a global community where citizens have duties to respond to the needs of their fellow citizens. The author puts forth a 'statement of a minimal moral obligation' (SMMO) for firms in industries such as pharmaceuticals, who have the ability to address rampant health risks in developing countries. He defines corporate obligation as consisting of three elements, and argues that the emerging concept of corporate and business citizenship supports recognition of the duty established in his SMMO. By supporting the global community, he argues, firms will be helping to maintain a supportive environment for business activity.

In the sports arena as in the workplace, leaders can decrease counterproductive behavior by fostering organizational commitment and perceptions of fairness. Traditionally, job performance has been measured in terms of specific task-related statements and behaviors: did the employee accomplish the list of tasks set out in the job description? Current approaches pay attention to a much broader range of behaviors that, when present, can add value to an organization by helping it achieve its goals and contributing to the social and psychological work environment. By studying performance data from the NBA and NHL, the author comes to the conclusion that managers can increase organizational citizenship behavior and decrease counterproductive behavior by focusing on engendering employee satisfaction, organizational commitment, perceptions of fairness, and trust in leadership, all of which create an environment that encourages altruistic acts.

Surveys reveal that 80% of Americans don't trust corporate executives and--worse--that roughly half of all managers don't trust their own leaders. Mergers, downsizing, and globalization have accelerated the pace of change in organizations, creating a crisis of trust that didn't exist a generation ago. Leaders who understand how trust is built can actively influence its development, resulting in a more supportive and productive work environment and, not incidentally, a competitive advantage in the war for talent. Building on research in social psychology, and on his 15 years of experience consulting on trust, the author has developed a model for predicting whether trust or distrust will be chosen in a given situation. The model helps managers analyze 10 factors at play in the decision-making process. Hundreds of top executives have used it to diagnose and address the root causes of distrust in their work relationships. Some of the factors in the model relate to the decision maker: How tolerant of risk, how well-adjusted, and how relatively powerful is he or she? Others relate to the specific situation: How closely aligned are the interests of the parties concerned? Does the person who is asking to be trusted demonstrate competence? Predictability and integrity? Frequent and honest communication? Sue, a relatively new VP of sales, used the trust model to manage her relationship with Joe, an employee nearing retirement who was not performing well in a new sales role. Fearing for his job, Joe wasn't initially inclined to trust her. Sue took concrete steps to communicate openly with Joe, explore other options for him, and show concern for his well-being. When Joe was transferred, he let his former colleagues know how pleased he was with Sue's handling of the situation. As a result, the level of trust increased in Sue's department, even through a major change.

Executives have developed tunnel vision in their pursuit of shareholder value, focusing on short-term performance at the expense of investing in long-term growth. It's time to broaden that perspective and begin shaping business strategies in light of the competitive landscape, not the shareholder list. In this article, Alfred Rappaport offers 10 basic principles to help executives create lasting shareholder value. For starters, companies should not manage earnings or provide earnings guidance; those that fail to embrace this first principle of shareholder value will almost certainly be unable to follow the rest. Additionally, leaders should make strategic decisions and acquisitions and carry assets that maximize expected value, even if near-term earnings are negatively affected as a result. During times when there are no credible value-creating opportunities to invest in the business, companies should avoid using excess cash to make investments that look good on the surface but might end up destroying value, such as ill-advised, overpriced acquisitions. It would be better to return the cash to shareholders in the form of dividends and buybacks. Rappaport also offers guidelines for establishing effective pay incentives at every level of management; emphasizes that senior executives need to lay their wealth on the line just as shareholders do; and urges companies to embrace full disclosure, an antidote to short-term earnings obsession that serves to decrease investor uncertainty, which could reduce the cost of capital and increase the share price. The author notes that a few types of companies--high-tech start-ups, for example, and severely capital-constrained organizations--cannot afford to ignore market pressures for short-term performance. Most companies with a sound, well-executed business model, however, could better realize their potential for creating shareholder value by adopting the 10 principles.

