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When Robert Herbold came to Microsoft from Procter & Gamble in 1994, he saw firsthand why Bill Gates had hired him as chief operating officer: Although certain practices promoted the company's innovative culture and ability to turn on a dime, others created chaos rather than creativity and actually impeded quick course corrections. The operational mess resulted from divergent practices and incompatible systems. Herbold's mission was to bring discipline to the organization without undermining the very characteristics that had made Microsoft successful. Herbold created central systems that gave managers instant access to standardized data on each business and geographical unit. Imposing this operational discipline not only slashed operating costs as a percentage of revenue but, somewhat counterintuitively, also made the company more flexible and more responsive to business changes. The article contains useful lessons for any large company attempting to improve profitability by balancing centralized discipline and individual innovation.

It's a big driver of business success, but one that executives are loath to talk about: upgrading the management talent pool by weeding out "C" players--those who deliver results that are acceptable but who fail to innovate or inspire the people they lead. In this article, the authors of The War for Talent explore the hidden costs of tolerating underperformance and acknowledge the reasons why executives may shy away from dealing decisively with C players. They recommend that organizations establish rigorous, disciplined processes for assessing and dealing with low-performing managers but still treat them with respect. The authors outline three ironhanded step for executives to take. First, identify C players by evaluating their talents and distributing employee performances along an assessment curve. Second, agree on explicit action plans that articulate the improvements or changes that C performers must achieve within 6 to 12 months. And third, hold managers accountable for carrying out the action plans. The authors also emphasize the need for executives to ensure that low performers are treated with dignity--offer candid feedback, instructive coaching, and generous severance packages and outplacement support. The authors' approach isn't about being tough on people; it's about being relentlessly focused on performance.

It's difficult to find a company these days that doesn't strive to be customer driven. Too bad, then, that most companies go about the process of listening to customers all wrong. What usually happens is this: Companies ask their customers what they want. Customers offer solutions in the form of products or services. Companies then deliver these tangibles, and customers just don't buy. The reason is simple--customers aren't expert or informed enough to come up with solutions. That's what your R&D team is for. Rather, customers should be asked only for outcomes--what they want a new product or service to do for them. The form the solutions take should be up to you. Using Cordis Corp. as an example, this article describes a series of effective steps for capturing, analyzing, and utilizing customer input. First come in-depth interviews, in which a moderator works with customers to deconstruct a process or activity to unearth "desired outcomes." Researchers then compile a comprehensive list of outcomes that participants rank in order of importance and degree to which they are satisfied by existing products. Finally, using a simple mathematical formula called the "opportunity calculation," researchers can learn the relative attractiveness of key opportunity areas. These data can be used to uncover opportunities for product development, to segment markets properly, and to conduct competitive analysis.

When you think of marketing, chances are your mind goes right to your customers--how can you persuade more people to buy whatever it is you sell? But there's another "market" that's equally important: your employees. Author Colin Mitchell argues that executives by and large ignore this critical internal audience when developing and executing branding campaigns. As a result, employees end up undermining the expectations set by the company's advertising--either because they don't understand what the ads have promised or because they don't believe in the brand and feel disengaged or, worse, hostile toward the company. Mitchell offers three principles for executing internal branding campaigns. First, companies need to market to employees at times when the company is experiencing a fundamental challenge or change. Second, companies must link their internal and external marketing campaigns. And, third, internal branding campaigns should bring the brand alive for employees, creating an emotional connection to the company that transcends any one experience. It is a fact of business, writes Mitchell, that if employees do not care about or understand their company's brands, they will ultimately weaken their organizations.

Any company can learn to compete more effectively with stronger rivals by mastering the concept of balance in the face of attack. Balance is a judo strategy principle that emphasizes the importance of retaining the initiative and shaping the competition in ways that make it easier to win. Rather than get thrown on the defensive, successful judo strategists learn to engage with powerful opponents by mastering three techniques: grip your opponent, avoid tit-for-tat, and push when pulled. These techniques are illustrated with a variety of examples drawn from both new- and old-economy companies.

With efforts to de-layer organizations and reduce functional boundaries, coordination increasingly occurs through networks of informal relations rather than channels tightly prescribed by formal reporting structures or detailed work processes. However, although organizations are moving to network forms through joint ventures, alliances, and other collaborative relationships, executives generally pay little attention to assessing and supporting informal networks within their own organizations. Social network analysis is a valuable means of facilitating collaboration in strategically important groups such as top leadership networks, strategic business units, new product development teams, communities of practice, joint ventures, and mergers. By making informal networks visible, social network analysis helps managers systematically assess and support strategically important collaboration.

