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In an often overemphasized focus on efficiency, many companies turn to packaged information-technology systems to manage business processes. University of Michigan Business School professors C.K. Prahalad and M.S. Krishnan suggest they should be more concerned about strategy & #8212; and getting line managers and IT managers to use information systems in ways that facilitate strategic change. A new applications-portfolio scorecard helps managers assess information infrastructure before making investments. Six key considerations are each IT application’s role in strategy, whether the knowledge embodied in the application (say, salaries in a payroll application) is stable or evolving, how much change will be needed, where the application will be sourced, whether the data is proprietary or public, and the application’s freedom from conformance defects. Those parameters differ for different functions. Managers may not need the latest software for a stable function. They may decide not to purchase a customized package, because it could be out of sync with the vendor’s future software. Only those companies that deeply analyze what they need from each IT application will acquire the right portfolio. The authors’ work with 500 executives revealed that few managers believed their information infrastructure was able to handle the pressures from deregulation, globalization, ubiquitous connectivity and the convergence of industries and technologies. Though fully aware their organizations lacked rapid-response capability or flexibility, the managers rarely knew how to fix the disconnection between the quality of IT infrastructures and the need for strategic change. Considering that information-infrastructure expenditures are generally 2% to 8% of companies’ revenues, new measures to address the disconnection are essential. A corresponding change in the mind-sets and the skill sets of smart line managers and IT managers also is helping improve overall competitiveness.

A down economy is not the time to “slash-and-burn,” but rather to ensure growth potential during the ensuing rebound. This requires a focus on strengthening key relationships, capitalizing on underutilized staff, clarifying strategic roles and forging stronger links between compensation and results.” More than 20,000 times last year, midsize and large U.S. companies responded to adversity by slashing on average 100 staffers at a time. It’s a safe assumption, says compensation consultant Jeffrey Oxman, that many of those organizations destroyed value by cutting capacity they soon had to replace, by making poor choices as to who should go and who should stay, by failing to communicate the rationale for change so as to keep surviving employees motivated, and by missing the opportunity to rethink their business model to optimize their positioning for the recovery ahead. Such issues, says Oxman, go beyond the question of layoffs; they go to the heart of how companies can avoid lasting damage and build long-term value. The conventional wisdom is suspect. Recessionary economies may not require re-engineering or moving noncore competencies outside the organization for greater efficiency. Oxman suggests four critical ways to prepare for economic recovery: strengthening key relationships across customers, employees and shareholders; leveraging downtime by capitalizing on underutilized staff for innovation initiatives; refocusing staff on what’s important by prioritizing strategic roles and clarifying individual goals; and building return on compensation by forging stronger links between pay and results.

When companies first plunged into e-commerce, they thought success meant cutting out middlemen. That approach didn’t work, in part because e-businesses misunderstood the role of intermediaries. Middlemen are not costly, necessary evils. They solve problems for customers and, in so doing, they enable sales and create value for producers. INSEAD’s Philip Anderson and Erin Anderson show how intermediaries are helping smart companies realize the promise of the Web. They explain intermediaries’ nine ways of adding value, suggesting that three will change, three will survive in a new form, and three (reducing uncertainty about quality, preserving customer anonymity and tailoring offerings to customer needs) present growth opportunities. Middlemen can co-opt the Internet by offering services that would be too difficult for individual producers to provide. However, the authors caution, intermediaries must be open to new ways of doing business with suppliers and vice versa. The Web transforms but does not eliminate the advantages of the middleman’s central lookout position. But what was once thought of as a straight distribution channel from supplier through middleman to customer is now more accurately described as a service hub. The player that takes the customer order & #8212; possibly a Web site & #8212; occupies the center and interacts with many partners. The authors specify appropriate, fair incentives (for example, because Ethan Allen has quasi-independent furniture stores that customers browse before buying directly from the manufacturer’s Web site, the company automatically gives the nearest retailer a 10% tip). And they describe service-hub management that will generate enough trust to permit producers to get closer to customers & #8212; indirectly.

