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It's easy for white managers to assume that their colleagues of color face the same basic challenges they do. On one level, that's true--the work itself is the same. But on another level, African-American managers often contend with an atmosphere of tension, instability, and distrust that can be so frustrating they lose the desire to contribute fully. Their white bosses and coworkers are simply unaware of the "miasma" and are often puzzled when African-Americans quit apparently for no reason or seemingly overreact to a minor incident. This portrayal of what it's like to be different in the workplace takes the form of a fictional letter from a black manager to a white boss. The letter, based on interviews and surveys the authors conducted with hundreds of mid- to senior-level African-American managers, is not about the lack of role models or mentors of color or any of the other barriers that limit opportunities for blacks in corporate America. Instead, the letter sheds light on the realities that lurk below the surface for black managers--the feeling that they leave some part of their identities at home and the sometimes subtle and often systemic racial biases that inhibit and alienate African-Americans. It should be required reading for all white executives who don't want talent to slip through their fingers.

The traditional growth strategies of organic expansion and acquisition require up-front investments in additional assets, with an uncertain payoff. So the pursuit of growth almost always narrows margins, for a time or, in the worst case, forever. But another kind of strategy--leveraged growth--doesn't require companies to trade profitability for growth. That's because instead of owning assets, a company leverages the assets of other businesses operating at many levels of the value chain, capturing value for itself as a knowledge broker. The Hong Kong-based trading company Li & Fung, for instance, owns none of the facilities involved in processing raw material into the finished goods it supplies to European garment retailers and designers. It does, however, have privileged access to some 7,500 companies around the world that possess specialized production and distribution capabilities. Li & Fung uses its knowledge of the apparel market to leverage those companies' assets, using whichever companies are most suited to making whatever goods its customers demand. Orchestrating such a process network is one way to leverage other companies' assets. Another involves aggregating their resources, as Charles Schwab does when it makes the services of many related companies available through its web site or IBM does when it sponsors user groups. And Microsoft and Intel engage in possibly the subtlest of the leveraged growth strategies--shaping an economic web--by placing themselves at the center of a vast, ever-shifting group of companies that build on the Wintel computing platform. In a world of leveraged growth, the key question becomes: Which of your assets would give you the greatest power over other organizations? The company with the most powerful assets will have the greatest growth potential.

Companies in many industries are feeling immense pressure to improve their ability to innovate. But executives know that the best ideas aren't always coming out of their own R&D labs. That's why a growing number of companies are exploring the idea of open-market innovation--an approach that uses tools such as licensing, joint ventures, and strategic alliances to bring the benefits of free trade to the flow of new ideas. For instance, when faced with the unanticipated anthrax scare last fall, Pitney Bowes had nothing in its R&D pipeline to help its customers combat the deadly spores. So it sought help from outside innovators to come up with scanning and imaging technologies that could alert its customers to tainted letters and packages. In this article, Bain consultants Darrell Rigby and Chris Zook describe the advantages and disadvantages of open-market innovation and the ways some companies are using it to gain competitive advantage. Creative types within a company will stick around longer if they know their ideas will eventually find a home--as internal R&D projects or as concepts licensed to outside buyers. However, the authors warn against entering into open-market innovation without properly structuring deals: Xerox and TRW virtually gave away their innovations and had to stand by while other companies capitalized on them. The company with the most powerful assets will have the greatest growth potential.

