Search

In today’s fast-paced world of digital retailing, the ability to revise prices swiftly and on a large scale has emerged as a decisive differentiator for companies. Many retailers now track competitors’ prices via systems that scrape rivals’ websites and use this information as an input to set their own prices manually or automatically. A common strategy is to charge X dollars or X percent less than a target competitor. However, retailers that use such simple heuristics miss significant opportunities to fine-tune pricing. Some companies are now applying machine-learning models to guide their pricing decisions, but even these retailers tend to take an overly limited approach. They try to match or undercut competitors’ prices without taking into account factors such as whether rivals are out of stock or how consumers make their purchasing decisions. In this article, the authors present a step-by-step process for dynamic pricing that focuses on building computer models that consider not just competitor pricing but also product availability and customer behavior to recommend optimal prices in real time. [ABSTRACT FROM AUTHOR]

The next era of competition is at hand. To succeed in an environment of high uncertainty, greater short-term pressure, and tighter resource constraints, companies must become even better and more efficient at developing options for future advantage while continuing to perform in the present. Embracing radical optionality, the authors contend, will allow firms to turn uncertainty from a disruptive threat into a potential source of advantage. Doing so requires upending some of the core tenets of strategy. For instance, they must eliminate the gap between thinking (strategy formation) and doing (execution). They should abandon the winner- takes-all approach, which has long been central to strategy and innovation, and strive instead for flexibility. And they need to achieve “polydexterity,” the ability to exploit existing advantages in current markets while working toward multiple unknown future states. Companies must embrace complexity, learn to search and execute on ideas simultaneously, and engage with customers on their personal journeys. Accomplishing that will require new organizational forms and work practices, deeper integration between humans and technology, and next-generation performance metrics. [ABSTRACT FROM AUTHOR]

We’ve all seen the signs in front of McDonald’s announcing “Over X Billion Served” and have watched the number rise over the years. But tracking how many burgers are sold every day, month, or year is a relic of the past. Today ask: Do we know where each consumer buys her burgers? At what time? What does she drink with it? What does she do before or after buying a burger? How can we satisfy more of her needs so that she keeps coming back? Datagraphs capture this information, helping to reshape competition in every sector. Leaders must invest in upgrading their data architecture to enable a real-time, comprehensive view of how consumers interact with their products and services so that they can develop unique ways to solve customer problems. [ABSTRACT FROM AUTHOR]

In 2008 Starbucks ran into trouble, and Schultz was called on to serve a second time as its CEO. In this edited interview, he talks about the effects of the financial crisis on Starbucks’s sales, the surge of competition, the blogosphere, and retaining authenticity in spite of growth. Schultz calls values, culture, and Starbucks’s reservoir of trust with its employees “the only assets we have as a company.” He saw preserving and enhancing the integrity of those assets as his primary challenge. That meant declining to franchise the system or compromise on quality or change the company’s generous health care coverage. One bold move was to take 10,000 store managers to New Orleans for a conference that began with more than 50,000 hours of community service and an investment in local projects of $1 million. The purpose of the conference was to galvanize the entire leadership of the company and to stress personal accountability and responsibility. Schultz believes that without that experience, he couldn’t have turned things around for Starbucks. [ABSTRACT FROM AUTHOR]

A reprint of the article "The Secret to AI Is People" by Nada R. Sanders and John D. Wood, which appeared on HBR.org on August 24, 2020, is presented. The importance of a business model where machines and humans are integrated to complement each other is noted. A four-layer framework focusing on intentionality, integration, implementation, and indication is proposed. Several exemplary companies including Apple, Zappos, and Siemens are discussed.

Today markets are being reshaped by a new kind of firm—one in which artificial intelligence runs the show. This cohort includes giants like Google, Facebook, and Alibaba, and growing businesses such as Wayfair and Ocado. Every time we use their services, the same thing happens: Rather than relying on processes run by employees, the value we get is delivered by algorithms. Software is at the core of the enterprise, and humans are moved off to the side. This model frees firms from traditional operating constraints and enables them to compete in unprecedented ways. AI-driven processes can be scaled up very rapidly, allow for greater scope because they can be connected to many kinds of businesses, and offer very powerful opportunities for learning and improvement. And while the value of scale eventually begins to level off in traditional models, in AI-based ones, it never stops climbing. All of that allows AI-driven firms to quickly overtake traditional ones. As AI models blur the lines between industries, strategies are relying less on specialized expertise and differentiation based on cost, quality, and branding, and more on business network position, unique data, and the deployment of sophisticated analytics. INSETS: Microsoft's AI Transformation;Putting AI at the Firm's Core. [ABSTRACT FROM AUTHOR]

Many executives assume that customer data can give you an unbeatable edge. The more customers you have, the more data you can gather, and that data, when analyzed, allows you to offer a better product that attracts more customers. You can then collect even more data, repeating the cycle until you eventually marginalize your competitors. But this thinking is usually wrong. Though the virtuous cycles of data-enabled learning may look similar to those of network effects—wherein an offering increases in value to users as more people adopt it and ultimately garners a critical mass of users that shuts out competitors—they are not as powerful or as enduring. Nevertheless, under the right conditions, customer data can help build competitive defenses. It all depends on whether the data offers high and lasting value, is proprietary, leads to improvements that can’t be easily imitated, or generates insights that can be quickly incorporated. Those characteristics do give firms an advantage. And when learning from one customer rapidly improves an offering for others (think Google Maps), people will care about how many other people are adopting it, and it will enjoy those sought-after network effects. [ABSTRACT FROM AUTHOR]

