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Academics and practitioners alike have been arguing about whether the Internet brings a revolutionary change in the fundamental way we do business or whether it simply offers a new distribution channel and communication medium. Regardless of the answer to that debate, one thing is certain: the Internet provides managers with an enormous amount of customer information that was previously unavailable. Thus, the new struggle has been to manage this information and to use it accurately and efficiently to measure customers, trends, and performance. However, the volume of this data has overwhelmed many e-commerce managers. As a result, e-commerce managers have been focusing on aggregate-level summary statistics rather than fully leveraging their data. Using commonly available clickstream data, this article discusses the benefits of separating an individual customer's buying behavior into simple patterns of visits and purchasing conversion. This analysis of the buying process allows us to examine more carefully the relationship between store visits and purchasing behavior.

As relationships and service become increasingly pivotal in business, the profitability of customers is becoming more important than the profitability of products. In this environment, marketing success will be equivalent to generating maximum profits from a firm's total set of customers. Doing so requires allocating managerial resources to the groups of customers that can be cultivated most efficiently by a firm. This article presents a management methodology called the "Customer Pyramid" that enables a firm to supercharge its profits by customizing its responses to distinct customer profitability tiers. The Customer Pyramid provides a tool for managers to strengthen the link between service quality and profitability and to determine the optimal allocation of often scarce resources to maximize profitability. Product and service strategies, customized for each customer tier, become more closely aligned with an individual customer's underlying utility functions. This results in more effective and profitable strategies for serving the customer. Also provides numerous examples and practical guidelines for improving firm profits by moving customers up the Customer Pyramid.

When it comes to making business decisions, being overconfident about your choices can actually be more harmful than just guessing. Here's how managers can calibrate their confidence levels--and avoid being too sure in the wrong situations.

Few companies can pinpoint just how much they're spending on procurement. Here's a matrix that gives companies a systematic way to identify and organize the full costs of their relationships with their suppliers.

Guidant's Ginger Graham argues that senior executives are actually better prepared than most lobbyists to inform and educate members of Congress about the issues that will affect their businesses.

In a roundtable discussion, top executives from Southwest Airlines reveal that relationships with the company's unions and frontline supervisors may actually be more important to its success than the operational focus for which it is so well known.

In big organizations, traditions and territoriality often keep people in different product groups from working together. Siemens may have found an answer to this problem: managers need to feel they have "permission" to collaborate across divisions.

In 1994, the consumer products company Alberto-Culver North America faced flattened sales and the most difficult competitive environment of its history. President Carol Bernick knew that overcoming these challenges would require a certain kind of corporate culture--but it wasn't the culture the company had. She changed that by focusing on four areas. First, Bernick made culture visible and elevated it to priority status, often by highlighting desired values and behaviors that already existed in pockets of the company. Second, Bernick and her executive team created the role of growth development leader (GDL). Each mentors about a dozen people. Her frequent meetings with GDLs make them effective agents of change upward and downward. Third, the company uses an employee survey to identify areas for improvement and to provide 360-degree feedback to GDLs and top management. And fourth, successes are celebrated constantly--through stock awards for the best GDLs, Business Builders Awards for great innovators, and many other, less formal means. Since 1994, the company has cut employee turnover in half, seen sales grow 83%, and watched pretax profits rise 336%--indicators of how cultural change is driving business results.

Quarterly earnings numbers dominate the decisions of executives, analysts, investors, and auditors. Yet for all the attention paid to these numbers, they're not much use in predicting a company's future performance and cash flows. Even economists are unanimous in their view that these numbers say next to nothing about a company's prospects beyond the next quarter. Nonetheless, meeting analysts' expectations that earnings will rise in a smooth, steady, unbroken line has become, at many corporations, a game whose imperatives override even the imperative to deliver the highest possible return to shareholders. The fetishistic attention paid to this almost meaningless indicator might be cause for amusement, except for one thing: the earnings game does real harm. It distorts corporate decision making. It reduces securities analysis and investing to a guessing contest. It compromises the integrity of corporate audits. Ultimately, it undermines the capital markets. In this article, HBR senior editor Harris Collingwood takes an in-depth look at these effects, examining the intricacies of the earnings game and why companies believe they have no choice but to play it. Until more corporate executives change their practices, he explains, the earnings game will never lack for players.

It may seem like the topic of service management has been exhausted. Legions of scholars and practitioners have applied queuing theory to bank lines, measured response times to the millisecond, and created cults around "delighting the customer." But practitioners haven't carefully considered the underlying psychology of service encounters--the feelings that customers experience during these encounters, feelings often so subtle they probably couldn't be put into words. Fortunately, behavioral science offers new insights into better service management. In this article, the authors translate findings from behavioral-science research into five operating principles: 1) finish strong; 2) get the bad experiences out of the way early; 3) segment the pleasure, combine the pain; 4) build commitment through choice; and 5) give people rituals and stick to them. Ultimately, only one thing really matters in a service encounter--the customer's perception of what occurred. This article will help you engineer your service encounters to enhance your customers' experiences during the process as well as their recollections of the process after it is completed.

