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Germany's small and midsize companies, known as the Mittelstand, are a hidden source of wisdom on global competition. Companies like Krones, Korber/Hauni, Weinig, Webasto, and TetraWerke dominate their markets with world market shares ranging from 70-90%. When combined, they account for the bulk of Germany's trade surplus. The success of the Mittelstand lies in a set of five common practices. These companies all: 1) combine a narrow product-market focus with broad geographic scope; 2) perform best in the areas customers care most about; 3) balance closeness to customers with deep technical knowledge; 4) rely on themselves, especially for R&D; and 5) foster close ties between managers and workers.

In today's dynamic business environment, strategy too must become dynamic. The essence of strategy is not the structure of a company's products but the dynamics of its behavior. To succeed, a company must weave its key business processes into hard-to-imitate strategic capabilities that distinguish it from its competitors. A capability is a set of business processes understood strategically. While such capabilities are collective and cross-functional, they must be built and managed by the CEO. Uses examples from Wal-Mart.

The long-term competitiveness of most manufacturers depends on their product development capabilities. Yet most companies' development process is unruly and unfocused, with a collection of projects that do not match business objectives and consume far more development resources than are available. An "aggregate project plan" can help managers to focus on a set of projects, rather than individual ones. A central element of the plan is the project map, which categorizes projects into five types: breakthrough, platform, derivative, R&D, and partnerships. With the plan, managers can improve resource allocation, project sequencing, and critical development capabilities.

Small technology-based firms often find the domestic market inadequate for their expansion plans, and jump into the international arena. There are opportunities and pitfalls, but the prudent manager can thrive. Here's how.

After launching a new quality program, the CEO of Top Chemical Co. was searching for a team-based compensation program that would reflect his company's new philosophy. A committee was formed to discuss the options. The compensation vice president explained his idea for paying teams based on their performance, making pay an incentive for continued improvement and overall excellence of the team. The plan met with resistance from employees at all levels of the company. What seemed like a simple idea for a pay plan turned into a very complicated matter. Four experts on compensation reveal where Top Chemical went wrong in its plan and how the CEO might bring about change successfully.

Successful managers are born with the potential to be good strategists, but they must develop their natural talents. CEOs and top management can help by identifying and promoting such talents in their employees. A questionnaire has been developed to help measure strategic management competence. Strategic managers provide subordinates with general guidelines, just as the Prussian military strategist Helmuth von Moltke issued directives to his officers. Outstanding entrepreneurs and managers create a corporate culture in which their vision, philosophy, and business strategies are implemented by employees who think independently.

In 1991, Emerson Electric marked its 34th year of increased earnings and earnings per share. Its financial performance is a result of planning and control. Management sets tough financial goals. CEO Charles Knight and his senior managers spend at least half their time in the planning cycle, which culminates in annual conferences where division heads communicate--and defend--their business plans. Finally, a tight control system that focuses on short-term results tracks implementation and feeds back into the next planning conference. McKinsey Award Winner.

In its successful efforts to sell state-owned industries during the 1980s, the Thatcher government in the United Kingdom learned that privatization is not only an end in itself but can also transform public attitudes toward ownership. Privatization produces improved performance and, among politicians, a greater focus on government's role as a regulator, rather than owner, of industry. But in the course of privatizing, conflicts arise that governments must work hard to overcome.

Most corporate improvement efforts have negligible results because they focus on activities, not results, and there is no explicit connection between action and outcome. "Results-driven" approaches offer greater potential for improvement because they focus on achieving specific, measurable goals. By committing to incremental change, managers not only can see results faster but also determine more quickly what is working and what isn't.

Masayoshi Son, the founder, president, and CEO of SOFTBANK is a good example of a new Japanese-style entrepreneurship that is emerging. Originally a software distribution business, today SOFTBANK has six divisions in different businesses, all related to the personal computer. SOFTBANK also has five wholly owned subsidiaries and participates in five joint ventures.

The takeover battles of the 1980s have given way to a battle over their meaning and legacy. On one side are critics who argue that the events of the 1980s are best understood as episodes in the greatest criminal conspiracy Wall Street has ever known. On the other side are advocates of the new finance for whom the decade represents a triumph of financial innovation.

