Showing papers in "MIT Sloan Management Review in 2005"

A supply chain view of the resilient enterprise

Abstract: Many companies leave risk management and business continuity to security professionals, business continuity planners or insurance professionals. However, the authors argue, building a resilient enterprise should be a strategic initiative that changes the way a company operates and increases its competitiveness. Reducing vulnerability means both reducing the likelihood of a disruption and increasing resilience. Resilience, in turn, can be achieved by either creating redundancy or increasing flexibility. Redundancy is the familiar concept of keeping some resources in reserve to be used in case of a disruption. The most common forms of redundancy are safety stock, the deliberate use of multiple suppliers even when the secondary suppliers have higher costs, and deliberately low capacity utilization rates. Although necessary to some degree, redundancy represents pure cost with no return except in the eventuality of disruption. The authors contend that significantly more leverage, not to mention operational advantages, can be achieved by making supply chains flexible. Flexibility requires building in organic capabilities that can sense threats and respond to them quickly. Drawing on ongoing research at the MIT Center for Transportation and Logistics involving detailed studies of dozens of cases of corporate disruption and response, the authors describe how resilient companies build flexibility into each of five essential supply chain elements: the supplier, conversion process, distribution channels, control systems and underlying corporate culture. Case examples of Land Rover, Aisin Seiki Co. (a supplier to Toyota), United Parcel Service, Dell, Baxter International, DHL and Nokia, among others, are offered to illustrate how building flexibility in these supply chain elements not only bolsters the resilience of an organization but also creates a competitive advantage in the marketplace.

The Dark Side of Close Relationships

Abstract: Forming close relationships with suppliers or customers is a popular business strategy, but such partnerships can develop problems. The authors observe that many close business relationships ? whether joint ventures or loose alliances ? fail. They describe a phenomenon they call the "dark side" of close relationships and maintain that close relationships that seem quite stable can, in fact, be vulnerable to decline and destruction. The authors draw both on their own surveys of business relationships and on other examples. The authors point out that the same factors that strengthen a partnership can also open the door to relationship problems. For example, when an automaker and a supplier built up personal relationships between employees at the two firms to facilitate their alliance and just-in-time manufacturing process, the trust and personal relationships also enabled the supplier more easily to cut corners in the production process. While observing that business relationships with problems can linger on for a surprisingly long time, the authors recommend strategies to prevent the "dark side" from taking over a business relationship. One such strategy is to ensure that both parties in the relationship make investments in it, in effect swapping "mutual hostages." If, however, damage to the relationship has already occurred, possible strategies include turning the crisis into an opportunity to improve the partnership, rotating in new personnel, reconfiguring the relationship or terminating it.

Taking the measure of outsourcing providers

Abstract: In an attempt to increase both efficiency and service quality, more and more companies are outsourcing to third-party suppliers some key business processes, such as human resources, information technology and procurement. The universe of potential suppliers is diverse and growing, made up of locally based specialists, offshore providers with comparatively low labor costs, and global suppliers who are able to apply sophisticated management techniques and technology. The challenge for clients is to understand their own requirements and to identify providers whose capabilities and objectives are best aligned with their particular needs. Drawing on extensive research, the authors identify three potentially critical areas of supplier competency: delivery competency, transformation competency and relationship competency. Within that context, they discuss 12 capabilities through examples drawn from the outsourcing experiences of firms such as BAE Systems, Lloyd?s of London, Deutsche Bank and Bank of America. By benchmarking supplier capabilities against its strategic and operational intent, a company can work to establish relationships that support its business objectives.

The high impact of collaborative social initiatives

Abstract: Corporate social responsibility has become a vital part of the business conversation. The issue for most companies is no longer whether to engage in socially responsible activities but how to achieve the maximum benefit from the resources available for social projects while still increasing shareholder value. In this article, the authors draw on years of quantitative and case-based studies of major corporations to conclude that CSR activities work best for society and the corporate participants when they are managed strategically and in collaboration with an array of commercial and noncommercial partners. The authors cite exemplars such as Avon Products, whose name is synonymous with responses to women?s healthcare issues, and The Home Depot, whose foundation involves suppliers and government agencies in large-scale efforts to combat housing problems in the United States. The authors point to five core principles behind effective CSR strategies, from the need to contribute "what we do" to the importance of accommodating government?s regulatory and taxation influences.

