A n

E x e c u t i v e ’ s

G u i d e

2 0 0 0

Darrel l K. Rigby

MA N A G E M E N TT o o l s a n d Te c h n i q u e s

www.bain.comBAIN & Company

2

Copyright © Bain & Company, Inc. 1999

All rights reserved. No part of this book may be reproduced in any form or by any means without permission in writing from Bain & Company.

ISBN: 0965605930

Published by:

Bain & Company, Inc.Two Copley Place, Boston, MA 02116

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Bain is one of the world’s leading global management consulting firms. Its 2,200 professionals serve major multinationals and other organizations through an integrated network of 26 offices in 18 countries. Its results-oriented, fact-based,approach is unique, and its immense experience base, developed over 27 years,covers a complete range of critical business issues in every economic sector.

Bain’s entire approach is based on two guiding principles: 1) working in genuinecollaboration with clients on customized and implementable strategies that yieldsignificant, measurable, and sustainable results, and 2) developing processes thatstrengthen a client’s organization and create lasting competitive advantage. Thefirm gauges its success solely by its clients’ achievements.

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Table of Contents

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PREFACE 10

ACTIVITY-BASED MANAGEMENT 12Related Topics:• Activity-Based Costing• Customer Profitability Analysis• Product Line Profitability

BALANCED SCORECARD 14Related Topics:• Management by Objectives (MBO)• Mission and Vision Statements• Pay-for-Performance• Strategic Balance Sheet

BENCHMARKING 16Related Topics:• Best Demonstrated Practices• Competitor Profiles

CORE COMPETENCIES 18Related Topics:• Core Capabilities• Key Success Factors• Learning Organization• Shared Experience

CUSTOMER RETENTION 20Related Topics:• Customer Satisfaction Measurement• Defection Root Causes• Employee Retention• Loyalty-Based Management

CUSTOMER SATISFACTION MEASUREMENT 22Related Topics:• Conjoint Analysis• Customer Retention• Customer Surveys

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CUSTOMER SEGMENTATION 24Related Topics:• Factor/Cluster Analysis• Market Segmentation• One-to-One Marketing

CYCLE TIME REDUCTION 26Related Topics:• Just-in-Time (JIT) Inventory Management• Manufacturing Resource Planning (MRP)• Time-to-Market Analysis

GROWTH STRATEGIES 28Related Topics:• Managing Innovation• Market Migration Analysis

KNOWLEDGE MANAGEMENT 30Related Topics:• Groupware• Intellectual Capital Management• Learning Organization• Managing Innovation

MARKET DISRUPTION ANALYSIS 32Related Topics:• Disruptive Technologies• Profit Pools• Value Migration

MERGER INTEGRATION TEAMS 34Related Topics:• Mergers and Acquisitions• Strategic Alliances

MISSION AND VISION STATEMENTS 36Related Topics:• Cultural Transformation• Strategic Planning• Values Statement

Table of Contents continued

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ONE-TO-ONE MARKETING 38Related Topics:• Electronic Commerce• Data Mining• Mass Customization

OUTSOURCING 40Related Topics:• Core Capabilities• Strategic Alliances• Value Chain Analysis

PAY-FOR-PERFORMANCE 42Related Topics:• Balanced Scorecard• Gain Sharing • Management by Objectives (MBO)• Performance Appraisals

REAL OPTIONS ANALYSIS 44Related Topics:• Discounted Cash Flows• Scenario Planning• Shareholder Value Analysis

REENGINEERING 46Related Topics:• Cycle Time Reduction• Horizontal Organizations• Overhead Value Analysis• Process Redesign

SCENARIO PLANNING 48Related Topics:• Contingency Planning• Real Options Analysis• Simulation Models• Strategic Planning

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SHAREHOLDER VALUE ANALYSIS 50Related Topics:• Discounted and Free-Cash-Flow Analyses• Economic Value Added• ROA, RONA, ROI Techniques

STRATEGIC ALLIANCES 52Related Topics:• Joint Ventures• Networks• Value-Managed Relationships• Virtual Organizations

STRATEGIC PLANNING 54Related Topics:• Core Competencies• Mission and Vision Statements• Scenario Planning

SUPPLY CHAIN INTEGRATION 56Related Topics:• Value Chain Analysis• Borderless Corporation• Electronic Commerce

TOTAL QUALITY MANAGEMENT 58Related Topics:• Continuous Improvement• Malcolm Baldrige National Quality Award• Quality Assurance

VIRTUAL TEAMS 60Related Topics:• Collaborative Software• Telecommuting• Web-based Collaboration

SUBJECT INDEX 62

AUTHOR INDEX 65

Preface

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Over the past decade, executives have witnessed an explosion of management toolssuch as Knowledge Management, Reengineering, and Strategic Alliances. Demandsof increasing competition in the global marketplace are driving the explosion,while accelerated, lower-cost delivery systems for ideas and information haveenabled it.Today, the sheer volume of ideas can overwhelm a management team.

As a result, executives must cast their nets wider than ever before in a sea of options.They must seize on the tools essential to increasing their company’s performanceand use such tools creatively to spur better business decisions. Improved decisionsin turn lead to enhanced processes, products, and services that better allocateresources and serve customer needs. This creates competitive advantage, the keyto superior performance and profits.

Each tool carries a set of strengths and weaknesses. Successful use of tools requires anunderstanding of both their effects and side effects, as well as an ability to creativelyintegrate the right tools, in the right way, at the right time. The secret is not indiscovering one magic tool, but in learning which tools to use, how, and when.

In the absence of objective data, groundless hype makes choosing and using man-agement tools a dangerous game of chance. In 1993, Bain & Company launched a multi-year research project to gather facts about the use and performance ofmanagement tools. Our objectives remain to provide managers with:

• an understanding of how their current application of these tools and subsequent results compares with those of other organizations across industries and around the globe.

• information they need to identify, select, implement, and integrate the righttools to improve their own company’s performance.

Each year we interview senior managers and conduct literature searches to identify25 of the most popular and pertinent management tools. We define the tools inthis guide and conduct detailed surveys to examine managers’ use of tools andsuccess rates. We also conduct one-on-one follow-up interviews to further probethe circumstances under which tools are most likely to produce desired results.

The research to date has provided a number of important insights:

• Senior managers’ overwhelming priority is to improve financial performance.

• Financial performance is driven by a company’s ability to: 1) discover unmetcustomer opportunities, 2) build distinctive capabilities, 3) exploit competitivevulnerabilities, and 4) promote creative collaboration within and betweenorganizations.

• Executives believe that management tools can improve their performancealong these four dimensions. Tool usage is high, growing, and remarkablysimilar worldwide.

• A correlation exists between financial performance and the way in whichorganizations use management tools.

• Overall, satisfaction with tools is mildly positive, but their rates of use, ease of implementation, effectiveness, strengths, and weaknesses vary widely.

• Managers have learned that no tool is a silver bullet.

Having fully revised last year’s guide, we’ve created the 2000 guide to mirror thelatest thinking and emerging trends across 25 of the most relevant managementtools. To reflect the increasing impact of the Internet on doing business, we addedthree new tools—Supply Chain Integration, One-to-One Marketing, and VirtualTeams. In addition, we added Real Options Analysis and Market DisruptionAnalysis as tools that help managers deal with the increasingly turbulent anduncertain nature of business.

We hope you will find this reference guide a useful tool in itself. The insightsfrom this year’s global survey and field interviews will be published separately, and survey results and additional copies of this guide can be purchased by calling or writing to:

Darrell RigbyDirectorBain & Company, Inc.Two Copley PlaceBoston, MA 02116Phone: (617) 572-2771Fax: (617) 572-2427e-mail: darrell.rigby@bain.com

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Activity-Based Management

RelatedTopics

Description

Methodology

Common Uses

12

• Activity-Based Costing• Customer Profitability Analysis• Product Line Profitability

Activity-Based Management (ABM) uses detailed economicanalyses of important business activities to improve strategicand operational decisions. Activity-Based Management increasesthe accuracy of cost information by more precisely linkingoverhead and other indirect costs to products or customersegments. Traditional accounting systems distribute indirectcosts using bases such as direct labor hours, machine hours, ormaterial dollars. ABM tracks overhead and other indirect costsby activity, which can then be traced to products or customers.

ABM systems can replace traditional accounting systems oroperate as stand-alone supplements. They require a strongcommitment from both top management and line employeesin order to succeed. To build a system that will support ABM,companies should:

• Determine key activities performed;• Determine cost drivers by activity;• Group overhead and other indirect costs by

activity using clearly identified cost drivers;• Collect data on activity demands (by product

and customer);• Assign costs to products and customers (based on

activity usage).

Companies use Activity-Based Management to:

Re-price products and optimize new product designManagers can more accurately analyze product profitabilityby combining activity-based cost data with price information.This can result in the re-pricing or elimination of unprof-itable products. This information also is used to accuratelyestimate new product costs. By understanding cost driversmanagers can design new products more efficiently.

Selected References

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Reduce costsActivity-based costing identifies the components of over-head costs and the drivers of cost variability. Managers canreduce costs by decreasing the cost of an activity or thenumber of activities per unit.

Influence strategic and operational planningImplications for action from an ABM study include “targetcosting,” performance measurement for continuous improve-ment, and resource allocation based on projected demand byproduct, customer, and facility. ABM can also assist a companyin considering a new business opportunity or venture.

Cokins, Gary. Activity-Based Cost Management, Making it Work:A Manager’s Guide to Implementing and Sustaining an EffectiveABC System. Irwin Professional Publications, 1996.

Cooper, Robin, and Bruce W. Chew. “Control Tomorrow’s CostsThrough Today’s Designs: Target Costing Lets Customers,Not the Product, Set the Price.” Harvard Business Review,January/February 1996, pp. 88-97.

Cooper, Robin, and Robert S. Kaplan. Cost & Effect: UsingIntegrated Cost Systems to Drive Profitability and Performance.Harvard Business School Press, 1997.

Cooper, Robin, and Robert S. Kaplan. “The Promise—andPeril—of Integrated Cost Systems.” Harvard Business Review,July/August 1998, pp. 109-119.

Forrest, Edward. Activity-Based Management: A ComprehensiveImplementation Guide. McGraw-Hill, 1996.

Johnson, H.Thomas, and Robert S. Kaplan. Relevance Lost: TheRise and Fall of Management Accounting. Harvard BusinessSchool Press, 1991.

Swenson, Dan. “Best Practice in Activity-Based Management.”Journal of Cost Management, November/December 1997,pp. 6-14.

RelatedTopics

Description

Methodology

14

• Management by Objectives (MBO)• Mission and Vision Statements • Pay-for-Performance • Strategic Balance Sheet

A Balanced Scorecard defines what management meansby “performance” and measures whether management isachieving desired results. The Balanced Scorecard translatesmission and vision statements into a comprehensive set ofobjectives and performance measures that can be quantifiedand appraised. These measures typically include the followingcategories of performance:

• Financial performance (revenues, earnings, return oncapital, cash flow);

• Customer value performance (market share, customer satisfaction measures, customer loyalty);

• Internal business process performance (productivity rates,quality measures, timeliness);

• Innovation performance (percent of revenue from newproducts, employee suggestions, rate of improvement index);

• Employee performance (morale, knowledge, turnover, use of best demonstrated practices).

