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The current economic recession has provided managers with a tempting environment for acquiring "star" employees on the cheap. But the track record of such acquisitions of human capital has been mixed, with many companies failing to integrate their new talent. Apparently, an organization can't just hire star employees and then expect those individuals to automatically shine in their new environment. But how, then, can companies ensure that they get the most out of the talent they hire? The authors have found that, to build a top-notch organization of star employees, companies can't simply hire the best and brightest and then turn those individuals loose into a Darwinian competition. Instead, organizations need to provide and maintain the right environment for those employees to flourish. And that means avoiding a number of common pitfalls, such as falling for the "lone-star myth" (companies often mistakenly believe that one individual can single-handedly turn around an entire department or organization), overestimating the importance of pay (businesses frequently overpay for hiring top talent), allowing stars to go solo (high achievers are over-scheduled almost by definition, so managers should never assume that collaboration will "just happen"), focusing too narrowly on a single department or group (stars need top colleagues throughout the organization in order to do their best work) and neglecting homegrown talent.

In trying to bring about e-business transformation, companies have paid too much attention to technology & #8212; as if adding the right software or hardware could, on its own, bring about miracles. But systems do not work in a vacuum, and senior managers would do well to recognize the complementary nature of technology, business processes and e-business readiness throughout the value chain, from their suppliers to their customers. By taking a more holistic view, executives can turn these facets of a company’s operations into the drivers of e-business excellence. To help company leaders see the bigger picture, authors Anitesh Barua, Prabhudev Konana, Andrew B. Whinston and Fang Yin of the University of Texas at Austin’s McCombs School of Business developed a research-backed model of e-business value creation. The model’s premise is deceptively simple: that proper development of e-business drivers will lead to operational excellence, which will, in turn, generate improved financial performance. The authors explain that if managers are to lead a successful digital transformation, they must carefully track such e-business operational measures as the percentage of goods purchased online from suppliers and the percentage of customer-service requests handled through the Web site. Companies that scored high on those (and other) measures in the authors’ study also enjoyed significant increases in revenue per employee, gross profit margin, return on assets and return on investments. Once managers understand their company’s relative degree of e-business operational excellence, they can develop the drivers that will raise those scores. The authors guide readers through the eight drivers their research uncovered, from mastering supplier-related processes to optimizing IT applications aimed at customers.

Financial institutions must consider when and under what circumstances they should use their own resources to provide services, and how they should manage their portfolios to achieve the highest value for stakeholders. Oldfield and Santomero, in addressing these two issues, define the role of institutions in the financial sector and focus on risk management. They explain when an institution should transfer risk to the purchases of assets that the firm has issued and when it should itself absorb the risk. Managers can consider three strategies for mitigating risk: 1. Avoid risk by eliminating those that are unessential to the financial service. 2. Transfer risks rather than absorbing them. 3. Aggressively manage risks that are inherent in the business activity. The authors delineate the various types of financial institutions and the different services and risk associated with each. Services are divided into six categories: origination, distribution, servicing, packaging, intermediation, and market making. Principal and agency activities vary in each service because the risks and incentives are quite different. There are five generic risks in providing services: systematic, credit, counterparty, operational, and legal. To some extent, all financial institutions face these risks. The authors focus, however, on those businesses in which the institutions participate as principals. The authors contrast two different types of intermediaries at opposite ends of the spectrum -- a REMIC (real estate mortgage investment conduit) and a commercial bank. In the banking business, given its nature, risk management assumes a much more important role than in the passive REMIC. The difference is the transparency or permanency of each organization's investor interests. The authors envision principal financial institutions as transparent, translucent, or opaque in information and either active or passive in operation. For example, in transparent institutions with passive investment strategies, such as unit trusts or REMICs, rules replace management. The authors propose four ways that a firm can actively manage risk: 1. Establish standards and reports. Managers need consistent information to understand the portfolio risks; investors need standard reports to gauge asset quality. 2. Impose position limits and rules. Each person who can commit capital -- trader, lender, and portfolio manager -- should have a well-defined limit. 3. Set investment guidelines and strategies. The firm should outline strategies for risk taking. 4. Align incentive contracts and compensation. The firm should compensate managers in line with the risks they bear. To implement risk management across the firm, the authors offer five guiding principles: (1) make risk management integral to the business plan; (2) define specific risks of each activity and measure them; (3) establish procedures so that risk management begins at the point nearest the assumption of risk; (4) develop databases and measurement systems that relate to how the firm does business, for example, systems that record positions on a trade-date basis; and (5) ensure that senior managers use the overall risk management system to evaluate businesses, individual performance, and value added.