Eight of the 10 fastest companies ever to reach a $1 billion valuation are Chinese, and six of them were founded in 2014 alone. Whatever has propelled Chinese companies to the top, the metrics we use to evaluate innovation have missed it. The author argues that China today has a resource that no other country has: hundreds of millions of people who have lived through unprecedented amounts of change—and who, consequently, can adopt and adapt to innovations at a speed and scale unmatched anywhere else on earth. Those hyper-adaptive and hyper-adoptive consumers are what make China so globally competitive today. But competition with the Chinese should not be considered a zero-sum game. Foreign companies would do well to seek to learn from China’s newly powerful example. [ABSTRACT FROM AUTHOR]

“Co-opetition”—cooperating with a competitor to achieve a common goal or get ahead—has been gaining traction for three decades. Yet many companies are uncomfortable with the concept and bypass the promising opportunities it presents. In this article two professors who helped introduce the approach offer a framework for deciding whether to team up with a rival, drawing on examples from Apple and Samsung, DHL and UPS, Ford and GM, and Google and Yahoo. Their advice: Start by analyzing what each party will do if it chooses not to cooperate and how that will affect industry dynamics. Sometimes working together is a clear win, but even if it isn’t, it may still be better than allowing someone else to take your place in the deal—which could leave you at a disadvantage. Next, it’s critical to figure out how to cooperate without giving away your “secret sauce”—your current advantages. Once you’ve done that, you’ll need to craft an agreement that clearly outlines the deal’s scope, who is in charge, how the arrangement could be unwound if needed, and how gains will be divided. You’ll also have to manage resistance within your own firm and alter internal mindsets. Co-opetition requires mental flexibility, but firms that develop it can gain an important edge. INSET: What About Antitrust Issues?. [ABSTRACT FROM AUTHOR]

Companies don’t win over investors just by issuing sustainability reports and engaging in other standard ESG practices. What they need to do, says Harvard Business School’s George Serafeim, is integrate ESG efforts into strategy and operations. He makes five recommendations: Identify the material issues in your industry and develop initiatives that set your firm apart from rivals; create accountability mechanisms to ensure the board’s commitment; infuse the whole organization with a sense of purpose and enthusiasm for sustainability and good governance; decentralize ESG activities throughout your operations; and communicate regularly and transparently with investors about ESG matters. [ABSTRACT FROM AUTHOR]

Brand-new markets are like the wormholes of science fiction, where the usual rules of time and space do not apply. When a market has just been born, the forces of competition there are constantly in flux, it’s unclear who your customers really are, and conventional strategies just don’t make sense. How then can you navigate this constantly shifting terrain? Over the past few years, two business school professors have interviewed entrepreneurs and corporate innovators in new fields such as genomics, augmented reality, and fintech. They discovered that the most successful ones practice something called “parallel play,” exploring and testing the world the way preschoolers do. Instead of trying to differentiate their businesses, they observe what others in the market are doing and borrow ideas. After relentless experimentation, they commit to a single template for creating value. But rather than quickly optimizing that template, they leave it partially undetermined and pause, watch, and wait. As they gather serendipitous insights and the market begins to settle, they refine their models bit by bit. [ABSTRACT FROM AUTHOR]

Many executives assume that customer data can give you an unbeatable edge. The more customers you have, the more data you can gather, and that data, when analyzed, allows you to offer a better product that attracts more customers. You can then collect even more data, repeating the cycle until you eventually marginalize your competitors. But this thinking is usually wrong. Though the virtuous cycles of data-enabled learning may look similar to those of network effects—wherein an offering increases in value to users as more people adopt it and ultimately garners a critical mass of users that shuts out competitors—they are not as powerful or as enduring. Nevertheless, under the right conditions, customer data can help build competitive defenses. It all depends on whether the data offers high and lasting value, is proprietary, leads to improvements that can’t be easily imitated, or generates insights that can be quickly incorporated. Those characteristics do give firms an advantage. And when learning from one customer rapidly improves an offering for others (think Google Maps), people will care about how many other people are adopting it, and it will enjoy those sought-after network effects. [ABSTRACT FROM AUTHOR]

In many contexts, the firm is no longer an independent strategic actor. Its success depends on collaboration with other firms in a designed ecosystem spanning multiple sectors. In these cases, traditional strategy frameworks are of little help. Instead, the author says, companies should focus on five questions: • Can you help other firms create value? Success is as much about helping other firms innovate as it is about innovating yourself. • What role should you play? You don’t necessarily need to be the chief architect of your ecosystem; sometimes you’re better off sharing the role or being a complementor. • What should the terms be? There are two key governance choices: who can access the ecosystem, and how exclusively attached your partners must be. • Can your organization adapt? Customers’ needs and complementors’ desire and ability to collaborate can shift dramatically, requiring changes in your allocation of resources. • How many ecosystems should you manage? Some successful orchestrators head up multiple ecosystems—each covering a different part of the business, and each leading to a different path for expansion. [ABSTRACT FROM AUTHOR]

When the author began working at Match, in the mid-2000s, online dating often required monthly fees and endless patience. It was mostly done by middle-aged people sitting at PCs who scrolled through profiles and waited for responses. If they found and connected with someone, they’d often claim they “met through friends” to avoid the stigma that online dating carried. Since then, significant industrywide shifts in technology and business models have completely changed how people use Match products. Now online dating is done via apps on mobile phones; it has moved from monthly subscriptions to a “freemium” pricing model; and it has been embraced by people in their twenties, who are the dominant users of Tinder and similar brands. Mandy Ginsberg describes what it’s like to lead in an industry with such fast innovation cycles and discusses incorporating full-motion video into dating apps—part of an effort to predict whether sparks ignited online will persist as chemistry in real life. [ABSTRACT FROM AUTHOR]

