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What is the difference between an ethical decision and what the author, Harvard Business School Professor Joseph Badaracco, Jr., calls a defining moment? An ethical decision typically involves choosing between two options: one we know to be right and another we know to be wrong. A defining moment challenges us in a deeper way by asking us to choose between two or more ideals in which we deeply believe. Such decisions rarely have one "correct" response. Taken cumulatively over many years, they form the basis of an individual's character. Defining moments ask executives to dig below the busy surface of their lives and refocus on their core values and principles. Once uncovered, those values and principles renew their sense of purpose at the workplace and act as a springboard for shrewd, pragmatic, politically astute action. Three types of defining moments are particularly common in today's workplace. The first type is largely an issue of personal identity. The second type concerns groups as well as individuals. The third kind involves defining a company's role within society. By learning to identify each of those three situations, managers can learn to navigate right-versus-right decisions successfully. The author asks a series of practical questions that will help managers take time out to examine their values and then transform their beliefs into action. By engaging in this process of self-inquiry, managers will be gaining the tools to tackle their most elusive, challenging, and essential business dilemmas.
Mention "human resources" and most line and operating managers groan. Simply put, HR has a reputation for inefficiency and incompetence. But a new and transforming era for HR has arrived, asserts Dave Ulrich, a professor at University of Michigan's school of business. The challenges of today's competitive environment mean that HR must refocus its work away from activities that sap value from the organization and instead focus its efforts on achieving outcomes that improve company performance. Ulrich says HR's radical reinvention must be led by senior managers.
How do family businesses handle succession? What happens when siblings compete for the position of CEO? Can nonfamily board members navigate successfully through conflicts among family members? Should they even try? This fictitious case study examines a host of issues with which family businesses regularly grapple. It describes the situation that faces the board of directors of Benson Electric, a rapidly growing family enterprise, upon the unexpected death of CEO and patriarch Buck Benson. Benson, the son of the company's founder, left no succession plan. Caught in the middle of an emotionally torn and feuding family, the directors must determine how to proceed. How can they manage the succession process without alienating family members and worrying employees and customers? In 98108 and 98108Z, four commentators--Joseph A. Wolking, Kent Noble, Kelin Gersick, and Victor Ney--advise the directors on their best course of action.
As companies develop more and better ways to understand and respond to their customers' needs, relationship marketing has become the talk of the marketing community. Executives, academics, and consultants alike have the same goal in mind--creating meaningful relationships with consumers that will yield both the cost-saving benefits of customer retention economics and the revenue-generating rewards of customer loyalty. Unfortunately, a close look at consumers suggests that these relationships are troubled ones at best. The things that marketers are doing to build relationships with customers, are, in fact, subverting them. Relationship marketing--what is supposed to be the acme of customer orientation--is falling far short of its mark. Susan Fournier, assistant professor at the Harvard Business School, Susan Dobscha of Bentley College in Waltham, MA, and David Glen Mick, a professor at the University of Wisconsin offer a way to get this concept back on track.
Thousands of companies every year acquire other companies, or are acquired themselves. This event is usually painful and messy--and statistics show, it is frequently unsuccessful as well. Nearly half of all mergers fail. One company that has made a fine art of the acquisition integration process, however, is GE Capital, which has integrated hundreds of companies in the past decade. Consultants Ron Ashkenas and Suzanne Francis, and Lawrence DeMonaco of GE Capital, offer four lessons from the company's successful run.
Companies achieve real agility only when every function and process--when every person--is able and eager to rise to every challenge. This type and degree of fundamental change, commonly called revitalization or transformation, is what many companies seek but rarely achieve because they have never before identified the factors that produce sustained transformational change. The authors identify three interventions that will restore companies to vital agility and then keep them in good health: incorporating employees fully into the principal business challenges facing the company; leading the organization in a different way in order to sharpen and maintain incorporation and constructive stress; and instilling mental disciplines that will make people behave differently and then help them sustain their new behavior. The authors discovered these basic sources of revitalization by tracking the change efforts of Sears, Roebuck and Co., Royal Dutch Shell, and the United States Army. This article is one of the first practical revitalization guides to appear anywhere, and it is based not on theory but on actual experience.
