Six IT decisions your IT people shouldn't make

Senior managers often feel frustration--even exasperation--toward information technology and their IT departments. The managers complain that they don't see much business value from the high-priced systems they install, but they don't understand the technology well enough to manage it in detail. So they often leave IT people to make, by default, choices that affect the company's business strategy. The frequent result? Too many projects, a demoralized IT unit, and disappointing returns on IT investments. What distinguishes companies that generate substantial value from their IT investments from those that don't? The leadership of senior managers in making six key IT decisions. The first three relate to strategy: How much should we spend on IT? Which business processes should receive our IT dollars? Which IT capabilities need to be companywide? The second three relate to execution: How good do our IT services really need to be? Which security and privacy risks will we accept? Whom do we blame if an IT initiative fails? When senior managers aren't involved in these decisions, the results can be profound. For example, if they don't take the lead in deciding which IT initiatives to fund, they end up overloading the IT department with projects that may not further the company's strategy. And if they aren't assessing security and privacy risks, they are ignoring crucial business trade-offs. Smart companies are establishing IT governance structures that identify who should be responsible for critical IT decisions and ensure that such decisions further IT's strategic role in the organization.     

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.     

How to have an honest conversation about your business strategy

Too many organizations descend into underperformance because they can't confront the painful gap between their strategy and the reality of their capabilities, their behaviors, and their markets. That's because senior managers don't know how to engage in truthful conversations about the problems that threaten the business--and because lower-level managers are afraid to speak up. These factors lie behind many failures to implement strategy. Indeed, the dynamics in almost any organization are such that it's extremely difficult for senior people to hear the unfiltered truth from managers lower down. Beer and Eisenstat present the methodology they've developed for getting the truth about an organization's problems (and the truth is always embedded within the organization) onto the table in a way that allows senior management to do something useful with it. By assembling a task force of the most effective managers to collect data about strategic and organizational problems, the senior team sends a clear message that it is serious about uncovering the truth. Task force members present their findings to the senior team in the form of a discussion. This conversation needs to move back and forth between advocacy and inquiry; it has to be about the issues that matter most; it has to be collective and public; it has to allow employees to be honest without risking their jobs; and it has to be structured. This direct feedback from a handful of their best people moves senior teams to make changes they otherwise might not have. Senior teams that have engaged in this process have made dramatic changes in how their businesses are organized and managed--and in their bottom-line results. Success that begins with honest conversations begets future conversations that further improve performance.     

How Managers' everyday decisions create or destroy your company's strategy

Senior executives have long been frustrated by the disconnection between the plans and strategies they devise and the actual behavior of the managers throughout the company. This article approaches the problem from the ground up, recognizing that every time a manager allocates resources, that decision moves the company either into or out of alignment with its announced strategy. A well-known story--Intel's exit from the memory business--illustrates this point. When discussing what businesses Intel should be in, Andy Grove asked Gordon Moore what they would do if Intel were a company that they had just acquired. When Moore answered, "Get out of memory," they decided to do just that. It turned out, though, that Intel's revenues from memory were by this time only 4% of total sales. Intel's lower-level managers had already exited the business. What Intel hadn't done was to shut down the flow of research funding into memory (which was still eating up one-third of all research expenditures); nor had the company announced its exit to the outside world. Because divisional and operating managers-as well as customers and capital markets-have such a powerful impact on the realized strategy of the firm, senior management might consider focusing less on the company's formal strategy and more on the processes by which the company allocates resources. Top managers must know the track record of the people who are making resource allocation proposals; recognize the strategic issues at stake; reach down to operational managers to work across division lines; frame resource questions to reflect the corporate perspective, especially when large sums of money are involved and conditions are highly uncertain; and create a new context that allows top executives to circumvent the regular resource allocation process when necessary.     

