Showing papers in "Harvard Business Review in 2006"

The Core Competence of the Corporation

Abstract: The most powerful way to prevail in global competition is still invisible to many companies. During the 1980s, top executives were judged on their ability to restructure, declutter, and delayer their corporations. In the 1990s, they’ll be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible — indeed, they’ll have to rethink the concept of the corporation itself.

Strategy and society: the link between competitive advantage and corporate social responsibility.

Abstract: Governments, activists, and the media have become adept at holding companies to account for the social consequences of their actions. In response, corporate social responsibility has emerged as an inescapable priority for business leaders in every country. Frequently, though, CSR efforts are counterproductive, for two reasons. First, they pit business against society, when in reality the two are interdependent. Second, they pressure companies to think of corporate social responsibility in generic ways instead of in the way most appropriate to their individual strategies. The fact is, the prevailing approaches to CSR are so disconnected from strategy as to obscure many great opportunities for companies to benefit society. What a terrible waste. If corporations were to analyze their opportunities for social responsibility using the same frameworks that guide their core business choices, they would discover, as Whole Foods Market, Toyota, and Volvo have done, that CSR can be much more than a cost, a constraint, or a charitable deed--it can be a potent source of innovation and competitive advantage. In this article, Michael Porter and Mark Kramer propose a fundamentally new way to look at the relationship between business and society that does not treat corporate growth and social welfare as a zero-sum game. They introduce a framework that individual companies can use to identify the social consequences of their actions; to discover opportunities to benefit society and themselves by strengthening the competitive context in which they operate; to determine which CSR initiatives they should address; and to find the most effective ways of doing so. Perceiving social responsibility as an opportunity rather than as damage control or a PR campaign requires dramatically different thinking--a mind-set, the authors warn, that will become increasingly important to competitive success.

Match your innovation strategy to your innovation ecosystem

Abstract: High-definition televisions should, by now, be a huge success. Philips, Sony, and Thompson invested billions of dollars to develop TV sets with astonishing picture quality. From a technology perspective, they've succeeded: Console manufacturers have been ready for the mass market since the early 1990s. Yet the category has been an unmitigated failure, not because of deficiencies, but because critical complements such as studio production equipment were not developed or adopted in time. Under-performing complements have left console producers in the position of offering a Ferrari in a world without gasoline or highways--an admirable engineering feat, but not one that creates value for customers. The HDTV story exemplifies the promise and peril of innovation ecosystems--the collaborative arrangements through which firms combine their individual offers into a coherent, customer-facing solution. When they work, innovation ecosystems allow companies to create value that no one firm could have created alone. The benefits of these systems are real. But for many organizations the attempt at ecosystem innovation has been a costly failure. This is because, along with new opportunities, innovation ecosystems also present a new set of risks that can brutally derail a firm's best efforts. Innovation ecosystems are characterized by three fundamental types of risk: initiative risks--the familiar uncertainties of managing a project; interdependence risks--the uncertainties of coordinating with complementary innovators; and integration risks--the uncertainties presented by the adoption process across the value chain. Firms that assess ecosystem risks holistically and systematically will be able to establish more realistic expectations, develop a more refined set of environmental contingencies, and arrive at a more robust innovation strategy. Collectively, these actions will lead to more effective implementation and more profitable innovation.

Competing on analytics.

