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Soft management does not mean weak management, says William Peace in this 1991 article. It means candor, openness, and vulnerability, but it also means hard choices and responsible follow-up. It means taking the heat for difficult decisions and giving unhappy subordinates chances to unburden themselves at your expense. In the early 1980s, when William Peace had to lay off 15 people at Westinghouse's threatened Synthetic Fuels Division, he insisted on meeting them in person, explaining the reasons for the layoff and giving them a chance to object, criticize, and vent their anger. In doing so, he also reassured the remaining employees that the division would not be closed immediately. His action so eased the emotional blow for those laid off that when the division got the chance to rehire some of them a few months later, every single one came back, including those who had found other jobs. Peace was emulating the general manager of another struggling Westinghouse division who had delivered a series of informational presentations to a hostile contingent of workers. The upshot of the meetings was greater credibility for the general manager, a big improvement in labor-management relations, and increased productivity and profits.

Leadership is often presented as an abstract undertaking, a matter of vision and values rather than practical details. But in the author's world, the work of leadership is as prosaic as the loose-leaf binder he carried everywhere as he directed the logistics of the 1991 Gulf War. The author was a lieutenant general in the U.S. Army when he wrote this article, originally published in 1992. The roots of his leadership philosophy go back to his native Charleroi, Pennsylvania, where he worked as a newsboy. But his most searing lessons came in places like Vietnam's Mekong Delta. To lead successfully, the author argues, a person must demonstrate expertise and empathy, which can be systematically learned. And true leaders create organizations that support the cultivation of leadership. In other words, anyone who wants to work hard enough can lead. Leaders who send their people out to do battle in the business world have much to learn from Pagonis. Above all, they can learn from the general's ability to see the world from the foot soldier's point of view, even as he surveys the big picture.

Senior managers are used to hearing advice about how they can combat sloppiness and introduce rationality or neatness into their decision making. In this article, first published in 1979, Thomas Peters argues that "sloppiness" is overwhelmingly normal, probably inevitable, and usually sensible. For example, in the course of a typical day, senior executives face endless interruptions and limited options for action. Those in charge may not even hear about choices, or any bad news that might require action, until it's almost too late. Furthermore, any decision that is made will probably require months or years to implement fully. Peters suggests that these "sad facts" of managerial life can be turned into opportunities to communicate values and to persuade. The fragmented nature of the executive's workday can also create a succession of opportunities to tackle bits of the issue stream. The fragmentation is precisely what permits a manager to fine-tune, test, and retest the strategic signals being sent to the company. Peters suggests that the leader's task is not to impose an abstract order on an inherently disorderly process. Instead, the leader must become adept at controlling the process by nudging it in the desired direction.

More and more companies today are facing adaptive challenges: Changes in societies, markets, and technologies around the globe constantly force businesses to clarify their values, develop new strategies, and learn new ways to operate. The most important task for leaders in the face of such challenges is mobilizing people throughout their organizations to do adaptive work. In this HBR article from 1997, the authors suggest that the prevailing notion that leadership consists of having a vision and aligning people with it is bankrupt; this approach ignores the fact that many work situations are adaptive rather than technical. Heifetz and Laurie instead offer six principles for leading adaptive work. The authors say leaders should be able to spot operational and strategic patterns from high within the organization and set or create a context for change rather than get caught up in the field of action. They need to pinpoint just how a company's value systems or methods of collaboration must change as well as to regulate the inevitable distress that adaptive work generates. They also need to maintain disciplined attention among employees as well as give the work back to people, letting employees take the initiative in defining and solving problems. And finally, they need to protect the voices of leadership coming from below. An example of adaptive change at KPMG Netherlands, a professional services firm, illustrates these principles.

We can't examine breakthrough leadership without acknowledging that it exists as part of a duality; leaders forge relationships with followers. So what do those followers want and need from their leaders? They're looking for significance, community, and excitement--or the deal is off.

Why did Boeing's engineers and technicians strike for 40 days in early 2000? And what can other companies with large cadres of knowledge workers learn from the experience? The author contends that the morale of Boeing engineers was in a slump because management suddenly began emphasizing financial results rather than engineering excellence, and engineers felt their contributions were given short shrift. The indication is that top management failed to detect the decline in morale and made no preparation for weathering a strike; thus, it was caught by surprise when its knowledge workers walked out. The author examines the history and corporate culture of Boeing, changes in internal communications, and the motivational mindset of professional knowledge workers for clues as to the origins and development of conditions that led to the strike. It is suggested that, had Boeing been more sensitive to employee concerns, its new cost-cutting emphasis would have been far more readily accepted--perhaps even blessed--by all employees as the price for maintaining worldwide industry leadership.