MANAGEMENT FADS AND ORGANIZATIONAL ARCHITECTURE

This article applies and extends the three-part organizational framework used in the preceding article to a broad range of management innovations. After furnishing some interesting evidence of the rise and fall of management techniques such as TQM, Reengineering, Just-in-Time Production, and Activity-Based Costing, the authors raise and then attempt to answer a number of questions: What explains the popularity of these management innovations? Why do they often fail to produce the expected benefits? How can managers tell if a particular technique is right for them? What can managers do to increase the likelihood that an adopted technique will be successful? The persistent, and at times seemingly insatiable, corporate demand for management innovations is viewed by the authors as a “rational” economic response by senior managers to major changes in the external business environment—changes that in turn dictate changes in business strategy. For example, when confronted with external changes such as deregulation or heightened global competition, companies often find it necessary to refocus their efforts on improving product quality and operating efficiency. And such changes in business strategy tend to require a revamping of the three critical components of organizational architecture: (1) assignment of decision rights, (2) performance evaluation systems, and (3) compensation systems. As the authors argue, innovations such as TQM, outsourcing, Re-engineering, and JIT typically involve major changes in just one or two of these critical elements of the organization, but not all three. The failure to coordinate organizational changes in such a way that these three elements are mutually consistent and reinforcing is one important reason why management innovations can fail to meet expectations. The framework described in this article is designed to help managers considering one potentially valuable set of organizational changes to identify other facets of the organization that also require attention and perhaps complementary adjustments.     

The DHL EuroCup: shots on goal

Deutsche Post World Net, the German postal monopoly, faced significant challenges as it began the process of integrating three businesses: Deutsche Post Euro Express, its own ground-based parcel delivery service, and two companies it had acquired-DHL, the worldwide express delivery service, and Danzas, a worldwide air and ocean freight company. The cultural differences alone were imposing. For example, DHL was a privately held, entrepreneurial company in which most managers had international experience; Deutsche Post was until recently a state-owned monopoly in which few managers had worked outside their home country. Enter EuroCup. For 20 years, DHL employees had held a soccer tournament to strengthen company culture across national boundaries. Canceled the previous year due to budget constraints, the EuroCup tournament was revived in 2003-in part to help with the postmerger integration. But did the event really help? HBR senior editor Paul Hemp attended EuroCup 2003, joining nearly 2,500 DHL employees--about 600 of them players, the rest cheerleaders and other supporters--in the small Belgian town of Lommel. He set out to answer a number of questions relevant to any company staging an ambitious off-site intended to encourage teamwork and boost morale. How does a company determine whether such a large-scale event, even one that generates goodwill, is worth the investment? Does the team building extend to those back home who don't get to attend? Can intense competition between teams begin to overshadow the spirit of cooperation that such an event is meant to engender? In short, can a soccer tournament help a company achieve its corporate goal of creating a strong common culture?     

Creating corporate advantage

What differentiates truly great corporate strategies from the merely adequate? How can executives at the corporate level create tangible advantage for their businesses that makes the whole more than the sum of the parts? This article presents a comprehensive framework for value creation in the multibusiness company. It addresses the most fundamental questions of corporate strategy: What businesses should a company be in? How should it coordinate activities across businesses? What role should the corporate office play? How should the corporation measure and control performance? Through detailed case studies of Tyco International, Sharp, the Newell Company, and Saatchi and Saatchi, the authors demonstrate that the answers to all those questions are driven largely by the nature of a company's special resources--its assets, skills, and capabilities. These range along a continuum from the highly specialized at one end to the very general at the other. A corporation's location on the continuum constrains the set of businesses it should compete in and limits its choices about the design of its organization. Applying the framework, the authors point out the common mistakes that result from misaligned corporate strategies. Companies mistakenly enter businesses based on similarities in products rather than the resources that contribute to competitive advantage in each business. Instead of tailoring organizational structures and systems to the needs of a particular strategy, they create plain-vanilla corporate offices and infrastructures. The company examples demonstrate that one size does not fit all. One can find great corporate strategies all along the continuum.     