Abstract: We all know the power of the killer app. It's not just a support tool; it's a strategic weapon. Companies questing for killer apps generally focus all their firepower on the one area that promises to create the greatest competitive advantage. But a new breed of organization has upped the stakes: Amazon, Harrah's, Capital One, and the Boston Red Sox have all dominated their fields by deploying industrial-strength analytics across a wide variety of activities. At a time when firms in many industries offer similar products and use comparable technologies, business processes are among the few remaining points of differentiation--and analytics competitors wring every last drop of value from those processes. Employees hired for their expertise with numbers or trained to recognize their importance are armed with the best evidence and the best quantitative tools. As a result, they make the best decisions. In companies that compete on analytics, senior executives make it clear--from the top down--that analytics is central to strategy. Such organizations launch multiple initiatives involving complex data and statistical analysis, and quantitative activity is managed atthe enterprise (not departmental) level. In this article, professor Thomas H. Davenport lays out the characteristics and practices of these statistical masters and describes some of the very substantial changes other companies must undergo in order to compete on quantitative turf. As one would expect, the transformation requires a significant investment in technology, the accumulation of massive stores of data, and the formulation of company-wide strategies for managing the data. But, at least as important, it also requires executives' vocal, unswerving commitment and willingness to change the way employees think, work, and are treated.

Connect and Develop : Inside Procter & Gamble's New Model for Innovation

Abstract: Overhaul your approach to innovation, or get out of the race. It's that simple-and that urgent.

Strategies for Two-Sided Markets

Abstract: Many of the blockbuster products and services that have redefined the global business landscape tie together two distinct groups of users in a network. Credit cards link consumers and merchants; search engines connect Web users with advertisers. The distinct character of these two-sided network businesses demands a new approach to strategy.

Evidence-based management.

Abstract: For the most part, managers looking to cure their organizational ills rely on obsolete knowledge they picked up in school, long-standing but never proven traditions, patterns gleaned from experience, methods they happen to be skilled in applying, and information from vendors. They could learn a thing or two from practitioners of evidence-based medicine, a movement that has taken the medical establishment by storm over the past decade. A growing number of physicians are eschewing the usual, flawed resources and are instead identifying, disseminating, and applying research that is soundly conducted and clinically relevant. It's time for managers to do the same. The challenge is, quite simply, to ground decisions in the latest and best knowledge of what actually works. In some ways, that's more difficult to do in business than in medicine. The evidence is weaker in business; almost anyone can (and many people do) claim to be a management expert; and a motley crew of sources--Shakespeare, Billy Graham,Jack Welch, Attila the Hunare used to generate management advice. Still, it makes sense that when managers act on better logic and strong evidence, their companies will beat the competition. Like medicine, management is learned through practice and experience. Yet managers (like doctors) can practice their craft more effectively if they relentlessly seek new knowledge and insight, from both inside and outside their companies, so they can keep updating their assumptions, skills, and knowledge.

Customer value propositions in business markets

Abstract: Examples of consumer value propositions that resonate with customers are exceptionally difficult to find. When properly constructed, value propositions force suppliers to focus on what their offerings are really worth. Once companies become disciplined about understanding their customers, they can make smarter choices about where to allocate scarce resources. The authors illuminate the pitfalls of current approaches, then present a systematic method for developing value propositions that are meaningful to target customers and that focus suppliers' efforts on creating superior value. When managers construct a customer value proposition, they often simply list all the benefits their offering might deliver. But the relative simplicity of this all-benefits approach may have a major drawback: benefit assertion. In other words, managers may claim advantages for features their customers don't care about in the least. Other suppliers try to answer the question, Why should our firm purchase your offering instead of your competitor's? But without a detailed understanding of the customer's requirements and preferences, suppliers can end up stressing points of difference that deliver relatively little value to the target customer. The pitfall with this approach is value presumption: assuming that any favorable points of difference must be valuable for the customer. Drawing on the best practices of a handful of suppliers in business markets, the authors advocate a resonating focus approach. Suppliers can provide simple, yet powerfully captivating, consumer value propositions by making their offerings superior on the few elements that matter most to target customers, demonstrating and documenting the value of this superior performance, and communicating it in a way that conveys a sophisticated understanding of the customer's business priorities.

Disruptive innovation for social change.

