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What is the difference between an ethical decision and what the author, Harvard Business School Professor Joseph Badaracco, Jr., calls a defining moment? An ethical decision typically involves choosing between two options: one we know to be right and another we know to be wrong. A defining moment challenges us in a deeper way by asking us to choose between two or more ideals in which we deeply believe. Such decisions rarely have one "correct" response. Taken cumulatively over many years, they form the basis of an individual's character. Defining moments ask executives to dig below the busy surface of their lives and refocus on their core values and principles. Once uncovered, those values and principles renew their sense of purpose at the workplace and act as a springboard for shrewd, pragmatic, politically astute action. Three types of defining moments are particularly common in today's workplace. The first type is largely an issue of personal identity. The second type concerns groups as well as individuals. The third kind involves defining a company's role within society. By learning to identify each of those three situations, managers can learn to navigate right-versus-right decisions successfully. The author asks a series of practical questions that will help managers take time out to examine their values and then transform their beliefs into action. By engaging in this process of self-inquiry, managers will be gaining the tools to tackle their most elusive, challenging, and essential business dilemmas.

Most companies change in reaction to events such as moves by the competition, shifts in technology, or new customer demands. In fairly stable markets, "event pacing" is an effective way to deal with change. But successful companies in rapidly changing, intensely competitive industries take a different approach. They change proactively, through regular deadlines. Kathy Eisenhardt of Stanford and Shona Brown of McKinsey have studied this alternative approach, which they call time pacing. Like a metronome, time pacing creates a rhythm to which managers can synchronize the speed and intensity of their efforts. For example, 3M dictates that 25% of its revenues every year will come from new products, Netscape introduces a new product about every six months, and Intel adds a new fabrication facility to its operations approximately every nine months. Time pacing creates a relentless sense of urgency around meeting deadlines and concentrates people on a common set of goals. Its predictability also provides people with a sense of control in otherwise chaotic markets. The authors show how companies such as Banc One, Cisco Systems, Dell Computer, Emerson Electric, Gillette, Intel, Netscape, Shiseido, and Sony implement the two essentials of time pacing. The first is managing transitions--the shift, for example, from one new-product-development project to the next. The second is setting the right rhythm for change. Companies that march to the rhythm of time pacing build momentum, and companies that effectively manage transitions sustain that momentum without missing important beats. This piece presents important new thinking on one of the most demanding challenges managers face today.

How many projects in your organization have come in on time and on budget? If you're like most senior managers, the answer is likely to be none, no matter how many data-management systems, team-training programs, project-management software packages, or best practices you've been using. Are the project delays and cost overruns inescapable? One business thinker who says no is Eliyahu M. Goldratt. In his widely read novel The Goal, Goldratt pioneered the theory of constraints as a solution for factories struggling with production delays. Now, in Critical Chain, he extends the theory to the realm of project management. Whether a production process or a new-product-development project is at issue, the theory tells managers not to improve each step in the process but instead to focus on the bottlenecks, or constraints, that keep the process from increasing its output. Reviewers Jeffrey Elton and Justin Roe, consultants at Integral Inc., believe the theory works well for project managers dealing with individual projects. But they argue that senior managers need to take a broader perspective into account in order to manage a portfolio of all but the most innovative projects. And they question whether even properly focused managers can easily overcome the many balkanizing pressures that projects, in all their uncertainty, often fall prey to. To handle such pressures, companies also need talented leaders--a "constraint" that many will have difficulty overcoming.

This fictitious case outlines the dilemma faced by Luke Robinson, the new head of human resources at Loft Securities, a financial services firm. Robinson took the job because he thought it would be a rewarding challenge: Loft Securities needed someone to expand the role of the human resources department from being purely administrative to having significant input in recruiting, development, and strategic planning. The problem is, despite his best efforts, the firm's senior management team just won't let HR break out of its administrative mold. Robinson must decide: Should he hang up his hat, or is there a way to help the company understand just how--and how much--HR can contribute? Five commentators on this fictional case study explain why he should avoid quitting and how he can help his department earn new respect. The author, Robert Galford, consults with senior managers on performance, organizational, and career issues and teaches executive education at Columbia University's Graduate School of Business in New York City and at Northwestern University's J.L. Kellogg Graduate School of Management in Evanston, Illinois.

