Showing papers in "Harvard Business Review in 1997"

Managing in an age of modularity

Abstract: Modularity is a familiar principle in the computer industry. Different companies can independently design and produce components, suck as disk drives or operating software, and those modules will fit together into a complex and smoothly functioning product because the module makers obey a given set of design rules. Modularity in manufacturing is already common in many companies. But now a number of them are beginning to extend the approach into the design of their products and services. Modularity in design should tremendously boost the rate of innovation in many industries as it did in the computer industry. As businesses as diverse as auto manufacturing and financial services move toward modular designs, the authors say, competitive dynamics will change enormously. No longer will assemblers control the final product: suppliers of key modules will gain leverage and even take on responsibility for design rules. Companies will compete either by specifying the dominant design rules (as Microsoft does) or by producing excellent modules (as disk drive maker Quantum does). Leaders in a modular industry will control less, so they will have to watch the competitive environment closely for opportunities to link up with other module makers. They will also need to know more: engineering details that seemed trivial at the corporate level may now play a large part in strategic decisions. Leaders will also become knowledge managers internally because they will need to coordinate the efforts of development groups in order to keep them focused on the modular strategies the company is pursuing.

Spark innovation through empathic design.

Abstract: Companies are used to bringing in customers to participate in focus groups, usability laboratories, and market research surveys in order to help in the development of new products and services. And for improving products that customers know well, those tools are highly sophisticated. For example, knowledgeable customers are adept at identifying the specific scent of leather they expect in a luxury vehicle or at helping to tune the sound of a motorcycle engine to just the timbre that evokes feelings of power. But to go beyond improvements to the familiar, companies need to identify and meet needs that customers may not yet recognize. To accomplish that task, a set of techniques called empathic design can help. Rather than bring the customers to the company, empathic design calls for company representatives to watch customers using products and services in the context of their own environments. By doing so, managers can often identify unexpected uses for their products, just as the product manager of a cooking oil did when he observed a neighbor spraying the oil on the blades of a lawn mower to reduce grass buildup. They can also uncover problems that customers don't mention in surveys, as the president of Nissan Design did when he watched a couple struggling to remove the backseat of a competitor's minivan in order to transport a couch. The five-step process Dorothy Leonard and Jeffrey Rayport describe in detail is a relatively low-cost, low-risk way to identify customer needs, and it has the potential to redirect a company's existing technological capabilities toward entirely new businesses.

The four faces of mass customization.

Abstract: Virtually all executives today recognize the need to provide outstanding service to customers. Focusing on the customer, however, is both an imperative and a potential curse. In their desire to become customer driven, many companies have resorted to inventing new programs and procedures to meet every customer's request. But as customers and their needs grow increasingly diverse, such an approach has become a surefire way to add unnecessary cost and complexity to operations. Companies around the world have embraced mass customization in an attempt to avoid those pitfalls. Readily available information technology and flexible work processes permit them to customize goods or services for individual customers in high volumes at low cost. But many managers have discovered that mass customization itself can produce unnecessary cost and complexity. They are realizing that they did not examine thoroughly enough what kind of customization their customers would value before they plunged ahead. That is understandable. Until now, no framework has existed to help managers determine the type of customization they should pursue. James Gilmore and Joseph Pine provide managers with just such a framework. They have identified four distinct approaches to customization. When designing or redesigning a product, process, or business unit, managers should examine each approach for possible insights into how to serve their customers best. In some cases, a single approach will dominate the design. More often, however, managers will need a mix of some or all of the four approaches to serve their own particular set of customers.

Strategy and the New Economics of Information

Abstract: We are in the midst of a fundamental shift in the economics of information--a shift that will precipitate changes in the structure of entire industries and in the ways companies compete. This shift is made possible by the widespread adoption of Internet technologies, but it is less about technology than about the fact that a new behavior is reaching critical mass. Millions of people are communicating at home and at work in an explosion of connectivity that threatens to undermine the established value chains for businesses in many sectors of the economy. What will happen, for instance, to dominant retailers such as Toys "R" Us and Home Depot when a search through the Internet gives consumers more choice than any store? What will be the point of cultivating a long-standing supplier relationship with General Electric when it posts its purchasing requirements on an Internet bulletin board and entertains bids from anybody inclined to respond? The authors present a conceptual framework for approaching such questions--for understanding the relationship of information to the physical components of the value chain and how the Internet's ability to separate the two will lead to the reconfiguration of the value proposition in many industries. In any business where the physical value chain has been compromised for the sake of delivering information, there will be an opportunity to create a separate information business and a need to streamline the physical one. Executives must mentally deconstruct their businesses to see the real value of what they have. If they don't, the authors warn, someone else will.

