Leadership

Competitive discontinuities demand changes in how diversified multinational corporations create wealth. While executives agree that changes in the last decade are qualitatively different from those in the past, many fail to take action or they apply old solutions, such as cost cutting, to new problems. The challenge for companies is to move from the zone of comfort -- the familiar -- to the zone of opportunity -- the unfamiliar. Sources of discontinuity include more powerful, better informed consumers; the breakup of traditional channel structures; deregulation, privatization, and globalization; the convergence of traditional and new technologies; changing competitive boundaries; the evolution to new standards; shorter product life cycles; and the greater involvement of business in ecological and social issues. In this environment, managers must develop new capabilities. They need to think and act globally, regionally, and locally; adapt to a different pace and rhythm in all aspects of a firm's activities; integrate new technological knowledge with old and reconfigure that knowledge into new business opportunities; develop consensus-building skills; form alliances; and allocate resources under conditions of ambiguity. At the same time, they must ensure the profitability of current business. The obstacles to transformation are formidable. Many senior managers have little knowledge of, or experience with, alternate models of managing and responding to new customer expectations. They seek administrative clarity at the expense of strategic clarity and sometimes lack the stamina needed to sustain high performance. Transformation requires interrelated systemwide changes. The effort must be driven by a new concept of opportunity and involve the entire organization. The first step is to create a transformation agenda to mobilize the organization. Managers must then fight inertia, align the organization with the new direction, undertake projects that provide the basis for experimenting and learning, and evaluate failure and success. Innovations in how firms manage must precede innovations in how they compete and create wealth.

Despite a downturn in the U.S. semiconductor industry in the 1980s, Intel, Micron Technology, and Texas Instruments exploited innovative technology and unique capabilities to shape their local environments and maintain their competitiveness. They employed combinations of the following generic strategies: 1. Blocking. A firm prevents others from imitating its innovation. Tactics include defending intellectual property in the courts and establishing a reputation for retaliating against new market entrants. 2. Running. Whereas blocking may give competitors time to catch up or leapfrog the innovator, running ensures that the innovator stays ahead by introducing new products, even if by "cannibalizing" its own products. 3. Teaming up. The opposite of blocking, teaming up encourages collaborative entry into markets to improve the chances of establishing an industry standard or dominant design. These strategies intertwine with a firm's competencies and endowments (brand name, patents, distribution channels), its national environment (enactment and enforcement of laws to protect copyrights, patents, trade secrets), and the nature of the technology underpinning a firm's innovation. Intel strategically allied itself with other companies, defended its intellectual property, speedily developed newer generations of microprocessor, and enhanced brand recognition with its "Intel Inside" advertising campaign. Unable to out-manufacture its Japanese rivals, Micron focused on its advanced design capabilities and successfully filed suit against six Japanese chipmakers for dumping below-cost chips on the U.S. market. Its success set the stage for the establishment of Sematech, a consortium funded by member firms and the U.S. government to build a local environment conducive to semiconductor manufacturing and related industries. Texas Instruments vigorously protected its voluminous patent portfolio, collecting royalties that exceeded operating income for a seven-year period. The firm also negotiated cross-licensing agreements and alliances to obtain manufacturing capabilities in Japan. Strategic corporate decisions in defense of profits work in tandem with national environment to ensure industry well-being.

To understand the role of chief knowledge officer (CKO) and the evolving practice of knowledge management (KM), the authors studied twenty CKOs in North America and Europe using face-to-face interviews, and a personality assessment questionnaire. All CKOs were first incumbents, most having been on the job less than two years. Appointed by CEOs more through intuition and instinct than through analysis or strategic logic, the CKOs had to discover and develop the CEO's implicit vision of how KM would make a difference. The CKOs agreed that knowledge is a necesssary and sustainable source of competitive advantage and that companies are not good at managing either explicit knowledge (expressed in words or numbers and shared as scientific formulas, codified procedures, or universal principles) or tacit knowledge (personal, experiential, context specific, and hard to formalize). CKOs have two principal design competencies: they are technologists (able to understand which technologies can contribute to capturing, storing, exploring, and sharing knowledge) and environmentalists (able to create social environments that stimulate and facilitate arranged and chance conversations or able to develop events and processes to encourage deliberate knowledge creation and exchange). As self-starters and risk takers, these CKOs are entrepreneurs who can strategize about transforming the corporation through KM and are driven by building something and seeing it through. By matching new ideas with the business needs of their constituencies, the CKOs are also consultants, trafficking in ideas that fit the corporation's knowledge vision. Breadth of career experience, familiarity with their organizations, and infectious enthusiasm for their mission are characteristic of these CKOs. The personality characteristics and competencies of these CKOs are unusual and distinctive. They need to be sociable and energetic yet tolerant and pragmatic. Finding the right person is at least as important as deciding to create the CKO role. Two critical success factors have emerged: the need for organizational slack time (for thinking, dreaming, talking, and selling) and high-level sponsorship beyond visible CEO support. The CKO must make senior executives and prominent line managers believe in KM -- a goal that is indivisible from winning and retaining personal trust.