What really drives the market

Abstract: The principle that financial markets accurately reflect the underlying value of traded stocks has been widely accepted in the investment world since the 1960s. It is predicated on the assumption that investors make buy or sell decisions based on a rational view of a company?s future cash flow, after considering all the relevant information. The role of the markets is to allocate capital to companies efficiently. Recently, however, this rational view has been under attack from adherents of behavioral finance, who argue that stock markets do not reflect economic fundamentals as well as people think they do. The authors maintain that there are instances when stock market valuations can and do make significant and lasting deviations from a company?s intrinsic value. However, according to the authors? analysis, the significant discrepancies between market value and intrinsic value are both rare and short-lived. The article cites several examples, including the late 1970s, when inflation-conscious investors pushed stock valuations too low, and the "Internet bubble" of the late 1990s. On the whole, the authors argue, financial markets value investments efficiently ? even if some people invest irrationally some of the time. Although managers may occasionally find ways to take advantage of short-term discrepancies, the authors say the only way they will be able to do so is by understanding the real underlying values.

The decline and dispersion of marketing competence

Abstract: In many companies, there has been a marked fall-off in the influence, stature and significance of the corporate marketing department. Today, marketing is often less of a corporate function and more a diaspora of skills and capabilities spread across the organization. By itself, the disintegration of the marketing center is not a cause for concern, argue the authors, but the decline of core marketing competence certainly is. For this article, the authors undertook a series of in-depth interviews with leading marketing executives and chief executive officers to clarify the root causes of the decline. Their research identifies eight distinct factors that contribute to marketing's waning influence - among them a worrying "short-termism," significant shifts in channel power and marketing's inability to document its contribution to business results. The consequences are not immediate, but they are far-reaching: Absent a core of marketing competence, say the authors, the corporate brand will suffer, product innovation will weaken, and prices will be less robust. However, the fact that marketing does continue to influence corporate strategy in some companies suggests there are opportunities and viable approaches for building marketing competence as a source of competitive advantage. The article suggests four key issues facing marketing management, placing the focus not on restoration of the corporate marketing function but on the rebuilding of marketing competence across the organization.

The end of corporate computing

Abstract: Information technology is undergoing an inexorable shift from being an asset that companies own ? in the form of computers, software and myriad related components ? to being a service that they purchase from utility providers. Three technological advances are enabling this change: virtualization, grid computing and Web services. Virtualization erases the differences between proprietary computing platforms, enabling applications designed to run on one operating system to be deployed elsewhere. Grid computing allows large numbers of hardware components, such as servers or disk drives, to effectively act as a single device, pooling their capacity and allocating it automatically to different jobs. Web services standardize the interfaces between applications, turning them into modules that can be assembled and disassembled easily. The resulting industry will likely have three major components. At the center will be the IT utilities themselves ? big companies that will maintain core computing resources in central plants and distribute them to end users. Serving the utilities will be a diverse array of component suppliers ? the makers of computers, storage units, networking gear, operating and utility software, and applications. And finally, large network operators will maintain the ultrahigh-capacity data-communication lines needed for the system to work. IT?s shift from an in-house capital asset to a centralized utility service will overturn strategic and operating assumptions, alter industrial economics, upset markets and pose daunting challenges to every user and vendor. The history of the commercial application of IT has been characterized by astounding leaps, but nothing that has come before ? not even the introduction of the personal computer or the opening of the Internet ? will match the upheaval that lies just over the horizon.

The Strategic Communication Imperative

Abstract: The authors contend that a number of factors, both external and internal, are increasingly necessitating a strategic approach to corporate communications. Yet, despite regulatory imperatives, organizational complexities and a growing need for companies to increase their credibility with their various constituencies, many companies still take a tactical, short-term approach to communication that is not only nonstrategic but may, in fact, be inconsistent with the corporate strategy or even impede it. The authors conducted more than 50 interviews with CEOs, CFOs and heads of corporate communications and investor relations at companies that represent the state of the art in corporate communications (Dell, FedEx and Pepsi), companies that have faced and survived major crises (Cendant, Knight Trading and Textron), and some that are great corporate communicators but not usually recognized for their efforts (Cognex, Infosys, Jet Blue, the New York Times Co. and Playboy Enterprises). They also included a pharmaceutical company (GlaxoSmithKline), given the formidable communications issues in that industry. On the basis of that research, the authors offer best-practice lessons and a framework to enable executives to think carefully about their organization?s objectives for each specific communication, determine which constituencies are critical to meeting that objective and understand what kinds of messages to deliver through which channel.

