Capitalizing on capabilities

By making the most of organizational capabilities--employees' collective skills and fields of expertise--you can dramatically improve your company's market value. Although there is no magic list of proficiencies that every organization needs in order to succeed, the authors identify 11 intangible assets that well-managed companies tend to have: talent, speed, shared mind-set and coherent brand identity, accountability, collaboration, learning, leadership, customer connectivity, strategic unity, innovation, and efficiency. Such companies typically excel in only three of these capabilities while maintaining industry parity in the other areas. Organizations that fall below the norm in any of the 11 are likely candidates for dysfunction and competitive disadvantage. So you can determine how your company fares in these categories (or others, if the generic list doesn't suit your needs), the authors explain how to conduct a "capabilities audit," describing in particular the experiences and findings of two companies that recently performed such audits. In addition to highlighting which intangible assets are most important given the organization's history and strategy, this exercise will gauge how well your company delivers on its capabilities and will guide you in developing an action plan for improvement. A capabilities audit can work for an entire organization, a business unit, or a region--indeed, for any part of a company that has a strategy to generate financial or customer-related results. It enables executives to assess overall company strengths and weaknesses, senior leaders to define strategy, midlevel managers to execute strategy, and frontline leaders to achieve tactical results. In short, it helps turn intangible assets into concrete strengths.     

Four rules for taking your message to Wall Street

Managers fail to communicate effectively with Wall Street for all sorts of reasons. But neglecting the investment community--particularly the analysts whose opinions shape the market and whose recommendations often make or break a company's share price--can knock the most carefully conceived and brilliantly executed strategy off course. The companies that struggle the most with providing good information to analysts are those in rapidly evolving industries, where the gap between traditional performance metrics and economic realities is at its widest. In these industries, a company's strategy and the variables that govern its performance can change radically in a short time. What's more, the metrics used to report performance often fail to capture the drivers of value in today's information economy. Few accounting measures are helpful when it comes to assessing the intangible assets--knowledge, skilled employees, and so forth--on which many of today's fastest-growing companies build their strategies. According to Amy Hutton, an associate professor at Harvard Business School, there are four basic rules for clear communications with Wall Street. First, make sure that your company's financial reporting reflects your strategy as closely as possible. Second, popularize the nonfinancial metrics that best predict--and flatter--the performance of your businesses. Third, appoint managers with recognized credibility to your strategic operations. Finally, cultivate the market experts who cover the industries in which you seek to compete. Hutton shows how AOL successfully followed these rules as it significantly changed its strategic direction and competitive arena.     

Charting your company's future

Few companies have a clear strategic vision. The problem, say the authors, stems from the strategic-planning process itself, which usually involves preparing a large document, culled from a mishmash of data provided by people with conflicting agendas. That kind of process almost guarantees an unfocused strategy. Instead, companies should design the strategic-planning process by drawing a picture: a strategy canvas. A strategy canvas shows the strategic profile of your industry by depicting the various factors that affect competition. And it shows the strategic profiles of your current and potential competitors as well as your own company's strategic profile--how it invests in the factors of competition and how it might in the future. The basic component of a strategy canvas--the value curve--is a tool the authors created in their consulting work and have written about in previous HBR articles. This article introduces a four-step process for actually drawing and discussing a strategy canvas. Readers will learn how one European financial services company used this process to create a distinct and easily communicable strategy. The process begins with a visual awakening. Managers compare their business's value curve with competitors' to discover where their strategy needs to change. In the next step--visual exploration--managers do field research on customers and alternative products. At the visual strategy fair, the third step, managers draw new strategic profiles based on field observations and get feedback from customers and peers about these new proposals. Once the best strategy is created from that feedback, it's time for the last step--visual communication. Executives distribute "before" and "after" strategic profiles to the whole company, and only projects that will help move the company closer to the "after" profile are supported.     

Competitive advantage on a warming planet

Whether you're in a traditional smokestack industry or a "clean" business like investment banking, your company will increasingly feel the effects of climate change. Even people skeptical about global warming's dangers are recognizing that, simply because so many others are concerned, the phenomenon has wide-ranging implications. Investors already are discounting share prices of companies poorly positioned to compete in a warming world. Many businesses face higher raw material and energy costs as more and more governments enact policies placing a cost on emissions. Consumers are taking into account a company's environmental record when making purchasing decisions. There's also a burgeoning market in greenhouse gas emission allowances (the carbon market), with annual trading in these assets valued at tens of billions of dollars. Companies that manage and mitigate their exposure to the risks associated with climate change while seeking new opportunities for profit will generate a competitive advantage over rivals in a carbon-constrained future. This article offers a systematic approach to mapping and responding to climate change risks. According to Jonathan Lash and Fred Wellington of the World Resources Institute, an environmental think tank, the risks can be divided into six categories: regulatory (policies such as new emissions standards), products and technology (the development and marketing of climate-friendly products and services), litigation (lawsuits alleging environmental harm), reputational (how a company's environmental policies affect its brand), supply chain (potentially higher raw material and energy costs), and physical (such as an increase in the incidence of hurricanes). The authors propose a four-step process for responding to climate change risk: Quantify your company's carbon footprint; identify the risks and opportunities you face; adapt your business in response; and do it better than your competitors.     

