Articles

Most agree that innovation ensures superior performance, but there is less agreement on which innovation strategy or strategies best sustain that performance over time -- that is, which lead to resilience. The authors seek to answer that question by analyzing a set of global companies that have successfully adapted to diverse and turbulent changes over a period of two decades, as evidenced by their book value per share, return on assets and sales growth. Among those that sustained superior performance are multinationals such as pharmaceutical, coating and chemical manufacturer Akzo Nobel, electronics company Philips, energy and petrochemical company Shell, consumer goods manufacturer Unilever, life-science products and chemicals manufacturer DSM, multimedia publisher Wolters Kluwers, information and media provider VNU, investment and fund management group Robeco and brewing company Heineken. The research shows that resilient companies continually orchestrate a dynamic balance of four innovation strategies: knowledge management, exploration (internal research and development), cooperation (acquisitions, alliances and other relationships) and entrepreneurship. The authors conclude that focusing on one innovation strategy to the exclusion of others may produce innovation, but it will not lead to resilience. Pursuing several different innovation strategies simultaneously maximizes a company's chances of successful adaptation. Investments in innovation, they say, should not be driven by costs or short-term returns but rather should flow naturally to the most effective strategy for the changing context. The timing of increasing or decreasing the emphasis on innovation strategies is important to maintain the dynamic balance, and that timing, they argue, is primarily the responsibility of leadership.

Although most U.S. businesspeople know better than to sit down with competitors to fix prices or divide markets, they can still violate antitrust rulings. Increasingly, the government agencies that enforce antitrust laws are scrutinizing organizations' marketing, and shifts in practices in the early 2000s have reinvigorated enforcement activity. Understanding what behavior raises antitrust flags is critical for companies with dominant market share in one or more product categories. There has been increasing scrutiny of shelf-slotting practices and category management in the retail sector, for example. In this article, the authors take managers through the process of determining antitrust violation and then lay out five important cases in which practices that seemed to fit with competitive norms or with good citizenship, in fact, were ruled to be breaches of antitrust law -- in some cases, with momentous penalties. The article goes on to describe a sampling of the tactics that can help to temper competitiveness with caution. It concludes that a fundamental requirement is for managers to begin looking at their competitive tactics -- and at the business strategies and processes that support those tactics -- through the eyes of antitrust regulators.

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.