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As commercial processes commoditize in a developed economy, they are outsourced or transferred offshore, leaving onshore companies with unrelenting, Darwinian pressure to come up with the next wave of innovation. But "innovation" is a broad term. There are many types, from the ballyhooed disruptive innovation to more mundane forms such as process and experiential, which might involve, respectively, doing such things as streamlining the supply chain and delighting customers with small product modifications. Many executives find it hard to decide which kind to focus on. The best way to choose is to consider the phases of a market's life span. In a market's earliest phase, a new technology attracts enthusiasts and visionaries. Eventually, the market reaches the Main Street section of its life, when growth slows, flattens, and finally subsides. Different types of innovation produce more bang for the buck at different points in the life cycle. Disruptive innovation, for example, is rewarded most during the earliest phase. Once the life cycle advances to Main Street, however, the marketplace is no longer willing to yield the revenue or margin gains necessary to fund that type of innovation, so other forms, including process and experiential, yield better returns. But attempts to change the company's direction are often thwarted by the inertia that success creates. To overcome the inertia demon, managers must introduce new types of innovation while aggressively extracting resources from legacy processes and organizations. By running the two efforts in parallel, they can defeat the demon and renew the company.

Over the past decade, the distribution of household incomes has shifted so much that a much larger proportion of consumers now earns significantly higher-than-average incomes--while still falling short of being truly rich. As a result, what used to be a no man's land for new product introductions has in many categories become an extremely profitable "new middle ground." How can marketers capitalize on this new territory? The key, say the authors, is to rethink the positioning and design of offerings and the ways they can be brought to market. Procter & Gamble, for instance, redefined the positioning map for tooth-whitening solutions by offering its $35 Whitestrips. P&G wisely positioned itself between the $400 bleaching technique that dental centers popularized and $2 to $8 whitening toothpaste. In product categories where the middle ground is already populated, it's important for companies to design or redesign offerings to compete. An example is the Polo shirt. How do you sell a man yet another one after he's bought every color he wants? Add some features, and call it a golf shirt. Here, marketers have introduced designs based on the concept of "occasional use" to stand out. Finally, companies wishing to reach the almost rich can change how they go to market. Consider Target Stores, which has pioneered a focus the company itself characterizes as upscale discount. The strategy has made Target an everyday shopping phenomenon among well-heeled urbanites and prosperous professionals.

Acquisitions and alliances are two pillars of growth strategy. But most businesses don't treat the two as alternative mechanisms for attaining goals. Consequently, companies take over firms they should have collaborated with, and vice versa, and make a mess of both acquisitions and alliances. It's easy to see why companies don't weigh the relative merits and demerits of acquisitions and alliances before choosing horses for courses. The two strategies differ in many ways: Acquisition deals are competitive, based on market prices, and risky; alliances are cooperative, negotiated, and not so risky. Companies habitually deploy acquisitions to increase scale or cut costs and use partnerships to enter new markets, customer segments, and regions. Moreover, a company's initial experiences often turn into blinders. If the firm pulls off an alliance or two, it tends to enter into alliances even when circumstances demand acquisitions. Organizational barriers also stand in the way. In many companies, an M&A group, which reports to the finance head, handles acquisitions, whereas a separate business development unit looks after alliances. The two teams work out of different locations, jealously guard turf and, in effect, prevent companies from comparing the advantages and disadvantages of the strategies. But companies could improve their results, the authors argue, if they compared the two strategies to determine which is best suited to the situation at hand. Firms, such as Cisco, that use acquisitions and alliances appropriately grow faster than rivals do. The authors provide a framework to help organizations systematically decide between acquisition and alliance by analyzing three sets of factors: the resources and synergies they desire, the marketplace they compete in, and their competencies at collaborating.

Companies spend billions of dollars on direct marketing, targeting individual customers with ever more accuracy. Yet despite the power of the myriad data collecting and analytical tools at their disposal, they're still having trouble optimizing their direct marketing investments. Many marketers try to minimize costs by pursuing only those customers who are cheap to find and cheap to keep. Others try to get the most customers they possibly can and keep all of them for as long as they can. But a customer need not be loyal to be highly profitable, and many loyal customers turn out to be highly unprofitable. Companies can get more out of direct marketing if they see it as a single system for generating profits than if they try to maximize performance measures at each stage of the process. This article describes a tool for doing just that. Called ARPRO (Allocating Resources for Profits), the tool is essentially a complex regression analysis that can estimate the impact of a company's direct marketing investments on the profitability of its customer pool. With data that companies already gather, the tool can show managers how much to spend on acquisition vs. retention and even what percentage of their funds they should allocate to the different direct marketing channels. Using the model, companies can easily see that even small deviations from the optimal levels of customer profitability are expensive. The tool can also show that finding the optimal balance between investments in acquisition and retention can be more important than finding the optimum amount to invest overall.

