Finally, a way to put your Internet portfolio in order

Eager to capitalize on the Internet's potential, many companies have allowed scores of on-line projects to bubble up throughout their organizations. The result? More harm than good, as companies find themselves confusing customers, aggravating employees, and wasting bushels of money. In this article, consultant Anthony Tjan explains how companies can do better. By adapting classical portfolio strategy to the digital age, executives can coordinate their Internet initiatives to avoid the needless headaches and spending, he says. Much of the market and industry data that underpin traditional portfolio analysis is unavailable for the Internet space, so Tjan replaces the two criteria used in traditional portfolio analysis--market position and industry attractiveness--with business viability and business fit. Viability captures the available quantitative data about an investment's likely payoff. Fit is qualitative; it measures the degree to which an investment dovetails with a company's existing processes, capabilities, and culture. Using viability and fit to assess their online initiatives, companies can then plot these efforts onto a simple matrix, called an Internet portfolio map. Their location on the matrix will suggest whether each initiative should be invested in, redesigned, sold or spun out, or killed. As Tjan notes, the process of organizing and evaluating new investment options against coherent, meaningful criteria isn't new. In the digital era, what is new are the tools you use. Internet portfolio planning is one such tool.     

What is a global manager?

Riven by ideology, religion, and mistrust, the world seems more fragmented than at any time since, arguably, World War II. But however deep the political divisions, business operations continue to span the globe, and executives still have to figure out how to run them efficiently and well. In "What Is a Global Manager?" (first published in September-October 1992), business professors Christopher Bartlett and Sumantra Ghoshal lay out a model for a management structure that balances the local, regional, and global demands placed on companies operating across the world's many borders. In the volatile world of transnational corporations, there is no such thing as a "universal" global manager, the authors say. Rather, there are three groups of specialists: business managers, country managers, and functional managers. And there are the top executives at corporate headquarters who manage the complex interactions between the three--and can identify and develop the talented executives a successful transnational requires. This kind of organizational structure characterizes a transnational rather than an old-line multinational, international, or global company. Transnationals integrate assets, resources, and diverse people in operating units around the world. Through a flexible management process, in which business, country, and functional managers form a triad of different perspectives that balance one another, transnational companies can build three strategic capabilities: global-scale efficiency and competitiveness; national-level responsiveness and flexibility; and cross-market capacity to leverage learning on a worldwide basis. Through a close look at the successful careers of Leif Johansson of Electrolux, Howard Gottlieb of NEC, and Wahib Zaki of Procter & Gamble, the authors illustrate the skills that each managerial specialist requires.     

The coming commoditization of processes

Despite the much-ballyhooed increase in outsourcing, most companies are in do-it-yourself mode for the bulk of their processes, in large part because there's no way to compare outside organizations' capabilities with those of internal functions. Given the lack of comparability, it's almost surprising that anyone outsources today. But it's not surprising that cost is by far companies' primary criterion for evaluating outsourcers or that many companies are dissatisfied with their outsourcing relationships. A new world is coming, says the author, and it will lead to dramatic changes in the shape and structure of corporations. A broad set of process standards will soon make it easy to determine whether a business capability can be improved by outsourcing it. Such standards will also help businesses compare service providers and evaluate the costs versus the benefits of outsourcing. Eventually these costs and benefits will be so visible to buyers that outsourced processes will become a commodity, and prices will drop significantly. The low costs and low risk of outsourcing will accelerate the flow of jobs offshore, force companies to reassess their strategies, and change the basis of competition. The speed with which some businesses have already adopted process standards suggests that many previously unscrutinized areas are ripe for change. In the field of technology, for instance, the Carnegie Mellon Software Engineering Institute has developed a global standard for software development processes, called the Capability Maturity Model (CMM). For companies that don't have process standards in place, it makes sense for them to create standards by working with customers, competitors, software providers, businesses that processes may be outsourced to, and objective researchers and standard-setters. Setting standards is likely to lead to the improvement of both internal and outsourced processes.     

