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Achieving quality through the process enhancement capability is a powerful source of market advantage. This chapter outlines the benefits of process enhancement and addresses several important issues that are fundamental to its success.
The ability to capture articulated knowledge and transform it into a standardized production process is a powerful competitive lever that allows companies to gain market share. This chapter looks at the advantages of mass production and how to deploy it effectively.
To respond to changing and unique customer wants and needs, firms are relying more and more on the experience of a flexible, knowledgeable, and skilled craftlike workforce. The primary challenge is to create value from a craft worker's talents, experience, skills, and intellect.
Northern Oil is moving offices, and CEO Fritz Schumacher wants to make the most of the move in this fictional case study. He believes that adopting an open-plan work space will reinvent how the company works, not to mention cut costs. Facilities manager Sasha Pasternak also supports the open plan. Her job would be easier, and her budget would stretch further, if Northern had standardized workstations and used partitions, not walls. And she likes the way the new design flattens the organization: everyone has the same amount of space and the same ergonomically sound furniture. The new building would have more conference rooms and just-in-time work spaces for employees who worked mostly off-site. And although she knew that initial meetings between the architects and Northern employees hadn't yielded much support for open space--people were attached to their private offices--she expected that people would warm to the idea. But when the new design was unveiled, employees were less than enthusiastic. They hurled questions like, How will workers concentrate if they can't shut their office doors? How will people have confidential meetings with their boss? And why would people stay at Northern when the competition offers them private offices? There was even talk of circulating a petition refusing to move to the new space. A week later, the architect presented revised plans to the project group. The new options would add costs and reduce the amount of space savings, but offering a choice to employees might make them feel less threatened. What should the project team do? In 99312 and 99312Z, commentators Nick MacPhee, Donald J. Chiofaro, Paul O'Neill, Vivian Loftness, and David Lathrop offer advice.
In boom times, it is easy for managers to forget about risk. And not just financial risk, but organizational and operational risk as well. Now there's the risk exposure calculator, a new tool that will help managers determine exactly where and how much internal risk is mounting in their companies. The risk calculator is divided into three parts: The first set of "keys" alerts managers to the pressures that come from growth. Now that the company has taken off, are employees feeling increased pressure to perform? Is the company's infrastructure becoming overloaded? And are more new employees coming on board as the company rushes to fill positions? If the answer is yes to any one of those questions, then risk may be rising to dangerous levels. The second set of keys on the calculator highlights pressures that arise from corporate culture. Are too many rewards being given for entrepreneurial risk taking? Are executives becoming so resistant to bad news that no one feels comfortable alerting them to problems? And is the company's level of internal competition so high that employees see promotion as a zero-sum game? The final set of pressures, the author says, revolves around information management. When calculating these pressures, managers should ask themselves, what was the company's complexity, volume, and velocity of information a year ago? Have they risen? By how much? How much of the time am I doing the work that a computer system should be doing? High pressure on many or all of these points should set off alarm bells for managers. To control risk, managers have four levers of control at their disposal that will show them where they need to make organizational adjustments.
In today's business world, there's no shortage of know-how. When companies get into trouble, their executives have vast resources at their disposal: their own experiences, colleagues' ideas, reams of computer-generated data, thousands of publications, and consultants armed with the latest managerial concepts and tools. But all too often, even with all that knowledge floating around, companies are plagued with an inertia that comes from knowing too much and doing too little--a phenomenon the authors call the knowing-doing gap. The gap often can be traced to a basic human propensity: the willingness to let talk substitute for action. When confronted with a problem, people act as though discussing it, formulating decisions, and hashing out plans for action are the same as actually fixing it. And after researching organizations of all shapes and sizes, the authors concluded that a particular kind of talk is an especially insidious inhibitor of action: "smart talk." People who can engage in such talk generally sound confident and articulate; they can spout facts and may even have interesting ideas. But such people often exhibit the less benign aspects of smart talk as well: They focus on the negative, and they favor unnecessarily complex or abstract language. The former lapses into criticism for criticism's sake; the latter confuses people. Both tendencies can stop action in its tracks. How can you shut the smart-talk trap and close the knowing-doing gap? The authors lay out five methods that successful companies employ in order to translate the right kind of talk into intelligent action.
