Stop wasting valuable time

Companies routinely squander their most precious resource--the time of their top executives. In the typical company, senior executives meet to discuss strategy for only three hours a month. And that time is poorly spent in diffuse discussions never even meant to result in any decision. The price of misused executive time is high. Delayed strategic decisions lead to overlooked waste and high costs, harmful cost reductions, missed new product and business development opportunities, and poor long-term investments. But a few deceptively simple changes in the way top management teams set agendas and structure team meetings can make an enormous difference in their effectiveness. Efficient companies use seven techniques to make the most of the time their top executives spend together. They keep strategy meetings separate from meetings focused on operations. They explore issues through written communications before they meet, so that meeting time is used solely for reaching decisions. In setting agendas, they rank the importance of each item according to its potential to create value for the company. They seek to get issues not only on, but also off, the agenda quickly, keeping to a clear implementation timetable. They make sure they have considered all viable alternatives before deciding a course of action. They use a common language and methodology for reaching decisions. And they insist that, once a decision is made, they stick to it--that there be no more debate or mere grudging compliance. Once leadership teams get the basics right, they can make more fundamental changes in the way they work together. Strategy making can be transformed from a series of fragmented and unproductive events into a streamlined, effective, and continuing management dialogue. In companies that have done this, management meetings aren't a necessary evil; they're a source of real competitive advantage.     

Moving upward in a downturn.

As the recent bursting of the new economy bubble has shown, business cycles are still wih us. The question, then, is, what executives should do to help their companies weather these downturns. As in so many instances, there are conventional approaches that appear to make sense in the short term. But while these approaches seem reasonable in the heat of the moment, they can eventually damage competitive positions and financial performance. Drawing on extensive research of Fortune 500 companies that have lived through industry downturns and economic recessions over the past two decades, Darrell Rigby, a director of Bain & Company, reveals how companies need to go against the grain of convention and exploit industry downturns to harness their unique opportunities for upward mobility. The author explains that every downturn goes through three phases. He examines each phase and shows how successful players navigate the huge waves of a downturn. Smart executives, he says, don't panic: they look bad news in the eye and institutionalize an approach to detecting storms. Rather than hedge their bets through diversification, they focus on their core businesses and spend to gain market share. They manage costs relentlessly during good times and bad. They keep a long-term view and strive to maintain the loyalty of employees, suppliers, and customers. And coming out of the downturn, they maintain momentum in their businesses to stay ahead of the competition they've already surpassed. Every industry will face periodic downturns of varying severity, says Rigby. But executives with the vision and ingenuity to take unconventional approaches can buoy their companies to new heights.     

Information technology and the board of directors

Ever since the Y2K scare, boards have grown increasingly nervous about corporate dependence on information technology. Since then, computer crashes, denial of service attacks, competitive pressures, and the need to automate compliance with government regulations have heightened board sensitivity to IT risk. Unfortunately, most boards remain largely in the dark when it comes to IT spending and strategy, despite the fact that corporate information assets can account for more than 50% of capital spending. A lack of board oversight for IT activities is dangerous, the authors say. It puts firms at risk in the same way that failing to audit their books would. Companies that have established board-level IT governance committees are better able to control IT project costs and carve out competitive advantage. But there is no one-size-fits-all model for board supervision of a company's IT operations. The correct approach depends on what strategic "mode" a company is in whether its operations are extremely dependent on IT or not, and whether or not it relies heavily on keeping up with the latest technologies. This article spells out the conditions under which boards need to change their level of involvement in IT decisions, explaining how members can recognize their firms' IT risks and decide whether they should pursue more aggressive IT governance. The authors delineate what an IT governance committee should look like in terms of charter, membership, duties, and overall agenda. They also offer recommendations for developing IT policies that take into account an organization's operational and strategic needs and suggest what to do when those needs change. Given the dizzying pace of change in the world of IT, boards can't afford to ignore the state of their IT systems and capabilities. Appropriate board governance can go a long way toward helping a company avoid unnecessary risk and improve its competitive position.     

