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The U.S. defense industry has seen more than 50% of its market disappear, and the companies that make up the industry have faced the need for the equivalent of self-administered surgery with no insurance, no anesthetic, and no assurance of long-term health. In 1995, Martin Marietta and Lockheed combined to form Lockheed Martin. That company has emerged in a most coveted role: survivor. In fact, it has seen its stock price nearly double in less than two years. In this article, CEO Norman Augustine relates the company's experience and offers some difficult--and painful--prescriptions. Companies in technology-driven industries must reinvent themselves continually. The bad news is that change requires hard decisions. The good news is that success awaits organizations willing to make those decisions.

Throughout the 1990s, financial investors, corporate strategists, and political leaders in the United States, Western Europe, and Japan have been intensifying their focus on emerging markets. And, indeed, emerging markets are the new frontier. But like all frontiers, warns Jeffrey E. Garten, dean of the Yale School of Management, such markets present a mix of opportunity and risk. The question now is whether businesses and governments in the industrialized world are sober enough about the problems that lie ahead. There is considerable evidence to show that the tides of capitalism that rose so powerfully after the collapse of the former Soviet Union are now poised to recede. What can business and government do to improve the economic environment abroad?

Indianapolis, Indiana, has been a leader in the trend toward efficiency in government. Since 1992, when Stephen Goldsmith became mayor, the city has opened up more than 70 services to competitive bidding. It has reduced its operating budget, lowered taxes twice, and cut its non-public-safety workforce. It has also increased the public-safety budget, invested millions to rebuild the city's infrastructure, and increased budget reserves. According to Goldsmith, the business community has been slow to grasp the significance of government's move toward increased efficiency. There are many opportunities for businesses to help municipal governments lower costs and increase revenues. He offers seven guidelines to help pioneering companies succeed in what could be their next big market.

In many industries, superior technology integration--the approach used to choose and refine the technologies employed in a new product, process, or service--is the key to achieving superior R&D productivity and speed, and superior products. In this article, which is based on an ongoing study of R&D in various segments of the global computer industry, Marco Iansiti and Jonathan West contend that technology integration has become much more important--and challenging--for obvious reasons. A radical change in the approach of U.S. companies to technology integration helps explain the resurgence of the U.S. electronics industry in the 1990s. But one size does not fit all. Indeed, the authors have found that an approach that works well in one country may not be the best for another. To be effective, an approach must suit the local culture and conditions.

Behind every major resource-allocation decision a company makes lies some calculation of what that move is worth. So it is not surprising that valuation is the financial analytical skill general managers want to learn more than any other. What do generalists need in an updated valuation tool kit? In the 1970s, discounted-cash-flow analysis (DCF) emerged as best practice for valuing corporate assets. And one version of DCF--using the weighted-average cost of capital (WACC)--became the standard. Over the years, WACC has been used by most companies as a one-size-fits-all valuation tool. Today the WACC standard is insufficient. Improvements in computers and new theoretical insights have given rise to tools that outperform WACC in the three basic types of valuation problems managers face. Timothy Luehrman presents an overview of the three tools, explaining how they work and when to use them.

For the past 25 years, managers have been taught that the best practice for valuing assets--that is, an existing business, factory, product line, or market position--is to use a discounted-cash-flow (DCF) methodology. That is still true. But the particular version of DCF that has been accepted as the standard--using the weighted-average cost of capital (WACC)--is now obsolete. Today's better alternative, adjusted present value (APV), is especially versatile and reliable. It will likely replace WACC as the DCF methodology of choice among generalists. Like WACC, APV is used to value operations, or assets-in-place. Timothy Luehrman explains APV and walks readers through a case example designed to teach them how to use it.

When does a group have responsibility for the well-being of an individual? And what are the differences between the ethics of the individual and the ethics of the corporation? Those are the questions Bowen McCoy wanted readers to explore in this HBR Classic, first published in September-October 1983. In 1982, McCoy spent several months hiking through Nepal. Midway through the difficult trek, he encountered an Indian holy man, or sadhu. Wearing little clothing and shivering in the bitter cold, he was barely alive. McCoy and the other travelers immediately wrapped him in warm clothing and gave him food and drink. A few members of the group broke off to help move the sadhu down toward a village two days' journey away, but they soon left him in order to continue their way up the slope. What happened to the sadhu? In his retrospective commentary, McCoy notes that he never learned the answer to that question. On the Himalayan slope, a collection of individuals was unprepared for a sudden dilemma. McCoy asks, how do organizations respond appropriately to ethical crises?

With the failure of foreign aid and similar development projects, many analysts are saying that poor countries should just free up their economies and let markets do the work. The Heritage Foundation's 1997 Index of Economic Freedom expands on this line of reasoning in a survey of government intervention and economic development. In his review, Harvard Business School Professor Bruce Scott contends that although some of the Index's claims make sense, the editors have mistaken the chain of causation in many cases. Governments in South Korea and Taiwan, for example, liberalized only after their heavy-handed actions brought their economies a degree of prosperity. Some freedoms, such as an internal market without barriers, promote economic development, but free trade for a developing country can actually get in the way. It is not clear that the magic of the marketplace can take care of everything. Citizens still need government for some things--and a broader framework of analysis than the Index for tackling economic choices.