For many organizations, achieving competitive advantage means eliciting superior performance from employees on the front line--the burger flippers, hotel room cleaners, and baggage handlers whose work has an enormous effect on customers. That's no easy task. Frontline workers are paid low wages, have scant hope of advancement, and--not surprisingly--often care little about the company's performance. But then how do some companies succeed in engaging the emotional energy of rank-and-file workers? A team of researchers at McKinsey & Company and the Conference Board recently explored that question and discovered that one highly effective route is demonstrated by the U.S. Marine Corps. The Marines' approach to motivation follows the "mission, values, and pride" path, which researchers say is practical and relevant for the business world. More specifically, the authors say the Marines follow five practices: they overinvest in cultivating core value; prepare every person to lead, including frontline supervisors; learn when to create teams and when to create single-leader work groups; attend to all employees, not just the top half; and encourage self-discipline as a way of building pride. The authors admit there are critical differences between the Marines and most businesses. But using vivid examples from companies such as KFC and Marriott International, the authors illustrate how the Marines' approach can be translated for corporate use. Sometimes, the authors maintain, minor changes in a company's standard operating procedure can have a powerful effect on frontline pride and can result in substantial payoffs in company performance.
Less than half an hour after Donald Hastings became chairman and CEO of the Lincoln Electric Company in July 1992, he got the shocking news: losses from the company's European operations were so steep that Lincoln was at risk of defaulting on its loans and being unable to pay its employees their year-end bonus. Since the bonus was the foundation of the company's unusually successful manufacturing operations, Hastings knew that failure to pay it could lead to the company's unraveling. How had Lincoln gotten into this predicament? By a program of rapid foreign expansion. Lincoln was primarily a U.S. company until the mid-1980s, but recession at home and competition from abroad led executives to dream that the company could become a global power. Between 1986 and 1991, Lincoln took on unprecedented debt in order to finance foreign acquisitions, mostly in Europe. A number of factors doomed the venture: recession in Europe, unfamiliarity with Europe's labor culture, lack of international expertise at the top. But the root cause, Hastings admits, was overconfidence on the part of Lincoln's leaders in the company's manufacturing abilities and systems. Hastings, now chairman emeritus, recounts how the company suffered through the early 1990s and then returned to prosperity. It wrote off most of its European operations, ramped up domestic production and sales, and hired top managers and board members with international experience. As a result of strenuous efforts at all levels of the company, it managed to keep paying the bonus and to largely regain the trust of its people.
Every company today exists in a complex web of relationships formed, one at a time, through negotiation. Purchasing and outsourcing contracts are negotiated with vendors. Marketing arrangements are negotiated with distributors. Product development agreements are negotiated with joint-venture partners. Taken together, the thousands of negotiations a typical company engages in have an enormous effect on both its strategy and its bottom line. But few companies think systematically about their negotiating activities as a whole. Instead they take a situational view, perceiving each negotiation to be a separate event with its own goals, tactics, and measures of success. Coordinating them all seems an overwhelming and impracticable job. In reality, the author argues, it is neither. A number of companies are successfully building coordinated negotiation capabilities by applying four broad changes in practice and perspective. First, they've established a companywide negotiation infrastructure to apply the knowledge gained from forging past agreements to improve future ones. Second, they've broadened the measures they use to evaluate negotiators' performance beyond matters of cost and price. Third, they draw a clear distinction between the elements of an individual deal and the nature of the ongoing relationship between the parties. Fourth, they make their negotiators feel comfortable walking away from a deal when it's not in the company's best interests. These changes aren't radical steps. But taken together, they will let companies establish closer, more creative relationships with suppliers, customers, and other partners.
Private-label products are anathema to many consumer goods manufacturers--cheap imitations that undermine margins and weaken product categories. But the growing power and sophistication of retailers has changed that competitive dynamic. Private labels now offer a range of opportunities for savvy manufacturers. Perhaps most notable, retailers are working with manufacturers to bring out store brands whose quality matches or even exceeds that of brand-name goods. These premium labels offer better margins than traditional private labels and can serve as a low-risk way for manufacturers to try new product categories. Like "fighter brands," private labels can help a manufacturer preserve market share in a category when it decides to raise the price of its brand-name product. Or a manufacturer in the number-two slot might design its private label to imitate--and take sales from--the market leader in a category. The authors say the risks of producing private labels are often exaggerated. Retailer switching isn't as easy as is often believed, particularly for manufacturers who work closely with retail partners. And manufacturers who set clear priorities can make sure their private-label sales don't distract them from promoting the main brand. The authors warn that different manufacturers will want to go with different private-label strategies. Private labels are likely to make most sense when entry barriers are low, when substantial economies of scale exist, or when the label is a premium line for a category with low price sensitivity. For manufacturers who seek closer ties with retailers, private labels may represent a neglected opportunity.
