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In theory, value-based management programs sound seductively simple. Just adopt an economic profit metric, tie compensation to agreed-upon improvement targets in that metric, and voila--managers and employees will start making all kinds of value-creating decisions. If only it were that easy. The reality is, almost half of the companies that have adopted a VBM metric have met with mediocre success. That's because, the authors contend, the successful VBM program is really about introducing fundamental changes to a big company's culture. Putting VBM into practice requires a great deal of patience, effort, and money. According to the authors' study, companies that successfully use VBM programs share five main characteristics. First, nearly all made explicit and public their commitment to shareholder value. Second, through training, they created an environment receptive to the changes the program would engender. Third, they reinforced that training with broad-based incentive systems closely tied to the VBM performance measures, which gave employees a sense of ownership in both the company and the program. Fourth, they were willing to craft major organizational changes to allow all of their workers to make those value-creating decisions. Finally, the changes they introduced to the company's systems and processes were broad and inclusive rather than focused narrowly on financial reports and compensation. The authors argue that properly applied, a VBM program will put your company's profitability firmly on track.

The greater the loyalty a company engenders among its customers, employees, suppliers, and shareholders, the greater the profits it reaps. Frederick Reichheld, a director emeritus of Bain & Co., offers advice on improving loyalty that is based on more than a decade of research. Primarily, he says, outstanding loyalty is the direct result of the decisions and practices of committed top executives with personal integrity. The "loyalty leader" companies--those with the most impressive loyalty credentials--are a diverse group, ranging from Vanguard and Northwestern Mutual to Chick-fil-A, Harley-Davidson, Intuit, and Enterprise Rent-A-Car. But beneath their surface variations lie six strikingly similar relationship strategies: 1. Preach what you practice. Executives must preach the importance of loyalty in clear, precise, powerful terms. 2. Play to win-win. It's not enough that your competitors lose; your partners must win. There's a clear connection, for instance, between a company's treatment of its employees and its attitude toward customers. 3. Be picky. A truly humble company knows it can satisfy only certain customers, and it goes all out to keep them happy. Careful selection of employees also plays an important role. 4. Keep it simple. Great leaders understand that they must simplify rules for decision making. 5. Reward the right results. Many companies reward employees who grab short-term profits and shortchange those who build long-term value and customer loyalty. 6. Listen hard, talk straight. Long-term relationships require honest, two-way communication and learning. Exemplary leaders believe that an organization thrives when its partners and customers do.

Nearly all of us will lose our jobs sometime, but is there a right way to be terminated? What differentiates fired employees who make the best of their situations from those who do not? One answer is mind-set. Many workers unconsciously hold a "tenure mind-set," believing in the promise of employment security. By contrast, other workers hold an "assignment mentality," seeing each job as one in a series of impermanent, career-building stepping-stones. Most corporate board members and CEOs have this latter mind-set and consider their executives to be filling terminal assignments. People who possess this mentality usually rebound swiftly when fired. But when employees who hold a tenure mind-set are suddenly fired or laid off, the authors say, they can fall into three common traps: the "lost identity" trap, the "lost family" trap, and the "lost ego" trap. To prepare for the eventuality of termination, the authors suggest that executives adopt the assignment mind-set at all times. They should keep their social networks alive, include a termination clause in employment contracts, and consider hiring an agent. If warning signs warrant, they might even volunteer to be terminated. By assuming control over the way they are fired, people can gain control over their careers.

To be more responsive to customers, companies often break down organizational walls between their units--setting up all manner of cross-business and cross-functional task forces and working groups and promoting a "one-company" culture. But such attempts can backfire by distracting business and functional units and by contaminating their strategies and processes. Fortunately, there's a better way, says the author. Rather than tear down organizational walls, a company can make them permeable to information. It can synchronize all its data on products, filtering the information through linked databases and applications and delivering it in a coordinated, meaningful form to customers. As a result, the organization can present a single, unified face to the customer--one that can change as market conditions warrant--without imposing homogeneity on its people. Such synchronization can lead to stronger customer relationships, more sales, and greater operational efficiency as well as sustain product innovation--goals that have traditionally been difficult to achieve simultaneously.

Stressful conversations are unavoidable in life. In business, they can run the gamut from firing a subordinate to, curiously enough, receiving praise. But whatever the context, stressful conversations carry a heavy emotional load. Indeed, stressful conversations cause such anxiety that most people simply avoid them. Yet it can be extremely costly to dodge issues, appease difficult people, and smooth over antagonisms; avoidance usually only worsens a problem or a relationship. Using vivid examples of the three basic stressful conversations that people bump up against most often in the workplace, the author explains how managers can improve those interactions unilaterally. To begin with, they should approach the situations with greater self-awareness. Awareness building is not about endless self-analysis; much of it simply involves making tacit knowledge about oneself more explicit. Knowing how you react in a stressful situation will teach you a lot about your trouble areas and can help you master stressful situations. The author also recommends rehearsing difficult conversations in advance to fine-tune your phrasing and tone. We all know from past experience what kinds of conversations and people we handle badly. The trick is to have prepared conversational tactics to address those situations.