Research on the structure and competitive behavior of such organizational forms as the Japanese keiretsu and the Korean chaebol has provided insights into alternative ways to organize economic activity. Somewhat overlooked, however, are the Latin American business groups, or grupos. The activities of Mexican business groups based in Monterrey are used to illustrate the historical development of kinship networks within Mexican groups as well as various issues concerning corporate governance. One of the primary characteristics of business groups is pluralistic composition, meaning they are generally composed of more than one family. Joint investments were not the only mechanism that brought together the Monterrey elite; it was also common for the offspring of the various families to intermarry. A clear set of behavioral norms and an overriding ideology developed within Monterrey's leading entrepreneurial families. These groups are able to compete successfully through their ability to create efficient internal capital, labor, and product markets not available to unaffiliated firms. However, in some cases, the needs of an entrepreneur's business are clearly secondary to those of the "grandfamily" (the three-generation family of grandparents, parents, and children). Implications are examined for the entry mode of multinational firms looking to expand in Mexico.

In May 2000, Bob Eckert sat on a plane bound for the West Coast and thought to himself, "What have I done?" He was about to become CEO of Mattel, a struggling company in an industry he knew nothing about. And he was facing unrealistic expectations not only from Wall Street but also from Mattel's 30,000 employees, who hoped for an effective leader yet feared sweeping change. How did this former CEO of Kraft Foods address employees' anxiety, gain their trust, and start to turn Mattel around? By using the concept of "mealtime." When people gather together to share a meal, they are nourished in both body and spirit. They become face-to-face equals who exchange opinions, ask questions, receive answers, and share ideas. Eckert knew that he had to build brands and cut costs, but he found that the most crucial and challenging task was to make others comfortable enough to share their metaphorical meals with him. And he found that his favorite place to share these metaphorical--and actual--meals was the employee cafeteria. To make each meal a success, Eckert practiced what he calls "setting the table," which means preparing the atmosphere for honest dialogue by drawing on a set of tools--utensils, if you will--designed to quell apprehension. These include naming the source of tension and calling for honesty; deferring, when appropriate, to the other person's realm of expertise; and recognizing common experience. In this article, Eckert tells the story of his first steps from food guy to toy guy and describes what it takes to fit into the strange new world of another company.

In the last 20 years, business has become the dominant institution in American society, in many respects usurping the role once played by religion. As such, business has infiltrated every aspect of our lives--including the hearts and minds of our children. For many, it is an unsettling force. The wild competitiveness of business today compels managers to be constantly available for customers and colleagues, inevitably reducing the time and energy they can devote to their kids. Although stories of the impact of business life on children rarely appear in the business press, debate rages in the broader community, and many parents fear that their children may be paying the price for their success. Is that price too high? In an in-depth interview with HBR senior editor Diane Coutu, writer and child psychoanalyst Robert Coles speaks to that question. Perhaps surprisingly, given the fashion for criticizing the way children are raised today, Coles is optimistic about the next generation. He rejects the stereotype of the hopelessly spoiled rich kid, instead emphasizing children's extraordinary adaptability and ingenuity. "Wealth can weaken some children in certain ways," he says, "unless parents know how to ask of them as well as give to them." In this interview, Cole also examines the role of working women in parenting, explores the difference for children between healthy and narcissistic entitlement, and suggests how we might listen to our children better. "Our children are wonderfully aware and awake," Coles says. "If only we'd stop and listen to the spiritual reflections and questions of our sons and daughters, we might learn something very important about them and about ourselves."