This chapter outlines the legal issues that employers should be conscious of when implementing or applying a forced ranking system.
This chapter provides a template for an organization to use in developing its own Forced Ranking System FAQ document for publication to the workforce.
This chapter includes three documents that will be valuable references for any organization that is initiating a forced ranking procedure.
So far, Rachel Soltanoff's instincts had been right. As CEO in this fictional case study, she had successfully navigated TradeRite Software's transition from a news service for stockbrokers to a $70 million provider of shrink-wrapped software geared toward both brokers and the growing day-trader market. Now a well-financed start-up, Stocknet.com, was testing a very competitive product that traders could download directly over the Web. And TradeRite's Web site was nothing more than a collection of elaborate marketing brochures. Rachel knew she needed to start selling over the Web. But the e-commerce consultants she had hired to set up her Web store were behind schedule, and their 21-year-old CEO had just resigned. Her product manager, Lisa Bandini, was working overtime to transform TradeRite's entire product line into Web-aware applications to match Stocknet's, and Rachel had $2.5 million to launch them. But the consultants said it would take $5 million just to rent e-commerce capabilities. Ace sales VP Brian Rockart thought the company had already wasted too much time and money--money from his budget--on its Web site. Marketing VP Rob Collins thought TradeRite should focus on its core stockbroker customers. Chief Technical Officer Joe Martinez doesn't want to go ahead without a pilot project. Should Rachel try to convince Brian, Rob, and the rest of the senior management team that e-commerce is the way to go? Four commentators offer advice. In 99209 and 99209Z, commentators David Siegel, Candice Carpenter, David Ticoll, and Jeffrey F. Rayport offer advice on this fictional case.
A gap has existed between the conventional wisdom about how managers work and the actual behavior of effective managers. Business textbooks suggest that managers operate best when they carefully control their time and work within highly structured environments, but observations of real managers indicate that those who spend their days that way may be undermining their effectiveness. In this HBR Classic, John Kotter explains that managers who limit their interactions to orderly, focused meetings actually shut themselves off from vital information and relationships. He shows how seemingly wasteful activities like chatting in hallways and having impromptu meetings are, in fact, quite efficient. General managers face two fundamental challenges: figuring out what to do despite an enormous amount of potentially relevant information, and getting things done through a large and diverse set of people despite having little direct control over most of them. To tackle these challenges, effective general managers develop flexible agendas and broad networks of relationships. Their agendas enable them to react opportunistically to the flow of events around them because a common framework guides their decisions about where and when to intervene. And their networks allow them to have quick and pointed conversations that give the general managers influence well beyond their formal chain of command. Originally published in 1982, the article's ideas about time management are all the more useful for today's hard-pressed executives. Kotter has added a retrospective commentary highlighting the article's relevance to current concepts of leadership.
The rise of the computer and the increasing importance of intellectual assets have compelled executives to examine the knowledge underlying their businesses and how it is used. Because knowledge management as a conscious practice is so young, however, executives have lacked models to use as guides. To help fill that gap, the authors recently studied knowledge management practices at management consulting firms, health care providers, and computer manufacturers. They found two very different knowledge management strategies in place. In companies that sell relatively standardized products that fill common needs, knowledge is carefully codified and stored in databases, where it can be accessed and used--over and over again--by anyone in the organization. The authors call this the codification strategy. In companies that provide highly customized solutions to unique problems, knowledge is shared mainly through person-to-person contacts; the chief purpose of computers is to help people communicate. They call this the personalization strategy. A company's choice of knowledge management strategy is not arbitrary--it must be driven by the company's competitive strategy. Emphasizing the wrong approach or trying to pursue both can quickly undermine a business. The authors warn that knowledge management should not be isolated in a functional department like HR or IT. They emphasize that the benefits are greatest--to both the company and its customers--when a CEO and other general managers actively choose one of the approaches as a primary strategy.
