Articles

The product-development process is often seen as an undependable black box” that rarely produces results that exceed business expectations. Traditional financial models have limited success exposing the numerous product-development risks that underlie the assumptions in a typical business case. Applying the same rules to development as they do to research, managers often accept unpredictable performance as normal. Most companies’ evaluation and approval processes are driven by accounting-based metrics such as discounted cash flow or net present value (NPV) that make understanding the underlying risks of development difficult for decision makers. When risk is discussed in the business case, technology uncertainty is often confused with product-development risk, and the narrative discussion of risk is designed more to persuade than inform. In this environment, decision makers are often hard-pressed to evaluate the potential commercial success of the new-product-development investment. With an approach called “net present value, risk-adjusted” (NPVR), author Craig R. Davis, CFO of product-development consulting firm Product Genesis, offers an operational framework that gives decision makers quantitative tools to evaluate relative project risks. He shows how these tools can be integrated into existing stage-gate methodologies to create a risk-adjusted NPV that considers the impacts of product portfolio, user needs, and technical and marketing risks. The framework also provides insights into the value of additional research in advance of full commitment to development. The framework provides a vocabulary appropriate for complex technology products in medical, commercial and industrial products but is easily adapted to the unique terms, methods and measures for each risk-assessment area.

Hiring CEOs from outside the industry is a higher-risk, higher-reward proposition.

Some business builders in the Internet era have blindly focused on “getting big fast” in the mistaken belief that Metcalfe’s Law applies ad infinitum. The value of a network, in fact, does not increase forever, but there are ways to counteract the forces that put the brakes on network effects.” Around 1980 Robert Metcalfe, the inventor of the Ethernet standard and founder of 3Com, observed that the value of a network increases in proportion to the square of the number of people using it. This observation came to be known as Metcalfe’s Law. It was similar to an idea developed by economists about network effects” & #8212; meaning that some resources become more valuable to a person using them according to the number of other people also using them. At the dawn of the Internet era, network effects became the Holy Grail for many business builders, who wanted to “get big fast” in order to exploit them before the competition did. But Metcalfe’s Law doesn’t always hold, say Harvard Business School professor Andrew McAfee and consultant Fran ois-Xavier Oliveau. As networks become very large, they can fall prey to saturation, cacophony, contamination, clustering and high search costs. Those phenomena mean that larger networks can, in some cases, have less value than smaller ones. The authors have identified several strategies that network builders can employ to maintain network effects or limit their decline. When followed properly, these strategies are more effective than a blind, bigger-is-better approach in which network builders rush to sign up as many users as quickly as possible.

Storytelling has emerged as the preferred approach for teaching leadership effectiveness in many companies.

In 1996, the Web-browser "wars"

Monitoring employee behavior may not always have the desired effect.

Identifying and addressing the environmental factors that can affect success

Today’s world calls for less hypothesis testing and more systematic observation.

When an activity turns into a buzzword, the odds are high that managers will stop thinking consciously about the behavior they’re trying to elicit and the best way to set expectations clearly. That’s why it’s important to pay attention when buzzwords take over management’s most important responsibilities. Business writer Joan Magretta explains, for example, how thinking outside the box,” a phrase that makes many people cringe, is a useful metaphor when properly understood. The vital work of innovation in companies is sparked precisely because there is a box & #8212; a puzzle with rules that limit and define good solutions. Managers must clearly understand the constraints & #8212; the shape of the box & #8212; if they are to help their employees think sensibly about innovation. She also takes on “resource allocation,” a dry-as-dust technocratic phrase that actually refers to one of management’s most difficult and emotionally charged responsibilities. The crux of the matter is that providing resources for one project means not giving them to another. In other words, it means that managers often have to say no when it is easier to say yes. Last, she focuses on “respect for the individual,” a phrase that, even when used sincerely (and often it’s said insincerely), implies a kind of everyone-gets-treated-the-same ideal. In an organizational context, this phrase really refers to management’s need to match the right individual to the job & #8212; and harsh as it may sound, to fire those who are in jobs they can’t perform. Buzzwords and catchphrases can speed communication. But when it comes to the messy, human realities of management, a dose of straight talk & #8212; and clear thinking & #8212; can go a long way.