Articles

Developing the right strategy for product innovation requires a fundamental understanding of how technical modularity affects R&;D. In a modular design, a change in one component of a product has relatively little influence on the performance of the system. In a nonmodular, or coupled, design, the components are highly interdependent, and the result is that a minor change in one part can cause an unexpectedly huge difference in the functioning of the overall system. Generally speaking, modular designs make R&;D more predictable, but they tend to result in incremental product improvements instead of important advances. Coupled designs are riskier to work with, but they are more likely to lead to breakthroughs. This trade-off between predictability and innovation can be visualized as a technology landscape, with gently sloping hills corresponding to incremental product improvements that are based on modular components & #8212; and with soaring, craggy peaks representing breakthrough inventions that rely on tightly coupled parts. Developing new products requires a search across such technology terrain, and companies should first choose the type of landscape that suits them best and then develop the appropriate strategy for navigating that topography.

Disruptive strategic innovations are not necessarily superior to the traditional ways of competing, nor are they always destined to conquer the market. Rushing to embrace them can be detrimental for established companies when other responses, including ignoring the innovation, make more sense.

Ongoing innovation is essential for the enduring success of any company in a competitive industry. Innovation comes in two basic flavors: product innovation and business innovation (that is, process and marketing innovation). In technology-driven industries, the primary source of customer value shifts over time from the first to the second as technologies mature and the customer base becomes more mainstream. If technology-driven companies are to make the necessary shift to business innovation, they cannot avoid significant changes in company culture. Waiting until crisis strikes is dangerous. But many leaders avoid addressing cultural challenges early enough because they are uncomfortable with the invisible, difficult-to-measure nature of culture and its stubborn resistance to quick fixes. Early high-tech leaders must inevitably evolve their underlying cultural bias as the driving technology in their industry moves through the creation, transition and commoditization stages of development. Cultural change often requires managers to be jolted out of their comfortable grooves by a disaster. Premeditated change is preferable, but it takes courage and foresight. For the courageous manager, the author outlines ways to proactively guide the development of a company’s culture from one best suited for early entrepreneurship to one capable of enduring industry leadership.

With the economy and the equities markets increasingly unpredictable and faith in corporate governance in steep decline, it is not surprising that stakeholders of all types have growing interest in the sustainability of companies. Yet the word sustainability remains ambiguous and politically charged, particularly within the lexicon of business. When, as is commonly the case, the term is limited to encompass environmental management or social equity, sustainability is often perceived to be at odds with fiduciary responsibility and unlinked to business strategy. This article makes a business case for sustainability by adopting a broader view: A sustainable organization is one whose characteristics and actions are designed to lead to a desirable future state for all stakeholders. According to the author, intangible indicators that gauge sustainability also can be indicators of efficacy & #8212; that is, of how well a company is run & #8212; and companies that actively manage and respond to a wide range of such indicators are better able to create value for all stakeholders over the long term. Drawing on a number of studies, including Cap Gemini Ernst & ; Young’s formulation of its Value Creation Index, the author identifies a variety of intangible indicators, then suggests how they relate directly to sustainability and ultimately to company performance. The article concludes by sketching out the parameters of a company-level sustainability model that can be empirically tested and used to both manage operations and set strategy.

New research shows that companies owned by founding families have higher profits and valuations.

A new study finds that only a few large retail firms have a genuinely global presence.

Many international business leaders consider a global mind-set desirable, but few know how to embed it companywide. A corporate global mind-set differs from having a few managers think globally. That comes first. But global thinking must be incorporated into an organization’s processes so that everyone knows how to handle the tug-of-war between local responsiveness and corporate efficiency. Two Northeastern University professors studied global companies and found that inculcating a corporate global mind-set lagged behind the will to do so. IBM made the most progress. Having originally overemphasized global consistency, it learned to embrace a more flexible approach, adopting global-policy-development teams, worldwide knowledge networks and appropriate performance measures. Unfortunately, many American executives regard globalization as pursuing standardized products through centralized decision making. In favoring global consistency, they often fail to secure local cooperation. Through a global mind-set, corporate-decision-making processes become more permeable to influences from beyond the home country. The authors show how managers can determine when an issue calls for a locally adaptive response, when it calls for a globally consistent response and when both elements are needed. The corporate global mind-set is a requirement for motivating a diverse and sprawling work force and giving it a common purpose.

In recent years, many companies have learned to use the Internet as a powerful platform for collaborating directly with customers on innovation. But direct interactions & #8212; facilitated by customer advisory panels, online communities and product-design tool kits & #8212; have limitations. They don’t always allow companies to reach the right customers at the right time and in the right context. Thus, to fully exploit the Internet as an enabler of innovation, companies need to complement their direct channels of customer interaction by using third parties that can help them bridge gaps in customer knowledge. The authors call this process of indirect, or mediated, innovation innomediation and the third-party actors at the center of it innomediaries. In their research, the authors identified three distinct types of innomediary and observed how each one can help companies acquire different forms of customer knowledge. Using case studies, they suggest ways in which companies can begin to think about exploiting the power of these emerging intermediaries. For businesses that learn to use customer knowledge from both direct and indirect sources, the Internet holds the key to a multichannel innovation strategy.

Most companies invest a significant amount of time and effort in a formal, annual strategic-planning process & #8212; but many executives see little benefit from the investment. In the course of the authors’ research, one manager compared his company’s process with a “primitive tribal ritual,” and another likened it to the Soviet system: “We pretend to make strategy and they pretend to follow it.” The authors found that, although few truly strategic decisions are made in the context of a formal process, formal planning can be a real source of competitive advantage when it is approached with the right goal in mind: as a learning tool to help companies create within their management teams “prepared minds” (to borrow from Louis Pasteur). The key is getting right a host of seemingly mundane but actually critical details concerning the annual meetings that are at the heart of all formal processes & #8212; including who should attend the meetings, where they should be held and what kind of preparation is necessary to make them effective. Following an analysis of those details, the authors offer several examples showing prepared minds in action, in which formal planning helped managers make solidly grounded, real-time strategic decisions in a world of turbulence and uncertainty.