On IT governance structures and their effectiveness in collaborative organizational structures

Organizations today engage in various forms of alliances to manage their existing business processes or to diversify into new processes to sustain their competitive positions. Many of today's alliances use the IT resources as their backbone. The results of these alliances are collaborative organizational structures with little or no ownership stakes between the parties. The emergence of Web 2.0 tools is having a profound effect on the nature and form of these alliance structures. These alliances heavily depend on and make radical use of the IT resources in a collaborative environment. This situation requires a deeper understanding of the governance of these IT resources to ensure the sustainability of the collaborative organizational structures. This study first suggests the types of IT governance structures required for collaborative organizational structures. Semi-structured interviews with senior executives who operate in such alliances reveal that co-created IT governance structures are necessary. Such structures include co-created IT steering committees, co-created operational committees, and inter-organizational performance management and communication systems. The findings paved the way for the development of a model for understanding approaches to governing IT and evaluating the effectiveness for such governance mechanisms in today's IT‐dependent alliances. This study presents a sustainable IT-related capabilities approach to assessing the effectiveness of suggested IT governance structures for collaborative alliances. The findings indicate a favorable association between organizations' IT governance efforts and their ability to sustain their capabilities to leverage their IT resources. These IT-related capabilities also relate to measures business value at the process and firm level. This makes it possible to infer that collaborative organizations' IT governance efforts contribute to business value.     

Three Common Misconceptions About Markets (or Why Earnings Smoothing,Guidance, and Concern About Meeting Consensus Estimates are Likely to be Counterproductive)

Although many executives strive for stable earnings growth, finance theory and research have long suggested that the most sophisticated investors aren't especially concerned about “normal” levels of variability in reported earnings. More recent research by the authors and their McKinsey colleagues also suggests that extraordinary efforts to achieve steady growth in earnings per share quarter after quarter aren't worthwhile and may actually hurt the companies that undertake them. While such efforts to smooth earnings involve real costs, the research finds no meaningful relationship between earnings variability and valuation multiples or shareholder returns. Based on these findings, as well as considerable experience in advising companies, the authors offer the following advice to senior executives:

• Managers shouldn't shape their earnings targets or budgets just to meet consensus estimates. Companies that reduce spending on product development, sales and marketing, or other contributors to long‐term growth are sacrificing long‐term performance for the appearance of short‐term strength.
• As the year progresses, managers should likewise avoid costly, shortsighted actions to meet the consensus. Resist the temptation to offer customers end‐of‐year discounts to boost current‐year sales, or to resort to creative accounting with accruals. Investors recognize these for what they are: borrowing from next year's earnings.

Finally, companies should reconsider the practice of quarterly earnings guidance. Instead of providing frequent earnings guidance, companies should design their investor communication policies to help the market to understand their strategy, the underlying value drivers of their business, and the most important risks associated with the business—in short, to understand the long‐term health and value of the enterprise.     

Sharpening the intangibles edge

Intangible assets--patents and know-how, brands, a skilled workforce, strong customer relationships, software, unique processes and organizational designs, and the like--generate most of a company's growth and shareholder value. Yet extensive research indicates that investors systematically misprice the shares of intangibles-intensive enterprises. Clearly, overpricing wastes capital. But underpricing raises the cost of capital, hamstringing executives in their efforts to take advantage of further growth opportunities. How do you break this vicious cycle? By generating better information about your investments in intangibles, and by disclosing at least some of that data to the capital markets. Getting at that information is easier said than done, however. There are no markets generating visible prices for intellectual capital, brands, or human capital to assist investors in correctly valuing intangibles-intensive companies. And current accounting practices lump funds spent on intangibles with general expenses, so that investors and executives don't even know how much is being invested in them, let alone what a return on those investments might be. At the very least, companies should break out the amounts spent on intangibles and disclose them to the markets. More fundamentally, executives should start thinking of intangibles not as costs but as assets, so that they are recognized as investments whose returns are identified and monitored. The proposals laid down in this article are only a beginning, the author stresses. Corporations and accounting bodies should make systematic efforts to develop information that can reliably reflect the unique attributes of intangible assets. The current serious misallocations of resources should be incentive enough for businesses to join--and even lead--such developments.     

