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Leaders who rely forever on the same internal advisers run the risk of being sold short and possibly betrayed. Alternatively, lone-wolf leaders may make enormous, yet preventable, mistakes when trying to sort through difficult decisions. A sophisticated understanding of trust can protect leaders from both fates. During the past decade, author and consultant Saj-nicole Joni studied leadership in more than 150 European and North American companies. Her research reveals three fundamental types of trust: personal trust, expertise trust, and structural trust. Executives may persevere in relationships that are based on personal trust, but such relationships are unlikely to remain static--and probably won't provide the kinds of deep, often specialized knowledge leaders need. In organizations, leaders develop expertise trust by working closely with people who consistently demonstrate their mastery of particular subjects or processes. Structural trust refers to how roles and ambitions influence advisers' perspectives and candor. Advisers in positions of the highest structural trust generally reside outside organizations, providing leaders with insights that their organizations cannot. High-performing leaders' most enduring valuable relationships are characterized by enormous levels of all three kinds of trust.

Each corporate growth project is an option in the sense that managers face choices--push ahead or pull back--along the way. Yet, many companies hesitate to apply options theory to initiatives such as R&D and geographic expansion, partly because these "real" options are highly complex. In this article, the authors make the case that the complexity of real options can be eased through the use of a binomial valuation model. Many of the problems with real-options analysis stem from the use of the Black-Scholes-Merton model, which isn't suited to real options. Binomial models, by contrast, are simpler mathematically, and you can tinker with a binomial model until it closely reflects the project you wish to value. Suppose your company is considering investing in a new plant. To use the binomial model, you must create an "event tree" to figure out the full range of possible values for the plant during the project's lifetime. Then you work backward from the value at completion, factoring in the various investments, to determine the value of the project today. These calculations provide you with numbers for all possible future values of the option at the various points where a decision needs to be made on whether to continue with the project. The authors also address another criticism of real options: that gaps often arise between theoretical and realized values of options of all types. Such gaps may be largely the result of managers exercising options at the wrong time. Looking for trigger points that correspond to the nodes on a binomial decision tree should not only tell managers when they need to decide on exercise, but also specify rules governing the exercise decisions.

Three years ago, 70-year-old Hill-Rom Inc. was in a position familiar to many mature businesses: The company was strong but needed to be stronger. It was a top producer of hospital beds and specialty mattresses--its core product lines. It also had competitive, complementary lines of stretchers, furniture, and architectural equipment. Its customer base was extensive and had a respected sales force and solid profit margins. But by the time Ernest Waaser took over as chief executive in early 2001, revenue growth had been slowing, and competition was on the rise. To secure Hill-Rom's place in the market, Waaser focused first on the sales organization. The CEO took several steps to restructure the sales force. The company changed its customer segments to reflect customers' demands and financial status better, ultimately targeting two main groups: key and prime customers. It then changed the overall structure of the sales organization so it could tailor its approach to these two segments; key customers received more specialized service than prime customers. Finally, Hill-Rom adjusted the sales force after the company took an in-depth look at historical data on products and services and sales completed. Reasons for staffing changes were carefully communicated to the sales force. Because of Hill-Rom's initiatives, the cost of sales is down, short-term revenue growth is up, the outlook for long-term revenue growth looks bright, sales and profit margins are up, and customer satisfaction has increased.

Most nonprofits make program decisions based on a mission rather than a strategy. They rally under the banner of a particular cause. And because their causes are so worthwhile, they support any programs that are related to their core missions. It's hard to fault people for trying to improve the state of the world, but that approach to making decisions is misguided. Acting without a clear, long-term strategy can stretch an agency's core capabilities and push it in unintended directions. The fundamental problem is that many nonprofits don't have a strategy; instead, they have a mission and a portfolio of programs. But they hardly make deliberate decisions about which programs to run, which to drop, and which to turn down for funding. What most nonprofits call "strategy" is really just an intensive exercise in resource allocation and program management. This article outlines for nonprofits a four-step process for developing strategy. The first step is to create a broad, inspiring mission statement. The second step is to translate that core mission into a smaller, quantifiable operational mission. The third step is to create a strategy platform; that is, the nonprofit decides how it will achieve its operational mission. Decisions about funding and client, program, and organizational development are all made here. And step four is making reasoned, strategic decisions about which programs to run and how to run them.

