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One company can copy another's strategy, reverse engineer its technology, or benchmark its systems. But it cannot duplicate the way strategy, systems, technology, and processes are configured into a synergetic whole. Competitive advantage results from a powerful unifying focus that pulls together the company's core mission and the systems and structures that support the core. Marshall Industries provides an excellent case study of how a company achieved a compelling configuration that goes beyond strategy. Three prototypes of effective configurations are suggested: the pioneer, the salesman, and the craftsman (specific firms illustrate these prototypes). Ideally, a configuration demonstrates consistent emphases: across mission, means, and market; in support systems that direct attitudes and attention; in the prioritization of resources; and in the directing of effort, motivation, and influence. But configuration can be excessive; symptoms of this include too much attention to a single narrow goal and failure to reexamine assumptions and methods. A good configuration permits periodic reassessment and provides the means for renewal and revision. A suggested "configuration audit" is offered as a guide to managers.

To ensure that acquisitions generate value, what should the priorities of the new management team be? If it starts with rationalization (closing duplicate facilities, reducing the head count), it will make rapid progress on the cost side, but risk a demotivated work force. If it emphasizes acculturation (building relationships, fostering a common culture), it will have happy employees, but little cost savings. Doing both at the same time is no answer, either. Intensive analysis of three case studies suggests a model for the acquiring firm in deciding whether to pursue the "high road" by first emphasizing human integration before concentrating on operational synergies, or the "low road" of attending to cost savings initially and subsequently focusing on relationships. Evidence supports the case for a "high road" approach when the acquired firm's key assets are R&D and knowledge-intensive. A three-phase model--initial actions, follow-up, and second wave--is offered to help top management avoid the perils on either side of an optimal integration path. Specific examples are drawn from the experiences documented in the three case studies.

Given the changes wrought by the new economy, it makes sense for companies to pursue ever-greater levels of flexibility. But does it make sense for human beings? Do we really want to be free agents, hopping from job to job and from city to city, virtual employees of virtual companies? Richard Sennett doesn't think so. In The Corrosion of Character: The Personal Consequences of Work in the New Capitalism, Sennett, a sociologist and well-known social critic, lays out a dark vision of what the new economy means for working people at all levels of society. He draws on poignant stories to show how the flexibility demanded by the new economy causes us to lose the attachments--to people, places, or companies--that form our character. Without such attachments, we lose the ability to focus on the long term: if everything's going to change overnight, why worry about tomorrow? In the aggregate, the demands of flexibility erode society's foundations. But as Nicholas Carr points out, this isn't a complete picture of what flexibility means for people today. For example, the spread of cheap computers is expanding opportunities to launch, market, and manage microbusinesses. And the networked economy--by making workdays more flexible and location less important--will give many of us more control over where we live and how we parcel out our time. Despite Sennett's blindness to the benefits offered by the new economy, his book provides a thoughtful counterbalance to the empty-headed boosterism that characterizes much of the current writing on the subject.

Private-label products are anathema to many consumer goods manufacturers--cheap imitations that undermine margins and weaken product categories. But the growing power and sophistication of retailers has changed that competitive dynamic. Private labels now offer a range of opportunities for savvy manufacturers. Perhaps most notable, retailers are working with manufacturers to bring out store brands whose quality matches or even exceeds that of brand-name goods. These premium labels offer better margins than traditional private labels and can serve as a low-risk way for manufacturers to try new product categories. Like "fighter brands," private labels can help a manufacturer preserve market share in a category when it decides to raise the price of its brand-name product. Or a manufacturer in the number-two slot might design its private label to imitate--and take sales from--the market leader in a category. The authors say the risks of producing private labels are often exaggerated. Retailer switching isn't as easy as is often believed, particularly for manufacturers who work closely with retail partners. And manufacturers who set clear priorities can make sure their private-label sales don't distract them from promoting the main brand. The authors warn that different manufacturers will want to go with different private-label strategies. Private labels are likely to make most sense when entry barriers are low, when substantial economies of scale exist, or when the label is a premium line for a category with low price sensitivity. For manufacturers who seek closer ties with retailers, private labels may represent a neglected opportunity.