Jim Hackett, CEO of Ford Motor Company, talks with HBR about what he calls corporate fitness and how he has applied it at Ford and, previously, at the office furniture company Steelcase. [ABSTRACT FROM AUTHOR]

In the digital economy, scale is no guarantee of continued success. After all, the same factors that help an online platform expand quickly—such as the low cost of adding new customers—work for challengers too. What, then, allows platforms to fight off rivals and grow profits? Their ability to manage five aspects of the networks they’re embedded in: • network effects, in which users attract more users • clustering, or fragmentation into many local markets • the risk of disintermediation, wherein users bypass a hub and connect directly • vulnerability to multi-homing, which happens when users form ties with two or more competing platforms • network bridging, which allows platforms to leverage users and data from one network in another network When entrepreneurs are evaluating a digital platform business, they should look at these dynamics—and the feasibility of improving them—to get a more realistic picture of its long-term prospects. [ABSTRACT FROM AUTHOR]

In their haste to get to market first, write Joshua Gans, Erin L. Scott, and Scott Stern, entrepreneurs often run with the first plausible strategy they identify. They can improve their chances of picking the right path by investigating four generic go-to-market strategies and choosing a version that aligns most closely with their founding values and motivations. The authors provide a framework, which they call the entrepreneurial strategy compass, for doing so. [ABSTRACT FROM AUTHOR]

There’s no question that most American industries have become more concentrated. Economists are trying to understand whether this is necessarily a bad thing for competition. The short answer: It’s complicated. Innovation superstars like Google have created winner-take-most markets largely by exploiting network effects, not through predatory behavior. However, research from the wider economy (including the tech sector) uncovers classic signs of unhealthy concentration: rising profits, weak investment, and low business dynamism. The government’s approach to antitrust violations is due for an overhaul. And regulators need to pay more attention to protecting economic vitality and consumer well-being—and less to industry lobbyists. INSET: DOES COMMON OWNERSHIP DAMPEN COMPETITION?. [ABSTRACT FROM AUTHOR]

The article discusses an intern for the technology security company Zantech's addressing her concerns about her boss in Seoul, Souh Korea regarding a misappropriate suggestion on misrepresenting identity. An overview of the ethical aspects of addressing her concerns to the company's management, including in regard to corporate culture and the ethical behavior of Zantech's competition, is provided.

Business leaders are scrambling to adjust to a world few imagined possible just a year ago. The myth of a borderless world has come crashing down. Traditional pillars of open markets—the United States and the UK—are wobbling, and China is positioning itself as globalization’s staunchest defender. Countries throughout North America and Europe have experienced waves of antiglobalization sentiment. In the face of such uncertainty, leaders of multinationals wonder whether they should retreat, change strategy, or stay the course. In making that decision, they need to understand two things. First, the world is less globalized than even experienced executives realize. Second, history tells us that even in the face of a trade war, international trade and investment would still be too large for strategists to ignore. Today’s turmoil calls not for a mass retreat from globalization but for a more subtle reworking of multinationals’ strategies. This article examines common misperceptions about what is—and isn’t—changing about globalization and offers guidelines to help leaders decide where and how to compete in a complex world. INSET: WHAT ARE YOUR GLOBALIZATION OPTIONS?. [ABSTRACT FROM AUTHOR]

The U.S. health care system is inefficient, unreliable, and crushingly expensive. There is no shortage of proposed solutions, but central to the best of them is the idea that health care needs more competition. In other sectors, competition improves quality and efficiency, spurs innovation, and drives down costs. Health care should be no exception. Yet providers and payers continue to try to stymie competition. Many are actively pursuing consolidation, buying up market share and increasing their bargaining power. In this article, the authors argue that health care payers and providers must stop fighting the emergence of a competitive health care marketplace and make competing on value central to their strategy. All stakeholders in the health care industry—regulators, providers, insurers, employers, and patients themselves—have roles to play in creating real competition and positive change. In particular, five catalysts will accelerate progress: Put patients at the center of care, create choice, stop rewarding volume, standardize value-based methods of payment, and make data on outcomes transparent. [ABSTRACT FROM AUTHOR]

After a relatively quiet period following the end of the Cold War, geopolitics is back. With the United States displaying a reduced appetite for violent confrontation, there are now no world policemen, few effective “neighborhood watch” schemes, and a growing number of vigilante groups and countries eager to challenge the existing rules of the game. Companies cannot assume, in any region of the world, that the strategic status quo will be sustained by neat balances of power or unbreakable promises of foreign-policy assistance from superpower states. In this new reality, the most successful multinational companies will be those that make expertise in international affairs central to their operations, adopting what John Chipman, the chief executive of the International Institute for Strategic Studies, calls a corporate foreign policy. A corporate foreign policy has two components. Geopolitical due diligence involves the assessment of local, regional, and transnational risks facing a company. Corporate diplomacy aims to enhance a company’s ability to operate internationally and to ensure its success in each particular country with which it is engaged. Chipman lays out the principles of geopolitical due diligence and corporate diplomacy and argues that their successful execution can be a new source of competitive advantage for multinational businesses in a time of increased geopolitical volatility. [ABSTRACT FROM AUTHOR]