For managers in large, well-established businesses, the Internet is a tough nut to crack. It is very simple to set up a Web presence and very difficult to create a Web-based business model. Established businesses that over decades have carefully built brands and physical distribution relationships risk damaging all they have created when they pursue commerce through the Net. Still, managers can't avoid the impact of electronic commerce on their businesses. They need to understand the opportunities available to them and recognize how their companies may be vulnerable if rivals seize those opportunities first. Shikhar Ghosh, founder and CEO of Open Market, says the Internet presents four distinct types of opportunities: 1) it links companies directly to customers, suppliers, and other interested parties; 2) it lets companies bypass other players in an industry's value chain; 3) it is a tool for developing and delivering new products and services to new customers; and 4) it will enable certain companies to dominate the electronic channel of an entire industry or segment, control access to customers, and set business rules. As he elaborates on these four points, the author gives established companies a systematic way to sort through the risks and rewards of doing business in cyberspace.

This article offers insight to any decision maker struggling with a hard choice. Making wise trade-offs is one of the most important and difficult challenges in decision making. The sheer volume of trade-offs, however, is not what makes decision making so hard. It's the fact that each objective has its own basis of comparison, from precise numbers (34% versus 38%) to relationships (high versus low) to descriptive terms (red versus blue). You're not just trading off apples and oranges; you're trading off apples and oranges and elephants. How do you make trade-offs when comparing widely disparate things? In the past, decision makers have relied mostly on instinct, common sense, and guesswork. They've lacked a clear, rational, and easy-to-use trade-off methodology. To help fill that gap, Howard Raiffa, a professor emeritus at Harvard University, John Hammond, a Boston-area consultant, and Ralph Keeney, a professor of systems management at the University of Southern California have developed a system--which they call even swaps--that provides a practical way of making trade-offs among a range of objectives across a range of alternatives. The even-swap method will not make complex decisions easy; you'll still have to make hard choices about the values you set and the trades you make. What it does provide is a reliable mechanism for making trades and a coherent framework in which to make them.

Managers today are struggling to cope with highly unpredictable markets. For any manager facing uncertainty, this article provides a new model for thinking and acting. The past two decades have seen a dramatic acceleration in the pace of marketplace change. Companies have abandoned the old hierarchical model, with its clean functional divisions and clear lines of authority, and adopted flatter, less bureaucratic structures. But if most organizations have begun to adapt to the uncertainty of rapid change, most managers have not. They remain locked into the mechanical mind-set of the industrial age--that is, they assume that any management challenge can be translated into a clearly defined problem for which an optimal solution can be found. That approach works in stable markets and even in markets that change in predictable ways. Today's markets, however, are increasingly unstable and unpredictable. Managers can never know precisely what they're trying to achieve or how best to achieve it. They can't even define the problem, much less engineer a solution. For guidance, they can look to the managers of product design, a function that has always been fraught with uncertainty. Richard K. Lester, director of the Massachusetts Institute of Technology's Industrial Performance Center, Michael J. Piore, the David W. Skinner Professor of Political Economy at MIT, and Kamal M. Malek, a research staff member of MIT's Industrial Performance Center describe an approach to management developed by design leaders that is very different from the traditional analytical approach. This new approach encourages open-ended conversations among designers, technicians, and customers as a way to interpret and respond creatively to ambiguous situations.

This interview offers a deeper look inside Dell's highly publicized success and offers managers a model of how traditional relationships in a value chain can be reconceived in the Information Age. The individual pieces of Dell Computer's strategy--customer focus, supplier partnerships, mass customization, just-in-time manufacturing--may all be familiar. But Michael Dell's business insight about how to combine them is highly innovative: Technology is enabling coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors. In this HBR interview, Michael Dell describes to HBR editor-at-large, Joan Magretta, how his company is achieving "virtual integration" with its customers and suppliers. Direct relationships with customers create valuable information, which in turn allows the company to coordinate its entire value chain back through manufacturing to product design. Dell describes how his company has come to achieve this tight coordination without the "drag effect" of ownership.

