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This widely debated article now includes 14 Letters to the Editor. As information technology has grown in power and ubiquity, companies have come to view it as evermore critical to their success; their heavy spending on hardware and software clearly reflects that assumption. Chief executives routinely talk about information technology's strategic value, about how they can use IT to gain a competitive edge. But scarcity, not ubiquity, makes a business resource truly strategic--and allows companies to use it for a sustained competitive advantage. You gain an edge over rivals only by doing something that they can't. IT is the latest in a series of broadly adopted technologies--think of the railroad or the electric generator--that have reshaped industry over the past two centuries. For a brief time, these technologies created powerful opportunities for forward-looking companies. But as their availability increased and their costs decreased, they became commodity inputs. From a strategic standpoint, they no longer mattered. That's exactly what's happening to IT, and the implications are profound. In this article, HBR's Editor-at-Large Nicholas Carr suggests that IT management should, frankly, become boring. It should focus on reducing risks, not increasing opportunities. For example, companies need to pay more attention to ensuring network and data security. Even more important, they need to manage IT costs more aggressively. IT may not help you gain a strategic advantage, but it could easily put you at a cost disadvantage.

Many times, often with the best of intentions, people at work decide it's more productive to remain silent about their differences than to air them. But as new research by the authors shows, silencing doesn't smooth things over or make people more productive. It merely pushes differences beneath the surface and can set in motion powerfully destructive forces. When people stay silent about important disagreements, they can begin to fill with anxiety, anger, and resentment. As long as the conflict is unresolved, their repressed feelings remain potent, making them increasingly distrustful, self-protective, and all the more fearful that if they speak up they will be embarrassed or rejected. Their sense of insecurity grows, leading to further acts of silence, more defensiveness, and more distrust, thereby setting into motion a destructive "spiral of silence." Sooner or later, they mentally opt out. These vicious spirals of silence can be replaced with virtuous spirals of communication, but that requires individuals to find the courage to act differently and executives to create the conditions in which people will value the expression of differences.

Competition among multinationals these days is likely to be a three-dimensional game of global chess: The moves an organization makes in one market are designed to achieve goals in another in ways that aren't immediately apparent to its rivals. The authors--all management professors--call this approach "competing under strategic interdependence," or CSI. And where this interdependence exists, the complexity of the situation can quickly overwhelm ordinary analysis. Indeed, most business strategists are terrible at anticipating the consequences of interdependent choices, and they're even worse at using interdependency to their advantage. In this article, the authors offer a process for mapping the competitive landscape and anticipating how your company's moves in one market can influence its competitive interactions in others. They outline the six types of CSI campaigns--onslaughts, contests, guerrilla campaigns, feints, gambits, and harvesting--available to any multiproduct or multimarket corporation that wants to compete skillfully. Using data they collected from their studies of consumer-products companies Procter & Gamble and Unilever, the authors describe how to create CSI tables and bubble charts that present a graphical look at the competitive landscape and that may uncover previously hidden opportunities. Smaller organizations that compete with a portfolio of products in just one national or regional market may find the CSI mapping process just as useful for planning their next business moves.

Many business thinkers believe it's the role of senior managers to scan the external environment to monitor contingencies and constraints and to use that precise knowledge to modify the company's strategy and design. As these thinkers see it, managers need accurate and abundant information to carry out that role. According to that logic, it makes sense to invest heavily in systems for collecting and organizing competitive information. Another school of pundits contends that because today's complex information often isn't precise anyway, it's not worth going overboard with such investments. How information is interpreted is what should matter to top executives. The role of senior managers isn't just to make decisions; it's to set direction and motivate others in the face of ambiguities and conflicting demands. Top executives must interpret information and communicate those interpretations--they must manage meaning more than they must manage information. So which of these competing views is the right one? Research conducted by academics Sutcliffe and Weber found that how accurate senior executives are about their competitive environments is indeed less important for strategy and corresponding organizational changes than the way in which they interpret information about their environments. Investments in shaping those interpretations, therefore, may create a more durable competitive advantage than investments in obtaining and organizing more information. And what kinds of interpretations are most closely linked with high performance? Their research suggests that high performers respond positively to opportunities, yet they aren't overconfident in their abilities to take advantage of those opportunities.