In turbulent markets, businesses and opportunities are constantly falling out of alignment. New technologies and emerging markets create fresh opportunities. Converging markets produce more. And of course, some markets fade. In this landscape of continuous flux, it's more important to build corporate-level strategic processes that enable dynamic repositioning than it is to build any particular defensible position. That's why smart corporate strategists use patching, a process of mapping and remapping business units to create a shifting mix of highly focused, tightly aligned businesses that can respond to changing market opportunities. Patching is not just another name for reorganizing; patchers have a distinctive mind-set. Traditional managers see structure as stable; patching managers believe structure is inherently temporary. Traditional managers set corporate strategy first, but patching managers keep the organization focused on the right set of business opportunities and let strategy emerge from individual businesses. Although the focus of patching is flexibility, the process itself follows a pattern. Patching changes are usually small in scale and made frequently. Patching should be done quickly; the emphasis is on getting the patch about right and fixing problems later. Patches should have a test drive before they're formalized but then be tightly scripted after they've been announced. And patching won't work without the right infrastructure: modular business units, fine-grained and complete unit-level metrics, and companywide compensation parity. The authors illustrate how patching works and point out some common stumbling blocks.

Every company today exists in a complex web of relationships formed, one at a time, through negotiation. Purchasing and outsourcing contracts are negotiated with vendors. Marketing arrangements are negotiated with distributors. Product development agreements are negotiated with joint-venture partners. Taken together, the thousands of negotiations a typical company engages in have an enormous effect on both its strategy and its bottom line. But few companies think systematically about their negotiating activities as a whole. Instead they take a situational view, perceiving each negotiation to be a separate event with its own goals, tactics, and measures of success. Coordinating them all seems an overwhelming and impracticable job. In reality, the author argues, it is neither. A number of companies are successfully building coordinated negotiation capabilities by applying four broad changes in practice and perspective. First, they've established a companywide negotiation infrastructure to apply the knowledge gained from forging past agreements to improve future ones. Second, they've broadened the measures they use to evaluate negotiators' performance beyond matters of cost and price. Third, they draw a clear distinction between the elements of an individual deal and the nature of the ongoing relationship between the parties. Fourth, they make their negotiators feel comfortable walking away from a deal when it's not in the company's best interests. These changes aren't radical steps. But taken together, they will let companies establish closer, more creative relationships with suppliers, customers, and other partners.

Less than half an hour after Donald Hastings became chairman and CEO of the Lincoln Electric Company in July 1992, he got the shocking news: losses from the company's European operations were so steep that Lincoln was at risk of defaulting on its loans and being unable to pay its employees their year-end bonus. Since the bonus was the foundation of the company's unusually successful manufacturing operations, Hastings knew that failure to pay it could lead to the company's unraveling. How had Lincoln gotten into this predicament? By a program of rapid foreign expansion. Lincoln was primarily a U.S. company until the mid-1980s, but recession at home and competition from abroad led executives to dream that the company could become a global power. Between 1986 and 1991, Lincoln took on unprecedented debt in order to finance foreign acquisitions, mostly in Europe. A number of factors doomed the venture: recession in Europe, unfamiliarity with Europe's labor culture, lack of international expertise at the top. But the root cause, Hastings admits, was overconfidence on the part of Lincoln's leaders in the company's manufacturing abilities and systems. Hastings, now chairman emeritus, recounts how the company suffered through the early 1990s and then returned to prosperity. It wrote off most of its European operations, ramped up domestic production and sales, and hired top managers and board members with international experience. As a result of strenuous efforts at all levels of the company, it managed to keep paying the bonus and to largely regain the trust of its people.