The Case for Maximizing Long‐Run Shareholder Value

Criticism of the shareholder model of corporate governance stems in part from misunderstanding about what shareholder wealth maximization means for the other stakeholders of public companies. The corporate goal of shareholder wealth maximization does not imply that such stakeholders “do not matter.” Managers maximize shareholder value by maximizing the total expected cash flows available to distribute to all of their stakeholders. To maximize such cash flows, managers must provide their customers with desirable goods and services at attractive prices—which in turn requires that managers attract the employees, suppliers, and financial capital needed to conduct their businesses by providing each of these groups with market‐determined returns on their contributions to firm value. In this way, successful corporations benefit all of their stakeholders, and what is good for the corporation is generally good for society. External forces such as the media and government exert considerable influence on corporate actions and, in so doing, they play a role in helping to limit negative corporate “externalities” such as pollution and climate change. But direct regulation of productive activities should be used sparingly, and subjected to ongoing cost‐benefit analysis. Government regulation replaces the collective decisions of a broad marketplace of stakeholders using their own resources to act in their own interests with decisions made by government officials with complicated incentives and using resources generated by others. More generally, government should seek to regulate corporate actions only in the limited situations in which there are no market solutions for reducing the effects of externalities. For example, government plays a critically important role in identifying and deterring corporate fraud, and in ensuring competition and a level playing field for companies and all their stakeholders.     

The four faces of mass customization

Virtually all executives today recognize the need to provide outstanding service to customers. Focusing on the customer, however, is both an imperative and a potential curse. In their desire to become customer driven, many companies have resorted to inventing new programs and procedures to meet every customer's request. But as customers and their needs grow increasingly diverse, such an approach has become a surefire way to add unnecessary cost and complexity to operations. Companies around the world have embraced mass customization in an attempt to avoid those pitfalls. Readily available information technology and flexible work processes permit them to customize goods or services for individual customers in high volumes at low cost. But many managers have discovered that mass customization itself can produce unnecessary cost and complexity. They are realizing that they did not examine thoroughly enough what kind of customization their customers would value before they plunged ahead. That is understandable. Until now, no framework has existed to help managers determine the type of customization they should pursue. James Gilmore and Joseph Pine provide managers with just such a framework. They have identified four distinct approaches to customization. When designing or redesigning a product, process, or business unit, managers should examine each approach for possible insights into how to serve their customers best. In some cases, a single approach will dominate the design. More often, however, managers will need a mix of some or all of the four approaches to serve their own particular set of customers.     

Making business sense of the Internet

For managers in large, well-established businesses, the Internet is a tough nut to crack. It is very simple to set up a Web presence and very difficult to create a Web-based business model. Established businesses that over decades have carefully built brands and physical distribution relationships risk damaging all they have created when they pursue commerce through the Net. Still, managers can't avoid the impact of electronic commerce on their businesses. They need to understand the opportunities available to them and recognize how their companies may be vulnerable if rivals seize those opportunities first. Broadly speaking, the Internet presents four distinct types of opportunities. First, it links companies directly to customers, suppliers, and other interested parties. Second, it lets companies bypass other players in an industry's value chain. Third, it is a tool for developing and delivering new products and services to new customers. Fourth, it will enable certain companies to dominate the electronic channel of an entire industry or segment, control access to customers, and set business rules. As he elaborates on these four points, the author gives established companies a systematic way to sort through the risks and rewards of doing business in cyberspace.     

