Articles

Two new studies reveal that successful CRM systems go beyond sales, marketing and customer service.

The trade-off between reliability and customization in goods and services.

What company in a service business has not weighed the advisability of offering products? What manager in a product-oriented business has not thought about growing revenues by adding related services? Expansion often seems to make sense, but if an expanding company limits itself to approaches that work in its old sector, it is likely to find them unsuited to the new sector. The software industry provides instructive examples. Intense competition and the need to maintain a high growth rate have led numerous software service companies to try repackaging the knowledge they have gained creating customized software solutions for clients -- and to sell it as a more generic product. Their attempts to cross the chasm between the service sector and the product sector have met with grim results: Approximately 87% of software service companies' product initiatives from 1995 through 1998 failed. Satish Nambisan, a professor of management at Rensselaer Polytechnic Institute's Lally School of Management and Technology, argues that service companies fail to recognize important differences between the ways the two sectors do business. On five key issues (intellectual property rights, product complementarity, returns from scale, abstracting knowledge and connections with users), service companies and product companies are often at opposite poles. Five case studies show why service companies must modify the service mind-set to suit the product market, but without giving up their unique service-sector insights. His recommendations? When it comes to marketing, focusing on a niche market or linking with an established product are good tactics; packaging generic domain knowledge can be more risky. Companies must encourage knowledge sharing among their employees and cultivate long-term relationships with users. Finally, they must reassess the trade-offs between design flexibility and ease of development and between process flexibility and process efficiency, being sure in both cases not to sacrifice the former for the sake of the latter. The importance of understanding the new sector holds for software companies transitioning in the opposite direction -- as well as for enterprises in other high-tech industries with both a service and a product sector.

Which e-businesses will prevail? New research on e-fulfillment may hold the key. After all, getting a customer’s online order is not enough: E-businesses also must show that they can deliver products quickly and efficiently. Hau L. Lee and Seungjin Whang, professors of operations, information and technology at Stanford University’s Graduate School of Business, have studied a few successful online companies and their innovative ways of applying order-fulfillment strategies. Although the principles are not new, Internet technologies enable them to be applied in new and expanded ways. The two core concepts for improving e-fulfillment efficiency are making more use of information flows instead of physical product flows and capitalizing on existing pipelines and infrastructures. Those concepts underlie five key e-fulfillment strategies: logistics postponement, dematerialization, resource exchange, leveraged shipments and clicks-and-mortar. Whether the strategy expands on time-tested models or is a breakthrough, the trick is to determine the best one for a given situation. A computer company might use logistics postponement. By capturing more-accurate information, it could assemble final goods on demand and thereby save money by postponing delivery decisions until after receiving the final word on what the customer wants. Other companies might use dematerialization, converting physical products into information flows, just as a music CD can be converted to MP3 format or Egreetings.com substitutes digital flows for paper greeting cards sent by regular mail. With resource exchange, an e-company that needs to move a load from Hong Kong to San Francisco might borrow a ship from another company that needs a cost-effective way to return its empty vessel to California. Webvan uses the leveraged-shipment strategy, making the most of existing networks. With its clicks-and-mortar model, CVS covers the last mile by having customers pick up their online orders. Some online purchasers in Japan do the same: 7dream.com utilizes the ubiquitous 7-Eleven stores to enable a group of Japanese companies to do bulk deliveries. Pointing out ways that companies are extending e-fulfillment value beyond cost containment, the authors also demonstrate how secondary opportunities are taking companies beyond the last mile.

Renowned management thinker Henry Mintzberg and business professor Frances Westley zero in on three ways the best managers make decisions. To hone their decision-making skills, business leaders can start by admitting that real-world decisions are not always made through logical steps -- and that often they shouldn't be. Most managers believe they make decisions by using analysis. Define the problem, they say, diagnose its causes, design possible solutions, choose and, finally, implement the choice. But, in reality, they may make their best decisions in some other way -- for example, after a flash of intuition or by trying out several things and keeping what works. In fact, the authors show that a focus on "thinking first" before choosing may interfere with a deep understanding of the issues dividing people and prevent a good decision. A decision-making approach the authors call "seeing first" -- literally creating a picture with others in order to see everyone's concerns -- can surface differences better than analysis and can force a genuine consensus. "Doing first" -- going ahead with an action in order to learn -- is the third approach. Each route is best under particular circumstances. "Thinking first" works best when the issue is clear, data is reliable, the context is structured, thoughts can be pinned down and discipline can be applied -- for example, in an established production process. "Seeing first" works best when many elements must be combined into creative solutions, commitment to those solutions is key and communication across boundaries is essential -- for example, in new-product development. "Doing first" works best when the situation is novel and confusing, when complicated specifications might get in the way and a few simple relationship rules could help people move forward -- for example, when companies face a disruptive technology. If managers learn when to apply each approach, they can increase their effectiveness and give their companies the competitive edge required in uncertain times.