Beyond the recent accounting scandals, something is wrong with the way most companies are managed today. That's the message of this fictional letter from a board member to a CEO, written by Joseph Fuller, CEO of the strategy consulting firm Monitor Group. The letter highlights the challenges and complexities of running a business in today's uncertain environment. The letter addresses a single CEO and company, yet it is intended to speak to executives and boards everywhere: "It wasn't the recession that caused us to make 3 acquisitions in 2 years at very, very high prices; the need to fuel [unreasonable] growth did. Nor was it the recession that caused us to expand our capacity in anticipation of gaining market share; rather, it was our own overly optimistic sales forecasts that led us to that decision. Where did those forecasts originate? From line managers trying to fulfill profit goals that we created after meeting with the analysts. The root cause of many of the problems that became apparent in the last 24 months lies not with the economy, not with September 11, and not with the dot-com bubble. Rather, it lies with that willingness to be led by outside forces--indeed, our own lack of conviction about setting a course." Restoring sound, strategic decision making--thinking that looks beyond tomorrow's analyst reports--will go a long way toward keeping those outside forces at bay, according to Fuller.

In the quest to reduce waste on production lines, managers often find that the harder they work at improving their manufacturing processes, the more elusive the benefits become. The authors' study of data provided by Belgian manufacturer N.V. Bekaert S.A., the world's largest independent producer of steel wire, showed that only a quarter of process improvement projects delivered factorywide benefits; half had no bottom-line impact, and the remaining 25% had a negative impact on the plant's overall productivity. But it's possible to design projects that are more likely to improve the plant's bottom line. The key is making sure they deliver both conceptual and operational learning. Conceptual learning yields know-why: acquiring a better understanding of cause-and-effect relationships through statistics and other scientific methods. Operational learning yields know-how: implementing a theory and observing results. Projects that delivered high levels of both learning approaches were the only ones that enhanced the global rate of quality improvement. In such projects, teams drew on scientific insights to implement changes and produce replicable results.

In valuing any investment project or corporate acquisition, executives must decide what discount rate to use in their estimates of future cash flows. The traditional approach is to apply the capital asset pricing model (CAPM), which has remained fundamentally unchanged for 40 years. But the formula--in particular, its beta element--has long been a source of frustration. In fact, corporate executives and investment bankers routinely fudge their CAPM estimates, say the authors, because experience and intuition tell them the model produces inappropriate discount rates. CAPM has three main problems: First, beta is a measure of both a stock's correlation and its volatility; second, beta is based on historical data; and third, CAPM rates don't take into account the term of the investment. These factors together result in discount rates that defy common sense. As an alternative to CAPM and its beta element, the authors developed a forward-looking approach to calculating a company's cost of capital--the market-derived capital pricing model (MCPM). It does not incorporate any measure of historical stock-to-market correlation, relying instead on estimates of future volatility derived from the options market. This is helpful given that investor expectations from the options market are built into a company's current stock price. Using GE as an example, the authors give step-by-step instructions for how to calculate discount rates with MCPM. They also offer evidence from a range of industries to show that MCPM's discount rates are more realistic--especially from the corporate investor's perspective--than are CAPM's.

It isn't always easy to change leadership hats or to alter the way you assess a business problem. Under pressure, most executives fall back on the management style or approach that worked in the last crisis they faced. But old approaches rarely work in new and demanding situations. Just ask Leonard Schaeffer, chairman and CEO of WellPoint Health Networks, one of the country's largest and most successful managed-care companies. In this account, he describes how he consciously adopted three very different styles of leadership at critical points during his 30-year career, depending on the business challenges at hand. Schaeffer headed up the U.S. Health Care Finance Administration during the Carter years--and led the charge toward more efficient work practices at that agency. Then he transformed Blue Cross of California from a floundering bureaucracy losing close to $1 million each day into a strong public company, WellPoint. The dire circumstances at Blue Cross had dictated that Schaeffer initially be an autocratic leader, which he considers the managerial equivalent of being an emergency room surgeon--forced to do whatever it takes to save a patient's life. Most recently, Schaeffer has turned into a reformer--a leader who works with one foot outside the company to spur changes in health care and society. There are pitfalls in switching leadership styles, Schaeffer admits, but this flexibility is necessary for realizing corporate--and personal--success.

