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Unspoken, subtle parts of a bargaining process--also known as the shadow negotiation--can set the tone for a successful negotiation. Deborah Kolb and Judith Williams, whose book The Shadow Negotiation was the starting point for this article, say there are three strategies businesspeople can use to guide these hidden interactions. Power moves are used when two negotiating parties hold unequal power. These strategies, such as casting the status quo in an unfavorable light, can help parties realize that they must negotiate: they will be better off if they do and worse off if they don't. Process moves affect how negotiation issues are received by both sides in the process, even though they do not address substantive issues. Working outside of the actual bargaining process, one party can suggest ideas or marshal support that can shape the agenda and influence how others view the negotiation. Appreciative moves alter the tone or atmosphere so that a more collaborative exchange is possible. These strategic moves don't guarantee that all bargainers will walk away winners, but they help to get stalled negotiations moving--out of the dark of unspoken power plays and into the light of true dialogue.

With help from a team of ethnographers and senior organization specialists, authors Mark Maletz and Nitin Nohria recently conducted a unique research project that focused on "whitespace": the large but mostly unoccupied territory in every company where rules are vague, authority is fuzzy, budgets are nonexistent, and strategy is unclear--and where entrepreneurial activity that helps reinvent and renew an organization most often takes place. The researchers shadowed entrepreneurial managers operating in the whitespace and met with top managers about their efforts to oversee whitespace activities. Using examples from the financial services, computer, and e-commerce industries, the authors explain when it's imperative to operate in the whitespace--and when it's wiser to stay in the traditional blackspace. They describe how effective whitespace managers subtly and resourcefully lead successful efforts, and how senior executives nurture whitespace projects by putting aside their traditional planning, organizing, and controlling techniques. Finally, they examine the ultimate issue for any successful whitespace project: should it be moved into the blackspace, kept in the whitespace indefinitely--or, despite its apparent success, killed off? If companies leave this valuable territory to the scattershot whims and talents of individual managers, the authors say, they are likely to miss out on many of the opportunities that come from exploring the next frontier.

One of the world's most enduring companies, Nestle epitomizes everything that today's high-flying, headline-grabbing companies are not. It respects technology but doesn't consider it central to strategy. It values growth but prefers it controlled. It seeks talented professionals but wants only those who are modest in word and deed. Nestle CEO Peter Brabeck is skeptical of the relentless push for radical transformation heard from every quarter. He believes, instead, in continuous improvement through slow and steady change. While he acknowledges that every company must change in order to compete in today's turbulent marketplace, Brabeck makes the focus of his work identifying and strengthening those aspects of Nestle that should stay the same. For example, Nestle eschews the noise and energy swirling around technology. Many companies make technology the focal point of strategy, Brabeck says, but Nestle is about people, products, and brands. Brabeck also talks candidly about how to fight complacency in a successful company, how to institutionalize collaboration in a decentralized organization, and how to resist pressure from analysts and money managers and focus on long-term, sustainable and profitable growth--in short, how to win the war without the revolution.

Companies generally set prices on the Internet in two ways. Many start-ups offer untenably low prices in a rush to capture first-mover advantage. Many incumbents simply charge the same prices on-line as they do off-line. Either way, companies are missing a big opportunity. The fundamental value of the Internet lies not in lowering prices or making them consistent but in optimizing them. The Net lets companies optimize prices in three ways. First, it lets them set and announce prices with greater precision. Different prices can be tested easily, and customers' responses can be collected instantly. Second, because it's so easy to change prices on the Internet, companies can adjust prices in response to even small fluctuations in market conditions, customer demand, or competitors' behavior. Third, companies can use the clickstream data and purchase histories that it collects through the Internet to segment customers quickly. Then it can offer segment-specific prices or promotions immediately.