Strategy as simple rules

The success of Yahoo!, eBay, Enron, and other companies that have become adept at morphing to meet the demands of changing markets can't be explained using traditional thinking about competitive strategy. These companies have succeeded by pursuing constantly evolving strategies in market spaces that were considered unattractive according to traditional measures. In this article--the third in an HBR series by Kathleen Eisenhardt and Donald Sull on strategy in the new economy--the authors ask, what are the sources of competitive advantage in high-velocity markets? The secret, they say, is strategy as simple rules. The companies know that the greatest opportunities for competitive advantage lie in market confusion, but they recognize the need for a few crucial strategic processes and a few simple rules. In traditional strategy, advantage comes from exploiting resources or stable market positions. In strategy as simple rules, advantage comes from successfully seizing fleeting opportunities. Key strategic processes, such as product innovation, partnering, or spinout creation, place the company where the flow of opportunities is greatest. Simple rules then provide the guidelines within which managers can pursue such opportunities. Simple rules, which grow out of experience, fall into five broad categories: how- to rules, boundary conditions, priority rules, timing rules, and exit rules. Companies with simple-rules strategies must follow the rules religiously and avoid the temptation to change them too frequently. A consistent strategy helps managers sort through opportunities and gain short-term advantage by exploiting the attractive ones. In stable markets, managers rely on complicated strategies built on detailed predictions of the future. But when business is complicated, strategy should be simple.     

The competitive advantage of corporate philanthropy

When it comes to philanthropy, executives increasingly see themselves as caught between critics demanding ever higher levels of "corporate social responsibility" and investors applying pressure to maximize short-term profits. In response, many companies have sought to make their giving more strategic, but what passes for strategic philanthropy is almost never truly strategic, and often isn't particularly effective as philanthropy. Increasingly, philanthropy is used as a form of public relations or advertising, promoting a company's image through high-profile sponsorships. But there is a more truly strategic way to think about philanthropy. Corporations can use their charitable efforts to improve their competitive context--the quality of the business environment in the locations where they operate. Using philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospects. Addressing context enables a company to not only give money but also leverage its capabilities and relationships in support of charitable causes. The produces social benefits far exceeding those provided by individual donors, foundations, or even governments. Taking this new direction requires fundamental changes in the way companies approach their contribution programs. For example, philanthropic investments can improve education and local quality of life in ways that will benefit the company. Such investments can also improve the company's competitiveness by contributing to expanding the local market and helping to reduce corruption in the local business environment. Adopting a context-focused approach goes against the grain of current philanthropic practice, and it requires a far more disciplined approach than is prevalent today. But it can make a company's philanthropic activities far more effective.     

Strategic sourcing: from periphery to the core

As globalization changes the basis of competition, sourcing is moving from the periphery of corporate functions to the core. Always important in terms of costs, sourcing is becoming a strategic opportunity. But few companies are ready for this shift. Outsourcing has grown so sophisticated that even critical functions like engineering, R&D, manufacturing, and marketing can-and often should-be moved outside. And that, in turn, is changing the way companies think about their organizations, their value chains, and their competitive positions. Already, a handful of vanguard companies are transforming what used to be purely internal corporate functions into entirely new industries. Companies like UPS, Solectron, and Hewitt have created new business models by concentrating scale and skill within a single function. As these and other function-based companies grow, so does the potential value of outsourcing to all companies. Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone. But all companies need to rigorously reassess each of their functions as possible outsourcing candidates. Presented in this article is a simple three-step process to identify which functions your company needs to own and protect, which can be best performed by what kinds of partners, and which could be turned into new business opportunities. The result of such an analysis will be a comprehensive capabilities-sourcing strategy. As a detailed examination of 7-Eleven's experience shows, the success of the strategy often hinges on the creativity with which partnerships are organized and managed. But only by first taking a broad, strategic view of capabilities sourcing can your company gain the greatest benefit from all of its sourcing choices.     