As bricks-and-mortar companies battle Internet upstarts, some succeed in harnessing the Web to better serve consumers, generate profits and increase market share. Meanwhile others never get their e-business initiatives off the ground. What differentiates the "leaders" from the "laggards"? Leslie Willcocks, who is professor of information management and e-business at the Warwick Business School, University of Warwick, United Kingdom, and Robert Plant, an associate professor of computer information systems at the University of Miami, conducted a year-long research project and interviewed more than 130 executives in 58 established business-to-consumer (B2C) corporations spanning three continents and a range of industries. They have created a new framework for e-business, which explains strategies that have worked for traditional companies. The framework shows that "laggard" organizations typically lack a clear business model to govern their use of Web technologies, becoming mired in debates about the relevance of Web technology itself or spending vast sums on brand building without delivering on the promises their brand conveys. "Leading" organizations tie e-business to their bottom lines by following a distinctive path. Although these companies may start with the idea of achieving technology leadership, they shift attention to brand building and/or customer service and concentrate on generating profitable market share and differentiating the company from competitors. These e-business leaders share certain characteristics: They integrate Web technologies into the core business; they use information gathered via the Internet to gain insight into their customers; they augment their service; they focus on customers and marketing; and they adapt to the constantly changing Internet marketplace. All have identified ways of using Web technologies for competitive advantage and seek ways to sustain that advantage by focusing on brand, size and customer relationships as well as differentiation. Increasingly, companies trying to enter the field of B2C e-business will discover what leading organizations already know: E-infrastructure is a boardroom investment and ownership issue that is central to executing sustainable, anticipatory performance.

A great variety of companies -- cell phone operators, rental car companies, video rental chains and many others -- price their products and services in ways that confuse and irritate their customers, according to the authors. They lure people in with teaser rates, two-for-one-deals, "free" gifts and so on, and then slap them with late fees, charges for "extra" usage and other unanticipated costs. The conventional wisdom is that such tactics are a good idea; after all, they allow companies to boost profits while seeming to price competitively. But, say the authors, hidden pricing can be harmful not only for consumers who can't figure out what something really costs, but also for the businesses that engage in it. That's because it isn't enough to fool customers. Companies also have to fool their competitors with pricing games, and that is much harder to do. Rivals are equally good at fooling customers and will spend heavily to attract them. If competition forces a business to spend an extra $1 today in order to attract a customer worth an extra $1 tomorrow, neither the business nor the customer ends up any better off. Using examples from the appliance industry and restaurant business, the authors show how companies that engage in honest pricing can enjoy important benefits -- happier customers, clearer product differentiation and, consequently, higher profits.

Managers typically assess what competitors do and strive to do it better. Using this approach, companies expend tremendous effort and achieve only incremental improvement -- imitation, not innovation. By focusing on the competition, companies tend to be reactive, and their understanding of emerging mass markets and changing customer demands becomes hazy. During the past decade, Kim and Mauborgne have studied companies of sustained high growth and profits. All pursue a strategy, value innovation, that renders the competition irrelevant by offering new and superior buyer value in existing markets or by enabling the creation of new markets through quantum leaps in buyer value. Value innovation places equal emphasis on value and innovation, since innovation without value can be too strategic or wild, too technology-driven or futuristic. Hence, value innovation is not the same as value creation. Although value creation on an incremental scale creates some value, it is not sufficient for high performance. To value innovate, managers must ask two questions: "Is the firm offering customers radically superior value?" and "Is the firm's price level accessible to the mass of buyers in the target market?" A consequence of market insight gained from creative strategic thinking, value innovation focuses on redefining problems to shift the performance criteria that matter to customers. Kim and Mauborgne ask five key questions contrasting conventional competition-based logic with that of value innovation and describe the type of organization that best unlocks its employees' ideas and creativity. Rather than follow conventional practices for maximizing profits, successful value innovators use a different market approach that consists of (1) strategic pricing for demand creation and (2) target costing for profit creation. Value innovation as strategy creates a pattern of punctuated equilibrium, in which bursts of value innovation that reshape the industrial landscape are interspersed with periods of improvements, geographic and product-line extensions, and consolidation.

Natural disasters, labor disputes, terrorism and more mundane risks can seriously disrupt or delay the flow of material, information and cash through an organization’s supply chain. The authors assert that how well a company fares against such threats will depend on its level of preparedness, and the type of disruption. Each supply-chain risk & #8212; to forecasts, information systems, intellectual property, procurement, inventory and capacity & #8212; has its own drivers and effective mitigation strategies. To avoid lost sales, increased costs or both, managers need to tailor proven risk-reduction strategies to their organizations. Managing supply-chain risk is difficult, however. Dell, Toyota, Motorola and other leading manufacturers excel at identifying and neutralizing supply-chain risks through a delicate balancing act: keeping inventory, capacity and related elements at appropriate levels across the entire supply chain in a rapidly changing environment. Organizations can prepare for or avoid delays by “smart sizing” their capacity and inventory. The manager serves as a kind of financial portfolio manager, seeking to achieve the highest achievable profits (reward) for varying levels of supply-chain risk. The authors recommend a powerful “what if?” team exercise called “stress testing” to identify potentially weak links in the supply chain. Armed with this shared understanding, companies can then select the best mitigation strategy: holding “reserves,” pooling inventory, using redundant suppliers, balancing capacity and inventory, implementing robust backup and recovery systems, adjusting pricing and incentives, bringing or keeping production in-house, and using Continuous Replenishment Programs (CRP), Collaborative Planning, Forecasting and Replenishment (CPFR) and other supply-chain initiatives.