The financial world set a record in 2015 for mergers and acquisitions. It’s too soon to have data on how those deals will work out, but the signs are not promising. Last year Microsoft wrote off 96% of the value of the handset business it had acquired from Nokia in 2014 for $7.9 billion. The rule, confirmed by nearly all studies, remains true: M&A is a mug’s game, in which some 70% to 90% of acquisitions are abysmal failures. The author has an explanation for this persistent failure and offers a way forward. Acquirers, he notes, tend to look at acquisitions as a way of obtaining value for themselves—access to a new market or capability. The trouble is, if you spot a valuable asset or capability in a company, others will too, and the value will be lost in a bidding war. But if you have something that will make the acquisition more competitive, the picture changes. As long as the acquired company is incapable of making that enhancement on its own or (ideally) with any other company, the buyer, rather than the seller, will earn the rewards. Martin describes four ways to enhance the competitiveness of a target: • Be a smarter provider of growth capital. • Provide better managerial oversight. • Transfer valuable skills to the acquisition. • Share valuable capabilities with the acquisition. INSETS: Was Pixar a Good Deal for Disney?;Why Does the M&A Party Keep Rocking?. [ABSTRACT FROM AUTHOR]

Platform businesses such as Airbnb and Uber have risen to success partly by sidestepping laws and regulations that encumber their traditional competitors. Such rule flouting is what the authors call “spontaneous private deregulation,” and it’s happening in a growing number of industries. The authors explain that businesses are most vulnerable to spontaneous deregulation when certain conditions hold. One, for example, is when regulations are excessive or outdated, protecting consumers against unlikely risks—and when platform providers offer other means of shielding consumers from harm. Incumbents facing threats from private deregulation can respond by taking legal action to press for enforcement of existing laws. Alternatively, they can embrace aspects of a new entrant’s approach—taxi operators, for example, have developed Uber-style apps for ordering rides. Incumbents can also leverage their own strengths to set themselves apart from upstart competitors—that’s the tactic that CitizenM, the Pod Hotel, and Yotel are using to woo guests who might otherwise book with Airbnb. If all else fails, incumbents may have to cease operation. But they stand a good chance of avoiding that fate if they address their vulnerabilities early. INSETS: Spontaneous Deregulation in an Earlier Era.;More Downsides to Deregulation.. [ABSTRACT FROM AUTHOR]

Following the path of companies such as Apple and Amazon, more and more firms are trying to become not just product purveyors but also platform providers, facilitating direct connections between customers and other groups. Although launching a platform can generate new revenue, success is not automatic. After studying more than 20 companies that have tried to move from products to platforms, the authors point to four practices that can separate winners from losers: 1. Start with a defensible product and a critical mass of users. A strong product and a loyal customer base will attract third parties to your platform. 2. Apply a hybrid business model. Instead of operating with a “product mindset” or a “platform mindset” alone, combine the two in order to discover new opportunities for creating value. 3. Drive rapid conversion to the platform. Existing customers are likely to flock to a platform if it provides enough new value, if the additional products and services offered are consistent with your brand, and if users have opportunities to improve both the products and the platform. 4. Deter competitive imitation. Make it tough for rivals to copy your product-to-platform strategy: Consider creating proprietary standards, using exclusivity contracts, and erecting other barriers to competition. [ABSTRACT FROM AUTHOR]

For decades, the five-forces model of competition has dominated the thinking about strategy. But it describes competition among traditional “pipeline” businesses, which succeed by optimizing the activities in their value chains—most of which they own or control. “Platform” businesses that bring together consumers and producers, as Uber, Alibaba, and Airbnb do, require a different approach to strategy. The critical asset of a platform is external—the community of members. The focus shifts from controlling resources to orchestrating them, and firms win by facilitating more external interactions and creating “network effects” that increase the value provided to all participants. In this new world, competition can emerge from seemingly unrelated industries and even from within the platform itself. The authors, three platform strategists, walk executives through the choices they must make when building platforms, outlining the different metrics needed to manage them. Businesses that fail to learn the new rules will struggle, they argue. When a platform enters the marketplace of a pure pipeline business, the platform nearly always wins. That’s exactly what happened when the iPhone came on the scene in 2007. By 2015, it accounted for 92% of global profits in mobile phones, while most of the giants that once ruled the industry made no profit at all. INSETS: Networks Invert the Firm.;HARNESSING SPILLOVERS. [ABSTRACT FROM AUTHOR]

For the past 20 years, the theory of disruptive innovation has been enormously influential in business circles and a powerful tool for predicting which industry entrants will succeed. Unfortunately, the theory has also been widely misunderstood, and the “disruptive” label has been applied too carelessly anytime a market newcomer shakes up well-established incumbents. In this article, the architect of disruption theory, Clayton M. Christensen, and his coauthors correct some of the misinformation, describe how the thinking on the subject has evolved, and discuss the utility of the theory. They start by clarifying what classic disruption entails—a small enterprise targeting overlooked customers with a novel but modest offering and gradually moving upmarket to challenge the industry leaders. They point out that Uber, commonly hailed as a disrupter, doesn’t actually fit the mold, and they explain that if managers don’t understand the nuances of disruption theory or apply its tenets correctly, they may not make the right strategic choices. Common mistakes, the authors say, include failing to view disruption as a gradual process (which may lead incumbents to ignore significant threats) and blindly accepting the “Disrupt or be disrupted” mantra (which may lead incumbents to jeopardize their core business as they try to defend against disruptive competitors). The authors acknowledge that disruption theory has certain limitations. But they are confident that as research continues, the theory’s explanatory and predictive powers will only improve. [ABSTRACT FROM AUTHOR]