In recent years, companies have increasingly seen the benefits of creating a corporate brand. Rather than spend marketing dollars on branding individual products, giants like Disney and Microsoft promote a single umbrella image that casts one glow over all their products. A company must align three interdependent elements--call them strategic stars--to create a strong corporate brand: vision, culture, and image. Aligning the stars takes concentrated managerial skill and will, the authors say, because each element is driven by a different constituency: management, employees, or stakeholders. To effectively build a corporate brand, executives must identify where their strategic stars fall out of line. The authors offer a series of diagnostic questions designed to reveal misalignments in corporate vision, culture, and image. The first set of questions looks for gaps between vision and culture; for example, when management establishes a vision that is too ambitious for the organization to implement. The second set addresses culture and image, uncovering possible gaps between the attitudes of employees and the perceptions of the outside world. The last set of questions explores the vision-image gap--is management taking the company in a direction that its stakeholders support? The authors discuss the benefits of a corporate brand, but they also point to cases in which a corporate brand doesn't make sense.

Corporate America and the U.S. Navy share one big problem: employee retention. Today's knowledge workers hop from start­-up to start-up. And 40% of the navy's new recruits leave the service before their four­-year tours of duty are up. D. Michael Abrashoff came face to face with the navy's retention problem when he took command of the USS Benfold. Before he became captain, sailors couldn't get away from the ship fast enough. Today the vessel is the pride of the Pacific fleet, and sailors from other ships are clamoring to join its crew. In this firsthand account, Abrashoff explains how he got the ship and its crew back on course by breaking bad habits-per­sonal and professional ones-and jettisoning old attitudes. During his 21 months aboard the Benfold, Abrashoff came to realize that in today's technology-intensive U.S. Navy, the traditional command-and-control style wouldn't work. And it hadn't-the Benfold's 310 sailors had cheered derisively when Abrashoff's predecessor had left the ship. So he defied 225 years of navy tradition in his quest to engage the sailors in their work, increase their performance, and keep them around for their entire tours of duty. He retained his crew by redeeming them-showing them how to be not just better sailors but better people, too. That meant breaking them down when they were at their worst and then building them up to reach their best. It also meant personal redemption for Abrashoff; he resolved to really listen to what his sailors were saying. The result? Cost-saving ideas for the entire navy and surging confidence and commitment among crew members.

The music industry, described in breezy prose in John Alderman's Sonic Boom: MP3, Napster, and the New Pioneers of Music, is coming under intense pressure from Internet-based technologies that challenge traditional property rights. Industry executives are denouncing the upstarts, but Napster and companies like it are actually producing efficiency, not anarchy. To understand the full force of the Napster challenge, reviewer Clay Shirky says, one has to look beyond Sonic Boom's collage of people and events. Music has always been a business of high fixed costs and low marginal costs, and Internet technology is reducing marginal costs to practically zero. Before Napster, music industry executives assumed they would apply traditional per-unit pricing to sales over the Internet. Napster's success means the all-you-can-eat model has won. Newspaper and software publishers have already begun to adapt to this reality, and now it's the music industry's turn. This shift actually represents a big revenue opportunity for the industry, not a clear loss. Per-unit pricing imposes enormous psychological barriers to purchase, so shifting to an unlimited-access, subscription-based model will unleash pent-up demand for music. And the industry's abilities to develop and screen talent will be even more important to consumers in a Napster world.

In establishing joint ventures and nonequity alliances, key clauses are to be negotiated that set out the scope of the agreement and the partners' obligations to each other. Major issues include initial discussions, setting up the joint venture, the parties and framework of contract, performance clauses, restrictions on the partners, and liability. Though not always effective in practice, a confidentiality agreement or nondisclosure agreement (NDA) may be desirable for protecting both companies. This could be combined with lockout provisions that prevent one of the companies from conducting parallel negotiations with a competitor. Especially important is the need to ensure that a legally binding contract is not accidentally entered into at too early a stage. Post-establishment issues include making changes to the contract, dispute resolution, share disposal, and termination. Although lawyers play an important role, no clear dividing line separates so-called legal and business issues, and the commercial managers will often need to be involved. An argument can be made for involving the managers who will actually be running the joint venture. Managers designing strategic alliances can become more effective by raising their awareness of some of the basic legal and negotiating aspects of collaborative agreements.

