Articles

How can companies resolve the two issues of M&As: the acquiring company's struggle to value the target's resources and the need for the parties to agree on a price?

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.

The authors' research suggests that a variety of traps that forestall innovation can be avoided by, paradoxically, placing boundaries on innovation activity. In an environment without boundaries, say the authors, there is no context for shared interpretation or common expectations. Boundaries, on the other hand, act not as constraints but as aids to defining innovation needs and producing useful outputs that business units can exploit. Smartly placed constraints actually act as enablers of innovation by making it more palatable and execution friendly and giving it traction in the competition for corporate attention and resources. Drawing on their research, the authors offer several scenarios of "boundaries in use." They describe how Shell makes the radical legitimate by making it thematically relevant to core business, how Nokia restricts its innovation efforts to business-unit strategies and environmental turbulence, how Air Products focuses on ideas that leverage operational capabilities, how Siemens focuses on innovation potential that crosses products and businesses, and how IDEO's work with Texas Health Resources reframes the customer experience to anchor solutions in new ways.

RESEARCH BRIEF: A dynamic array of different customer types makes for a stronger business model.

Some techniques seem to drive new product development better than others.

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.

INTELLIGENCE: RESEARCH BRIEF: Vigilance is the key to avoiding potential organizational nightmares.

How a textile manufacturer balances cost cutting with mass customization in its domestic facility.

Utopian visions of frictionless, knowledge-sharing, global supply chains are somewhat overstated.

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.