As the shadow of corporate scandals looms ever larger, government’s role in regulating and influencing core business practices also has grown more prominent. As a result, businesses are struggling to reconcile the spotlight of increased regulation with the goals of corporate strategy. To navigate these difficult straits, businesses need to understand how governments can help or hinder their business objectives while they develop hybrid strategies that focus on shaping the rules. It becomes essential that companies better understand the games business and government play and the roles of each in making and enforcing the rules. Michael D. Watkins, associate professor of business administration at Harvard Business School, identifies two major types of games: value-net games, which relate to cooperation and competition among businesses, and public-interest games, in which coalitions of businesses and industry associations are pitted against nonbusiness organizations, such as unions, consumer groups and environmental entities. Watkins believes that the most effective businesses craft their strategies by combining different approaches from each game, which in turn helps to shape how governments regulate future corporate activity.

Some successful innovations, such as the microwave oven and the dishwasher, were initially slow to achieve consumer acceptance. When consumers resist adopting an innovation because it requires them to alter established habits, the innovation is called a resistant innovation. The authors use a case study involving the diffusion of screwcap wine closures in three countries -- Australia, New Zealand and the United States -- to analyze strategies for marketing a resistant innovation. For winemakers, screwcap closures represent a solution to "cork taint," a quality problem that can be caused by poor-quality corks and that can affect wine flavor. But consumers have shown resistance to screwcap closures, associating them with cheap wines or preferring the tradition associated with cork. However, among wine consumers in Australia and New Zealand, screwcaps have now achieved widespread acceptance. But 2005 wine industry statistics showed that less than 5% of U.S. wineries used screwcaps on fine wines. What is the reason for this difference? Earlier research in 2004 had found few differences between U.S. wine consumers and those in Australia and New Zealand -- except in their attitudes toward screwcaps. Garcia, Bardhi and Friedrich interviewed decision makers at more than two dozen wineries in the three countries. The authors concluded that winemakers in Australia and New Zealand had generally taken a different approach to marketing screwcap wine closures than United States wineries did. United States winemakers tended to employ vertical cooperation strategies that involved working with distribution channels to market screwcaps. New Zealand and Australian winemakers, on the other hand, used coopetition strategies involving cooperation among wineries, such as a New Zealand wine industry group called the New Zealand Wine Seal Initiative. The authors conclude that, under certain circumstances, coopetition strategies, which involve some cooperation among competitive firms, can be an effective strategy for marketing a resistant innovation. To determine whether or not coopetition is an appropriate strategy, the authors suggest that managers should analyze the marketing problem the new innovation faces and the resources available to address it; consider the kind of specific resources and knowledge that might be exchanged during coopetition; and evaluate the industry climate, including the role of trade associations and industry experts.

Most agree that innovation ensures superior performance, but there is less agreement on which innovation strategy or strategies best sustain that performance over time -- that is, which lead to resilience. The authors seek to answer that question by analyzing a set of global companies that have successfully adapted to diverse and turbulent changes over a period of two decades, as evidenced by their book value per share, return on assets and sales growth. Among those that sustained superior performance are multinationals such as pharmaceutical, coating and chemical manufacturer Akzo Nobel, electronics company Philips, energy and petrochemical company Shell, consumer goods manufacturer Unilever, life-science products and chemicals manufacturer DSM, multimedia publisher Wolters Kluwers, information and media provider VNU, investment and fund management group Robeco and brewing company Heineken. The research shows that resilient companies continually orchestrate a dynamic balance of four innovation strategies: knowledge management, exploration (internal research and development), cooperation (acquisitions, alliances and other relationships) and entrepreneurship. The authors conclude that focusing on one innovation strategy to the exclusion of others may produce innovation, but it will not lead to resilience. Pursuing several different innovation strategies simultaneously maximizes a company's chances of successful adaptation. Investments in innovation, they say, should not be driven by costs or short-term returns but rather should flow naturally to the most effective strategy for the changing context. The timing of increasing or decreasing the emphasis on innovation strategies is important to maintain the dynamic balance, and that timing, they argue, is primarily the responsibility of leadership.