What was it Wayne Gretzky said about why he was so good at hockey? He just skated to where the puck was going next. Executives and investors wish they could do so, too--to sense where profits are going next. Following a six-year study of profitability patterns, the authors have developed a model for doing just that. In the early stages of a product's evolution, companies compete on the basis of performance. And because they can't make substantial improvements in product performance unless the entire value chain is housed under one organizational roof, it works best if companies are vertically integrated. But as the underlying technology improves to meet the needs of most customers, companies begin to compete on the basis of convenience, customization, price, and flexibility. At that point, vertical integration is no longer an advantage--in fact, it quickly becomes a disadvantage. Different links in the industry value chain become modular, and the chain subsequently fragments. In either stage, most profitability goes to the companies that own the interdependent links in the value chain--the places where everyone's still vying to satisfy their customers with ever-better product functionality. Initially, that's the makers of the proprietary products aimed at the end-use consumers. But as those products become standardized, profitability shifts to the makers of components, and as components themselves become standardized, it can shift further back in the value chain. That's predictable, but it causes a problem for incumbents. As their products become commodities and profits decline, pressure from investors to maintain ROA causes them to spin off asset-intensive units that design and manufacture components--the very places where profits are heading.

Every manager is familiar with the employee who just won't change. Sometimes it's easy to see why--the employee fears a shift in power or the need to learn new skills. Other times, such resistance is far more puzzling. An employee has the skills and smarts to make a change with ease and is genuinely enthusiastic--yet, inexplicably, does nothing. What's going on? In this article, two organizational psychologists present a surprising conclusion. Resistance to change does not necessarily reflect opposition, nor is it merely a result of inertia. Instead, even as they hold a sincere commitment to change, many people unwittingly apply productive energy toward a hidden competing commitment. The resulting internal conflict stalls the effort in what looks like resistance but is in fact a kind of personal immunity to change. An employee who's dragging his feet on a project, for example, may have an unrecognized competing commitment to avoid the even tougher assignment--one he fears he can't handle--that might follow if he delivers too successfully on the task at hand. Without an understanding of competing commitments, attempts to change employee behavior are virtually futile. The authors outline a process for helping employees uncover their competing commitments, identify and challenge the underlying assumptions driving these commitments, and begin to change their behavior so that, ultimately, they can accomplish their goals.

It's bad enough to lose a trusted employee who works well within your organization, but when you lose a star performer who has built up strong customer relationships, something else is at stake: The star's customers may also walk out the door. In a two-year study of more than 200 people from 57 companies, Neeli Bendapudi and Robert Leone found that most strategies to keep customers when stars leave are largely ineffective because they grow out of a company's perspective, not a customer's. The authors asked customers how they felt and discovered three main concerns. First, customers can become attached to a particular key contact employee, and if that person leaves, they wonder whether service will suffer. You can forge a broader relationship by ensuring that customers interact with many employees, using techniques like deploying teams, rotating staff, and offering one-stop shopping. Second, customers fear that a replacement won't be as good as the employee who left. You can combat this by stressing the quality of all your employees--not just superstars. Publicize your hiring practices, training, and employees' achievements. Third, customers want information about the changeover and how you will manage the transition. Communicate the identity of a replacement in advance of a departure, and have the outgoing employee introduce the new person. Addressing all areas of customer concern in concert tells customers that you value their business and that you deserve to keep it. In the article, the authors also include a scorecard to rate your company on how well you are protecting customer relationships when employee turnover occurs.

When you think of UPS, what comes to mind? Most likely, you conjure up images of brown delivery vans, but this $30 billion company is much more than a package delivery carrier. Since its founding in 1907, UPS has continually broadened its territory, its offerings, and its mission to better serve a changing marketplace. Today, it employs over 360,000 people and operates in some 200 countries and territories. In this interview, CEO Jim Kelly--who began his UPS career 37 years ago as a driver--talks candidly about the challenges of trying to grow such a huge, mature business. He explains the company's focus on international expansion: "Going forward, the rest of the world offers more growth opportunity than the United States because we have a long way to go to achieve the same density abroad that we have domestically." And he discusses how UPS chooses which new business streams to pursue. To move forward, Kelly says, UPS has had to recast its mission: UPS enables global commerce not just by delivering packages but by facilitating the worldwide flow of information and funds as well. His biggest problem, he admits, has been giving UPS employees the confidence to take on all that new territory. He talks about how he helped foster a new self-image as a company of innovators, undaunted by an uncertain world. Once UPSers reflected on the many changes the company had undergone--from a local messenger service to a common-carrier wholesale business to an airline offering next-day deliveries to a logistics management and finance business--they developed, as Kelly puts it, a sense of, "Yeah, it's new and it's different...but that's okay. We've done that successfully for many years."