Introducing T-shaped managers. Knowledge management's next generation

Most companies do a poor job of capitalizing on the wealth of expertise scattered across their organizations. That's because they tend to rely on centralized knowledge-management systems and technologies. But such systems are really only good at distributing explicit knowledge, the kind that can be captured and codified for general use. They're not very good at transferring implicit knowledge, the kind needed to generate new insights and creative ways of tackling business problems or opportunities. The authors suggest another approach, something they call T-shaped management, which requires executives to share knowledge freely across their organization (the horizontal part of the "T"), while remaining fiercely committed to their individual business unit's performance (the vertical part). A few companies are starting to use this approach, and one--BP Amoco--has been especially successful. From BP's experience, the authors have gleaned five ways that T-shaped managers help companies capitalize on their inherent knowledge. They increase efficiency by transferring best practices. They improve the quality of decision making companywide. They grow revenues through shared expertise. They develop new business opportunities through the cross-pollination of ideas. And they make bold strategic moves possible by delivering well-coordinated implementation. All that takes time, and BP's managers have had to learn how to balance that time against the attention they must pay to their own units. The authors suggest, however, that it's worth the effort to find such a balance to more fully realize the immense value of the knowledge lying idle within so many companies.     

Transforming corner-office strategy into frontline action

When CEOs push decision making out to the far reaches of an organization, good things happen: fleeting business opportunities are seized quickly and workers are motivated to innovate and take risks. But it's tricky to achieve both decentralized decision making and coherent strategic action at a company. If everyone is a decision maker, things can spin out of control. In this article, Bain consultants Orit Gadiesh and James Gilbert explore the concept of the strategic principle--a memorable and actionable phrase that distills a company's corporate strategy into its unique essence and communicates it across an organization. If it's devised and disseminated properly, a strategic principle can empower employees to seize business opportunities but also focus everyone in an organization--executives and line managers alike--on the same strategic objectives. The authors outline the three defining characteristics of a good strategic principle--it should force trade-offs between competing resource demands, it should serve as a test for the strategic soundness of a particular action, and it should set clear boundaries for employees to operate within even as it grants them freedom to experiment. They explain how managers can create a strategic principle, how they should test it, and when they should revisit it. The authors present real-world examples of how companies use their strategic principles. For instance, they describe how South-west Airlines stopped flying to Denver after it measured the high costs of providing flight service in that part of the country against its strategic principle of offering customers short-haul air travel at fares competitive with the cost of automobile travel. This tool is increasingly useful in today's rapidly changing business environment, the authors conclude, and it is likely to become even more crucial to corporate success.     

How CEOs manage growth agendas

When does it make sense for companies to grow from within? When is it better to gain new capabilities or access to markets by merging with or acquiring other companies? When should you sacrifice the bottom line in order to nurture the top line? In a thought-provoking series of essays, five executives--Kenneth Freeman of Quest Diagnostics, George Nolen of Siemens USA, John Tyson of Tyson Foods, Kenneth Lewis of Bank of America, and Robert Creifeld of Nasdaq--describe how they have approached top-line growth in various leadership roles throughout their careers. They write candidly about their struggles and successes along the way, relaying growth strategies as diverse as the companies and industries they represent. The leaders' different tactics have almost everything to do with their companies' particular strengths, weaknesses, and needs. Freeman, for instance, emphasizes the importance of knowing when to put on the brakes. When he first became CEO of Quest, he froze acquisitions for a few years so the company could focus on internal processes and "earn the right to grow." But for Greifeld, it's all about innovation, which "shakes up competitive stasis and propels even mature businesses forward." The executives agree, though, that companies can grow (and can do so profitably) by distinguishing their offerings from those of other organizations. As Ranjay Gulati of Northwestern's Kellogg School of Management points out in his introduction to the essays, no matter what strategies are in play,"it's important to remember that growth comes in many forms and takes patience.... The key is to be ready to act on whatever types of opportunities arise."     

