Strategy

Traditional models for developing and managing corporate portfolios are based on financial frameworks, business synergies or leveraging core competencies into related businesses. In this article, the author goes beyond those traditional approaches and offers an alternative & #8212; the corporate sphere of influence. Like nations, says the author, companies build spheres of influence that protect their cores, project their power outward to weaken rivals and prepare the way for future moves. By recognizing the strategic purpose of each part of the portfolio, the sphere of influence model focuses attention on the company’s overall strategy, including how it wants to structure the division of product and geographic markets in an industry, which threats it will address or ignore, and how the company’s portfolio enhances or detracts from its competitive or alliance strategy. Thinking in terms of building a sphere of influence forces managers to draw together corporate- and business-level strategic analyses that are often treated as separate. The corporate-level concern about where to fight and the business-level concern about with whom and how to fight are brought together into a coherent view. In this article, the author defines the components of a sphere of influence and explains how senior executives can use his framework to assess their company’s current sphere and map their desired one. Then he offers examples of how companies have managed their spheres. He draws examples from a wide range of industries and companies, including Microsoft, Procter & ; Gamble, Johnson & ; Johnson, Anheuser-Busch, Nokia, Harley-Davidson and Mexican cement company CEMEX. For an extended discussion of how companies can leverage their spheres of influence to support their overall grand strategy, see “The Balance of Power,” by Richard D’Aveni (MIT Sloan Management Review 45, no. 4 [2004]: 46a-46i).

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Many companies have supply chains that are global. They start with the sourcing of components and raw materials from around the world, then move their basic manufacturing to low-cost locations overseas. But few organizations have innovation processes that are equally global. That is, rarely do businesses have innovation activities that integrate distinctive knowledge from around the world as effectively as global supply chains integrate far-flung sources of raw materials, labor, components and services. But some companies & #8212; Nokia, Airbus, SAP and Starbucks, among them & #8212; have managed to assemble an integrated “innovation chain” that is truly global. They have been able to implement a process for innovating that transcends local clusters and national boundaries, becoming what the authors call “metanational innovators.” This process requires three steps: prospecting (finding relevant pockets of knowledge from around the world), assessing (deciding on the optimal “footprint” for a particular innovation) and mobilizing (using cost-effective mechanisms to move distant knowledge without degrading it).When done properly, metanational innovation can provide companies with a powerful new source of competitive advantage: more, higher-value innovation at lower cost.

As China prepared to enter the World Trade Organization in 2001, many multinationals planned to invest new billions in operations there. But their ambitious growth plans must be viewed with caution. Experienced multinationals have long been aware of the challenges, summed up by the adage that in China "everything is possible, but nothing is easy." But few predicted the most formidable obstacle to success: the emergence of tough competition from local Chinese players. The authors' research over the past five years reveals that while market dominance by local champions is not universal, it's becoming more frequent. Multinationals must face the fact that the competitive edge that is potentially available to them from superior technologies, products and systems will be blunted unless they build stronger local competencies. Specifically, they explain that multinationals must show a new determination to master the complexities of distribution, sales and service in China's secondary cities and rural heartland, and to learn how to more sensitively adapt products, processes and marketing messages to the peculiarities of the Chinese market.

Without analysis there can be no useful insight.

One of the most thoroughly studied questions in business is how, at budgeting time, large corporations should choose among investment opportunities. Why, then, are so many senior executives frustrated with the process and convinced that their companies' capital is not being invested as well as it could be? One reason is that even the best-designed systems can be trumped by the power of personality. It has become commonplace, in fact, for talented and charismatic managers to spin, manipulate and otherwise cajole senior management into funding their business ideas -- often in the face of numbers that would, on their own, dictate a negative decision. Having guided dozens of major corporations through the budgeting process and watched hundreds of presentations by line managers asking for capital, the authors have profiled five archetypes of bad behavior commonly used by managers to subvert decision-making standards and win resources. They also explain how senior managers can counteract such behavior and instill values that lead to better use of investment capital.

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In recent years, leaders at such high-profile companies as Xerox, Procter & ; Gamble, Lucent, Coca-Cola and Mattel have flamed out early in their tenures. Why did such promising and previously successful individuals fail so quickly in the CEO role? And why is such failure happening today with relatively high frequency? The individuals in charge bear some of the responsibility, of course. But the authors' research also uncovered other major forces at play. First is the impact of the predecessor CEO's actions on his or her successor's performance. While outgoing CEOs do not intend to contribute to the failure of their successors, their personal needs and actions can lay the groundwork for derailment. A second force is often the succession process itself. Once again, the outgoing CEO may be responsible, having failed to prepare a successor adequately; and the board is also often guilty of lack of oversight. A third reason for failure by new CEOs is their often narrow expertise and inability to set a proper context as a leader. The authors explore these issues and then offer advice to outgoing CEOs, directors and incoming leaders that may help them avoid the troubles that some companies have faced in making a leadership transition.

Faced with saturation of their core product markets, companies in search of growth are increasingly turning to services. A few companies have enjoyed success with this approach; others have not been so fortunate. The authors explain how managers can improve the odds of success by taking a systematic approach to creating services-led growth. Companies must begin by redefining their markets in terms of customer activities and customer outcomes instead of products and services. Customers seek particular outcomes, and they engage in activities to achieve them. These activities can be mapped along a customer-activity chain, which is the foundation for exploring services-led growth opportunities. Analogous to product-centric growth strategies such as product-line extension, product-line filling and brand extensions, customer-activity chains can be extended, filled, expanded or reconfigured with new services. The authors have developed a framework -- the service-opportunity matrix -- to help managers structure the investigation of new opportunities. For each quadrant of the matrix, they provide a set of questions to help companies determine whether a particular approach would work for them. In addition, they have devised another matrix, on risk mitigation, to help managers assess the pitfalls and risks that these opportunities represent.