To construct and implement a Balanced Scorecard, managers should:

• Articulate the business’s vision and strategy;• Identify the performance categories that best link the

business’s vision and strategy to its results (e.g., financial,customers, operations, innovation results, employee performance);

• Establish objectives that support the business’s vision and strategy;

• Develop effective measures and meaningful standards, estab-lishing both short-term milestones and long-term targets;

• Ensure company-wide acceptance of the measures;• Create appropriate budgeting, tracking, communication,

and reward systems;• Collect and analyze performance data and compare actual

results to desired performance;• Take action to close unfavorable gaps.

Balanced Scorecard

Common Uses

Selected References

15

A Balanced Scorecard is used to:

• Clarify or update a business’s strategy;• Link strategic objectives to long-term targets

and annual budgets;• Track the key elements of the business strategy;• Incorporate strategic objectives into resource

allocation processes;• Facilitate organizational change;• Compare performance of geographically diverse

business units;• Increase company-wide understanding of the

corporate vision and strategy.

Campbell, Andrew. “Keep the Engine Humming.” Business Quarterly, Summer 1997, pp. 40-46.

Epstein, Marc, and Jean-François Manzoni. “ImplementingCorporate Strategy: From Tableaux de Bord to Balanced Scorecards.” European Management Journal,April 1998, pp. 190-203.

Hope, Tony, and Jeremy Hope. Competing in the Third Wave: The Ten Key Management Issues of the Information Age. Harvard Business School Press, 1997.

Kaplan, Robert S., and David P. Norton. The BalancedScorecard: Translating Strategy into Action. Harvard Business School Press, 1996.

Kaplan, Robert S., and David P. Norton. “StrategicLearning & the Balanced Scorecard.” Strategy &Leadership, September/October 1996, pp. 18-24.

Kaplan, Robert S., and David P. Norton. “Using theBalanced Scorecard as a Strategic Management System.”Harvard Business Review, January/February 1996.

McWilliams, Brian. “The Measure of Success.” Across the Board, February 1996, pp. 16-20.

Rigby, Darrell. “The Chief Performance Officer.” PlanningReview, January/February 1996, pp. 7-8.

Benchmarking

RelatedTopics

Description

Methodology

Common Uses

16

• Best Demonstrated Practices• Competitor Profiles

Benchmarking improves performance by identifying andapplying best demonstrated practices to operations and sales.Managers compare the performance of their products orprocesses externally to those of competitors and best-in-classcompanies, and internally to other operations within theirown firms that perform similar activities. The objective ofBenchmarking is to find examples of superior performanceand to understand the processes and practices driving thatperformance. Companies then improve their performance bytailoring and incorporating the best practices into their ownoperations—not imitating but innovating.

Benchmarking involves the following steps:

• Select a product, service or process to benchmark;• Identify the key performance metrics;• Choose companies or internal areas to benchmark;• Collect data on performance and practices;• Analyze the data and identify opportunities for

improvement;• Adapt and implement the best practices, setting

reasonable goals and ensuring company-wide acceptance.

Companies use Benchmarking to:

Improve performanceBenchmarking identifies methods of improving operationalefficiency and product design.

Understand relative cost positionBenchmarking reveals a company’s relative cost positionand identifies opportunities for improvement.

Gain strategic advantageBenchmarking helps companies focus on capabilities criticalto building strategic advantage.

Increase the rate of organizational learningBenchmarking brings new ideas into the company andfacilitates experience sharing.

Selected References

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The American Productivity and Quality Forum. www.apqc.org.

Boxwell, Robert J. Benchmarking for Competitive Advantage.McGraw-Hill, 1994.

Camp, Robert C. Business Process Benchmarking: Finding andImplementing Best Practices. Quality Resources, 1995.

Czarnecki, Mark T.How to Improve Your Organization’s PerformanceThrough Effective Benchmarking. AMACOM, 1999.

Dimancescu, Dan, and Kemp Dwenger. World-Class New ProductDevelopment: Benchmarking Best Practices of Agile Manufacturers.AMACOM, 1995.

Harrington, H. James. The Complete Benchmarking ImplementationGuide: Total Benchmarking Management. McGraw-Hill, 1996.

O’Dell, Carla, and C. Jackson Grayson. If Only We Knew WhatWe Know: The Transfer of Internal Knowledge and Best Practice.The Free Press, 1998.

Watson, Gregory H. The Benchmarking Workbook: Adapting BestPractices for Performance Improvement. Productivity Press, 1994.

Zairi, Mohamed. Benchmarking for Best Practice: ContinuousLearning Through Sustainable Innovation. Butterworth-Heinemann, 1998.

Core Competencies

RelatedTopics

Description

Methodology

Common Uses

18

• Core Capabilities• Key Success Factors• Learning Organization• Shared Experience

A Core Competency is a special skill or technology that createsunique customer value. A company’s specialized capabilitiesare largely embodied in the collective knowledge of its peopleand the organizational procedures that shape the way employeesinteract. Over time, investments in facilities, people, and knowl-edge that strengthen Core Competencies can create sustainablesources of competitive advantage.

A Core Competency should:

• Provide significant and appreciable value to customers relative to competitor offerings;

• Be difficult for competitors to imitate or procure in themarket, thereby creating competitive barriers to entry;

• Enable a company to access a wide variety of unrelatedmarkets by combining skills and technologies acrosstraditional business units.

To develop Core Competencies a company must isolate keyabilities within the organization and hone them to embodythe organization’s unique strengths. Companies can comparethemselves to others with the same skills to ensure they aredeveloping unique capabilities. Companies can also developan understanding of what capabilities their customers trulyvalue, and invest accordingly to develop and sustain valuedstrengths. Such strengths need to be preserved even as man-agement expands and redefines the business.

Core Competencies capture the collective learning in anorganization. They can be used to:

• Design competitive positions and strategies that capitalizeon corporate strengths;

• Create links across businesses and functional units;• Integrate the use of technology in carrying out

business processes;

Selected References

19

• Encourage communication and involvement, and placea strong value on communicating across organizationalboundaries;

• Make outsourcing, divestment, and partnering decisions;• Spawn new business development opportunities;• Make decisions about which new technologies or

capabilities must be acquired.

Andrews, Kenneth. The Concept of Corporate Strategy, ThirdEdition. Dow Jones/Irwin, 1987.

Campbell, Andrew, and Kathleen Sommers-Luch. Core CompetencyBased Strategy. International Thompson Business Press, 1998.

Cappelli, Peter, and Anne Crocker-Hefter. “Distinctive HumanResources Are Firms’ Core Competencies.” OrganizationalDynamics, pp. 7-22.

Collis, David J., and Cynthia A. Montgomery. “Competing onResources: Strategy in the 1990s.” Harvard Business Review,July/August 1995, pp. 118-128.

Hamel, Gary, and C.K. Prahalad. Competing for the Future. HarvardBusiness School Press, 1994.

Prahalad, C.K., and Gary Hamel. “The Core Competence of the Corporation.” Harvard Business Review, May/June1990, pp. 79-91.

Quinn, James Brian. Intelligent Enterprise. The Free Press, 1992.

Schoemaker, Paul J.H. “How to Link Strategic Vision toCore Capabilities.” Sloan Management Review, Fall 1992, pp.67-81.

Customer Retention

RelatedTopics

Description

Methodology

20

• Customer Satisfaction Measurement• Defection Root Causes• Employee Retention• Loyalty-Based Management

Customer Retention grows a business’s revenues by extendingthe average length of customer relationships. Even small shiftsin retention rates can yield significant and quantifiable changesin revenue and income. Eliminating drivers of defection andreinforcing drivers of loyalty will improve Customer Retention.Retaining the employees who possess the knowledge, skills,and critical relationships can be crucial to retaining customers.

Successful retention management requires diagnosing, prioritizing,and addressing the drivers of defection and loyalty. It callsfor in-depth customer (and employee) research to identifythe root causes for recent purchases or defections. To effectnecessary change, companies often must reorient their infor-mation systems, performance incentives, training systems, hiringpolicies, complaint handling processes, organizational structures,and cultures.

Implementing Customer Retention strategies drives executivesto address these key questions with their management teams:

• What are the best ways to measure the loyalty of customersin each line of business?

• What are the business’s current retention rates?• How do current retention rates compare to those of

previous years?• How do current retention rates compare to those of

the competition?• What would happen to revenues and profits if retention

rates could be increased by five percent?• What root causes are driving the most customer defections?• What are the right retention rate targets?• How should retention targets be built into the company’s

incentive, planning, and budgeting systems?• What actions are required to achieve these retention targets?

Common Uses

Selected References

21

Customer Retention is used by firms that want to understandand improve:

• The measurement of customer satisfaction—the successthey have at satisfying and retaining customers;

• The profit impact of increased retention;• The root causes of customer defections;• The methods of addressing root cause defection drivers.

Firms can use this knowledge to create a system that attractsand keeps the most profitable and valued customers.

Heskett, James L., W. Earl Sasser, Jr., and Leonard A.Schlesinger. The Service Profit Chain: How LeadingCompanies Link Profit and Growth to Loyalty, Satisfaction, andValue. The Free Press, 1997.

O’Brien, Louise, and Charles Jones. “Do Rewards Really CreateLoyalty?” Harvard Business Review, May/June 1995, pp. 75-82.

Reichheld, Frederick F. The Loyalty Effect: The Hidden ForceBehind Growth, Profits, and Lasting Value. Harvard BusinessSchool Press, 1996.

Reichheld, Frederick F. The Quest for Loyalty: Creating ValueThrough Partnerships. Harvard Business School Press, 1996.

Reichheld, Frederick F. “Zero-Defections: Quality Comes toServices.” Harvard Business Review, September/October1990, pp. 105-111.

Richman, Tom. “Service Industries: Why Customers Leave.”Harvard Business Review, January/February 1996, pp. 9-10.

Shapiro, Benson, and John J. Sviokla. Keeping Customers. HarvardBusiness School Press, 1993.

Tax, Stephen S., and Stephen W. Brown. “Recovering andLearning From Service Failure.” Sloan Management Review,October 1, 1998.

Customer Satisfaction Measurement

RelatedTopics

Description

Methodology

Common Uses

22

• Conjoint Analysis• Customer Retention• Customer Surveys

Customer Satisfaction Measurement helps to determine customerrequirements and identify better ways to anticipate and fulfillthem. Companies collect input from customers on a regularbasis to prioritize their needs and to measure their satisfactionlevels. Companies use this information to identify and eliminatethe roadblocks to achieving complete customer satisfactionand loyalty.

Firms can use customer satisfaction surveys successfully to betteralign their capabilities and resources with customer wants andneeds. To measure customer satisfaction, companies should:

• Interview customers to determine critical dimensionsof performance;

• Actively solicit customer satisfaction feedback throughsurveys, phone calls, focus groups, and on-site visits;

• Analyze the results of customer feedback to determineopportunities for improvement;

• Disseminate these results across the company;• Design and implement changes to improve satisfaction levels.

Managers use customer satisfaction surveys on an on-going basisto understand how well they are meeting their customers’ needs.Customer Satisfaction Measurement focuses attention on themost highly leveraged opportunities for improvement. Thisprocess provides timely feedback on the firm’s success in meetingcustomer needs and enables employees to react swiftly to improvecustomer satisfaction. Customer retention efforts, discussed onpage 20, often make use of customer satisfaction data.

Selected References

23

Barabba, Vincent P. Meeting of the Minds: Creating the Market-Based Enterprise. Harvard Business School Press, 1995.