Moving mountains

What could be more fundamental to management, or more difficult, than motivating people? After all, a manager, by definition, is someone who gets work done through others. But how? A typical recipe for motivation calls for a mixture of persuasion, encouragement, and compulsion. Yet the best leaders, we suspect, need no recipe: They get people to produce great results by appealing to their deepest drives, needs, and desires. And so we discovered when we asked a dozen of the world's top leaders to describe how they each met a daunting challenge in motivating an individual, a team, or an organization. Their answers are as varied as human nature. Some of the leaders appeal to people's need for the rational and the orderly: Mattel's Robert Eckert emphasizes the reassuring power of delivering a consistent message, and HP's Carly Fiorina focuses on facing hard truths on setting step-by-step goals. Some, like celebrated oceanographer Robert Ballard, Pfizer CEO Hank McKinnell, and BP America president Ross Pillari, see the powerful motivating effects of asking people to rise to difficult challenges. Others focus more on the human spirit, appealing to the desire to do something, as BMW's Chris Bangle puts it, "rare, marvelous, and lasting." And quite a few inspire through example, as Dial chairman Herb Baum did when he donated $1,000 from his bonus to each of the company's 155 lowest-paid people. "If you draw the line on your own greed, and your employees see it," he says, "they will be incredibly loyal and perform much better for you." And he has the numbers to prove it. "Right now," he adds, "we're experiencing our lowest level of attrition in 11 years, and we're tracking toward another banner year because people are happy."     

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.     

What's your personal social media strategy?

Social media are changing the way we do business and how leaders are perceived, from the shop floor to the CEO suite. But whereas the best businesses are creating comprehensive strategies in thi area, research suggests that few corporate Leaders have a social media presence--say, a Facebook or Linked in of page--and that those do don't use it strategically. Today's leaders must embrace social media for three reasons, First, they provide a low-cost, highly accessible platform on which to build your personal brand, communicating who you are both within and outside your company. Second, they allow you to engage rapidly and simultaneously with peers, employees, customers, and the broader public--in order to leverage relationships, show commitment to a cause, and demonstrate a capacity for reflection. Third, they give you an opportunity to learn from instant information and unvarnished feedback. To formulate your personal social media strategy, it helps to clarify your goals (personal, professional, or both), desired audience (private or public), and resources (can you justify using your company's?). You must also consider the risks of maintaining a large number of connections and of sharing content online. Active participation in social media can be a powerful tool--the difference between leading effectively and ineffectively, and between advancing and faltering in the pursuit of your goals.     

Lead for loyalty.

The greater the loyalty a company engenders among its customers, employees, suppliers, and shareholders, the greater the profits it reaps. Frederick Reichheld, a director emeritus of Bain & Company, offers advice on improving loyalty that is based on more than a decade of research. Primarily, he says, outstanding loyalty is the direct result of the decisions and practices of committed top executives with personal integrity. The "loyalty leader" companies--those with the most impressive loyalty credentials--are a diverse group, ranging from Vanguard and Northwestern Mutual to Chick-fil-A, Harley-Davidson, Intuit, and Enterprise Rent-A-Car. But beneath their surface variations lie six strikingly similar relationship strategies: 1. Preach what you practice. Executives must preach the importance of loyalty in clear, precise, powerful terms. 2. Play to win-win. It's not enough that your competitors lose; your partners must win. There's a clear connection, for instance, between a company's treatment of its employees and its attitude toward customers. 3. Be picky. A truly humble company knows it can satisfy only certain customers, and it goes all out to keep them happy. Careful selection of employees also plays an important role. 4. Keep it simple. Great leaders understand that they must simplify rules for decision making. 5. Reward the right results. Many companies reward employees who grab short-term profits and short-change those who build long-term value and customer loyalty. 6. Listen hard, talk straight. Long-term relationships require honest, two-way communication and learning. Exemplary leaders break through the cynicism of the times by showing they believe that an organization thrives when its partners and customers do.     

The information archipelago--plotting a course.