Get the right mix of bricks & clicks

The bright line that once distinguished the dot-com from the incumbent is rapidly fading. Success in the new economy will go to those who can execute clicks-and-mortar strategies that bridge the physical and virtual worlds. But how executives forge such strategies is under considerable debate. Despite the obvious benefits that integration offers--cross-promotion, shared information, purchasing leverage, distribution economies, and the like--many executives now assume that Internet businesses have to be separate to thrive. They believe that the very nature of traditional business--its protectiveness of current customers, its fear of cannibalization, its general myopia--will smother any Internet initiative. Authors Ranjay Gulati and Jason Garino contend that executives don't have to make an either- or choice when it comes to their clicks-and-mortar strategies. The question isn't, "Should we develop our Internet channel in-house or launch a spin-off?" but rather, "What degree of integration makes sense for our company?" To determine the best level of integration for their companies, executives should examine four business dimensions: brand, management, operations, and equity. Drawing on the experiences of three established retailers--Office Depot, KB Toys, and Rite Aid--the authors show the spectrum of strategies available and discuss the trade-offs involved in each choice. By thinking carefully about which aspects of a business to integrate and which to keep distinct, companies can tailor their clicks-and-mortar strategy to their own particular market and competitive situation, dramatically increasing their odds of e-business success.     

What's wrong with strategy?

Why is it that successful strategies are rarely developed as a result of formal planning processes? What is wrong with the way most companies go about developing strategy? Andrew Campbell and Marcus Alexander take a common sense look at why the planning frameworks managers use so often yield disappointing results. Companies often fail to distinguish between purpose (what an organization exists to do) and constraints (what an organization must do in order to survive), the authors say. Many executives mistakenly believe, for example, that satisfying stakeholders is an objective that drives thinking about strategy. In fact, it's a constraint, not an objective. Companies that don't win the loyalty of stakeholders will go out of business. Strategy is not about plans but about insights, the authors add. Strategy development is the process of discovering and understanding insights and should not be confused with planning, which is about turning insights into action. Furthermore, because executives develop most of their insights while actually doing the real work of running a business, it is important for companies not to separate strategy development from implementation. Is there a better way? The answer is not new planning processes or more effort. Instead, managers must understand two fundamental points: the benefit of having a well-articulated, stable purpose and the importance of discovering, understanding, documenting, and exploiting insights about how to create value.     

Growing talent as if your business depended on it

Traditionally, corporate boards have left leadership planning and development very much up to their CEOs and human resources departments-primarily because they don't perceive that a lack of leadership development in their companies poses the same kind of threat that accounting blunders or missed earnings do. That's a shortsighted view, the authors argue. Companies whose boards and senior executives fail to prioritize succession planning and leadership development end up experiencing a steady attrition in talent and becoming extremely vulnerable when they have to cope with inevitable upheavals- integrating an acquired company with a different operating style and culture, for instance, or reexamining basic operating assumptions when a competitor with a leaner cost structure emerges. Firms that haven't focused on their systems for building their bench strength will probably make wrong decisions in these situations. In this article, the authors explain what makes a successful leadership development program, based on their research over the past few years with companies in a range of industries. They describe how several forward-thinking companies (Tyson Foods, Starbucks, and Mellon Financial, in particular) are implementing smart, integrated, talent development initiatives. A leadership development program should not comprise stand-alone, ad hoc activities coordinated by the human resources department, the authors say. A company's leadership development processes should align with strategic priorities. From the board of directors on down, senior executives should be deeply involved in finding and growing talent, and line managers should be evaluated and promoted expressly for their contributions to the organization-wide effort. HR should be allowed to create development tools and facilitate their use, but the business units should take responsibility for development activities, and the board should ultimately oversee the whole system.     