Barabba, Vincent P., and Gerald Zaltman. Hearing the Voice ofthe Market. Harvard Business School Press, 1991.

Bergman, Bo, and Bengt Klefsjo. Quality: From Customer Needsto Customer Satisfaction. McGraw-Hill, 1994.

Bhote, Keki R. “What Do Customers Want, Anyway?” AmericanManagement Association, March 1997, pp. 36-40.

Davidow, William H., and Bro Uttal. Total Customer Service:TheUltimate Weapon. HarperCollins, 1990.

Dumoulin, Jean-Louis. Clients Satisfaits, Entreprise Gagnante.(Satisfied Clients, Winning Firm.) Editions Organisation, 1993.

Hart, Christopher W.L., James L. Heskett, and W. Earl Sasser, Jr.“The Profitable Art of Service Recovery.” Harvard BusinessReview, July/August 1990, pp. 148-156.

Heskett, James L., Thomas O. Jones, Gary W. Loveman, W. EarlSasser, Jr., and Leonard A. Schlesinger. “Putting the ServiceProfit Chain to Work.” Harvard Business Review, March/April1994, pp. 164-174.

Schlesinger, Leonard A., and James L. Heskett. “The Service-Driven Service Company.” Harvard Business Review,September/October 1991, pp. 71-81.

Sheehy, Barry. “Are You Listening?” Across the Board, April 1,1999, p 41.

Whiteley, Richard C. The Customer Driven Company: Movingfrom Talk to Action. Perseus Press, 1993.

Whiteley, Richard C., and Diane Hessan. Customer CenteredGrowth: Five Proven Strategies for Building CompetitiveAdvantage. Perseus Press, 1996.

Customer Segmentation

RelatedTopics

Description

Methodology

24

• Factor/Cluster Analysis• Market Segmentation• One-to-One Marketing

Customer Segmentation is the subdivision of a market intodiscrete customer groups that share similar characteristics.Customer Segmentation can be a powerful means to identifyunmet customer needs. Companies that identify underservedsegments can achieve a leadership position by being the first toserve them. Understanding the specific needs of each segmentenables companies to develop tailored product offerings ormarketing programs for groups of customers with similarpurchase criteria. Customer Segmentation is most effectivewhen a company tailors offerings to segments that are themost profitable and targets them where the company has adistinct competitive advantage. A company can use CustomerSegmentation as the principal basis for allocating resources toproduct development, marketing, service, and delivery programs.

Customer Segmentation requires managers to:

• Divide the market into meaningful and measurable segments according to customers’ needs, their pastbehaviors or their demographic profiles;

• Determine the profit potential of each segment byanalyzing the revenue and cost impacts of serving each segment;

• Target segments according to their profit potential and tothe company’s ability to serve them in a proprietary way;

• Invest resources to tailor product, service, marketing, and distribution programs to match the needs of each target segment;

• Measure performance of each segment and adjust the segmentation approach over time as market conditions change.

Common Uses

Selected References

25

Companies can use Customer Segmentation to:

• Prioritize new product development efforts;• Develop customized marketing programs;• Choose specific product features;• Establish appropriate service options;• Design an optimal distribution strategy;• Determine appropriate product pricing.

Besser, Jim. “Riding the Marketing Information Wave.” HarvardBusiness Review, September/October 1993, pp. 150-160.

Davidow, William H., and Bro Uttal. Total Customer Service:The Ultimate Weapon. HarperCollins, 1990.

Dychtwald, Kenneth, and Joe Flower. Age Wave: How the MostImportant Trend of Our Time Will Change Your Future. BantamDoubleday Dell, 1990.

Gale, Bradley T. Managing Customer Value: Creating Quality &Service That Customers Can See. The Free Press, 1994.

Kotler, Philip. Marketing Management: Analysis, Planning,Implementation and Control. Prentice Hall Press, 1996.

Levitt, Theodore. The Marketing Imagination.The Free Press, 1986.

Myers, James H. Segmentation and Positioning for Strategic MarketingDecisions. American Marketing Association, 1996.

Peppers, Don, and Martha Rogers. The One to One Future:Building Relationships One Customer at a Time. Currency/Doubleday, 1997.

Smith, Walker J., and Ann S. Clurman. Rocking the Ages: The Yankelovich Report on Generational Marketing.HarperBusiness, 1998.

Weinstein, Art. Market Segmentation: Using Demographics,Psychographics and Other Niche Marketing Techniques to Predict and Model Customer Behavior. Probus Publishing, 1993.

Cycle Time Reduction

RelatedTopics

Description

Methodology

26

• Just-in-Time (JIT) Inventory Management• Manufacturing Resource Planning (MRP)• Time-to-Market Analysis

Cycle Time Reduction decreases the time it takes a companyto perform key activities throughout its value chain. Cycle TimeReduction uses analytic techniques to minimize waiting time,eliminate activities that do not add value, increase parallelprocesses, and speed up decision processes within an organization.Time-based strategies often emphasize flexible manufacturing,rapid response, and innovation in order to attract the mostprofitable customers.

Cycle Time Reduction tries to decrease the overall time takenfrom conception to delivery of products and services. Themethodology focuses on three primary areas within a business:

New product developmentCycle Time Reduction makes use of cross-functional teamsto shrink the time required to take a product from conceptionto market. The tool involves key decision-makers from eachfunctional area at the beginning of the development process.

OperationsCycle Time Reduction minimizes complexity, streamlinesprocesses, and decreases run lengths. This allows the orga-nization to eliminate bottlenecks, decrease unproductivewaiting time, and reduce the carrying cost of inventory. In service operations, this tool speeds up work flows anddecision-making throughout the organization.

Delivery and logisticsEliminating unnecessary work and speeding up decision-making can decrease the time required to fill orders andcan increase the predictability of response.

Common Uses

Selected References

27

Cycle Time Reduction is used to:

• Increase productivity and employee effectiveness;• Increase profit margins of products or services through

lowering costs of production and inventory;• Better meet changing customer needs through shortened

product development cycles;• Support more product changes over a shorter period of time.

Bowen, H. Kent, Kim Clark, and Charles Holloway. ThePerpetual Enterprise Machine: Seven Keys to Corporate RenewalThrough Successful Product and Process Development. OxfordUniversity Press, 1994.

Cooper, Robert G. Winning at New Products: Accelerating theProcess from Idea to Launch. Perseus Press, 1993.

Goldratt, Eliyahu M., and Jeff Cox. The Goal: A Process ofOngoing Improvement. North River Press, 1992.

Griffin, Abbie. “The Effect of Project and Process Characteristicson Product Development Cycle Time.” Journal of MarketingResearch, February 1997, pp. 24-35.

Gupta, Ashok K., and William E. Souder. “Key Drivers ofReduced Cycle Time.” Research-Technology Management,July/August 1998, pp. 38-43.

Meyer, Christopher. Fast Cycle Time: How to Align Purpose,Strategy, and Structure for Speed. The Free Press, 1993.

Stalk, George, Jr., and Alan Webber. No Time to Think: A FreshLook at Time-Based Competition. Strategic Directions, 1995.

Stalk, George, Jr., and Thomas M. Hout. Competing AgainstTime. The Free Press, 1990.

Wheelwright, Steven C., and Kim Clark. The ProductDevelopment Challenge: Competing Through Speed, Quality, and Creativity. Harvard Business School Press, 1995.

Growth Strategies

RelatedTopics

Description

Methodology

28

• Managing Innovation• Market Migration Analysis

Growth Strategies focus resources on seizing opportunities forprofitable growth. Evidence suggests that profit grown throughincreasing revenues can boost stock price 25 to 100 percenthigher than profit grown by reducing costs. Growth Strategiesassert that profitable growth is the result of more than goodluck—it can be actively targeted and managed. Growth Strategiesalter a company’s goals and business processes to challengeconventional wisdom, identify emerging trends, and buildor acquire profitable new businesses. They typically requireincreased R&D investments, reallocation of resources, greateremphasis on recruiting and retaining extraordinary employees,additional incentives for innovation, and greater risk tolerance.

Growth Strategies search for expansion opportunities through:

• Internal (“organic”) growth, including:- Greater share of the profit pool for existing products

and services in existing markets and channels;- New products and services;- New markets and channels;- Increased customer retention.

• External growth (through alliances and acquisitions):- In existing products, services, markets, and channels;- In adjacent businesses surrounding the core;- In non-core businesses.

Successful implementation of Growth Strategies requires bothtime-tested and innovative approaches to help managers:

• Communicate the importance of growth;• Strengthen creation and circulation of new ideas;• Screen and nurture profitable ventures effectively;• Create capabilities that will differentiate the company

in the marketplace of the future.

Common Uses

Selected References

29

Managers employ Growth Strategies to improve both the strategicand financial performance of a business. By strengthening andexpanding the company’s market position, Growth Strategiesimprove both top-line and bottom-line results. Growth Strategiesalso may be used to counteract (or avoid) the adverse effectsof repeated downsizings and cost-cutting programs.

Arthur, W. Brian. “Increasing Returns and the New Worldof Business.” Harvard Business Review, July/August 1996,pp. 100-109.

Charan, Ram, and Noel M. Tichy. Every Business is a GrowthBusiness. Times Books, 1998.

Gertz, Dwight, and João Baptista. Grow to Be Great: Breakingthe Downsizing Cycle. The Free Press, 1995.

Hamel, Gary. “Killer Strategies That Make Shareholders Rich.”Fortune, June 23, 1997, pp. 70-88.

Hamel, Gary, and C.K. Prahalad. Competing for the Future. Harvard Business School Press, 1994.

Harvard Business Review on Strategies for Growth. Harvard BusinessSchool Press, 1998.

Kao, John. Jamming: The Art and Discipline of Business Creativity.HarperCollins, 1996.

Slywotsky, Adrian J., and David J. Morrison. The Profit Zone:How Strategic Business Design Will Lead You to Tomorrow’sProfits. Times Books, 1998.

Tomasko, Robert M. Go for Growth. John Wiley & Sons, 1996.

Tushman, Michael L., and Charles O’Reilly. Winning ThroughInnovation: A Practical Guide to Leading Organizational Changeand Renewal. Harvard Business School Press, 1997.

Knowledge Management

RelatedTopics

Description

Methodology

30

• Groupware• Intellectual Capital Management• Learning Organization• Managing Innovation

Knowledge Management develops systems and processes toacquire and share intellectual assets. It increases the generationof useful, actionable, and meaningful information and seeks toincrease both individual and team learning. In addition, it canmaximize the value of an organization’s intellectual base acrossdiverse functions and disparate locations. Knowledge Managementmaintains that successful businesses are not a collection ofproducts, but of distinctive knowledge bases. This intellectualcapital is the key that will give the company a competitiveadvantage with its targeted customers. Knowledge Managementseeks to accumulate intellectual capital that will create uniquecore competencies and lead to superior results.

Knowledge Management requires managers to:

• Catalog and evaluate the organization’s current knowledge base;

• Determine which competencies will be key to future success and what base of knowledge is neededto build a sustainable leadership position therein;

• Invest in systems and processes to accelerate theaccumulation of knowledge;

• Assess the impact of such systems on leadership, culture, and hiring practices;

• Codify new knowledge and turn it into tools andinformation that will improve both product in-novation and overall profitability.

Common Uses

Selected References

31

Companies use Knowledge Management to:

• Improve the cost and quality of existing products or services;• Strengthen and extend current competencies through

intellectual asset management;• Improve and accelerate the dissemination of knowledge

throughout the organization;• Apply new knowledge to improve behaviors;• Encourage faster and even more profitable innovation

of new products.