Strategy as revolution

How often does the strategic-planning process start with senior executives asking what the rest of the organization can teach them about the future? Not often enough, argues Gary Hamel. In many companies, strategy making is an elitist procedure and ?strategy? consists of nothing more than following the industry's rules. But more and more companies, intent on overturning the industrial order, are rewriting those rules. What can industry incumbents do? Either surrender the future to revolutionary challengers or revolutionize the way their companies create strategy. What is needed is not a tweak to the traditional strategic-planning process, Hamel says, but a new philosophical foundation: strategy is revolution. Hamel offers ten principles to help a company think about the challenge of creating truly revolutionary strategies. Perhaps the most fundamental principle is that so-called strategic planning doesn't produce true strategic innovation. The traditional planning process is little more than a rote procedure in which deeply held assumptions and industry conventions are reinforced rather than challenged. Such a process harnesses only a tiny proportion of an organization's creative potential. If there is to be any hope of industry revolution, senior managers must give up their monopoly on the creation of strategy. They must embrace a truly democratic process that can give voice to the revolutionaries that exist in every company. If senior managers are unwilling to do this, employees must become strategy activists. The opportunities for industry revolution are mostly unexplored. One thing is certain: if you don't let the revolutionaries challenge you from within, they will eventually challenge you from without--in the marketplace.     

Stop making plans; start making decisions

Many executives have grown skeptical of strategic planning. Is it any wonder? Despite all the time and energy that go into it, strategic planning most often acts as a barrier to good decision making and does little to influence strategy. Strategic planning fails because of two factors: It typically occurs annually, and it focuses on individual business units. As such, the process is completely at odds with the way executives actually make important strategy decisions, which are neither constrained by the calendar nor defined by unit boundaries. Thus, according to a survey of 156 large companies, senior executives often make strategic decisions outside the planning process, in an ad hoc fashion and without rigorous analysis or productive debate. But companies can fix the process if they attack its root problems. A few forward-looking firms have thrown out their calendar-driven, business-unit-focused planning procedures and replaced them with continuous, issues-focused decision making. In doing so, they rely on several basic principles: They separate, but integrate, decision making and plan making. They focus on a few key themes. And they structure strategy reviews to produce real decisions. When companies change the timing and focus of strategic planning, they also change the nature of senior management's discussions about strategy--from "review and approve" to "debate and decide," in which top executives actively think through every major decision and its implications for the company's performance and value. The authors have found that these companies make more than twice as many important strategic decisions per year as companies that follow the traditional planning model.     

Bottom-feeding for blockbuster businesses

Marketing experts tell companies to analyze their customer portfolios and weed out buyer segments that don't generate attractive returns. Loyalty experts stress the need to aim retention programs at "good" customers--profitable ones- and encourage the "bad" ones to buy from competitors. And customer-relationship-management software provides ever more sophisticated ways to identify and eliminate poorly performing customers. On the surface, the movement to banish unprofitable customers seems reasonable. But writing off a customer relationship simply because it is currently unprofitable is at best rash and at worst counterproductive. Executives shouldn't be asking themselves, How can we shun unprofitable customers? They need to ask, How can we make money off the customers that everyone else is shunning? When you look at apparently unattractive segments through this lens, you often see opportunities to serve those segments in ways that fundamentally change customer economics. Consider Paychex, a payroll-processing company that built a nearly billion-dollar business by serving small companies. Established players had ignored these customers on the assumption that small companies couldn't afford the service. When founder Tom Golisano couldn't convince his bosses at Electronic Accounting Systems that they were missing a major opportunity, he started a company that now serves 390,000 U.S. customers, each employing around 14 people. In this article, the authors look closely at bottom-feeders--companies that assessed the needs of supposedly unattractive customers and redesigned their business models to turn a profit by fulfilling those needs. And they offer lessons other executives can use to do the same.     

The right mind-set for managing information technology

Too many managers in the West are intimidated by the task of managing technology. They tiptoe around it, supposing that it needs special tools, special strategies, and a special mind-set. Well, it doesn't, the authors say. Technology should be managed-controlled, even--like any other competitive weapon in a manager's arsenal. The authors came to this conclusion in a surprising way. Having set out to compare Western and Japanese IT-management practices, they were startled to discover that Japanese companies rarely experience the IT problems so common in the United States and Europe. In fact, their senior executives didn't even recognize the problems that the authors described. When they dug deeper into 20 leading companies that the Japanese themselves consider exemplary IT users, they found that the Japanese see IT as just one competitive lever among many. Its purpose, very simply, is to help the organization achieve its operational goals. The authors recognize that their message is counterintuitive, to say the least. In visits to Japan, Western executives have found anything but a model to copy. But a closer look reveals that the prevailing wisdom is wrong. The authors found five principles of IT management in Japan that, they believe, are not only powerful but also universal. M. Bensaou and Michael Earl contrast these principles against the practices commonly found in Western companies. While acknowledging that Japan has its own weaknesses with technology, particularly in white-collar office settings, they nevertheless urge senior managers in the West to consider the solid foundation on which Japanese IT management rests.     