When the Titanic collided with an iceberg and sunk, only 705 of its 2,200 passengers and crew, floating in 16 lifeboats, were saved. Imagine how many more might have lived if crew members had thought of the iceberg as not just the cause of the disaster but a lifesaving solution. The iceberg rose high above the water and stretched nearly 400 feet in length. The lifeboats, or the Titanic itself, might have been able to pull close enough to the iceberg for people to scramble on. Regardless of whether this could actually have worked, it’s an intriguing idea—yet surprisingly difficult to envision. That’s because a cognitive bias called “functional fixedness” limits people to seeing objects only in the way in which they’re traditionally used. In a nautical context, an iceberg is a hazard to be avoided; it’s very hard to see it any other way. When it comes to innovation, businesses are constantly hampered by functional fixedness and other cognitive biases that cause people to overlook elegant solutions hidden in plain sight. We can overcome this bias—and similar biases about an object’s design and purpose—by changing how we describe the object and how we think about its component parts. This article also presents techniques and tools to help managers think in innovative ways—a process the authors call “brainswarming”—about common business problems, whether it be conceiving new products, finding novel applications for existing products, or anticipating competitive threats. [ABSTRACT FROM AUTHOR]

Buyers can no longer rely on tough talk through their procurement offices. They must approach the situation strategically. In many industries the balance of power has shifted from buyers to suppliers. Companies that have gotten into a weak position need to tackle the problem strategically, the authors argue. They should consider the following actions and implement the least-risky one that is feasible for their organization. Bring new value to the supplier. This is the easiest approach. Companies can provide new value in several ways—for example, by serving as a gateway to new markets or reducing the supplier’s risks. Change how they buy. Companies can consolidate their purchase orders, rethink purchase bundles, or decrease purchase volume. Create a new supplier. This is a high-risk option, but it can transform a company’s prospects. Firms have essentially two paths: They can bring in a supplier from an adjacent market or vertically integrate to become their own supplier. Play hardball. As a last resort, companies can cancel current orders and future business or threaten litigation. Whatever option firms choose, they need to clearly understand the problem, work on it across functions, and think analytically and outside the box. INSET: Idea in Brief.. [ABSTRACT FROM AUTHOR]

Why is it so hard to build and maintain the capacity to innovate? The reason is not simply a failure to execute but a failure to articulate an innovation strategy that aligns innovation efforts with the overall business strategy. Without such a strategy, companies will have a hard time weighing the trade-offs of various practices--such as crowdsourcing and customer co-creation--and so may end up with a grab bag of approaches. They will have trouble designing a coherent innovation system that fits their competitive needs over time and may be tempted to ape someone else’s system. And they will find it difficult to align different parts of the organization with shared priorities. As Corning, a leader in glass and materials science, has found, an innovation strategy must address how innovation will create value for potential customers, how the company will capture a share of that value, and what types of innovation to pursue. Critics tend to discount "routine" innovation that leverages a company’s existing technical capabilities and business model and extol "disruptive" innovation, but that is a simplistic view. A company’s unique competitive circumstances should dictate the innovation portfolio it pursues. Because innovation cuts across functions, only senior leaders can set an innovation strategy. In doing so, they must recognize that the strategy, like the process of innovation itself, requires continual experimentation and adaptation. INSETS: Idea in Brief.;Corning's Breakthrough Innovations.. [ABSTRACT FROM AUTHOR]

When Google bought Nest, a maker of digital thermostats, for $3.2 billion just a few months ago, it was a clear indication that digital transformation and connection are spreading across even the most traditional industrial segments and creating a staggering array of business opportunities and threats. The digitization of tasks and processes has become essential to competition. General Electric, for example, was at risk of losing many of its top customers to nontraditional competitors--IBM and SAP on the one hand, big data start-ups on the other--offering data-intensive, analytics-based services that could connect to any industrial device. So GE launched a multibillion-dollar initiative focused on what it calls the industrial internet: adding digital sensors to its machines; connecting them to a common, cloud-based software platform; investing in software development capabilities; building advanced analytics capabilities; and embracing crowd-based product development. With all this, GE is evolving its business model. Now, for example, revenue from its jet engines is tied to reduced downtime and miles flown over the course of a year. After just three years, GE is generating more than $1.5 billion in incremental income with digitally enabled, outcomes based business models. The company expects that number to double in 2014 and again in 2015. INSETS: WHAT MAKES DIGITAL TECHNOLOGY TRANSFORMATIONAL?;Idea in Brief;WHY NEST MATTERS;WHAT SMARTWOOL LEARNED FROM ITS DIGITAL CUSTOMERS [ABSTRACT FROM AUTHOR]

Information technology is revolutionizing products, from appliances to cars to mining equipment. Products once composed solely of mechanical and electrical parts have become complex systems combining hardware, sensors, electronics, and software that connect through the internet in myriad ways. These “smart, connected products” offer exponentially expanding opportunities for new functionality, far greater reliability, and capabilities that cut across and transcend traditional product boundaries. The changing nature of products is disrupting value chains, argue Michael Porter and PTC CEO James Heppelmann, and forcing companies to rethink nearly everything they do, from how they conceive, design, and source their products; to how they manufacture, operate, and service them; to how they build and secure the necessary IT infrastructure. Smart, connected products raise a broad set of new strategic choices for companies about how value is created and captured, how to work with traditional partners and what new partnerships will be required, and how to secure competitive advantage as the new capabilities reshape industry boundaries. For many firms, smart, connected products will force the fundamental question: “What business am I in?” This article provides a framework for developing strategy and achieving competitive advantage in a smart, connected world. INSETS: Idea in Brief;CHARTING THE IMPACT ON COMPETITION;MISTAKES TO AVOID. [ABSTRACT FROM AUTHOR]