New business with the new military

A $200 billion market has appeared on your business horizon, but you may not have noticed it. It's the U.S. military--the new U.S. military. Virtually all aspects of the military are changing to ensure it can fight unpredictable threats while sustaining the infrastructure needed to support and train forces. The military is turning to non-traditional business partners to meet a wide range of needs, from health care to housing to information technology. The Defense Department is yielding its monopoly on every aspect of national security and adopting a more businesslike model in which the military's warfighting capabilities are supported through outsourcing and business alliances. Civilians are replacing military personnel in many noncombat roles. Military functions with corporate equivalents are candidates for outsourcing and privatization. Market standards are replacing the heavy customization that has locked many companies out of this marketplace. The authors have participated in the transformation process from different perspectives--one civilian, the other military. Together, they highlight the prospects that transformation is creating for companies outside the traditional defense industry and reveal paths to success in this complex market. They also present six principles for doing business with the military that require persistence, integrity, and a willingness to master the intricacies of a distinctive culture. By understanding the logic of military transformation, executives can identify and create vast new business opportunities. And by mastering the six principles, they can build profitable long-term relationships.     

The Theory and Practice of Corporate Risk Management*

The financial crisis of 2008 and the resulting recession caught many companies unprepared and, in so doing, provided a stark reminder of the importance of effective risk management. While academic theory has long touted the benefits of risk management, companies have varied greatly in the ways and extent to which they put theory into practice. Drawing on a global survey of over 300 CFOs of non‐financial companies, the authors report that while most CFOs felt that their risk management programs have significant benefits, the risk management function in general needs more attention. A large percentage of the finance executives surveyed acknowledged that the most important corporate risks extend far beyond the CFO's direct reports, and that risk‐based thinking is not incorporated into everyday business activities or corporate strategies. A large majority of executives also said they were seeking a more widespread understanding of risk throughout their organizations—and many confessed their firms' inability, or lack of interest, in evaluating their own risk management functions. At the same time, the efforts of most companies to develop enterprise‐wide risk management (ERM) programs were said to fall well short of the comprehensive and highly coordinated programs envisioned by the proponents of such programs. Three areas of opportunity were clearly identified as having potential to improve corporate risk management in ways that increase firm value over an entire business cycle:

• ? Incorporate risk management thinking into the strategic planning process. Line executives, and not just technicians, need to be sensitive to risks, thereby building flexibility into the firm's business plan and its execution.
• ? Clearly define the objectives of the risk management function, in part by developing appropriate benchmarks. The risk management process should be subject to the same rigorous evaluation process that is used when measuring risks throughout the business.
• ? Instill a risk management culture throughout the organization. While an effective risk management function is necessary, only when employees at all levels of the company embrace risk management as part of their daily operations will the firm get maximum value from risk management.

     

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.     

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.     

Make your company a talent factory

Despite the great sums of money companies dedicate to talent management systems, many still struggle to fill key positions - limiting their potential for growth in the process. Virtually all the human resource executives in the authors' 2005 survey of 40 companies around the world said that their pipeline of high-potential employees was insufficient to fill strategic management roles. The survey revealed two primary reasons for this. First, the formal procedures for identifying and developing next-generation leaders have fallen out of sync with what companies need to grow or expand into new markets. To save money, for example, some firms have eliminated positions that would expose high-potential employees to a broad range of problems, thus sacrificing future development opportunities that would far outweigh any initial savings from the job cuts. Second, HR executives often have trouble keeping top leaders' attention on talent issues, despite those leaders' vigorous assertions that obtaining and keeping the best people is a major priority. If passion for that objective doesn't start at the top and infuse the culture, say the authors, talent management can easily deteriorate into the management of bureaucratic routines. Yet there are companies that can face the future with confidence. These firms don't just manage talent, they build talent factories. The authors describe the experiences of two such corporations - consumer products icon Procter & Gamble and financial services giant HSBC Group -that figured out how to develop and retain key employees and fill positions quickly to meet evolving business needs. Though each company approached talent management from a different direction, they both maintained a twin focus on functionality (rigorous talent processes that support strategic and cultural objectives) and vitality (management's emotional commitment, which is reflected in daily actions).     