Abstract: Countries, organizations, and individuals around the globe spend aggressively to solve social problems, but these efforts often fail to deliver Misdirected investment is the primary reason for that failure Most of the money earmarked for social initiatives goes to organizations that are structured to support specific groups of recipients, often with sophisticated solutions Such organizations rarely reach the broader populations that could be served by simpler alternatives There is, however, an effective way to get to those underserved populations The authors call it "catalytic innovation" Based on Clayton Christensen's disruptive-innovation model, catalytic innovations challenge organizational incumbents by offering simpler, good-enough solutions aimed at underserved groups Unlike disruptive innovations, though, catalytic innovations are focused on creating social change Catalytic innovators are defined by five distinct qualities First, they create social change through scaling and replication Second, they meet a need that is either overserved (that is, the existing solution is more complex than necessary for many people) or not served at all Third, the products and services they offer are simpler and cheaper than alternatives, but recipients view them as good enough Fourth, they bring in resources in ways that initially seem unattractive to incumbents And fifth, they are often ignored, put down, or even encouraged by existing organizations, which don't see the catalytic innovators' solutions as viable As the authors show through examples in health care, education, and economic development, both nonprofit and for-profit groups are finding ways to create catalytic innovation that drives social change

Are Leaders Portable

Abstract: Does management talent transfer from one company to another? The market certainly seems to think so. Stock prices spike when companies announce new CEOs from a talent generator like General Electric. But how do these executives perform over the long term? The authors studied the careers of 20 former GE executives who went on to lead other major organizations, with strikingly uneven results. Even the best management talent, the authors found, is transferable only if it maps to the challenges of the new environment. More specifically, the authors identified five types of skills that may or may not transfer to a new job: general management human capital, or the skills to gather, cultivate, and deploy financial, technical, and human resources; strategic human capital, or individuals' expertise in cost cutting, growth, or cyclical markets; industry human capital, meaning the technical and regulatory knowledge unique to an industry; relationship human capital, or the extent to which a manager's effectiveness can be attributed to his or her experience working with colleagues or as part of a team; and company-specific human capital, or the knowledge about routines and procedures, corporate culture and informal structures, and systems and processes that are unique to a company. The GE executives' performance as CEOs depended on whether their new organizations were able to leverage each type of skill. The authors'findings challenge the conventional wisdom on human capital, which holds that there are two types of skill: general management, which is readily transferable, and company specific, which is not. In fact, they argue, other types of management capabilities can make a significant contribution to performance, and company-specific skills can be an asset in a new job.

Winning in the aftermarket

Abstract: Companies realize the importance of providing spare parts and after-sales services, but most could make far more money in the aftermarket than they do. Here's how.

The why, what, and how of management innovation.

Abstract: For organizations like GE, PG it is systemic, involving a range of processes and methods; or it is part of a program of invention, where progress compounds over time. So far, management in this century isn't much different from management in the previous one, says Hamel. Therein lies the opportunity. You can wait for a competitor to come upon the next great management process and drive you out of business-or you can become a management innovator right now.

Emerging Giants: Building World-Class Companies in Developing Countries

Abstract: Western, Japanese, and South Korean companies appear to hold near-insurmountable advantages over businesses in newly industrializing countries-primarily because of their access to vast reservoirs of finance and talent. But some emerging-market companies are turning perceived disadvantages into business opportunities and competing successfully at home and abroad. Here's how.

Why innovation in health care is so hard.

Abstract: Health care in the United States--and in most other developed countries--is ailing. Medical treatment has made astonishing advances, but the packaging and delivery of health care are often inefficient, ineffective, and user unfriendly. Problems ranging from costs to medical errors beg for ingenious solutions-and indeed, enormous investments have been made in innovation. But too many efforts fail. To find out why, it's necessary to break down the problem, look at the different types of innovation, and examine the forces that affect them. Three kinds of innovation can make health care better and cheaper: One changes the ways consumers buy and use health care, another taps into technology, and the third generates new business models. The health care system erects an array of barriers to each type of innovation. More often than not, organizations can overcome the barriers by managing the six forces that have an impact on health care innovation: players, the friends and foes who can bolster or destroy;funding, the revenue-generation and capital-acquisition processes, which differ from those in other industries; policy, the regulations that pervade the industry; technology, the foundation for innovations that can make health care delivery more efficient and convenient; customers, the empowered and engaged consumers of health care; and accountability, the demand from consumers, payers, and regulators that innovations be safe, effective, and cost-effective. Companies can often turn these six forces to their advantage. The analytical framework the author describes can also be used to examine other industries. Cataloging the innovation types and identifying the forces that aid or undermine them can reveal insights on how to treat chronic innovation ills- prescriptions that will make any industry healthier.