HBR's editors searched for the best new ideas related to the practice of management and came up with a collection that is as diverse as it is provocative. The 2004 HBR List includes emergent concepts from biology, network science, management theory, and more. A few highlights: Richard Florida wonders why U.S. society doesn't seem to be thinking about the flow of people as the key to America's advantage in the "creative age." Diane L. Coutu describes how the revolution in neurosciences will have a major impact on business. Clayton M. Christensen explains the law of conservation of attractive profits: When attractive profits disappear at one stage in the value chain because a product becomes commoditized, the opportunity to earn attractive profits with proprietary products usually emerges at an adjacent stage. Daniel H. Pink explains why the master of fine arts is the new MBA. Herminia Ibarra describes how companies can get the most out of managers returning from leadership-development programs. Iqbal Quadir suggests a radical fix for the third world's trade problems: Get the World Bank to lend to rich countries so that there are resources for retraining workers in dying industries.

Measuring the value of intangible assets such as company culture, knowledge management systems, and employees' skills is the holy grail of accounting. Executives know that these intangibles, being hard to imitate, are powerful sources of sustainable competitive advantage. If managers could measure them, they could manage the company's competitive position more easily and accurately. In this article, the creators of the Balanced Scorecard draw on its tools and framework--in particular, a tool called the strategy map--to present a step-by-step way to determine "strategic readiness," which refers to the alignment of an organization's human, information, and organization capital with its strategy. In the method the authors describe, the firm identifies the processes most critical to creating and delivering its value proposition and determines the human, information, and organization capital the processes require.

The CEO is often the most isolated and protected employee in the organization. Few leaders, even veteran CEOs, can do the job without talking to someone about their experiences, which is why most develop a close relationship with a trusted colleague, a confidant to whom they can tell their thoughts and fears. In his work with leaders, the author has found that many CEO-confidant relationships function very well. The confidants keep their leaders' best interests at heart. They derive their gratification vicariously, through the help they provide rather than through any personal gain, and they are usually quite aware that a person in their position can potentially abuse access to the CEO's innermost secrets. Unfortunately, almost as many confidants will end up hurting, undermining, or otherwise exploiting CEOs when the executives are at their most vulnerable. The leader is often the last one to know when or how the confidant relationship became toxic. The author has identified three types of destructive confidants. The reflector mirrors the CEO, constantly reassuring him that he is the "fairest CEO of them all." The insulator buffers the CEO from the organization, preventing critical information from getting in or out. And the usurper cunningly ingratiates himself with the CEO in a desperate bid for power.

Modern information technology started four decades ago, yet in most major corporations, IT remains an expensive mess. This is partly because the relatively young and rapidly evolving practice of IT continues to be either grossly misunderstood or blindly ignored by top management. In this article, the authors say a systematic approach to understanding and executing IT can and should be implemented, and it should be organized along three interconnected principles: First, Long-Term IT Renewal Plan Linked to Corporate Strategy. Such a plan focuses the entire IT group on the company's overarching goals during a multiyear period, makes appropriate investments directed toward cutting costs in the near term, and generates a detailed blueprint for long-term systems rejuvenation and value creation. Second, Simplified, Unifying Corporate Technology Platform. Instead of relying on vertically oriented data silos that serve individual corporate units (HR, accounting, and so on), companies adopt a clean, horizontally oriented architecture designed to serve the whole organization. Third, Highly Functional, Performance-Oriented IT Organization. Instead of functioning as if it were different from the rest of the firm or as a loose confederation of tribes, the IT department works as a team and operates according to corporate performance standards.