Over and over again, executives make decisions that aren't in their companies' best interests, in response to pressure from Wall Street. Though many believe this happens because firms have a "fiduciary duty" to maximize shareholder returns, U.S. executives do not, as a matter of law, have any such obligation. Yet it's hard for them to resist demands from a quarter that has amassed such a huge and disproportionate share of power. In the past few decades, as legislation that put controls on Wall Street was largely undone, the size and profits of the financial sector grew enormously. That increased its influence, particularly its ability to sway the government by spending billions of dollars on lobbyists and political contributions. Even after the financial crisis, Wall Street was able to slow down and weaken new regulations meant to rein in its risky practices. This "financialization" of the economy has serious downsides: It increases volatility, inhibits growth, and misallocates resources, such as talent and capital, away from wealth creation and toward wealth distribution. It distorts thinking. Restoring the balance of power is critical to the competitiveness and the health of the rest of the economy. Limits on the size and leverage of banks and changes to the tax code could promote better equilibrium--but courage will be needed to put such reforms in place. INSETS: Idea in Brief;WHAT DO I MEAN BY "WALL STREET"?. [ABSTRACT FROM AUTHOR]

In B2B markets, suppliers of nonstrategic products and services tend to assume they have only two options for landing sales: stressing their offerings' unique characteristics and competing on price. The problem is, the features touted often don't matter to purchasing managers, and neither do price concessions. How, then, do you win their business? The authors' research with 46 companies points to a solution: After meeting the customer's basic specs within an acceptable price range, give the purchasing manager "a justifier"- an extra that provides obvious value to the business. A car-leasing company, for instance, might offer the option to cancel a number of contracts without penalty, or a delivery service might print customers' logos on their envelopes. The justifier provides a clear-cut reason to select one supplier over others and breaks the tie among the finalists on the short list. To uncover justifiers, you should explore how customers use your offerings, learn about their priorities and those of their customers, and look at ways to integrate your offerings with other suppliers'. The right Justifier can win you more business- and even help you launch a new one. INSET: Value Selling vs. Tiebreaker Selling. [ABSTRACT FROM AUTHOR]

In 1979 Michael Porter's five forces model transformed the field of strategy. But the 1996 article "Value-Based Business Strategy," by Adam Brandenburger and Harborne Stuart Jr., may prove to be even more significant, as it applied mathematics to the evaluation of strategic decisions. Ryall, of the University of Toronto's Rotman School of Management, now introduces a model of competitive strategy that is built on Brandenburger and Stuart's mathematical work. The value capture model (VCM) has an explanatory, predictive power that no other theory of competitive strategy can claim. It defines competition in an industry as a tension between the value generated from transactions that a firm undertakes with a given set of agents and the forgone value it could have generated from transactions with other agents. An important implication is that strategists must shift from looking at how a firm competes with other players to examining how players compete for a firm. Work on the VCM is already revealing important insights to leaders who chart the strategic direction of their firms. A streamlined version with a reasonably full complement of input variables, bolstered by empirical research and further refinements, could illuminate the way to better business practices. INSETS: Strategy's Missing Link;Idea in Brief;A Different View of Value Appropriation. [ABSTRACT FROM AUTHOR]

In recent years a new-disquieting-form of disruptive innovation has emerged. It doesn't follow Clayton Christensen's classic model, entering the market as a cheap substitute to a high-end product and then gradually increasing in quality and moving up the customer chain. Instead, the innovation beats incumbents on both price and quality right from the start and quickly sweeps through every customer segment. This kind of "big bang" disruption can devastate entire product lines virtually overnight. Look at the effect that free navigation apps, preloaded on smartphones, had on the market for devices made by TomTom, Garmin, and Magellan. Big-bang disruptions often come out of the blue from people who aren't your traditional competitors. Frequently, they're developed by inventors who are just doing low-cost experiments with existing technologies to see what new products they can dream up. Once launched, these innovations don't adhere to conventional strategic paths or normal patterns of market adoption. That makes them incredibly hard to combat. The authors, who've spent 15 years studying marketplace disruptions, offer some strategic principles to help businesses survive big bangs: Be on the watch for failed experiments that could signal that a big bang is brewing in your industry. Find ways to stow the disruptive innovation down and to leverage your surviving assets in another business. These assets will usually be intangible; other kinds of assets generally lose value quickly after a big bang and must be shed quickly. Diversifying into new kinds of business will protect your company. Though technology- and information- intensive firms are most vulnerable to big bangs, mature industries face this threat, too. Credit cards, automobiles, and education, for instance, are all experiencing early warning signs. But in every industry, big-bang disruption will be keeping executives in a cold sweat for a long time to come. INSET: Down the Drain. [ABSTRACT FROM AUTHOR]

The article presents abstracts on the topic of business performance, including "Bringing Science to the Art of Strategy," by A. G. Lafley, Roger L. Martin, Jan W. Rivkin, and Nicolaj Siggelkow, "Simple Rules for a Complex World," by Donald Sull and Kathleen M. Eisenhardt, and "Your Strategy Needs a Strategy," by Martin Reeves, Claire Love, and Philipp Tillmanns.