The Link Between Diversity and Resilience

Abstract: Most agree that innovation ensures superior performance, but there is less agreement on which innovation strategy or strategies best sustain that performance over time - that is, which lead to resilience. The authors seek to answer that question by analyzing a set of global companies that have successfully adapted to diverse and turbulent changes over a period of two decades, as evidenced by their book value per share, return on assets and sales growth. Among those that sustained superior performance are multinationals such as pharmaceutical, coating and chemical manufacturer Akzo Nobel, electronics company Philips, energy and petrochemical company Shell, consumer goods manufacturer Unilever, life-science products and chemicals manufacturer DSM, multimedia publisher Wolters Kluwers, information and media provider VNU, investment and fund management group Robeco and brewing company Heineken. The research shows that resilient companies continually orchestrate a dynamic balance of four innovation strategies: knowledge management, exploration (internal research and development), cooperation (acquisitions, alliances and other relationships) and entrepreneurship. The authors conclude that focusing on one innovation strategy to the exclusion of others may produce innovation, but it will not lead to resilience. Pursuing several different innovation strategies simultaneously maximizes a company's chances of successful adaptation. Investments in innovation, they say, should not be driven by costs or short-term returns but rather should flow naturally to the most effective strategy for the changing context. The timing of increasing or decreasing the emphasis on innovation strategies is important to maintain the dynamic balance, and that timing, they argue, is primarily the responsibility of leadership.

The Keys to Rethinking Corporate Philanthropy

Abstract: Many companies conduct their charitable activities without a cohesive philanthropic strategy. As a result, the authors argue, companies often not only fail to achieve significant impact on society through their philanthropy but also miss opportunities to achieve strategic benefits for the organization. Drawing on research into a number of companies? experiences, the authors describe four types of corporate philanthropy. Some companies focus primarily on the needs of stakeholders, such as communities in or near where the firm operates; these companies conduct philanthropic initiatives that are often unrelated to their core business competencies. The authors call this peripheral philanthropy. Meanwhile, other companies focus more on using the corporation?s unique skills and competencies than on important stakeholder needs ? and as a result may end up with an internally focused approach that the authors dub constricted philanthropy. In some cases, often those involving corporate donations, corporate charitable activities are conducted without much overarching coordination at all, a method the authors call dispersed philanthropy. The authors maintain that the most effective approach to corporate philanthropy is one that incorporates both the needs of external stakeholders and the skills of the donor corporation. They call this strategic philanthropy and cite IBM?s Reinventing Education initiative as a good example of strategic philanthropy in action.

Creating Sustainable Local Enterprise Networks

Abstract: In developing countries, examples of successful sustainable enterprise often involve informal networks that include businesses, not-for-profit organizations and communities.

Achieving excellence in global sourcing

Abstract: Global sourcing is an advanced but complex approach to sourcing and supply management. The authors use survey research to gauge the extent to which companies are currently practicing global sourcing, which involves integrating and coordinating common items, materials, processes, technologies, designs and suppliers across worldwide buying, design and operating locations. In a sample consisting of supply executives primarily from large North American-based multinationals ? particularly manufacturers, the majority of survey respondents said their companies practice some form of international purchasing, a less integrated and coordinated approach than global sourcing. However, more than 70% of managers surveyed said that their companies plan to use global sourcing in the future. The authors identify a set of features common among companies that excel at global sourcing. The features cluster into seven broad characteristics: executive commitment to global sourcing; rigorous and well-defined global sourcing processes; availability of resources needed for the global sourcing initiative, including access to qualified personnel and budgets; information technology systems that support data analysis on a worldwide level; organizational design features that support the initiative, such as an executive committee that oversees global sourcing; structured approaches to communication, such as regular strategy review sessions; and methodologies for measuring savings from global sourcing.