Managing for creativity

A company's most important asset isn't raw materials, transportation systems, or political influence. It's creative capital--simply put, an arsenal of creative thinkers whose ideas can be turned into valuable products and services. Creative employees pioneer new technologies, birth new industries, and power economic growth. If you want your company to succeed, these are the people you entrust it to. But how do you accommodate the complex and chaotic nature of the creative process while increasing efficiency, improving quality, and raising productivity? Most businesses haven't figured this out. A notable exception is SAS Institute, the world's largest privately held software company. SAS makes Fortune's 100 Best Companies to Work For list every year. The company has enjoyed low employee turnover, high customer satisfaction, and 28 straight years of revenue growth. What's the secret to all this success? The authors, an academic and a CEO, approach this question differently, but they've come to the same conclusion: SAS has learned how to harness the creative energies of all its stakeholders, including its customers, software developers, managers, and support staff. Its framework for managing creativity rests on three guiding principles. First, help employees do their best work by keeping them intellectually engaged and by removing distractions. Second, make managers responsible for sparking creativity and eliminate arbitrary distinctions between "suits" and "creatives". And third, engage customers as creative partners so you can deliver superior products. Underlying all three principles is a mandate to foster interaction--not just to collect individuals' ideas. By nurturing relationships among developers, salespeople, and customers, SAS is investing in its future creative capital. Within a management framework like SAS's, creativity and productivity flourish, flexibility and profitability go hand in hand, and work/life balance and hard work aren't mutually exclusive.     

Take command of your growth

Ask senior managers to pare costs by 10%, and they know just what to do. Ask them to boost growth by 10%, and they're stymied, assuming that growth is not really something they can influence. But managers can control their company's growth if they have better information about where their revenues are coming from. Rather than sort sales by geographic market, business unit, or product line, they should break them out in a way that reveals which part of their strategy is responsible for what part of their revenue. This article presents a tool--the sources of revenue statement (SRS)--that does just that. Through straightforward calculations using data taken from a company's balance sheet, along with estimations of customer-churn and industry growth rates, the SRS enables managers to classify their revenue according to five sources of growth: continuing sales to established customers (base retention); sales won from the competition (share gain); sales that fell into their laps because the market was expanding (market position); sales from moves into adjacent markets; and sales from entirely new lines of business. Once sorted in this way, revenue can be viewed as the outgrowth of manageable circumstances. At one company, seemingly healthy 10% total revenue growth masked substantial customer defections counter-balanced only by sales in a fast-expanding market--a market that actually grew faster than the company did. Rather than doing well, the company was ceding customers and market share to competitors. Comparing the sources of revenue across divisions can uncover similarly profound insights, which can suggest smart ways to change strategy or set stretch goals. Hundreds of companies are perched atop enormous potential that they can't see and so don't exploit. The SRS can endow them with sight and, more important, with understanding.     

中国企业如何面对全球标准?

<正> 安茂瑞森:我们今天的主题是中国企业如何面对全球标准?这时候讨论这样的话题是非常有意义的。尤其是随着中国加入世贸的进程不断加快。同时也会带来全球的竞争。很多公司已经在中国,还有更多的公司计划到中国。中国的消费者和世界其他的消费者都是一样的,他们非常注重商品的质量,国际认证标准,在建立企业的声誉方面能够起到什么样的作用,中国什么时候能够达到这样的标准?     

Cutting costs without drawing blood

When looking for ways to cut costs, most managers reach for the head-count hatchet, and the markets usually roar with approval. But a company can almost always create far more sustainable value by rigorously evaluating the small-ticket capital items that often get rubber-stamped. Drawing on his experience as a consultant and providing numerous anecdotes, the author contends that those "little" requests often prove to be gold plated or unnecessary. A disciplined evaluation involves asking only eight questions and conducting postmortems--regular audits of units' capital spending. But the payoff is enormous. Because cutting the capital budget increases cash flow, the author argues that a permanent cut of just 15% in the planned level of capital spending could boost some companies' market capitalization by as much as 30%. The first three questions--Is this your investment to make? Does it really have to be new? How are our competitors meeting compliance needs?--are asked of operating managers as they assemble capital project requests. The next three are asked by senior managers of themselves and their colleagues as they examine proposals: Is the left hand duplicating investments made by the right? Are trade-offs between profit and capital spending well understood? Are there signs of budget massage? At the end of the review process, senior managers ask: Are we fully using shared assets? How fine-grained are our capacity measures? The author's suggestions for the postmortem include searching for systematic problems with whole classes of expenditures and making sure audit teams come up with specific recommendations for change.     