Marriott International for many years had a deeply ingrained culture of face time--if you weren't working long hours, you weren't earning your pay. That philosophy didn't seem totally off base in an industry that provides 24/7 service, 365 days a year. But it had a price: By the mid-1990s, Marriott was finding it tough to recruit talented people, and some of its best managers were leaving, often because they wanted to spend more time with their families. "Our emphasis on face time had to go," recalls Bill Munck, a Marriott vice president for the New England region. In this article, Munck describes how Marriott transformed its "see and be seen" culture by implementing an initiative dubbed Management Flexibility at several of its hotels. This six-month pilot program was designed to help managers strike a better balance between their work lives and their home lives--all while maintaining Marriott's high-quality customer service and its bottom-line financial results. Munck explains how he and his leadership team took the first, relatively easy, step of eliminating redundant meetings and inefficient procedures that kept managers at the office late. The tougher task, he says, was overhauling the fundamental way managers thought about work. Under the pilot, Marriott's message to employees was: Put in long hours when it's needed, but take off early if the work is done--and don't be shy about doing so. As a result of the program, managers are working five fewer hours per week with no drop-off in customer service levels; they report less stress and burnout; and they perceive a definite change in the culture, with less attention paid to hours worked and a greater emphasis placed on tasks accomplished.

Retailing is and always has been an inefficient business. Retailers, particularly those that operate large chains, have to predict the desires of fickle consumers, buy and allocate complex sets of merchandise, set the right prices, and offer the right promotions for each individual item. Inevitably, there are gaps between supply and demand, leaving stores holding too much of what customers don't want and too little of what they do. Now, however, a new set of software tools promises to revolutionize the entire merchandising chain. These merchandising optimization systems, as they're called, determine the right quantity, allocation, and price of items to maximize retailers' returns. By applying sophisticated data processing techniques to existing inventory and sales data, they accurately model future patterns of supply and demand at the item and store level. In other words, they turn the art of merchandising into a science. Early users of the new software, such as Gymboree and J.C. Penney, are already reporting promising gains in gross margins in the range of 5% to 10%. Retailers are also seeing significant increases in efficiency: At one chain, for instance, planners' productivity rose 20%. Equally important, retailers are showing improvements in customer satisfaction, as shoppers become more likely to find desired merchandise in stock at fair prices. This article provides retailers with a guide to merchandising optimization systems, explaining how they work and how they change processes at each step of the merchandising chain.

Corporate health costs are again shooting up at double-digit rates. Employers need to take responsibility for that cost increase and redesign the structure of their health benefits.

Armed with their important-sounding titles, all the "chiefs" in a company naturally want to report directly to the CEO. But that's not always feasible--or wise. A chart illustrates a more reasonable reporting structure.

After a decade of economic weakness, the doors of Japan Inc. are opening for outsiders. In fact, research shows that foreign acquirers now have considerable advantages over domestic acquirers. Here's how companies can seize those advantages.

Harvard Business School professor William Sahlman comments on his 1999 HBR article, "The New Economy Is Stronger Than You Think." Despite the market crash, he says, the new economy continues to hold its value.

Corporate budgeting is a joke, and everyone knows it. It consumes a huge amount of executives' time, forcing them into endless rounds of dull meetings and tense negotiations. It encourages line managers to lie and cheat, lowballing targets and inflating results. And it turns business decisions into elaborate exercises in gaming. The sad thing is, budget shenanigans have become so embedded in corporate life that they're accepted as business as usual--no matter how destructive they are. The source of the problem is using budget targets to drive managers' compensation. In a traditional pay-for-performance compensation program, a manager earns a hurdle bonus when performance reaches a certain level. The bonus increases with performance until it hits a maximum cap. These "kinks" in the pay-for-performance line create incentives to game the system. When performance approaches the hurdle target, a manager will try to accelerate the realization of revenue and profit. When performance hits the cap, the manager has a strong incentive to push revenue and profit into the next year. To eliminate inducements to game the system, companies should adopt a purely linear pay-for-performance scheme that rewards actual performance, independent of budget targets. A manager receives the same bonus for a given level of performance whether the budget goal happens to be set beneath that level or above it. Severing the link between budgets and bonuses eliminates managers' motivation to lowball targets, and it takes away incentives to move revenues and expenses around when the end of a budget period approaches. Not only does this remove the costs of gaming, it also frees managers from all the time they traditionally had to devote to it.