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How can organizations make their negotiations more efficient and rewarding? Managers must recognize that negotiations inside the organization strongly influence the outcome of negotiations outside the organization. Using the example of Alta Systems, an information technology consulting services company, the author illustrates how internal and external negotiations processes are integrally linked and describes how managers can enhance negotiation results by improving those processes. Alta's difficult negotiations with an important client demonstrate the obstacles that arise when organizations are balancing internal and external negotiations: negotiators walk away from good deals because these do not match the organization's stated position or they agree to suboptimal deals because the organization views any agreement as better than no agreement; negotiating parties fail to explore underlying interests and see the other's perspective; negotiators function as advocates rather than as joint problem solvers; internal and external negotiations are compartmentalized; and the parties do not discuss the negotiations process. Managers of negotiators can take the following actions to overcome these obstacles: Choose wisely among options and alternatives. Use internal prenegotiations to gain agreement on the organization's best alternatives and to clarify the negotiator's role and authority in gathering information, sharing interests and alternatives, and committing to deals. Change the negotiator's role. Treat negotiators as "handymen" who undertake different tasks at different times; negotiators may serve, for example, as meeting facilitators or problem solvers as the need arises. Integrate internal and external negotiations. Institute flexible processes that survey the interests of all parties and encourage ongoing interaction among internal and external groups. Explicitly discuss the negotiations process. Encourage negotiators to set meeting agendas that focus on establishing the long-term plans, goals, and purposes of the negotiations. Communications within organizations too often sabotage the success of negotiations with suppliers, customers, and clients. By taking steps to align internal and external negotiations, managers can significantly increase the value that their organizations derive from any agreement.

Are Japanese companies ending their practices of lifetime employment and seniority-based pay, as the popular press has reported? Data from published Japanese surveys offer insights into three key issues: Are Japanese employment practices changing? While changes are taking place, they are limited to seniority-based pay and promotion; lifetime employment remains intact in most large companies. The seniority system is gradually being replaced by a new job performance-based pay system that companies are using to raise white-collar productivity. Most companies plan to retain the lifetime employment system, the benefits of which outweigh the costs. Why are employment practices changing? In the 1980s and 1990s, internal and external factors placed pressure on large firms to change the seniority system. Internal factors include falling profit margins, decreases in white-collar productivity, an aging workforce, and changes in employee attitudes toward work and the seniority system. External factors include the maturing of the Japanese economy, a decline in large Japanese companies' international competitive position, and increasing internationalization of Japanese companies' operations. What are the implications of changes? Given the trends in Japanese employment practices, Western competitors should expect the following: a continuation of Japanese companies' market growth strategy with minor adjustments; innovative products and services as well as marketing and partnering strategies coming from Japanese companies; a resurgence in Japanese firms' competitiveness and productivity levels; increasing opportunities to enter into Japanese keiretsu networks as suppliers; and continued fierce competition in local Asian markets and lower prices from Japanese competitors in more mature product sectors as they move them increasingly to overseas production. The examples of Honda, Fujitsu, and Sony, three firms that revitalized themselves through use of performance-based pay systems, product innovation, and new partnering strategies rather than through layoffs of core employees, suggest that while change will be gradual, most large companies will eventually follow in the same direction.

Commitment and competence are embedded in how each employee thinks about and does his or her work and in how a company organizes to get work done. It is, according to Dave Ulrich, a firm's only appreciable asset. As the need for intellectual capital increases, companies must find ways to ensure that it develops and grows. There are five tools for increasing competence in a firm, site, business, and plant. 1. Buy. The company goes outside to hire new talent. 2. Build. Managers invests in employee learning and training. 3. Borrow. A company hires consultants and forms partnerships with suppliers, customers, and vendors to share knowledge, create new knowledge, and bring in new ways to work. 4. Bounce. The company removes those employees who fail to change, learn, and adapt. 5. Bind. The firm finds ways to keep those workers it finds most valuable. Companies also need to foster employees who are not only competent but committed. Employees with too many demands and not enough resources to cope with those demands quickly burn out, become depressed, and lack commitment. A company can build commitment in three ways: 1. Reduce demand on employees by prioritizing work, focusing only on critical activities, and streamlining work processes. 2. Increase resources by giving employees control over their own work, establishing a vision for the company that creates excitement about work, providing ways for employees to work in teams, creating a culture of fun, compensating workers fairly, sharing information on the company's long-range strategy, helping employees cope with the demands on their time, providing new technologies, and training workers to use it. 3. Turn demands into resources by exploring how company policies may erode commitment, ensuring that new managers and workers are clear about expectations, understanding family commitments, and having employees participate in decision making. Only by fostering competence and commitment together can a company ensure the growth of intellectual capital, says the author.

As companies continue to downsize, they need to consider how to maintain their employees' morale in order to realize gains such as higher productivity and more flexibility. Those who survive layoffs and the managers who must implement those layoffs frequently exhibit reduced commitment. Their trust in the company may be destroyed and they may feel powerless in the wake of top management's actions. Mishra et al. propose a four-stage approach to downsizing, gleaned from interviews and surveys, that will retain workers' trust and sense of empowerment. First, the company should consider its decision to downsize only as a last resort, not to be taken lightly. Downsizing should be part of a clearly defined, long-term vision that fits into the company's overall strategic plan. Second, the company should consider all stakeholders' needs -- survivors, laid-off employees, the community, local and national press, and any affected government agencies. The company should form a cross-functional team to represent all stakeholders' interests, hire outside experts for outplacement and counseling, ensure that managers know how to deal with all questions, and give employees full information on the company's finances. Third, at the announcement stage, senior managers should explain why the downsizing is necessary and how it will help the firm in the long term. The fourth stage, implementation, is the most important. Management should communicate frequently and be open and honest. The company should do its best to ensure that laid-off employees are employed elsewhere and offer them generous benefits packages. It should seek remaining employees' ideas about restructuring work processes and provide training, particularly in new technologies, to work in the new environment. According to the authors, each stage, if well executed, will mitigate workers' mistrust and disempowerment and will help build a better company.

To retain loyal managers, companies must nurture an apolitical culture that places high priority on meeting career needs.

Making an explicit link between people’s personal needs and business goals can benefit both the company and its employees.