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To be competitive in an increasingly complex international environment, companies with worldwide operations must achieve global coordination and national flexibility simultaneously. Traditional organizational forms, however, have tended to provide one or the other attribute. The authors illustrate this point through the experience of two major competitors in consumer electronics: Philips, a classic "multinational" company whose decentralized federation structure is well-suited to facilitating national flexibility, and Matsushita, a "global" company with a centralized hub configuration that provides it with great efficiency. The authors then describe an emerging model--the "transnational" organization whose structure is based on an integrated network of worldwide operations. The transnational firm requires both effective corporate management that does not impede national flexibility and efficient country management that does not prevent global coordination.

Today corporate education is a vast and complex undertaking that costs U.S. business $30 billion a year and occupies most workers for a significant part of their lives. Unfortunately, much of this time and money is thrown away. To carry out effective corporate education, companies must: have a clear strategic vision; analyze their needs and priorities; learn to distinguish between training and development; learn how to choose teachers and locations for instruction; involve top executives in T&D; and conduct a continuing evaluation of educational worth and cost-effectiveness.

Managers in companies selling multiple products are making strategic decisions about pricing and product mix with distorted cost information, detecting the problem only after their competitiveness and profitability have deteriorated. An alternative is activity-based costing. Virtually all of a company's activities exist to support the production and delivery of today's goods and services. Companies need not scrap their official cost systems to use activity-based methods. The two can exist simultaneously.

The truly important challenges managers face are caused by the success of management itself. Management has transformed the economic and social fabric of the developed world by applying knowledge to every aspect of work. Knowledge, not bricks and mortar, is the center of capital investment and society's chief resource. Amid so much change, management's essential task remains the same--to enable people to work together so that their strengths are magnified and their differences minimized.

Few U.S. companies are absorbing the advanced production technologies - such as CAD, CAM, FMS, or CIM - they need to stay competitive. Many are put off by the stringent demands of programmable automation. Most manufacturers are inhibited by organizational structures and practices. Also, approaches to plant construction and capital improvement are incremental, which often precludes investing in advanced, integrated plants.

Some U.S. companies have moved manufacturing operations overseas to take advantage of lower wage rates, defending the practice as the only way to stay competitive. For many companies, offshore manufacturing is a poor option for gaining competitiveness. It involves extra transportation, communication, and paperwork; these costs can offset any potential savings. Also, when direct labor is a small percentage of total costs, as it is for much of manufacturing, labor savings are less critical to the bottom line. The only sure way to get more competitive is to strengthen the business as a whole.

Technology has combined with a fragmented culture to create an array of products, services, and markets. It is a world of variety and options, niches and small batches, increased competition and changing company structure. Because niche markets cannot be identified easily in their infancy, managers must keep one foot in the technology to know its potential and one foot in the market to see the opportunity. The product isn't just the item itself--the product is an experience the customer learns to trust--which is why everything from perfume to software samples come inside magazines. Old, established giants and small start-ups need each other--the future is in relationships that create new products tailored to customers' demands.

The marketing committee of Paradise Foods decided against national rollout of Sweet Dream, the company's new premium frozen dessert. They feared Sweet Dream would take away market share from LaTreat, the company's first, and still successful, entry in frozen specialty desserts. Bill Horton, Sweet Dream's product manager, who had spent 18 months evaluating the new product and strongly favored the launch, doubted LaTreat's long-term market strength, believing that the company was protecting a product that was already tiring. Four executives - Jerry Della Femina, chairman and CEO of Della Femina, McNamee WCRS, Inc.; William H. Moult, executive vice president of SAMI/Burke; John M. Keenan, executive vice president of General Foods Worldwide; and Richard F. Chay, director of marketing research for NutraSweet Co. - evaluate Bill Horton's performance and examine whether Paradise Foods should reconsider its no-launch decision.

Forecasting total market demand can be crucial to creating a smart marketing strategy. Some companies--and even whole industries--have learned the hard way that a product's historical demand curve doesn't necessarily predict future demand. An accurate total market demand forecast can yield clues about future product performance. Here are the four steps to creating one: 1) define the market, 2) divide total industry demand into segments, 3) find out what drives demand in each segment and project how those drivers might change, and 4) assess the risks to the forecast and decide which assumptions are most critical to success. Just going through this process can help managers better understand the real world in which they operate.

Gray markets may be the result of natural forces like maturity in a product life cycle (when price emerges as the key factor in purchases) or dislocations in foreign exchange rates. Gray markets are also convenient channels for distributors and producers, and so represent opportunities.