Innovacion disruptiva para el cambio social

Abstract: Paises, organizaciones y personas en todo el mundo se dedican intensamente a resolver problemas sociales, pero sus esfuerzos a menudo no entregan resultados. Las inversiones mal canalizadas son la razon principal de este fracaso. La mayor parte del dinero destinado a programas sociales va hacia organizaciones que estan estructuradas para apoyar a grupos especificos de receptores, a menudo con soluciones sofisticadas. Tales organizaciones rara vez llegan a destinatarios mas masivos, los que podrian ser atendidos con alternativas mas simples. Sin embargo, hay una manera de llegar a esos sectores subatendidos. Los autores la llaman ?innovacion catalitica?. Basadas en el modelo de innovacion disruptiva de Clayton Christensen, las innovaciones cataliticas desafian a las tradicionales instituciones dedicadas a estos temas, con soluciones aceptables y mas simples para los grupos subatendidos. A diferencia de las innovaciones disruptivas, las innovaciones cataliticas estan enfocadas en promover el cambio social. Los innovadores cataliticos se definen por cinco cualidades. Primero, crean cambio social a traves del escalamiento y la imitacion. Segundo, enfrentan una necesidad que esta sobreatendida (es decir, para muchas personas la solucion existente es mas compleja de lo necesario) o que no esta atendida en absoluto. Tercero, los productos y servicios que ofrecen son mas simples y mas baratos que sus alternativas, pero sus receptores los encuentran satisfactorios. Cuarto, entregan recursos de maneras que a las organizaciones tipicas les parecen poco atractivas a primera vista. Y quinto, a menudo son ignorados, desdenados o hasta alentados por las organizaciones existentes, que no consideran que las soluciones de los innovadores cataliticos sean viables. Los autores muestran a traves de ejemplos ?en servicios de salud, educacion y desarrollo economico?, que los grupos de negocios y las entidades sin fines de lucro estan descubriendo formas de crear innovaciones cataliticos que promueven el cambio social.

Eager sellers and stony buyers: understanding the psychology of new-product adoption.

Abstract: Companies that introduce new innovations are the most likely to flourish, so they spend billions of dollars making better products. But studies show that new innovations fail at a staggering rate. While many blame these misses on lackluster products, the reality isn't so simple. The goods that consumers dismiss often do offer improvements over existing ones. So why don't people purchase them? And why do companies keep peddling products that buyers are likely to reject? The answer, says the author, can be found in the brain. New products force consumers to change their behavior, and that has a psychological cost. Many products fail because people irrationally over-value the benefits of the goods they own over those they don't possess. Executives, meanwhile, overvalue their own innovations. This leads to a serious clash. Studies show, in fact, that there is a mismatch of nine to one, or 9x, between what innovators think consumers want and what consumers truly desire. Fortunately, companies can overcome this disconnect. To start, they can determine where their products fall in a matrix with four categories: easy sells, sure failures, long hauls, and smash hits. Each has a different ratio of product improvement to change required from the consumer. Once businesses know where their products fit into this grid, they can manage the resistance to change. For some innovations, major behavior change is a given. In those cases, companies can either wait for consumers to warm to the product, make the improvement so great that buyers get past their apprehension, or try to eliminate the incumbent product. Firms can also try to minimize buyer resistance by making products that are compatible with incumbent goods, seeking out those who are not yet users of the existing product, or finding true believers.

