Articles

General Electric, Hewlett-Packard and Johnson Johnson keep a steady stream of leaders moving up by focusing on the five essentials of leadership development.

Companies such as Lego, British Petroleum, Baxter, Virgin and Unilever are reversing the law of diminishing returns. How? By redefining what business they are in and then practicing a powerful kind of customer focus. The author, an international-marketing professor at the University of London, defines customer focus as obtaining value for customers (even if you sometimes help them buy from your competitors) and from customers (who voluntarily continue to patronize your company because of that value). To achieve a high level of customer focus, Lego, for example, must see itself as being in the "edutainment" business, not the construction-toy business. Focusing on what customers want in the edutainment market space, Lego can find numerous growth opportunities -- in amusement parks, Web software, television and more. Instead of selling more Lego blocks and suffering ever decreasing returns, Lego can serve edutainment customers in ways that will inspire them to give the company increased amounts of their leisure-time spending. Traditionally, businesses have concentrated on getting more market share and moving more products and services at the maximum margins. But that approach is too easy for competitors to emulate, and cost advantages eventually diminish. Virgin, like Lego, is proof that the new customer-focus approach works better. Virgin has merged travel and leisure into an integrated customer experience, and in so doing, it has enjoyed an increasing share of the same customers' spending. It avoids the added expense of finding new customers and learning their preferences. Vandermerwe delves into the six vital components for a successful strategy based on customer focus: giving power to the customer, getting customers to choose a particular business over its competitors, articulating new market spaces, delivering an integrated experience, taking advantage of abundant and reusable resources such a knowledge and information, and creating reinforcing interactions. She explains that, to use customer focus to their advantage, enterprises don't have to be big, be inventors or even own anything. The only requirement is to leave behind transactional, linear thinking and focus on increasing returns.

U.S. automakers have followed the lead of Japanese-owned operations in the United States and are practicing lean manufacturing, which focuses on delivering the best product of the highest quality at the lowest cost on time every time. A key part of lean manufacturing is just-in-time (JIT) delivery -- getting the right part to the right place at the right time. For automakers to effectively practice a lean approach, it would seem critical that suppliers make the transition from traditional mass-production systems to lean systems internally and in their logistics practices. In fact, the logistics practices and internal management policies of the automakers -- in other words, of the customers themselves -- have an even more profound impact on the supplier's ability to respond with lean systems. So found the authors in an unprecedented study on the performance of U.S. suppliers to the automotive industry in North America. To compare the policies and practices of the Big Three automakers and the Japanese transplants, the authors surveyed supplier plants that made comparable products for both U.S. and Japanese customers. Their comprehensive data demonstrate the impact of customer policies on supply-chain management: U.S. suppliers perform at much higher levels when they are supplying Japanese automakers than when working with U.S. automakers. How did the Japanese transplants develop superior, lean supply chains in North America? They worked with their suppliers to develop lean capabilities. They leveled their own production schedules to avoid big spikes in demand, which enables suppliers to hold less inventory. They created a disciplined system of delivery "time windows" that designate when specific parts shipments are due. They developed lean transportation systems to handle mixed-load, small-lot deliveries. They encouraged suppliers to ship only what was needed by the assembly plant at a particular time. Most important, the Japanese operations understand that creating a lean supply chain requires a give-and-take partnership across all the links in the supply chain.

Unless an enterprise generates new knowledge and pumps it efficiently throughout its network, it will soon be playing tomorrow's game with yesterday's tools. How are companies facing that challenge? Many rely on an information-technology infrastructure; but no matter how sophisticated, it is not the key to effective knowledge management. Success, say the authors, depends more on the social system in which people operate -- the social ecology of a company. Social ecology drives people's expectations, defines who will fit in, shapes individuals' freedom to pursue actions without prior approval, and affects how they interact with both insiders and outsiders. Focusing on Nucor Corp.'s success in the 1980s and 1990s, the authors suggest that it was the company's social ecology that contributed to it becoming one of the most efficient steel producers in the world. Through effective management of knowledge, Nucor developed and constantly upgraded its main strategic and proprietary competencies: plant construction and start-up know-how, manufacturing-process expertise and the ability to adopt breakthrough technologies earlier than competitors. With financial incentives to improve efficiency, operating personnel developed exceptional mastery of manufacturing processes. And Nucor's employee-oriented practices led to high retention. For example, in recessions, a "share the pain" program prevented layoffs through a shortened work week that affected everyone equally -- and built loyalty. Nucor's social ecology also allowed excellence in the tasks associated with sharing and mobilizing knowledge: identifying opportunities to share knowledge, encouraging individuals to share knowledge, building effective and efficient transmission channels, and convincing individuals to accept and use the knowledge received. Routine measurement and distribution of performance data helped uncover opportunities to share best practices. Pay incentives for work groups instead of individuals were instituted to reward sharing. Nucor also passed along unstructured knowledge through face-to-face communication in plants that were deliberately kept small and through the transfer of people among plants. The authors explain how others can maximize knowledge sharing by setting stretch goals, providing high-powered incentives, cultivating empowerment, equipping every unit with a well-defined "sandbox" for experimentation -- and cultivating an internal market for ideas. It's a difficult challenge. But its very difficulty means that companies tackling it successfully will have a competitive advantage that rivals cannot beat merely by buying the same software.