Getting new hires up to speed quickly

Abstract: How do managers and companies quickly transform new hires into productive employees, a process called "rapid on-boarding"? The authors contend that companies that are more successful at rapid on-boarding tend to use a relational approach, helping newcomers to rapidly establish a broad network of relationships with coworkers that they can tap to obtain the information they need to become productive. Most organizations realize the importance of integrating new employees, but many fail in this regard, often because of five pervasive myths about the process: (1) the best newcomers can fend for themselves, (2) a massive information dump allows newcomers to obtain what they need, (3) cursory introductions are all that's needed, (4) first assignments should be small, compact and quickly achievable, and (5) mentors are best for getting newcomers integrated. Because of those misconceptions, managers will frequently rely on certain taken-for-granted practices that can actually hinder new employees from becoming productive.

Managing internal corporate venturing cycles

Abstract: For several decades, research about large companies' internal corporate venturing has shown that such activities frequently exhibit substantial cyclicality. Companies may enthusiastically launch ICV initiatives, later shut them down, and still later launch new ICV programs again. In this article, the authors describe four common situations that occur in cycles of corporate venturing. They argue that, unless properly managed, corporate commitment to ICV is apt to fluctuate according to the availability of uncommitted financial resources and the growth prospects of the organization's primary businesses. For example, if the corporation has uncommitted financial resources but the growth prospects of the main business are perceived to be insufficient, then the company may launch a top-down "all-out ICV drive" that is vulnerable to costly mistakes. If, however, the growth prospects of the primary business are perceived to be adequate and there are few uncommitted financial resources, top management is likely to perceive ICV as largely irrelevant. The authors examine factors contributing to ICV cyclicality; they then suggest that companies can achieve better outcomes if executives recognize the strategic importance of internal corporate venturing activities and view them as a way of gaining insights into emerging opportunities.

Automated Decision Making Comes of Age

Abstract: Futurists have long anticipated the day when computers would relieve managers and professionals of the need to make certain types of decisions. But for a variety of reasons - including management skepticism and concerns about solution complexity - automated decision making has been slow to materialize. Automated decision making is finally coming of age, the authors argue, and the new generation of applications differs substantially from prior decision-support systems. Today's applications are easier to create and manage than earlier systems. Rather than require people to identify the problems or to initiate the analysis, companies typically embed decision-making capabilities in the normal flow of work. Those systems then sense online data, apply codified knowledge or logic, and make decisions - all with minimal amounts of human intervention. They can help businesses generate decisions that are more consistent than those made by people, and they can help managers move quickly from insight to decision to action. This can help companies reduce labor costs, leverage scarce expertise, improve quality, enforce policies and respond to customers. As automating decisions becomes more feasible, organizations need to think about which decisions have to be made by people and which can be computerized.

The roots of sustainability

Abstract: Management literature today abounds with stories about the business case for sustainability Yet, the author suggests, much of business's efforts in the name of sustainable development at best only temporarily slow society's continuing drift toward unsustainability Indeed, he argues, that the term "sustainable development" has become an oxymoron The problem really stems from management's failure to see unsustainability as a deep-seated systems failure and to appreciate the extent to which radical thinking and action are required to embark upon a sustainable trajectory Over time, the business community has gotten in the habit of ignoring the source of the problem, and now it risks gradually losing the ability to think deeply about it in order to produce the right kind of solutions Drawing on systems dynamics, philosophy, psychology and social theory, this article seeks to answer a critical question: Can anything be done to radically transform the way that businesses work?

Beyond best practice

Abstract: The importance of implementing best management practices is widely understood. However, the authors argue, best practice alone is not enough. They use examples of three high-performing companies to show that those companies not only use standard best practices but also embrace internally developed idiosyncratic "signature processes" that reflect the history and values of the organization and executive team. Such "signature processes" ? a daily morning meeting of senior executives at the Royal Bank of Scotland Group, an easily reconfigured organizational structure at Nokia that involves modular teams and a "peer assist" program where business-unit heads help one another at BP Plc ? help drive high performance because they engender passion and energy within an organization. The mechanisms by which signature processes develop differ from those associated with best-practice ideas, however. The latter are often adapted from shared knowledge originating outside the company, whereas signature processes start with the values that internal executives champion.