A brief history of decision making.

Abstract: Sometime around the middle of the past century, telephone executive Chester Barnard imported the term decision making from public administration into the business world. There it began to replace narrower terms, like "resource allocation" and "policy making," shifting the way managers thought about their role from continuous, Hamlet-like deliberation toward a crisp series of conclusions reached and actions taken. Yet, decision making is, of course, a broad and ancient human pursuit, flowing back to a time when people sought guidance from the stars. From those earliest days, we have strived to invent better tools for the purpose, from the Hindu-Arabic systems for numbering and algebra, to Aristotle's systematic empiricism, to friar Occam's advances in logic, to Francis Bacon's inductive reasoning, to Descartes's application of the scientific method. A growing sophistication with managing risk, along with a nuanced understanding of human behavior and advances in technology that support and mimic cognitive processes, has improved decision making in many situations. Even so, the history of decision-making strategies--captured in this time line and examined in the four accompanying essays on risk, group dynamics, technology, and instinct--has not marched steadily toward perfect rationalism. Twentieth-century theorists showed that the costs of acquiring information lead executives to make do with only good-enough decisions. Worse, people decide against their own economic interests even when they know better. And in the absence of emotion, it's impossible to make any decisions at all. Erroneous framing, bounded awareness, excessive optimism: The debunking of Descartes's rational man threatens to swamp our confidence in our choices. Is it really surprising, then, that even as technology dramatically increases our access to information, Malcolm Gladwell extols the virtues of gut decisions made, literally, in the blink of an eye?

Extreme jobs: the dangerous allure of the 70-hour workweek.

Abstract: Today's overachieving professionals labor longer, take on more responsibility, and earn more than the workaholics of yore. They hold what Hewlett and Luce call "extreme jobs", which entail workweeks of 60 or more hours and have at least five often characteristics-such as tight deadlines and lots of travel--culled from the authors' research on this work model. A project of the Hidden Brain Drain Task Force, a private-sector initiative, this research consists of two large surveys (one of high earners across various professions in the United States and the other of high-earning managers in large multinational corporations) that map the shape and scope of such jobs, as well as focus groups and in-depth interviews that get at extreme workers' attitudes and motivations. In this article, Hewlett and Luce consider their data in relation to increasing competitive pressures, vastly improved communication technology, cultural shifts, and other sweeping changes that have made high-stakes employment more prominent. What emerges is a complex picture of the all-consuming career-rewarding in many ways, but not without danger to individuals and to society. By and large, extreme professionals don't feel exploited; they feel exalted. A strong majority of them in the United States-66%-say they love their jobs, and in the global companies survey, this figure rises to 76%. The authors' research suggests, however, that women are at a disadvantage. Although they don't shirk the pressure or responsibility of extreme work, they are not matching the hours logged by their male colleagues. This constitutes a barrier for ambitious women, but it also means that employers face a real opportunity: They can find better ways to tap the talents of women who will commit to hard work and responsibility but cannot put in over-long days.

Managing multicultural teams.

Abstract: Multicultural teams offer a number of advantages to international firms, including deep knowledge of different product markets, culturally sensitive customer service, and 24-hour work rotations. But those advantages may be outweighed by problems stemming from cultural differences, which can seriously impair the effectiveness of a team or even bring itto a stalemate. How can managers best cope with culture-based challenges? The authors conducted in-depth interviews with managers and members of multicultural teams from all over the world. Drawing on their extensive research on dispute resolution and teamwork and those interviews, they identify four problem categories that can create barriers to a team's success: direct versus indirect communication, trouble with accents and fluency, differing attitudes toward hierarchy and authority, and conflicting norms for decision making. If a manager--or a team member--can pinpoint the root cause of the problem, he or she is likelier to select an appropriate strategy for solving it. The most successful teams and managers, the authors found, dealt with multicultural challenges in one of four ways: adaptation (acknowledging cultural gaps openly and working around them), structural intervention (changing the shape or makeup of the team), managerial intervention (setting norms early or bringing in a higher-level manager), and exit (removing a team member when other options have failed). Which strategy is best depends on the particular circumstances--and each has potential complications. In general, though, managers who intervene early and set norms; teams and managers who try to engage everyone on the team; and teams that can see challenges as stemming from culture, not personality, succeed in solving culture-based problems with good humor and creativity. They are the likeliest to harvest the benefits inherent in multicultural teams.