Almost everyone who leads, works for, or interacts with a manufacturing company can benefit from seeing a factory firsthand, David Upton and Stephen Macadam advise. For example, plant visits allow senior executives to understand a site's performance potential, to assess a competitor, or to rally the frontline workforce. Shop floor operators can assess another plant's operations and apply what they've learned in their own factories. But even people who know that plant tours are valuable can find putting them to effective use difficult. First, unclear objectives often turn touring into tourism. Second, many people lack an organizing framework with which to structure observations and accelerate learning. Upton and Macadam show visitors how to set clear objectives and apply an organizing framework in order to make sense of what they see and hear on a plant tour. In this way, visitors will develop a deep understanding of the plant's manufacturing capabilities--and how best to exploit them.

Conventional wisdom holds that market share drives profitability. Certainly, in some industries, such as chemicals, paper, and steel, market share and profitability are inextricably linked. But when the authors studied the profitability of premium brands--brands that sell for 25% to 30% more than private-label brands--in 40 categories of consumer goods, they found that market share alone does not drive profitability. Instead, a brand's profitability is driven by both market share and the nature of the category, or product market, in which the brand competes. Developing the most profitable strategy for a premium brand, then, means reexamining market share targets in light of the brand's category. That is, managers must think about their brand strategy along two dimensions at the same time. First, is the category dominated by premium brands or by value brands? Second, is the brand's relative market share low or high?

This is an MIT Sloan Management Review article. How can a company successfully attack an established market leader? How can it find new ways to compete that everyone else has missed? By breaking the rules of the game in its industry to find new sources of innovation, according to the author. In a study of 30 successful attackers, the author identifies five ways that they think about and develop new game plans: First, redefine the business. A company should ask itself what business it believes it is in, which, in turn, determines its customers, its competitors, and its competitive advantage. Second, redefine the who. Ask: Who is my customer? Companies can locate a customer segment that is not currently served by competitors and design products or services to fill that gap. To be successful, a company must choose a niche that eventually grows to become the mass market, and the company's way of playing the game becomes the new game in town. Third, redefine the what. A company should first decide strategically what products or services it should be selling to its customers. Then it can determine whom to target. To become a strategic innovator, a company has to be the first to identify new or changing customer needs and priorities and find better ways to satisfy them. Fourth, redefine the how. A company can build on its existing core competencies to create a totally new product or way of doing business. It can share competencies across business units, reuse a competence from one unit to create a new business, and expand competencies as it learns new skills. Finally, start the thinking process at different points. In thinking of new ideas and ways to do things, managers need to broaden their perspectives and change their angles of focus. Companies can use any one or a combination of the five approaches to kick-start strategic innovation.

This is an MIT Sloan Management Review article. Traditional accounting-based performance measurement systems are unsuited to current organizations in which the relationships with employees, customers, suppliers, and other stakeholders have changed, say the authors. A stakeholder approach to performance measurement captures strategic planning issues, while the choices a company makes in strategic planning direct the design of the performance measurement system. The authors define two groups of stakeholders: environmental (customers, owners, and the community) and process (employees and suppliers). The company exists to serve the objectives of the stakeholders, which become its primary objectives. What the company expects from and gives to each stakeholder group to achieve its primary objectives are its secondary objectives. The company must plan for and negotiate explicit and implicit contracts with stakeholders and evaluate whether the plan meets the expectations of all stakeholders. Employees design, implement, and manage processes to achieve the secondary objectives, expecting the primary objectives to result. Therefore, according to the authors, the company's performance measurement system must evaluate all processes based on their contribution to achieving secondary objectives. In their view, the system, which is the heart of a company's control system, must: help evaluate whether the company is getting expected contributions from employees and suppliers and returns from customers; help evaluate whether the company is giving each stakeholder group what it needs to continue to contribute; guide the design and implementation of processes that contribute to the secondary objectives; and help evaluate the company's planning and implicit and explicit contracts with its stakeholders. The authors examine the performance measurement system at the Bank of Montreal.

This is an MIT Sloan Management Review article. Creating a business-driven IT infrastructure requires that executives thoroughly understand their firm's strategic context. By formulating a series of business and IT maxims--short simple statements of the business' positions--they can identify the IT infrastructure service suited to their company. The authors' framework has four components: First, consider strategic context. What business demands, roles, and relationships are critical to infrastructure decisions? Second, articulate business maxims. The maxims should focus employees' attention on the firm's competitive stance, the extent of coordination across units, and the implications for information and IT management. Third, identify IT maxims. From the business maxims, executives identify IT maxims. The maxims specify the role of IT and levels of investment relative to competitors, whether processing is tailored or standardized, and how different types of data are accessed, used, and standardized. Finally, clarify a firm's view of IT infrastructure. A company should determine how it sees infrastructure from among four views: none, utility, dependent, and enabling. It can forgo synergies among units and not invest in infrastructure services, use the infrastructure primarily to reduce costs, make investments primarily to respond to current strategies, or overinvest in IT infrastructure to provide flexibility in responding to long-term goals.

