Articles

Companies tend to assume that little can be done to reduce product costs once a design is set. This belief has shaped many cost-management programs across diverse products' life cycles. Because of it, firms will often focus on cost reduction during the design phase and cost containment during manufacturing. But are much of a product's costs truly locked in during design? Recent research suggests otherwise. In an extensive field study at the consumer-products division of Olympus Optical Co. Ltd., the authors found that the company is able to obtain significant cost reductions in manufacturing. Indeed, the research has demonstrated that costs can be aggressively managed throughout the product life cycle. Furthermore, the authors found that Olympus Optical applies various cost-management techniques in an integrated manner with the outputs of some techniques acting as inputs to others, thereby increasing the program's overall effectiveness. The observations suggest that companies competing aggressively on cost might consider adopting some form of an integrated cost-management program that spans the entire product life cycle.

Lack of communication among colleagues in the workplace is a widespread problem. Many companies struggle with the "silo syndrome" -- employees from different departments tend to keep to themselves, leading to inefficiencies and missed opportunities, particularly those that would arise from chance encounters among people who don't, but should, know each other. The author asserts that two parallel paradigm shifts are helping to change that. The first is a movement from desktop to mobile computing. The second is the move from individual to "social" software, here defined as programs that enable a group of people to accomplish common goals. Together, they say, the two trends have the potential to dramatically transform the ways in which companies conduct business. Toward that end, the author and his colleagues have developed a new technology that could help facilitate greater workplace collaboration. The technology, known as "Serendipity," is a yet to be commercialized mobile-phone application, intended to extend (rather than supplant) existing enterprise-communication and knowledge-management systems by untethering them from the desktop so that they can be used in social situations where they might be most beneficial: near the water cooler, in the hallway, around the coffee machine. Serendipity relies on Bluetooth, a low-power radiofrequency protocol designed primarily to enable wireless headsets or laptops to connect to mobile phones. A byproduct of that functionality, however, is that Bluetooth devices are aware of one another, which essentially turns them into short-range beacons, each with its own unique ID. In this article, the author explains how Serendipity works and discusses a number of the potential business applications that could arise from its ability to study, track and, perhaps most importantly, predict the dynamics of a social network. He also discusses some of the privacy issues and necessary safeguards -- such as opt-in methodologies -- that would have to be associated with such applications.

Green marketing has not lived up to the hopes and dreams of many managers and activists. Although public opinion polls consistently show that consumers would prefer to choose a green product over one that is less friendly to the environment when all other things are equal, those "other things" are rarely equal in the minds of consumers. For example, when consumers are forced to make trade-offs between product attributes or helping the environment, the environment almost never wins. And hopes for green products also have been hurt by the perception that such products are of lower quality or don't really deliver on their environmental promises. And yet the news isn't all bad, as the growing number of people willing to pay a premium for green products -- from organic foods to energy-efficient appliances -- attests. How, then, should companies handle the dilemmas associated with green marketing? They must always keep in mind that consumers are unlikely to compromise on traditional product attributes, such as convenience, availability, price, quality and performance. It's even more important to realize, however, that there is no single green-marketing strategy that is right for every company. The authors suggest that companies should follow one of four strategies, depending on market and competitive conditions, from the relatively passive and silent "lean green" approach to the more aggressive and visible "extreme green" approach -- with "defensive green" and "shaded green" in between. Managers who understand these strategies and the underlying reasoning behind them will be better prepared to help their companies benefit from an environmentally friendly approach to marketing.

In recent years, gray markets -- in which a firm's products are sold or resold through unauthorized dealers -- have become ubiquitous. They exist for tangible products (lumber and electronic components) and intangibles (broadcast signals, IPOs); for massive goods (automobiles and heavy construction equipment) and for light, easily shipped products (watches and cosmetics); for the mundane (health and beauty aids) and the life saving (prescription drugs). Gray markets aren't going away soon. Although they ebb and flow as exchange rates, price differentials and supply conditions change, surveys confirm the increasing incidence and scope of gray markets. In many situations, their sales outstrip authorized sales. An inability to compete with gray markets can wreak havoc on firms and industries. Unfortunately, because it is so hard to get data on gray-market activity and what firms are doing to deal with it, there is little published guidance to help managers. The sale of legitimate products in the wrong place or in the wrong channel poses unique problems to companies, but there are unique solutions that can successfully manage them. Describing several examples that show the scope and complexity of the gray-market problem, the authors explain how managers can apply a framework based on sensing, speed and severity in order to manage it. They also point out scenarios in which gray markets actually help and should be tolerated.