Selling the brand inside

When you think of marketing, chances are your mind goes right to your customers--how can you persuade more people to buy whatever it is you sell? But there's another "market" that's equally important: your employees. Author Colin Mitchell argues that executives by and large ignore this critical internal audience when developing and executing branding campaigns. As a result, employees end up undermining the expectations set by the company's advertising--either because they don't understand what the ads have promised or because they don't believe in the brand and feel disengaged or, worse, hostile toward the company. Mitchell offers three principles for executing internal branding campaigns--techniques executives can use to make sure employees understand, embrace, and "live" the brand vision companies are selling to the public. First, he says, companies need to market to employees at times when the company is experiencing a fundamental challenge or change, times when employees are seeking direction and are relatively receptive to new initiatives. Second, companies must link their internal and external marketing campaigns; employees should hear the same messages that are being sent to the market-place. And third, internal branding campaigns should bring the brand alive for employees, creating an emotional connection to the company that transcends any one experience. Internal campaigns should introduce and explain the brand messages in new and attention-grabbing ways and then reinforce those messages by weaving them into the fabric of the company. It is a fact of business, writes Mitchell, that if employees do not care about or understand their company's brands, they will ultimately weaken their organizations. It's up to top executives, he says, to give them a reason to care.     

Strategy and the Internet

Many of the pioneers of Internet business, both dot-coms and established companies, have competed in ways that violate nearly every precept of good strategy. Rather than focus on profits, they have chased customers indiscriminately through discounting, channel incentives, and advertising. Rather than concentrate on delivering value that earns an attractive price from customers, they have pursued indirect revenues such as advertising and click-through fees. Rather than make trade-offs, they have rushed to offer every conceivable product or service. It did not have to be this way--and it does not have to be in the future. When it comes to reinforcing a distinctive strategy, Michael Porter argues, the Internet provides a better technological platform than previous generations of IT. Gaining competitive advantage does not require a radically new approach to business; it requires building on the proven principles of effective strategy. Porter argues that, contrary to recent thought, the Internet is not disruptive to most existing industries and established companies. It rarely nullifies important sources of competitive advantage in an industry; it often makes them even more valuable. And as all companies embrace Internet technology, the Internet itself will be neutralized as a source of advantage. Robust competitive advantages will arise instead from traditional strengths such as unique products, proprietary content, and distinctive physical activities. Internet technology may be able to fortify those advantages, but it is unlikely to supplant them. Porter debunks such Internet myths as first-mover advantage, the power of virtual companies, and the multiplying rewards of network effects. He disentangles the distorted signals from the marketplace, explains why the Internet complements rather than cannibalizes existing ways of doing business, and outlines strategic imperatives for dot-coms and traditional companies.     

Strategy as a portfolio of real options

In financial terms, a business strategy is much more like a series of options than like a single projected cash flow. Executing a strategy almost always involves making a sequence of major decisions. Some actions are taken immediately while others are deliberately deferred so that managers can optimize their choices as circumstances evolve. While executives readily grasp the analogy between strategy and real options, until recently the mechanics of option pricing was so complex that few companies found it practical to use when formulating strategy. But advances in both computing power and our understanding of option pricing over the last 20 years now make it feasible to apply real-options thinking to strategic decision making. To analyze a strategy as a portfolio of related real options, this article exploits a framework presented by the author in "Investment Opportunities as Real Options: Getting Started on the Numbers" (HBR July-August 1998). That article explained how to get from discounted-cash-flow value to option value for a typical project; in other words, it was about reaching a number. This article extends that framework, exploring how, once you've worked out the numbers, you can use option pricing to improve decision making about the sequence and timing of a portfolio of strategic investments. Timothy Luehrman shows executives how to plot their strategies in two-dimensional "option space," giving them a way to "draw" a strategy in terms that are neither wholly strategic nor wholly financial, but some of both. Such pictures inject financial discipline and new insight into how a company's future opportunities can be actively cultivated and harvested.     