Applehan, Wayne. Managing Knowledge: A Practical Guide toIntranet-Based Knowledge Management. Addison-Wesley, 1998.

Davenport, Thomas H., and Laurence Prusak. Working Knowledge:How Organizations Manage What They Know. HarvardBusiness School Press, 1997.

Hansen, Morten T., Nitin Nohria, and Thomas Tierney.“What’s Your Strategy For Managing Knowledge?”Harvard Business Review, March/April 1999.

Harvard Business Review on Knowledge Management. HarvardBusiness School Press, 1998.

Leonard-Barton, Dorothy. Wellsprings of Knowledge: Buildingand Sustaining the Sources of Innovation. Harvard BusinessSchool Press, 1995.

Mullin, Rick. “Knowledge Management: A Cultural Revolution.”Journal of Business Strategy, September/October 1996, pp. 56-58.

Nonaka, Ikujiro, and Hirotaka Tekeuchi. The Knowledge-CreatingCompany. Oxford University Press, 1995.

Quinn, James Brian. Intelligent Enterprise. The Free Press, 1992.

Senge, Peter M. The Fifth Discipline: The Art & Practice of TheLearning Organization. Currency/Doubleday, 1994.

Stewart, Thomas A. Intellectual Capital: The New Wealth ofOrganizations. Doubleday, 1997.

Market Disruption Analysis

RelatedTopics

Description

Methodology

• Disruptive Technologies• Profit Pools• Value Migration

Market Disruption refers to a trend or an event that leads toa shift of market power from established to emerging players.Such shifts occur when established companies fail to adapttheir business models to changes in the environment such astechnological innovation, shifting consumer preferences, orregulatory intervention.

Companies need early warnings about market disruptions toavoid losing business. They also need to anticipate change inorder to capitalize on it. Although market disruptions offerdramatic performance benefits, these benefits may not be val-ued immediately by mainstream customers. For example, newtechnologies may emerge that will revolutionize the basis ofcompetition, yet established market leaders are often slow toincorporate them.

What should tip off managers that a disruptive technology is on the move? It might be the emergence of a new con-sumer segment, like online shoppers; or intensified disagree-ments between a company’s research and marketing staffs; or growing flows of venture capital into new companies.After analyzing such disruptions, companies should actquickly to address the new technologies in their strategies.

When changing customer preferences disrupt a market, theearly warning comes through a shift in the industry’s profitpool and waves in its market valuations. Turbulent competitorstocks, thinning profits at mainstream players, or new andgrowing pools of profit at new players, all these signal funda-mental change. Analyzing these disruptions requires quantifyingthe market values and profits of all industry participants (bothdirect and indirect competitors) over time. It next requiresevaluating the business models of companies that havegained or lost significant market value and determining whichalternative business models would best satisfy customer needs. Analysis of a market disruption due to technological innovationcan help managers:

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33

Common Uses

Selected References

• Determine whether to listen to their existing customers;• Decide when to invest in initially inferior and lower-

margin technologies;• Decide whether to pursue smaller, intially unattractive

markets.

On the other hand, analysis of a customer-driven marketdisruption enables companies to:

• Objectively understand their industry’s evolution andchanging competitive landscape;

• Assess the relative strengths and weaknesses of alternativebusiness models;

• Learn how to modify obsolete business models to bettersatisfy customer needs;

• Focus on the priorities that actually drive customer purchases.

“A Survey of Innovation in Industry.” The Economist,February 20, 1999.

Bower, Joseph L. Managing the Resource Allocation Process.Harvard Business School Press, 1970.

Christensen, Clayton M. The Innovator’s Dilemma: When NewTechnologies Cause Great Firms to Fail. Harvard BusinessSchool Press, 1997.

Christensen, Clayton M., and Joseph L. Bower. “DisruptiveTechnologies: Catching the Wave.” Harvard BusinessReview, January/February 1995, pp. 43-53.

Gadiesh, Orit, and James L. Gilbert. “Profit Pools: A FreshLook at Strategy.” Harvard Business Review, May/June1998, pp. 139-147.

Gadiesh, Orit, and James L. Gilbert. “How to Map YourIndustry’s Profit Pool.” Harvard Business Review, May/June1998, pp. 149-162.

Slywotzky, Adrian J. Value Migration: How to Think SeveralMoves Ahead of the Competition. Harvard Business SchoolPress, 1996.

Merger Integration Teams

RelatedTopics

Description

Methodology

34

• Mergers and Acquisitions• Strategic Alliances

A Merger Integration Team is a group of senior managers fromtwo merged companies charged with delivering on sales andoperating synergies identified during the deal’s due diligence.The team’s composition should equally represent both companies,and the team’s role is critical: acquisitions most often fail becausemerged companies fail to successfully integrate. The MergerIntegration Team should bring together champions with long-term prospects at the new company. The team doesn’t doeverything but does make sure that everything gets done;individual sub-teams perform the detailed integration work.Beyond driving the integration, the Merger Integration Teamensures core line managers remain focused on running thebase business.

A Merger Integration Team should be established quickly (ideallybefore a deal closes), and an integrated organizational structureshould be set before the work of capturing synergies begins.Tocapture synergies, a Merger Integration Team should:

• Build the master schedule of what is to be done and when;• Determine the required economic performance for the

combined entity;• Establish sub-teams to work out how each function and

business unit will be combined (e.g., structure, job design,staffing levels, locations, downsizing);

• Focus the organization on meeting ongoing businesscommitments and operational performance targetsthroughout the integration process;

• Create an early warning system of performance measuresto ensure both the integration and base business stay on track;

• Monitor and expedite key decisions;• Establish a rigorous communication campaign to

aggressively and repeatedly support the integration roadmap, addressing internal and external constituencies.

Common Uses

Selected References

35

Merger Integration Teams help companies:

Focus on key sources of value for the merged organizationAn effective transition team can ensure the right integrationdecisions and tradeoffs are made to focus attention onunderlying strategic issues. Rather than getting mired indetails, the team focuses on key concerns such as driversof long-term profit, performance targets, cost management,and competitive, product, and customer strategy.

Maintain performance of the base businessAllocating dedicated resources to the integration effort clarifiesnon-team-members’ roles and enables day-to-day operationsto continue at pre-merger intensity. As part of the integrationprocess, the Merger Integration Team should develop andmonitor a set of key performance measures that trackunderlying profit drivers. Such monitoring constitutes anearly-warning system for unfavorable trends.

Altier, William J. “A Method for Unearthing Likely Post-Deal Snags.” Mergers & Acquisitions, January/February1997, pp. 33-35.

Ashkenas, Ronald N., Lawrence J. DeMonaco, and SuzanneC. Francis. “Making the Deal Real: How GE CapitalIntegrates Acquisitions.” Harvard Business Review,January/February 1998, pp. 165-178.

Davenport, Thomas O. “The Integration Challenge.”Management Review, January 1998, pp. 25-28.

Lajoux, Alexandra Reed. The Art of M&A Integration: AGuide to Merging Resources, Processes, and Responsibilities.McGraw-Hill, 1997.

Pritchett, Price, Donald Robinson, and Russell Clarkson.After the Merger: The Authoritative Guide for IntegrationSuccess. Irwin Professional, 1997.

Rigby, Darrell K. “A Model for Handling Human ResourcesIssues in Mergers and Acquisitions.” Compensations &Benefits Management, Winter 1989.

Mission and Vision Statements

RelatedTopics

Description

Methodology

Common Uses

36

• Cultural Transformation• Strategic Planning• Values Statement

A Mission Statement defines the company’s “business,” itsobjectives, and its approach to reach those objectives. A VisionStatement describes the desired future position of the company.Elements of Mission and Vision Statements are often combined toprovide a statement of the company’s purposes, goals, and values.However, sometimes the two terms are used interchangeably.

Typically, senior managers will write the company’s overallMission and Vision Statements. Other managers at differentlevels may write statements for their particular divisions orbusiness units.The development process requires managers to:

• Clearly identify the corporate culture, values, strategy, and view of the future by interviewing employees, suppliers, and customers;

• Address the commitment the firm has to its key stake-holders, including customers, employees, shareholders,and communities;

• Ensure that the objectives are measurable, the approachis actionable, and the vision is achievable;

• Communicate the message in clear, simple, and precicelanguage;

• Develop buy-in and support throughout the organization.

Mission and Vision Statements are commonly used to:

Internally• Guide management’s thinking on strategic issues,

especially during times of significant change;• Help define performance standards;• Inspire employees to work more productively by pro-

viding focus and common goals;• Guide employee decision-making;• Help establish a framework for ethical behavior.

Selected References

37

Externally• Enlist external support;• Create closer linkages and better communication

with customers, suppliers, and alliance partners;• Serve as a public relations tool.

Brache, Alan, and Mike Freedman. “Is Our Vision AnyGood?” Journal of Business Strategy, March 19, 1999.

Campbell, Andrew. A Sense of Mission. Addison-Wesley, 1992.

Collins, James C., and Jerry I. Porras. Built to Last: SuccessfulHabits of Visionary Companies. HarperBusiness, 1997.

Jones, Patricia, and Larry Kahaner. Say It and Live It: The 50Corporate Mission Statements that Really Hit the Mark.Currency/Doubleday, 1995.

Kotter, John P. “Leading Change: Why Transformation EffortsFail.” Harvard Business Review, March/April 1995, pp. 59-67.

Kotter, John P., and James L. Heskett. Corporate Culture andPerformance. The Free Press, 1992.

Nanus, Burt. Visionary Leadership. Jossey-Bass, 1995.

Porras, Jerry I., and James C. Collins. “Building Your Company’sVision.” Harvard Business Review, September/October1996, pp. 65-77.

Raynor, Michael A. “That Vision Thing: Do We Need It?”Long Range Planning, June 1998, pp. 368-376.

Zimmerman, John, with Benjamin Tregoe. The Culture ofSuccess: Building a Sustained Competitive Advantage by LivingYour Corporate Beliefs. McGraw-Hill, 1997.

One-to-One Marketing

RelatedTopics

Description

Methodology

• Electronic Commerce • Data Mining• Mass Customization

One-to-One Marketing, also referred to as direct or relation-ship marketing, is marketing that focuses on an individualcustomer. It draws on extensive, repeated, and recorded com-munication with the customer as well as a company’s abilityto store, analyze, and process such customer data. One-to-OneMarketing takes place when a company retrieves and appliesindividual client data to customize a dialogue—be it throughcalls, mailings, or electronic messages—with that client.

This approach stands in stark contrast to mass marketing. Massmarketing uses a standard product and looks for a customerto buy it. One-to-One Marketing starts with an individualcustomer, and then develops a tailored product offering forhim/her. Although One-to-One Marketing can use a varietyof channels, the Internet has been the catalyst most responsi-ble for this tool’s recent proliferation. The Internet makesOne-to-One Marketing cost-efficient, customer-effective,and immediate.

To adopt a One-to-One Marketing strategy, companiestypically follow these steps:

• Collect extensive customer data. Include not onlyidentifying information such as name, address, age, sex, etc., but also buying preferences and habits.

• Mine the data. Use database analysis software to sort,retrieve, and relate data, ferreting out trends and pat-terns for each client. While mining, be sure to identifythe precious metals—the most valuable customers.