Corporations are continually looking for new sources of innovation. Today several leading companies are beginning to find inspiration in an unexpected place: the social sector. That includes public schools, welfare-to-work programs, and the inner city. Indeed, a new paradigm for innovation is emerging: a partnership between private enterprise and public interest that produces profitable and sustainable change for both sides. In this article, the author shows how some companies are moving beyond corporate social responsibility to corporate social innovation. Traditionally, companies viewed the social sector as a dumping ground for their spare cash, obsolete equipment, and tired executives. But that mind-set hardly created lasting change. Now companies are viewing community needs as opportunities to develop ideas and demonstrate business technologies; find and serve new markets; and solve long-standing business problems. They focus on inventing sophisticated solutions through a hands-on approach. This is not charity; it is R&D, a strategic business investment. The author concedes that it isn't easy to make the new paradigm work. But she has found that successful private-public partnerships share six characteristics: a clear business agenda, strong partners committed to change, investment by both parties, rootedness in the user community, links to other organizations, and a commitment to sustain and replicate the results. Drawing on examples of successful companies such as IBM and Bell Atlantic, the author illustrates how this paradigm has produced innovations that have both business and community payoffs.

For many organizations, achieving competitive advantage means eliciting superior performance from employees on the front line--the burger flippers, hotel room cleaners, and baggage handlers whose work has an enormous effect on customers. That's no easy task. Frontline workers are paid low wages, have scant hope of advancement, and--not surprisingly--often care little about the company's performance. But then how do some companies succeed in engaging the emotional energy of rank-and-file workers? A team of researchers at McKinsey & Company and the Conference Board recently explored that question and discovered that one highly effective route is demonstrated by the U.S. Marine Corps. The Marines' approach to motivation follows the "mission, values, and pride" path, which researchers say is practical and relevant for the business world. More specifically, the authors say the Marines follow five practices: they overinvest in cultivating core value; prepare every person to lead, including frontline supervisors; learn when to create teams and when to create single-leader work groups; attend to all employees, not just the top half; and encourage self-discipline as a way of building pride. The authors admit there are critical differences between the Marines and most businesses. But using vivid examples from companies such as KFC and Marriott International, the authors illustrate how the Marines' approach can be translated for corporate use. Sometimes, the authors maintain, minor changes in a company's standard operating procedure can have a powerful effect on frontline pride and can result in substantial payoffs in company performance.

The selection of a CEO is one of the most important--and risky--events in the life of any company. Yet the way CEOs are chosen remains little discussed and little understood. The succession process has traditionally unfolded behind closed doors--some observers have even likened it to the election of a pope. To shed light on what works and what doesn't in CEO succession, the authors lead a roundtable discussion with five distinguished corporate directors: Philip Caldwell, George D. Kennedy, G.G. Michelson, Henry Wendt, and Alfred M. Zeien. Collectively, the five directors have participated in dozens of successions, either as board members or as CEOs. In a lively and frank exchange of views and experiences, the roundtable participants explore a broad range of questions: What can a company do to ensure a successful succession? How should management-development and succession processes be managed? How should the board work with the sitting chief executive during the process? What makes for a strong CEO candidate? When should outside candidates be considered? How much competition should be encouraged among potential CEO candidates? What role should executive search firms play? What role should former CEOs play after they are succeeded? Their conversation illuminates a corporate challenge that is as difficult as it is important.

In today's business world, there's no shortage of know-how. When companies get into trouble, their executives have vast resources at their disposal: their own experiences, colleagues' ideas, reams of computer-generated data, thousands of publications, and consultants armed with the latest managerial concepts and tools. But all too often, even with all that knowledge floating around, companies are plagued with an inertia that comes from knowing too much and doing too little--a phenomenon the authors call the knowing-doing gap. The gap often can be traced to a basic human propensity: the willingness to let talk substitute for action. When confronted with a problem, people act as though discussing it, formulating decisions, and hashing out plans for action are the same as actually fixing it. And after researching organizations of all shapes and sizes, the authors concluded that a particular kind of talk is an especially insidious inhibitor of action: "smart talk." People who can engage in such talk generally sound confident and articulate; they can spout facts and may even have interesting ideas. But such people often exhibit the less benign aspects of smart talk as well: They focus on the negative, and they favor unnecessarily complex or abstract language. The former lapses into criticism for criticism's sake; the latter confuses people. Both tendencies can stop action in its tracks. How can you shut the smart-talk trap and close the knowing-doing gap? The authors lay out five methods that successful companies employ in order to translate the right kind of talk into intelligent action.