This is an MIT Sloan Management Review article. Tremendous variability in orders along the supply chain can plague companies trying to eliminate excess inventory, forecast product demand, and simply make their supply chain more efficient. What causes the bullwhip effect that distorts information as it is transmitted up the chain? The authors identify four major causes: Demand forecast updating, order batching, price fluctuation, and rationing and shortage gaming. The authors suggest several ways in which companies can counteract the bullwhip effect. First, avoid multiple demand forecast updates. Companies can make demand data from downstream available upstream. Or they can bypass the downstream site by selling directly to the consumer. Also, they can improve operational efficiency to reduce highly variable demand and long resupply lead times. Second, break order batches. Companies can use electronic data interchange to reduce the cost of placing orders and place orders more frequently. And they can ship assortments of products in a truckload to counter high transportation costs or use third-party logistics companies to handle shipping. Third, stabilize prices. Manufacturers can reduce the frequency and level of wholesale price discounting to prevent customers from stockpiling. They can also use activity-based costing systems to recognize when companies are buying in bulk. Finally, eliminate gaming in shortage situations. In shortages, suppliers can allocate product based on past sales records rather than on orders, so customers don't exaggerate their orders. They can also eliminate their generous return policies, making it less likely for retailers to cancel orders.

The study of business interests adds an important dimension to our understanding of the development of international environmental agreements. The contrasting role of business interests in the cases of ozone depletion and climate change is critical to explaining why climate change is a much more difficult issue for the international community to tackle. In the case of ozone depletion, industry concentration and the technological factors provided incentives for industry leaders to invest in alternative products and processes. By contrast, fossil fuel substitutes present a long-term strategic threat to the major sectors that produce and use these fuels. Where relatively few actors were involved in ozone depletion, it will be much more difficult to craft an agreement that is acceptable to the broad range of industries affected by climate change. However, business does have substantial influence over the timing and shape of international environmental agreements, even when there is considerable disunity within the business ranks.

Samsung leapfrogged from a mere discrete device producer to the largest and most vibrant memory chip producer in the world. It managed effectively the two antecedents of technological learning: prior knowledge base and the intensity of efforts. Samsung used technology licensing and the recruitment of high caliber scientists and engineers in building its prior knowledge base and crisis construction as a strategic means for increasing the intensity of its efforts. Samsung also used internal competition to accelerate technological learning.

For years, small companies have experimented with forms of open-book management. Open-book systems have smoothed change efforts by giving workers the why instead of just the how of initiatives; they have enabled employees to think like owners. Now divisions of large organizations such as R.R. Donnelley & Sons and Amoco Canada are finding that opening the books can work for them, too. It isn't easy, and companies must adapt the principles to their own situations. AES Corp., for example, found that it had to declare all its employees "insiders" when it went public. One of the reasons for large companies' interest in open-book management is the success of a role-model company, Missouri-based Springfield ReManufacturing. Leaders of divisions of large companies have been able to visit and ask questions. Other early adopters are also showing competitive advantages. Among them are Wabash National, now the nation's leading truck and tractor manufacturer, and Physician Sales & Service, a distributor of supplies to doctors' offices. Hexacomb Corp. is another large organization that has done well.

Shakeouts are a fact of life in almost every industry--witness the shrinking number of players in areas as diverse as banking, software, and hospital supply distribution. The key to survival is sensing your industry's shakeout before the competition does. And the first hurdle for managers to overcome is the belief that it can't happen to them. It can and it probably will. This article outlines how companies can detect the early warning signs of a shakeout. Explains how adaptive survivors, such as Dell Computer, successfully adjust their businesses in the midst of a bust, and how aggressive amalgamators, such as Arrow Electronics, cut costs and acquire smaller rivals in order to remain standing after a seismic shift. But the fact remains that most companies will get squeezed out during a consolidation. Although it is enormously difficult for executives to come to terms with the grim news, the sooner they do so, the better. All is not necessarily lost: with the right timing, also-rans can make a profitable exit from an industry.

Many companies are not tapping the full potential of their foreign factories. They establish and manage foreign factories to benefit only from tariff and trade concessions, cheap labor, capital subsidies, and reduced logistics costs. They therefore give these factories a limited range of work, responsibilities, and resources. But there are companies that expect much more from their foreign factories and, as a result, get much more. They use them to get closer to their customers and suppliers, to attract skilled and talented employees, and to create centers of expertise for the entire company. The author provides a framework to help managers classify the current role their foreign factories play.

Never has so much technology and brainpower been applied to improving supply chain performance. But the performance of many supply chains has never been worse. Why haven't the new ideas and technologies led to improved performance? Because, Marshall Fisher says, companies lack a framework for deciding which ones are best for their particular situation. Fisher offers such a framework to help managers understand the nature of the demand for their products and devise the supply chain that can best satisfy that demand.