• Start a dialogue. Choose an appropriate media channel and establish direct customer contact. Tailor comm-unications to address each customer’s preferences.If communicating with all customers is not cost-efficient, focus on the most profitable ones.

• Customize the product/service offering to an indi-vidual customer’s needs.

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Common Uses

Selected References

Before the Internet, companies used One-to-One Marketingonly in sectors with high-value products and services, such as cars and airlines, or in sectors with high and repeat shopperinteraction, such as grocery retail. With the advent of theInternet and its cost-efficient customer communication, One-to-One Marketing is growing popular in other sectors as well,especially in on-line retail, financial services, investor relations,and travel services.

Godin, Seth, and Don Peppers. Permission Marketing: TurningStrangers into Friends, and Friends into Customers. Simon &Schuster, 1999.

Hagel, John, III, and Marc Singer. Net Worth. HarvardBusiness School Press, 1999.

Nash, Edward L. Direct Marketing: Strategy, Planning, Execution.McGraw-Hill, 1994.

Peppers, Don, and Martha Rogers. Enterprise One to One: Toolsfor Competing in the Interactive Age. Currency/Doubleday, 1997.

Peppers,Don, Martha Rogers, and Bob Dorf. “Is Your CompanyReady for One-to-One Marketing?” Harvard Business Review,January/February 1999, pp. 151-160.

Seybold, Patricia B., and Ronni T. Marshak. Customers.com.Times Business, 1998.

Wunderman, Lester. Being Direct: Making Advertising Pay.Random House, 1997.

Outsourcing

RelatedTopics

Description

Methodology

40

• Core Capabilities• Strategic Alliances• Value Chain Analysis

When Outsourcing, a company uses third-parties to performnon-core business activities. Contracting third-parties enables acompany to focus its efforts on its core competencies. Manycompanies find that outsourcing reduces cost and improvesperformance of the activity. Third-parties that specialize in anactivity are likely to be lower cost and more effective, given theirscale. Through Outsourcing, a company can access the state ofthe art in all of its business activities without having to mastereach one internally.

Outsourcing involves the following steps:

Determine whether the activity to outsource is a core competencyIn most cases, it is unwise to outsource something that createsunique competitive advantage.

Evaluate the financial impact of outsourcingOutsourcing likely offers cost advantages if a vendor canrealize economies of scale. A complete financial analysis shouldinclude the impact of increased flexibility and productivityor decreased time-to-market.

Assess the non-financial costs and advantages of outsourcingOutsourcing may also bring expertise or innovation availableonly in a firm specialized in its chosen field. Even if anactivity is kept in-house, the evaluation of external resourcesmay improve internal performance.

Choose an outsourcing partner and contract the relationshipCandidates should be qualified and selected accordingto both their demonstrated effectiveness and their abilityto work collaboratively. The contract should include clearlyestablished performance guidelines and measures.

Common Uses

Selected References

41

Companies use Outsourcing to:

• Reduce operating costs;• Instill operational discipline;• Increase manufacturing productivity and flexibility; • Leverage the expertise and innovation of specialized firms;• Encourage use of best demonstrated practices for

internal activities;• Avoid capital investment, particularly under uncertainty;• Release resources—people, capital, and time—to focus

on core competencies.

Bragg, Steven M. Outsourcing: A Guide to Selecting the CorrectBusiness Unit; Negotiating the Contract; Maintaining Controlof the Process. John Wiley & Sons, 1998.

Greaver, Maurice. Strategic Outsourcing: A Structured Approachto Outsourcing Decisions and Initiatives. AMACOM, 1999.

Greco, JoAnn. “Outsourcing: The New Partnership.” Journal of Business Strategy, July/August 1997, pp. 48-54.

Klepper, Robert, and Wendell O. Jones. Outsourcing InformationTechnology, Systems and Services. Prentice Hall Press, 1997.

Lacity, Mary C., Leslie P. Willcocks, and David F. Feeny.“IT Outsourcing: Maximize Flexibility and Control.”Harvard Business Review, May/June 1995, pp. 84-93.

Nelson-Nesvig, Carleen, Eric Norton, and Mary Jane Eder.Outsourcing Solutions: Workforce Strategies That ImproveProfitability. Rhodes & Easton, 1997.

The Outsourcing Institute. www.outsourcing.com.

Quinn, James Brian, and Frederick G. Hilmer. “StrategicOutsourcing.” Sloan Management Review, Summer 1994, pp. 43-55.

Stauffer, David. “Are Corporate Staffs On the Way Out?”Across the Board, May 1998, pp. 18-23.

Pay-for-Performance

RelatedTopics

Description

Methodology

42

• Balanced Scorecard• Gain Sharing • Management by Objectives (MBO)• Performance Appraisals

Pay-for-Performance systems tie compensation directly tospecific business goals and management objectives.These systemstry to improve individual accountability, align shareholder,management, and employee interests, and enhance performancethroughout the organization. To achieve the latter, they matchmeasurable and controllable performance targets and appraisalmechanisms to corporate objectives.

Pay-for-Performance systems consist of two components:performance measurement systems and compensation methods.

Performance measurement systemsFor this tool to be effective, a system must be developedthat ties a company’s short and long-term strategic objectivesto its performance measures.

• These measures are classified into categories that focusemployees on the most important activities.They include:- financial indicators—such as ROS, ROA, ROE;- nonfinancial indicators—such as customer retention,

product quality, development speed, and cost reduction.• They also establish the importance of individual versus

group performance. Group performance is measured atthe team, facility, divisional, or corporate level.

There are many permutations of systems that can be used;the optimum choice depends on the corporate culture,company strategy, and industry characteristics.

Compensation methodsIn Pay-for-Performance systems, an employee’s compensation iscomposed of a fixed base salary and a variable pay component.The most commonly used variable pay methods are:

• Stock options—the quantity and strike price are typically based on a percentage of value added as determined by the performance measurement system;

Common Uses

Selected References

43

• Bonuses—one-time cash awards for extraordinary accom-plishments or other profit-related distributions;

• Gain sharing—distribution of a portion of profits to employees based on performance versus plan.

These systems are designed to retain top-performing employees,motivate the desired performance, and control costs. They canbe applied to many levels within an organization, from executivesto plant operators. Depending on the level within the company,different approaches are appropriate.

Chingos, Peter T. Paying for Performance: A Guide to CompensationManagement. John Wiley & Sons, 1997.

Flannery, Thomas P., David A. Hofrichter, and Paul Platten.People, Performance & Pay. The Free Press, 1995.

Grayson, C. Jackson, and Carla O’Dell. A Two-Minute Warning.“Chapter 14: Competitive Compensation.” The FreePress, 1988.

Grossman, Wayne, and Robert E. Hoskisson. “CEO Pay at theCrossroads of Wall Street and Main: Toward the StrategicDesign of Executive Compensation.” Academy of ManagementExecutive, February 1998, pp. 43-57.

Kerr, Steven. Ultimate Rewards: What Really Motivates People to Achieve. Harvard Business School Press, 1997.

Meyer, Christopher. “How the Right Measures Help TeamsExcel.” Harvard Business Review, May/June 1994, pp. 95-103.

Real Options Analysis

RelatedTopics

Description

Methodology

44

• Discounted Cash Flows • Scenario Planning• Shareholder Value Analysis

In rapidly changing markets, business managers like to keep theiroptions open. Real Options Analysis enables executives to dojust that: analyze and invest in Real Asset Options in the sameway that financial managers evaluate and purchase stock options.An option allows, but does not oblige, its holder to buy, sell, orexchange an asset. Options increase in value as outcomes in-crease in uncertainty, the cost/benefit ratio of changing directionsdeclines, and/or the timing of final decisions can be deferred.

Real Options that managers might purchase include investmentsin facilities, people, products, alliances, or any other assets thatgive managers the flexibility to adapt future actions to changingmarket conditions. Real Options Analysis quantifies the valueof business options and encourages strategists to leave room forfrequent adjustments as new information emerges. It can leadto different conclusions than those arrived at through traditionalanalysis of discounted cash flows.

Real Options Analysis treats strategies as chains of relatedbusiness options that should be torn apart and quantified.The process consists of four steps:

• Uncover Real OptionsReal Options are usually buried inside complex webs ofinterdependent investments. To expose option opportunities,practitioners frequently use Scenario Analysis to identifyvariables that could significantly alter outcomes. They alsoexamine cash flow patterns, searching for investment peaksthat may signal opportunities to change paths.

• Gather the data necessary to value Real OptionsAccurate quantification of Real Options requires dataon several variables:

- The cost/benefit ratio of the option- The exercise price- The value of the underlying asset- Time to expiration- The risk-free rate of return- The uncertainty (e.g., standard deviation) of

projected returns

Common Uses

Selected References

45

• Calculate the value of the optionThis step employs tools common to financial optionanalysis, such as the Black-Scholes option-pricing model,to quantify a Real Option’s dollar value.

• Use the analysis to create beneficial strategiesAdd the value of Real Options to the value of the sameproject as calculated by traditional analyses. Developdynamic strategies that convince the organization tochange behaviors.

The primary value of Real Options Analysis, according tosome managers, is that it allows them to tear apart and reassessa business strategy. It enables them to break large, complexproblems into smaller, simpler ones. It also helps them identifyrisk components and decide which ones to hold, hedge, ortransfer. Real Options Analysis trains managers to look foropportunities to increase flexibility, including:

• Options to wait (e.g., test marketing)• Options to grow (e.g., new product development)• Options to switch (e.g., flexible manufacturing lines)• Options to abandon (e.g., staged capacity expansion)

Amram, Martha, and Nalin Kulatilaka. Real Options. HarvardBusiness School Press, 1999.

Bernstein, Peter L. Against the Gods: The Remarkable Story ofRisk. John Wiley & Sons, 1998.

Dixit, Avinash K., and Robert S. Pindyck. “The OptionsApproach to Capital Investment.” Harvard Business Review,May/June 1995, pp. 105-115.

Luehrman, Timothy A. “Investment Opportunities as RealOptions: Getting Started on the Numbers.” Harvard BusinessReview, July/August 1998, pp. 51-67.

Luehrman, Timothy A. “Strategy as a Portfolio of RealOptions.” Harvard Business Review, September/October1998, pp. 89-99.

Trigeorgis, Lenos. Real Options: Managerial Flexibility andStrategy in Resource Allocation. MIT Press, 1996.

Reengineering

RelatedTopics

Description

Methodology

Common Uses

46

• Cycle Time Reduction• Horizontal Organizations• Overhead Value Analysis• Process Redesign

Business Process Reengineering involves the radical redesignof core business processes to achieve dramatic improvementsin productivity, cycle times, and quality. In Business ProcessReengineering, companies start with a blank sheet of paperand rethink existing processes to deliver more value to thecustomer. They typically adopt a new value system that placesincreased emphasis on customer needs. Companies reduceorganizational layers and eliminate unproductive activities intwo key areas. First, they redesign functional organizationsinto cross-functional teams. Second, they use technology toimprove data dissemination and decision-making.

Business Process Reengineering is a dramatic change initiativethat contains five major steps. Managers should:

• Refocus company values on customer needs;• Redesign core processes, often using information

technology to enable improvements;• Reorganize a business into cross-functional teams with

end-to-end responsibility for a process;• Rethink basic people and organizational issues;• Improve business processes across the organization.