Over the past couple of decades, management innovations have pushed companies toward the ideal of the “boundaryless” organization. As a result of these changes, formal reporting structures and detailed work processes have a much diminished role in the way important work is accomplished. Instead, informal networks of employees are increasingly at the forefront, and the general health and “connectivity” of these groups can have a significant impact on strategy execution and organizational effectiveness. Many corporate leaders intuitively understand this, but few spend any real time assessing or supporting informal networks. And because they do not receive adequate resources or executive attention, these groups are often fragmented, and their efforts are often disrupted by management practices or organizational design principles that are biased in favor of task specialization and individual rather than collaborative endeavors. The authors initiated a research program two years ago to determine how organizations can better support work occurring in and through informal networks of employees; they assessed more than 40 networks in 23 organizations. They discovered in all cases that the networks provided strategic and operational benefits by enabling members to collaborate effectively; they also found that managers, if they truly wanted to assist these groups, had to overcome six myths about how networks operate. In this article, the authors explain the six myths and why they are harmful; in place of these assumptions, they offer reality checks that can be implemented to help networks become more effective. Senior managers who can separate myth from reality, and act accordingly, stand a much better chance of fostering the growth and success of these increasingly important organizational structures.

New research from MIT’s Center for Information Systems Research and others reveals that successful companies are revolutionizing the way IT investments get decided. Investments are no longer justified merely on the basis of making a functional silo more profitable. Today the strategic needs of the whole company come first. In the last 15 years, write professors Jeanne Ross of MIT’s Sloan School of Management and Cynthia Beath of the University of Texas, a tidal wave of IT-enabled initiatives has elevated the importance of investing strategically. The Internet alone has created numerous opportunities: to reengineer processes, introduce online products and services, approach new customer segments and redo business models. The opportunities seem limitless, but the resources required & #8212; capital, IT expertise, management focus and capacity for change & #8212; are not. How to choose? Traditionally, companies justified a given project by presenting a strong business case. But with IT’s growing strategic importance, companies must now weigh individual ROIs against demands for organizationwide capabilities & #8212; and must assess opportunities to leverage and improve existing systems and infrastructures, create new capabilities and test new business models. The authors recommend a new investment approach based on a framework they developed after studying the e-business initiatives and supporting IT investments of 30 enterprises. The framework encourages simultaneous investment in four kinds of IT initiative. Transformation investments are necessary if a company’s core infrastructure limits its ability to develop applications critical to long-term success. Renewal investments maintain the infrastructure’s functionality and cost-effectiveness. Process improvements allow business applications to leverage infrastructure by delivering short-term profitability. Experiments enable learning about opportunities and testing the capabilities of new technologies. The new tools are helping managers grapple with an increasingly complex world.

Crack the code on customer priorities and profit models first & #x2014;then digitize.

During the 1980s, everybody marveled at Benetton, the Italian casual-wear company with a penchant for provocative advertising. The archetypal network organization, it used subcontractors and independent agents for production processes, distribution and retail. But recognizing that times change, Benetton decided on a new approach & #8212; in advance of external pressures. Without giving up the strongest aspects of its networked model, it is integrating and centralizing, instituting direct control over key processes throughout the supply chain. The company also is diversifying into sportswear, sports equipment and communications. Vertical integration has meant establishing state-of-the-art production poles in Benetton’s foreign locations. The Castrette pole, near its headquarters, decides what each of the foreign poles should produce (on the basis of the skills and experience of the local population), and the foreign poles contract out production tasks. Benetton also has increased its upstream vertical integration to exercise greater control over its supply of textiles and thread. At the retail end, the company is supplementing its network of small, independently owned shops with large, directly controlled megastores. To stay ahead of fashion’s ever-changing whims, Benetton is streamlining its brands and collections, supplementing two basic collections with smaller, flash collections. In its recently acquired sports businesses, Benetton has invested in high-tech systems for designing sports equipment and has brought together designers from around the world for creative cross-fertilization. It has also reorganized its production processes and improved its retail network by establishing Benetton “corners” in the large sports shops of major distribution chains. In the field of communications, Benetton’s Fabrica workshop has produced award-winning films, and its new company, United Web, hopes to take advantage of the possibilities of e-commerce. Benetton knows that innovative businesses must pay attention to how knowledge is divided among producers, suppliers and retailers. Its new directions represent a major discontinuity from its past and divergence from industry practices.