Large international corporations commonly engage in IT outsourcing. However, the process of evaluating, selecting, and subsequently contracting out or selling the organization's IT assets, people, and/or activities to a third-party supplier creates the possibility of a "Winner's Curse." This occurs when the supplier overpromises on what can be delivered for the contract price. This article presents a longitudinal outsourcing case study that explicates the often abstruse Winner's Curse, its effect on post-contract management and the relationship, and how it was alleviated by a mutual renegotiation of the terms of the deal. Building on auction and IT outsourcing theory, the article provides both a model of IT outsourcing processes and a Winner's Curse typology for understanding IT outsourcing ventures. To avoid the experience of relational trauma as a consequence of a Winner's Curse, this article identifies six lessons that client and supplier companies should consider before signing IT outsourcing deals.

The globalization of the field of human resource management (HRM) has led to some common changes in international HRM practices. On the surface, this indicates a degree of convergence. Deeper examination, however, reveals a different picture. Many differences in HRM remain due to a variety of limiting factors, ranging from economic stages of development to business strategies, national culture, and fixed enterprise mindsets. Using evidence from a selection of diverse economies in Asia, this article explores and maps out these patterns and discusses the challenges for research and management practice.

The practice of corporate philanthropy has evolved significantly over the past several decades and has now become an integral part of corporate strategy. This article identifies an emerging form of corporate community involvement called "Corporate Social Initiatives" (CSI). These programs differ from their predecessors in that they are connected to the firm's core values, responsive to moral pressures, based on the firm's core competencies, and have clear objectives and means of measurement. Firms are adopting these initiatives as part of a strategy that seeks competitive advantage through reputation assets or as a response to perceived pressures from the moral marketplace. This article explicates the drivers behind the increased interest in CSI, relates CSI to changes in the environment of social expectations for business, reviews potential challenges to CSI programs, and suggests critical factors in the design of successful CSI programs.

This is an MIT Sloan Management Review article. In many ways, the Industrial Age has been an era of harvesting natural and social capital to create financial and productive capital. So far, the New Economy looks more like the next wave of the industrial era than a truly postindustrial one. Why should we care? Because, say the authors, the basic development patterns of the industrial era are not sustainable. In the face of this challenge, organizational learning expert Peter Senge and former Volvo and IKEA senior executive Goran Carstedt hail the emergence of a new environmentalism driven by innovation, not regulation--radical new technologies, products, processes, and business models. They describe how more and more companies are recognizing the business opportunities that a focus on sustainability creates. Such a shift in thinking is already evident in many companies and industries, where learning-organization principles are being applied to create sustainable business models. Simultaneously, they become inspirational, energetic places to work, where even relationships with customers and suppliers improve. Nonetheless, ecoefficiency alone will not create a truly postindustrial age: a strategy must consider how the economic system affects the larger ecological and social systems within which it resides. Only a more integrated view will enable companies to innovate for long-term profitability and sustainability. There are three core competencies that learning organizations must master to profit from sustainability: encourage systemic thinking to sense the emerging future; convene strategic conversations with investors, customers, suppliers, and even competitors to build the trust needed to change outmoded mental models about what business success is; and take the lead in reshaping economic, political, and societal forces that stymie change. According to Senge and Carstedt, no time in history has afforded greater possibilities for a collective change in direction.

This is an MIT Sloan Management Review article. To grow steadily and avoid stagnation, a company must learn how to scale up and extend its business, lengthen its expansion phase, and accumulate and apply new knowledge to products and markets faster than competitors. Managers can't leave growth to chance. They need a plan that renders consistent sales growth over the long term--one that captures management's vision for expansion and that addresses the product and market combinations the company intends to pursue, the size it hopes to achieve in a particular time frame, and the know-how and organizational structures needed. Three thriving companies demonstrate three different strategies in action. The Netscape experience shows how a company can scale up--do more of what it already does well. Netscape went from $80 million in sales in 1995 to $500 million just three years later. IKEA used duplication by repeating the business model in new regions. According to the authors, IKEA's success is tied to the way it manages and transfers knowledge. SAP's growth strategy is an example of granulation--growing select business units. SAP started with a basic enterprise-resource-planning system, then moved to multiple products for e-commerce and Internet activities. Using one product as a platform, it began allowing customers to fine-tune virtually any resource-planning system. The authors emphasize the importance of combining strategies for growth with explicit strategies for learning. Companies must decide what kind of growth strategy they want to pursue, given their capabilities and market opportunities. They must then make the strategy work by changing their structure and processes in a way that lets them acquire or create specific knowledge about new technologies, customers, and industries.