Owners of small firms are not likely to give much thought to an accounting system during the planning or implementation phases of their business. The business plan forces them to use pro forma financial statements, and soon afterwards they will need certified accounting methods for meeting the needs of investors, lenders, and taxing authorities. But systems designed solely for those needs often fail to provide the managerial accounting information necessary to operate the venture--to make sound operating, strategic, and tactical decisions. The traditional accounting system relied on to do this is "absorption costing." Absorption costing, however, does not include costs of marketing and distribution. This article demonstrates how activity-based costing (ABC) provides a better framework for gauging the profitability of product lines and avoids some of the distortions caused by absorption costing. ABC is particularly useful in service firms by identifying activities, specifying cost drivers for each activity, calculating charging rates for each activity, and allocating costs to each product/service. In particular, ABC enables the firm to isolate the costs of unused capacity. Simple examples are provided and worked through one step at a time to illustrate the differences in logic and conclusions yielded by ABC as opposed to absorption costing.

Many CEOs are naturally inclined - and responsible for - overseeing the day-to-day operations of their respective firms. Not that there is anything wrong with that, but in the years ahead, one of a company's major competitive advantages will be its ability to attract, develop, excite and retain talent. Responsibility for managing that talent is already being assumed by some CEOs, who, these co-authors and McKinsey consultants say, are fast coming to the realization that their respective organizations are going to have to improve their talent management practices. In this article, which is based on their recently published book, The War for Talent, the co-authors survey the state of talent management as practiced by 13,000 managers. While becoming a talent manager is imperative, it will require a fundamental shift in how a CEO sees his or her job and a significant time commitment, tasks that the authors describe in the article.

Much of the discussion about globalization has missed a very important point, these co-authors claim, and seeing this point and understanding it are critical if executives are to really grasp what globalization is all about. The co-authors write that far from a single, global market, most trade takes place within regional blocks or clusters. Trade activity effectively occurs in the triad of North America, the European Union and Japan, and an approach based on national or regional realities, not global ones, will make the most sense for companies. The authors have ample evidence to substantiate their argument and they suggest what executives can do to counter and manage despite the widely propagated myth of globalization.

In a fast-moving, increasingly competitive world, a firm's only enduring source of advantage is its knowledge. Managing that knowledge is therefore crucial, and this article offers suggestions on how leaders can meet that challenge effectively. The author describes a practical six-step process for making knowledge management work. The process he describes will interest CEOs and managers of global corporations as much as it will entrepreneurs of small and medium-sized firms.

Many companies face the challenge of balancing art with commerce. The conflict between corporate pragmatism and artistic passion and quality is persistent: designers chafe under corporate requirements, budgets, and deadlines, and nondesigners struggle to understand the business value of artistic choices. At German carmaker BMW, the fanaticism about design excellence is matched only by the company's driving desire to remain profitable. Global design director Chris Bangle presides over the intersection of art and commerce at BMW, managing the often-strained relationships among the designers, engineers, and business managers. Bangle goes to great lengths to protect his designers from the unproductive commentary of others in the company, literally posting "Stop: No Entry" signs on the design studio doors. He also protects the design process, making sure that time-to-market pressures do not harm the designs by shifting the focus to engineering too soon. As a mediator, Bangle appeals to the core values of the company and a deeply held sense about BMW-ness--a pride of product shared by everyone in the company that expresses itself in the classic quality of the cars. Every employee, designer and nondesigner alike, understands that if a car doesn't meet this standard of excellence, it's simply not a BMW--and customers won't buy it.

