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The two crucial responsibilities of corporate boards--oversight of long-term company strategy and the selection, evaluation, and compensation of top management--were not well met during the 1980s. There should not be government reform of board practices, but the size of boards should be limited and the number of outside directors on them should be increased. Three insiders belong on a board: the CEO, the COO, and the CFO. There should also be reform in the functioning and responsibilities of audit, compensation, and nominating committees. On a revitalized board, directors have enough confidence in the process to challenge one another, as well as the CEO. A group of experts, including CEOs, consultants, and institutional investors, propose specific strategies to help strengthen corporate boards. Some argue for appointing more independent outside directors. Others focus on improving shareholder/management relations. Suggestions for immediate action include board-member retreats, annual CEO evaluations, regular meetings with institutional shareholders, and the general admonition that directors must start asking more difficult questions.

To today's customers, value can mean any number of things, from convenience of purchase to after-sale service and dependability. But that doesn't mean companies have to excel at everything. A study of over 40 companies found that market leaders like Dell Computer, Home Depot, and NIKE succeed by narrowing their business focus, not by broadening it. They concentrate on one of three value disciplines--operational excellence, customer intimacy, or product leadership--and align their entire operating model to serve that discipline. Companies should choose a value discipline that fits with their existing capabilities and culture and then push themselves relentlessly to sustain it. And they should willingly change their operations to support that value discipline.

Throughout his 35-year football coaching career, at the high school, college, and professional levels, Bill Walsh has produced winners with his structured and businesslike approach to maximizing the potential of players and coaches. It is his highly successful management style in the most intense competitive situations that makes his organizational insights so applicable to today's corporate environment. Taking over as head coach and general manager of a dreadful San Francisco 49ers team in 1979, Walsh immediately began to develop and chart meticulous, long-range strategic and personnel plans for the organization. He defined responsibilities for both players and coaches, with objectives and priorities set for all. His practices focused on being prepared for every possible game situation.

A qualitative shift is taking place in the ways companies compete, managers manage, and business is conducted. The information-technology revolution makes knowledge the new competitive resource. But knowledge only flows through the technology; it actually resides in people--in knowledge workers and the organizations they inhabit. In the new economy, then, the job of the manager is to create an environment that allows knowledge workers to learn.

Facility location decisions made by many U.S. manufacturers during the past decade yielded disappointing results. These decisions were typically tactical, stop-gap actions that have resulted, at best, in short-lived benefits. Many firms moved manufacturing overseas to obtain a factor cost advantage, only to find that the cost advantage was fleeting, and that the distances the move introduced between manufacturing and other key groups (e.g., customers, suppliers, development, and sales) had constrained their ability to compete. This article explores the impact that facility location has on the critical capabilities that define a company's ability to compete. It discusses the shortcomings of the "tradition" approach to facility location, which ignores the internal workings of the company, and outlines a new capability-centered approach that creates sustainable benefits by fostering the development and growth of the unique set of critical capabilities required by a company's strategy, customers, and competitive environment.

Entrepreneurship is more popular than ever: courses are full, policymakers emphasize new ventures, managers yearn to go off on their own. Would-be founders often misplace their energies, however. Believing in a "big money" model of entrepreneurship, they spend a lot of time trying to attract investors instead of using wits and hustle to get their ideas off the ground. A study of 100 of the 1989 Inc. "500" list of fastest growing U.S. start-ups attests to the value of bootstrapping. In fact, what it takes to start a business often conflicts with what venture capitalists require. Seven principles are basic for successful start-ups: get operational fast; look for quick break-even, cash-generating projects; offer high-value products or services that can sustain direct personal selling; don't try to hire the crack team; keep growth in check; focus on cash; and cultivate banks early.

Greater Southeast Community Hospital is located in the center of one of Washington, D.C.'s most troubled and isolated neighborhoods. Like so many inner-city hospitals, it serves a population struggling with high rates of poverty, crime, and illiteracy. As a result, the area suffers from the highest rate of infant mortality, cancer, and coronary disease in the D.C. area. When Tom Chapman joined the hospital in 1984, it was giving away roughly 11% of its care--or about $11.5 million worth of medical services to indigent residents. If that rate continued, the hospital would soon go out of business. His challenge: to keep Greater Southeast solvent while shoring up the community that surrounds it. Working in tandem with community residents, Greater Southeast has developed a broad range of preventive and supportive programs, such as housing, day care for children and the elderly, nursing home services, and literacy training.