You are a marketing director with $5 million to invest in customer acquisition and retention. Which customers do you acquire, and which do you retain? Up to a point, the choice is obvious: Keep the consistent big spenders and lose the erratic small ones. But what about the erratic big spenders and the consistent small ones? It's often unclear whether you should acquire or retain them and at what cost. Businesses have begun dealing with unpredictable customer behavior by following the practices of sophisticated investors who own portfolios comprising dozens of stocks with different, indeed divergent, histories and prospects. Each portfolio is diversified so as to produce the investor's desired returns at the particular level of uncertainty he or she can tolerate. Customers, too, are assets--risky assets. As with stocks, the cost of acquiring them is supposed to reflect the cash-flow values they are likely to generate. The authors explain how to construct a portfolio based on the notion that a customer's risk-adjusted lifetime value depends on its anticipated effect on the riskiness of the group it is joining. The concept of risk-adjusted lifetime value has a transforming power: For companies that rely on it, product managers will be replaced by customer managers, and the current method of accounting for profit and loss--which is by product--will be replaced by one that determines each customer's P&L. Once adjusted for risk, those P&Ls will become the firm's key performance and operational metric.

Imagine what an extra $100 billion a year could do for philanthropic and other nonprofit institutions. According to a new study, the nonprofit sector could free that amount--maybe even more--by making five changes in the way it operates. The study asked two central questions: Does the sector's money flow from its source to its ultimate use as efficiently and effectively as possible? If not, where are the big opportunities to increase social benefit? According to former Senator Bill Bradley and McKinsey's Paul Jansen and Les Silverman, nonprofits could save roughly $25 billion a year by changing the way they raise funds. By distributing funds more quickly, they could put an extra $30 billion to work. Organizations could generate more than $60 billion a year by streamlining and restructuring the way in which they provide services and by reducing administrative costs. And they could free up even more money--an amount impossible to estimate--by better allocating funds among service providers. The authors admit that making those changes won't be easy. The nonprofit world, historically seen as a collection of locally focused charities, has become an enormous sector, but it lacks the managerial processes and incentives that help keep the for-profit world on track. And when the baby boomers start to retire in less than a decade, public budgets will be squeezed even more than they are today. If the nonprofit sector is to help the nation cope with the stresses ahead, it must become more efficient and challenge its traditional concepts of stewardship.

Harrah's Entertainment may not offer the most dazzling casinos in the business, but it is the most profitable gaming company in the United States. Since 1998, Harrah's has recorded 16 straight quarters of same-store revenue growth. It boasts the most devoted clientele in the casino industry, a business notorious for fickle customers. In this article, Harrah's Entertainment CEO and former Harvard Business School Professor Gary Loveman explains how his company has trumped its competitors by mining customer data, running experiments using customer information, and using the findings to develop and implement marketing strategies that keep customers coming back for more. Harrah's identified its best customers--who were not typical high rollers--and taught them to respond to the casino's marketing efforts in a way that added to their individual value. The company's customer preference data were collected through its Total Rewards incentive program; in addition, it used decision-science-based analytical tools and database marketing. This deep data mining has succeeded because Harrah's has simultaneously maintained its focus on satisfying its customers. Loveman outlines the specific strategies and employee-performance measures that Harrah's uses to nurture customer loyalty across its 26 casinos.

Making high-stakes business decisions has always been hard. But in recent decades, it's become tougher than ever. The choices facing managers and the data requiring analysis have multiplied even as the time for analyzing them has shrunk. One simple decision-making tool, human intuition, seems to offer a reliable alternative to painstaking fact gathering and analysis. Encouraged by scientific research on intuition, top managers feel increasingly confident that, when faced with complicated choices, they can just trust their gut. The trust in intuition is understandable. But it's also dangerous. Intuition has its place in decision making--you should not ignore your instincts any more than you should ignore your conscience--but anyone who thinks that intuition is a substitute for reason is indulging in a romantic delusion. Detached from rigorous analysis, intuition is a fickle and undependable guide. And although some have argued that intuition becomes more valuable in highly complex and changeable environments, the opposite is actually true. The more options you have to evaluate, the more data you have to weigh, and the more unprecedented the challenges you face, the less you should rely on instinct and the more on reason and analysis. So how do you analyze more in less time? The answer may lie in technology. Powerful new decision-support tools can help executives quickly sort through vast numbers of alternatives and pick the best ones. When combined with the experience, insight, and analytical skills of a good management team, these tools offer companies a way to make consistently sound and rational choices even in the face of bewildering complexity--a capability that intuition will never match.

