Articles

Although the pursuit of opportunity promises outsized rewards to entrepreneurs and established enterprises, it also entails great uncertainty. The critical task of entrepreneurship lies in effectively managing the uncertainty inherent in trying something new. Some entrepreneurs foolishly try to ignore uncertainty; others go to the opposite extreme of attempting to avoid it altogether. Rather than ignore uncertainty or attempt to avoid it in the na_ve belief that every contingency can be anticipated, entrepreneurs should instead manage uncertainty by taking a disciplined approach. Over the past five years, the author conducted systematic research into how entrepreneurs manage the inevitable risks while pursuing opportunities. A synthesis of the research revealed that discipline -- and its byproduct, the successful management of uncertainty -- comes through the adoption of an iterative experimentation model. In this three-step process, an entrepreneur first formulates a working hypothesis about an opportunity, then assembles the resources to test the hypothesis, and finally designs and runs real-world experiments. Depending on the results of a round of experimentation, the entrepreneur may revise the hypothesis and run another experiment, harvest the value created through a sale, or abandon the hypothesis and pull the plug. The model provides insights into some of the most daunting questions entrepreneurs face -- including how to screen an opportunity, how much money to raise, when to make key hires and how to use limited resources most efficiently.

The technical, organizational and strategic challenges of the shift to on-demand computing power.

For many years, multinational corporations could compete successfully by exploiting scale and scope economies or by taking advantage of imperfections in the world's goods, labor and capital markets. But these ways of competing are no longer as profitable as they once were. In most industries, multinationals no longer compete primarily with companies whose boundaries are confined to a single nation. Rather, they go head-to- head with a handful of other giants. Against such global competitors, it is hard to sustain an advantage based on traditional economies of scale and scope. MNCs must seek new sources of competitive advantage. While multinationals in the past realized economies of scope principally by utilizing physical assets and exploiting a companywide brand, the new economies of scope are based on the ability of business units, subsidiaries and functional departments within the company to collaborate successfully by sharing knowledge and jointly developing new products and services. Collaboration can be an MNC's source of competitive advantage because it does not occur automatically -- far from it. Indeed, several barriers impede collaboration within complex multiunit organizations. And in order to overcome those barriers, companies will have to develop distinct organizing capabilities that cannot be easily imitated. The authors develop a framework that links managerial action, barriers to interunit collaboration and value creation in MNCs to help managers understand how collaborative advantage can work. The framework conceptualizes collaboration as a set of management levers that reduce four specific barriers to collaboration, leading in turn to several types of value creation. They draw on BP's experience to illustrate the effectiveness of a collaborative approach.

Many studies have shown that the most treacherous time in the failure-strewn business of mergers comes when companies attempt to combine operations. Surprisingly, however, they often destroy value not as a result of inattention to detail but through excessive zeal in their integration efforts. That's because acquirers, recognizing the many potential dangers inherent in the merger process, often attempt to immunize themselves by painstakingly mapping out comprehensive, detailed plans for blending every aspect of operations. What they don't realize is that too much integration can block companies from realizing the benefits of a merger just as easily as too little can. And, in some cases, overintegrating can do far more damage. The authors posit that M&;A activity is typically based on one of three types of "investment theses"-- "active investing," growing scope and growing scale -- and that each requires different degrees of merger integration. If an acquired company is the first plank of a new platform in a venture-capitalist firm's portfolio, for example, it will probably require the bare minimum of integration. But deals that enhance scope or scale require executives to pay much more attention to integration. The authors explain how Illinois Tool Works, Sears, Roebuck and Co., BP, Philips Medical Systems and Keppel Offshore & ; Marine have all benefited from integrating selectively, comprehensively or with a mix of the two, according to whether they were seeking economies of scale or scope.

Natural disasters, labor disputes, terrorism and more mundane risks can seriously disrupt or delay the flow of material, information and cash through an organization’s supply chain. The authors assert that how well a company fares against such threats will depend on its level of preparedness, and the type of disruption. Each supply-chain risk & #8212; to forecasts, information systems, intellectual property, procurement, inventory and capacity & #8212; has its own drivers and effective mitigation strategies. To avoid lost sales, increased costs or both, managers need to tailor proven risk-reduction strategies to their organizations. Managing supply-chain risk is difficult, however. Dell, Toyota, Motorola and other leading manufacturers excel at identifying and neutralizing supply-chain risks through a delicate balancing act: keeping inventory, capacity and related elements at appropriate levels across the entire supply chain in a rapidly changing environment. Organizations can prepare for or avoid delays by “smart sizing” their capacity and inventory. The manager serves as a kind of financial portfolio manager, seeking to achieve the highest achievable profits (reward) for varying levels of supply-chain risk. The authors recommend a powerful “what if?” team exercise called “stress testing” to identify potentially weak links in the supply chain. Armed with this shared understanding, companies can then select the best mitigation strategy: holding “reserves,” pooling inventory, using redundant suppliers, balancing capacity and inventory, implementing robust backup and recovery systems, adjusting pricing and incentives, bringing or keeping production in-house, and using Continuous Replenishment Programs (CRP), Collaborative Planning, Forecasting and Replenishment (CPFR) and other supply-chain initiatives.

Technological diversity and organizational structure both shape an alliance’s potential payoff.

Truly innovative strategy must emanate from more than objective analysis.

Differences in emphasis and approach make global supply-chain management even more of a challenge.

Although large-scale risks such as war, terrorism and natural disaster garner media attention, it is the everyday, small-scale risks associated with opacity -- a lack of transparency in countries' legal, economic, regulatory and governance structures -- that can confound global investment and commerce. The authors offer new research that identifies the causes and measures the effects of this phenomenon across 48 countries. The research draws upon 65 objective variables from 41 sources including the World Bank, the International Monetary Fund, the International Securities Services Association, the "International Country Risk Guide" and individual country's regulators. The authors' methodology projects which aspects of a country's economy carry the greatest risk, then, by assessing and comparing the costs of those risks on a country-by-country basis, they create an overall Opacity Index. Next they correlate the Opacity Index to a variety of other indicators, including a country's income level, economic development and foreign investment, entrepreneurship, and access to capital and lending and equity markets. The authors conclude that opacity strongly correlates overall with slower growth and less foreign direct investment in nearly all markets, and they suggest how information about opacity and its contributing factors can enhance both managerial and national policy decisions alike.

Many companies prefer employees with deep motivation, strong commitment, unquestioned loyalty and widely shared values. But the author says that employing such highly involved people can have serious drawbacks for the company. For starters, deeply motivated people can be a challenge for management because they tend to interpret organizational purposes in their own way, sometimes substituting their own purposes for the company objectives without even realizing it. Deeply motivated individuals are also likely to display strong resentment when the organization fails to fulfill the needs or desires they are so imbued with. Not surprisingly, deeply motivated people are not easy to get along with: They don't comply with rules or policies that they don't fully respect; they believe they should have a say in almost everything; and they tend to behave like the owners they are not (but wish they were). Similarly, people who are strongly committed are likely to develop excessive confidence in the face of difficulties. They can be blind to warning signs, which can lead to excessive delays in corrective actions. Strongly committed people are also prone to believing that the end justifies the means, which can lead to unethical behavior. Given such drawbacks, the author contends that companies might be better off with employees who have a moderate -- instead of excessive -- level of motivation, commitment and loyalty.