UNIVERSITY OF TEXAS ROUNDTABLE ON ENERGY DERIVATIVES AND THE TRANSFORMATION OF THE U.S. CORPORATE ENERGY SECTOR

In this roundtable, a successful oil entrepreneur and a group of ex‐bankers whose careers have taken them into the energy business discuss the deregulation of energy markets and the emergence of energy derivatives, and how these two developments have affected both the way companies do business with each other, and how the companies themselves are organized internally. The first part of this two‐part discussion explores how derivatives and corporate risk management have produced a strikingly new business model for a number of once traditional energy companies, including Enron Corp. and Mirant Corporation (until recently, Southern Energy). In addition to its ability to change corporate strategy, the panelists also consider how the hedging of price risks can affect a company's financing strategy and cost of capital. A notable feature of the new business model is a corporate structure that differs greatly from that of conventional large energy companies. And in the second half of the discussion, the focus shifts from risk management and strategy to issues of corporate structure, such as: How do companies divide themselves into business centers for reporting and accountability; how much decision‐making authority is entrusted to the managers of those divisions; and how many layers of corporate management are necessary to coordinate and control the activities of the business units? Also discussed at great length are questions of performance evaluation and incentive compensation: How do companies evaluate their own performance on a year‐to‐year basis? And what basis do they use for rewarding their managers?     

Building a leadership brand

How do some firms produce a pipeline of consistently excellent managers? Instead of concentrating merely on strengthening the skills of individuals, these companies focus on building a broad organizational leadership capability. It's what Ulrich and Smallwood--cofounders of the RBL Group, a leadership development consultancy--call a leadership brand. Organizations with leadership brands take an "outside-in" approach to executive development. They begin with a clear statement of what they want to be known for by customers and then link it with a required set of management skills. The Lexus division of Toyota, for instance, translates its tagline--"The pursuit of perfection"--into an expectation that its leaders excel at managing quality processes. The slogan of Bon Secours Health System is "Good help to those in need." It demands that its managers balance business skills with compassion and caring. The outside-in approach helps firms build a reputation for high-quality leaders whom customers trust to deliver on the company's promises. In examining 150 companies with strong leadership capabilities, the authors found that the organizations follow five strategies. First, make sure managers master the basics of leadership--for example, setting strategy and grooming talent. Second, ensure that leaders internalize customers' high expectations. Third, incorporate customer feedback into evaluations of executives. Fourth, invest in programs that help managers hone the right skills, by tapping customers to participate in such programs. Finally, track the success of efforts to build leadership bench strength over the long-term. The result is outstanding management that persists even when individual executives leave. In fact, companies with the strongest leadership brands often become "leader feeders"--firms that regularly graduate leaders who go on to head other companies.     

Making strategy: learning by doing

Companies find it difficult to change strategy for many reasons, but one stands out: strategic thinking is not a core managerial competence at most companies. Executives hone their capabilities by tackling problems over and over again. Changing strategy, however, is not usually a task that they face repeatedly. Once companies have found a strategy that works, they want to use it, not change it. Consequently, most managers do not develop a competence in strategic thinking. This Manager's Tool Kit presents a three-stage method executives can use to conceive and implement a creative and coherent strategy themselves. The first stage is to identify and map the driving forces that the company needs to address. The process of mapping provides strategy-making teams with visual representations of team members' assumptions, those pictures, in turn, enable managers to achieve consensus in determining the driving forces. Once a senior management team has formulated a new strategy, it must align the strategy with the company's resource-allocation process to make implementation possible. Senior management teams can translate their strategy into action by using aggregate project planning. And management teams that link strategy and innovation through that planning process will develop a competence in implementing strategic change. The author guides the reader through the three stages of strategy making by examining the case of a manufacturing company that was losing ground to competitors. After mapping the driving forces, the company's senior managers were able to devise a new strategy that allowed the business to maintain a competitive advantage in its industry.     