This is an MIT Sloan Management Review article. Many firms know about their customers, but few know the customers themselves or how to get new ones. Leaders in customer knowledge management go beyond transaction data, using a mix of techniques, and they aren't afraid to tackle difficult problems. The authors report results from interviews with 24 leading firms and describe seven practices that the leaders share. The companies interviewed--including Harley-Davidson, Procter & Gamble, and Wachovia Bank--have undertaken specific and successful initiatives centered around the management of customer knowledge. Within the practices, two results stand out: First, firms are beginning to rely more on data from actual interactions, such as sales and service. They are seeking creative ways to turn data from these interactions into knowledge. Second, even the most ambitious firms are keeping data from different approaches separate. They are not accepting the notion of an integrated data repository. The authors go on to present the practices of the leaders in customer knowledge management.

This is an MIT Sloan Management Review article. Because software is an increasingly pervasive part of the New Economy, delegating decisions about its development to technical staff can be risky for executives. Today's general manager needs to have a good grasp of the most effective methods for developing and deploying software products and services throughout the organization. Research conducted by the author and colleagues proves a growingly accepted theory about software development: The best process is an evolutionary one. Focusing on the area of Internet software development, the researchers uncovered four practices that lead to success: early release of the evolving product design to customers, daily incorporation of new software code and rapid feedback on design changes, a team with broad-based experience in shipping multiple projects, and major investments in the design of the product architecture. Among the development projects cited are Linux, the poster child of the open-source movement, and Internet Explorer 3.0. In environments with rapidly changing markets and technologies, the usefulness of the evolutionary model extends beyond developing software. By dividing tasks into microprojects, a company can tailor the model to reflect any context. In more mature environments, companies can specify more of the product design upfront, use longer microprojects, and develop greater functionality before feedback is needed. Flexibility is key.

This is an MIT Sloan Management Review article. The quest for competitive advantage often inspires executives to imitate the strategies of the most successful companies. Interestingly, however, precisely opposite factors are considered sources of competitive advantage at different points in time. Henry Ford's emphasis on focus has been touted as the key to success right alongside General Motors' product-line breadth. IBM's vertical integration was considered an unassailable source of competitive advantage a generation ago; today, everyone admires the outsourcing flexibility inherent in the nonintegrated business models of Cisco Systems and Dell Computer. If history is any guide, the practices and business models that constitute advantages for today's most successful companies confer those advantages only because of particular factors at work under particular conditions at a particular time. Harvard Business School's Clayton Christensen, a leading thinker on disruptive technologies, alerts managers to the imperative of understanding the context that supports a particular competitive advantage. He explains why, for example, pharmaceutical companies' current focus on ever larger mergers is moving them in exactly the wrong direction at exactly the wrong time. He blames their strategists (and investment bankers) for not thinking deeply about cause and effect with respect to competitive advantage. He also notes that the very existence of competitive advantage sets in motion creative innovations that, as competitors strive to level the playing field, cause the advantage to dissipate. That does not mean the search for competitive advantage is futile. Rather, it suggests that successful strategists need to cultivate a deep understanding of the processes of competition and progress and of the factors that undergird each advantage. Only then will they be able to see when old advantages are poised to disappear and how new advantages can be built in their stead.

Virtually everyone in the field of leadership studies can agree on the greatness of two or maybe three titles. But because it's axiomatic that leadership is contextual, there is no top ten list of books whose supremacy and currency are self-evident. Here, leadership scholar Barbara Kellerman presents a list of works that form an exception to the general rule that leadership is inseparable from context. In a field of study that is almost obsessively particular, these books are universal. Totalitarianism by Hannah Arendt; The Functions of the Executive by Chester Barnard; On Heroes, Hero-Worship, and the Heroic in History by Thomas Carlyle; Group Psychology and the Analysis of the Ego, Civilization and Its Discontents, and Moses and Monotheism by Sigmund Freud; The Feminine Mystique by Betty Friedan; The Federalist Papers by Alexander Hamilton, James Madison, and John Jay; Letter from Birmingham Jail by Martin Luther King, Jr.; and The Prince by Niccolo Machiavelli.