Although the pursuit of opportunity promises outsized rewards to entrepreneurs and established enterprises, it also entails great uncertainty. The critical task of entrepreneurship lies in effectively managing the uncertainty inherent in trying something new. Some entrepreneurs foolishly try to ignore uncertainty; others go to the opposite extreme of attempting to avoid it altogether. Rather than ignore uncertainty or attempt to avoid it in the na_ve belief that every contingency can be anticipated, entrepreneurs should instead manage uncertainty by taking a disciplined approach. Over the past five years, the author conducted systematic research into how entrepreneurs manage the inevitable risks while pursuing opportunities. A synthesis of the research revealed that discipline -- and its byproduct, the successful management of uncertainty -- comes through the adoption of an iterative experimentation model. In this three-step process, an entrepreneur first formulates a working hypothesis about an opportunity, then assembles the resources to test the hypothesis, and finally designs and runs real-world experiments. Depending on the results of a round of experimentation, the entrepreneur may revise the hypothesis and run another experiment, harvest the value created through a sale, or abandon the hypothesis and pull the plug. The model provides insights into some of the most daunting questions entrepreneurs face -- including how to screen an opportunity, how much money to raise, when to make key hires and how to use limited resources most efficiently.

The technical, organizational and strategic challenges of the shift to on-demand computing power.

For many years, multinational corporations could compete successfully by exploiting scale and scope economies or by taking advantage of imperfections in the world's goods, labor and capital markets. But these ways of competing are no longer as profitable as they once were. In most industries, multinationals no longer compete primarily with companies whose boundaries are confined to a single nation. Rather, they go head-to- head with a handful of other giants. Against such global competitors, it is hard to sustain an advantage based on traditional economies of scale and scope. MNCs must seek new sources of competitive advantage. While multinationals in the past realized economies of scope principally by utilizing physical assets and exploiting a companywide brand, the new economies of scope are based on the ability of business units, subsidiaries and functional departments within the company to collaborate successfully by sharing knowledge and jointly developing new products and services. Collaboration can be an MNC's source of competitive advantage because it does not occur automatically -- far from it. Indeed, several barriers impede collaboration within complex multiunit organizations. And in order to overcome those barriers, companies will have to develop distinct organizing capabilities that cannot be easily imitated. The authors develop a framework that links managerial action, barriers to interunit collaboration and value creation in MNCs to help managers understand how collaborative advantage can work. The framework conceptualizes collaboration as a set of management levers that reduce four specific barriers to collaboration, leading in turn to several types of value creation. They draw on BP's experience to illustrate the effectiveness of a collaborative approach.

Many studies have shown that the most treacherous time in the failure-strewn business of mergers comes when companies attempt to combine operations. Surprisingly, however, they often destroy value not as a result of inattention to detail but through excessive zeal in their integration efforts. That's because acquirers, recognizing the many potential dangers inherent in the merger process, often attempt to immunize themselves by painstakingly mapping out comprehensive, detailed plans for blending every aspect of operations. What they don't realize is that too much integration can block companies from realizing the benefits of a merger just as easily as too little can. And, in some cases, overintegrating can do far more damage. The authors posit that M&;A activity is typically based on one of three types of "investment theses"-- "active investing," growing scope and growing scale -- and that each requires different degrees of merger integration. If an acquired company is the first plank of a new platform in a venture-capitalist firm's portfolio, for example, it will probably require the bare minimum of integration. But deals that enhance scope or scale require executives to pay much more attention to integration. The authors explain how Illinois Tool Works, Sears, Roebuck and Co., BP, Philips Medical Systems and Keppel Offshore & ; Marine have all benefited from integrating selectively, comprehensively or with a mix of the two, according to whether they were seeking economies of scale or scope.

Natural disasters, labor disputes, terrorism and more mundane risks can seriously disrupt or delay the flow of material, information and cash through an organization’s supply chain. The authors assert that how well a company fares against such threats will depend on its level of preparedness, and the type of disruption. Each supply-chain risk & #8212; to forecasts, information systems, intellectual property, procurement, inventory and capacity & #8212; has its own drivers and effective mitigation strategies. To avoid lost sales, increased costs or both, managers need to tailor proven risk-reduction strategies to their organizations. Managing supply-chain risk is difficult, however. Dell, Toyota, Motorola and other leading manufacturers excel at identifying and neutralizing supply-chain risks through a delicate balancing act: keeping inventory, capacity and related elements at appropriate levels across the entire supply chain in a rapidly changing environment. Organizations can prepare for or avoid delays by “smart sizing” their capacity and inventory. The manager serves as a kind of financial portfolio manager, seeking to achieve the highest achievable profits (reward) for varying levels of supply-chain risk. The authors recommend a powerful “what if?” team exercise called “stress testing” to identify potentially weak links in the supply chain. Armed with this shared understanding, companies can then select the best mitigation strategy: holding “reserves,” pooling inventory, using redundant suppliers, balancing capacity and inventory, implementing robust backup and recovery systems, adjusting pricing and incentives, bringing or keeping production in-house, and using Continuous Replenishment Programs (CRP), Collaborative Planning, Forecasting and Replenishment (CPFR) and other supply-chain initiatives.

Technological diversity and organizational structure both shape an alliance’s potential payoff.