When consumers visit a retail Web site, how do they know that the information describing the products or services they want to buy is accurate and unbiased? How do they know that their order will be fulfilled correctly and on time or that their financial records, purchasing and Web-viewing habits will be protected from prying eyes? The answer is they often don't know. In most cases, consumers base their purchasing decisions largely on trust. As consumers become more savvy about the Internet, the authors contend that they will insist on doing business with Web companies they trust. As a result, trust will become the currency of the Internet. While the Internet enables consumers to research competing companies, products and services, most manufacturers design and deploy their Web sites as if such information were largely unavailable. They promote their products in a biased way -- using high-pressure sales tactics that do little to inspire trust -- while neglecting to provide consumers with the tools they need to make informed purchasing decisions. Some undermine trust by secretly collecting data about their customers' Web usage and selling it to third-party marketing firms. Others lose trust by failing to support their products or deliver them on time. Such sites rarely provide honest comparisons to competing products. Instead, customers must find the information themselves in order to make a sound decision, or they rely on brands they already trust. According to the authors, Web trust is built in a three-stage cumulative process that establishes (1) trust in the Internet and the specific Web site, (2) trust in the information displayed and (3) trust in delivery fulfillment and service. The authors review current trust-building practices used on the Web and propose the use of new, software-enabled advisors that engender trust by engaging customers in a dialogue to discern their needs and provide unbiased recommendations on a range of possible solutions. The authors tested their hypothesis by creating Truck Town, a Web site featuring software-enabled advisors that mimic the behavior of unbiased human experts. The advisors consult with customers on purchasing decisions, providing honest comparisons of competing products. More than 75% of Truck Town's visitors said that they trusted these virtual advisors more than the dealer from whom they last purchased a vehicle. According to the authors, Truck Town shows that virtual advisors can be a cost-effective component in any Internet trust-building program. The companies that earn real profits in the world of Internet marketing will be trust generators selling products that deliver the best value in a complete, unbiased, competitive comparison.

As adapting to globalization becomes increasingly necessary, business customers are pressuring suppliers to accept global-pricing contracts (GPCs). So far, most of the benefits of GPCs have redounded to the business customer. Although purchasers may promise a supplier access to international markets, guaranteed production volumes and improved economies of scale and scope, too often they fail to deliver. They may not buy as much as planned, may demand customization that the supplier cannot leverage with other customers, may force the supplier to drop the customer's competitors -- or may fall on hard times and have to scale back commitments. That is why, before signing a contract, suppliers should do due diligence. According to Das Narayandas of Harvard Business School, John Quelch of the London Business School and Gordon Swartz of Oxford Associates, suppliers must fully understand the customer's global strategy and the business conditions in its respective markets. They also need a firm grasp of their own strategy and local practices. Which GPCs would be suitable and which would be detrimental? Suppliers don't want to turn down all GPCs. They recognize that their global customers may be both their largest customers and their fastest growing ones -- and understandably, they want to share in the benefits of growth. Using data collected from interviews with global-account managers in diverse industries on four continents, the authors bring the global concepts down to earth to help suppliers navigate the uneven terrain. By exploring why customers want GPCs, under what circumstances the contracts are likely to profit suppliers, and how to successfully implement contracts, Narayandas and his colleagues identify preparation as the key to success. The more information suppliers can gather (for example, about variances in their own pricing in different markets, about the cost to serve the customer, about exchange rates and local regulations), the better their negotiating position. During negotiations, it might be useful to know whether the customer demands the same price in every market regardless of the supplier's varying costs -- yet continues to charge its own customers varying prices. A carefully negotiated GPC can be a winning outcome for both supplier and customer and can serve as the foundation for a broader, mutually advantageous relationship that extends beyond price.