If leadership is personal, then personal experience must hold some of the most valuable lessons in leadership. With that in mind, HBR's editors canvassed leaders in business, academia, and the arts, asking them to tell us about the experiences that taught them the most about leadership at its best--and worst. Each of the 17 responses was unique, of course, but some common threads emerged. Many of those we asked credited one or both parents with teaching them principles of good leadership. Several cited their own lapses as examples of bad leadership. Some leaders were transformed by experiences in the military or on the playing fields of school. Others found defining moments in the social movements of the 1960s. The leaders canvassed include Disney CEO Michael Eisner, former Washington Post editor Ben Bradlee, Xerox CEO Anne Mulcahy, director of NIH's National Human Genome Research Institute Francis Collins, and Semco owner Ricardo Semler. Ultimately, what all of these stories demonstrate is that the act of leadership is just that--action. It's about showing, not telling, and setting the right example.

You've heard about the importance of emotional intelligence in the workplace--that there's an incontrovertible link between executives' emotional maturity, exemplified by such capabilities as self-awareness and empathy, and their financial performance. Now, new research extends that base. Drawing on two years of research, the authors contend that the leader's mood and his or her attendant behaviors have enormous effects on bottom-line performance. Accordingly, top executives' primal task is emotional leadership. In other words, before leaders can turn to setting strategy, fixing budgets, or hiring staff, they must first attend to the impact of their moods and behaviors. To help them do that, the authors introduce a five-step process of self-reflection and planning. Executives should ask themselves: Who do I want to be? Who am I now? How do I get from here to there? How do I make change stick? And who can help me? Working through this process will help leaders determine how their emotional leadership is driving the moods and actions of their organizations and how to adjust their behavior accordingly.

Executives are busy people. They have too much to do and certainly too much to read. Yet, judging from the books and magazines they buy, executives are never too time pressed or information saturated to learn more about leadership. In this roundtable, six experts from the corporate world, the nonprofit sector, and academia tackle tough questions about leadership. The discussion, which began with what leaders ought to do, touched on three common themes: the need to formulate and communicate a vision for an organization; the need for a leader to add value to an enterprise; and an organizational imperative for a leader to motivate followers. Conversation then turned to how leaders ought to lead, focusing on topics such as the leadership role of the generalist in organizations and the need to remain calm and decisive in a crisis. Reflecting their widely varying backgrounds, the participants drew on their experiences to help them drive home their views on developing new leaders, rewarding extraordinary effort, and keeping organizations focused on their missions.

The legendary titans of American business could be scheming and ruthless. But a business leader doesn't have to strive for titanhood to benefit from the lessons such giants have to teach. And perhaps by studying them, we can learn to spot titans in the making. Focusing on the experiences of seven great innovators--steel magnate Andrew Carnegie, Kodak's George Eastman, automaker Henry Ford, Intel's Robert Noyce, Revlon's Charles Revson, Wal-Mart's Sam Walton, and IBM's Thomas J. Watson--the author argues that a handful of simple principles were woven into their lives: Have the courage to bet on your vision of market potential. Shape your vision of the market into a mission for the company and consistent messages for customers, employees, and investors. Deliver more than you promise. Be dedicated to your company, even to a fault. And don't look back. The author shows that the titans thought about their companies every waking moment and expected the same of their employees. They were willing to pay whatever price was needed to create something new in the business world. Whether they led through inspiration or intimidation, a clear mission and consistent messages were keys to making their dreams reality. So were a limitless sense of what they had to offer and an unflinching commitment to the fulfillment of their destinies.

Leadership is different from management, but not for the reasons most people think. Leadership isn't mystical and mysterious. It has nothing to do with having "charisma" or other exotic personality traits. It is not the province of a chosen few. Nor is leadership necessarily better than management or a replacement for it. Rather, leadership and management are two distinctive and complementary systems of action. Each has its own function and characteristic activities. Both are necessary for success in today's business environment. Management is about coping with complexity. Its practices and procedures are largely a response to the emergence of large, complex organizations in the twentieth century. Leadership, by contrast, is about coping with change. Part of the reason it has become so important in recent years is that the business world has become more competitive and more volatile. More change always demands more leadership. Most U.S. corporations today are over-managed and under-led. They need to develop their capacity to exercise leadership. Successful corporations don't wait for leaders to come along. They actively seek out people with leadership potential and expose them to career experiences designed to develop that potential. Indeed, with careful selection, nurturing, and encouragement, dozens of people can play important leadership roles in a business organization. But while improving their ability to lead, companies should remember that strong leadership with weak management is no better, and is sometimes actually worse, than the reverse. The real challenge is to combine strong leadership and strong management and use each to balance the other.