In boom times, it is easy for managers to forget about risk. And not just financial risk, but organizational and operational risk as well. Now there's the risk exposure calculator, a new tool that will help managers determine exactly where and how much internal risk is mounting in their companies. The risk calculator is divided into three parts: The first set of "keys" alerts managers to the pressures that come from growth. Now that the company has taken off, are employees feeling increased pressure to perform? Is the company's infrastructure becoming overloaded? And are more new employees coming on board as the company rushes to fill positions? If the answer is yes to any one of those questions, then risk may be rising to dangerous levels. The second set of keys on the calculator highlights pressures that arise from corporate culture. Are too many rewards being given for entrepreneurial risk taking? Are executives becoming so resistant to bad news that no one feels comfortable alerting them to problems? And is the company's level of internal competition so high that employees see promotion as a zero-sum game? The final set of pressures, the author says, revolves around information management. When calculating these pressures, managers should ask themselves, what was the company's complexity, volume, and velocity of information a year ago? Have they risen? By how much? How much of the time am I doing the work that a computer system should be doing? High pressure on many or all of these points should set off alarm bells for managers. To control risk, managers have four levers of control at their disposal that will show them where they need to make organizational adjustments.

Effective brand management requires taking a long-term view of marketing decisions. Managing brands for the long run involves reinforcing brands or, if necessary, revitalizing brands. Reinforcing brands involves ensuring innovation in product design, manufacturing, and merchandising and ensuring relevance in user and usage imagery. Another critical consideration in reinforcing brands is the consistency of the marketing support that the brand receives, both in terms of the amount and nature of that support. Revitalizing a brand, on the other hand, requires either that lost sources of brand equity are recaptured ("a back to basics" approach) or that new sources of brand equity are identified and established. Two general approaches are possible: expanding the depth and/or breadth of brand awareness by improving brand recall and recognition of consumers during purchase or consumption settings; and improving the strength, favorability, and uniqueness of brand associations making up the brand image (either in terms of existing or new brand associations).

Today, knowledge is considered the most strategically important resource and learning the most strategically important capability for business organizations. However, many initiatives being undertaken to develop and exploit organizational knowledge are not explicitly linked to or framed by the organization's business strategy. In fact, most knowledge management initiatives are viewed primarily as information systems projects. While many managers intuitively believe that strategic advantage can come from knowing more than competitors, they are unable to explicitly articulate the link between knowledge and strategy. This article provides a framework for making that link and for assessing an organization's competitive position regarding its intellectual resources and capabilities. It recommends that organizations perform a knowledge-based SWOT (strengths, weaknesses, opportunities, and threats) analysis, comparing their knowledge to that of their competitors and to the knowledge required to execute their own strategy.

Based on a multi-year field study of internal ventures in several established firms, this article highlights the central dilemmas that confront innovation from concept to commercialization. The chief difficulties in generating innovation arise from five key dilemmas encountered in locating, seizing, and then methodically navigating creative sparks through the maze and haze of large organizations. To systematically address these dilemmas, firms must endeavor to integrate their entire innovation effort. Three overarching themes are useful for understanding how to holistically manage the dilemmas of innovation in large firms: Strategic Envelope, Strategic Pacing, and Strategic Partnerships.

This is an MIT Sloan Management Review article. Choosing a distinctive strategic position involves making tough choices about whom to target as customers, what products to offer, and how to undertake related activities efficiently. The most common source of strategic failure is the inability to make clear, explicit choices in these areas. Unfortunately, not only do aggressive competitors imitate attractive positions but, perhaps more importantly, new strategic positions emerge continually. Successful incursions into established markets by strategic innovators such as Canon and the brokerage firm Edward Jones are based on strategic innovation--proactively establishing distinctive strategic positions that are critical to shifting market share or creating new markets. To prepare for the inevitable strategic innovation that will disrupt its market, an organization should: identify turning points before a crisis occurs by regularly monitoring indicators of strategic rather than financial health in the market, prevent cultural and structural inertia by creating a culture that welcomes change, develop processes that allow experimenting with new ideas, develop the required competencies and skills, and manage a transition to the new strategic position. Designing a successful strategy is a never-ending, dynamic process of identifying and colonizing a distinctive strategic position; excelling in this position while concurrently searching for, finding, and cultivating another viable strategic position; simultaneously managing both positions; slowly making a transition to the new position as the old one matures and declines; and starting the cycle again.

