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A survey on supplier relationships administered to 447 managers from the major U.S. and Japanese automobile manufacturers showed that these firms do not manage primarily by strategic partnerships, but instead participate in various types of relationships. The author proposes and empirically validates a framework for managing a portfolio of relationships that will help senior managers answer two key questions: Which governance structure or relational design should a firm choose under certain external contingencies? What is the appropriate way to manage each type of relationship? The survey examined the specific investment of buyers and suppliers from both national samples in four types of relationships: strategic partnership, market exchange, captive buyer, and captive supplier. Interestingly, the level of investment made by either party in every type of relationship significantly correlated with practices commonly associated with strategic partnerships, such as long-term relationships, mutual trust, cooperation, and wide-scope relationships that include multiple components. No one type of buyer-supplier relationship & #8212; not even the strategic partnership & #8212; was inherently superior, which suggests that each can be well or poorly managed. Firms successfully manage supply chains by matching relationship type to specific product, market, and supplier conditions and by adopting an appropriate management approach for each type of relationship. Findings also countered the popular belief that Japanese firms tend to manage their suppliers using highly dedicated relationships or strategic partnerships. They appear to conduct business with a smaller ratio of strategic partnerships than is commonly believed (19 percent of the sample) and to extensively use market-exchange relationships (31 percent) & #8212; a practice usually associated with Western manufacturers. The author provides a contextual profile of product and market conditions most conducive to each type of relationship and discusses the management features common to the best performers in each category. By consciously and systematically matching the design of each relationship to its external context, product executives can stifle the urge to join the sweeping fad of strategic partnerships and avoid underdesigning and overdesigning external relationships.

Today's knowledge and service-based economy presents opportunities for well-run companies to increase profits through strategic outsourcing.

Smart markets, or markets defined by frequent turnover in the general stock of knowledge or information embodied in products and possessed by competitors and consumers, are based on new kinds of products, competitors, and customers. As a result, companies seek to understand the degree to which their own capabilities and motivations as information-processing "organisms" are crucial in enabling them to extract maximum value from their customer information assets. Firms that have gained a significant competitive advantage are distinguished by their ability to see beyond their IT infrastructure and view information itself as the core asset and the management of information as the company's main priority. Understanding how consumers are adapting their behavior to the demands of an increasingly information-intensive environment has been a starting point for companies that have achieved success in smart markets. By observing the activities of these firms across industries, it is possible to identify generic strategies and develop a preliminary taxonomy, or categorization scheme, that can be used to compare and contrast them. The placement of individual strategies within a conceptual framework guides managers in making customer-management decisions. The organizing tool, or asset around which the full range of strategies is based, is the customer information file (CIF) -- a single virtual database that captures all relevant information about a firm's customers. Underlying the notion of the CIF as the key asset is the assumption that the firm's operational goal is to maximize communication with its customers -- to look for every opportunity to "talk" with them. After all, the data collected from these interactions are the raw material from which companies craft their information-intensive strategies. A company thus sets as its main objective the maximizing of returns to the CIF. It then chooses any one of several strategies to accomplish that objective. This approach represents a shift in performance goals. In particular, concepts such as profitability or market share per product are being replaced with concepts such as profitability per customer (sometimes referred to as "lifetime value of a customer") or customer share (the total share of a customer's purchases in a broadly defined product category).