Can science be a business? Lessons from biotech.

Abstract: In 1976, Genentech, the first biotechnology company, was founded by a young venture capitalist and a university professor to exploit recombinant DNA technology. Thirty years and more than 300 billion dollars in investments later, only a handful of biotech firms have matched Genentech's success or even shown a profit. No avalanche of new drugs has hit the market, and the long-awaited breakthrough in RD the need for the diverse disciplines involved in drug discovery to work together in an integrated fashion; and barriers to learning, including tacit knowledge and murky intellectual property rights, which can slow the pace of scientific advance. A more suitable anatomy would include increased vertical integration; a smaller number of closer, longer collaborations; an emphasis by universities on sharing rather than patenting scientific discoveries; more cross-disciplinary academic research; and more federal and private funding for translational research, which bridges basic and applied science. With such modifications, science can be a business.

Innovation: the classic traps.

Abstract: Never a fad, but always in or out of fashion, innovation gets rediscovered as a growth enabler every half dozen years. Too often, though, grand declarations about innovation are followed by mediocre execution that produces anemic results, and innovation groups are quietly disbanded in cost-cutting drives. Each managerial generation embarks on the same enthusiastic quest for the next new thing. And each generation faces the same vexing challenges- most of which stem from the tensions between protecting existing revenue streams critical to current success and supporting new concepts that may be crucial to future success. In this article, Harvard Business School professor Rosabeth Moss Kanter reflects on the four major waves of innovation enthusiasm she's observed over the past 25 years. She describes the classic mistakes companies make in innovation strategy, process, structure, and skills assessment, illustrating her points with a plethora of real-world examples--including AT&T Worldnet, Timberland, and Ocean Spray. A typical strategic blunder is when managers set their hurdles too high or limit the scope of their innovation efforts. Quaker Oats, for instance, was so busy in the 1990s making minor tweaks to its product formulas that it missed larger opportunities in distribution. A common process mistake is when managers strangle innovation efforts with the same rigid planning, budgeting, and reviewing approaches they use in their existing businesses--thereby discouraging people from adapting as circumstances warrant. Companies must be careful how they structure fledgling entities alongside existing ones, Kanter says, to avoid a clash of cultures and agendas--which Arrow Electronics experienced in its attempts to create an online venture. Finally, companies commonly undervalue and underinvest in the human side of innovation--for instance, promoting individuals out of innovation teams long before their efforts can pay off. Kanter offers practical advice for avoiding these traps.

Breaking the trade-off between efficiency and service

Abstract: For manufacturers, customers are the open wallets at the end of the supply chain. But for most service businesses, they are key inputs to the production process. Customers introduce tremendous variability to that process, but they also complain about any lack of consistency and don't care about the company's profit agenda. Managing customer-introduced variability, the author argues, is a central challenge for service companies. The first step is to diagnose which type of variability is causing mischief: Customers may arrive at different times, request different kinds of service, possess different capabilities, make varying degrees of effort, and have different personal preferences. Should companies accommodate variability or reduce it? Accommodation often involves asking employees to compensate for the variations among customers--a potentially costly solution. Reduction often means offering a limited menu of options, which may drive customers away. Some companies have learned to deal with customer-introduced variability without damaging either their operating environments or customers' service experiences. Starbucks, for example, handles capability variability among its customers by teaching them the correct ordering protocol. Dell deals with arrival and request variability in its high-end server business by outsourcing customer service while staying in close touch with customers to discuss their needs and assess their experiences with third-party providers. The effective management of variability often requires a company to influence customers' behavior. Managers attempting that kind of intervention can follow a three-step process: diagnosing the behavioral problem, designing an operating role for customers that creates new value for both parties, and testing and refining approaches for influencing behavior.