Value innovation: the strategic logic of high growth.

Abstract: Why are some companies able to sustain high growth in revenues and profits--and others are not? To answer that question, the authors, both of INSEAD, spent five years studying more than 30 companies around the world. They found that the difference between the high-growth companies and their less successful competitors was in each group's assumptions about strategy. Managers of the less successful companies followed conventional strategic logic. Managers of the high-growth companies followed what the authors call the logic of value innovation. Conventional strategic logic and value innovation differ along the basic dimensions of strategy. Many companies take their industry's conditions as given; value innovators don't. Many companies let competitors set the parameters of their strategic thinking; value innovators do not use rivals as benchmarks. Rather than focus on the differences among customers, value innovators look for what customers value in common. Rather than view opportunities through the lens of existing assets and capabilities, value innovators ask, What if we start anew? The authors tell the story of the French hotelier Accor, which discarded the notion of what a hotel is supposed to look like in order to offer what most customers want: a good night's sleep at a low price. And Virgin Atlantic challenged industry conventions by eliminating first-class service and channeling savings into innovations for business-class passengers. Those companies didn't set out to build advantages over the competition, but they ended up achieving the greatest competitive advantages.

Strategy under uncertainty.

Abstract: At the heart of the traditional approach to strategy lies the assumption that by applying a set of powerful analytic tools, executives can predict the future of any business accurately enough to allow them to choose a clear strategic direction. But what happens when the environment is so uncertain that no amount of analysis will allow us to predict the future? What makes for a good strategy in highly uncertain business environments? The authors, consultants at McKinsey & Company, argue that uncertainty requires a new way of thinking about strategy. All too often, they say, executives take a binary view: either they underestimate uncertainty to come up with the forecasts required by their companies' planning or capital-budging processes, or they overestimate it, abandon all analysis, and go with their gut instinct. The authors outline a new approach that begins by making a crucial distinction among four discrete levels of uncertainty that any company might face. They then explain how a set of generic strategies--shaping the market, adapting to it, or reserving the right to play at a later time--can be used in each of the four levels. And they illustrate how these strategies can be implemented through a combination of three basic types of actions: big bets, options, and no-regrets moves. The framework can help managers determine which analytic tools can inform decision making under uncertainty--and which cannot. At a broader level, it offers executives a discipline for thinking rigorously and systematically about uncertainty and its implications for strategy.

Building effective R&D capabilities abroad.

Abstract: In the past, companies kept most of their research and development activities in their home country because they thought it important to have RD to exploit the home base laboratory it would need to be near large markets and manufacturing facilities. The best individual for managing both types of site combines the qualities of good scientist and good manager, knows how to integrate the new site with existing sites, understand technology trends, and is good at gaining access to foreign scientific communities. As more pockets of knowledge emerge around the globe and competition in foreign markets mounts, only those companies that embrace an informed approach to global R&D will be able to meet the new challenges.

Fair process: Managing in the knowledge economy

Abstract: Unlike the traditional factors of production--land, labor, and capital--knowledge is a resource that can't be forced out of people. But creating and sharing knowledge is essential to fostering innovation, the key challenge of the knowledge-based economy. To create a climate in which employees volunteer their creativity and expertise, managers need to look beyond the traditional tools at their disposal. They need to build trust. The authors have studied the links between trust, idea sharing, and corporate performance for more than a decade. They have explored the question of why managers of local subsidiaries so often fail to share information with executives at headquarters. They have studied the dynamics of idea sharing in product development teams, joint ventures, supplier partnerships, and corporate transformations. They offer an explanation for why people resist change even when it would benefit them directly. In every case, the decisive factor was what the authors call fair process--fairness in the way a company makes and executes decisions. The elements of fair process are simple: Engage people's input in decisions that directly affect them. Explain why decisions are made the way they are. Make clear what will be expected of employees after the changes are made. Fair process may sound like a soft issue, but it is crucial to building trust and unlocking ideas. Without it, people are apt to withhold their full cooperation and their creativity. The results are costly: ideas that never see daylight and initiatives that are never seized.