Companies use Business Process Reengineering to substantiallyimprove performance on key processes that impact customers.Business Process Reengineering can produce the following results:

Reduced cost and cycle timeBusiness Process Reengineering reduces cost and cycle timesby eliminating unproductive activities and the employees whoperform them. Reorganization by teams decreases the need formanagement layers, accelerates information flows, and elimi-nates the errors and rework caused by multiple hand-offs.

Selected References

47

Improved qualityBusiness Process Reengineering improves quality by reducingthe fragmentation of work and establishing clear ownershipof processes. Workers gain responsibility for their output andcan measure their performance based on prompt feedback.

Carr, David K., and Henry J. Johansson. Best Practices inReengineering: What Works and What Doesn’t in theReengineering Process. McGraw-Hill, 1995.

Champy, James. Reengineering Management: The Mandate for New Leadership. HarperBusiness, 1996.

Davenport, Thomas H. Process Innovation: ReengineeringWork Through Information Technology. Harvard BusinessSchool Press, 1992.

Gadiesh, Orit, and Janet Voûte-Allen. “The User’s Guideto Reengineering.” World Link, September 1993.

Grover, Varun, and Manuj K. Malhotra. “Business ProcessReengineering: A Tutorial on the Concept, Evolution,Method, Technology and Application.” Journal ofOperations Management, August 1997, pp. 193-213.

Hall, Gene, Jim Rosenthal, and Judy Wade. “How to MakeReengineering Really Work.” Harvard Business Review,November/December 1993, pp. 119-131.

Hammer, Michael. Beyond Reengineering. HarperCollins, 1997.

Hammer, Michael, and James Champy. Reengineering the Corporation: A Manifesto for Business Revolution.HarperBusiness, 1994.

Keen, Peter G.W. The Process Edge: Creating Value Where It Counts. Harvard Business School Press, 1997.

Rigby, Darrell K. “The Secret History of Process Reengineering.” Planning Review, March/April1993, pp. 24-27.

Scenario Planning

RelatedTopics

Description

Methodology

Common Uses

48

• Contingency Planning• Real Options Analysis• Simulation Models• Strategic Planning

Scenario Planning allows users to explore the implications ofseveral alternative futures. This avoids the dangers of single-point forecasts. By surfacing, challenging, and altering beliefs,managers can test their assumptions in a non-threateningenvironment. Having examined the full range of possible futures,the company can more rapidly modify its strategic directionas actual events unfold.

The key steps in the Scenario Planning process are to:

• Determine the model’s scope and time frame;• Identify the current assumptions and mental models

of individuals who influence these decisions;• Create divergent, yet plausible, scenarios with underlying

assumptions of how the future might evolve;• Test the impact of key variables in each scenario;• Develop action plans based on either:

- The solutions that play most robustly across scenarios, or

- The most desirable outcome toward which a companycan direct its efforts;

• Monitor events as they unfold to test the corporatedirection; be prepared to modify it as required.

Through the use of the Scenario Planning methodology, acompany can:

• Achieve a higher degree of organizational learning;• Surface and challenge both implicit and widely held beliefs

and assumptions about the business and its likely future;• Identify key levers that can impact the company’s future;• Turn long-range planning into a vital, shared experience;• Develop a distinctive, farsighted view of the future;• Incorporate globalization and change management into

strategic analysis;• Establish contingency plans to respond purposefully to

changes in the environment.

Selected References

49

Bood, Robert, and Theo Postma. “Strategic Learning withScenarios.” European Management Journal, December 1997,pp. 633-647.

Fahey, Liam, and Robert M. Randall. Learning from the Future:Competitive Foresight Scenarios. John Wiley & Sons, 1997.

Mason, David H. “Scenario-Based Planning: Decision Modelfor the Learning Organization.” Planning Review, March/April1994, pp. 6-11.

Ringland, Gill. Scenario Planning: Managing for the Future. JohnWiley & Sons, 1998.

Scenario Planning Special Issues. Planning Review, March/April1992 and May/June 1992.

Schoemaker, Paul J.H. “Scenario Planning: A Tool for StrategicThinking.” Sloan Management Review, Winter 1995, pp. 25-40.

Schriefer, Audrey. “Getting the Most Out of Scenarios: Advicefrom the Experts.” Planning Review, September/October1995, pp. 33-35.

Schwartz, Peter. The Art of Long View: Planning for the Futurein an Uncertain World. Doubleday, 1996.

Van Der Heijden, Kees. Scenarios: The Art of Strategic Conversation.John Wiley & Sons, 1996.

Wack, Pierre. “Scenarios: Shooting the Rapids.” Harvard BusinessReview, November/December 1985, pp. 139-150.

Wack, Pierre. “Scenarios: The Uncharted Waters Ahead.” HarvardBusiness Review, September/October 1985, pp. 72-89.

50

Shareholder Value Analysis

RelatedTopics

Description

Methodology

Common Uses

• Discounted and Free-Cash-Flow Analyses• Economic Value Added• ROA, RONA, ROI Techniques

Shareholder Value Analysis (SVA) demonstrates how decisionsaffect the net present value of cash to shareholders. The analysismeasures a company’s ability to earn more than its total costof capital. This tool is used at two levels within a company:the operating business unit and the corporation as a whole.Within business units, SVA measures the value the unit hascreated by analyzing cash flows over time. At the corporatelevel, SVA provides a framework to assess options for increasingvalue to shareholders: the framework measures tradeoffs amongreinvesting in existing businesses, investing in new businesses,and returning cash to stockholders.

SVA consists of three primary analyses. A manager should:

• Determine the actual costs of all investments in a given business, discounted to the present at the appropriate costof capital for that business;

• Estimate the economic value of a business by discountingthe expected cash flows to the present at the weightedaverage cost of capital;

• Determine the economic value added of each business by calculating the difference between the net present valueof investments and cash flows.

This tool requires a thorough understanding of each businessin order to accurately determine the amount of investmentrequired and the expected cash flows that investments will yield.

SVA is used both as a tool to aid in one-time major decisions(such as acquisitions, large capital investments or division breakupvalues) and to guide everyday decision-making throughout theorganization. When used as an everyday tool by line managers,SVA can be applied in many ways to:

Selected References

51

Assess the performance of the business or portfolio of businessesSince SVA accounts for the cost of capital used to invest inbusinesses and the cash flows generated by the businesses, itprovides a clear understanding of value creation or degra-dation over time within each business unit. This informationalso can be linked to management compensation plans.

Test the hypotheses behind business plansBy understanding the fundamental drivers of value in eachbusiness, management can test assumptions used in the businessplans. This provides a common framework to discuss thesoundness of each plan.

Determine priorities to meet each business’s full potentialThis analysis illustrates which options have the greatestimpact on value creation, relative to the investments andrisks associated with each option. With these options clearlyunderstood and priorities set, management has a foundationfor developing a practical plan to implement change.

Copeland, Tom, and Tim Koller. Valuation: Measuring andManaging the Value of Companies, Second Edition. JohnWiley & Sons, 1995.

Grant, James L. Foundations of Economic Value Added. F.J. Fabozzi, July 1997.

Knight, James A. Value Based Management: Developing a SystematicApproach to Creating Shareholder Value. McGraw-Hill,October 1997.

Luehrman, Timothy A. “What’s It Worth.” Harvard BusinessReview, May/June 1997, pp. 132-142.

Rappaport, Alfred. Creating Shareholder Value: A Guide for Managers and Investors. The Free Press, 1997.

Stewart, G. Bennett. The Quest for Value. Stern/Stewart, 1993.

Strategic Alliances

RelatedTopics

Description

Methodology

Common Uses

52

• Joint Ventures• Networks• Value-Managed Relationships• Virtual Organizations

Strategic Alliances are agreements between firms in whicheach commits resources to achieve a common set of objectives.Companies may form Strategic Alliances with customers,suppliers or competitors.Through Strategic Alliances, companiescan improve competitive positioning, gain entry to new markets,supplement critical skills, and share the risk or cost of majordevelopment projects.

To form a Strategic Alliance, companies should:

• Define their business vision and strategy to understand how an alliance fits their objectives;

• Evaluate and select potential partners based on the level of synergy and the ability of the firms to work together;

• Develop a working relationship and mutual recognition of opportunities with the prospective partner;

• Negotiate and implement a formal agreement that includes systems to monitor performance.

Strategic Alliances are formed to:

• Reduce costs through economies of scale or increased knowledge;

• Increase access to new technology; • Inhibit competitors;• Enter new markets;• Reduce cycle time;• Improve research and development efforts;• Improve quality.

Selected References

53

Armstrong, Arthur, and John Hagel III. Net Gain: ExpandingMarkets Through Virtual Communities. Harvard BusinessSchool Press, March 1997.

Badaracco, Joseph L. The Knowledge Link: How Firms Competethrough Strategic Alliances. Harvard Business School Press, 1991.

Bleeke, Joel, and David Ernst. Collaborating to Compete: UsingStrategic Alliances and Acquisitions in the Global Marketplace.John Wiley & Sons, 1993.

Doz, Yves L. and Gary Hamel. Alliance Advantage. HarvardBusiness School Press, 1998.

Gomes-Casseres, Benjamin. “Group versus Group: HowAlliance Networks Competed.” Harvard Business Review,July/August 1994, pp. 62-74.

Kanter, Rosabeth M. “Collaborative Advantage: The Art ofAlliances.” Harvard Business Review, July/August 1994, pp. 96-108.

Lewis, Jordan D. The Connected Corporation: How LeadingCompanies Win through Customer-Supplier Alliances. TheFree Press, 1995.

Lorange, Peter, and Johan Roos. Strategic Alliances: Formation,Implementation, and Evolution. Blackwell, September 1993.

Moore, James F. The Death of Competition: Leadership & Strategyin the Age of Business Ecosystems. HarperBusiness, 1997.

Rigby, Darrell K., and Robin W.T. Buchanan. “Putting MoreStrategy into Strategic Alliances.” Directors and Boards,Winter 1994, pp. 14-19.

Strategic Alliance Issue. Strategy & Leadership, September/October 1998.

Yoshino, Michael Y., and U. Srinivasa Rangan. Strategic Alliances:An Entrepreneurial Approach to Globalization. Harvard BusinessSchool Press, 1995.

Strategic Planning

RelatedTopics

Description

Methodology

54

• Core Competencies • Mission and Vision Statements• Scenario Planning

Strategic Planning is a comprehensive process for determiningwhat a business should become and how it can best achievethat goal. It appraises the full potential of a business and explicitlylinks the business’s objectives to the actions and resourcesrequired to achieve them. Strategic Planning offers a systematicprocess to ask and answer the most critical questions confrontinga management team—especially large, irrevocable resourcecommitment questions.

A successful Strategic Planning process should:

• Describe the organization’s mission, vision, and fundamental values;

• Target potential business arenas and explore each marketfor emerging threats and opportunities;

• Understand the current and future priorities of targetedcustomer segments;

• Analyze the company’s strengths and weaknesses relativeto competitors and determine which elements of thevalue chain the company should make versus buy;

• Identify and evaluate alternative strategies; • Develop an advantageous business model that will

profitably differentiate the company from its competitors;• Define stakeholder expectations and establish clear

and compelling objectives for the business;• Prepare programs, policies, and plans to implement

the strategy; • Establish supportive organizational structures, decision

processes, information and control systems, and hiringand training systems;

• Allocate resources to develop critical capabilities;• Monitor performance; plan for and respond to con-

tingencies or environmental changes.