Information systems applications in some aspects resemble those of a decade ago--they cost a lot, are technically complex, and take a long time to develop. Moreover, as the technology continues to change rapidly, managers find themselves continually squeezed by a shortage of the technical staff and financial resources they need to keep up. A company can use knowledge of its particular strengths and weaknesses in regard to IS to steer its way onto a safe course, say these authors in the second article of a series dealing with the "islands" of information: computers, telecommunications, and office automation (see "The Information Archipelago--Maps and Bridges," HBR September-October 1982). Setting a safe course requires a new planning approach, for which the guideposts are the company's familiarity with any one technology, the importance of the technology to corporate strategy, and certain business characteristics such as size, complexity of product lines, and the general approach to corporate planning.     

How we went digital without a strategy

Once you say what business you're in, you put your employees into a mental straitjacket and hand them a ready-made excuse for ignoring new opportunities. So rather than dictate his company's identity, Ricardo Semler--the majority owner of Semco in S?o Paulo, Brazil--lets his employees shape it through their individual efforts and interests. "I don't know what Semco is," he writes in this first-person account of his company's expansion from manufacturing to Internet services. "Nor do I want to know." Ten years ago, Semco employees who were selling cooling towers to owners of large commercial buildings heard customers complain about the high cost of maintaining the towers. The salespeople proposed a new business in cooling-tower maintenance, and the venture is now a $30 million property-management business. That initiative led to the creation, with Semco's support, of an on-line exchange to facilitate the management of commercial construction projects. The exchange is revolutionizing the construction process in Brazil and has become a springboard for further Web initiatives such as virtual trade shows. The author shares some of the lessons he has learned along the way: Forget about the top line. Never stop being a start-up. Don't be a nanny (treat your employees like adults). Let talent find its place. Make decisions quickly and openly when it comes to reviewing proposals for new businesses. And partner promiscuously: "Our partners," Semler says, "are as much a part of our company as our employees."     

Driving Performance Through Corporate Culture: Interviews with Four Experts

Establishing an effective link between corporate strategy and employee performance has traditionally been seen as a function of organizational structure and internal marketing—that is, of getting the right compensation systems in place to reward the desired behavior, and relentlessly communicating the strategy to all employees. But, according to the four organizational behavior experts who were interviewed for this article, there's more to it than that. Also important is a market- and customer-oriented corporate culture, which can be a highly effective tool for companies seeking to improve performance and increase value.
This article presents four distinctive, but complementary views on why and how senior executives should play a significant role in managing the cultures within their organizations. According to these experts, it is possible to both transform and harness the power of a culture by paying greater attention to succession issues; articulating and communicating an organization's core values; aligning a company's behavioral norms with employee assumptions; and offering "constructive reconciliation of cultural differences." In the last analysis, a company's culture is said to be the most effective way for executives to ensure that their employees will perform "when no one is looking."     

We don't need another hero

Everybody loves the stories of heroes like Martin Luther King, Jr., Mother Teresa, and Gandhi. But the heroic model of moral leadership usually doesn't work in the corporate world. Modesty and restraint are largely responsible for the achievements of the most effective moral leaders in business. The author, a specialist in business ethics, says the quiet leaders he has studied follow four basic rules in meeting ethical challenges and making decisions. The rules constitute an important resource for executives who want to encourage the development of such leaders among their middle managers. The first rule is "Put things off till tomorrow." The passage of time allows turbulent waters to calm and lets leaders' moral instincts emerge. "Pick your battles" means that quiet leaders don't waste political capital on fights they can't win; they save it for occasions when they really want to fight. "Bend the rules, don't break them" sounds easier than it is--bending the rules in order to resolve a complicated situation requires imagination, discipline, restraint, flexibility, and entrepreneurship. The fourth rule, "Find a compromise," reflects the author's finding that quiet leaders try not to see situations as polarized tests of ethical principles. These individuals work hard to craft compromises that are "good enough"--responsible and workable enough--to satisfy themselves, their companies, and their customers. The vast majority of difficult problems are solved through the consistent striving of people working far from the limelight. Their quiet approach to leadership doesn't inspire, thrill, or provide story lines for uplifting TV shows. But the unglamorous efforts of quiet leaders make a tremendous difference every day in the corporate world.     