Lead from the center. How to manage divisions dynamically

Conventional wisdom holds that a company's divisions should be given almost total autonomy--especially under conditions of uncertainty--because they are closer to emerging technologies, customers, and competitors than corporate headquarters could ever be. But research from Michael Raynor and Joseph Bower suggests that the corporate office should be more, not less, directive in turbulent markets. Rapid changes in an industry make it difficult to predict where and when synergies among divisions might emerge. With so many possibilities and such uncertainty, companies can't afford to sacrifice their ability to flexibly execute business strategy. Corporate headquarters must play an active role in defining the scope of division-level strategy, the authors say, so that divisions do not act in ways that undermine opportunities to collaborate in the future. But neither can companies afford to sacrifice the competitiveness of their divisions as stand-alone businesses. In creating corporate-level strategic flexibility, a corporate office must balance the need for divisional autonomy now with the potential need for cooperation in the future. Through an examination of four corporations--Sprint, WPP, Teradyne, and Viacom--the authors challenge traditional approaches to diversification in which a company's divisions are either related (they share resources and collaborate) or unrelated (they compete for resources and operate as stand-alone businesses). They argue that companies should adopt a dynamic approach to cooperation among divisions, enabling varying degrees of relatedness between divisions depending on strategic circumstances. The authors offer four tactics to help executives manage divisions dynamically.     

Hardball. Five killer strategies for trouncing the competition

The winners in business play hardball, and they don't apologize for it. They single-mindedly pursue competitive advantage and the benefits it offers: a leading market share, great margins, and rapid growth. They pick their shots, seek out competitive encounters, set the pace of innovation, and test the edges of the possible. Softball players, by contrast, may look good--they may report decent earnings and even get favorable coverage in the business press--but they aren't intensely serious about winning. They don't accept that you must sometimes hurt your rivals, and risk being hurt, to get what you want. Instead of running--not scared, but smart--softball players seem almost to be standing around and watching. They don't play to win; they play to play. That approach may reflect the recent focus of management science, which itself has gone soft. Indeed, the discourse around soft issues such as leadership, corporate culture, knowledge management, talent management, and employee empowerment has encouraged the making of softball players. While there are countless ways to play hardball, a handful of classic strategies are effective in generating competitive advantage. Best employed in bursts of ruthless intensity, these strategies are: Devastate rivals' profit sanctuaries, plagiarize with pride, deceive the competition, unleash massive and overwhelming force, and raise competitors' costs. But hardball isn't only about the moves you make. It's also about the attitude you bring to them. The playbook won't do you any good if you feel squeamish about using it. Do you have what it takes to play hardball?     

CRM done right

Disappointed by the high costs and elusive benefits, early adopters of customer relationship management systems came, in the post dot-com era, to view the technology as just another overhyped IT investment whose initial promise would never be fulfilled. But this year, something unexpected is happening. System sales are rising, and executives are reporting satisfaction with their CRM investments. What's changed? A wide range of companies are successfully taking a pragmatic, disciplined approach to CRM. Rather than use it to transform entire businesses, they've directed their investments toward solving clearly defined problems within their customer relationship cycle. The authors have distilled the experiences of these CRM leaders into four questions that all companies should ask themselves as they launch their own CRM initiatives: Is the problem strategic? Is the system focused on the pain point? Do we need perfect data? What's the right way to expand an initial implementation? The questions reflect a new realism about when and how to deploy CRM to best advantage. Understanding that highly accurate and timely data are not required everywhere in their businesses, CRM leaders have tailored their real-time initiatives to those customer relationships that can be significantly enhanced by "perfect" information. Once they've succeeded with their first targeted CRM project, they can use it as a springboard for solving additional problems. CRM, in other words, is coming to resemble any other valuable management tool, and the keys to successful implementation are also becoming familiar: strong executive and business-unit leadership, careful strategic planning, clear performance measures, and a coordinated program that combines organizational and process changes with the application of new technology.