When does it make sense for companies to grow from within? When is it better to gain new capabilities or access to markets by merging with or acquiring other companies? When should you sacrifice the bottom line to nurture the top line? In a thought-provoking series of essays, five executives--Kenneth Freeman of Quest Diagnostics, George Nolen of Siemens USA, John Tyson of Tyson Foods, Kenneth Lewis of Bank of America, and Robert Greifeld of NASDAQ--describe how they have approached top-line growth in various leadership roles throughout their careers. They write candidly about their struggles and successes along the way, relaying growth strategies as diverse as the companies and industries they represent. The leaders' different tactics have almost everything to do with their companies' particular strengths, weaknesses, and needs. Freeman, for instance, emphasizes the importance of knowing when to put on the brakes. When he first became CEO of Quest, he froze acquisitions for a few years so the company could focus on internal processes and "earn the right to grow." But for Greifeld, it's all about innovation, which "shakes up competitive stasis and propels even mature businesses forward." The executives agree, though, that companies can grow (even profitably) by distinguishing their offerings from those of other organizations.

At some point in its development, every industry can be considered a growth industry, based on the apparent superiority of its product. But in case after case, industries have fallen under the shadow of mismanagement. What usually gets emphasized is selling, not marketing. This is a mistake, since selling focuses on the needs of the seller, while marketing concentrates on the needs of the buyer. In this widely quoted and anthologized article, first published in 1980, Theodore Levitt argues that "the history of every dead and dying 'growth' industry shows a self-deceiving cycle of bountiful expansion and undetected decay." But, as he illustrates, memories are short. The railroads serve as an example of an industry whose failure to grow is due to a limited market view. Those behind the railroads are in trouble not because the need for passenger transportation has declined or even because that need has been filled by cars, airplanes, and other modes of transport. Rather, the industry is failing because those behind it assumed they were in the railroad business rather than the transportation business. They were railroad oriented instead of transportation oriented, product oriented instead of customer oriented. For companies to ensure continued evolution, they must define their industries broadly to take advantage of growth opportunities. They must ascertain and act on their customers' needs and desires, not bank on the presumed longevity of their products. In short, the best way for a firm to be lucky is to make its own luck. An organization must learn to think of itself not as producing goods or services but as doing the things that will make people want to do business with it. And in every case, the chief executive is responsible for creating an environment that reflects this mission.

Entrepreneurial middle managers are the key to innovative growth in organizations and are a source of hope for a slowed economy. In fact, strategic directives from senior executives mean nothing without efficient middle managers just below officer level who are able to design the systems and carry out the plans. Rosabeth Moss Kanter's article, first published in 1982, reports on a study of effective middle managers working in large corporations. It distinguishes between managers who fostered basic accomplishments (those that occurred within existing frameworks) and managers who achieved innovative accomplishments (those that increased long-term capacity). Basic accomplishments differ from innovative ones not only in scope and long-run impact but also in what it takes to achieve them. Innovative accomplishments tend to involve highly problematic situations that require creative solutions, power, and influence. Innovative middle managers are not necessarily extraordinary individuals. They do, however, share several characteristics, including comfort with change, clarity of direction, thoroughness, and a participative management style. Such managers also understand that achieving their goals takes time--and tact. Achieving goals also takes the support of a collaborative organization. Entrepreneurial managers require access to abundant information, support, and resources, and they need the power to go beyond the limits of their formal positions.

It's fashionable to talk of being "customer oriented." But regardless of how companies attempt to flatten their organizations or empower frontline workers, the simple truth is that every customer's experience is determined by the order management cycle (OMC): the 10 steps, from planning to postsales service, that define a company's business system. Every time the order is handled, the customer is handled. And every time the order sits unattended, the customer sits unattended. To find the gaps in an OMC--those places where a customer's order is dropped or shunted to the wrong department--managers should try what authors Benson Shapiro, V. Kasturi Rangan, and John Sviokla did in their research. They "stapled" themselves to an order in the 18 companies they studied, literally following it through every stage of the OMC. Based on this practical approach, the authors point out potential gaps throughout the OMC. For example, marketing and production battles can erupt even during order planning, and some of the fiercest fighting can break out during scheduling, when the sales force may want quick turnarounds that are unrealistic for manufacturing. Most companies don't see the OMC as a whole system, especially because each phase may require a bewildering overlap of functional responsibilities. However, when managers take the time to track each step of the OMC, they'll come into contact with customer service representatives, production schedulers, shipping clerks, and other critically important people. In this article, first published in 1992, the authors contend that managers who "staple themselves to an order" will not only move horizontally across their own organizations, charting gaps and building information bridges; they'll also see the company from the customer's perspective.