The chief strategy officer

They're nominally and ultimately responsible for strategy, but today's CEOs have less and less time to devote to it. As a result, CEOs are appointing "chief strategy officers"--executives specifically tasked with creating, communicating, executing, and sustaining a company's strategic initiatives. In this article, three authors from Accenture share the results of their research on this emerging organizational role. The typical CSO or top strategy executive is not a pure strategist, conducting long-range planning in relative isolation. Most CSOs consider themselves doers first, with the mandate, credentials, and desire to act as well as advise. They are seasoned executives with a strong strategy orientation who have usually worn many operations hats before taking on the role. Strategy executives are charged with three critical jobs that together form the very definition of strategy execution. First, they must clarify the company's strategy for themselves and for every business unit and function, ensuring that all employees understand the details of the strategic plan and how their work connects to corporate goals. Second, CSOs must drive immediate change. The focus of the job almost always quickly evolves from creating shared alignment around a vision to riding herd on the ensuing change effort. Finally, a CSO must drive decision making that sustains organizational change. He or she must be that person who, in the CEO's stead, can walk into any office and test whether the decisions being made are aligned with the strategy and are creating the desired results. When decisions below the executive suite aren't being made in accordance with strategy, much of the CSO's job involves learning why and quickly determining whether to stay the course or change tack.     

Innovation versus complexity: what is too much of a good thing?

What's the number of product or service offerings that would optimize both your revenues and your profits? For most firms, it's considerably lower than the number they offer today. The fact is, companies have strong incentives to be overly innovative in new product development. But continual launches of new products and line extensions add complexity throughout a company's operations, and as the costs of managing that complexity multiply, margins shrink. To maximize profit potential, a company needs to identify its innovation fulcrum, the point at which an additional offering destroys more value than it creates. The usual antidotes to complexity miss their mark because they treat the problem on the factory floor rather than at its source: in the product line. Mark Gottfredson and Keith Aspinall of Bain & Company present an approach that goes beyond the typical Six Sigma or lean-operations program to root out complexity hidden in the value chain. The first step is to ask, What would our company look like if it made and sold only a single product or service? In other words, you identify your company's equivalent of Henry Ford's one-size-fits-all Model T-for Starbucks, it might be a medium-size cup of coffee; for a bank, a simple checking account-and then determine the cost of producing that baseline offering. Next, you add variety back into the business system, product by product, and carefully forecast the resulting impact on sales as well as the cost implications across the value chain. When the analysis shows the costs beginning to overwhelm the added revenues, you've found your innovation fulcrum. By deconstructing their companies to a zero-complexity baseline, managers can break through organizational resistance and deeply entrenched ways of thinking to find the right balance between innovation and complexity.     

Strategy as ecology

Microsoft's and Wal-Mart's preeminence in modern business has been attributed to any number of factors--from the vision and drive of their founders to the companies' aggressive competitive practices. But the authors maintain that the success realized by these two very different companies is due only partly to the organizations themselves; a bigger factor is the success of the networks of companies with which Microsoft and Wal-Mart do business. Most companies today inhabit ecosystems--loose networks of suppliers, distributors, and outsourcers; makers of related products or services; providers of relevant technology; and other organizations that affect, and are affected by, the creation and delivery of a company's own offering. Despite being increasingly central to modern business, ecosystems are still poorly understood and even more poorly managed. The analogy between business networks and biological ecosystems can aid this understanding by vividly highlighting certain pivotal concepts. The moves that a company makes will, to varying degrees, affect the health of its business network, which in turn will ultimately affect the organization's performance--for ill as well as for good. Because a company, like an individual species in a biological ecosystem, ultimately shares its fate with the network as a whole, smart firms pursue strategies that will benefit everyone. So how can you promote the health and the stability of your own ecosystem, determine your place in it, and develop a strategy to match your role, thereby helping to ensure your company's well-being? It depends on your role--current and potential--within the network. Is your company a niche player, a keystone, or a dominator? The answer to this question may be different for different parts of your business. It may also change as your ecosystem changes. Knowing what to do requires understanding the ecosystem and your organization's role in it.     

A time for growth: an interview with Amgen CEO Kevin Sharer. Interview by Paul Hemp

Fast growth is a nice problem to have--but a hard one to manage well. In this interview, Kevin Sharer, the CEO of biotech giant Amgen, talks about the special challenges leaders face when their companies are on a roll. Sharer, who was also head of marketing at pre-WorldCom MCI and a division head and a staff assistant to Jack Welch at GE, offers insights drawn from his own experience--and from his own self-proclaimed blunders: "I learned the hard way that you need to become credible and enlist support inside the company before you start trying to be a change agent. If you think you're going to make change happen simply by force of personality or position or intellect, you'd better think again." And change there was: Under Sharer's leadership, Amgen overhauled its management team, altered its culture, and launched a couple of blockbuster products. How do chief executives survive in that kind of dizzying environment? "A CEO must always be switching between different altitudes--tasks of different levels of abstraction and specificity," Sharer says. "You might need to spend time working on a redesign of your organizational structure and then quickly switch to drafting a memo to all employees aimed at reinforcing one of the company's values." Having a supportive and capable top team is also key: "A top management team is the most revealing window into a CEO's style, values, and aspirations.... If you don't have the right top team, you won't have the right tiers below them. [The] A players won't work for B players. Maybe with a company like GE, the reputation of the company is so strong that it can attract top people to work for weaker managers. In a new company like Amgen, that won't happen."     