Too many organizations descend into underperformance because they can't confront the painful gap between their strategy and the reality of their capabilities, their behaviors, and their markets. That's because senior managers don't know how to engage in truthful conversations about the problems that threaten the business--and because lower level managers are afraid to speak up. These factors lie behind many failures to implement strategy. Indeed, the dynamics in almost any organization are such that it's extremely difficult for senior people to hear the unfiltered truth from managers lower down. Beer and Eisenstat's methodology for getting the truth about an organization's problems onto the table in a way that allows senior management to do something useful with it is to assemble a task force of the most effective managers to collect data about strategic and organizational problems. In this way, the senior team sends a clear message that it is serious about uncovering the truth. Task force members present their findings to the senior team in the form of a discussion. This conversation needs to move back and forth between advocacy and inquiry; it has to be about the issues that matter most; it has to be collective and public; it has to allow employees to be honest without risking their jobs; and it has to be structured. This direct feedback from a handful of their best people moves senior teams to make changes they otherwise might not have.

More than 5,000 joint ventures, and many more contractual alliances, have been launched worldwide in the past five years. Companies are realizing that JVs and alliances can be lucrative vehicles for developing new products, moving into new markets, and increasing revenues. The problem is, the success rate for JVs and alliances is on a par with that for mergers and acquisitions--not very good. The authors, all McKinsey consultants, argue that JV success remains elusive for most companies because they don't pay enough attention to launch planning and execution. The launch phase begins with the parent companies' signing of a memorandum of understanding and continues through the first 100 days of the JV or alliance's operation. During this period, it's critical for the parents to convene a team dedicated to exposing inherent tensions early. Specifically, the launch team must tackle four basic challenges. First, build and maintain strategic alignment across the separate corporate entities, each of which has its own goals, market pressures, and shareholders. Second, create a shared governance system for the two parent companies. Third, manage the economic interdependencies between the corporate parents and the JV. And fourth, build a cohesive, high-performing organization (the JV or alliance). Using real-world examples, the authors offer their suggestions for meeting these challenges.

Laura Nash and Howard Stevenson interviewed and surveyed hundreds of professionals to study the assumptions behind the idea of success. They then built a practical framework for a new way of thinking about success--a way that leads to personal and professional fulfillment instead of feelings of anxiety and stress. The authors' research uncovered four irreducible components of success: happiness (feelings of pleasure or contentment about your life); achievement (accomplishments that compare favorably against similar goals others have strived for); significance (the sense that you've made a positive impact on people you care about); and legacy (a way to establish your values or accomplishments so as to help others find future success). Unless you hit on all four categories with regularity, any one win will fail to satisfy. People who achieve lasting success, the authors learned, tend to rely on a kaleidoscope strategy to structure their aspirations and activities. This article explains how to build your own kaleidoscope framework. The process can help you determine which tasks you should undertake to fulfill the different components of success and uncover areas where there are holes. It can also help you make better choices about what you spend your time on and the level of energy you put into each activity. According to Nash and Stevenson, successful people who experience real satisfaction achieve it through the deliberate imposition of limits.

Multinational companies are the driving force behind globalization, but they are also the source of many of its most painful consequences, including currency crises, cross-border pollution, and overfishing. These problems remain unsolved because they are beyond the scope of individual governments; transnational organizations have also proved unequal to the task. Nonprofit, nongovernmental organizations have leaped into the breach. To force policy changes, they have seized on all forms of modern persuasion to influence public sentiment toward global traders, manufacturers, and investors. By partnering with NGOs instead of opposing them, companies can avoid costly conflict and use NGOs' assets to gain competitive advantage. So far, however, most companies have proved ill equipped to deal with NGOs. Large companies know how to compete on the basis of product attributes and price. But NGO attacks focus on production methods and their spillover effects, which are often noneconomic. Similarly, NGOs are able to convert companies' standard competitive strengths--such as size and wide market awareness of their brands--into liabilities. That's because the wealthier and better known a company is, the juicier the target it makes. By partnering with NGOs instead of reflexively opposing them, companies could draw on NGOs' key strengths--legitimacy, awareness of social forces, distinct networks, and specialized technical expertise--which most companies could use more of.