Legal and cultural changes over the past 40 years ushered unprecedented numbers of women and people of color into companies' professional ranks. Laws now protect these traditionally underrepresented groups from blatant forms of discrimination in hiring and promotion. Meanwhile, political correctness has reset the standards for civility and respect in people's day-to-day interactions. Despite this obvious progress, the authors' research shows that political correctness is a double-edged sword. Although it has helped many employees feel unlimited by their race, gender, or religion, the PC rule book can hinder people's ability to develop effective relationships across race, gender, and religious lines. Companies need to equip workers with skills--not rules--for building these relationships. The authors offer the following five principles for healthy resolution of the tensions that commonly arise over differences: Pause to short-circuit the emotion and reflect; connect with others, affirming the importance of relationships; question yourself to identify blind spots and discover what makes you defensive; get genuine support that helps you gain a broader perspective; and shift your mind-set from one that says, "You need to change" to one that asks, "What can I change?" When people treat their cultural differences--and related conflicts and tensions--as opportunities to gain a more accurate view of themselves, one another, and the situation, trust builds and relationships become stronger. Leaders should put aside the PC rule book and instead model and encourage risk taking in the service of building the organization's relational capacity. The benefits will reverberate throughout every dimension of the company's work.

Intel and Microsoft neither buy from nor sell to each other directly, but they are undeniably in business together. They are probably the world's most widely known pair of complementors--companies that independently provide complementary products or services to mutual customers. Complementors increase the value of each other's offerings and the size of the total market. So it's not surprising that so many just assume that their interests are aligned. Nothing could be further from the truth. Discord can develop in many areas, such as pricing, technology, standards, and control of the market--both in terms of which company has the most influence over customers and which one gets the biggest slice of the pie. The issue of pricing perfectly captures this tension. Ideally, you'd like to price your goods high while your complementors price theirs low. Airlines, for instance, would be happy to see vacation lodgings go for a song, while destination resorts could raise rates and still fill their rooms if customers could fly there for free. The first step in managing relationships with complementors is to develop a deep understanding of their economics, their strategies and goals, their existing capabilities, their incentives for cooperation, and any potential areas of conflict. Then, to gain the upper hand, companies can use a variety of tools that fall into two main categories: hard power (inducements or coercion to get what you want) and soft power (persuasion through indirect means to get others to want what you want). The authors explain how to build both hard power and soft, illustrate the strengths and limits of each, and offer guidelines for choosing one over the other. Conflict among complementors is inevitable, but together, hard and soft power can help companies manage the dark side of complementor relationships and take full advantage of the opportunities that cooperation should create.

After graduating from Harvard Business School with highest honors, Jane rapidly moved up the corporate ladder at a large advertising firm, racking up promotions and responsibilities along the way. By the time she became the company's creative director, she was, in everyone's estimation, an A player--one of the organization's most gifted and productive employees. But although she received an extraordinarily generous pay package and had what some people considered to be one of the most stimulating jobs in the company, Jane felt underappreciated and was talking to headhunters. Eventually, she was lured away to a competing company that, by her own admission, offered less challenging work. Both Jane and the advertising firm she left behind lost out. Of course, not all A players are as vulnerable as Jane. Some superstars soar to stunning heights, needing little or no special attention, and have the natural self-confidence and brilliance to stay at the top of their game with elegance and grace. But as every manager knows, megastars with manageable egos are rare. Far more common are people like Jane, who are striving to satisfy an inner need for recognition that is often a sign of irrationally low self-esteem. According to the author--an executive coach, management consultant, and former faculty member of the department of psychiatry at Harvard Medical School--if you do not carefully manage the often unconscious need A players have for kudos and appreciation, they will burn out in a way that is damaging to them and unproductive for you. The key is understanding what makes your A players tick. The author suggests that you assist your stars by offering them authentic praise, helping them set boundaries, and teaching them to play nicely with subordinates. In the process, you can turn these high performers into even more effective players.