In some languages, the word for "business" is the same as the word for "negotiation." That's not really surprising: Every interaction--with customers, suppliers, and even partners and investors--entails negotiation. And some involve very high stakes: The breakdown in negotiations between Hewlett-Packard's management and its founding families, for instance, put the company's future in doubt. Dominick Misino is a man who knows about negotiating when the stakes are at their very highest. As a hostage negotiator for the New York Police Department, Misino successfully persuaded the hijacker of Lufthansa Flight 592 to lay down his gun and turn himself in. Misino spent the last 6 years of his career as a primary negotiator, handling more than 200 incidents and never losing a life. Since his retirement in 1995, he has taught negotiating skills to law enforcement officials, military personnel, and business executives. Negotiation, he says, is really a series of small agreements, and he is adept at orchestrating those agreements from the start so that his adversary learns to trust him and come around to his point of view. In vivid and sometimes hair-raising detail, Misino demonstrates how he gets criminals to trust police officers enough to refrain from harming innocent parties and give themselves up. Many of the techniques he describes are surprisingly applicable to business negotiations, where the parties may seem equally intractable and failure is not an option.

On the day of the terrorist attacks on New York's World Trade Center, 1,779 employees of Marsh & McLennan Co. (MMC) had office space in the twin towers and another 129 were visiting that day. From his office at MMC headquarters in midtown, CEO Jeffrey Greenberg watched in horror as the second plane hit. By the time the towers fell, he had gathered a team of his colleagues to begin to outline how the company would respond. In this first-person account, Greenberg relates what it was like to manage through the unimaginable. The needs of MMC's people and the families of employees who perished took top priority. In the midst of chaos and unforeseeable problems, Greenberg and his colleagues improvised ways of communicating and assembled a broad-based program of support. Help appeared from all sides from people of various rank, title, and functional expertise within MMC as well as past chairmen, outside directors, and retired executives. An emergency communications center was immediately set up at MMC headquarters and became a centralized location for messages and information and a memorial to colleagues lost in the attacks. The company arranged for grief counselors and established a family assistance center and a Family Relationship Management Program for those who had lost MMC employees. It has also provided families with access to long-term psychological and financial counseling. At the same time, Greenberg offers lessons about leadership, company culture, and adaptability. He and his colleagues held responsibility for a business devastated by operational destruction and financial losses and facing dramatically changed market conditions. Their resolve was not simply to keep it on course but to come back stronger than ever.

Coming up with fabulously successful products takes more than creative people with groundbreaking ideas. Top executives need to roll up their sleeves and get involved. Because they control resources and have the power to cut through red tape, they can clear a path for the creative team to develop hit products.

Mergers with substantial business overlap face a barrier to speedy integration: Antitrust regulations limit the information companies can share before a deal closes. But as Dow Chemical and Union Carbide found, premerger planning by "clean teams" of former employees can help merging companies hit the ground running.

Executive consultant Marshall Goldsmith tells his CEO clients that he's not the real coach; the people around them are. To change your behavior, he says, quit whining about the past and start asking your colleagues how you can do better. You're not done until they think you are.

Business fads can change companies, for better or worse. They can introduce useful ideas, but often fail to deliver on promises. So how can managers tell a fad from a tool that might endure? For one thing, beware of suspiciously simple techniques. If they seem too easy, they probably are.

Enlarges the "extended enterprise" metaphor from its origins in manufacturing-logistics management to embrace the full range of constituencies that are vital to the survival and success of the corporation. Presents a new "stakeholder view" of the firm that holds that stakeholder relationships are the ultimate sources of the firm's wealth-creating capacity. According to this view, long-term business success requires a firm to develop and integrate relationships with its multiple stakeholders within a comprehensive management strategy. To illustrate the validity of this approach, this article describes and analyzes the evolution and impact of comprehensive stakeholder management policies in three major firms.