Developing products on Internet time.

Abstract: The rise of the World Wide Web has provided one of the most challenging environments for product development in recent history. The market needs that a product is meant to satisfy and the technologies required to satisfy them can change radically--even as the product is under development. In response to such factors, companies have had to modify the traditional product-development process, in which design implementation begins only once a product's concept has been determined in its entirety. In place of that traditional approach, they have pioneered a flexible product-development process that allows designers to continue to define and shape products even after implementation has begun. This innovation enables Internet companies to incorporate rapidly evolving customer requirements and changing technologies into their designs until the last possible moment before a product is introduced to the market. Flexible product development has been most fully realized in the Internet environment because of the turbulence found there, but the foundations for it exist in a wide range of industries where the need for responsiveness is paramount. When technology, product features, and competitive conditions are predictable or evolve slowly, a traditional development process works well. But when new competitors and technologies appear overnight, when standards and regulations are in flux, and when a company's entire customer base can easily switch to other suppliers, businesses don't need a development process that resists change--they need one that embraces it.

Putting your company's whole brain to work.

Abstract: Innovate or fall behind: the competitive imperative for virtually all businesses today is that simple. Responding to that command is difficult, however, because innovation takes place when different ideas, perceptions, and ways of processing and judging information collide. And it often requires collaboration among players who see the world differently. As a result, the conflict that should take place constructively among ideas all too often ends up taking place unproductively among people. Disputes become personal, and the creative process breaks down. The manager successful at fostering innovation figures out how to get different approaches to grate against one another in a productive process the authors call creative abrasion. The authors have worked with a number of organizations over the years and have observed many managers who know how to make creative abrasion work for them. Those managers understand that different people have different thinking styles: analytical or intuitive, conceptual or experiential, social or independent, logical or values driven. They deliberately design a full spectrum of approaches and perspectives into their organizations and understand that cognitively diverse people must respect other thinking styles. They set ground rules for working together to discipline the creative process. Above all, managers who want to encourage innovation need to examine what they do to promote or inhibit creative abrasion.

Virtuous capital: what foundations can learn from venture capitalists

Abstract: U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support and stay involved long enough to see the company become strong. If foundation officers familiarize themselves with such practices, they can begin to build organizational capacity in the nonprofit sector. Foundations can hire organizational experts to assist grantees; they can lengthen grant terms to allow nonprofits to build up organization strengths; and they can create new classes of grants that allow for organizational effectiveness. Nonprofits in turn should articulate their organizational needs when applying for grants; they should apply to foundations known for longer-term grants; and they should create plans that justify long-term support from foundations.

Defining next-generation products: an inside look.

Abstract: The continued success of technology-based companies depends on their proficiency in creating next-generation products and their derivatives. So getting such products out the door on schedule must be routine for such companies, right? Not quite. The authors recently engaged in a detailed study--in which they had access to sensitive internal information and to candid interviews with people at every level--of 28 next-generation product-development projects in 14 leading high-tech companies. They found that most of the companies were unable to complete such projects on schedule. And the companies also had difficulty developing the derivative products needed to fill the gaps in the market that their next-generation products would create. The problem in every case, the authors discovered, was rooted in the product definition phase. And not coincidentally, the successful companies in the study had all learned how to handle the technical and marketplace uncertainties in their product definition processes. The authors have discerned from the actions of those companies a set of best practices that can measurably improve the definition phase of any company's product-development process. They have grouped the techniques into three categories and carefully lay out the steps that companies need to take as they work through each stage. The best practices revealed here are not a magic formula for rapid, successful new-product definition. But they can help companies capture new markets without major delays. And that is good news for any manager facing the uncertainty that goes with developing products for a global marketplace.

How to make experience your company's best teacher.