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.     

Competing on capabilities: the new rules of corporate strategy

In the 1980s, companies discovered time as a new source of competitive advantage. In the 1990s, they will discover that time is only one piece of a more far-reaching transformation in the logic of competition. Using examples from Wal-Mart and other highly successful companies, Stalk, Evans, and Shulman of the Boston Consulting Group provide managers with a guide to the new world of "capabilities-based competition." In today's dynamic business environment, strategy too must become dynamic. Competition is a "war of movement" in which success depends on anticipation of market trends and quick response to changing customer needs. In such an environment, the essence of strategy is not the structure of a company's products and markets but the dynamics of its behavior. To succeed, a company must weave its key business processes into hard-to-imitate strategic capabilities that distinguish it from its competitors in the eyes of customers. A capability is a set of business processes strategically understood--for example, Wal-Mart's expertise in inventory replenishment, Honda's skill at dealer management, or Banc One's ability to "out-local the national banks and out-national the local banks." Such capabilities are collective and cross-functional--a small part of many people's jobs, not a large part of a few. Finally, competing on capabilities requires strategic investments in support systems that span traditional SBUs and functions and go far beyond what traditional cost-benefit metrics can justify. A CEO's success in building and managing a company's capabilities will be the chief test of management skill in the 1990s. The prize: companies that combine scale and flexibility to outperform the competition.     

The new road to the top

By comparing the top executives of 1980's Fortune 100 companies with the top brass of firms in the 2001 list, the authors have quantified a transformation that until now has been largely anecdotal. A dramatic shift in executive careers, and in executives themselves, has occurred over the past two decades. Today's Fortune 100 executives are younger, more of them are female, and fewer were educated at elite institutions. They're also making their way to the top more quickly. They're taking fewer jobs along the way, and they increasingly move from one company to the next as their careers unfold. In their wide-ranging analysis,the authors offer a number of insights. For one thing, it has become clear that there are huge advantages to working in a growing firm. For another, the firms that have been big for a long time still provide the most extensive training and development. They also offer relatively long promotion ladders--hence the common wisdom that these "academy companies" are great to have been from. While women were disproportionately scarce among the most senior ranks of executives in 2001, those who arrived got there faster and at a younger age than their male colleagues. Perhaps the career hurdles that women face had blocked all but the most highly qualified female managers, who then proceeded to rise quickly. In the future, a record of good P&L performance may become even more critical to getting hired and advancing in the largest companies. As a result, we may see a reversal of the usual flow of talent, which has been from the academy companies to smaller firms. It may be increasingly common for executives to develop records of performance in small companies, or even as entrepreneurs, and then seek positions in large corporations.     

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.     

BANK OF AMERICA ROUNDTABLE ON BUSINESS UNIT EFFICIENCY VERSUS LEVERAGING CORPORATE COMPETENCIES

Corporate strategist C.K. Prahalad begins by observing that the efficiency achieved by U.S. companies in recent years, brought about in part by EVA and EVA-like systems, is a necessary condition for wealth creation in the new competitive environment. For this reason, the EVA movement is now spreading to Europe and Asia. But, as Prahalad goes to argue, efficiency is not a sufficient condition for wealth creation; equally important is the quest for profitable growth opportunities. And this raises a potential objection to EVA and indeed all divisional performance measurement systems: They could end up reducing long-term growth and value by discouraging managers from capturing synergies among business units and leveraging core competencies to the fullest extent possible.
Following Prahalad's discussion of the problem of capturing synergies and leveraging cross-unit capabilities in large, multi-business companies, moderator David Glassman explores potential solutions with top executives from a number of U.S. and Canadian companies. Among the most promising suggestions are significant managerial stock ownership (as exemplified by a plan used at Baxter International), a cross-unit auction system for evaluating large infrastructure investments pioneered by Stern Stewart, and, probably indispensable, strong encouragement of business unit collaboration by an active and accessible CEO.     

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.