Capital markets now demand that CEOs monitor the "value gap" between what their company's shareholders realize now and what they might be able to get. As the pool of available funds grows and the number of easy targets declines, acquirers will turn their attention to companies with smaller and smaller value gaps. CEOs must measure the value gap and track it periodically. To manage the gap, CEOs can choose one or more of three basic options: improve operations, leverage the company's capital structure, or sell business units to the "best buyers."

Most fears about guaranteeing service are groundless. But offering a weak guarantee won't lead to success. The best guarantee is unconditional, meaningful, and easy to understand, invoke, and collect. Properly implemented, a strong guarantee boosts performance; sets clear-cut, customer-defined goals; creates a customer-oriented work force; and generates error data needed for improvement. A strong service guarantee can also boost marketing. It leads to more satisfied customers who generate higher sales and profits. McKinsey Award Winner.

The most essential difference between management accounting in the United States and Japan is philosophical. Accounting plays more of an "influential" than an "informational" role in Japan. In general, Japanese accounting systems are designed to be consistent with corporate strategy, not independent of it. There is a more direct linkage than in the United States between management accounting practices and overall corporate goals.

In the past, cheap, centralized power and efficient but expensive production machinery tipped the competitive advantage toward large companies. Now low-cost computing and communications are tipping the advantage to a new organizational form: the "value-adding partnership". VAPs are groups of small companies that perform different steps along the value-added chain. The partners share information freely and perceive the whole chain as one competitive unit. VAPs have the benefits of both large and small companies: focus and flexibility as well as coordination and sharing. However, VAPs require a delicate balance of power between partners: What happens if one partner tries to take over another?

Competitive advantage is a constantly moving target. Leading Japanese companies provide a window on strategic change and its progression from the 1940s to today. Since World War II, Japanese competitors have shifted their strategic focus at least four times. They began by exploiting their low labor rates to gain entry to various markets, then moved to a scale-based strategy. From there they shifted to focused factories and finally to flexible manufacturing. This latter strategy gave the Japanese both lower costs and a greater variety of products. One result was the outbreak of variety wars in the early 1980s. The variety wars signaled a shift to time-based competitive advantage. The leading Japanese companies today recognize that time is the most critical competitive yardstick of company performance. McKinsey Award Winner.

Multifunctional teams are the most effective way for companies to design products strategically. The team needs to: determine the product's character; subject the product to a rigorous functional analysis; design parts for productibility, exploiting the best available materials and methods; design the assembly sequence to facilitate the parts' and quality control testing; and design a factory system stressing standard work methods, quick repair of equipment, and employee motivation.

Excess cash and unused debt capacity make up a company's financial inventory. Too little can be crippling. But too much costs money and invites takeovers. To determine the proper balance, CFOs must understand three factors: the cost of holding reserves, the risks that reserves protect against, and the needs that reserves may have to cover.

George Gilder, in the March-April 1988 HBR, attacked MIT's Charles Ferguson for believing that many, small, entrepreneurial companies will do more for U.S. competitiveness than a few, large, integrated ones. Gilder claimed that advanced computer technology (engendering the "law of the microcosm") lowers barriers to market entry and promises to make talk of a national industrial policy obsolete. Here Charles Ferguson joins the debate and refutes Gilder's claims with an analysis of the U.S. semiconductor industry. Ferguson shows that U.S. companies lose out, not to nimble, small companies but to huge, protected Japanese complexes that are embedded in stable, concentrated, coordinated alliances.

The old performance appraisal system at American Cyanamid Co. had so many detractors it became a target in the company's effort to find ways to improve employees' quality of life. An experiment in the Medical Research Division substituted three ratings for the ten in the old review procedure and called for no recommended distribution. The new plan assumed that almost all employees perform capably and conscientiously at their jobs, though in a few cases performance is so impressively good or egregiously bad that it should get special recognition. Supervisors were now encouraged to stress positive instead of negative aspects of each subordinate's work.

Manufacturing companies striving to compete on quality must design products that not only are technically elegant and manufacturable but also reflect customers' desires and tastes. For optimal results, marketers, designers, engineers, and strategists should work closely together from product conception to end result. A Japanese innovation, the house of quality, can help get interfunctional-team conversations started. Presented here in clear, step-by-step exhibits, the house is a conceptual map on which interdisciplinary teams can display and organize the evidence they need to set targets for design. Once all relevant facts are on the grid, the team makes its choices. The process has clarified opportunities, stimulated negotiation, and helped set an agenda. And the format is flexible. Once engineering targets have been set, the team can draw up new houses.