Abstract: In our personal life, experience is often the best teacher. Not so in corporate life. After a major event--a product failure, a downsizing crisis, or a merger--many companies stumble along, oblivious to the lessons of the past. Mistakes get repeated, but smart decisions do not. Most important, the old ways of thinking are never discussed, so they are still in place to spawn new mishaps. Individuals will often tell you that they understand what went wrong (or right). Yet their insights are rarely shared openly. And they are analyzed and internalized by the company even less frequently. Why? Because managers have few tools with which to capture institutional experience, disseminate its lessons, and translate them into effective action. In an effort to solve this problem, a group of social scientists, business managers, and journalists at MIT have developed and tested a tool called the learning history. It is a written narrative of a company's recent critical event, nearly all of it presented in two columns. In one column, relevant episodes are described by the people who took part in them, were affected by them, or observed them. In the other, learning historians--trained outsiders and knowledgeable insiders--identify recurrent themes in the narrative, pose questions, and raise "undiscussable" issues. The learning history forms the basis for group discussions, both for those involved in the event and for others who also might learn from it. The authors believe that this tool--based on the ancient practice of community storytelling--can build trust, raise important issues, transfer knowledge from one part of a company to another, and help build a body of generalizable knowledge about management.

Changing the way we change.

Abstract: More and more companies struggle with growing competition by introducing improvements into every aspect of performance. But the treadmill keeps moving faster, the companies keep working harder, and results improve slowly or not at all. The problem here is not the improvement programs. The problem is that the whole burden of change typically rests on so few people. Companies achieve real agility only when every function and process--when every person--is able and eager to rise to every challenge. This type and degree of fundamental change, commonly called revitalization or transformation, is what many companies seek but rarely achieve because they have never before identified the factors that produce sustained transformational change. The authors identify three interventions that will restore companies to vital agility and then keep them in good health: incorporating employees fully into the principal business challenges facing the company, leading the organization in a different way in order to sharpen and maintain incorporation and constructive stress, and instilling mental disciplines that will make people behave differently and then help them sustain their new behavior. The authors discovered these basic sources of revitalization by tracking the change efforts of Sears, Roebuck & Company, Royal Dutch Shell, and the United States Army. The organizations used these interventions to alter the way their people experienced their own power and identity, as well as the way they dealt with conflict and learning. As at Sears, Shell, and the U.S. Army, any major shift in those four elements will create a landmark shift in any organization's operating state or culture.

What's it worth? A general manager's guide to valuation.

Abstract: 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. Managers whose formal training is more than a few years old, however, are likely to have learned approaches that are becoming obsolete. 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 valuing operations, the DCF methodology of adjusted present value allows managers to break a problem into pieces that make managerial sense. For valuing opportunities, option pricing captures the contingent nature of investments in areas such as R&D and marketing. And for valuing ownership claims, the tool of equity cash flows helps managers value their company's stake in a joint venture, a strategic alliance, or an investment that uses project financing.

Needed: a new system of intellectual property rights

Abstract: The world's current system of intellectual property rights has in recent years become unworkable and ineffective. Designed more than 100 years ago to meet the needs of an industrial era, it is inadequate to handle the ownership and distribution of intellectual property generated by the brainpower industries that have come to dominate the world's economy. The prevailing wisdom is that minor tweaking can remedy the problem. But MIT economist Lester Thurow challenges such thinking and calls instead for a new system--one redesigned from the ground up. In making his case for why the old system doesn't work anymore, Thurow lays out the challenges the new system must meet. It must offer incentives to inventors that are strong enough to offset the decline in publicly funded research. At the same time, it must protect the public interest by keeping some intellectual property--basic scientific knowledge, for example--in the public domain. The new system must be flexible enough to deal with the fact that new technologies have created new potential forms of intellectual property rights (Can pieces of a human being be patented?) and have made old rights unenforceable (When books can be downloaded from an electronic library, what does a copyright mean?). And in an increasingly global economy, a new system must meet the needs of both "catch-up" states and "keep-ahead" states. A system that ignores the lesson of history--that every country that has caught up has done so by copying--will be an unenforceable one.

Entering China: an unconventional approach.

Abstract: Conventional wisdom has it that the best way to do business in China is through an equity joint venture (EJV) with a well-connected Chinese partner. But pioneering companies are starting a trend toward a new way to enter that market: as a wholly foreign-owned enterprise, or WFOE. Increasingly, says the author, joint ventures do not offer foreign companies what they need to succeed in China. For example, many companies want to do business nationally, but the prospects for finding a Chinese partner with national scope are poor. Moreover, there are often conflicting perceptions between partners about how to operate an EJV: Chinese companies, for example, typically have a more immediate interest in profits than foreign investors do. By contrast, the author asserts, WFOEs are faster to set up and easier to manage; and they allow managers to expand operations more rapidly. That makes them the perfect solution, right? The answer is a qualified yes. First, foreign companies will still need sources of guanxi, or social and political connections. Second, managers must take steps to avoid trampling on China's cultural or economic sovereignty. Third and perhaps most important, foreign companies must be prepared to bring something of value to China-usually in the form of jobs or new technology that can help the country develop. Companies willing to make the effort, says the author, can reap the rewards of China's burgeoning marketplace.