Why do some employees perform poorly? Most managers would answer this question by ticking off a list that includes weak skills, insufficient experience, inability to prioritize assignments, or sometimes even a lack of motivation. In other words, most managers would contend that poor performance is the employee's fault. But is it? Not always, according to Jean-Francois Manzoni, assistant professor at INSEAD, and Jean-Louis Barsoux, research fellow at INSEAD. Their research with hundreds of executives strongly suggests that it is bosses themselves--albeit accidentally and with the best intentions--who are often responsible for an employee's sub-par achievement. They call this dynamic "The Set-Up-to-Fail Syndrome," and in this provocative look at what makes--and sustains--dysfunctional work relationships, the authors conclude with a detailed description of how to break out of the negative spiral that can drain both individuals and organizations of valuable productive energy.

Shrinking R&D budgets and shorter product life cycles mean investment dollars must be invested with precision if companies are going to stay on the cutting edge in their industries. For a pharmaceuticals company like SmithKline Beecham (SB), the problem is this: How do you make good decisions in a high-risk, technically complex business when the information you need to make those decisions comes largely from the project champions who are competing against one another for resources? Tom Keelin from Strategic Decisions Group and Paul Sharpe from SmithKline Beecham explain how they overhauled the resource allocation processes within the pharmaceutical development function at SB. In 1993, the company experimented with ways of depoliticizing the process and improving the quality of decision making. In most resource-allocation processes, project advocates develop a single plan of action and present it as the only viable approach. In SB's new process, the company found an effective way to get around the all-or-nothing thinking that only reinforces the project-champion culture. In another important departure from common practice, SB separated the discussion of project alternatives from their financial evaluations. The new process at SB has allowed the organization to spend less time arguing about how to value its R&D projects and more time figuring out how to make them more valuable. In the end, the company learned that by tackling the soft issues around resource allocation--such as information quality, credibility, and trust--it had also addressed the hard ones: how much to invest and where to invest it.

Attempts to leverage a brand's value by brand extensions run the risk of undermining the value of the brand. This article offers an approach to assessing a brand's leverage power before deciding to extend the brand. Evidence suggests managers need to assess both consumer familiarity with, and consumer regard for, the brand. Analysis indicates that brands balanced in terms of consumer familiarity and consumer regard have higher potential for leveraging than do brands high in one of those characteristics but low in the other. A fivefold typology of brands--Coveted Icons, Tarnished Treasures, Developers, Troopers, and Diamonds--is offered for describing the degree of brand balance.

Thousands of companies every year acquire other companies, or are acquired themselves. This event is usually painful and messy--and statistics show, it is frequently unsuccessful as well. Nearly half of all mergers fail. One company that has made a fine art of the acquisition integration process, however, is GE Capital, which has integrated hundreds of companies in the past decade. Consultants Ron Ashkenas and Suzanne Francis, and Lawrence DeMonaco of GE Capital, offer four lessons from the company's successful run.

Rare is the company that does not periodically review the performance of its staff, business units, and suppliers. But rare, as well, is the company that does such a review of one of its most important contributors--its board of directors. Done properly, appraisals can help boards become more effective by clarifying individual and collective responsibilities. They can help improve the working relationship between a company's board and its senior management. They can help ensure a healthy balance of power between the board and the CEO. And, once in place, an appraisal process is difficult to dismantle, making it harder for a new CEO to dominate a board or avoid being held accountable for poor performance. The authors, Jay Conger, David Finegold, and Edward E. Lawler, III, all of the Leadership Institute at the University of Southern California's School of Business Administration in Los Angeles, have drawn on the strengths of several different approaches to synthesize a best-practice process that is both rigorous and comprehensive.

Kevin Coyne and Renee Dye, consultants at McKinsey, show how customers use networks in different ways and explain how companies can adjust their strategies according to the usage patterns in their networks. Managers of network-based businesses--defined here as those that move people, goods, or information from many points to many others--need to know the underlying economic framework of their network, because this can differ substantially from what works for traditional, stand-alone businesses. Managers have long assumed that customers valued all links in these networks equally. Intuitively, managers thought that many of their customers' needs were, in reality, narrower, but they had no way of knowing which links were most important. New computing power and robust mapping software now make it possible to understand network customers better. In applying this technology, the authors have uncovered three distinct usage patterns: one in which all links are, indeed, valued equally; another in which customers concentrate their use in particular zones; and a third in which customers value only individual links. Those managers who don't spot the patterns or understand their strategic implications will find themselves on the losing end of the network battle.