Why is business so admired in the United States and so often denigrated in Europe? How has America created 30 million new jobs in the last 20 years while the European Union, with a bigger population, only managed 5 million? What is feeding America's apparently inexhaustible appetite for growth and its recent dramatic improvements in productivity? In 1831, French philosopher Alexis de Tocqueville came to America to examine its prison system and returned with a vision of democracy so profound it has become part of our cultural heritage. More than a century and a half later, renowned British business philosopher Charles Handy retraces Tocqueville's intellectual journey, this time focusing not on democracy but on capitalism. The result is an eye-opening look at some of the fundamental assumptions underpinning business in America today. It is America's optimism that Handy finds most striking, the unquestioned belief that tomorrow can--and should--be made better than today. The energy engendered by American optimism, coupled with the Puritan belief in work and in the nobility of earned wealth lies, in Handy's view, at the heart of America's success. Will American capitalism, born as it was from a property-owning democracy, now adapt to a dematerialized world, where property is intellectual rather than physical? Handy lays out the challenges that must be overcome for tomorrow to indeed continue to be better than today in this still-young country.

While many management thinkers proclaim an era of radical uncertainty, authors Sawhney and Parikh assert that the seemingly endless upheavals of the digital age are more predictable than that: today's changes have a common root, and that root lies in the nature of intelligence in networks. Understanding the patterns of intelligence migration can help companies decipher and plan for the inevitable disruptions in today's business environment. Two patterns in network intelligence are reshaping industries and organizations. First, intelligence is decoupling--that is, modern high-speed networks are pushing back-end intelligence and front-end intelligence toward opposite ends of the network, making the ends the two major sources of potential profits. Second, intelligence is becoming more fluid and modular. Small units of intelligence now float freely like molecules in the ether, coalescing into temporary bundles whenever and wherever necessary to solve problems. The authors present four strategies that companies can use to profit from these patterns: arbitrage allows companies to move intelligence to new regions or countries; aggregation combines formerly isolated pieces of infrastructure intelligence; rewiring allows companies to connect islands of intelligence; and reassembly allows businesses to reorganize pieces of intelligence into coherent, personalized packages for customers. By being aware of patterns in network intelligence and by acting rather than reacting, companies can turn chaos into opportunity, say the authors.

Increasingly, it seems, there are just two types of companies left in the world: dot-coms, born on the Internet, and "wanna-dots," established organizations that are seeking to incorporate the Internet into their businesses. Some wanna-dots manage the deep mind-shift required to cross the digital divide. These are the pacesetters--the first movers and fast followers that exhibit organizational curiosity and the desire to innovate. But most wanna-dots are laggards; they don't rise to the challenge with the same resolve. In a global research effort involving more than 800 companies, the author uncovered so many wanna-dots making the same kinds of mistakes that it almost seemed they were following a How Not to Change guide. In this article, Kanter creates just such a guide, offering ten pieces of antiadvice that expose the tendency of wanna-dots to make only cosmetic changes when deep transformation is required. Beyond delineating what not to do, Kanter serves up two examples of wanna-dots that got it right: Williams-Sonoma and Honeywell.

The success of Yahoo!, eBay, Enron, and other companies that have become adept at morphing to meet the demands of changing markets can't be explained using traditional thinking about competitive strategy. These companies have succeeded by pursuing constantly evolving strategies in market spaces that were considered unattractive according to traditional measures. In this article--the third in an HBR series by Kathleen Eisenhardt and Donald Sull on strategy in the new economy--the authors ask, what are the sources of competitive advantage in high-velocity markets? The secret, they say, is strategy as simple rules. The companies know that the greatest opportunities for competitive advantage lie in market confusion, but they recognize the need for a few crucial strategic processes and a few simple rules. In traditional strategy, advantage comes from exploiting resources or stable market positions. In strategy as simple rules, advantage comes from successfully seizing fleeting opportunities. Key strategic processes, such as product innovation, partnering, or spinout creation, place the company where the flow of opportunities is greatest. Simple rules then provide the guidelines within which managers can pursue such opportunities. Simple rules, which grow out of experience, fall into five broad categories: how-to rules, boundary conditions, priority rules, timing rules, and exit rules. Companies with simple-rules strategies must follow the rules religiously and avoid the temptation to change them too frequently. A consistent strategy helps managers sort through opportunities and gain short-term advantage by exploiting the attractive ones.