One of the most challenging decisions a company can confront is whether to diversify. The rewards and risks are extraordinary. Success stories such as General Electric, Disney, and 3M abound, but so do stories of failure--consider Quaker Oats' entry into the fruit juice business with Snapple. There has been much talk about the importance of strategic focus for companies in recent years, so much so that diversification as a corporate strategy has gone out of vogue. In this article, London Business School Professor Costas Markides argues that companies may be overlooking significant growth opportunities by abandoning diversification moves. In order for diversification to work, though, he proposes that companies consider a number of essential questions before they leap into new business: What business am I in? Do I have all of the critical success factors? Can I break up my core competencies? The answers to these and other questions may make the difference between success and failure in the new business. Much has been written about "focusing on core competencies," while diversification has been largely ignored. And yet, diversification can be a powerful way to grow a business.
Almost all companies today compete to some degree on the basis of continuous innovation. And many turn to customers for information to guide that innovation. The problem is that customers' ability to guide new product and service development is limited by their experience and by their ability to imagine and describe possible innovations. How can companies identify needs that customers themselves may not recognize? A set of techniques Harvard Business School Professors Dorothy Leonard and Jeffrey Rayport call empathic design can help resolve those dilemmas. Its basic principle is observation--watching customers use products or services. But the critical twist is that such observation is conducted in the customer's own environment--in the context of normal, everyday routines. In such a context, the company is privy to a host of information that is not accessible through other observation--oriented research methods such as focus groups or usability laboratories. This article explores a new way for companies to spark innovation--a new way for them to identify consumer needs, and thus design successful new products to meet those needs. The techniques of empathic design--effectively gathering, analyzing, and applying information gleaned from observation-are familiar to top engineering/design firms and a few forward-thinking manufacturers, but are not common practice.
This fictitious case study by Idalene F. Kesner, the Frank P. Popoff Professor at Indiana University, and Sally Fowler, assistant professor at Victoria University, explores the issues that arise when the wires get crossed between a team of consultants and their key client. The client is the CEO of a newly-merged company; the consultants have been hired to help knit together the two former companies' policies and cultures. Unfortunately, the client's impression of the current status of the new company and the consultants' assessment of the situation facing them are vastly different. In 97605 and 97605Z, John Rau, Charles Fombrum, Robert H. Schaffer, and David H. Maister advise the consultants and the client about their options, offer their perspectives on what makes a good client/consultant relationship, and discuss the difficulties that face newly merged companies.
Companies all across the economic spectrum are making use of teams, but many senior executives and CEOs have become frustrated in their efforts to create teams at the top. Too often, they see few gains in performance from their efforts to be more teamlike. And they recognize that the rest of the organization knows that the senior group doesn't really work together as a team. Nevertheless, a team effort at the top can be essential to capturing the highest performance results possible--when the conditions are right. Good leadership requires differentiating between team and non-team opportunities, and then acting accordingly. Jon R. Katzenbach, a partner at McKinsey & Co. in New York City and the author of Teams at the Top: Unleashing the Potential of Both Teams and Individual Leaders (Harvard Business School Press, in 1997) explains why teams at the top are often ineffective--and when they can be essential to capturing the highest performance results for their organization.
What makes for a good strategy in highly uncertain business environments? How do executives choose a clear strategic direction when no amount of sophisticated analysis will allow them to predict the future? The authors, consultants at McKinsey & Co., outline a new approach for dealing with the high levels of uncertainty that regularly confront managers today. This article explains how to make crucial distinctions among the levels of uncertainty managers face, and then how to choose a strategic posture appropriate for that level. This strategy framework helps managers to tailor a portfolio of actions--comprising big bets, options, and no-regrets moves--to the uncertainty at hand. An important and timely addition to the strategy arsenal, this article offers a discipline for thinking rigorously and systematically about uncertainty.
Why is it that successful strategies are rarely developed as a result of formal planning processes? What is wrong with strategy or the way most companies go about developing it? Andrew Campbell and Marcus Alexander, seasoned practitioners of the art of strategy, who consult, teach and do research at the Ashridge Strategic Management Centre, offer a "common sense" piece on why the planning frameworks managers use so often yield disappointing results. Strategy, they explain, is not about plans but insights. Strategy development is the process of discovering and understanding insights and should not be confused with planning, which is about turning insights into action. The answer is not new planning processes, better designed plans, or more effort. The answer is for managers to understand two fundamentals--the benefit of having a well-articulated and stable purpose and the importance of discovering, understanding, documenting, and exploiting insights about how to create value.