Today's workforce is increasingly made up of volunteers -- at least in spirit if not in fact. How will the traditional management tasks of motivating and directing employees change in the face of that new reality? The authors answer this question by examining an example of an economic enterprise that acts in many ways like a voluntary organization: the open-source software movement. The authors became interested in the movement during the course of their work with a knowledge-based organization that was seeking a new model of organizational governance. After hearing open-source proponent Eric Raymond speak at a public forum, they began to think that the movement might offer just the model the organization needed. They then embarked on a case study that focused on the motivation of open-source participants and the coordination of their software development work. The authors posed the following essential questions: What motivates people to participate in open-source projects? And how is participation governed in the absence of employment or fee-for-service contracts? The answers revealed some important lessons for traditional organizations about the challenges of keeping and motivating knowledge workers and the process of managing in the new arena of networked or virtual organizations. The first lesson is that traditional organizations should plan for a broader array of employee motivations than they often do today. Money is only one, and not always the most important, motivation of open-source volunteers. Professional contributors are also motivated by the personal benefit of using an improved software product and by a number of social values such as altruism, reputation and ideology. In many cases, several motivations operate together and reinforce one another. Second, traditional organizations should consider ways to shift from the management of knowledge workers to the self-governance of knowledge work. Despite their clear potential for chaos, open-source projects are often surprisingly disciplined and successful by means of multiple, interacting governance mechanisms. Membership management, rules and institutions, monitoring and sanctions, and reputation build on the precondition of shared culture to self-regulate open-source projects.

In the New Economy, speed is everything, as both start-ups and traditional businesses attempting new ventures have experienced. Three Andersen Consulting researchers assess a new approach, fast venturing, which taps operational partners -- incubators or professional-services firms -- as well as outside investors. Operational partners, called in at various stages of the venture's development, can offer support with whatever specific skills are needed at any given time. The author's e-mail and telephone surveys of companies that have launched ventures quickly suggest that new ventures should (1) set up a distinct equity structure, (2) get participation from financial partners, and (3) call on a network of operational partners to help build the business quickly by designing and implementing strategies and processes to access markets at scale. Using outside partners is more promising, say the authors, than creating new ventures inside an established company, where too often, strong incentives are lacking and company traditions or politics get in the way. Although internal venturing might work in a few companies, the strategy is probably too difficult and too slow for most. The authors describe a three-stage model: developing ideas, lining up support and scaling up quickly. They suggest choosing a lead partner by assessing both existing relationships and the venture's needs at its particular stage of development. At a pre-funded stage, the venture requires investment partners. If the venture is farther along, it might need a lead partner that can provide temporary managers, experienced in setting up warehouses, or a multitude of other critical functions. The authors provide managers with a list of questions that can help identify the critical capabilities needed to ensure speed to market and help them decide if they should fast venture. Then a step-by-step process helps companies define the venture's most urgent requirements; select appropriate, committed partners; clarify roles and responsibilities; and tap strong, independent leaders. Whether the fast venturing company chooses to partner with an incubator that provides most needs under one roof or a venture network with geographically dispersed support functions, the best chance of success lies with nimble outside partners that have a stake in the profits.

The author argues that to sustain a competitive advantage, Web retailers must align their strategies with the product characteristics and buying practices of customers in their market segment. He divides the dot-com retail market into four segments on the basis of the type of good sold and describes the strategies needed to succeed in each. In the first segment, undifferentiated commodity products, such as barrels of oil, have no brand image, and consumers care little about the seller's identity. It is a buyer's market in which sellers compete on price and delivery. Competitive advantage goes to the low-cost provider with economies of scale, low overhead, low-cost production and efficient distribution. Since entry barriers are low, many competitors will enter these markets and even the slimmest profit margins will be difficult to maintain. In the second segment, quasi-commodity products, such as books and toys, are differentiated by their features, functions, and product niche. The quasi-commodity market segment has attracted many dot-com retailers, including Amazon.com and eToys. However, product brands and characteristics in this segment confer no advantage to the e-commerce retailer, since customers can use search technology to find the identical product at the lowest price. First movers can gain competitive advantage by branding their Web site using site-specific loyalty programs, virtual communities, and timely delivery. Late entrants will encounter extreme difficulty, especially if they are established brick-and-mortar operations unwilling to cannibalize their current business model. In the third segment, "look and feel" goods, such as clothes, homes and furniture, are differentiated by their quality and reliability. Customers want to experience them in person before making a purchase. Here, branded products enjoy the advantage since customers already trust them. Vertically integrated makers of branded products who control product creation and distribution will be able to charge higher prices than dot-com retailers who resell unbranded products. Dot-coms that don't create the products they sell will be forced to compete on price and will find margins difficult to maintain. In the fourth segment, "look and feel" goods with variable quality, such as fresh produce and original artwork, each individual product differs from every other one. Even if they recognize the brand, customers want to experience these products to ascertain their quality before buying, particularly if the product is expensive. Dot-coms that establish a reputation for quality and sell low-priced goods to repeat customers have the best chance of success. Companies selling expensive goods will need to engage trusted intermediaries or establish return policies to mitigate the customer's risk. This market segment is the most difficult to enter, but will confer the highest profits to Web retailers that "crack the code."