Ending the war between Sales & Marketing.

Abstract: Sales departments tend to believe that marketers are out of touch with what's really going on in the marketplace. Marketing people, in turn, believe the sales force is myopic--too focused on individual customer experiences, insufficiently aware of the larger market, and blind to the future. In short, each group undervalues the other's contributions. Both stumble (and organizational performance suffers) when they are out of sync. Yet few firms seem to make serious overtures toward analyzing and enhancing the relationship between these two critical functions. Curious about the misalignment between Sales and Marketing, the authors interviewed pairs of chief marketing officers and sales vice presidents to capture their perspectives. They looked in depth at the relationship between Sales and Marketing in a variety of companies in different industries. Their goal was to identify best practices that could enhance the joint performance and increase the contributions of these two functions. Among their findings: The marketing function takes different forms in different companies at different product life cycle stages. Marketing's increasing influence in each phase of an organization's growth profoundly affects its relationship with Sales. The strains between Sales and Marketing fall into two main categories: economic (a single budget is typically divided, between Sales and Marketing, and not always evenly) and cultural (the two functions attract very different types of people who achieve success by spending their time in very different ways). In this article, the authors describe the four types of relationships Sales and Marketing typically exhibit. They provide a diagnostic to help readers assess their companies' level of integration, and they offer recommendations for more closely aligning the two functions.

Rediscovering market segmentation.

Abstract: In 1964, Daniel Yankelovich introduced in the pages of HBR the concept of nondemographic segmentation, by which he meant the classification of consumers according to criteria other than age, residence, income, and such. The predictive power of marketing studies based on demographics was no longer strong enough to serve as a basis for marketing strategy, he argued. Buying patterns had become far better guides to consumers' future purchases. In addition, properly constructed nondemographic segmentations could help companies determine which products to develop, which distribution channels to sell them in, how much to charge for them, and how to advertise them. But more than 40 years later, nondemographic segmentation has become just as unenlightening as demographic segmentation had been. Today, the technique is used almost exclusively to fulfill the needs of advertising, which it serves mainly by populating commercials with characters that viewers can identify with. It is true that psychographic types like "High-Tech Harry" and "Joe Six-Pack" may capture some truth about real people's lifestyles, attitudes, self-image, and aspirations. But they are no better than demographics at predicting purchase behavior. Thus they give corporate decision makers very little idea of how to keep customers or capture new ones. Now, Daniel Yankelovich returns to these pages, with consultant David Meer, to argue the case for a broad view of nondemographic segmentation. They describe the elements of a smart segmentation strategy, explaining how segmentations meant to strengthen brand identity differ from those capable of telling a company which markets it should enter and what goods to make. And they introduce their "gravity of decision spectrum", a tool that focuses on the form of consumer behavior that should be of the greatest interest to marketers--the importance that consumers place on a product or product category.

Mastering the three worlds of information technology

Abstract: There are three categories of IT, each of which provides different organizational capabilities - and demands very different kinds of management interventions.

Innovating through design

Abstract: A group of cutting-edge manufacturers in northern Italy interpret items for the home, like lamps and teakettles, in ways that initially confound consumers and then convert them. The result is high growth rates and long product lives.

Your loyalty program is betraying you.

