Articles

Diversifying can be the best way for companies to match their capabilities to the marketplace.

The quality initiative Six Sigma is sweeping the United States. Is it good for whatever ails your company? Consultant Michael Hammer thinks not. He warns that many business leaders, in their quest for operations-performance improvement, fail to distinguish its strengths from its weaknesses. Hammer presents a strategic, holistic approach & #8212; business-process management & #8212; in which Six Sigma is only one of many useful initiatives. If a business process, such as billing customers, is fundamentally defective, why use Six Sigma to improve the performance of it? Companies that Hammer calls process enterprises (Caterpillar, Johnson & ; Johnson, Merck, Progressive Casualty Insurance, Bombardier and IBM) have found more success redesigning whole processes. Certainly, Six Sigma’s ability to unearth root causes of problems is outstanding for narrow cost-saving improvements. But it deploys statistical analytic tools to uncover flaws in the execution of an existing process without asking whether the process itself is flawed. Six Sigma assumes that the existing design is fundamentally sound & #8212; a dangerous assumption. For peak performance, companies should position Six Sigma in the context of process management and assign process owners. When a problem is amenable to a Six-Sigma solution, the process owner convenes a project team. If deeper change is needed, then a process-redesign team is organized. Process owners ensure that all performance initiatives (Six Sigma, enterprise resource planning, balanced scorecard, customer-relationship management and so on) are integrated to support strategic goals. Fitting Six Sigma into the process-management framework allows organizations to enjoy Six Sigma’s benefits while keeping it away from areas where it doesn’t belong. Process enterprises already are reaping cost savings, accelerated new-product introduction, improvements in customer satisfaction and increases in profitability.

Regardless of industry, all companies are operating on ever faster evolutionary tracks and at ever greater risk. A company’s real core capability & #8212; perhaps its only sustainable one, say authors Fine, Vardan, Pethick and El-Hout & #8212; is its ability to continually redesign its value chain, reshuffling structural, technological, financial and human assets in order to find maximum, albeit temporary, competitive advantage. The ultimate goal of strategic value-chain analysis, say the authors, is building an organizational capability for fast response to rapidly evolving industry dynamics. To execute such an analysis, the authors developed a value-chain-strategy framework during a yearlong strategic assessment at the General Motors Powertrain organization. The framework seeks to answer four key questions: Where is value being created and what activities are not adding to overall enterprise value? What areas of the business should remain in-house versus being outsourced? Where should investments be made and how should they be leveraged? How can the value chain be organized to optimize existing and emerging alliances? To answer those questions, the authors employ not only traditional economic-value-added (EVA) analysis, but also their own strategic value assessment (SVA), which considers factors such as customer preferences, the rate of change of underlying technology, competitive position in the marketplace, depth of the supply base and the integral or modular nature of the asset. The wide applicability of the framework is illustrated in the authors’ discussion of IBM’s decision to outsource its first PC microprocessor to Intel, a consumer-products company’s decision to outsource the manufacture of a branded product, and the Recording Industry Association of America’s decision to quell rather than acquire Napster’s file-sharing capability.

Crack the code on customer priorities and profit models first & #x2014;then digitize.

A pair of new research studies points to strategies for making the most of technology acquisitions.

In following the traditional model of strategy development, a company seeks to craft the best possible plan so that it can be handed off for a predetermined course of execution involving a predictable set of events and a specific final goal. This scripted approach resembles traditional theater: The actors speak the same lines and the action comes to the same satisfying conclusion, night after night. The model works well when business is going through a relatively stable period. The current situation, however, is not stable: Companies are still trying to navigate the technological tsunami created by the Internet. Under the circumstances, it makes much more sense for companies to follow an improvisational model & #8212; that is, to throw out the script, bring in the audience and trust the actors to innovate on the spot. The metaphor of improvisational theater helps executives think about the way in which an entire organization can become an arena for staging experiments that can transform a company’s overarching strategy. Harvard Business School professor Rosabeth Moss Kanter lays out the six elements of strategic improvisation and illustrates how companies have made use of each one to get the most out of new technologies. Senior managers who understand these elements can create an atmosphere in which improvisational theater thrives; change then becomes an organic process rather than a painful reaction to circumstances beyond the company’s control. Although this approach does not advocate a big plunge into something totally new, it is anything but conservative. Companies that engage in continual improvisation through innovative projects of all sizes and shapes are much better equipped to explore highly threatening disruptive technologies and embrace quite radical changes.

Customer-lifetime value is more than a metric; it's a way of thinking and of doing business.

Managers don’t have to be told that to innovate they need to embrace drastically different practices from the ones they use for routine work. So why don’t they do it? According to Robert I. Sutton, co-director of Stanford University’s Center for Work, Technology and Innovation, when business leaders see what innovation actually requires, they often recoil. The right practices seem strange, even wrongheaded. Understandably, it’s hard for any executive to take action that will lose money today in order to test ideas that might never make money & #8212; in hopes one idea will make money tomorrow. Nevertheless, Sutton contends, that is just what cutting-edge companies do, bravely tackling ideas that at first blush seemed weird. From his research on such organizations, Sutton has developed eight techniques to move teams and companies from working by rote to innovating. The first two techniques are designed to provoke emotions that interrupt mindless action (provoke unpleasant emotions in others; make yourself uncomfortable). The second two are for smashing mindsets (treat everything like a temporary condition; ignore the experts). The third two help people identify and reject their dearest beliefs (plan to do something ridiculous; hold a sacred “cow” workshop). The last two are for exploding the composition of organizations and teams (bring in some slow learners; keep changing the composition of teams). Sutton cautions, however, that the exact methods a company uses to spark novel ideas and actions should differ depending on the situation. He recommends giving people freedom to play around with a wide variety of offbeat notions until bringing in new knowledge and helping people see old things in new ways finally enables the company to break from the past.