Discovering new points of differentiation.

Abstract: Most profitable strategies are built on differentiation: offering customers something they value that competitors don't have. But most companies concentrate only on their products or services. In fact, a company can differentiate itself every point where it comes in contact with its customers--from the moment customers realize they need a product or service to the time when they dispose of it. The authors believe that if companies open up their thinking to their customer's entire experience with a product or service--the consumption chain--they can uncover opportunities to position their offerings in ways that neither they nor their competitors though possible. The authors show how even a mundane product such as candles can be successfully differentiated. By analyzing its customers' experiences and exploring various options, Blyth Industries, for example, has grown from a $2 million U.S. candle manufacturer into a global candle and accessory business with nearly $500 million in sales and a market value of $1.2 billion. Finding ways to differentiate one's company is a skill that can be nurtured, the authors contend. In this Manager's Tool Kit, they have designed a two-part approach that can help companies continually identify new points of differentiation and develop the ability to generate successful differentiation strategies. "Mapping the Consumption Chain" captures the customer's total experience with a product or service. "Analyzing Your Customer's Experience" shows managers how directed brainstorming about each step in the consumption chain can elicit numerous ways to differentiate any offering.

Building Brands Without Mass Media

Abstract: Costs, market fragmentation, and new media channels that let customers bypass advertisements seem to be in league against the old ways of marketing. Relying on mass media campaigns to build strong brands may be a thing of the past. Several companies in Europe, making a virtue of necessity, have come up with alternative brand-building approaches and are blazing a trail in the post-mass-media age. In England, Nestle's Buitoni brand grew through programs that taught the English how to cook Italian food. The Body Shop garnered loyalty with its support of environmental and social causes. Cadbury funded a theme park tied to its history in the chocolate business. Haagen-Dazs opened posh ice-cream parlors and got itself featured by name on the menus of fine restaurants. Hugo Boss and Swatch backed athletic or cultural events that became associated with their brands. The various campaigns shared characteristics that could serve as guidelines for any company hoping to build a successful brand: senior managers were closely involved with brand-building efforts; the companies recognized the importance of clarifying their core brand identity; and they made sure that all their efforts to gain visibility were tied to that core identity. Studying the methods of companies outside one's own industry and country can be instructive for managers. Pilot testing and the use of a single and continuous measure of brand equity also help managers get the most out of novel approaches in their ever more competitive world.

Looking ahead: implications of the present.

Abstract: On its seventy-fifth anniversary, HBR asked five of the business world's most insightful thinkers to comment on the challenges taking shape for executives as they move into the next century. In "The Future That Has Already Happened," Peter Drucker examines the effects of the increasing underpopulation of the world's developed countries. With growing imbalances in labor resources worldwide, he writes, executives in the developed countries will need to improve the productivity of knowledge and of knowledge workers to maintain a competitive advantage. Esther Dyson's article "Mirror, Mirror on the Wall" reveals the mind shift executives will need to make in a networked world, where companies will be known for what they do rather than for what they say. Executives will have to respond openly and intelligently to feedback about their organizations. The old language of property and ownership no longer serves executives, writes Charles Handy in "The Citizen Corporation." The corporation should be thought of no longer as property but as a community, where members are regarded as citizens. Technology has given executives more information than today's machines can help them understand, explains Paul Saffo in "Are You Machine Wise?" Machine-wise executives will know when to turn their computers off and take their own counsel, he writes. Peter Senge's article "Communities of Leaders and Learners" urges executives to reject the myth of leaders as isolated heroes and instead to build a community of leaders. Sustained institutional learning, he writes, requires organizations to reintegrate their typically fragmented learning processes.

Making strategy: learning by doing.

