Articles

It is not uncommon in many companies for tactical planners to use computer models to optimize the supply chain -- while, in a completely separate activity, senior managers formulate strategy. The endeavors are understandably separate as they differ fundamentally in nature. But today, the author posits, a few leading organizations are discovering the benefits of having the tactical planners in close communication with the big-picture strategists early on. A new approach called strategic supply-chain planning can ensure that critical supply-chain details inform a company's business strategy and that supply-chain management aligns with the strategic direction -- a synergy companies could benefit from at any time but is often most urgently needed after mergers or acquisitions. Companies routinely weigh long-term supply-chain-related decisions in light of alternative sources of supply, new geographic markets or new products, but tactical managers think about the issues differently than strategic managers. According to the author, a step-by-step approach can leverage the best of both worlds, and his research suggests how to combine the strategist's scenario planning with the tactical planner's optimization modeling while avoiding the downsides of each approach. As long as the two teams work together, he says, strategic supply-chain planning can improve a company's competitiveness.

A great variety of companies -- cell phone operators, rental car companies, video rental chains and many others -- price their products and services in ways that confuse and irritate their customers, according to the authors. They lure people in with teaser rates, two-for-one-deals, "free" gifts and so on, and then slap them with late fees, charges for "extra" usage and other unanticipated costs. The conventional wisdom is that such tactics are a good idea; after all, they allow companies to boost profits while seeming to price competitively. But, say the authors, hidden pricing can be harmful not only for consumers who can't figure out what something really costs, but also for the businesses that engage in it. That's because it isn't enough to fool customers. Companies also have to fool their competitors with pricing games, and that is much harder to do. Rivals are equally good at fooling customers and will spend heavily to attract them. If competition forces a business to spend an extra $1 today in order to attract a customer worth an extra $1 tomorrow, neither the business nor the customer ends up any better off. Using examples from the appliance industry and restaurant business, the authors show how companies that engage in honest pricing can enjoy important benefits -- happier customers, clearer product differentiation and, consequently, higher profits.

Most consumption experiences that people have are the routine stuff of life -- filling the gas tank, buying groceries, grabbing a quick lunch. Such tasks for the most part are neither fun nor painful; they're simply things that need to get checked off the list. Indeed, the authors say, they are so neutral that people often choose the seller with little thought and forget the experience in a matter of hours. Some providers of neutral services want to keep things that way. They want to be so convenient and reliable that people continue to use them unthinkingly. For certain mature service businesses, however, the addition of fun can be an important differentiator. The authors present three case studies taken from industries not known for fun -- furniture retailing, consumer banking and the grocery business -- to show how it can be turned to profitable advantage. Jordan's Furniture, Commerce Bank and Stew Leonard's operate their basic business models at a very high standard of excellence. But they also have what it takes to make a routine experience into something positive: strong leadership, a clear vision, a discriminating filter for new employees, a focus on hiring for attitudes rather than skills, and the ability to come up with the unexpected. The authors offer some general guidelines and cautionary notes to help managers who may want to try to emulate these successful companies.

Some observers see outsourcing as a key trend (perhaps even the key trend) shaping the future of human resources (HR). They envision HR departments focused entirely on strategic activities, leaving all the transactional and administrative activities to vendors. But, the author cautions that outsourcing any business activity creates potential risks as well as benefits: Companies can find themselves overly dependent on suppliers, and they can lose strength in strategically core competencies. Given the importance of the outsourcing decision and the amount of academic and practitioner literature on it, there is surprisingly little consensus about the topic, says the author, probably because of the multiplicity and complexity of the factors involved. The author synthesizes the strongest of the available research and identifies the six key factors that companies should consider when making important outsourcing decisions. The framework, which helps assess the pros and cons of outsourcing, can be applied specifically to HR functions. In particular, it can help explicate the managerial issues of outsourcing agreements such as the recent landmark deal between BP and Exult Inc. That $600 million, seven-year arrangement provides a window into the many opportunities -- and complexities -- of HR outsourcing.

Researchers are beginning to explore the complex effects of employee identity on the workplace.

Much of the recent research on mergers and acquisitions (M&;A) seeks to link the market valuations of individual companies, as well as overall stock market levels, with merger activity and performance. In their review of work conducted in this field, the authors present a primer on ways to measure whether M&;A actually creates value and then offer an overview of the "winners" and "losers." But the long-held observation that stock prices affect merger activity was confirmed in 2001, they say, by work that revealed a correlation between high merger activity and high market valuations. Several other studies have shown that acquirers who pay with stock underperform their peers in the long run, whereas acquirers who pay cash outperform their peers. Another line of inquiry, according to the authors, finds that the level of the stock market when an acquisition is announced affects short-term and long-term merger performance. The short-term effects are positive for acquisitions announced in high-valuation markets and negative for those undertaken in low-valuation markets. Supporting evidence is provided in other recent work too: Acquisitions that take place during periods of below-average economic growth create more shareholder value than strong-economy acquisitions. The strong performance of low-valuation acquirers and weak-economy acquirers suggests that they are not distracted by short-run market reactions, but instead focus on business fundamentals and true potential synergies. Two articles published in 2002, suggesting that the root cause of such links between valuation and performance may be incorrect valuation by the market, are empirically supported by current work that Bouwman et al. also describe. The conclusion of these various research streams is that stock prices matter, say the authors. The key implication for managers: Be wary of acquisitions made when market or firm valuations are high, and be optimistic about acquisitions when valuations are low. This review includes a comprehensive sidebar of all referenced and relevant research.

Over the past decade, companies have become increasingly aware of the social and environmental pressures facing business. Many management scholars and consultants have argued that these new demands offer terrific opportunities for progressive organizations, and innovation is one of the primary means by which companies can achieve sustainable growth. But, say the authors, the reality is that managers have had considerable difficulty dealing with sustainable-development pressures. Specifically, their innovation strategies are often inadequate to accommodate the highly complex and uncertain nature of these new demands. In response, the authors propose the concept of sustainable-development innovation, or SDI. In contrast to conventional, market-driven innovation, SDI considers the added constraints of social and environmental pressures. SDI is therefore usually more complex, because there is typically a wider range of stakeholders, and more ambiguous, as many of the parties have contradictory demands. Furthermore, sustainable-development pressures can be driven by science that has yet to be accepted fully by the scientific, political and managerial communities. Organizations that fail to understand such issues could well find themselves making costly mistakes in bringing new technologies to market.

Overreacting to corporate scandal will hobble risk taking, innovation and growth

Wireless networks and microcharging will change the Internet as we know it.

During the late 1990s stock market boom, many large companies established corporate-venturing units, seeking to develop innovative new businesses and spur growth. However, with the downturn of the economy, many of these units ceased operations -- while others managed to survive and a few even thrived. What went wrong with failing companies, and how do those that still have corporate-venturing units manage to succeed? The authors studied nearly 100 venturing units, proposing that failures often occurred because such groups lacked clarity -- both in their objectives and in their business models. Using the example of successful venturing units, such as Intel Capital, Mustang Ventures at Siemens, Lucent New Venture Group and GE Equity, the authors outline four common types of venturing scenarios that, by using a careful, steady approach, companies can execute well: ecosystem venturing, innovation venturing, harvest venturing and private-equity venturing. They discuss the characteristics and benefits of each and how successful companies avoid the pitfalls that snare others. In the end, the authors conclude, there are many ways to do corporate venturing. But to succeed, companies must define their goals clearly and narrowly, understand the differences among the various types, and use the appropriate type for the appropriate activity. The ultimate key to accomplishing that, say the authors, lies in effectively employing the differences to their advantage.