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Many complicated, proprietary systems attract a community of underground innovators who explore and alter them -- and not always in ways that manufacturers appreciate. These individuals have little regard for the business models that companies have carefully devised to profit from those systems. Instead, they are driven by utility, curiosity and occasionally even anger, bypassing technical and legal safeguards in their drive to explore. Called by different names -- hackers, phreakers, crackers and modders, among them -- these underground innovators have complex and often antagonistic relationships with the companies whose products they modify. Indeed, in many cases the underground innovation triggers a war between the community and the company. But if handled properly, it also can lead to cooperation between the two parties, potentially resulting in new business models and novel products. To achieve that, though, companies first need to understand how underground communities operate. Underground groups typically contain two distinct classes: elites and kiddies. "Elite" is a term reserved for those who truly innovate -- the wizards who understand the inner workings of a proprietary system and are able to make it do things never intended by its developers. "Kiddie" is short for "script kiddie," signifying someone who does not truly understand a system but merely uses tools created by the elites to exploit the system in some way. Most companies make the mistake of treating elites and kiddies the same way, often alienating those who might make positive contributions. A more effective approach is to nurture the constructive elites, rewarding and even supplying them with tools to encourage their efforts, all while deploying more aggressive means to thwart the destructive kiddies.

The seeds of effective change must be planted by embedding procedural and behavioral changes in an organization long before the initiative is launched.

In many companies, there has been a marked fall-off in the influence, stature and significance of the corporate marketing department. Today, marketing is often less of a corporate function and more a diaspora of skills and capabilities spread across the organization. By itself, the disintegration of the marketing center is not a cause for concern, argue the authors, but the decline of core marketing competence certainly is. For this article, the authors undertook a series of in-depth interviews with leading marketing executives and chief executive officers to clarify the root causes of the decline. Their research identifies eight distinct factors that contribute to marketing's waning influence -- among them a worrying "short-termism," significant shifts in channel power and marketing's inability to document its contribution to business results. The consequences are not immediate, but they are far-reaching: Absent a core of marketing competence, say the authors, the corporate brand will suffer, product innovation will weaken, and prices will be less robust. However, the fact that marketing does continue to influence corporate strategy in some companies suggests there are opportunities and viable approaches for building marketing competence as a source of competitive advantage. The article suggests four key issues facing marketing management, placing the focus not on restoration of the corporate marketing function but on the rebuilding of marketing competence across the organization.

How can companies resolve the two issues of M&As: the acquiring company's struggle to value the target's resources and the need for the parties to agree on a price?

RESEARCH BRIEF: A dynamic array of different customer types makes for a stronger business model.

Some techniques seem to drive new product development better than others.

For companies considering offshoring, there are dangers in taking too narrow a geographical view, say the authors. Every country presents a different mix of strengths and weaknesses. One country may, for instance, have very low labor costs but a high degree of political instability and a small domestic market. Another might offer a wealth of engineering talent but quickly rising labor rates. A third may have robust local markets but intrusive regulatory regimes and a weak transport infrastructure. Currency fluctuations may unexpectedly swell the costs of sourcing from one country, for instance, or a natural disaster may wreak havoc on a critical source of supplies. The authors suggest that offshoring is no different from any investment program that involves choices with widely divergent cost and benefit characteristics in that it makes sense to create a portfolio that balances risk and reward over both the short and long terms. Their research, canvassing 138 manufacturing executives in sectors ranging from automotive to consumer products to technology, confirms the wisdom of a portfolio approach. It reveals that while many companies confine their offshoring efforts to China and India, 96% of cost leaders are active in countries beyond those two, and nearly half of the leaders have offshore activities in three or more additional countries. The authors illustrate their argument with a description of the global outsourcing portfolio strategy of U.S.-based conglomerate Emerson Electric. They conclude with a brief discussion of a number of practical steps executives can take to ensure that their portfolios are constructed successfully.

INTELLIGENCE: RESEARCH BRIEF: Vigilance is the key to avoiding potential organizational nightmares.

How a textile manufacturer balances cost cutting with mass customization in its domestic facility.

In an attempt to increase both efficiency and service quality, more and more companies are outsourcing to third-party suppliers some key business processes, such as human resources, information technology and procurement. The universe of potential suppliers is diverse and growing, made up of locally based specialists, offshore providers with comparatively low labor costs, and global suppliers who are able to apply sophisticated management techniques and technology. The challenge for clients is to understand their own requirements and to identify providers whose capabilities and objectives are best aligned with their particular needs. Drawing on extensive research, the authors identify three potentially critical areas of supplier competency: delivery competency, transformation competency and relationship competency. Within that context, they discuss 12 capabilities through examples drawn from the outsourcing experiences of firms such as BAE Systems, Lloyd's of London, Deutsche Bank and Bank of America. By benchmarking supplier capabilities against its strategic and operational intent, a company can work to establish relationships that support its business objectives.