Business runs better when people within a company have close ties and trust one another. But the relationships that make organizations work effectively are under assault for several reasons. Building such "social capital" is difficult in volatile times. Disruptive technologies spawn new markets daily, and organizations respond with constantly changing structures. The problem is worsened by employees' working off-site or on their own. The authors describe how managers can help their organizations thrive by making effective investments in social capital. For instance, companies that value social capital demonstrate a commitment to retention as a way of limiting workplace volatility. The authors cite SAS's extensive efforts to signal to employees that it sees them as human beings, not just workers. Managers can foster cooperation by giving employees a common sense of purpose through good strategic communication and inspirational leadership. Johnson & Johnson's well-known credo, which says the company's first responsibility is to the people who use its products, has helped the company in times of adversity, as in 1982 when cyanide in Tylenol capsules killed seven people. Other methods of fostering cooperation include rewarding the behavior with cash and establishing rules that get people into the habit of cooperating.

Drawing on extensive research of Fortune 500 companies that have lived through industry downturns and economic recessions over the past two decades, Darrell Rigby, a director of Bain & Company, reveals how companies need to go against the grain of convention and exploit industry downturns to harness their unique opportunities for upward mobility. The author explains that every downturn goes through three phases. He examines each phase and shows how successful players navigate the huge waves of a downturn. Smart executives, he says, don't panic: they look bad news in the eye and institutionalize an approach to detecting storms. Rather than hedge their bets through diversification, they focus on their core businesses and spend to gain market share. They manage costs relentlessly during good times and bad. They keep a long-term view and strive to maintain the loyalty of employees, suppliers, and customers. And coming out of the downturn, they maintain momentum in their businesses to stay ahead of the competition they've already surpassed. Every industry will face periodic downturns of varying severity, says Rigby. But executives with the vision and ingenuity to take unconventional approaches can buoy their companies to new heights.

In this interview with HBR senior editor David Champion, Mark Levin, the founder and CEO of Millennium Pharmaceuticals, describes his vision of the future of the pharmaceutical industry in the wake of the genetics revolution and new technologies that have altered the economics of drug development. No company, he argues, will create serious long-term value by staying in just one or two stages of the value chain. That's why Millennium, which started out doing basic research into genes and proteins and selling its findings to pharmaceutical giants, has moved downstream--toward the patients who actually use and pay for the drugs. He explains why the research end has become less lucrative than the more mechanical tasks of identifying, testing, and manufacturing molecules. Levin talks about the changes Millennium has undergone since its inception in 1993--from 30 workers to more than 1,000, and from one end of the value chain to the other. He discusses the company's cultural transformations as well as the partnerships and acquisitions that have helped Millennium become involved in every stage of the chain--from gene to patient. Levin's vigorous approach to balancing long-term strategy with short-term tactics offers important lessons to any executive facing an industry upheaval.

Microsoft and Intel are both obvious targets for antitrust litigation; both wield considerable control in their respective segments of the computer industry. But while Microsoft has been mired in court for years now--its name and business practices dragged through the mud, and its very future as a single company thrown into doubt--Intel has avoided a prolonged, high-profile antitrust case. Intel's success is not a matter of luck. The company's antitrust compliance program, refined over many years, has been an integral element in the chip maker's business strategy. In this article, the authors suggest that Intel's approach to compliance provides a valuable model for any enterprise that may come under regulators' scrutiny. They describe how Intel created extremely conservative antitrust compliance standards and then instituted a series of unique training events that had active support from then-CEO Andy Grove and others in senior management. Intel recognizes that no matter how cautious it is, it will always face extraordinary scrutiny as a market leader. But "since antitrust is embedded in everything we do," Grove says, "we can control our destiny."

Subaru markets an L.L. Bean Outback station wagon. Dell stamps Microsoft and Intel logos on its computers. Such interweaving of different companies' brands is now commonplace. But one of the central tools of brand management--portfolio mapping--has not kept pace with changes in the marketplace. Most conventional brand maps include only those brands owned by a company, arranged along organizational lines with little regard for how the brands influence customer perceptions. In this article, the authors present a new mapping tool--the brand portfolio molecule--that includes all the brands that factor into a consumer's decision to buy, whether or not the company owns them. The first step in creating a brand portfolio molecule is to determine which brands should or should not be included. The second step is to classify each brand by asking five key questions: 1) How important is this brand to customers' purchase decisions about the brand you're mapping? 2) Is its influence positive or negative? 3) What market position does this brand occupy relative to the other brands in the portfolio? 4) How does this brand connect to the other brands in the portfolio? 5) How much control do you have over this brand? The last step is to map the molecule using a 3-D modeling program or by hand with pen and paper.