Common Uses

Selected References

55

Strategic Planning processes are often implemented to:

• Change the direction and performance of a business;• Encourage fact-based discussions of politically sensitive issues;• Create a common framework for decision-making in

the organization;• Set a proper context for budget decisions and perfor-

mance evaluations;• Train managers to develop better information to make

better decisions;• Increase confidence in the business’s direction.

Drucker, Peter F. Managing in a Time of Great Change. Plume, 1998.

Evans, Philip, and Thomas S. Wurster. “Strategy and the NewEconomics of Information.” Harvard Business Review,September/October 1997, pp. 70-82.

Goold, Michael, Andrew Campbell, and Marcus Alexander.Corporate-Level Strategy: Creating Value in the MultibusinessCompany. John Wiley & Sons, 1994.

Hamel, Gary. “Strategy as Revolution.” Harvard Business Review,July/August 1996, pp. 69-83.

Hamel, Gary, and C.K. Prahalad. Competing for the Future.Harvard Business School Press, 1994.

Mintzberg, Henry. The Rise and Fall of Strategic Planning:Reconceiving Roles for Planning, Plans, Planners. The FreePress, 1993.

Ohmae, Kenichi. The Mind of the Strategist: The Art of JapaneseBusiness. McGraw-Hill, 1996.

Porter, Michael E. Competitive Strategy: Techniques for AnalyzingIndustries and Competitors. The Free Press, 1980.

Porter, Michael E. “What is Strategy?” Harvard Business Review,November/December 1996, pp. 61-78.

Shapiro, Carl, and Hal R. Varian. Information Rules: A StrategicGuide to the Network Economy. McGraw-Hill, 1999.

Supply Chain Integration

RelatedTopics

Description

Methodology

• Value Chain Analysis• Borderless Corporation• Electronic Commerce

Supply Chain Integration synchronizes the efforts of allparties—suppliers, manufacturers, distributors, dealers, cus-tomers, etc.—involved in meeting a customer’s needs. Theapproach relies heavily on Internet technology to enableseamless exchanges of information, goods, and services acrossorganizational boundaries. It forges much closer relationshipsamong all links in the value chain in order to deliver theright products to the right places at the right times for theright costs. The goal is to establish such strong bonds of com-munication and trust among all parties that they can effectivelyfunction as one virtual corporation, fully aligned to streamlinebusiness processes and achieve total customer satisfaction.

Companies typically implement Supply Chain Integrationin four stages.

• Stage I seeks to increase the level of trust among vitallinks in the supply chain. Managers learn to treat formeradversaries as valuable partners. This stage often leads tolonger-term commitments with preferred partners.

• Stage II increases the exchange of information. It createsmore accurate, up-to-date knowledge of demand fore-casts, inventory levels, capacity utilization, productionschedules, delivery dates, and other data that could helpsupply chain partners to improve performance.

• Stage III expands efforts to manage the supply chain asone overall process rather than dozens of independentfunctions. It leverages the core competencies of eachplayer, automates information exchange, changes man-agement processes and incentive systems, eliminatesunproductive activities, improves forecasting, reducesinventory levels, cuts cycle times, and involves customersmore deeply in the Supply Chain Integration process.

• Stage IV identifies and implements radical ideas to com-pletely transform the supply chain and deliver customervalue in unprecedented ways.

56

Common Uses

Selected References

Recognizing that value is leaking out of the supply chain, yetonly limited improvement can be achieved by any single com-pany, managers turn to Supply Chain Integration to help themdeliver products and services faster, better, and less expensively.

Supply Chain Integration capitalizes on many trends that arechanging worldwide business practices, including just-in-time(JIT) inventories, electronic data interchange (EDI), outsourcingof non-core activities, supplier consolidation, and globalization.But it is really the Internet explosion that is making SupplyChain Integration feasible for companies of all sizes in almostall industries.

Kalakota, Ravi, and Marcia Robinson. E-Business. Roadmap forSuccess. Addison-Wesley, 1999.

Dell, Michael. Direct from Dell. Strategies that Revolutionized theIndustry. HarperBusiness, 1999.

Magretta, Joan. “The Power of Virtual Integration: An Interviewwith Dell Computer’s Michael Dell.” Harvard BusinessReview, March/April 1998, pp. 73-84.

Rayport, Jeffrey, and John Sviokla. “Exploiting the VirtualValue Chain.” Harvard Business Review,November/December 1995, pp. 75-85.

Shapiro, Carl, and Hal R. Varian. Information Rules: A StrategicGuide to the Network Economy. Harvard Business SchoolPress, 1998.

“You’ll Never Walk Alone: Above All, E-Business Is AboutSharing.” The Economist, June 26, 1999.

57

Total Quality Management

RelatedTopics

Description

Methodology

Common Uses

58

• Continuous Improvement• Malcolm Baldrige National Quality Award• Quality Assurance

Total Quality Management (TQM) is a systematic approach thatmarries customer performance requirements for products andservices to their specifications. TQM then aims to produceto specifications with zero defects.This creates a virtuous cycleof continuous improvement that boosts production, customersatisfaction, and profits.

In order to succeed, TQM programs require managers to:

Assess customer requirements• Understand present and future customer needs;• Design products and services that cost-effectively

meet or exceed those needs.

Deliver quality• Identify the key problem areas in the process and

work on them until they approach zero-defect levels;• Train employees to use the new processes;• Develop effective measures of product and service quality;• Create incentives linked to quality goals;• Promote zero-defect philosophy across all activities;• Encourage management to lead by example;• Develop feedback mechanisms to ensure contin-

uous improvement.

TQM improves profiitability by focusing on quality improvementand addressing associated challenges within an organization.TQM can be used to:

• Increase productivity;• Lower scrap and rework costs;• Improve product reliability;• Decrease time-to-market cycles;• Decrease customer service problems;• Increase competitive advantage.

Selected References

59

Butman, John. Juran: A Lifetime Influence. John Wiley & Sons, 1997.

Camison, Cesar. “Total Quality Management and CulturalChange: A Model of Organizational Development.” InternationalJournal of Technology Management, 1998, pp. 479-493.

Choi, Thomas, and Orlando Behling. “Top Managers and TQMSuccess: One More Look After All These Years.” Academy ofManagement Executive, Vol. 11, No. 1, pp. 37-47.

Creech, Bill. The Five Pillars of TQM: How to Make TQM Workfor You. Plume, 1995.

Deming, W. Edwards. Quality, Productivity, and Competitive Position.Massachusetts Institute of Technology, 1982.

Feigenbaum, Armand. Total Quality Control, Third Edition.McGraw-Hill, 1991.

Gale, Bradley T. Managing Customer Value: Creating Qualityand Service that Customers Can See. The Free Press, 1994.

Grant, Robert M., Rami Shani, and R. Krishnan. “TQM’sChallenge to Management Theory and Practice.” SloanManagement Review, Winter 1994, pp. 25-35.

Imai, Masaaki. Gemba Kaizen: A Common Sense, Low-Cost Approachto Management. McGraw-Hill, 1997.

Imai, Masaaki. Kaizen: The Key to Japan’s Competitive Success.McGraw-Hill, 1989.

Juran, J. M. Juran on Quality by Design: The Next Steps for PlanningQuality into Goods and Services. The Free Press, 1992.

Malcolm Baldrige National Quality Award, 1999 Award Criteria.National Institute of Standards and Technology.

Walton, Mary. Deming Management at Work. Perigree, 1991.

Virtual Teams

RelatedTopics

Description

Methodology

• Collaborative Software• Telecommuting• Web-based Collaboration

Virtual Teams refers to teams of employees communicatingand collaborating with each other primarily by electronicmeans. The communication occurs across organizationalboundaries, space, and time. Collaborating in real time withcolleagues over the Web is profoundly changing the waypeople work and share information. The Internet is becominga new standard of communication among team members,and collaborative software is paving the way for furtherproductivity gains.

Lack of face-to-face communication, fewer informal chats inhallways or company cafeterias, and less direct supervision areall factors that call for new management techniques whendealing with Virtual Teams. To keep up with these managerialchallenges, organizations need to address three broad issues:people, processes, and technologies.

• PeopleTo work successfully in Virtual Teams, employees andmanagers require new skills and capabilities. Companiesmust train their employees to adapt to virtual environ-ments: they must indicate when to work, how often tocommunicate, how to communicate, what to say, how todraw a line between private and work life, etc. Equallyimportant, organizations need to educate their virtualmanagers in remote management techniques.

• ProcessesTraditional operational and administrative processes donot always work in Virtual Teams. Often, managers needto completely redesign work flows and communicationprocedures to suit the virtual environment and compen-sate for lack of physical presence. In addition, managingVirtual Teams requires that work objectives be moreexplicitly set, accomplishments clearly measured, controlsrefined, and performance standards revised.

60

Common Uses

Selected References

61

• TechnologiesVirtual Team members have a vast array of linkingtechnologies at their disposal. In addition to traditionalphone or voice mail, there are Web-based collaborativetools, often called groupware. These tools refer to a broad range of technologies that allow people inorganizations to work together through computernetworks. They include e-mail, video-conferencing,data conferencing, internet-coordinated scheduling, and project-dedicated Web sites.

Companies use Virtual Teams to:

• Reduce costs—in particular real estate, office management,and recruiting costs;

• Attract and retain people who value the flexibility ofworking from home;

• Enhance productivity by providing team members withricher means of communication;

• Reengineer certain customer-intensive processes such asorder taking, sales activities, and customer service.

Chesbrough, H. W., and D. J. Teece. “When Is Virtual Virtuous?”Harvard Business Review, January/February 1996, pp. 65-73.

Davenport, Thomas H., and Keri Pearlson. “Two Cheers for theVirtual Office.” Sloan Management Review, July 1, 1998, pp. 51-65.

Duarte, Deborah L., and Nancy T. Snyder. Mastering VirtualTeams: Strategies, Tools, and Techniques that Succeed. Jossey-Bass Publishers, 1999.

Lipnack, Jessica, and Jeffrey Stamps. Virtual Teams: ReachingAcross Space, Time, and Organizations with Technology. JohnWiley & Sons, 1997.

Mankin, Donald, Susan G. Cohen, and Tora K. Bikson. Teamsand Technology Fulfilling the Promise of the New Organization.Harvard Business School Press, 1996.

