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This article, the first of a two-part series, shows how the value-added chain can be used to analyze sources of international strategic advantages. The author argues that it is essential that a distinction be drawn between competitive and comparative advantage. He illustrates the importance of this distinction by looking at structural shifts in the world economy and arguing that these shifts reflect changes in comparative advantage. The impact of these changes leads to only a few choices for the firm facing import competition and possessing no competitive advantage. The author stresses that if the global advantages acquired by international participation are not sustained, competition reverts to domestic competition among firms with different national names.

Some companies have discovered that a commitment to tackling societal problems can lead to high performance and profits. It can help strengthen a company in the eyes of its customer base, its employee base and the general public. Technology has made information about a company's behavior anywhere in the world more readily available. If companies take a proactive approach, they can turn this increased consumer awareness into a benefit. Rosabeth Moss Kanter explores how companies like Proctor & Gamble, Starbucks and Diageo thought about societal benefits and created new products to support them.

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).

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.

In a global economy, managers constantly negotiate with people from other cultures, whether the issue is coordinating operations within a multinational firm, arranging a joint venture, or convincing a foreign government to approve construction of a plant. Yet managers have had to rely on simplistic formulas -- following lists of "dos and don'ts" -- or very demanding ones -- "doing as the Romans do" -- to deal with the cultural aspects of these negotiations. Actually, a number of strategies are available. The author presents these strategies in a framework based on the parties' level of familiarity with each other's cultures and the extent to which they can explicitly coordinate their strategies. These factors determine the subset of strategies that are realistically feasible for an individual manager. Part 2 of this article, which describes a methodology for choosing among these strategies, appeared in the Spring 1994 issue.

The author argues that to sustain a competitive advantage, Web retailers must align their strategies with the product characteristics and buying practices of customers in their market segment. He divides the dot-com retail market into four segments on the basis of the type of good sold and describes the strategies needed to succeed in each. In the first segment, undifferentiated commodity products, such as barrels of oil, have no brand image, and consumers care little about the seller's identity. It is a buyer's market in which sellers compete on price and delivery. Competitive advantage goes to the low-cost provider with economies of scale, low overhead, low-cost production and efficient distribution. Since entry barriers are low, many competitors will enter these markets and even the slimmest profit margins will be difficult to maintain. In the second segment, quasi-commodity products, such as books and toys, are differentiated by their features, functions, and product niche. The quasi-commodity market segment has attracted many dot-com retailers, including Amazon.com and eToys. However, product brands and characteristics in this segment confer no advantage to the e-commerce retailer, since customers can use search technology to find the identical product at the lowest price. First movers can gain competitive advantage by branding their Web site using site-specific loyalty programs, virtual communities, and timely delivery. Late entrants will encounter extreme difficulty, especially if they are established brick-and-mortar operations unwilling to cannibalize their current business model. In the third segment, "look and feel" goods, such as clothes, homes and furniture, are differentiated by their quality and reliability. Customers want to experience them in person before making a purchase. Here, branded products enjoy the advantage since customers already trust them. Vertically integrated makers of branded products who control product creation and distribution will be able to charge higher prices than dot-com retailers who resell unbranded products. Dot-coms that don't create the products they sell will be forced to compete on price and will find margins difficult to maintain. In the fourth segment, "look and feel" goods with variable quality, such as fresh produce and original artwork, each individual product differs from every other one. Even if they recognize the brand, customers want to experience these products to ascertain their quality before buying, particularly if the product is expensive. Dot-coms that establish a reputation for quality and sell low-priced goods to repeat customers have the best chance of success. Companies selling expensive goods will need to engage trusted intermediaries or establish return policies to mitigate the customer's risk. This market segment is the most difficult to enter, but will confer the highest profits to Web retailers that "crack the code."

Analytics must reflect how decisions are actually made, factoring in ambiguity, practical limits, and trade-offs.

Leaders must tackle both cultural and technology issues to gain a more comprehensive view of risk organization wide.

AT&T’s Project Raindrops lets employees kill annoying or outdated processes and tools. Check out key lessons.