Leadership

It is common for senior managers to look for meaningful correlations within their businesses -- for example, to search for the most direct drivers of profitability. However, managers often overreach, overstating relationships that are tenuous at best or may not even exist. In support of this view, the authors, who are consultants in the area of customer loyalty, cite their own recent investigation into common beliefs about customer loyalty (that is, "It costs more to acquire a customer than to retain a customer"), many of which proved to be unfounded. In general, the authors argue, professional managers are too willing to suspend disbelief about cause-and-effect relationships. They allow biases toward a specific business outcome to shape their interpretation of causes and effects. The authors refer to this phenomenon as management teleology. The tendency to hold onto the most rewarding view of events, the authors offer, is not unique to managers. However, when managers substitute beliefs for knowledge and don't acknowledge the leap, they put their businesses at risk. New management ideas will always challenge current practices. But before managers embrace new ways of approaching problems, they should require a higher level of analytic rigor. They need to cultivate the habit of questioning the underlying assumptions of their own views, and be open to ideas that come from the outside.

You must tell your strategy story to reach four different audiences.

When employees leave an organization, they depart with more than what they know; they also leave with critical knowledge about who they know. Thus, the departure of key people can significantly affect the relationship structure and consequent functioning of an organization. In particular, companies should be aware of the unique knowledge held by three important types of employees: "central connectors" (those who are regularly asked for help, typically because they have a high level of expertise in one or more areas), "brokers" (those who act as bridges across subgroups) and "peripheral players" (those who reside on the boundaries of a network but could still possess valuable niche expertise and outside knowledge). Departure of an employee who filled any one of these roles presents knowledge-loss risks that need to be addressed. The departure of a handful of key brokers, for example, could fracture the social network of an organization into isolated subgroups. Thus companies need to take various measures to (1) identify key knowledge vulnerabilities by virtue of both what a person knows and how that individual's departure will affect a network and (2) address specific knowledge-loss issues based on the different roles that employees play in the network.

Checks and balances, competitive elections and term limits could improve corporate oversight.

Schools have to emphasize information, innovation and integration.

How do managers at firms that compete primarily in local markets stay abreast of broader industry trends and innovations? In this article, the authors highlight an interesting way in which managers at some smaller regional firms in the United States seek to combat forces of inertia and myopia in their businesses: by networking with managers of noncompeting firms that operate in the same industry but in other geographic regions. The authors call these networks “industry peer networks” (IPNs) and have conducted research into how common such networks are and how they function. In the United States, industry peer networks apparently originated in the auto-retailing industry in 1947, when an owner of several auto dealerships began bringing managers from those dealerships together to exchange ideas. The concept spread both geographically and into a number of other industries, and industry peer networks now exist in businesses ranging from advertising agencies to office furniture distributors. A typical industry peer network consists of a number of small groups, each containing no more than 20 managers from noncompeting companies. These groups usually have face-to-face meetings two to four times a year to discuss management issues; they often share confidential financial data with each other as well.

Big strategic shifts are risky, but the constantly changing business environment periodically forces corporate leaders to reposition their businesses in fundamental ways. With case studies from the telecom equipment, auto, computer and beverage industries, the authors examine why some companies have been successful in making smart big moves while others have failed. Some of their findings were, by their own admission, predictable: for example, companies that initiated successful big moves exploited and in some instances enhanced their distinctiveness relative to their competitors. However, the authors identified a more surprising factor, which they refer to as "complementarity." The more successful companies followed a consistent learning logic both internally and externally, and they made big moves that were complementary over time. Complementarity plays out in three ways: (1) It builds on a successful business model; (2) it relies on periodic shifts in the balance between innovation, efficiency and customer intimacy when the business model is not working; and (3) it promotes a sequenced development of capabilities when the balance shifts.

Achieving a state of clarity is a necessary but not sufficient condition for making good decisions.

For boards dealing with an embattled CEO, doing nothing may pay off in the long run.

Organizations must return to cultivating strategic thinking, not just functional achievements.