Nearly one in ten professionals now works part-time. But all too often, part-time work creates as many problems as it solves. At best, many part-timers work more hours than they intended. At worst, they see their importance to their organizations dwindle. Two generations have wrestled with such arrangements, and today some part-time professionals have found ways to overcome the challenges, with shining results. Drawing on two years of research investigating part-time engineers, financial analysts, IT specialists, and consultants, the authors present five strategies that successful part-timers use to make their unique position work for themselves and their companies. To begin with, successful part-time professionals take pains to make their work-life priorities, their schedules, and their plans for the future transparent to the organization. Second, they broadcast the business case for their arrangement, being careful to demonstrate that the arrangement has not disrupted the business and may even have a positive impact. Third, they establish routines to protect their time at work and rituals to protect their time at home. Fourth, they cultivate champions in senior management who protect them from skeptics and advocate for their arrangements up and down the ranks. And last, they remind their colleagues that, despite their part-time status, they're still major players in the organization who cannot be ignored.

In the current economic climate, there is tremendous pressure--and personal incentive for managers--to report sales growth and meet investors' revenue expectations. As a result, more companies have issued misleading financial reports, according to the SEC, especially involving game playing around earnings. But it's shareholders who suffer from aggressive accounting strategies; they don't get a true sense of the financial health of the company, and when problems come to light, the shares they're holding can plummet in value. How can investors and their representatives on corporate boards spot trouble before it blows up in their faces? According to the authors, they should keep their eyes peeled for common abuses in six areas: revenue measurement and recognition, provisions and reserves for uncertain future costs, asset valuation, derivatives, related party transactions, and information used for benchmarking performance. This article examines the hazards of each accounting minefield, using examples like Metallgesellschaft, Xerox, MicroStrategy, and Lernout & Hauspie. It also provides a set of questions to ask to determine where a company's accounting practices might be overly aggressive. These questions are the first line of defense against creative accounting. The authors argue that members of corporate boards need to be financially literate.

The prices we encounter in the course of making a purchase can affect how much we're willing to pay for a given product--even when the goods involved are entirely unrelated.

A leading authority on the graying of America's workforce explains why older workers must be retrained and retained.

Corporate information and the contracts that govern it used to be bound together on paper and filed away. But now data fly loose on the Internet--and that can be a problem.

Although the two revenue models coexist on the TV screen, the pay-for-content model will triumph over the advertising model on the Internet.

Companies should do more than reduce the amount of time their customers spend waiting; they should actually add value to such time.

This is an MIT Sloan Management Review article. New research shows that among today's numerous strategic alliances, the most successful are in companies with a department specifically assigned to oversee alliances. Management professors Jeffrey H. Dyer, Prashant Kale, and Harbir Singh came to that conclusion after conducting an in-depth study of 200 corporations and their 1,572 alliances. They set out to discover why some companies manage alliances effectively when others fail. They found that organizations such as Hewlett-Packard, Oracle, Eli Lilly & Co., and Parke Davis, which excel at generating value from alliances, have a dedicated strategic alliance function. Companies with a dedicated function were better at solving problems related to the four key alliance management elements: knowledge management, external visibility, internal coordination, and accountability. A dedicated function, the authors show, acts as a focal point for learning and for leveraging feedback from prior and ongoing alliances. It systematically establishes processes to articulate, document, codify, and share alliance know-how. One benefit of creating an alliance function was that it compelled companies to create metrics for evaluating the performance of all their alliances. And regular evaluations alerted senior managers to intervene when a particular alliance was struggling. Many companies with dedicated alliance functions report codifying alliance management knowledge. They create guidelines to help with specific aspects of the alliance life cycle, such as partner selection or alliance negotiation. When done properly, dedicated alliance functions offer internal legitimacy to alliances, assist in setting strategic priorities, and draw on resources across the company.

This is an MIT Sloan Management Review article. The Internet has created new markets, customers, products, and modes of conducting business. But it also has given currency to some dangerous half-truths. Subramanian Rangan and Ron Adner, professors of management and strategy at INSEAD in France, explain why seven popular strategies are not the path to profitable growth. First-mover advantage, for example, gets too much credit for e-business success. Companies believe that they can lock in customers and trigger a winner-take-all dynamic, but there is no guarantee that those benefits will go to first movers. The allure of reach--increasing the number of customer segments--causes many companies to ignore fit, the coherence with which their activities reinforce one another. Another tempting growth strategy is to provide customer solutions, offering products or services that complement a company's core offering. But offering solutions can dilute a company's focus. Targeting the right Internet sector is one way to maintain focus. When companies view the Internet as an undifferentiated landscape, they are less able to distinguish the drivers of customer value and performance--or the metrics to measure them. Some companies see best-of-breed-partner leverage as the secret of profitable growth. But although the Internet makes it easier and cheaper to align activities across company boundaries, it does not do much to align interests--a requirement for the creation of joint value. Another misconception is the belief that an Internet business will automatically be successful abroad. The last, and perhaps most dangerous, misconception is managers' belief that technology can substitute for strategy. Companies that understand their technology better than they understand their customers and competition won't succeed in any economy, old or new.