From 1983 to 2001, British bank Lloyds TSB increased its market capitalization 40-fold, in part by shedding assets and narrowing its focus. But something else was at work: a CEO-led transformation of the company's culture. In this article, Sir Brian Pitman, chief executive and chairman of Lloyds during this period, describes how the company became an exemplar of what has come to be called value-based management. Pitman emphasizes that leading for value involves making difficult, even wrenching choices. To make these tough choices, you need to have a single definition of success and a single means of measuring it. At Lloyds, he replaced the existing array of implicit objectives with a single governing objective (generate greater value for shareholders) and established increasingly sophisticated internal metrics for achieving it. He found that this objective served to create value for everyone. Customer satisfaction levels rose, employees were better remunerated, and Lloyds contributed more to the communities in which it did business. Furthermore, getting people to concentrate on things that really create value for the company demands that a leader create an environment of inquiry and discovery.

There is a new class of American consumer and a new category of products and services has sprung into being to cater to it: new luxury. America's middle-market consumers are trading up to higher levels of quality and taste than ever before. Members of the middle market (those earning $50,000 and above annually) collectively have around $3.5 trillion of disposable income. And they will pay premiums of 20% to 200% for well-designed, well-engineered, and well-crafted goods that can't be found in the mass middle market and that have the artisanal touches of traditional luxury items. Supply-side forces are essential to the rise of new luxury. Like the consumers of their goods, entrepreneurs are better educated and more sophisticated about their customers than ever before. In addition, global sourcing, falling trade barriers and transportation costs, and rising offshore manufacturing standards are making possible the economical production of alluring products of high quality. Unlike old-luxury goods, new-luxury products can generate high volumes despite their relatively high prices. As a result, companies at the new-luxury forefront are achieving levels of profitability and growth beyond the reach of their conventional competitors.

When William Bratton was appointed police commissioner of New York City in 1994, turf wars over jurisdiction and funding were rife, promotion bore little relationship to performance, and crime was out of control. Yet in less than two years, and without an increase in his budget, Bratton turned New York into the safest large city in the nation. And the NYPD was only the latest of five law-enforcement agencies Bratton had turned around. In each case, he succeeded in record time despite limited resources, a demotivated staff, opposition from powerful vested interests, and an organization wedded to the status quo. Bratton's turnarounds demonstrate what the authors call "tipping point leadership." The theory of tipping points, which has its roots in epidemiology, hinges on the insight that in any organization, fundamental changes can occur quickly when the beliefs and energies of a critical mass of people create an epidemic movement toward an idea. Bratton begins by overcoming the cognitive hurdles that block companies from recognizing the need for radical change. He puts managers face-to-face with operational problems. Next, he manages around limitations on funds, manpower, or equipment by concentrating resources on the areas that are most in need of change and that have the biggest possible payoffs. He meanwhile solves the motivation problem by singling out key influencers--people with disproportionate power due to their connections or persuasive abilities. Finally, he closes off potentially fatal resistance from powerful opponents.

At the heart of business today lies a dilemma: Our economy is increasingly dependent on services, yet our innovation processes remain oriented toward products. In this article, Harvard Business School professor Stefan Thomke points out the challenges of applying the discipline of formal R&D processes to services. Most service companies have not established rigorous, ongoing R&D processes, Thomke says. But the author provides an in-depth look at a five-step process that Bank of America has used to create new service concepts for retail banking. The company has turned a set of its branches into, in effect, a laboratory where a corporate research team conducts service experiments with actual customers during regular business hours, measures results precisely and compares them with those of control branches, and pinpoints attractive innovations for broader rollout. The article describes the program's workings, its successes, and the obstacles the bank faced. The effort reveals an enormous amount about what a true R&D operation might look like inside a service business, he concludes.