Lean consumption

During the past 20 years, the real price of most consumer goods has fallen worldwide, the variety of goods and the range of sales channels offering them have continued to grow, and product quality has steadily improved. So why is consumption often so frustrating? It doesn't have to be--and shouldn't be--the authors say. They argue that it's time to apply lean thinking to the processes of consumption--to give consumers the full value they want from goods and services with the greatest efficiency and the least pain. Companies may think they save time and money by off-loading work to the consumer but, in fact, the opposite is true. By streamlining their systems for providing goods and services, and by making it easier for customers to buy and use those products and services, a growing number of companies are actually lowering costs while saving everyone time. In the process, these businesses are learning more about their customers, strengthening consumer loyalty, and attracting new customers who are defecting from less user-friendly competitors. The challenge lies with the retailers, service providers, manufacturers, and suppliers that are not used to looking at total cost from the standpoint of the consumer and even less accustomed to working with customers to optimize the consumption process. Lean consumption requires a fundamental shift in the way companies think about the relationship between provision and consumption, and the role their customers play in these processes. It also requires consumers to change the nature of their relationships with the companies they patronize. Lean production has clearly triumphed over similar obstacles in recent years to become the dominant global manufacturing model. Lean consumption, its logical companion, can't be far behind.     

Strategic renewal for business units

Over the past decade, business units have increasingly taken the role of strategy formulation away from corporate headquarters. The change makes sense: business units are closer to customers, competitors, and costs. Nevertheless, business units can fail, just as headquarters once did, by losing their focus on the organization's priorities and capabilities. John Whitney--turnaround expert and professor of management at Columbia University--offers a method for refocusing companies that he calls the strategic-renewal process. The principles behind the process are straightforward, but its execution demands extensive data, rigorous analysis, and the judgment of key decision makers. However, when applied with diligence, it can produce a strategy that yields both growth and profit. To carry out the process, managers must analyze, one by one or in logical groupings, the company's customers, the products it sells, and the services it offers in light of three criteria: strategic importance, significance, and profitability. Does a given customer, product, or service mesh with the organization's goals? Is it significant in terms of current and future revenues? And is it truly profitable when all costs are care fully considered? Customers, products, and services that do not measure up, says the author, must be weeded out relentlessly. Although the process is a painstaking one, the article offers clear thinking on why-and how-to go about it. A series of exhibits takes managers through the questions they need to raise, and two matrices offer Whitney's concentrated wisdom on when to cultivate--and when to prune.     

The alternative workplace: changing where and how people work

Today many organizations, including AT&T and IBM, are pioneering the alternative workplace--the combination of nontraditional work practices, settings, and locations that is beginning to supplement traditional offices. This is not a fad. Although estimates vary widely, it is safe to say that some 30 million to 40 million people in the United States are now either telecommuters or home-based workers. What motivates managers to examine how people spend their time at the office and where else they might do their work? Among the potential benefits for companies are reduced costs, increased productivity, and an edge in vying for and keeping talented employees. They can also capture government incentives and avoid costly sanctions. But at the same time, alternative workplace programs are not for everyone. Indeed, such programs can be difficult to adopt, even for those organizations that seem to be most suited to them. Ingrained behaviors and practical hurdles are hard to overcome. And the challenges of managing both the cultural changes and systems improvements required by an alternative workplace initiative are substantial. How should senior managers think about alternative workplace programs? What are the criteria for determining whether the alternative workplace is right for a given organization? What are the most common pitfalls in implementing alternative workplace programs? The author provides the answers to these questions in his examination of this new frontier of where and how people work.