Frederick Taylor's traditional scientific approach to management promised to provide managers with the capacity to predict and control the behavior of the complex organizations they led. But the world most managers now inhabit often appears to be unpredictable and even uncontrollable. In the face of this more volatile business environment, the old-style mechanisms of "scientific management" seem positively counterproductive. Just as managers have become more preoccupied with the volatility of the business environment, scientists have also become preoccupied with the inherent volatility--the "chaos" and "complexity"--of nature. They are developing new rules for complex behavior in physical systems that have intriguing parallels to the kind of organizational behaviors today's companies are trying to encourage.

Given that organizations are seen more and more as minisocieties, the prospect of applying political principles to management makes a great deal of sense. Federalism is particularly appropriate because it offers a well-recognized system for dealing with paradoxes of power and control: the need to make things big by keeping them small; to encourage autonomy but within bounds; and to combine variety and shared purpose. Federalism responds to these paradoxes by balancing power among those in the center of the organization, those in the centers of expertise, and those in the center of the action--the operating businesses. Federalism avoids the risks of autocracy and the overcontrol of a central bureaucracy. It ensures a measure of democracy and creates a "dispersed center" that is more a network than a place. McKinsey Award Winner.

As the Cold War ends and demand decreases, the defense industry faces its most profound shift since the end of World War II. Boom-bust patterns drive the industry, but in addition to a cyclical drop in procurement, reforms of the 1980s shaved contractors' profits and greatly increased the risk of bidding on new programs. Furthermore, many contractors have crippling excesses of production and engineering capacity. Defense contractors can no longer seek to grow faster than their industry is growing. Instead, they must shrink faster than their industry is shrinking, and they must shrink smart to capture the large market that will remain for those who survive. Shrinking smart means investing only in those businesses in which the company can be preeminent and stripping down, shutting down, selling, or spinning off everything else.

After 30 years on the corporate fast track, Ken Veit lost his high-powered job at one of the world's largest insurance companies and was forced to take an entrepreneurial leap of faith. In 1989, Veit signed a franchise agreement to own and operate a Cartoon Corner store in a new mall in Scottsdale, Arizona. But despite Veit's careful forecasting, he suffered a series of unexpected catastrophes. The mall failed to keep its promises. The franchiser lost its venture capital. The Gulf War dried up retail traffic. When the mall and his store finally opened in May 1991, they did so in the midst of a recession. Although the media is full of the inspirational stories of other former executives, Veit has learned that the life of an entrepreneur is not all it's cracked up to be.

Out of a sense of corporate responsibility, many of today's manufacturers are making commodity-like components to preserve jobs. This single-minded focus on preserving jobs can become a self-defeating objective. It often results in insourcing parts that are easy to manufacture, largely to make work, while outsourcing those that are hard to make. Over time, fixed costs rise, product differentiation declines, and manufacturing performance remains stagnant as employees become complacent. The very survival of the company is threatened. Companies must learn how to not make things: how to not make the parts that divert a company from cultivating its repertoire of skills--parts its suppliers could make more efficiently. Managers must gain the confidence to make strategic discriminations among the thousands of parts they know mostly in terms of cost, not function or importance to the product.

Paul Allaire leads a company that is a microcosm of the changes transforming American business. With the introduction of the first plain-paper copier in 1959, Xerox invented a new industry and launched itself into a decade of spectacular growth. But easy growth led Xerox to neglect the fundamentals of its core business, leaving the company vulnerable to low-cost Japanese competition. Starting in the mid-1980s, Xerox embarked on a long-term effort to regain its dominant position in world copier markets and to create a new platform for future growth. Thanks to the company's Leadership through Quality program, Xerox became the first major U.S. company to win back market share from the Japanese. Since becoming CEO in 1990, Allaire has redirected the company's strategy to position Xerox as "the document company," at the intersection of the worlds of paper-based and electronic information. And he has guided the company through a fundamental redesign of what Allaire calls the "organizational architecture" of Xerox's document processing business.