Many firms have implemented company-wide systems called Enterprise Resource Planning (ERP) systems, designed to integrate and optimize various business processes, such as order entry and production planning, across the entire business. Such systems are complex, and implementing one can be difficult, time consuming, and expensive. Limited reports in the popular press suggest that these systems have achieved mixed success at best; some imply that failure of implementation threatens the existence of the company. Here we present an objective view of ERP systems, based on interviews with operating managers, IT personnel, and consultants. The dominant reason for adopting ERP was to simplify and standardize IT systems; the second most common reason was to have access to accurate information. Cost of implementation generally ranged from 1.5% to 6% of annual revenues, with the software portion of the costs being just the tip of the iceberg. Implementation time varied from 12 months to 4 years. Return on investment in ERP was mixed--from 5% to 20%. For all the negative press ERP systems have received, our interviews indicated that all firms represented in our sample were pleased with them, despite some problems. Successful implementations were characterized by thorough senior management involvement, a cross-functional implementation team, clear guidelines for performance measurement, and detailed plans for training users. Importantly, a single ERP system does not provide an end-to-end solution, as most companies use other systems for specialized functions. Overall, though, the future of ERP is very promising.

In 1992, the Harlem Globetrotters were headed toward extinction, but Honeywell executive and former Globetrotter Mannie Jackson believed the brand still had value after 75 years in the public eye. He bought the organization in order to translate this widespread brand recognition into financial results. Jackson describes how he took over the Globetrotters in August 1993, intending to fold the team and replace it with an organization that would sell Globetrotters merchandise. But those plans changed when he met with the team for the first time and looked into the eyes of some of the great ones from the Globetrotters' past. Instead of shutting things down for good, Jackson started preaching to the squad about building a competitive team, about the team being well known for its contributions to charities, about the players working more with kids, and about rebuilding the quality of the organization. The players believed--and slowly but surely, audiences and arena managers did, too. By focusing on providing quality basketball, forging good business relationships, and insisting on accountability in the business, Jackson helped the Globetrotters dramatically increase revenue, profit, and attendance.

In today's technology-driven world, who has time to pick up a 400-page novel? Most executives don't--they have urgent e-mails to answer, training seminars to attend, meetings to lead, and trade publications to scan. But according to Harold Bloom, one of America's most influential scholars, they should make time in their hectic schedules to read great works. In a wide-ranging conversation with HBR senior editor Diane Coutu, Bloom discusses the importance of literature: every individual--regardless of profession--needs to stretch his or her mind and reflect now and again on the human condition. "By reading great imaginative literature, you can prepare yourself for surprise and even get a kind of strength that welcomes and exploits the unexpected," he says. Because there are so many great works and there is so little time, Bloom presents a reading list for busy executives. Bloom believes the humanities have much to offer businesspeople: great books broaden their awareness and their range of sensibility, he says. But reading literature will not make businesspeople more moral, he cautions. Bloom also discusses other topics such as how to read well, the state of popular fiction, the role of irony, and the subject of change.

In this article, Bain consultants Orit Gadiesh and James Gilbert explore the concept of the strategic principle--a memorable and actionable phrase that distills a company's corporate strategy into its unique essence and communicates it across an organization. If it's devised and disseminated properly, a strategic principle can empower employees to seize business opportunities but also focus everyone in an organization--executives and line managers alike--on the same strategic objectives. The authors outline the three defining characteristics of a good strategic principle--it should force trade-offs between competing resource demands, it should serve as a test for the strategic soundness of a particular action, and it should set clear boundaries for employees to operate within even as it grants them freedom to experiment. They explain how managers can create a strategic principle, how they should test it, and when they should revisit it. The authors present real-world examples of how companies use their strategic principles. For instance, they describe how Southwest Airlines stopped flying to Denver after it measured the high costs of providing flight service in that part of the country against its strategic principle of offering customers short-haul air travel at fares competitive with the cost of automobile travel. This tool is increasingly useful in today's rapidly changing business environment, the authors conclude, and it is likely to become even more crucial to corporate success.

Many companies have become adept at the art of customer relationship management. They've collected mountains of data on preferences and behavior, divided buyers into ever-finer segments, and refined their products, services, and marketing pitches. But all too often those efforts are too narrow--they concentrate only on the points where the customer comes into contact with the company. Few businesses have bothered to look at what the author calls the customer scenario--the broad context in which customers select, buy, and use products and services. As a result, consultant Patricia Seybold maintains, they've routinely missed chances to deepen loyalty and expand sales. In this article, the author shows how effective three very different companies have been at using customer scenarios as the centerpiece of their marketing plans. Chip maker National Semiconductor looked beyond the purchasing agents that buy in bulk to find ways to make it easier for engineers to design National's components into their specifications for mobile telephones. By developing a customer scenario that describes how people actually shop for groceries, Tesco learned the importance of decentralizing its Web shopping site and how the extra costs of decentralization could be outweighed by the higher profit margins on-line customers generate. And Buzzsaw.com used customer scenarios as the basis for its entire business.