This is an MIT Sloan Management Review article. Mastering the management of a global business team calls for confronting several unique challenges that tend to exacerbate the more common problems facing all teams, point out authors Vijay Govindarajan, director of the Center for Global Leadership at Dartmouth College's Tuck School, and Anil Gupta, a professor of strategy and global e-business at the University of Maryland's Robert H. Smith School of Business. Of the 70 global business teams studied by the authors, about one-third rated their performances as largely unsuccessful. How can companies reverse the generally weak performance of faltering global teams? The authors' survey of 58 senior executives from five U.S. and four European multinational organizations reveals some hard-earned insights that may benefit your cross-border endeavors. When global business teams fail, it is often due to a lack of trust among team members. As a result, executives guiding global teams must institute processes that emphasize the cultivation of trust. Also high on the list of culpable factors are the hindrances to communication that geographical, cultural, and language differences cause. Even in the case of teams whose members speak the same language, differences in semantics, accents, tone, pitch, and dialects can be impediments. To mitigate the corrosive effects of these cross-cultural impediments, executives are advised to craft a cross-border team's charter, composition, and process carefully--with each aspect equally emphasized. The authors elaborate on how these work holistically to increase the odds that your global business teams will become high-performing sources of invaluable multinational experience leading to competitive advantage.

Today's problems often arise as unintended consequences of yesterday's solutions. Business and public policy settings suffer from policy resistance, the tendency for well-intentioned interventions to be defeated by the response of the system to the intervention itself. Just as an airline uses flight simulators to help pilots learn, system dynamics enables us to create management flight simulators to avoid policy resistance and design more effective policies. System dynamics is also a process for working with high-level teams designed to improve the chances for implemented results. This article discusses how system dynamics can be used effectively to design high-leverage policies for sustainable improvement and introduces the next three articles in this issue discussing the application of system dynamics to a variety of critical issues facing business leaders today.

Explores how service organizations respond to changes in work pressure, why they respond the way they do, and what managers can do about it. The system dynamics method captures the organizational and behavioral components of the social systems that produce and consume services, as well as the physical characteristics of the service delivery system. This method also supports the assessment of long-term consequences of complex interactions among responses to work pressure. The major recurring problems observed in the service industry--erosion of service quality, high turnover, and low profitability--can be explained by the organization's response to changes in work pressure. Also suggests ways to identify the structural characteristics that determine the preferred response to work pressure. By providing a specific link between characteristics of service settings and dysfunctional outcomes, the model assists managers in the design of high-leverage policies to eliminate undesired behaviors.

One of the most common syndromes in product development is firefighting, the unplanned allocation of resources to fix problems discovered late in a product's development cycle. Although it has been widely criticized in both the popular and scholarly literature, firefighting is a common occurrence in most product development organizations. Product development systems have a tipping point. In models of infectious diseases, the tipping point represents the threshold of infectivity and susceptibility beyond which a disease becomes an epidemic. Similarly, in product development systems, there exists a threshold for problem-solving activity that, when crossed, causes firefighting to spread rapidly from a few isolated projects to the entire development system. The location of the tipping point, and therefore the susceptibility of the system to the firefighting phenomenon, is determined by resources utilization in steady state. Many of the current methods for aggregate resource planning are insufficient, and managers wishing to avoid the firefighting dynamic must rethink their approach to managing multiproject development environments.

Today's managers face a paradox. On the one hand, the number of tools, techniques, and technologies available to improve operational performance is growing rapidly. On the other hand, despite dramatic success in a few companies, most efforts to use them fail to produce significant results. To understand and resolve this paradox, this article investigates the difficulties organizations face in implementing processes and techniques such as lean production, TQM, computer-aided design and development tools, stage-gate product development processes, and improved customer service systems. The inability of most organizations to reap the full benefit of these innovations has little to do with the specific technique. Instead, the problem has its roots in how the introduction of a new improvement effort interacts with the physical, economic, social, and psychological structures in which implementation takes place. Presents a framework to understand how these failures arise and illustrates strategies for overcoming the pathological behavior through case studies of successful improvement.

The essence of the information technology revolution and, in particular, the World Wide Web is the opportunity afforded companies to choose how they interact with their customers. The web allows companies to build better relationships with customers than has been previously possible in the offline world. This revolution in customer relationship management (CRM) has been referred to as the new "mantra" of marketing. However, a problem is that CRM means different things to different people. This article develops a comprehensive CRM model incorporating seven phases: database creation, analysis of the database, customer selection, customer targeting, relationship marketing, privacy issues, and new metrics necessary for evaluating the CRM effort. Also discusses the implications of CRM for future marketing organizations.