The flow of product returns is becoming a significant concern for manufacturers. Typically, these returns have been viewed as a nuisance, resulting in reverse supply chains that are designed to minimize costs. These minimum cost reverse supply chains often do not consider product return speed. The longer it takes to retrieve a returned product, the lower the chances that there are financially attractive reuse options. Unlike forward supply chains, design strategies for reverse supply chains are unexplored and largely undocumented. The most influential product characteristic for reverse supply chain design is the marginal value of time. Responsive reverse supply chains are the appropriate choice when the marginal value of time for products is high, and efficient reverse supply chains are the proper choice when the marginal value of time for products is low. Product returns and their reverse supply chains represent a potential value stream and deserve as much attention as forward supply chains.

Although companies spend much effort on the design, analysis, and management of their forward supply chains, they need to pay the same attention to their reverse supply chain. Pioneering firms have learned that making product returns profitable relies on good design of the reverse chains' business processes, including integration with the forward chain. Product modularity offers new possibilities for supply chain design. Optimal closed-loop supply chain management requires three things. First, the type of return needs to be matched with the appropriate closed-loop supply chain. Second, through modular reuse, it is possible to regain optimal value in closed-loop applications. Third, the value of reuse information may in some cases be higher than the value of the returns themselves.

Information and communication technology can help companies realize new, innovative business opportunities in the area of closed-loop supply chains. Examines closed-loop supply chains from three perspectives: processes, customers, and products. Exploiting the possibilities of closed-loop supply chains involves handling uncertainties by providing adequate information. Information on recovery options for a product, product preferences of the customer, and the state of the product can be used to reduce uncertainty. Data that is retrieved from the closed-loop supply chain by new technologies can be transformed into management information in a systematic way. Presents a framework to address uncertainty reduction strategies.

An increasing number of firms in Asia, Europe, and North America engage in voluntary or mandatory end-of-life product management. Because developments in product take-back are driven by a mixture of environmental concerns and economic opportunities, the most promising corporate end-of-life strategies create both economic and environmental value. Introduces a framework that can help managers identify and assess such supply loop strategies. Application of the framework to two specific supply loops demonstrates the usefulness of the framework: recycling and reuse of structural steel sections in the U.K. construction sector. Highlights the importance of supply chain constraints and also shows how lack of data can be a major obstacle to the evaluation of potential win-win supply loops.

Details the planning, implementation, and assessment of a worldwide electronics packaging take-back system by a key supply chain partner. The take-back system was a financial and environmental trade-off between reducing cardboard packaging against increased use of ground and water transportation. Through Internet-enabled life cycle analysis, the new system was shown to reduce waste as well as energy and environmental impacts significantly. The formal introduction of such methods in the electronics industry could save $150 million as well as billions of pounds of waste.

A growing concern for durable product manufacturers is how to manage the products they manufacture when they reach their end of life (EOL). In part, this attention is motivated by a growing number of countries across Europe and East Asia that are enacting legislation that imposes greater responsibilities on manufacturers for managing their EOL products. Even in nonregulated markets, however, some manufacturers are engaging in product recovery to reduce production costs, enhance brand image, meet changing customer expectations, protect aftermarkets, and preempt pending legislation or regulations. Explains when manufacturers should engage in product recovery efforts through partnerships, alliances, or vertical integration and when they should leave this task to independent firms. Technologies that enhance the productivity of product recovery, the level of uncertainty associated with reverse logistics, diverse manufacturing-related capabilities, the uniqueness of recovered assets, and the desire to avoid dependence on other organizations are key determinants that shape the industrial organization of EOL product recovery.

Outsourcing has become a way for companies to change their cost structures overnight. Even fixed costs can become variable. Depending on the types of relevant costs, a firm must decide between outsourcing and "do it yourself." But how can a small business owner determine whether a cost is relevant? The frameworks suggested here offer examples of quantitative analysis using combinations of variable direct, labor, discretionary fixed, and committed fixed direct costs. Using learning curve analysis, demonstrated indifference, Monte Carlo simulation, and economic value added, accountants can evaluate such situations and help steer the firm toward the right decision.

A great number of IT projects seem to take on lives of their own, gobbling up valuable resources without ever reaching their objectives. But they can be tamed. Once managers understand the key reasons why projects become runaways, they can learn to recognize the early signs of escalation and decide whether, when, and how to pull the plug. Project management will never become an exact science, but the guidelines provided here can at least help move it into the realm of a disciplined art.