The United States is on a glide path to fiscal disaster, with experts projecting that the federal government will take in far less money than it spends--indefinitely. Our current fiscal policy is eroding competitiveness in several ways, and business conditions in the U.S. will deteriorate if there's no change in direction. The authors examine how fiscal policy relates to the three drivers of productivity: improving human capital, increasing physical capital (equipment or software, for example), and using these forms of capital more efficiently. Government spending for many public goods, such as education and infrastructure, contributes directly to one or more of them, whereas spending on health care and entitlements does little to enhance competitiveness directly. Taxes are needed to fund public goods, but they sometimes distort the allocation of human and physical capital. And large government deficits put upward pressure on the cost of borrowing for companies. The authors propose a plan--they call it "20/21 by 2021"--to reduce the deficit from 3.8% of GDP (the Congressional Budget Office's most likely scenario) to just over 1%. [ABSTRACT FROM AUTHOR]

Abstracts are presented for several articles in this issue including "Why U.S. Competitiveness Matters to All of Us," "Does American Really Need Manufacturing?," and "The Incentive Bubble."

Many Americans blame free trade for their nation's economic slide, but the authors' research shows that free trade has been assigned a villainous role that far exceeds its real impact. The evidence exposes three myths. Myth 1: America's open trade policy is the main cause of job losses, especially in manufacturing. The real drivers of the losses: rising productivity growth in U.S. manufacturing and a shift in demand away from goods in favor of services. Myth 2: U.S. living standards are falling and wage inequality is rising because developing countries compete with the U.S. in its export markets on cost. The truth is that the U.S. and developing countries have specialized in very different products and processes, making the latter complementary to America's growth. Myth 3: The rapid growth of emerging markets like China and India is the most important reason for the higher oil prices that hurt Americans. The primary responsibility for the shortfall between demand and supply that has caused oil prices to soar rests with developed countries, which contributed to most of the price increase from 2000 to 2008. The authors advocate a more active U.S. trade policy that emphasizes exports, bilateral cooperation with other economies to maintain a trading order that supports U.S. economic interests, and plurilateral agreements with WTO members on issues such as competition policy. [ABSTRACT FROM AUTHOR]

To remain a leader in innovation, the United States needs the support of foundational institutions that help seed, grow, and renew enterprises. Historically, these institutions-such as universities,venture creators, labor markets, and job-training programs-have tended to operate in silos. But they are far more effective when they're networked. By collaborating to bridge the gaps between them, business, academic, and policy leaders can help generate more ideas, start-ups, company growth, global competitors, and prosperity. In this article, Harvard Business School's Rosabeth Moss Kanter outlines an agenda for strengthening the links between key institutions. Leaders, she argues, should focus on four goals: 1. Linking knowledge creation to venture creation to speed the conversion of ideas into market-ready enterprises. 2. Linking small and large enterprises to promote the growth of younger companies and revitalize large corporations through partnership with innovative SMEs. 3. Improving the match between education and employment opportunities, through apprenticeship programs and other education industry links. 4. Linking leaders across sectors to develop regional strategies and produce scalable models. In all four of these areas, promising models have already begun to emerge. By highlighting the most successful ones and what can be learned from them, Kanter shows how America can create a richer, more competitive business ecosystem INSET: IDEA IN BRIEF. [ABSTRACT FROM AUTHOR]

In America today there's a growing sense that the political system is broken and that its ineffectiveness is a major threat to U.S. competitiveness. Why do so many think the political system is not working? Research shows that in Congress, Republicans and Democrats are more polarized than ever. They seem pulled apart by two starkly different conceptions of government: one viewing the government as inefficient, invasive, and easily corrupted, and another seeing it as a vehicle for solving people's problems. Yet the ideological divide may not be the true source of the breakdown. A look at U.S. history shows it's not new. Moreover, sharp ideological battles have often proved highly productive in policy terms, delivering the best ideas from both sides. In the 1840s, for instance, state politicians who were deeply skeptical of government pushed hard for balanced budget amendments while politicians at the other end of the spectrum demanded free public schools for all. In the end many states adopted both policies-a combination that proved enormously powerful. The problem today is that too many have come to view politics as war, where victory is paramount and "compromise" is a dirty word. This take-no-prisoners approach, which came into sharp relief during the debt-ceiling debate, threatens to cripple the best-of-both dynamic. Revitalizing America's culture of democracy-where the health of the nation comes first, above economic interest, party, and ideology-is essential. Business leaders must play a large role in this effort, because the implications for the economy are so great INSET: IDEA IN BRIEF. [ABSTRACT FROM AUTHOR]

Once a sleepy old boys' club, the U.S. financial sector is now a dynamic and growing business that attracts the best and the brightest. It is tempting to declare the industry a roaring success. But its purpose is to serve the needs of U.S. households and firms, and by this standard its performance has been mixed. The sector's growth has been beneficial for U.S. corporations, which enjoy ready access to the deepest capital markets in the world. Venture capital, for example, and the public equity markets that support it, has channeled money to innovative ideas that have transformed industries and generated new ones. The rest of the economy, however, has not been well served by the financial sector's boom. First, he shift from deposit-based banking to a market-based "shadow banking" system, without adequate regulatory adjustments, has left the financial system vulnerable to crisis. Second, trillions of dollars have been steered into residential real estate and away from more productive investments. Third, the cost of professional investment management is too high, which drains talent from other industries. The financial sector could promote the health and competitiveness of the U.S. economy by increasing capital and liquidity requirements, reorienting the discussion around housing finance reform from keeping mortgage credit cheap to ensuring financial stability, and instituting measures that compel asset managers to compete on the true value of the services they provide. INSET: IDEA IN BRIEF. [ABSTRACT FROM AUTHOR]