A matrixed approach to designind it governance

Abstract: On the basis of two different studies ? a survey of CIOs at 256 enterprises in the Americas, Europe and the Asia/Pacific region and a set of 40 interview-based case studies at large companies such as Johnson & Johnson, Carlson Companies, UPS, Delta Air Lines and ING DIRECT ? the authors conclude that when senior managers take the time to design, implement and communicate IT governance processes, companies get more value from IT. Toward that end, they offer a single-page framework for designing effective IT: a matrix that juxtaposes the five decision areas (principles, architecture, infrastructure, business-application needs, and prioritization and investment decisions) against six archetypal approaches (business monarchy, IT monarchy, federal, duopoly, feudal and anarchy). The authors illustrate how successful companies use different approaches for different decisions to maximize efficiency and value for both IT and the overall enterprise. They then offer recommendations to guide effective IT governance design.

Will web services really transform collaboration

Abstract: Just as the Internet and the World Wide Web led to a huge change in how people interact with distant applications, so the Internet and Web services hold out the promise of drastically changing how distant applications interact with each other. But how real is this promise? If information systems could look for and find each other, share data and execute business processes, all with no (or very little) human involvement, the business world would likely be quite transformed. The author concludes, however, that Web services will not create this world, nor will any technology on the horizon. Web services, he argues, will be highly useful, but not quickly or obviously disruptive; in fact, they will reinforce existing relationships rather than catalyze new ones. What's more, the application-integration challenges that remain unaddressed by Web services are the really difficult ones that can only be overcome by the work of managers and leaders, not technologists or consortia. The author's themes are illustrated by an extended example drawn from his case study of IBM's EMEA (Europe, Middle East and Africa) organization, which has been working with independent distributors in several countries to automate the ordering of midrange computing systems. The case provides a close look at an effort to go beyond the capabilities of previous B2B technologies to build agreements and standards for application-application interactions where none previously had existed.

The complexity of identity

Abstract: People categorize themselves on the basis of demographics, social roles and shared consumption patterns, and these various identities are both numerous and fluid, changing over an individual?s lifetime and across situations. That fact is not fully recognized by traditional demographic and psychographic techniques, and the labels that consumers use to define who they are do not necessarily correspond to the variables that marketers typically rely on. A new approach ? identity marketing ? better captures the complex process of how people?s sense of who they are influences their purchase decisions. To be sure, the complexity of identity-based judgments presents both opportunities and obstacles for marketers, but companies often fail to appreciate this. In fact, many marketing blunders can be traced back to a fundamental misunderstanding of customer identity. Common mistakes include the following: (1) selling new products solely on their features, (2) failing to solidify first-mover advantage, (3) fighting the competition head-on, (4) sticking with what?s worked before, (5) underestimating low-involvement products, and (6) attacking negative word-of-mouth. Identity marketing helps companies avoid such mistakes by providing a deeper understanding of how customers become strongly attracted to the brands and products that are linked to their multiple ? and sometimes seemingly contradictory ? identities.

Should the CEO be the Chairman

Abstract: Recent corporate scandals have made many U.S. boards question the wisdom of combining the chairman and CEO positions. But a knee-jerk decision to adopt the British model of separating the two top jobs without understanding the model's complexities is hardly the answer. Corporate governance across the Atlantic has its own characteristic problems. For example, although a separate chairman makes the board more independent of the CEO, the arrangement can lead to confusion regarding the company leadership. And a poor relationship between the chairman and CEO can easily lead to conflicts and power struggles. U.S. boards need independent leadership, but achieving such leadership by splitting the two positions is not necessarily a clear improvement over the U.S. model. Instead, the authors argue, for most large U.S. companies, the addition of a competent lead director or presiding director will likely strike the right balance between effective governance and leadership.

Managing stakeholder ambiguity

Abstract: In this article, the authors review various streams of research suggesting that although companies are increasingly under pressure to manage conflicting or difficult-to-reconcile stakeholder demands, managers are still largely behind the curve in recognizing, justifying and developing the capabilities to do so. In contrast to primary stakeholders such as customers, suppliers and shareholders, secondary stakeholders are often difficult to identify beforehand, or they may not be willing or able to engage, negotiate, compromise or clearly articulate their positions ? a phenomenon the authors refer to as stakeholder ambiguity. Citing examples involving companies such as Monsanto, Conoco-Philips, Texaco and the French oil company Perenco, the authors present research indicating that managers are often ill-prepared to deal with the idiosyncratic and context-specific nature of stakeholder ambiguity and typically revert to formulaic decision-making frameworks, such as discounted cash flow and cost-benefit analysis, which misrepresent the challenges. Some research indicates that stakeholder ambiguity may actually erode the competitive advantage of large multinationals. Although such companies possess significant competencies, technological capabilities and economies of scale, they may be at a disadvantage when trying to determine and align the interests of secondary stakeholders.