Do your commitments match your convictions?

How many of us keep pace day to day, up-holding our obligations to our bosses, families, and the community, even as our overall satisfaction with work and quality of life decline? And yet, our common response to the situation is: "I'm too busy to do anything about it now." Unfortunately, unless a personal or professional crisis strikes, very few of us step back, take stock of our day-to-day actions, and make a change. In this article, London Business School strategy professors Donald Sull and Dominic Houlder examine the reasons why a gap often exists between the things we value most and the ways we actually spend our time, money, and attention. They also suggest a practical approach to managing the gap. The framework they propose is based on their study of organizational commitments--the investments, promises, and contracts made today that bind companies to a future course of action. Such commitments can prevent organizations from responding effectively to change. A similar logic applies to personal commitments--the day-to-day decisions we make about how we allocate our precious resources. These decisions are individually small and, therefore, easy to lose sight of. When we do, a gap can develop between our commitments and our convictions. Sull and Houlder make no value judgments about the content of personal commitments; they've devised a somewhat dispassionate tool to help you take a thorough inventory of what matters to you most. It involves listing your most important values and assigning to each a percentage of your annual salary, the hours out of your week, and the amount of energy you devote. Using this exercise, you should be able to identify big gaps--stated values that receive little or none of your scarce resources or a single value that sucks a disproportionate share of resources--and change your allocations accordingly.     

The great intimidators

After Disney's Michael Eisner, Miramax's Harvey Weinstein, and Hewlett-Packard's Carly Fiorina fell from their heights of power, the business media quickly proclaimed thatthe reign of abrasive, intimidating leaders was over. However, it's premature to proclaim their extinction. Many great intimidators have done fine for a long time and continue to thrive. Their modus operandi runs counter to a lot of preconceptions about what it takes to be a good leader. They're rough, loud, and in your face. Their tactics include invading others' personal space, staging tantrums, keeping people guessing, and possessing an indisputable command of facts. But make no mistake--great intimidators are not your typical bullies. They're driven by vision, not by sheer ego or malice. Beneath their tough exteriors and sharp edges are some genuine, deep insights into human motivation and organizational behavior. Indeed, these leaders possess political intelligence, which can make the difference between paralysis and successful--if sometimes wrenching--organizational change. Like socially intelligent leaders, politically intelligent leaders are adept at sizing up others, but they notice different things. Those with social intelligence assess people's strengths and figure out how to leverage them; those with political intelligence exploit people's weaknesses and insecurities. Despite all the obvious drawbacks of working under them, great intimidators often attract the best and brightest. And their appeal goes beyond their ability to inspire high performance. Many accomplished professionals who gravitate toward these leaders want to cultivate a little "inner intimidator" of their own. In the author's research, quite a few individuals reported having positive relationships with intimidating leaders. In fact, some described these relationships as profoundly educational and even transformational. So before we throw out all the great intimidators, the author argues, we should stop to consider what we would lose.     

Master of the house: Why a company should take control of its building projects

When you head up a big construction project for your organization, coming in on time and on budget isn't enough. If you want to avoid squandering what is probably your company's largest capital investment, it's important to create a building that reflects your company's mission and produces a truly energizing work environment, says David Thurm, CIO of the New York Times Company and head of the team responsible for designing and building the Times' new corporate headquarters in Manhattan. The only way to get this kind of package-great design and innovative features that together further your business goals- is to take an active role. Assemble the right team, and then stay involved, asking hard questions about things that are generally taken as givens. Articulate a vision of your future work space, and drive the search for ways to realize this vision. In short, be a builder, not merely an owner. It's easy to understand why this approach is the exception rather than the rule. To most companies, design and construction seem foreign and forbidding, rife with pitfalls. Because of the murkiness of the field and a lack of experience and confidence, most companies play a relatively minor role in their construction projects. But it's a giant mistake to be a passive consumer when it comes to one of your most important assets. At best, you'll get well-intentioned guesses by others as to what you want; at worst, you'll end up with a building that's at odds with your identity. The author shares a series of lessons learned. Implicit in all of them: You have to push yourself as hard as you push your contractors.