This fictitious case study explores the challenges facing CoolBurst, a Miami-based fruit-juice company. For over a decade, CoolBurst had ruled the market in the Southeast. Why, then, are its annual revenues stuck at $30 million, and why have profits been stagnant for four years straight? CoolBurst's new CEO, Luisa Reboredo, knows that the company's survival--and her own--depend on the answers. Reboredo has succeeded former utilitarian CEO Garth LeRoue. While LeRoue had undeniably made CoolBurst into the well-oiled machine it was, he'd also been stubborn in enforcing a culture of tradition, self-discipline, and respect for authority--a culture so staid and polite, it left little room for employees to be creative. LeRoue, for instance, had almost fired two of CoolBurst's most creative employees for inventing four new drinks without his permission. Sam Jenkins, one of those employees, had been so angered by the incident that he left the company to work for CoolBurst's largest competitor. How can Reboredo encourage her employees to start thinking creatively. And how can she nurture any creative individuals who may join the company in the future? In 97511 and 97511Z, commentators Paul Barker, Teresa M. Amabile, Manfred F.R. Kets de Vries, Gareth Jones, and Elspeth McFadzean offer advice on this fictional case study.
Modularity is a familiar principle in the computer industry. Different companies can independently design and produce components, such as disk drives or operating software, and those modules will fit together into a complex and smoothly functioning product because makers obey a given set of design rules. As businesses as diverse as auto manufacturing and financial services move toward modular designs, the authors say, competitive dynamics will change enormously. Leaders in a modular industry will control less, so they will have to watch the competitive environment closely for opportunities to link up with other module makers. They will also need to know more: engineering details that seemed trivial at the corporate level may now play a large part in strategic decisions. Leaders will also become knowledge managers internally because they will need to coordinate the efforts of development groups in order to keep them focused on the modular strategies the company is pursuing.
When markets turn hostile, it's no surprise that managers are tempted to extend their brands vertically--that is, to take their brands into a seemingly attractive market above or below their current positions. And for companies chasing growth, the urge to move into booming premium or value segments also can be hard to resist. The draw is indeed strong; and in some instances, a vertical move is not merely justified but actually essential to survival--even for top brands, which have the advantages of economies of scale, brand equity, and retail clout. But beware: leveraging a brand to access upscale or downscale markets is more dangerous than it first appears. Before making a move, then, managers should ascertain whether the rewards will be worth the risks. In general, David Aaker recommends that managers avoid vertical extensions whenever possible. There is an inherent contradiction in the very concept because brand equity is built in large part on image and perceived worth, and a vertical move can easily distort those qualities. Still, certain situations demand vertical extensions, and Aaker examines both the winners and the losers in the game.
Every seasoned investor knows that detailed financial projections for a new company are an act of imagination. Nevertheless, most business plans pour far too much ink on the numbers--and far too little on the information that really matters. Why? William Sahlman suggests that a great business plan is one that focuses on a series of questions. These questions relate to the four factors critical to the success of every new venture: the people, the opportunity, the context, and the possibilities for both risk and reward. A great business plan is not easy to compose, Sahlman acknowledges, largely because most entrepreneurs are wild-eyed optimists. But one that asks the right questions is a powerful tool. A better deal, not to mention a better shot at success, awaits entrepreneurs who use it.
Most profitable strategies are built on differentiation: offering customers something they value that competitors don't have. But most companies concentrate only on their products or services. In fact, a company can differentiate itself at every point where it comes in contact with its customers--from the moment customers realize they need a product to service to the time when they dispose of it. The authors believe that if companies open up their thinking to their customers' entire experience with a product or service--the consumption chain--they can uncover opportunities to position their offerings in ways that neither they nor their competitors thought possible. The authors show how even a mundane product such as candles can be successfully differentiated. By analyzing its customers' experiences and exploring various options, Blyth Industries, for example, has grown from a $2 million U.S. candle manufacturer into a global candle and accessory business with nearly $500 million in sales and a market value of $1.2 billion.
Innovate or fall behind: The competitive imperative for virtually all businesses today is that simple. Responding to that command is difficult, however, because innovation takes place when different ideas, perceptions, and ways of processing and judging information collide. And it often requires collaboration among players who see the world differently. As a result, the conflict that should take place constructively among ideas all too often ends up taking place unproductively among people. Disputes become personal, and the creative process breaks down. The manager successful at fostering innovation figures out how to get different approaches to grate against one another in a productive process the authors call creative abrasion. Managers who want to encourage innovation need to examine what they do to promote or inhibit creative abrasion.
Can the U.S. economy grow much faster than the two-point-something percent it has in recent years? Standard economic analysis suggests that it cannot. But many influential business leaders and journalists--and even a few economists--have embraced a radical economic theory that argues that the old speed limits to growth are obsolete. According to this so-called new paradigm, rapid technological change means that the economy can grow much faster than it used to; global competition means that a booming economy will not produce high inflation. Many people in the business community take the new doctrine very seriously, notes MIT economist Paul Krugman. Unfortunately, he says, it is riddled with gaping conceptual and empirical holes. Krugman lays out in clear terms the macroeconomic principles that explain how markets interact and why there are limits on growth. We would all like the U.S. economy to grow faster than it has, says Krugman, but all the evidence suggests that it cannot.