Israel faces an imperative to grow in the 1990s. This year, Israel welcomed 200,000 Russian immigrants (a number that will double in the coming year). How can this small country cope with its surging population? Israel has one big advantage: brainpower. It boasts the world's highest literacy rate, math skills, and number of scientists and technicians per capita. With market exposure and foreign partners, Israel could do well in world markets. The most important first step, however, is for the government to pursue peace.

War stories about failed alliances make executives wary of forging new joint ventures. However, the strategic benefits of cross-border alliances are compelling. A study of 49 cross-border alliances found several patterns that have managerial implications. For example, alliances must be free to evolve as the environment changes and opportunities arise. Contrary to conventional wisdom, fifty-fifty ownership of joint ventures improves decision making, and most alliances end with one parent acquiring the venture.

Three experts on corporate governance lend their views to the Working Group on Corporate Governance's "New Compact for Owners and Directors." Clifton R. Wharton, Jr., chairman and CEO of TIAA-CREF, offers refinements to the Compact's proposals and describes how TIAA-CREF is trying to use its leverage to bring delinquent directors to task. Harvard Business School professor Jaw W. Lorsch explains why institutional investors neither can nor should function as owners and why the key to developing more effective corporate control is to strengthen the role of outside directors. Lord Hanson, chairman of Hanson PLC, reaffirms the importance of two traditional corporate governance principles: maintaining a unitary board of directors and maximizing shareholder value.

The developed countries need a productivity revolution in knowledge and service work. The country that first achieves such gains will dominate the economic landscape in the next century. The key to this new productivity revolution is closely examining work in five distinct steps: 1) defining the task; 2) concentrating on the task; 3) defining performance; 4) getting worker input on productivity improvement; and 5) building continuous learning into the organization.

The Malcolm Baldrige National Quality Award is the most important catalyst for transforming U.S. business. But since its inception four years ago, the award has been the target of increasingly acrimonious criticism. Most of the criticism is based on misunderstanding. To get to the "truth," the best available source of information on the award was tapped: judges, examiners, and senior examiners. In-depth interviews with 20 of these insiders led to a clear definition of the award's real purpose and the value contained within its seven categories.

An analysis of the problems of interpersonal communication, as viewed from a human behavior standpoint. Real communication occurs when one listens to another person's viewpoint with empathic understanding. It is possible to facilitate achievement of this communication breakthrough by summarizing the speaker's thoughts and feelings to his or her satisfaction before presenting a rebuttal. This procedure leads to the reduction of defensiveness and gradual achievement of mutual communication. A second analysis deals with communication in an industrial context. An example illustrates how differently two supervisors interpret an employee's reaction to a suggestion. This article, first published in 1952, is reprinted to include a retrospective commentary by John J. Gabarro.

In this three-part case, the authors explore how an HIV-infected employee should be managed over time. Manager Greg van de Water must make a series of decisions regarding Joe Collins. Three AIDS-in-the-workplace experts recommend action to Greg at each decision point. They are: Lee Smith of Levi Strauss; Jim Nichols of American Security Bank (where he is on long-term disability leave as a result of HIV infection); and Jonathan Mann of the Harvard School of Public Health.

This is an MIT Sloan Management Review article. If you're negotiating to sell your business and you lie about its debts, that's illegal, right? But what if you begin negotiations with everything squarely on the table? The new quarterly reports come in and they're not as rosy as the previous ones. You don't disclose them to the prospective buyer. Illegal or just unethical? Surprisingly, business negotiations law is increasingly infused with ethical considerations. Outlines the basic elements of legal fraud, using numerous cases that illustrate when negotiators were penalized for what some consider merely unethical behavior. The author argues that when entering into negotiations, your conscience may be your best guide.

This is an MIT Sloan Management Review article. It's a marketer's dream--the ability to develop interactive relationships with individual customers. Technology, in the form of the database, is making this dream a reality. Now companies can keep track of customer preferences and tailor advertising and promotions to those needs. For instance, a grocery store system could note that you recently purchased a sample size of dishwashing detergent and could offer you a coupon to buy the large size. Explores the impact of this development on marketing practices and gives practical advice on designing a marketing database and staffing an interactive marketing department. Also addresses customer fears and the public debate over marketing and privacy.