Subject Index

62

AActivity-Based Costing

See Activity-Based Management, 12Activity-Based Management, 12

See also Pay-for-Performance, 42

BBalanced Scorecard, 14Benchmarking, 16Best Demonstrated Practices

See Benchmarking, 16Borderless Corporation

See Supply Chain Integration, 56

CCollaborative Software

SeeVirtual Teams, 60Competitor Profiles

See Benchmarking, 16Conjoint Analysis

See Customer SatisfactionMeasurement, 22

Contingency PlanningSee Scenario Planning, 48

Continuous Improvement See Total Quality Management, 58

Core Capabilities See Core Competencies, 18See Outsourcing, 40

Core Competencies, 18See also Strategic Planning, 54

Cultural Transformation See Mission and Vision Statements, 36

Customer Profitability Analysis See Activity-Based Management, 12

Customer Retention, 20See also Customer SatisfactionMeasurement, 22

Customer Satisfaction Measurement, 22See also Customer Retention, 20

Customer Segmentation, 24 Customer Surveys

See Customer Satisfaction Measurement, 22

Cycle Time Reduction, 26See also Reengineering, 46

DData Mining

See One-to-One Marketing, 38Defection Root Causes

See Customer Retention, 20Discounted Cash Flows

See Real Options Analysis, 44Discounted and Free-Cash-Flow

Analyses See Shareholder Value Analysis, 50

Disruptive TechnologiesSee Market Disruption Analysis, 32

EEconomic Value Added

See Shareholder Value Analysis, 50Electronic Commerce

See Supply Chain Integration, 56See One-to-One Marketing, 38

Employee Retention See Customer Retention, 20

FFactor/Cluster Analysis

See Customer Segmentation, 24

GGain Sharing

See Pay-for-Performance, 42Groupware

See Knowledge Management, 30Growth Strategies, 28

63

Manufacturing Resource Planning(MRP)See Cycle Time Reduction, 26

Market Disruption Analysis, 32Market Migration Analysis

See Growth Strategies, 28Market Segmentation

See Customer Segmentation, 24Mass Customization

See One-to-One Marketing, 38Merger Integration Teams, 34Mergers and Acquisitions

See Merger Integration Teams, 34Mission and Vision Statements, 36

See also Balanced Scorecard, 14 See also Strategic Planning, 54

NNetworks

See Strategic Alliances, 52

OOne-to-One Marketing, 38

See also Customer Segmentation, 24Outsourcing, 40 Overhead Value Analysis

See Reengineering, 46

PPay-for-Performance, 42

See also Balanced Scorecard, 14Performance Appraisals

See Pay-for-Performance, 42Process Redesign

See Reengineering, 46Product Line Profitability

See Activity-Based Management, 12Profit Pools

See Market Disruption Analysis, 32

HHorizontal Organizations

See Reengineering, 46

IIntellectual Capital Management

See Knowledge Management, 30

JJoint Ventures

See Strategic Alliances, 52Just-In-Time (JIT) Inventory

Management See Cycle Time Reduction, 26

KKey Success Factors

See Core Competencies, 18Knowledge Management, 30

LLearning Organization

See Core Competencies, 18See Knowledge Management, 30

Loyalty-Based Management See Customer Retention, 20

MMalcolm Baldrige National

Quality Award See Total Quality Management, 58

Management by Objectives (MBO)See Balanced Scorecard, 14See Pay-for-Performance, 42

Managing InnovationSee Growth Strategies, 28See Knowledge Management, 30

Subject Index continued

64

QQuality Assurance

See Total Quality Management, 58

RReal Options Analysis, 44

See also Scenario Planning, 48Reengineering, 46ROA, RONA, ROI Techniques

See Shareholder Value Analysis, 50

SScenario Planning, 48

See also Real Options Analysis, 44See also Strategic Planning, 54

Shared Experience See Core Competencies, 18

Shareholder Value Analysis, 50See also Real Options Analysis, 44

Simulation ModelsSee Scenario Planning, 48

Strategic Alliances, 52See also Merger Integration Teams, 34See also Outsourcing, 40

Strategic Balance SheetSee Balanced Scorecard, 14

Strategic Planning, 54See also Mission and Vision Statements, 36See also Scenario Planning, 48

Supply Chain Integration, 56

TTelecommuting

SeeVirtual Teams, 60Time-to-Market Analysis

See Cycle Time Reduction, 26Total Quality Management, 58

VValue Chain Analysis

See Supply Chain Integration, 56See Outsourcing, 40

Value-Managed Relationships See Strategic Alliances, 52

Value MigrationSee Market Disruption Analysis, 32

Values Statement See Mission and Vision Statements, 36

Virtual Organizations See Strategic Alliances, 52

Virtual Teams, 60

WWeb-Based Collaboration

See Virtual Teams, 60

65

Author Index

AAlexander, Marcus, 55Altier, William J., 35Amram, Martha, 45Andrews, Kenneth, 19Applehan, Wayne, 31Armstrong, Arthur, 53Arthur, W. Brian, 29Ashkenas, Ronald N., 35

BBadaracco, Joseph L., 53Baptista, João, 29Barabba, Vincent P., 23Behling, Orlando, 59Bergman, Bo, 23Bernstein, Peter L., 45Besser, Jim, 25Bhote, Keki R., 23Bikson, Tora K., 61Bleeke, Joel, 53Bood, Robert, 49Bowen, H. Kent, 27Bower, Joseph L., 33Boxwell, Robert J., 17Brache, Alan, 37Bragg, Steven M., 41Brown, Stephen W., 21Buchanan, Robin W.T., 53Butman, John, 59

CCamison, Cesar, 59Camp, Robert C., 17Campbell, Andrew, 15, 19, 37, 55Cappelli, Peter, 19Carr, David K., 47Champy, James, 47Charan, Ram, 29

Chesbrough, H.W., 61Chew, Bruce, 13Chingos, Peter T., 43Choi, Thomas, 59Christensen, Clayton M., 33Clark, Kim, 27Clarkson, Russell, 35Clurman, Ann S., 25Cohen, Susan G., 61Cokins, Gary, 13Collins, James C., 37Collis, David J., 19Cooper, Robert G., 27Cooper, Robin, 13Copeland, Tom, 51Cox, Jeff, 27Creech, Bill, 59Crocker-Hefter, Anne, 19Czarnecki, Mark T., 17

DDavenport, Thomas H., 31, 47, 61Davenport, Thomas O., 35Davidow, William H., 23, 25Dell, Michael, 57Deming, W. Edwards, 59DeMonaco, Lawrence J., 35Dimancescu, Dan, 17Dixit, Avinash K., 45Dorf, Bob, 39Doz, Yves L., 53Drucker, Peter F., 55Duarte, Deborah L., 61Dumoulin, Jean-Louis, 23Dwenger, Kemp, 17Dychtwald, Kenneth, 25

Author Index continued

66

EEder, Mary Jane, 41Epstein, Marc, 15Ernst, David, 53Evans, Philip, 55

FFahey, Liam, 49Feeny, David F., 41Feigenbaum, Armand, 59Flannery, Thomas P., 43Flower, Joe, 25Forrest, Edward, 13Freedman, Mike, 37Francis, Suzanne C., 35

GGadiesh, Orit, 33, 47Gale, Bradley T., 25, 59Gertz, Dwight, 29Gilbert, James L., 33Godin, Seth, 39Goldratt, Eliyahu M., 27Gomes-Casseres, Benjamin, 53Goold, Michael, 55Grant, James L., 51Grant, Robert M., 59Grayson, C. Jackson, 17, 43Greaver, Maurice, 41Greco, JoAnn, 41Griffin, Abbie, 27Grossman, Wayne, 43Grover, Varun, 47Gupta, Ashok K., 27

HHagel, John, III, 39, 53Hall, Gene, 47Hamel, Gary, 19, 29, 53, 55Hammer, Michael, 47Hansen, Morten T., 31Harrington, H. James, 17Hart, Christopher W.L., 23Heskett, James L., 21, 23, 37Hessan, Diane, 23Hilmer, Frederick G., 41Hofrichter, David A., 43Holloway, Charles, 27Hope, Jeremy, 15Hope, Tony, 15Hoskisson, Robert E., 43Hout, Thomas M., 27

IImai, Masaaki, 59

JJohansson, Henry J., 47Johnson, H. Thomas, 13Jones, Charles, 21Jones, Patricia, 37Jones, Thomas O., 23Jones, Wendell O., 41Juran, J.M., 59

KKahaner, Larry, 37Kalakota, Ravi, 57Kanter, Rosabeth M., 53Kao, John, 29Kaplan, Robert S., 13, 15Keen, Peter G.W., 47Kerr, Steven, 43

67

Klefsjo, Bengt, 23Klepper, Robert, 41Knight, James A., 51Koller, Tim, 51Kotler, Philip, 25Kotter, John P., 37Krishnan, R., 59Kulatilaka, Nalin, 45

LLacity, Mary C., 41Lajoux, Alexandra Reed, 35Leonard-Barton, Dorothy, 31Levitt, Theodore, 25Lewis, Jordan D., 53Lipnack, Jessica, 61Lorange, Peter, 53Loveman, Gary W., 23Luehrman, Timothy A., 45, 51

MMalhotra, Manuj K., 47Mankin, Donald, 61Manzoni, Jean-François, 15Magretta, Joan, 57Marshak, Ronni T., 39Mason, David H., 49McWilliams, Brian, 15Meyer, Christopher, 27, 43Mintzberg, Henry, 55Montgomery, Cynthia A., 19Moore, James F., 53Morrison, David J., 29Mullin, Rick, 31Myers, James H., 25

NNanus, Burt, 37Nash, Edward L., 39Nelson-Nesvig, Carleen, 41Nohria, Nitin, 31Nonaka, Ikujiro, 31Norton, David P., 15Norton, Eric, 41

OO’Brien, Louise, 21O’Dell, Carla, 17, 43Ohmae, Kenichi, 55O’Reilly, Charles, 29

PPearlson, Keri, 61Peppers, Don, 25, 39Pindyck, Robert S., 45Platten, Paul, 43Porras, Jerry I., 37Porter, Michael E., 55Postma, Theo, 49Prahalad, C.K., 19, 29, 55Pritchett, Price, 35Prusak, Laurence, 31

QQuinn, James Brian, 19, 31, 41

RRandall, Robert M., 49Rangan, U. Srinivasa, 53Rappaport, Alfred, 51Raynor, Michael A., 37Rayport, Jeffrey, 57Reichheld, Frederick F., 21Richman, Tom, 21

Author Index continued

68

Tekeuchi, Hirotaka, 31Tichy, Noel M., 29Tierney, Thomas, 31Tomasko, Robert M., 29Tregoe, Benjamin, 37Trigeorgis, Lenos, 45Tushman, Michael L., 29

UUttal, Bro, 23, 25

VVan Der Heijden, Kees, 49Varian, Hal R., 55, 57Voûte-Allen, Janet, 47

WWack, Pierre, 49Wade, Judy, 47Walton, Mary, 59Watson, Gregory H., 17Webber, Alan, 27Weinstein, Art, 25Wheelwright, Steven C., 27Whiteley, Richard C., 23Willcocks, Leslie P., 41Wunderman, Lester, 39Wurster, Thomas S., 55

YYoshino, Michael Y., 53

ZZairi, Mohamed, 17Zaltman, Gerald, 23Zimmerman, John, 37

Rigby, Darrell, 15, 35, 47, 53Ringland, Gill, 49Robinson, Donald, 35Robinson, Marcia, 57Rogers, Martha, 25, 39Roos, Johan, 53Rosenthal, Jim, 47

SSasser, W. Earl, Jr., 21, 23Schlesinger, Leonard A., 21, 23Schoemaker, Paul, J.H., 19, 49Schriefer, Audrey, 49Schwartz, Peter, 49Senge, Peter M., 31Seybold, Patricia B., 39Shani, Rami, 59Shapiro, Benson, 21Shapiro, Carl, 55, 57Sheehy, Barry, 23Singer, Marc, 39Slywotsky, Adrian J., 29, 33Smith, Walker J., 25Snyder, Nancy T., 61Sommers-Luch, Kathleen, 19Souder, William E., 27Stalk, George, Jr., 27Stamps, Jeffrey, 61Stauffer, David, 41Stewart, G. Bennett, 51Stewart, Thomas A., 31Sviokla, John J., 21, 57Swenson, Dan, 13

TTax, Stephen S., 21Tedlow, Richard, 33Teece, D.J., 61

Notes

Notes

Notes

Notes

ISBN 0-9656059-3-0$14.95 US