What's good for individual U.S. companies is no longer automatically good for business nationwide, for U.S. workers, or for the economy. That, coupled with the failure of business, government, and other institutions to engage in productive dialogue and ultimately cooperate, has led to a crisis of human capital in the United States. In short, badly needed investments in the workforce are not being made, thereby threatening the country's future competitiveness and living standards. So argues Kochan, of MIT's Sloan School of Management. He explains precisely how the U.S. currently undervalues human capital; how exceptional companies such as Southwest and Kaiser Permanente buck the "maximizing shareholder value" trend with what researchers call "high-road" human resources strategies; and how labor unions and schools have a role to play in setting the nation's workers and the companies that employ them on the right path. Kochan's call to action for U.S. corporations and business schools emphasizes apprenticeship programs, technology-education partnerships, infrastructure investments, and a host of other practical ideas for jump-starting and then accelerating the journey on the high road. His jobs compact for America advocates a systematic approach, not a fool's errand to find a panacea. But it nonetheless has the urgency of now. INSETS: IDEA IN BRIEF;THE 1980s THE DECADE WHEN EVERYTHING CHANGED. [ABSTRACT FROM AUTHOR]

About 30 years ago, as its appliances business became less profitable, GE began moving manufacturing to low-cost countries. But competitors soon emerged there; shipping and materials costs rose; wages increased in China and elsewhere; and GE didn't control the supply chain. Finally, core competency was an issue: the company's most innovative appliance design work is done in the United States, and at a time when speed to market is everything, separating design and development from manufacturing no longer made sense. In 2008 GE came to the conclusion that outsourcing was outdated as a model for its appliances business. It set about to build inhouse innovation capability, lean manufacturing, and a new approach to labor relations in that business and others, creating thousands of jobs and investing billions of dollars. [ABSTRACT FROM AUTHOR]

Capitalism remains the most powerful, flexible, and robust system for driving broad-based prosperity and enhancing quality of life. But keeping capitalism on track will depend on our ability to rethink the priorities that guide everyone in the system, from entrepreneurs to regulators to investors. In particular we will need to throttle back the headlong pursuits of competition and ROE, and that process begins with recognizing them for what they are: runaways. The runaway, a concept from evolutionary biology, is explained best by the peacock's tail. That feature grew ever more flamboyant across the centuries thanks to a simple fact: Peahens showed preference for large-tailed mates. But after many generations the tail created a problem: It required more nutrients and was heavy, slowing down its owner and making him easier prey--eventually causing the peacock population to decline. Capitalism is on a similar runaway trajectory, say Meyer and Kirby, mostly because it has taken the ideas of competition and ROE--brilliant in their time--too far. By reining in these metrics and developing new ones more suited to today's world, we can reformulate capitalism and break the runaway cycle. INSETS: Idea in Brief;GE Learns to Look Beyond ROE;P&G Flexes Its Collaborative Muscle. [ABSTRACT FROM AUTHOR]

The sharper a company's differentiation, the greater its competitive advantage. In studying companies that sustained a high level of performance over many years, the authors, both partners at Bain, have found that more than 80% of those companies had a well-defined and easily understood differentiation at the center of strategy. But differentiation can wear with age: The growth it generates creates complexity, and complex companies tend to forget what they're good at. Often they respond by trying to re-imagine their entire business models quickly and dramatically. That's rarely the answer, the authors write. Really successful companies relentlessly build on their fundamental differentiation, going from strength to strength. They learn to deliver it to the front line, creating an organization that lives and breathes its strategic advantages day in and day out. They learn to sustain it through constant adaptation to changes in the market. And they learn to resist the siren song of today's hot market better than their less-focused competitors do. The result is a simple, repeatable business model that a company can apply to new products and markets over and over again to generate sustained growth. INSET: Making Your Differentiation Easier to Repeat. [ABSTRACT FROM AUTHOR]

The "free" business models popularized in the digital world by companies such as Google, Adobe, and Mozilla are spreading to markets in the physical world. How should established companies respond? The authors have found that some are too quick to offer free products of their own. Many more either don't move quickly enough or simply fail to respond at all, even when they have the resources to win a head-to-head battle. Consider the reluctance of almost all U.S. newspapers to counter the attack on their classified advertising business from Craigslist. To determine the level of threat posed by a free-product rival, a company should assess the rate at which its own paying customers are defecting versus how quickly the entrant's user base is growing. Most incumbents can fend off the assault by introducing a better free offering and generating revenues and profits through up-selling, cross-selling,selling access to their customers, and bundling the free product with paid offerings. Embracing free strategies is not easy for managers at established companies. One obstacle is the profit-center structure, which makes it impossible to consider a product's revenues and costs separately. Another is the cost accounting system, which is not good for identifying the actual expense of generating additional offerings. To overcome these challenges, managers can push profit responsibility up, push revenue and cost responsibilities down to separate groups, and step back from the cost accounting system. They may find pricing flexibility they didn't realize they had. INSETS: Idea in Brief;Why Microsoft Should Take Its "Free" Competition More Seriously;Four Tried-and-True Strategies. [ABSTRACT FROM AUTHOR]

Fending off new competitors is a perennial struggle for established companies. Govindarajan and Trimble, of Dartmouth's Tuck School of Business, explain why: Many corporations become too comfortable with their existing business models and neglect the necessary work of radically reinventing them. The authors map out an alternative in their "three boxes" framework. They argue that while a CEO manages the present (box 1), he or she must also selectively forget the past (box 2) in order to create the future (box 3). Infosys chairman N.R. Narayana Murthy mastered the three boxes to reinvigorate his company and greatly increased its chances of enduring for generations. INSETS: The High Jump "Industry";The Transformation Process in Hindu Mythology. [ABSTRACT FROM AUTHOR]