Articles

To survive today, firms must become adept at developing products that deliver the quality and functionality that customers demand while generating the desired profits. To ensure that products are sufficiently profitable when launched, many firms subject them to target costing, a profit management technique. The authors studied the mature, highly effective target costing systems of seven Japanese companies and documented their costing procedures. Although practices differ among these firms, the authors identified an underlying generic approach for implementing target costing systems. A highly disciplined process, effective target costing comprises the following facets that the authors discuss in detail: -- Market-driven costing consists of three companywide tasks -- setting the company's long-term sales and profit objectives, structuring product lines to achieve maximum profitability, and establishing a product's target selling price -- and two steps applicable to new products -- setting a target profit margin consistent with the company's long-term profit objectives and computing the product's allowable cost (by subtracting the target profit margin from the target selling price). -- Product-level target costing comprises setting a reasonably achievable product-level target cost, imposing discipline upon the development process to attain the target cost (whenever feasible), and achieving the cost goal without sacrificing functionality and quality (primarily through value engineering and other engineering-based cost reduction techniques). -- Component-level target costing includes decomposing the product-level target cost to the major functions or subassemblies (e.g., in a car, the engine, transmission, cooling system, air conditioning system, and audio system), setting component-level target costs, and managing suppliers (clearly conveying to them the competitive cost pressures facing the lean enterprise). The cardinal rule of the companies studied is: "Never exceed the target cost." They enforce this rule in three ways -- by offsetting design improvements that result in increased costs with savings elsewhere in the design, by not launching products that exceed the target cost, and by carefully managing the transition to manufacturing in order to achieve the target cost.

Firms can derive significant benefits from consciously, proactively, and aggressively managing their explicit and explicable knowledge, which many consider the most important factor of production in the knowledge economy. Doing this in a coherent manner requires aligning a firm's organizational and technical resources and capabilities with its knowledge strategy. However, appropriately explicating tacit knowledge so it can be efficiently and meaningfully shared and reapplied -- especially outside the originating community -- is one of the least understood aspects of knowledge management. This suggests a more fundamental challenge, namely, determining which knowledge an organization should make explicit and which it should leave tacit -- a balance that can affect competitive performance. The management of explicit knowledge utilizes four primary resources that the author details: repositories of explicit knowledge; refineries for accumulating, refining, managing, and distributing the knowledge; organization roles to execute and manage the refining process; and information technologies to support the repositories and processes. On the basis of this concept of knowledge management architecture, a firm can segment knowledge processing into two broad classes: integrative and interactive -- each addressing different knowledge management objectives. Together, these approaches provide a broad set of knowledge-processing capabilities. They support well-structured repositories for managing explicit knowledge, while enabling interaction to integrate tacit knowledge. The author presents two case studies of managing explicit knowledge. One is an example of an integrative architecture for the electronic publishing of knowledge gleaned by industry research analysts. The second illustrates the effective use of an interactive architecture for discussion forums to support servicing customers. Zack also discusses several key issues about the broader organizational context for knowledge management, the design and management of knowledge-processing applications, and the benefits that must accrue to be successful. In summary, organizations that are managing knowledge effectively (1) understand their strategic knowledge requirements, (2) devise a knowledge strategy appropriate to their business strategy, and (3) implement an organizational and technical architecture appropriate to the firm's knowledge-processing needs.

Processes to solidify and streamline supplier-customer relationships can result in mutually beneficial commercial success.

A survey on supplier relationships administered to 447 managers from the major U.S. and Japanese automobile manufacturers showed that these firms do not manage primarily by strategic partnerships, but instead participate in various types of relationships. The author proposes and empirically validates a framework for managing a portfolio of relationships that will help senior managers answer two key questions: Which governance structure or relational design should a firm choose under certain external contingencies? What is the appropriate way to manage each type of relationship? The survey examined the specific investment of buyers and suppliers from both national samples in four types of relationships: strategic partnership, market exchange, captive buyer, and captive supplier. Interestingly, the level of investment made by either party in every type of relationship significantly correlated with practices commonly associated with strategic partnerships, such as long-term relationships, mutual trust, cooperation, and wide-scope relationships that include multiple components. No one type of buyer-supplier relationship & #8212; not even the strategic partnership & #8212; was inherently superior, which suggests that each can be well or poorly managed. Firms successfully manage supply chains by matching relationship type to specific product, market, and supplier conditions and by adopting an appropriate management approach for each type of relationship. Findings also countered the popular belief that Japanese firms tend to manage their suppliers using highly dedicated relationships or strategic partnerships. They appear to conduct business with a smaller ratio of strategic partnerships than is commonly believed (19 percent of the sample) and to extensively use market-exchange relationships (31 percent) & #8212; a practice usually associated with Western manufacturers. The author provides a contextual profile of product and market conditions most conducive to each type of relationship and discusses the management features common to the best performers in each category. By consciously and systematically matching the design of each relationship to its external context, product executives can stifle the urge to join the sweeping fad of strategic partnerships and avoid underdesigning and overdesigning external relationships.

Today's knowledge and service-based economy presents opportunities for well-run companies to increase profits through strategic outsourcing.

