Articles

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.

Whether a manufacturer's direct sales via the Internet help or hurt its retail partners depends upon the pricing strategy it employs.

Many companies leave risk management and business continuity to security professionals, business continuity planners or insurance professionals. However, the authors argue, building a resilient enterprise should be a strategic initiative that changes the way a company operates and increases its competitiveness. Reducing vulnerability means both reducing the likelihood of a disruption and increasing resilience. Resilience, in turn, can be achieved by either creating redundancy or increasing flexibility. Redundancy is the familiar concept of keeping some resources in reserve to be used in case of a disruption. The most common forms of redundancy are safety stock, the deliberate use of multiple suppliers even when the secondary suppliers have higher costs, and deliberately low capacity utilization rates. Although necessary to some degree, redundancy represents pure cost with no return except in the eventuality of disruption. The authors contend that significantly more leverage, not to mention operational advantages, can be achieved by making supply chains flexible. Flexibility requires building in organic capabilities that can sense threats and respond to them quickly. Drawing on ongoing research at the MIT Center for Transportation and Logistics involving detailed studies of dozens of cases of corporate disruption and response, the authors describe how resilient companies build flexibility into each of five essential supply chain elements: the supplier, conversion process, distribution channels, control systems and underlying corporate culture. Case examples of Land Rover, Aisin Seiki Co. (a supplier to Toyota), United Parcel Service, Dell, Baxter International, DHL and Nokia, among others, are offered to illustrate how building flexibility in these supply chain elements not only bolsters the resilience of an organization but also creates a competitive advantage in the marketplace.

Global sourcing is an advanced but complex approach to sourcing and supply management. The authors use survey research to gauge the extent to which companies are currently practicing global sourcing, which involves integrating and coordinating common items, materials, processes, technologies, designs and suppliers across worldwide buying, design and operating locations. In a sample consisting of supply executives primarily from large North American-based multinationals -- particularly manufacturers, the majority of survey respondents said their companies practice some form of international purchasing, a less integrated and coordinated approach than global sourcing. However, more than 70% of managers surveyed said that their companies plan to use global sourcing in the future. The authors identify a set of features common among companies that excel at global sourcing. The features cluster into seven broad characteristics: executive commitment to global sourcing; rigorous and well-defined global sourcing processes; availability of resources needed for the global sourcing initiative, including access to qualified personnel and budgets; information technology systems that support data analysis on a worldwide level; organizational design features that support the initiative, such as an executive committee that oversees global sourcing; structured approaches to communication, such as regular strategy review sessions; and methodologies for measuring savings from global sourcing.

For boards dealing with an embattled CEO, doing nothing may pay off in the long run.

By analyzing 50 cases of successful sustainable enterprise in developing countries, the authors developed a conceptual framework they call the Sustainable Local Enterprise Network model. Analysis of the 50 cases revealed that examples of successful sustainable enterprise in developing countries often involve informal networks that include businesses, not-for-profit organizations, local communities and other actors. These networks can lead to virtuous cycles of reinvestment in an area's financial, social, human and ecological capital. Successful SLENs, the authors found, require at least one business enterprise to ensure the network's financial sustainability and serve as its anchor; however, that anchor role may be played by a cooperative or a profitable social enterprise launched by a non-governmental organization. While multinational corporations were sometimes part of the SLENs studied, entrepreneurs, nonprofits and sustainable local businesses were more common. Using a number of examples from their research, the authors describe how SLENs operate. Examples include networks involving Honey Care Africa Ltd., a honey company based in Nairobi, Kenya, which aims to promote rural development through beekeeping, and Grameen Shakti, which sells solar energy systems for homes in Bangladesh. The authors conclude with recommendations for fostering the development of SLENs, such as setting up training programs in sustainable entrepreneurship in developing countries.