Abstract: Even as loyalty programs are launched left and right, many are being scuttled. How can that be? These days, everyone knows that an old customer retained is worth more than a new customer won. What is so hard about making a simple loyalty program work? Quite a lot, the authors say. The biggest challenges include clarifying business goals, engineering the reward structure, and creating incentives powerful enough to change buying behavior but not so generous that they erode margins. Additionally, companies have to sort out the puzzles of consumer psychology, which can result, for example, in two rewards of equal economic value inspiring very different levels of purchasing. In their research, the authors have discovered patterns in what the successful loyalty programs get right and in how the others fail. Together, their findings constitute a tool kit for designing something rare indeed: a program that won't do you wrong. To begin with, it's important to know exactly what a loyalty program can do. It can keep customers from defecting, induce them to consolidate certain purchases with one seller (in other words, win a greater share of wallet), prompt customers to make additional purchases, yield insight into their behavior and preferences, and turn a profit. A program can meet these objectives in several ways--for instance, by offering rewards (points, say, or frequent-flier miles) divisible enough to provide many redemption opportunities but not so divisible that they fail to lock in customers. Companies striving to generate customer loyalty should avoid five common mistakes: Don't create a new commodity, which can result in price wars and other tit-for-tat competitive moves; don't cater to the disloyal by making rewards easy for just anyone to reap; don't reward purchasing volume over profitability; don't give away the store; and, finally, don't promise what can't be delivered.

How to implement a new strategy without disrupting your organization.

Abstract: Throughout most of modern busi ness history, corporations have attempted to unlock value by matching their structures to their strategies: Centralization by function. Decentralization by product category or geographic region. Matrix organizations that attempt both at once. Virtual organizations. Networked organizations. Velcro organizations. But none of these approaches has worked very well. Restructuring churn is expensive, and new structures often create new organizational problems that are as troublesome as the ones they try to solve. It takes time for employees to adapt to them, they create legacy systems that refuse to die, and a great deal of tacit knowledge gets lost in the process. Given the costs and difficulties involved in finding structural ways to unlock value, it's fair to raise the question: Is structural change the right tool for the job? The answer is usually no, Kaplan and Norton contend. It's far less disruptive to choose an organizational design that works without major conflicts and then design a customized strategic system to align that structure to the strategy. A management system based on the balanced scorecard framework is the best way to align strategy and structure, the authors suggest. Managers can use the tools of the framework to drive their unit's performance: strategy maps to define and communicate the company's value proposition and the scorecard to implement and monitor the strategy. In this article, the originators of the balanced scorecard describe how two hugely different organizations--DuPont and the Royal Canadian Mounted Police-used corporate scorecards and strategy maps organized around strategic themes to realize the enormous value that their portfolios of assets, people, and skills represented. As a result, they did not have to endure a painful series of changes that simply replaced one rigid structure with another.

Building the Green Way

Abstract: Just five or six years ago, the term "green building" evoked visions of barefoot, tie-dyed, granola-munching denizens. There's been a large shift in perception. Of course, green buildings are still known for conserving natural resources by, for example, minimizing on-site grading, using alternative materials, and recycling construction waste. But people now see the financial advantages as well. Well-designed green buildings yield lower utility costs, greater employee productivity, less absenteeism, and stronger attraction and retention of workers than standard buildings do. Green materials, mechanical systems, and furnishings have become more widely available and considerably less expensive than they used to be-often cheaper than their standard counterparts. So building green is no longer a pricey experiment; just about any company can do it on a standard budget by following the ten rules outlined by the author. Reliable building-rating systems like the U.S. Green Building Council's rigorous Leadership in Energy and Environmental Design (LEED) program have done much to underscore the benefits of green construction. LEED evaluates buildings and awards points in several areas, such as water efficiency and indoor environmental quality. Other rating programs include the UK's BREEAM (Building Research Establishment's Environmental Assessment Method) and Australia's Green Star. Green construction is not simply getting more respect; it is rapidly becoming a necessity as corporations push it fully into the mainstream over the next five to ten years. In fact, the author says, the owners of standard buildings face massive obsolescence. To avoid this problem, they should carry out green renovations. Corporations no longer have an excuse for eschewing environmental and economic sustainability. They have at their disposal tools proven to lower overhead costs, improve productivity, and strengthen the bottom line.