Core competencies and focus are now the mantras of corporate strategists in Western economies. But while managers in the West have dismantled many conglomerates assembled in the 1960s and 1970s, the large, diversified business group remains the dominant form of enterprise throughout many emerging markets. As those markets open up to global competition, consultants and foreign investors are increasingly pressuring groups to conform to Western practice by scaling back the scope of their business activities. Already a number of executives have decided to break up their groups in order to show that they are focusing on only a few core businesses. There are reasons to worry about this trend, say the authors. Focus is good advice in New York or London, but something important gets lost in translation when that advice is given to groups in emerging markets.
Top level managers know that conflict over issues is natural and even necessary. Management teams that challenge one another's thinking develop a more complete understanding of their choices, create a richer range of options, and make better decisions. But the challenge--familiar to anyone who has ever been part of a management team--is to keep constructive conflict over issues from degenerating into interpersonal conflict. From their research on the interplay of conflict, politics, and speed in the decision-making process of management teams, the authors have distilled a set of tactics characteristic of high-performing teams. These tactics work because they keep conflict focused on issues; foster collaborative, rather than competitive, relations among team members; and create a sense of fairness in the decision-making process.
Vic, the CEO of a sporting goods company in this fictional case study, is pleased with the numbers. For several years now, they've gone steadily in one direction: up. But there's trouble in paradise. Hidden from the public's view of industry-dominating winners--from the coolest snowboards to the hottest in-line skates--lies a product-development department that may be ready to shatter like cheap fiberglass. Carver, the company's chief of product development, is the workaholic mad genius who is responsible for most--he might say all--of the company's successful products. At the same time, he has managed to alienate the rest of his staff. Four commentators suggest how Vic can keep the company's product-development group intact and its sales growth strong. In 97401 and 97401Z, Victor Vroom, June Rokoff, David Olsen, and David H. Burnham suggest how Vic can keep the company's product-development group intact and its sales growth strong.
Diana Sullivan, CEO of Lenox Insurance, thought she had done her job when, after three years of hard work, she had delivered Lifexpress on time and on budget. A sophisticated computer-aided system, it enabled Lenox's 10,000-plus agents to do everything from establish a prospect's financial profile, to select the most appropriate products from the company's myriad policies, to generate all the paperwork needed to close a sale. But now Sullivan's boss, CFO Clay Fontana, seemed to be holding her accountable not only for the creation and implementation of the system but for realizing its business goals as well. And Lenox's CEO, James Bennett, appeared to concur. In this hypothetical case study, Sullivan and the other top executives at Lenox must decide who should be responsible for realizing the business goals of information technology projects. Should Sullivan have gone about the project in another way? Should Fontana and Bennett be playing more active roles? In 97308 and 97308Z, commentators James K. Sims, Thornton May, Richard Nolan, Robert A. Distefano, and John King offer advice on this fictional case study.
When does a group have responsibility for the well-being of an individual? And what are the differences between the ethics of the individual and the ethics of the corporation? Those are the questions Bowen McCoy wanted readers to explore in this HBR Classic, first published in September-October 1983. In 1982, McCoy spent several months hiking through Nepal. Midway through the difficult trek, he encountered an Indian holy man, or sadhu. Wearing little clothing and shivering in the bitter cold, he was barely alive. McCoy and the other travelers immediately wrapped him in warm clothing and gave him food and drink. A few members of the group broke off to help move the sadhu down toward a village two days' journey away, but they soon left him in order to continue their way up the slope. What happened to the sadhu? In his retrospective commentary, McCoy notes that he never learned the answer to that question. On the Himalayan slope, a collection of individuals was unprepared for a sudden dilemma. McCoy asks, how do organizations respond appropriately to ethical crises?
For the past 25 years, managers have been taught that the best practice for valuing assets--that is, an existing business, factory, product line, or market position--is to use a discounted-cash-flow (DCF) methodology. That is still true. But the particular version of DCF that has been accepted as the standard--using the weighted-average cost of capital (WACC)--is now obsolete. Today's better alternative, adjusted present value (APV), is especially versatile and reliable. It will likely replace WACC as the DCF methodology of choice among generalists. Like WACC, APV is used to value operations, or assets-in-place. Timothy Luehrman explains APV and walks readers through a case example designed to teach them how to use it.
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