Hedge your offshoring bets

Abstract: For companies considering offshoring, there are dangers in taking too narrow a geographical view, say the authors. Every country presents a different mix of strengths and weaknesses. One country may, for instance, have very low labor costs but a high degree of political instability and a small domestic market. Another might offer a wealth of engineering talent but quickly rising labor rates. A third may have robust local markets but intrusive regulatory regimes and a weak transport infrastructure. Currency fluctuations may unexpectedly swell the costs of sourcing from one country, for instance, or a natural disaster may wreak havoc on a critical source of supplies. The authors suggest that offshoring is no different from any investment program that involves choices with widely divergent cost and benefit characteristics in that it makes sense to create a portfolio that balances risk and reward over both the short and long terms. Their research, canvassing 138 manufacturing executives in sectors ranging from automotive to consumer products to technology, confirms the wisdom of a portfolio approach. It reveals that while many companies confine their offshoring efforts to China and India, 96% of cost leaders are active in countries beyond those two, and nearly half of the leaders have offshore activities in three or more additional countries. The authors illustrate their argument with a description of the global outsourcing portfolio strategy of U.S.-based conglomerate Emerson Electric. They conclude with a brief discussion of a number of practical steps executives can take to ensure that their portfolios are constructed successfully.

The Art of Making Change Initiatives Stick

Abstract: Too many managers are burned out on strategic change. They have lived through the scenario in which the CEO announces a bold initiative designed to dramatically lift performance. The initiative calls for sweeping changes in the company's processes, systems and culture; it unfolds with great fanfare and large resource investments. Later, managers look back and wonder what went wrong. Even when there are some short-term gains, it's common for the organization to slip back into old ways of doing things. Employees typically dismiss the initiative as just another "flavor of the month" exercise. This article argues for a system that enables change initiatives to stick. The authors use a detailed case study (a large clothing retailer disguised as "Apparelizm Corp.") to demonstrate what it takes to produce sustainable changes in processes, behavior or performance. The study uncovered four critical processes - chartering, learning, mobilizing and realigning - that pave the way for successful institutionalization of a strategic change initiative. The elements rely much more on an understanding of the mix of task-related, emotional and behavioral factors than is fashionable in today's metrics-driven environment. The article also highlights the study's divergence from conventional wisdom about programmatic change. Whereas most prior research has emphasized early articulation of a sense of urgency, the authors found that managers need to set in motion a series of processes right at the start if widespread changes are to stick. They must reshape the organizational structure, demonstrate that processes are fair and legitimate, and employ a range of open approaches to engage people's emotions if they want strategic initiatives to become more than the latest flavor of the month.

Achieving the Ideal Brand Portfolio

Abstract: To optimize a portfolio of brands, companies can use a five-step approach. First, managers decide on the brands to review. Second, they analyze all of the brands on the resulting short list with respect to each one's contribution to the company. Third, they assess the brands according to current market performance (traction) and future prospects (momentum). Fourth, the brands are classified along those three dimensions (contribution, traction and momentum), allowing managers to identify both challenges and opportunities. The process enables companies to sort their brands into different categories: power (a brand that needs to be defended ferociously and deployed judiciously), sleeper (a brand that with a little fast tracking can build into a power brand), slider (a valuable brand that has lost momentum, is slipping backwards and needs immediate intervention to prevent meltdown), soldier (a solid brand that contributes quietly without the need for much management attention), black hole (a brand that sucks up resources and may or may not ever pay out), rocket (a brand that is on its way to power-brand status), wallflower (a small, underappreciated brand with very loyal customers, often underpriced and undermarketed) and discard (a brand that should have been mothballed years ago). Lastly, the objectives for each individual brand are tied together into an overall plan, which will include any changes to the roster, brand architecture and resource allocation.