Choosing a distinctive strategic position involves making tough choices on three dimensions: who to target as customers, what products to offer, and how to undertake related activities efficiently. The most common source of strategic failure is the inability to make clear, explicit choices on these three dimensions. Unfortunately, not only will aggressive competitors imitate attractive positions, but, perhaps more importantly, new strategic positions will be emerging continually. In industry after industry, once formidable companies with seemingly unassailable strategic positions are humbled by relatively unknown companies that base their attacks on creating and exploiting new strategic positions. Markides describes incursions into established markets by strategic innovators such as Canon and the brokerage firm Edward Jones. The hallmark of their success is strategic innovation -- proactively establishing distinctive strategic positions that are critical to shifting market share or creating new markets. To prepare for the inevitable strategic innovation that will disrupt its market, an organization should: -- Identify turning points before a crisis occurs by regularly monitoring indicators of strategic rather than financial health in the market. -- Prevent cultural and structural inertia by creating a culture that welcomes change and is ready to accept new strategic innovation even if it disrupts the status quo. -- Develop processes that allow experimenting with new ideas to reveal the potential of a new innovation. -- Develop the required competencies and skills. -- Manage a transition to the new strategic position by clearly deciding whether to adopt the new position and by ensuring that old and new coexist harmoniously. Designing a successful strategy is a never-ending, dynamic process of identifying and colonizing a distinctive strategic position; excelling in this position while concurrently searching for, finding, and cultivating another viable strategic position; simultaneously managing both positions; slowly making a transition to the new position as the old one matures and declines; and starting the cycle again.

The corporation has emerged as perhaps the most powerful social and economic institution of modern society. Yet, corporations and their managers suffer from a profound social ambivalence. Believing this to be symptomatic of the unrealistically pessimistic assumptions that underlie current management doctrine, Ghoshal et al. encourage managers to replace the narrow economic assumptions of the past and recognize that: -- Modern societies are not market economies; they are organizational economies in which companies are the chief actors in creating value and advancing economic progress. -- The growth of firms and, therefore, economies is primarily dependent on the quality of their management. -- The foundation of a firm's activity is a new "moral contract" with employees and society, replacing paternalistic exploitation and value appropriation with employability and value creation in a relationship of shared destiny. In the 1980s, managers concentrated on enhancing competitiveness by improving their operating efficiencies. They cut costs, eliminated waste, downsized, and outsourced. They extracted value -- as reflected in shareholder returns -- but at what price? In contrast, firms that seem to continuously proliferate new products and technologies (for example, HP, 3M, Disney, and Microsoft) have never accepted this logic of auto-dismemberment. They have escaped what the authors term "the deadly pincer of dominant theory and practice": an almost exclusive focus on appropriation and control. A different management model is now taking shape, based on a better understanding of individual and corporate motivation. As companies switch their focus from value appropriation to value creation, facilitating cooperation among people takes precedence over enforcing compliance, and initiative is valued more than obedience. The manager's primary tasks become embedding trust, leading change, and establishing a sense of purpose within the company that allows strategy to emerge from within the organization, from the energy and alignment created by that sense of purpose. The core of the managerial role gives way to the "three Ps": purpose, process, and people -- replacing the traditional "strategy-structure-systems" trilogy that worked for companies in the past.

High-performing companies employ dual strategies: they maximize today's capabilities and simultaneously develop new capabilities for the future. In the past, most organizations could run and change their businesses using a single strategy; even today, most companies do not clearly discriminate between present and future. A single-strategy approach, however, cannot meet the challenges created by accelerating competition and change. Strategies for today ensure that functional and supply-chain partner activities are aligned with company strategy and harmonized with organizational structures, processes, culture, incentives, and people. They clarify segment, positioning, and resource deployment choices. Strategies for tomorrow involve decisions about how to define and position the future business. They start with visions of the future -- for example, market territory and forces that might reshape it; competitive moves; strategy options and choices; needed competencies and resources; and knowledge of how to get "there" from "here." Achieving the right balance between a present and a future orientation depends on the situation. During times of rapid or extreme change, the future component claims more attention; during more stable times, the present component predominates. In any situation, however, both components must always be addressed in parallel. Institutionalizing dual strategies requires that companies clearly define leadership responsibilities, balance organizational structures and processes, develop systems for managing duality, and redesign control mechanisms. Implementation must begin at the top. Leaders at all levels of the enterprise must promote the need for dual thinking and communicate the two agendas and their significance to people in every organizational nook and cranny. Dual strategies succeed only if those who need to implement today and change for tomorrow understand the reasons behind each.

A methodology to aid in anticipating and preempting the emergence of market newcomers.