What ever happened to Japan? In the early 1990s, it lost its status as an economic juggernaut and found itself a beleaguered nation in its worst recession since World War II. Two new books help explain why the country has been struggling: Japan: A Reinterpretation, by Patrick Smith, and Inside the Kaisha: Demystifying Japanese Business Behavior, by Noboru Yoshimura and Philip Anderson. The books demonstrate that Japan achieved its prominence by playing follow the leader. In other words, Japanese companies, or kaisha, copied the West's high-growth industries and caught up with the United States more through competitiveness and efficiency than through innovation. How can Japan rebound? It may be that effective change can be led only by Japan's younger generation. Japanese students are likely to demand a higher standard of living than their parents had. The growth of a consumer culture, Crawford says, could encourage individuals to develop a healthier sense of self--which, in turn, could help the country spawn the innovative culture needed to succeed in a fast changing global economy.

Because they face rising costs, more competition for fewer donations and grants, and increased rivalry from for-profit companies entering the social sector, many nonprofit organizations are looking for commercial ways to raise more funds. For example, San Francisco's Delaney Street program for addicts has opened a restaurant staffed by clients, which helps pay the bills while providing on-the-job training. There are many such opportunities but also many pitfalls in this approach. Professor J. Gregory Dees of the Harvard Business School offers a framework to help nonprofit leaders figure out when commercial activities will or will not work.

As companies develop more and better ways to understand and respond to their customers' needs, relationship marketing has become the talk of the marketing community. Executives, academics, and consultants alike have the same goal in mind--creating meaningful relationships with consumers that will yield both the cost-saving benefits of customer retention economics and the revenue-generating rewards of customer loyalty. Unfortunately, a close look at consumers suggests that these relationships are troubled ones at best. The things that marketers are doing to build relationships with customers, are, in fact, subverting them. Relationship marketing--what is supposed to be the acme of customer orientation--is falling far short of its mark. Susan Fournier, assistant professor at the Harvard Business School, Susan Dobscha of Bentley College in Waltham, MA, and David Glen Mick, a professor at the University of Wisconsin offer a way to get this concept back on track.

The CEO of one of Europe's pre-eminent family-owned companies discusses how he lead the Ahlstrom Corp. as well as his own family through a major transformation. In order to reposition the company for global competition, Krister Ahlstrom discovered that he had to lead the owning family (of 200 people) to a new understanding of its relationship to the company. In this interview with HBR editor-at-large Joan Magretta, Krister Ahlstrom describes the changes that now allow the family to interact effectively with the company as enlightened--not passive--owners. And the family developed several governance and communication mechanisms to support that role: a Family Council, a Family Assembly, formal training for the family's next generation, and a written document of values and policies that functions like a constitution.

It is no longer news that over the past five years, Sears, Roebuck and Co. has radically changed the way it does business and dramatically improved its financial results. But the now-famous Sears turnaround was more than a strategic and financial break with the past. It was a radical change in the logic and culture of the company, based on a new business model--not so much "the softer side of Sears" as the softer side of measurement. Led by CEO Arthur Martinez, a group of more than 100 top-level Sears executives spent three years rebuilding the company around its customers. In rethinking what Sears was and what it wanted to become, these managers developed a business model of the company--the employee-customer-profit model--and an accompanying measurement system that tracks success from management behavior through employee attitudes to customer satisfaction and financial performance.

The classic business ratios for measuring performance--return on equity, return on assets, and return on sales, to name a few--may be useful. But none is designed specifically to reflect how well a company implements its strategy. Enter return on management (ROM), a new ratio that gauges the payback from a company's scarcest resource: managers' time and energy. Unlike other business ratios, ROM is a rough estimate, not an exact percentage. Still, it is expressed like other business ratios by an equation in which the output is maximized by a high numerator and a low denominator: Knowing which organizational factors conspire against or work to maximize an organization's productive energy will help managers calculate a rough measure for this equation. Harvard Business School Professor Robert Simons and HBS doctoral student Antonio Davila offer five "acid tests" to help managers measure their company's ROM.