No matter how monolithic they may seem, most companies are really engaged in three kinds of businesses. One business attracts customers. Another develops products. The third oversees operations. Although organizationally intertwined, these businesses have conflicting characteristics. It takes a big investment to find and develop a relationship with a customer, so profitability hinges on achieving economies of scope. But speed, not scope, drives the economics of product innovation. And the high fixed costs of capital-intensive infrastructure businesses require economies of scale. Scope, speed, and scale can't be optimized simultaneously, so trade-offs have to be made when the three businesses are bundled into one corporation. Historically, they have been bundled because the interaction costs--the friction--incurred by separating them were too high. But we are on the verge of a worldwide reduction in interaction costs, the authors contend, as electronic networks drive down the costs of communicating and of exchanging data. Activities that companies have always believed were central to their businesses will suddenly be offered by new, specialized competitors that won't have to make trade-offs. Ultimately, the authors predict, traditional businesses will unbundle and then rebundle into large infrastructure and customer-relationship businesses and small, nimble product innovation companies. And executives in many industries will be forced to ask the most basic question about their companies: What business are we really in? Their answer will determine their fate in an increasingly frictionless economy.
The arrival of a multinational corporation often looks like a death sentence to local companies in an emerging market. After all, how can they compete in the face of the vast financial and technological resources, the seasoned management, and the powerful brands of, say, a Compaq or a Johnson & Johnson? But local companies often have more options than they might think, say the authors. Those options vary, depending on the strength of globalization pressures in an industry and the nature of a company's competitive assets. In the worst case, when globalization pressures are strong and a company has no competitive assets that it can transfer to other countries, it needs to retreat to a locally oriented link within the value chain. But if globalization pressures are weak, the company may be able to defend its market share by leveraging the advantages it enjoys in its home market. Many companies in emerging markets have assets that can work well in other countries. Those that operate in industries where the pressures to globalize are weak may be able to extend their success to a limited number of other markets that are similar to their home base. And those operating in global markets may be able to contend head-on with multinational rivals. By better understanding the relationship between their company's assets and the industry they operate in, executives from emerging markets can gain a clearer picture of the options they really have when multinationals come to stay.
In the global economy, having a workforce that is fluent in the ways of the world is a competitive necessity. That's why more and more companies are sending more and more professionals abroad. But international assignments don't come cheap: on average, expatriates cost a company two to three times what they would cost in equivalent positions back home. Most companies, however, get anemic returns on their expat investments. The authors discovered that an alarming number of assignments fail in one way or another--some expats return home early, others finish but don't perform as well as expected, and many leave their companies within a year of repatriation. To find out why, the authors recently focused on the small number of companies that manage their expats successfully. They found that all those companies follow three general practices: 1) When they send people abroad, the goal is not just to put out fires. Once expats have doused the flames, they are expected to generate new knowledge for the organization or to acquire skills that will help them become leaders. 2) They assign overseas posts to people whose technical skills are matched or exceeded by their cross-cultural skills. 3) They recognize that repatriation is a time of upheaval for most expats, and they use a variety of programs to help their people readjust. Companies that follow these practices share a conviction that sustained growth rests on the shoulders of individuals with international experience. As a result, they are poised to capture tomorrow's global market opportunities by making their investments in international assignments successful today.
Few companies have truly effective performance appraisal systems, and even fewer use their systems to maximum advantage. This chapter discusses the components of an effective performance appraisal system and explains how a performance appraisal system and a forced ranking system should interact.
To drive rigor and truth into performance appraisal assessments and discussions, many organizations employ a technique called "forced distribution," the setting of maximums and minimums in performance appraisal ratings to ensure that there is differentiation.
In this chapter, the author shows readers how a large-scale forced ranking system was created at a major corporation, describing actual ranking sessions that were conducted.
The success of a forced ranking system will be determined by the quality of execution. This chapter addresses two key operational issues: training those who will serve as rankers or assessors, and running effective ranking sessions.
This chapter shows you how to set up a forced ranking system that works-one that is fair and humane, one that produces valid and reliable information and enjoys the understanding and support of organization members.
While many of the criticisms of forced ranking are overstated, there are some genuine and valid reservations regarding the use of these systems. Forced ranking is not for every organization - what are the pros and cons?