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The service sector, now nearly three quarters of the U.S. gross national product, may be headed toward the same global noncompetitiveness as manufacturing. Deregulation of U.S. communications and financial markets has helped drive U.S. industries into global competitive leadership, but success may be producing a familiar complacency that repeats in services the same insularity that has damaged manufacturing. This report on a multiphase study shows that warning signs have already begun to appear. U.S. companies are paying insufficient attention to customers and quality and overemphasizing scale economies.

In small companies with more than one owner, it's inevitable that partners will occasionally differ on how to run the business. Where a climate of mutual respect characterizes the relationship, such disagreements are quickly and easily resolved. But what happens when partners find themselves in deep disagreement? Small business owners can take measures to prevent disputes from becoming crises.

What does international competition mean for competitive strategy? While there is ample literature on the problems of becoming a multinational, the specific strategic needs of established multinationals require closer examination in light of the increasingly competitive international environment. We need to distinguish between multidomestic industries and global industries. If American firms are to catch up with the Japanese, they must strive to achieve global platforms rather than engage in competition on a country-by-country basis. A global strategy requires that a firm rebalance the configuration and coordination of its activities so that comparative as well as competitive advantage is achieved. The increasing globalization of international competition requires strategic responses that overcome country parochialism.

Many top executives pride themselves on their skill in avoiding and managing conflict. However, when managers neither speak candidly nor put important facts on the table, candor is lost, communication suffers and so does the company. Skilled incompetence is a condition in which people excell at doing what they shouldn't because it seems right. These managers are "skilled" because they act without thinking. They are "incompetent" because their skill produces unintended results. A special application of the case method can be the first step to recognizing and correcting what's wrong.

The worst-case forecast of most capital expansion projects is rarely pessimistic enough. Staying power analysis can help a company better assess whether it can withstand the worst circumstances. These are the steps to take when doing a staying power analysis: 1) describe a hostile environment, 2) translate the consequent deteriorations into operating statement and balance sheet results, 3) make estimates based on the assumption that capital projects will encounter trouble, and 4) analyze cost-cutting possibilities. If the analysis shows company assets won't be able to cover the debt, that must be known in advance. Then if people want to risk the company, at least they know that's what they're doing.

The age of competitive strategy may be past. Sophisticated managers are learning that handsome returns come directly from superior strategic execution--not strategic planning. Their method: hustle and get it right. A look at the financial services industry provides valuable lessons. Few of the bases of competitive advantage exist--no economies of scale, few obstacles to product imitation, minimal costs and time required to bring out a new product. The organization's people and their executional skills--not the company's fixed assets--determine the bottom line.

Our blind allegiance to free trade threatens our national standard of living and economic future. Free trade puts us in direct competition with low-wage nations - countries that have a lower standard of living than the United States. By allowing these nations to take over big sectors of our market, we permit the permanent interruption of the relationship between demand and supply that has been the main force behind economic growth in U.S. history.

Innumerable business experts urge executives of growing companies to help themselves and their organizations by delegating responsibility. However well meaning, the dispensers of such advice usually underestimate the difficulty entrepreneurs have in giving up their cherished roles. Entrepreneurs pride themselves on their skills and talents and thrive on being in all places at once. But as their organizations expand, they can better spend their time coaching and planning rather than doing. Otherwise, their staffs can never mature, and they themselves won't have time to chart the company's future.

The success of a business depends on its ability to sustain its competitive advantage over time. Product innovation, production processes, and marketing are areas in which intense competitive pressure has multiplied with the increase in domestic and international competition. Analyses of companies identified as outstanding performers in their industries sought to understand the sources of their competitive advantage, to determine why the advantages proved sustainable, and to assess their future security.

Before managers can take meaningful steps to boost factory performance, they need an accurate way to judge what good performance is and to compare performance among facilities. The measurement systems in place at many factories fail to tell managers what they really need to know. To clarify the variables that affect productivity, 12 factories in 3 companies were studied over time. A new measuring system called total factor productivity (TFP) was devised to gauge each plant's overall efficiency. Then, the managerial practices that, when done right, make a difference were identified: investing in new equipment, reducing waste, and cutting work-in-process inventories by solving the problems that produced them in the first place.