The importance of planning for a product recall can be seen in the large number of recalls, their increasing frequency, and the overall costs they incur, both direct and indirect. Direct costs include: communicating to all affected parties; the logistics of recovering, repairing, and returning the product; and the loss in profits due to diminished sales during and after the recall period. Indirect costs occur in lowered stock price and market value. This article offers a guide to planning during three phases of product recall: prior to, during, and after the recall. Proper readiness for product recalls can substantially minimize both direct and indirect costs.

A new medium--the Internet and World Wide Web--is changing distribution channels like no other force since the Industrial Revolution. It is modifying many of the assumptions on which channel structure is based, and in some cases it is transforming and even obliterating channels themselves. As a result, many intermediaries will die out, while new channels and intermediaries will take their place. There are three essential purposes of distribution channels: to support economies of scope, to routinize transactions, and to search for information essential to both producer and consumer. However, the Internet and Web have brought about the death of distance, the homogenization of time, and the irrelevance of location. A matrix model of these developments, arrayed versus distribution channel functions, provides a guide to identifying which traditional channels will either undergo transformation or perish and where new channels will emerge. The matrix model suggests how existing firms and entrepreneurs can perform their distribution functions more efficiently. It enables identification of competitors poised to use the media to change the rules of the marketplace. Finally, it helps managers brainstorm ways in which an existing industry can be vulnerable and a totally new one defined.

The arrival of a multinational corporation often looks like a death sentence to local companies in an emerging market. After all, how can they compete in the face of the vast financial and technological resources, the seasoned management, and the powerful brands of, say, a Compaq or a Johnson & Johnson? But local companies often have more options than they might think, say the authors. Those options vary, depending on the strength of globalization pressures in an industry and the nature of a company's competitive assets. In the worst case, when globalization pressures are strong and a company has no competitive assets that it can transfer to other countries, it needs to retreat to a locally oriented link within the value chain. But if globalization pressures are weak, the company may be able to defend its market share by leveraging the advantages it enjoys in its home market. Many companies in emerging markets have assets that can work well in other countries. Those that operate in industries where the pressures to globalize are weak may be able to extend their success to a limited number of other markets that are similar to their home base. And those operating in global markets may be able to contend head-on with multinational rivals. By better understanding the relationship between their company's assets and the industry they operate in, executives from emerging markets can gain a clearer picture of the options they really have when multinationals come to stay.

No matter how monolithic they may seem, most companies are really engaged in three kinds of businesses. One business attracts customers. Another develops products. The third oversees operations. Although organizationally intertwined, these businesses have conflicting characteristics. It takes a big investment to find and develop a relationship with a customer, so profitability hinges on achieving economies of scope. But speed, not scope, drives the economics of product innovation. And the high fixed costs of capital-intensive infrastructure businesses require economies of scale. Scope, speed, and scale can't be optimized simultaneously, so trade-offs have to be made when the three businesses are bundled into one corporation. Historically, they have been bundled because the interaction costs--the friction--incurred by separating them were too high. But we are on the verge of a worldwide reduction in interaction costs, the authors contend, as electronic networks drive down the costs of communicating and of exchanging data. Activities that companies have always believed were central to their businesses will suddenly be offered by new, specialized competitors that won't have to make trade-offs. Ultimately, the authors predict, traditional businesses will unbundle and then rebundle into large infrastructure and customer-relationship businesses and small, nimble product innovation companies. And executives in many industries will be forced to ask the most basic question about their companies: What business are we really in? Their answer will determine their fate in an increasingly frictionless economy.