Smart markets, or markets defined by frequent turnover in the general stock of knowledge or information embodied in products and possessed by competitors and consumers, are based on new kinds of products, competitors, and customers. As a result, companies seek to understand the degree to which their own capabilities and motivations as information-processing "organisms" are crucial in enabling them to extract maximum value from their customer information assets. Firms that have gained a significant competitive advantage are distinguished by their ability to see beyond their IT infrastructure and view information itself as the core asset and the management of information as the company's main priority. Understanding how consumers are adapting their behavior to the demands of an increasingly information-intensive environment has been a starting point for companies that have achieved success in smart markets. By observing the activities of these firms across industries, it is possible to identify generic strategies and develop a preliminary taxonomy, or categorization scheme, that can be used to compare and contrast them. The placement of individual strategies within a conceptual framework guides managers in making customer-management decisions. The organizing tool, or asset around which the full range of strategies is based, is the customer information file (CIF) -- a single virtual database that captures all relevant information about a firm's customers. Underlying the notion of the CIF as the key asset is the assumption that the firm's operational goal is to maximize communication with its customers -- to look for every opportunity to "talk" with them. After all, the data collected from these interactions are the raw material from which companies craft their information-intensive strategies. A company thus sets as its main objective the maximizing of returns to the CIF. It then chooses any one of several strategies to accomplish that objective. This approach represents a shift in performance goals. In particular, concepts such as profitability or market share per product are being replaced with concepts such as profitability per customer (sometimes referred to as "lifetime value of a customer") or customer share (the total share of a customer's purchases in a broadly defined product category).

Choosing a distinctive strategic position involves making tough choices on three dimensions: who to target as customers, what products to offer, and how to undertake related activities efficiently. The most common source of strategic failure is the inability to make clear, explicit choices on these three dimensions. Unfortunately, not only will aggressive competitors imitate attractive positions, but, perhaps more importantly, new strategic positions will be emerging continually. In industry after industry, once formidable companies with seemingly unassailable strategic positions are humbled by relatively unknown companies that base their attacks on creating and exploiting new strategic positions. Markides describes incursions into established markets by strategic innovators such as Canon and the brokerage firm Edward Jones. The hallmark of their success is strategic innovation -- proactively establishing distinctive strategic positions that are critical to shifting market share or creating new markets. To prepare for the inevitable strategic innovation that will disrupt its market, an organization should: -- Identify turning points before a crisis occurs by regularly monitoring indicators of strategic rather than financial health in the market. -- Prevent cultural and structural inertia by creating a culture that welcomes change and is ready to accept new strategic innovation even if it disrupts the status quo. -- Develop processes that allow experimenting with new ideas to reveal the potential of a new innovation. -- Develop the required competencies and skills. -- Manage a transition to the new strategic position by clearly deciding whether to adopt the new position and by ensuring that old and new coexist harmoniously. Designing a successful strategy is a never-ending, dynamic process of identifying and colonizing a distinctive strategic position; excelling in this position while concurrently searching for, finding, and cultivating another viable strategic position; simultaneously managing both positions; slowly making a transition to the new position as the old one matures and declines; and starting the cycle again.

The corporation has emerged as perhaps the most powerful social and economic institution of modern society. Yet, corporations and their managers suffer from a profound social ambivalence. Believing this to be symptomatic of the unrealistically pessimistic assumptions that underlie current management doctrine, Ghoshal et al. encourage managers to replace the narrow economic assumptions of the past and recognize that: -- Modern societies are not market economies; they are organizational economies in which companies are the chief actors in creating value and advancing economic progress. -- The growth of firms and, therefore, economies is primarily dependent on the quality of their management. -- The foundation of a firm's activity is a new "moral contract" with employees and society, replacing paternalistic exploitation and value appropriation with employability and value creation in a relationship of shared destiny. In the 1980s, managers concentrated on enhancing competitiveness by improving their operating efficiencies. They cut costs, eliminated waste, downsized, and outsourced. They extracted value -- as reflected in shareholder returns -- but at what price? In contrast, firms that seem to continuously proliferate new products and technologies (for example, HP, 3M, Disney, and Microsoft) have never accepted this logic of auto-dismemberment. They have escaped what the authors term "the deadly pincer of dominant theory and practice": an almost exclusive focus on appropriation and control. A different management model is now taking shape, based on a better understanding of individual and corporate motivation. As companies switch their focus from value appropriation to value creation, facilitating cooperation among people takes precedence over enforcing compliance, and initiative is valued more than obedience. The manager's primary tasks become embedding trust, leading change, and establishing a sense of purpose within the company that allows strategy to emerge from within the organization, from the energy and alignment created by that sense of purpose. The core of the managerial role gives way to the "three Ps": purpose, process, and people -- replacing the traditional "strategy-structure-systems" trilogy that worked for companies in the past.

High-performing companies employ dual strategies: they maximize today's capabilities and simultaneously develop new capabilities for the future. In the past, most organizations could run and change their businesses using a single strategy; even today, most companies do not clearly discriminate between present and future. A single-strategy approach, however, cannot meet the challenges created by accelerating competition and change. Strategies for today ensure that functional and supply-chain partner activities are aligned with company strategy and harmonized with organizational structures, processes, culture, incentives, and people. They clarify segment, positioning, and resource deployment choices. Strategies for tomorrow involve decisions about how to define and position the future business. They start with visions of the future -- for example, market territory and forces that might reshape it; competitive moves; strategy options and choices; needed competencies and resources; and knowledge of how to get "there" from "here." Achieving the right balance between a present and a future orientation depends on the situation. During times of rapid or extreme change, the future component claims more attention; during more stable times, the present component predominates. In any situation, however, both components must always be addressed in parallel. Institutionalizing dual strategies requires that companies clearly define leadership responsibilities, balance organizational structures and processes, develop systems for managing duality, and redesign control mechanisms. Implementation must begin at the top. Leaders at all levels of the enterprise must promote the need for dual thinking and communicate the two agendas and their significance to people in every organizational nook and cranny. Dual strategies succeed only if those who need to implement today and change for tomorrow understand the reasons behind each.

A methodology to aid in anticipating and preempting the emergence of market newcomers.