When abroad, managers often don't know what to do about "requests" for funds or gifts. Walking out on the deal could ruin business relations. Paying up may mean violating the Foreign Corrupt Practices Act as well as personal moral standards. Understanding the importance of gifts in some societies may help U.S. executives find ways to satisfy both the foreign request and U.S. standards. They can, for example, make an equivalent, public donation to a social project in the requester's country; offer services to local causes in lieu of private payments; offer to create local jobs.

How can usually honest, intelligent, compassionate human beings act in ways that are callous, duplicitous, dishonest, and wrongheaded? Unethical behavior is found everywhere, and ambitious managers facing murky borderlands between right and wrong sometimes cross over the line. Their decisions ruin people's lives, destroy institutions, and give business as a whole a bad name. But executives can establish effective guidelines to ensure their corporations' survival. There are practical solutions to the rationalizations that give way to unethical behavior.

When portfolio planning was introduced in the late 1960s, its advocates believed it to be the key to most strategic planning problems. Now, interviews with CEOs, staff planners, and division line managers reveal that portfolio planning can improve business strategy, but only when it is used with other techniques for analyzing industries and competitors. It helps individual business units understand their competitive strengths, guides top management in identifying divestiture candidates, and promotes the efficient management of existing resources.

Factors like foreign and domestic market structure determine a company's operating exposure to exchange rates. But sophisticated managers have learned to manage foreign-exchange exposure in new ways. For example, companies can approach production units not as fixed, but as flexible, facilities whose importance to the corporation can be adjusted when exchange rates shift. The company can also shift sources of raw materials, subassemblies, and components. Above all, managers are more likely to adopt appropriate courses of action if their performance measurement takes into account the effect of exchange rate changes on operating performance.

In approaching the prospect of a joint venture in the People's Republic of China, foreign executives often plunge ahead with insufficient attention to the strategy of deal making. They waiver in their purposes and seem vague or noncommittal. When such weaknesses come up against the subtle strength that the Chinese bring to the art of negotiating, they become stumbling blocks to the development of effective and profitable commercial relationships. A better understanding of Chinese culture and practices will lead to a better deal.

For more than ten years, American manufacturers have been trying to improve productivity--and thereby enhance their international competitiveness--through cost-cutting programs. But costs have not declined enough, nor has international competitiveness much improved. Instead, our decline has intensified. Real productivity improvement is not easy. Approaches that pare down direct labor costs and make factory workers more efficient have proven fundamentally flawed. Manufacturers need to direct their thinking away from straight cost cutting toward quality enhancement, strategy, and product technology. McKinsey Award Winner.

The big issue for multinationals today is not whether to go global but how to tailor the global marketing concept to fit each business. In determining the degree of standardization or adaptation that is appropriate, managers should consider their companies' overall business strategy, which products will benefit from the economies or efficiencies of standardization, which products won't fight cultural barriers, what trade-offs will result from standardizing various elements of the marketing mix, and how standardization will vary from country to country.

Entrepreneurs should compile a financial forecast that includes three elements: an income statement, a balance sheet, and a cash flow statement. Forecasts should look ahead five years and include three scenarios: a most likely, a most pessimistic, and a most optimistic. Key estimates for putting the income statement together are sales, costs of goods sold, general and administrative expenses, and selling expenses. Key estimates needed for the balance sheet are accounts receivable, inventory, and the debt-equity ratio. These estimates enable one to complete the cash flow statement.

Acquisitions continue to be an important method of strategic redirection and renewal. But many companies experience disappointing results. Research suggests that an important source of success and failure in acquisitions lies in three factors: the involvement of specialists and analysts with independent goals and multiple, fragmented views of the agreement; premature closure and limited consideration of integration issues; and an inability to resolve important areas of ambiguity before an agreement is completed.

The apparent inability of traditional modes of financial analysis like discounted cash flow to justify investments in computer-integrated manufacturing has led many managers to turn to criteria that seem more closely connected with strategy. Actually, there is no conflict between the financial and the strategic justification of CIM. There is no unbreachable gulf between the logic of DCF and the nature of CIM. All that are needed are new ways to apply DCF to CIM investment proposals. DCF usually fails to work right when companies set arbitrarily high hurdle rates for evaluating new investment projects. Despite the costs that introducing CIM entails, for many companies there is no real alternative to investment in CIM.