Articles

How do managers at firms that compete primarily in local markets stay abreast of broader industry trends and innovations? In this article, the authors highlight an interesting way in which managers at some smaller regional firms in the United States seek to combat forces of inertia and myopia in their businesses: by networking with managers of noncompeting firms that operate in the same industry but in other geographic regions. The authors call these networks “industry peer networks” (IPNs) and have conducted research into how common such networks are and how they function. In the United States, industry peer networks apparently originated in the auto-retailing industry in 1947, when an owner of several auto dealerships began bringing managers from those dealerships together to exchange ideas. The concept spread both geographically and into a number of other industries, and industry peer networks now exist in businesses ranging from advertising agencies to office furniture distributors. A typical industry peer network consists of a number of small groups, each containing no more than 20 managers from noncompeting companies. These groups usually have face-to-face meetings two to four times a year to discuss management issues; they often share confidential financial data with each other as well.

The frequent failure of strategy might lie in its very definition.

New products suffer from notoriously high failure rates. Many new products fail, not because of technical shortcomings, but because they simply have no market. Not surprisingly, then, studies have found that timely and reliable knowledge about customer preferences and requirements is the single most important area of information necessary for product development. To obtain such data, many organizations have made heavy -- but often unsuccessful -- investments in traditional market research. The authors provide an alternative. Companies including Threadless, Yamaha and Ryohin Keikaku have begun to integrate customers into the innovation process by soliciting new product concepts directly from them. These firms also ask for commitments from customers to purchase a new product before the companies commence final development and manufacturing. This process -- called "collective customer commitment"-- can help companies avoid costly product failures. In essence, collective customer commitment enables firms to serve a market segment efficiently without first having to identify that segment, and it helps convert expenditures in market research directly into sales.

Companies should evaluate an outsourced process on several dimensions and then tailor the contract accordingly.

Every sales cycle has some degree of inherent volatility. A big customer could, for instance, go bankrupt or a major deal could fall through. But there's one type of volatility that many executives seem to think is a kind of natural law: At the beginning of every quarter, sales tend to falter; at the end, they often surge. This roller coaster can be a huge problem when major deals fail to materialize at the end of the quarter, leaving a shortfall. According to the author, such kinks in the sales cycles can be smoothed out, but doing so requires a fundamental change in how sales activities are prioritized. The typical sales process is like a funnel: At the bottom are the deals that are nearest to being closed; in the middle are other prospects in the works; and above are numerous promising leads. Companies typically work their funnels from the bottom up. After all, why not concentrate on the surest opportunities first and leave the less certain ones for last? But that prioritization strategy is the fundamental cause of the sales roller coaster. The author of this article argues that for a more continuous -- and predictable -- revenue stream, firms should prioritize the three areas of the funnel in the following way: bottom, above and then middle.

Big strategic shifts are risky, but the constantly changing business environment periodically forces corporate leaders to reposition their businesses in fundamental ways. With case studies from the telecom equipment, auto, computer and beverage industries, the authors examine why some companies have been successful in making smart big moves while others have failed. Some of their findings were, by their own admission, predictable: for example, companies that initiated successful big moves exploited and in some instances enhanced their distinctiveness relative to their competitors. However, the authors identified a more surprising factor, which they refer to as "complementarity." The more successful companies followed a consistent learning logic both internally and externally, and they made big moves that were complementary over time. Complementarity plays out in three ways: (1) It builds on a successful business model; (2) it relies on periodic shifts in the balance between innovation, efficiency and customer intimacy when the business model is not working; and (3) it promotes a sequenced development of capabilities when the balance shifts.

Achieving a state of clarity is a necessary but not sufficient condition for making good decisions.

Traditionally, when managers have been considering whether to file a lawsuit, their attorneys have advised them on factors such as the likely costs of a suit and the probability of obtaining damages. However, the authors note, companies today may want to consider an additional factor: the possible marketing consequences -- positive or negative -- of a given lawsuit. In particular, the authors discuss the marketing implications of lawsuits between competitors or potential competitors. They consider the marketing ramifications of a lawsuit between two rival pizza chains, Pizza Hut Inc. and Papa John's International, over advertising claims made by Papa John's -- and conclude that publicity surrounding an initial verdict in Pizza Hut's favor (a verdict later overturned) generally conveyed Pizza Hut's perspective to the public, presumably with more credibility than similar advertising would have. The authors also examine a trademark dispute between Starbucks Corp. and the owner of the Old Quarter Acoustic Caf_, a bar in Galveston, Texas, which markets "Starbock" beer. In this case, they observe that Starbucks faced the marketing risk of appearing to be a bully. The authors also explore how large corporations in suits with smaller rivals may face a risk of negative publicity, while small companies may face financial risks.

Despite considerable research on customer retention and word-of-mouth referrals, it has always been difficult quantifying their contributions to the bottom line. Using a metric known as "net promoter score," the author believes firms can now measure the dollar value of customers based on satisfaction levels. The author administered a survey designed to assess customer relationships to thousands of customers in six industries. He determined that customers tend to cluster into one of three categories: promoters, passives and detractors. Promoters represent more than 80% of the positive referrals a company receives, while detractors represent more than 80% of the negative word-of-mouth. NPS is determined by subtracting the percentage of detractors from the percentage of promoters. Using this data, a firm can quantify the value of a customer by tracking five categories: retention rate, profit margins, spending, cost efficiencies and word-of-mouth. The firm can then use NPS to make strategic decisions by targeting its efforts to leverage the most value for its customer service dollar. For instance, American Express targets its promoters with premium credit cards in an effort to increase profitability, and GE sends cross-functional teams to its detractors in order to prevent the spread of negative word-of-mouth.

China's institutional private equity and venture capital market has similarities to that of the United States and Europe, but there are important differences. Many practices that are taken for granted in areas such as Silicon Valley have yet to become routine in China. To begin with, there is a lack of readily available information about opportunities, entrepreneurs and companies. In addition, Chinese entrepreneurs know little about finance, corporate structures and governance, thereby requiring investors to spend considerable amounts of time educating them and filling the gaps. The authors identify seven disciplines critical to successful investment in China: knowledge and appreciation of the importance of social capital networks, or guanxi; understanding of corporate governance and shareholder rights; the ability to manage intellectual property; the ability to adapt business models to local conditions; the ability to add managerial and technical value to young enterprises; knowledge of legal structure; and an ability to navigate complex regulatory environments.