Abstract: Companies find it difficult to change strategy for many reasons, but one stands out: strategic thinking is not a core managerial competence at most companies. Executives hone their capabilities by tackling problems over and over again. Changing strategy, however, is not usually a task that they face repeatedly. Once companies have found a strategy that works, they want to use it, not change it. Consequently, most managers do not develop a competence in strategic thinking. This Manager's Tool Kit presents a three-stage method executives can use to conceive and implement a creative and coherent strategy themselves. The first stage is to identify and map the driving forces that the company needs to address. The process of mapping provides strategy-making teams with visual representations of team members' assumptions, those pictures, in turn, enable managers to achieve consensus in determining the driving forces. Once a senior management team has formulated a new strategy, it must align the strategy with the company's resource-allocation process to make implementation possible. Senior management teams can translate their strategy into action by using aggregate project planning. And management teams that link strategy and innovation through that planning process will develop a competence in implementing strategic change. The author guides the reader through the three stages of strategy making by examining the case of a manufacturing company that was losing ground to competitors. After mapping the driving forces, the company's senior managers were able to devise a new strategy that allowed the business to maintain a competitive advantage in its industry.

The myth of the top management team.

Abstract: Companies all across the economic spectrum are making use of teams. They go by a variety of names and can be found at all levels. In fact, you are likely to find the group at the very top of an organization professing to be a team. But even in the best of companies, a so-called top team seldom functions as a real team. Real teams must follow a well-defined discipline to achieve their performance potential. And performance is the key issue--not the fostering of "team values" such as empowerment, sensitivity, or involvement. In recent years, the focus on performance was lost in many companies. Even today, CEOs and senior executives often see few gains in performance from their attempts to become more teamlike. Nevertheless, a team effort at the top can be essential to capturing the highest performance results possible--when the conditions are right. Good leadership requires differentiating between team and nonteam opportunities, and then acting accordingly. Three litmus tests must be passed for a team at the top to be effective. First, the team must shape collective work-products--these are tangible performance results that the group can achieve working together that surpass what the team members could have achieved working on their own. Second, the leadership role must shift, depending on the task at hand. And third, the team's members must be mutually accountable for the group's results. When these criteria can be met, senior executives should come together to achieve real team performance. When the criteria cannot be met, they should rely on the individual leadership skills that they have honed over the years.

What's wrong with strategy?

Abstract: Why is it that successful strategies are rarely developed as a result of formal planning processes? What is wrong with the way most companies go about developing strategy? Andrew Campbell and Marcus Alexander take a common sense look at why the planning frameworks managers use so often yield disappointing results. Companies often fail to distinguish between purpose (what an organization exists to do) and constraints (what an organization must do in order to survive), the authors say. Many executives mistakenly believe, for example, that satisfying stakeholders is an objective that drives thinking about strategy. In fact, it's a constraint, not an objective. Companies that don't win the loyalty of stakeholders will go out of business. Strategy is not about plans but about insights, the authors add. Strategy development is the process of discovering and understanding insights and should not be confused with planning, which is about turning insights into action. Furthermore, because executives develop most of their insights while actually doing the real work of running a business, it is important for companies not to separate strategy development from implementation. Is there a better way? The answer is not new planning processes or more effort. Instead, managers must understand two fundamental points: the benefit of having a well-articulated, stable purpose and the importance of discovering, understanding, documenting, and exploiting insights about how to create value.

Should you take your brand to where the action is

Abstract: When markets turn hostile, it's no surprise that managers are tempted to extend their brands vertically--that is, to take their brands into a seemingly attractive market above or below their current positions And for companies chasing growth, the urge to move into booming premium or value segments also can be hard to resist The draw is indeed strong; and in some instances, a vertical move is not merely justified but actually essential to survival--even for top brands, which have the advantages of economies of scale, brand equity, and retail clout But beware: leveraging a brand to access upscale or downscale markets is more dangerous than it first appears Before making a move, then, managers should ascertain whether the rewards will be worth the risks In general, David Aaker recommends that managers avoid vertical extensions whenever possible There is an inherent contradiction in the very concept because brand equity is built in large part on image and perceived worth, and a vertical move can easily distort those qualities Still, certain situations demand vertical extensions, and Aaker examines both the winners and the losers in the game Managers may find themselves facing a situation that presents both an emerging opportunity and a strategic threat, and alternatives to vertical extensions may have even higher risks and costs Furthermore, a number of brands have been extended vertically with complete success If after assessing the risks and rewards you conclude that a vertical extension is on the horizon, proceed with caution And keep in mind that your challenge will be to leverage and protect the original brand while taking advantage of the new opportunity