Why are some companies able to sustain high growth while others are not? To answer that question, Insead professors W. Chan Kim and Renee Mauborgne spent five years studying more than 30 companies around the world. They found that the thinking of less successful organizations is often dominated by the idea of staying ahead of the competition. In stark contrast, high-growth companies pay little attention to matching or beating their rivals. Instead, they seek to make their competitors irrelevant through what the authors call "value innovation." Conventional strategic logic and value innovation differ along the basic dimensions of strategy. Many companies take their industry's conditions as given; value innovators don't. Whereas many organizations let their rivals set the parameters of their strategic thinking, value innovators do not use competitors as benchmarks. Rather than focus on differences between customers, value innovators look for things that customers value in common. Instead of viewing opportunities through a lens of existing assets and capabilities, value innovators ask, "What if we start anew?" In this classic HBR article, first published in 1997, the authors tell the story of the French hotelier Accor, which discarded the notion of what a hotel is supposed to look like in the interest of delivering what customers really want: a good night's sleep at a low price. And Virgin Atlantic challenged airline industry conventions by eliminating first-class service and channeling savings into innovations for business-class passengers. Those companies didn't set out to build advantages over the competition, but in the end, their innovative practices led them to do just that.

A Harvard Business School professor distills decades of research into the 10 most important insights that should guide every corporate venturer.

Rather than highlight short-term accounting profits, budgets should emphasize future cash. That, as Warren Buffet knows, is where a company's growth potential lies. Changes as simple as replacing the word "budgets" and revising the format of budget reports can put you on a growth footing.

Keeping a tight focus on your value proposition will light the way toward your company's most profitable growth strategy.

Companies attempting to grow by entering new businesses fail nine times out of 10. The problem isn't that big companies are too risk averse. Quite the opposite--new research shows that managers go after far too many phantom opportunities.

Managers are often told they should be swinging for the fences, hoping for the next blockbuster product or business model. In fact, breakthrough innovation should be the growth strategy of last resort.

Syndication feeds--customized information streams distributed over the Internet in real time--are proliferating fast. If you don't start syndicating soon, you'll be marked as unresponsive and retrograde.

Socially responsible supply-chain management should be more than a PR gesture. Starbucks has made its social compliance programs part of its strategy by explicitly tying them to plans for corporate growth.

Rutgers sociologist and disaster studies expert Lee Clarke discusses how organizations unwittingly make pie-in-the-sky plans--what he calls symbolic plans--that are often worse than useless. He advises companies to expose and reassess these unrealistic strategies.

By definition, forecasted numbers in a financial statement involve educated guesses. But that's not always clear in the statement itself. To reduce legal liability for off-the-mark predictions, a proposed new model for financial statements clearly distinguishes hard numbers from forecasts.

Imitation exerts enormous influence over society--and business and finance in particular. And its influence has grown as the avenues by which people imitate--and are imitated--have multiplied and the process has gotten faster. Thousands of communications channels make it possible for virtually anyone in the developed world to know, almost instantaneously, what others do, think, believe, claim, or predict. More significantly, we can and do act upon such knowledge. The resulting fads and fashions, bubbles, and crashes are ever more frequent, severe, and complex. The information age has cast up more than its share of paradoxes, including this one: When information is plentiful, we often use it not to make better decisions but to imitate others--and their mistakes. In consumer purchases, financial markets, and corporate strategy, what others do matters more to us than the facts. When there's too much information, imitation becomes a convenient heuristic. This is the basis for a self-referential society. Imitation has its virtues, but it also promotes instability and unpredictability. That's because, by definition a multiplier, it can swell a single opinion into a mass movement or catapult the smallest player to the forefront of a market. Mastering the dynamics of self-reference won't ensure mastery of its consequences. But businesses that understand how imitation works can at least attempt to gird themselves against its worst effects--by accounting for it in their forecasts and risk management plans, by becoming more sensitive to unexpectedly changing circumstances, and by avoiding mindless imitation of other companies' moves.

An effective executive does not need to be a leader in the typical sense of the word. Peter Drucker, the author of more than two dozen HBR articles, says some of the best business and nonprofit CEOs he has worked with over his 65-year consulting career were not stereotypical leaders. They ranged from extroverted to nearly reclusive, from easygoing to controlling, from generous to parsimonious. What made them all effective is that they followed the same eight practices: They asked, "What needs to be done?" and "What is right for the enterprise?" They developed action plans. They took responsibility for decisions and for communicating. They were focused on opportunities rather than problems. They ran productive meetings. And they thought and said "we" rather than "I." The first two practices provided them with the knowledge they needed. The next four helped them convert this knowledge into effective action, for knowledge is useless to executives until it has been translated into deeds. The last two ensured that the whole organization felt responsible and accountable. Effective executives know that they have authority only because they have the trust of the organization. This means they must think of the needs and opportunities of the organization before they think of their own. The author also suggests a ninth practice that's so important, he elevates it to the level of a rule: Listen first, speak last. Effectiveness is a discipline. And, like every discipline, it can be learned and must be earned.