Articles

Advanced tools like computer simulations can significantly increase developers' problem-solving capacity as well as their productivity, enabling them to address categories of problems that would otherwise be impossible to tackle. This is particularly true in the pharmaceutical, aerospace, semiconductor and automotive industries, among others. Furthermore, state-of-the-art tools can enhance the communication and interaction among communities of developers, even those who are "distributed" in time and space. In short, new development tools (particularly those that exploit information technology) hold the promise of being faster, better and cheaper, which is why companies like Intel and BMW have made substantial investments in these technologies. But that enthusiasm should be tempered: New tools must first be integrated into a system that's already in place. It is important to remember that tools are embedded both within the organizations that deploy them and within the tasks the tools themselves are dedicated to performing. Moreover, each organization's approach to how people, processes and tools are integrated is unique -- a result of formal and informal routines, culture and habits. All too often, companies spend millions of dollars on tools that fail to deliver on their promise, and the culprit is typically not the technology itself but the use of the technology. When new tools are incorrectly integrated into an organization (or not integrated at all), they can actually inhibit performance, increase costs and cause innovation to founder. To avoid this, companies should beware three common pitfalls: (1) using new tools merely as substitutes, (2) adding -- instead of minimizing -- organizational interfaces and (3) changing tools but not people's behavior.

Service businesses now make up about 70% of the aggregate production and employment in the OECD nations, yet true innovation is rare in the service sector. Many companies incrementally improve their offerings, but few succeed in creating service innovations that launch new markets or reshape existing ones. The premise of this article is that by thinking about a service in terms of its core benefits and the separability of its use from its production, managers can more easily see how to outinnovate their competitors. Before they can do so, though, they must understand the different types of market-creating service innovations as well as the factors that enable them. The authors introduce and describe a two-by-two matrix whose taxonomy helps managers think strategically about service innovations that can create new markets. The dimensions of the matrix refer to the type of benefit offered and the degree of service separability. The article references best-practices examples including Enterprise Rent-A-Car, FedEx, eBay, Starbucks, Cirque du Soleil, Google, Southwest Airlines, Walgreens, Netflix and Barnes & Noble to illuminate each of the four cells of the matrix and explain the value to managers of understanding the dynamics of the cell that is most applicable to their service innovation efforts.

Research has repeatedly demonstrated that managers contribute to a company's bottom line by enabling the emergence of work processes in constantly changing situations. But managers have received insufficient guidance about what exactly they should be doing to manage these emergent processes. The authors contend that managers must actively facilitate the confluence of participatory "spurts" of innovation. By examining the methods of companies such as Novell, IDS Scheer AG and Entergy, the authors identify four methods successful managers employ to address an emergent environment. First, these managers structure the work so that information, assumptions and interpretations are continually being challenged. Second, they accept that changing circumstance will continually require new knowledge and skill sets. Third, they understand that emergent processes involve unpredictable inputs from suppliers, employees, customers and other stakeholders. Lastly, they understand that they alone cannot induce participatory innovation, so they have learned to create or identify existing "reputation networks." Managers who have mastered these principles help their organizations to react so quickly to unpredictable events that the reactions often appear to have been planned and preemptive.

Although IT portfolio management has been a best practice for some time, many companies still generate substandard returns from their IT investments. The authors note that investing the right amounts in the right IT asset classes is only the first step -- IT portfolio management techniques must be complemented by a suite of interlocking business practices and processes collectively labeled "IT savvy." The benefits of establishing such practices add up to a tangible IT savvy premium: The authors point to higher net profits and other performance gains for IT-savvy companies in the year following their investments in key IT asset categories. The article cites a range of organizations -- from 7-Eleven Japan and Amazon.com to Raytheon and Carlson Companies -- in which IT savvy is ingrained, informing many of the companies' business decisions and sharply focusing their IT investments. Starting with a refresher on the IT portfolio approach -- and noting best-practices portfolio players such as UPS, Eli Lilly and Mohegan Sun -- the authors draw on the findings of a multiyear survey to review the different IT assets in which companies invest before discussing the gap in IT investment returns that separates those with IT savvy from those without. They present five hallmarks of IT savvy and offer a series of practical suggestions for how managers can start to match IT savvy with the IT asset mix.

Case studies suggest that companies including Avon, Stonyfield Farm and Starbucks have benefited from marketing initiatives associating the company with a socially beneficial cause. But how should managers allocate dollars between social-cause marketing and other types of marketing programs? The authors use a market-research technique called "conjoint analysis" to help managers evaluate the relative benefits of various types of affinity marketing programs, including sponsorship of social causes, sports or entertainment events. Conjoint analysis involves creating a variety of hypothetical brand profiles that contain combinations of brand attributes; by asking consumers to rank the profiles, researchers can gain insights into how different brand attributes affect consumers' preferences. In several experiments, the authors used conjoint analysis to examine how consumers' responses to a brand of beer, milk or juice would be affected if the brand had a marketing affiliation with a social cause or with a sport or entertainment event. For some of the products studied, affiliations with social causes had more positive effects on consumer rankings than affiliations with sports or entertainment events. However, this was not always true; for example, it was not the case for the milk brands studied, suggesting that the effect of social-cause marketing initiatives may vary by industry. The authors also discuss how brand managers can use conjoint analysis to compare potential marketing initiatives.

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.