Tapping into the underground

Abstract: Many complicated, proprietary systems attract a community of underground innovators who explore and alter them ? and not always in ways that manufacturers appreciate. These individuals have little regard for the business models that companies have carefully devised to profit from those systems. Instead, they are driven by utility, curiosity and occasionally even anger, bypassing technical and legal safeguards in their drive to explore. Called by different names ? hackers, phreakers, crackers and modders, among them ? these underground innovators have complex and often antagonistic relationships with the companies whose products they modify. Indeed, in many cases the underground innovation triggers a war between the community and the company. But if handled properly, it also can lead to cooperation between the two parties, potentially resulting in new business models and novel products. To achieve that, though, companies first need to understand how underground communities operate. Underground groups typically contain two distinct classes: elites and kiddies. "Elite" is a term reserved for those who truly innovate ? the wizards who understand the inner workings of a proprietary system and are able to make it do things never intended by its developers. "Kiddie" is short for "script kiddie," signifying someone who does not truly understand a system but merely uses tools created by the elites to exploit the system in some way. Most companies make the mistake of treating elites and kiddies the same way, often alienating those who might make positive contributions. A more effective approach is to nurture the constructive elites, rewarding and even supplying them with tools to encourage their efforts, all while deploying more aggressive means to thwart the destructive kiddies.

Virtual workspace technologies

Abstract: As companies struggle to enable long-distance collaboration, technology becomes key to keeping virtual teams working together. However, some tools work better than others. Managers seek solutions that provide the benefits of face-to-face contact without the expense or disruption. The authors bring together the latest research developments in virtual-team communication, discussing the trend toward the establishment of "virtual workspaces" that enable teams to communicate through the use of complex technologies ? such as virtual whiteboards, collaborative document editors and instant messaging ? helping team members to work in tandem more effectively. They detail the need for managers to tailor the use of each technology to the type of team and activity, and the benefits of virtual workspaces

How acquisitions can revitalize companies

Abstract: Corporate executives typically have strategic explanations for their acquisitions: that buying the company in question makes sense geographically or that the products are synergistic. However, if you inquire two years later how the company has benefited, managers tend to focus on the "softer" factors with comments like, "They made us rethink our decision-making processes," or "They introduced us to a new approach to product development," or simply "They shook up our culture." To understand this apparent contradiction, the author analyzes the acquisitions and performance of a number of large, successful companies. Several of the companies included in the research suffered from rigidity. However, the author found that companies were able to use acquisitions to restore a sense of vitality to their businesses and unleash a subsequent surge in performance. The acquired companies often stimulated the acquiring companies to develop new perspectives and different ways of doing things at critical times. Acquisitions kept their organizations fresh and vital. Even if the enterprises did not pursue acquisitions for this reason, the process of buying businesses and deciding how to integrate them into their corporate structures enabled acquirers to renew themselves before their products and operating methods became outdated.

Diversifying your customer portfolio

Abstract: The authors contend that customer portfolio management ? a process of creating value across all of a company?s relationships ? can bring much needed perspective to the myopic pursuit of customer satisfaction. They describe in depth the evolution in relationship marketing. Four distinct perspectives ? economic, sociological, psychological and operational ? illustrate what sorts of relationships take place and when they work best. Customer portfolio management, which brings these perspectives together, seeks to understand how an organization can manage the range of customer relationships ? from arm?s-length transactions to strategic partnerships ? in order to create value and develop a competitive advantage. The customer portfolio lifetime-value model emphasizes that a "large leaky bucket," or base of weaker customer relationships, provides a base from which more-profitable, stronger relationships can be built. Companies such as Continental and Northwest Airlines, IKEA and Pan Fish are already working to create value by balancing the various customer relationships in their portfolios. And as marketing thinking evolves further ? away from the "customer is king" and toward "the customer is cash" ? companies are increasingly discovering that investing in the entire range of customer relationships is critical to competing effectively in the future.

In praise of cultural bias

Abstract: [Extract] Historically, the world's wealthiest and most influential economies have developed on the basis of strong regional and national cultural biases. In the 19th century, for instance, the United States established itself as a first-rate industrial power by developing the "American system of manufacture" based on standardized and interchangeable parts. In the first half of the 20th century, U.S. manufacturing practices were further honed in Detroit and widely adopted modern office systems were developed in Chicago. Later, U.S. post-industrial giants clustered on the West Coast, where the distinctive flavors of San Francisco and Seattle shaped their successful cognitive and technical style. Throughout the world, all business, innovation and even cognition are based on localized cultural context. This doesn’t mean they have no value in the global marketplace. Quite the contrary: Cultural idiosyncrasy is a spur for global innovation.