Comprising networked organizations that span advanced and developing countries, the athletic footwear sector is at the cutting edge of globalization. An important dimension of corporate responsibility is setting and maintaining labor standards for contractors' employees in countries where workers have little or no legal protection against exploitation. This article examines how adidas, the industry's No. 2 firm, has utilized a code of labor practice to regulate the labor standards of its main manufacturing suppliers. A comparative analysis of a matched sample of two contractors in China shows that although the code requirements were met in both cases, relationships with adidas not only differed but also made a difference. Compared with compliance-type relationships, collaborative global firm-contractor ties encourage higher workplace performance and better employment relations in contractor factories.

What is discontinuous about the moment of radical technological change? Discontinuity typically does not lie in a radical advancement in technology itself; rather, it stems from a shift of an existing technical lineage to a new domain of application. Seeming revolutions such as wireless communication and the Internet did not stem from an isolated technical breakthrough; rather, their spectacular commercial impact was achieved when an existing technology was reapplied in a new application domain. The biological notion of speciation events, which form the basis for the theory of punctuated equilibrium, can reconcile the process of incremental technical change with the radical change associated with the shift of an existing technology to a new application domain. This concept can assist managers to cope with, and potentially exploit, such change processes.

Information security is not a technical issue; it is a management issue. It rests on three cornerstones--critical infrastructures, organization, and technology. Although critical infrastructures are beyond the direct control of the organization, balancing them is a critical component of corporate governance. Total security is neither technically feasible nor operationally practicable. Therefore, the organization must determine which information assets must be protected and the degree of protection. As Internet-based commerce diffuses through society, there will be decreasing tolerance on the part of customers for losses stemming from perceived or actual cyber vulnerabilities. Only senior management can initiate the plans and policies that address the different aspects of security in a balanced and integrated manner. Leaving security primarily to the IT function will strengthen just one of the cornerstones--namely, technology--and will not yield the intended results. Security lapses are management failures more than technical failures. This article presents an organizational security approach that senior managers can use as a roadmap to initiate security plans and policies and audit their implementation.

Current trends appear to suggest that globally integrated strategies are the wave of the future for many industries, but no theoretically sound, firm-level model explains this situation. International business models explain industry trends from economic perspectives, and organizational theory is beginning to examine the organizing principles of multinational firms. However, a gap exists in explaining the strategic motivations of multinational firms as they expand and integrate worldwide. This article develops a capability-driven, as opposed to market-driven, framework of multinational strategy. This contingent framework explains the organizational consequences of international expansion and global integration depending on the capability types, capability strategies, and multinational strategies of the multinational firm.

Many participants and observers have analyzed the 1996 Mount Everest tragedy and blamed a host of factors, including the weather, equipment failures, and human error. This article examines the people and events through three theoretical lenses: behavioral decision theory, group dynamics, and complex systems. Factors at each level--individual, group, and organizational system--interacted with one another to cause the tragedy. This analysis provides a framework for understanding and diagnosing large-scale organizational failures, and it provides several important lessons for managers making and implementing high-stakes decisions within organizations.

This is an MIT Sloan Management Review article. Vertical command and control sabotages organizations that need bottom-up innovation to be competitive. Yet, organizational integration is increasingly essential. New research shows how technology is helping cutting-edge companies meet the challenge by integrating horizontally. A fundamental management challenge, particularly in large, diversified global enterprises, is the tension between subunit autonomy and companywide cohesion. New research uncovers several ways top companies balance that tension. In the last decade, performance criteria often ignored how managers of subunits contributed to companywide performance. Empowerment efforts improved unit competitiveness but left knowledge sharing behind. Today (because customer needs span internal boundaries and technology has changed the way innovation gets managed) managers are recognizing the need to address the integration side of the tension. At one company, BP, CEO John Browne created a peer-assist process to help his business unit leaders integrate horizontally. Managers who ran similar businesses were assigned to help one another improve both individual and collective performance. As the culture evolved and managers successfully handled ever tougher endeavors, both entrepreneurship and mutual trust were strengthened. Executives who want to build horizontal integration without disrupting entrepreneurship must allow time for persistent action and reinforcement to take hold.