To learn about creating change during a crisis, how about studying a real crisis in an industry where crises can have the broadest impact? That's what MIT Sloan School of Management professor John Carroll and doctoral candidate Sachi Hatakenaka did. Their multiple-year study of Millstone Nuclear Power Station in Connecticut offers practical lessons for managers who may find themselves trying to implement change in a high-pressure environment. When Millstone's CEO for nuclear power arrived to help the organization find its way out of a crisis, he encountered a deeply fractured culture. To propel the organization in the right direction required an amalgam of powerful forces: an unprecedented regulatory fiat from the U.S. Nuclear Regulatory Commission, mandated third-party oversight but, above all, leaders at every level who were open to learning. The resolution of the crisis confirms the precept that organizations are more likely to emerge stronger if leaders avoid oversimplifying the situation and instead allow a gradual understanding to emerge and be tested in action. The authors guide readers though the key events, explaining how each generated useful insights. Though practical, the ideas are not formulaic. One of the main lessons is that change is an evolving process. Like other companies that have emerged from crisis, Millstone still faced challenges. Moreover, lingering mistrust and feelings of anger and hurt can surface in new situations. However, the organization had developed better ways to recognize and deal with the signs of trouble. The defusing of potential crises can be a springboard for change. In any industry that is facing rapid change, ambiguous internal and external signals, alienation and mistrust, or dysfunctional human relationships, managers face an array of challenges. But as Millstone shows, leaders can arise throughout an organization and can be changed by the journey out of crisis -- a journey that, like learning itself, never ends.

Many companies find that it's not enough to "increase customer satisfaction" or "raise product quality." They must know conclusively how such departmental pursuits affect the profitability of the company as a whole. Typically, this requires some kind of profitability modeling, in which links are established between specific actions and the resulting profit to the organization. Although the concept is not new, profitability modeling, to date, has been limited to individual departments or business functions. Although firms develop models that are more comprehensive and cross-functional, these efforts are sporadic, relatively expensive and time-consuming. More companies might attempt this kind of modeling if they had an explicit framework and procedure for establishing links to guide them. Marc Epstein and Robert Westbrook, professors at Rice University's Jones Graduate School of Management, have studied companies' efforts to develop models that link action to profit and have devised a general model that managers can use to link any departmental action to overall corporate profitability. By customizing their general model, firms can more quickly arrive at specific links between an action and its impact on profitability. The action-profit linkage model helps managers identify and measure key drivers of business success and profit, develop causal links among them and estimate the impact of actions to bring them about. This process forces managers to narrow their strategies to the areas with the highest payoff. Attention shifts from a preoccupation with individual performance metrics to an awareness of how those metrics work as a system and how they lead to increased profit and more shareholder value. The process of getting to the final model is valuable because managers gain tremendous insight into how their organizations' various metrics interrelate. The model also fosters a common management focus on the variables that matter most in achieving success. More importantly, it helps develop disciplined thinking about profit drivers by tracing them through the customer, product offering and ultimately the company's actions. Focusing the management team on a common thought process is among the most important things a CEO can do to improve management decision making in both strategy and its implementation.

As bricks-and-mortar companies battle Internet upstarts, some succeed in harnessing the Web to better serve consumers, generate profits and increase market share. Meanwhile others never get their e-business initiatives off the ground. What differentiates the "leaders" from the "laggards"? Leslie Willcocks, who is professor of information management and e-business at the Warwick Business School, University of Warwick, United Kingdom, and Robert Plant, an associate professor of computer information systems at the University of Miami, conducted a year-long research project and interviewed more than 130 executives in 58 established business-to-consumer (B2C) corporations spanning three continents and a range of industries. They have created a new framework for e-business, which explains strategies that have worked for traditional companies. The framework shows that "laggard" organizations typically lack a clear business model to govern their use of Web technologies, becoming mired in debates about the relevance of Web technology itself or spending vast sums on brand building without delivering on the promises their brand conveys. "Leading" organizations tie e-business to their bottom lines by following a distinctive path. Although these companies may start with the idea of achieving technology leadership, they shift attention to brand building and/or customer service and concentrate on generating profitable market share and differentiating the company from competitors. These e-business leaders share certain characteristics: They integrate Web technologies into the core business; they use information gathered via the Internet to gain insight into their customers; they augment their service; they focus on customers and marketing; and they adapt to the constantly changing Internet marketplace. All have identified ways of using Web technologies for competitive advantage and seek ways to sustain that advantage by focusing on brand, size and customer relationships as well as differentiation. Increasingly, companies trying to enter the field of B2C e-business will discover what leading organizations already know: E-infrastructure is a boardroom investment and ownership issue that is central to executing sustainable, anticipatory performance.