Most of us see the organizations we operate in--our schools or companies, for instance--as monolithic and predictable, subjecting us to deadening routines and demanding from us dehumanizing conformity. But companies are more unpredictable and more alive than we imagine, according to Karl Weick, a psychology professor at the University of Michigan and an expert on organizational behavior. Weick says executives can learn a lot about managing the unexpected from organizations that can't afford any surprises in the workplace--nuclear power plants, firefighting units, or hospital emergency rooms, for instance. In this edited conversation with HBR Senior Editor Diane Coutu, Weick examines the characteristics of these high-reliability organizations (HROs) and suggests ways that other organizations can implement their work practices and philosophies. The key difference between HROs and other companies is the mindfulness with which people in most HROs react to even very weak signs that some kind of change or danger is approaching. Weick contrasts this kind of watchful updating at HROs with Ford's inability to pick up on weak signs in the 1970s that there were potentially lethal problems with the design of the Pinto gas tank.

The events of this past year have prompted intense soul-searching in many quarters and led us, in this year's list of the best business ideas, to reassess some of the most basic assumptions about strategy, organizations, and leadership. We began by reconsidering the role of the leader. Discussions of leadership focus almost exclusively on the CEO. But attention also needs to be paid to the other people who make organizations work: the followers--to their responsibilities, their power, and their obligation not to follow flawed leadership. And we considered the fate of soft issues, like emotional intelligence, in hard times. It's tempting to dismiss them when your employees will do anything just to keep their jobs. But hard times are good times to employ such tools on yourself. Despite valiant efforts to lead change and eliminate inefficiencies, organizations stay messy. Perhaps it's better to learn to live with messiness. There's growth potential, too, in considering the company as a portfolio of opportunities--but only if managers can sell off poorly performing business units as easily as they've been shedding ailing stocks of late.

How can you plan for every crisis that might occur, even for ones you can't imagine? The authors' 20 years of research shows that three out of four Fortune 500 companies are prepared to handle only the types of calamities they've already suffered, and not even all of those. That's unfortunate because the research also shows that the crisis-prepared companies fare better financially, have stronger reputations, and ultimately stay in business longer than their crisis-prone counterparts. Crisis-prepared companies use a systematic approach to focus their efforts. In addition to planning for natural disasters like flood and fire, they divide man-made calamities into two sorts--accidental or "normal" ones, like the Exxon Valdez oil spill, and deliberate or "abnormal" ones, like product tampering. Then they take steps to broaden their thinking about such potential crises. They imagine themselves as terrorists, for instance, or consider threats that would be common in other industries. And they seek creative outside input from investigative journalists, lawyers, and even reformed criminals. But if they think broadly about possible threats, they think narrowly about implementation. Each year, smart companies focus their resources and attention on a few facilities picked at random. That reduces the probability of an attack on the entire organization even as it allows the business to migrate steadily to a higher level of crisis readiness.

Companies are more security conscious than ever, but they've neglected their greatest vulnerability: ordinary employees. Former hacker Kevin Mitnick tells companies that every employee is part of the problem--and had better be part of the solution.

Computer games aren't just for kids anymore, as Chrysler, Coca-Cola, and the U.S. Army are finding out. Whether selling cars or recruiting soldiers, games are attracting a new kind of player.

Former SEC chairman Arthur Levitt talks with HBR's Ben Gerson about investors' eroded confidence and what the SEC, Wall Street, and corporate boards must do about it.

Accounting scandals have opened the door to international influence on U.S. financial reporting. Most important for U.S. companies, under emerging global standards, income statements will become a lot more revealing.

In industries characterized by network externalities, the self-reinforcing effects of installed base and the availability of complementary goods can lead to a single (or few) firm(s) controlling nearly all of the market share in a product category. A new entrant may attempt to displace the incumbent standard by introducing a radically improved technology-- "leapfrogging" the current generation. However, a technological advantage alone is often not enough. To lure customers away from the existing standard, the new technology must somehow yield more value than the combination of value yielded by the incumbent technology's functionality, installed base, and complementary goods. This article develops a multidimensional framework of technology value components and applies it to data from case studies of three generations of competition in the U.S. video game industry. Presents strategies a potential entrant can use to leapfrog an incumbent successfully and strategies an incumbent can use to defend its position.