Although identifying and hiring the most appropriate CEO is critical to an organization’s success, the succession practices of many large corporations often result in poor outcomes, as recent brief CEO tenures at Coca-Cola, Gillette and Xerox testify. To better understand the dynamics affecting such a complex selection process, from 1995 to 2000 Harvard Business School professor Rakesh Khurana interviewed scores of directors, executive-search consultants and job candidates about the methods that large corporations use when hiring a CEO. In the process, he discovered several common pitfalls that derail efforts to find the right CEO. He observes that a variety of practices are nearly institutionalized in many companies, and he explains ways to avoid them. Khurana also contends that boards can actively manage the following aspects of a CEO search and greatly improve the likelihood that the survivor who emerges is best suited for the challenges of the job. Search-committee composition. Khurana recommends that the search committee consist of a diverse group, not only in terms of age and functional background but also concerning knowledge of the company and its culture. The “CEO as panacea” syndrome. Boards must be sure to consider the contributions of other executives in company success; failure to do so will raise expectations about the performance of the incoming CEO to an unsustainable level. Adoption of outcome-oriented practices. According to Khurana, the practices most relevant to a successful outcome are discussing the company’s strategic direction explicitly and early in the process; recognizing and defining search participants’ roles and responsibilities (in particular, limiting the roles of the outgoing CEO and the executive-search firm); and evaluating candidates in light of the position’s requirements, rather than in relation to one another.

Although myriad organizational mechanisms exist for integrating geographically dispersed operations, the most effective tool is assembling and nurturing cross-border teams comprised of many nationalities. The resulting diversity can yield significant synergies and produce collective wisdom superior to that of any individual -- each member bringing a unique cognitive lens to the group. However, mastering the management of a global business team calls for confronting several unique challenges that tend to exacerbate the more common problems faced by all teams, point out authors Govindarajan, director of the Center for Global Leadership at Dartmouth College's Tuck School, and Gupta, a professor of strategy and global e-business at the University of Maryland's Robert H. Smith School of Business. Of the 70 global business teams studied by the authors, about one-third of the teams rated their performances as largely unsuccessful. How can companies reverse the generally weak performance of faltering global teams? The authors' survey of 58 senior executives from five U.S. and four European multinational organizations reveals some hard-earned insights that may benefit your cross-border endeavors. When global business teams fail, it is often due to a lack of trust among team members. As a result, executives guiding global teams must institute processes that emphasize the cultivation of trust. Also high on the list of culpable factors are the hindrances to communication caused by geographical, cultural and language differences. Even in the case of teams whose members speak the same language, differences in semantics, accents, tone, pitch and dialects can be impediments. To mitigate the corrosive effects of these cross-cultural impediments, executives are advised to carefully craft a cross-border team's charter, composition and process -- with each aspect equally emphasized. The authors elaborate on how these work holistically to increase the odds that your global business teams will become high-performing sources of invaluable multinational experience leading to competitive advantage.

New research shows that among today’s numerous strategic alliances, the most successful are in companies with a department specifically assigned to overseeing alliances. Management professors Jeffrey H. Dyer, Prashant Kale and Harbir Singh came to that conclusion after conducting an in-depth study of 200 corporations and their 1,572 alliances. The number of strategic alliances has increased dramatically over the past decade, with more than 20,000 reported during the last two years alone. On average, the top 500 global companies each participate in 60 major strategic alliances. Fraught with risk, almost half fail. The authors set out to discover why some companies manage alliances effectively when others fail. They found that organizations such as Hewlett-Packard, Oracle, Eli Lilly & ; Co. and Parke Davis, which excel at generating value from alliances, have a dedicated strategic-alliance function. Companies with a dedicated function were better at solving problems related to the four key alliance-management elements & #8212; knowledge management, external visibility, internal coordination and accountability. A dedicated function, the authors show, acts as a focal point for learning and for leveraging feedback from prior and ongoing alliances. It systematically establishes processes to articulate, document, codify and share alliance know-how. The authors found that one benefit of creating an alliance function was that it compelled companies to create metrics for evaluating the performance of all their alliances. And regular evaluations alerted senior managers to intervene when a particular alliance was struggling. Many companies with dedicated alliance functions report codifying alliance-management knowledge. They create guidelines to help with specific aspects of the alliance life cycle, such as partner selection or alliance negotiation. Some companies establish training programs, both formal ones and informal ones & #8212; such as roundtables that let managers of various alliances share their experience. When done properly, dedicated alliance functions offer internal legitimacy to alliances, assist in setting strategic priorities and draw on resources across the company. That is why, the authors advise, the function cannot be buried within a particular division or be relegated to low-level support within business development.