Management theorists have long sought to identify precisely what makes some people flourish under pressure and others fold. But they have come up with only partial an­swers: rich material rewards, the right cul­ture, management by objectives. The prob­lem with most approaches is that they deal with people only from the neck up, con­necting high performance primarily with cognitive capacity. Authors Loehr and Schwartz argue that a successful approach to sustained high performance must con­sider the person as a whole. Executives are, in effect, "corporate athletes." If they are to perform at high levels over the long haul, they must train in the systematic, multilevel way that athletes do. Rooted in two decades of work with world-class athletes, the integrated theory of performance management addresses the body, the emotions, the mind, and the spirit through a model the authors call the per­formance pyramid. At its foundation is phys­ical well-being. Above that rest emotional health, then mental acuity, and, finally, a spiritual purpose. Each level profoundly influences the others, and all must be ad­dressed together to avoid compromising performance. Rigorous exercise, for in­stance, can produce a sense of emotional well-being, clearing the way for peak mental performance. Rituals that promote oscilla­tion - the rhythmic expenditure and recov­ery of energy - link the levels of the pyramid and lead to the ideal performance state. The authors offer case studies of execu­tives who have used the model to increase professional performance and improve the quality of their lives. In a corporate envi­ronment that is changing at warp speed, performing consistently at high levels is more necessary than ever. Companies can't afford to address employees' cognitive ca­pacities while ignoring their physical, emo­tional, and spiritual well-being.

In this HBR interview, CEO Michael Ruettgers speaks in detail about the managerial practices that have allowed EMC to anticipate and exploit disruptive technologies, market opportunities, and business models ahead of its competitors. He recounts how the company repeatedly ventured into untested markets, ultimately transforming itself from a struggling maker of minicomputer memory boards into a data storage powerhouse and one of the most successful companies of the past decade. The company has achieved sustained and nearly unrivaled revenue, profit, and share-price growth through a number of means. Emphasizing timing and speed, Ruettgers says, is critical. That's meant staggering products rather than developing them sequentially and avoiding the excessive refinements that slow time to market. Indeed, a sense of urgency, Ruettgers explains, has been critical to EMC's success. Processes such as quarterly goal setting and monthly forecasting meetings help maintain a sense of urgency and allow managers to get early glimpses of changes in the market. So does an environment in which personal accountability is stressed and the corporate focus is single-minded. Perhaps most important, the company has procedures to glean insights from customers. Intensive forums involving EMC engineers and leading-edge customers, who typically push for unconventional solutions to their problems, often yield new product features. Similarly, a customer service system that includes real-time monitoring of product use enables EMC to understand customer needs firsthand.

Over the past decade, 360-degree feedback has revolutionized performance management. But one of its components--peer appraisal--consistently stymies executives and can exacerbate bureaucracy, heighten political tensions, and consume lots of time. For ten years, Maury Peiperl has studied 360-degree feedback and has asked: under what circumstances does peer appraisal improve performance? Why does peer appraisal sometimes work well and sometimes fail? And how can executives make these programs less anxiety provoking for participants and more productive for organizations? Peiperl discusses four paradoxes inherent to peer appraisal: 1) In the Paradox of Roles, colleagues juggle being both peer and judge. 2) The Paradox of Group Performance navigates between assessing individual feedback and the reality that much of today's work is done by groups. 3) The Measurement Paradox arises because simple, straightforward rating systems would seem to generate the most useful appraisals--but they don't. 4) During evaluations, most people focus almost exclusively on reward outcomes and ignore the constructive feedback generated by peer appraisal. Ironically, it is precisely this overlooked feedback that helps improve performance--thus, the Paradox of Rewards. These paradoxes do not have neat solutions, but managers who understand them can better use peer appraisal to improve their organizations.