Strategy

The use of risk-assessment tools is far from pervasive.

As multinationals unrelentingly seek new growth to satisfy shareholders, they increasingly hear concerns from many quarters about environmental degradation, labor exploitation, cultural hegemony and local autonomy. What is to be done? Must corporations’ thirst for growth and profits serve only to exacerbate the antiglobalization movement? On the contrary, the authors say, a solution to this dilemma does exist. Companies can generate growth and satisfy social and environmental stakeholders through a “great leap” to the base of the economic pyramid, where 4 billion people aspire to join the market economy for the first time. This is not a question simply of doing the right thing in order to lift people out of poverty & #8212; although that will surely be a result of the leap the authors have in mind. From a senior executive’s point of view, it’s a matter of finding the most exciting growth markets of the future. It is also where the technologies that are needed to address the social and environmental challenges associated with economic growth can best be developed. The authors illustrate their point with examples of companies that are already profitably disrupting such industries as telecommunications, consumer electronics and energy production.

The product-development process is often seen as an undependable black box” that rarely produces results that exceed business expectations. Traditional financial models have limited success exposing the numerous product-development risks that underlie the assumptions in a typical business case. Applying the same rules to development as they do to research, managers often accept unpredictable performance as normal. Most companies’ evaluation and approval processes are driven by accounting-based metrics such as discounted cash flow or net present value (NPV) that make understanding the underlying risks of development difficult for decision makers. When risk is discussed in the business case, technology uncertainty is often confused with product-development risk, and the narrative discussion of risk is designed more to persuade than inform. In this environment, decision makers are often hard-pressed to evaluate the potential commercial success of the new-product-development investment. With an approach called “net present value, risk-adjusted” (NPVR), author Craig R. Davis, CFO of product-development consulting firm Product Genesis, offers an operational framework that gives decision makers quantitative tools to evaluate relative project risks. He shows how these tools can be integrated into existing stage-gate methodologies to create a risk-adjusted NPV that considers the impacts of product portfolio, user needs, and technical and marketing risks. The framework also provides insights into the value of additional research in advance of full commitment to development. The framework provides a vocabulary appropriate for complex technology products in medical, commercial and industrial products but is easily adapted to the unique terms, methods and measures for each risk-assessment area.

Identifying and addressing the environmental factors that can affect success

Today’s world calls for less hypothesis testing and more systematic observation.

The answer to the question, "Who are we?" is complex, elusive and can confound strategic change.

During the dot-com frenzy of the late 1990s, most large, traditional companies had trouble finding successful e-business strategies to fight off aggressive new challengers. Many turned over their Internet efforts to the CIO and the information-technology organization. But that was not always a good idea, say management thinkers Glenn Rifkin and Joel Kurtzman. Enlightened corporations, they say, have made the Internet work for them by assigning e-business efforts to senior-level executives who know the business side intimately & #8212; and by getting the most out of technology-focused CIOs in the role of partner. They contend that someday all business will be e-business, so even in an economic downturn it’s important for companies to keep moving forward by integrating e-channels with their other business channels. The authors maintain that a downturn offers laggards a chance to get back into the game. Thus large companies with ineffective Web presences should take advantage of the current window of opportunity to make improvements. That means resisting the temptation to fob off e-business onto the IT department and instead treating it as a long-term, strategic, integral part of the enterprise. The authors report on the rare traditional companies that offer these valuable lessons: Integrate the new channel with other channels, build on your strengths, don’t let technical considerations be the tail that wags the dog, find a CIO who thinks like a business leader, and have a business expert head the operation. As Meg Whitman, the president and CEO of Internet star eBay, has said, “You can teach the dot-com stuff quickly, but you can’t teach the business quickly, so hire someone who knows the business.”

The information age has created a host of digitized products & #8212; in the realms of software, databases, music, videos and electronic books & #8212; for which the potential for piracy, defined as duplication and distribution of a product without the permission of or payment to the content owner, is extremely high. Up to now, efforts to control piracy have been primarily legal in nature, relying upon the assumption that creators of digital products have absolute ownership rights to the content they create. Under the same assumption, companies have also sought to limit piracy with technological safeguards such as click-wrap contracts, encryption, password-limited access to distribution sites and copy proofing. However, say the authors, the belief in absolute ownership of digital content is incorrect from a legal standpoint, and antipiracy tactics that rely upon it will ultimately prove ineffective. What’s more, these tactics may even reduce authorized usage by paying customers. A far better solution, the authors suggest, is to recognize the dynamics of the marketplace, segment that market into innovators (potential pirates) and the mainstream (potential paying customers), and address each segment differently to gather information and establish market leadership. The authors use a variety of cases to illustrate the tactics whereby content creators can coexist with the innovator segment of their audiences while still controlling product price and distribution standards. The key to setting an effective, “priced” value proposition for majority users lies in incorporating the innovator’s technology before it reaches the mainstream. In such a scenario, brand identity encourages the majority to recognize quickly the content provider as the standard source for the product. Brand strength is then enhanced through fair pricing, product enhancement and superior distribution mechanisms.