Determining which business activities to bring inside a firm and which to outsource is a critical strategic decision. Firms that bring in the wrong business activities risk losing strategic focus; those that fail to bring the right business activities within their boundaries risk losing their competitive advantage. A well-developed approach for determining a firm's boundary, called transactions cost economics, specifies the conditions for managing a particular economic exchange within an organizational boundary and the conditions for choosing outsourcing. A popular version of transactions cost economics requires managers to consider a single characteristic of an economic exchange -- its level of transaction-specific investment. Three concepts aid in understanding transactions cost economics as applied to firm boundary decisions: governance (the mechanism through which a firm manages an economic exchange), opportunism (taking unfair advantage of other parties to an exchange), and transaction-specific investment (any investment that is significantly more valuable in one particular exchange than in any alternative exchange). Firms can use governance mechanisms to mitigate the threat of opportunism. Traditional transactions cost economics does not focus on the capabilities of a firm or its potential partners, even though economic exchanges involve (1) cooperating with firms that possess critical capabilities, (2) developing capabilities independently, or (3) acquiring another firm that already possesses needed capabilities. The author describes the conditions under which a firm's decisions on managing its business activities should be affected by its capabilities and those of its partners. When these conditions hold -- conditions particularly common in rapidly evolving high-technology industries -- firms should make boundary decisions that differ significantly from what would be suggested by traditional transactions cost analysis.

Viewing the evolution of strategic management as ten "schools" of practice, Mintzberg and Lampel explore whether these perspectives represent fundamentally different processes of strategy making or different parts of the same process. Unwilling to be constrained by either definition, the authors point out that some schools clearly are stages or aspects of the strategy formation process. Under certain circumstances, such as during start-up or under dynamic conditions when prediction seems impossible, the process may tilt toward the attributes of one school or another. Thus, identifiable stages and periods exist in making strategy -- not in any absolute sense, but as recognizable tendencies. Despite this, the inclination has been to favor the interpretation that the schools represent fundamentally different processes. In cautioning against adopting a pseudoscientific theory of change in strategy formation, Mintzberg and Lampel note with optimism that recent approaches to strategy formation cut across the various schools of practice in eclectic ways. Some of the greatest failings of strategic management, they say, occur when managers take one point of view too seriously. Ideas and practices that originate from collaborative contacts between organizations, from competition and confrontation, from recasting of the old, and from the sheer creativity of managers are driving the evolution of strategic management today. Mintzberg and Lampel advise scholars and consultants to get beyond the narrowness of the ten schools to learn how strategy formation -- which combines all ten schools and more -- really works. The goal is better practice, not neater theory.

Strategy development requires that managers predict the future in an inherently uncertain world. Many mistakenly do so on the basis of perceived historical patterns that, according to recent scientific understanding of complex systems, do not have great predictive value. Complex systems consisting of many dynamically interacting parts are difficult and often impossible to predict because they exhibit punctuated equilibrium (periods of relative quiescence interspersed with episodes of dramatic change) and path dependence (small, random changes at one point in time that lead to radically different outcomes later). What, then, is a strategist to do? Beinhocker recommends cultivating and managing populations of multiple strategies that evolve over time, because the forces of evolution acting on a population of strategies make them more robust and adaptive. Because both biological evolution and business evolution are complex adaptive systems, to better understand business strategy, managers can employ a tool that scientists use to better understand biological evolution. An imaginary grid called a fitness landscape is an aid to comprehending how evolution increases the odds of survival in nature. In general, the rules for success in fitness landscapes also apply to business problems, though their specific application differs significantly by company and situation. The lessons of fitness landscapes offer an untraditional picture of what a company needs to develop a successful strategy. Because shifting an organization to this way of thinking about strategy is not easy, a company can take six actions to reinforce the robust, adaptive mind-set: -- Invest in a diversity of strategies. -- Evaluate strategies as real options that may open future possibilities, and remove biases that undervalue experimentation and flexibility. -- Diversify strategies along three dimensions -- time frame, risk, and relatedness to current business. -- Ensure that the strategies include sufficiently diverse initiatives in promising areas. -- Check that selection pressures on the firm's population of strategies reflect those operating on the population of strategies in the marketplace. -- Use venture capital performance metrics.