Managers must build change into their organization's structure. This means being prepared to abandon everything that the organization does as well as constantly creating the new. Without this creation and abandonment, the organization will lose performance and with it the ability to attract and hold the people on whom its performance depends. The nature of the organization drives the imperative of change. Every organization exists to put knowledge to work, but knowledge changes quickly. The organization as well as the knowledgeable individual must acquire knowledge every several years or become obsolete. We have only begun to reckon with the implications of living in a world in which the fundamental unit of society, the organization, is and must be destabilizing. That is why questions of the organization's social responsibility now arise so often and why we need new ways to understand the relationship between organizations and their employees and between organizations and society overall.

Both executives and academics have recently voiced concerns about how business schools can best add value to the business community. The case of Jim Martin frames the dilemma. Martin is president and CEO of Bay International Industries (BII), a $4 billion consumer electronics company. Although he attended Plymouth Business School, one of the world's most prestigious management institutions, Martin has become an outspoken critic of the research and education provided by such schools. Martin himself has grappled with the issues surrounding management education. First, reports within BII show that MBA hiring has yielded disappointing results. Second, a business school has asked BII to participate in a research study. Third, Martin's daughter, who is planning to pursue an MBA, has turned to her father for advice.

Unilever, the Dutch-British company with operations in some 75 countries, is often described as one of the foremost transnationals. The company's fast-moving product portfolio of consumer goods requires proximity to local markets, although economies of scale in certain functions justify some centralized control. At the same time, a flexible matrix of individual managers around the world share a common understanding of corporate strategy. Co-chairman Floris Maljers provides an inside look at Unilever's evolution since its founding in 1930. For example, the company's core product group, the foods business, has weathered two major reorganizations in just the last 30 years. Through all of the changes, many based on trial and error, the company has maintained two consistent practices: developing high-quality managers and linking decentralized units through the "Unileverization" of those same managers.

Managers miss out on significant profits because they shy away from pricing decisions for fear that they will alienate their customers. But if management isn't controlling its pricing policies, the customers probably are. Two basic principles, the pocket price waterfall and the pocket price band, show managers how to control the pricing puzzle. The pocket price waterfall reveals how price erodes between a company's invoice figure and the actual amount paid by the customer--the transaction price. It tracks volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company's profits. The pocket price band plots the range of pocket prices over which any given unit volume of a single product sells. Wide price bands are common, with many manufacturer's transaction prices ranging over 60%. Using the pocket price bank enables a manager to control the price range to greater profits.

The U.S. system of allocating investment capital is failing, putting American companies at a serious disadvantage and threatening the long-term growth of the nation's economy. The problem involves the external capital allocation system by which capital is provided to companies, as well as the system by which companies allocate capital internally. In global competition, where investment increasingly determines a company's capacity to upgrade and innovate, the U.S. system does not measure up. Reforms that can make the U.S. capital allocation system work include: 1) Improve the macroeconomic environment; 2) Expand true ownership throughout the system so that directors, managers, employees, and even customers and suppliers hold positions as owners; 3) Align the goals of capital providers, corporations, directors, managers, employees, customers, suppliers, and society; 4) Improve the information used in decision making; and 5) Foster more productive modes of interaction and influence among capital providers, corporations, and business units.

Most American managers have a hard time making sense of Germany. It has a fraction of the resources and less than one-third the population of the United States. Labor costs are higher, paid vacations are at least three times as long, and strong unions are involved at all levels of business, from the local plant to the corporate boardroom. Yet German companies manage to produce internationally competitive products in key manufacturing sectors, making Germany the greatest competitive threat to the United States after Japan. In their review of recent research on the German business system, Wever and Allen argue that managers can learn an important lesson from Germany. In a global economy, competition exists not only between companies, but also between entire socioeconomic systems. Germany's ability to design a cohesive economic and social system that adapts continuously to changing requirements goes a long way toward explaining its competitive success.

The corporate raiders of the 1980s have turned into corporate boardmembers of the 1990s. In this new role, the takeover experts are not plunderers, nor are they creating quick profit at the expense of companies' long-term health; rather, they are defying expectations and, in a number of important respects, successfully implementing the agenda of the gurus of good management. Setting the pace in this new arena is the leveraged buyout firm of Kohlberg Kravis Roberts & Co. KKR's partners hold board seats at nine different companies with $1 billion a year or more in sales. KKR is practicing a surprising amount of what might be regarded as a textbook version of sound management methods--including rigorously evaluating CEO performance, devising proper management incentives, and making budgets count.