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Until recently most incumbent industrial companies didn’t use highly advanced software in their products. But now the sector’s leaders have begun applying generative AI and machine learning to all kinds of data—including text, 3D images, video, and sound—to create complex, innovative designs and solve customer problems with unprecedented speed. Success involves much more than installing computers in products, however. It requires fusion strategies, which join what manufacturers do best—creating physical products—with what digital firms do best: mining giant data sets for critical insights. There are four kinds of fusion strategies: Fusion products, like smart glass, are designed from scratch to collect and leverage information on product use in real time. Fusion services, like Rolls-Royce’s service for increasing the fuel efficiency of aircraft, deliver immediate customized recommendations from AI. Fusion systems, like Honeywell’s for building management, integrate machines from multiple suppliers in ways that enhance them all. And fusion solutions, such as Deere’s for increasing yields for farmers, combine products, services, and systems with partner companies’ innovations in ways that greatly improve customers’ performance. [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]

PepsiCo is among the few global, established companies that have delivered superior financial performance while meeting the needs of all stakeholders. It has always invested for the long term and delivered results in the short term. The layer that author Indra Nooyi added, first as SVP for corporate strategy and then as CEO, was a focus on sustainability—defined here as satisfying multiple stakeholder interests to ensure the long-term viability of a company. Called Performance with Purpose (PwP), it is based on four pillars: delivering superior financial returns (financial sustainability); transforming the product portfolio by making more-healthful, more-nutritious foods and beverages while reducing the sugar, salt, and fat in PepsiCo products (human sustainability); limiting environmental impact by conserving water and reducing the company’s carbon footprint and plastic waste (environmental sustainability); and lifting people up by offering new types of support to women and families inside the company and in the communities it serves (talent sustainability). [ABSTRACT FROM AUTHOR]

The U.S. health care system needs reform, but too often experts focus on top-down solutions stemming from federal policy changes. Such efforts alone, however, cannot fix a wasteful and misdirected system. What’s needed is innovation driven by doctors, nurses, administrators, entrepreneurs, and even patients who are devising new solutions to daily challenges. This article looks at two examples of bottom-up innovation, each involving a radical transformation of health care delivery. The University of Mississippi Medical Center created a homegrown telehealth network to increase patient access to care; Iora Health developed a new business model that doubled down on primary care to reap large savings in secondary and tertiary care. These successful initiatives—one from an incumbent health care provider and one from a business start-up—demonstrate the potential of creative leaders to reshape the U.S. health system. [ABSTRACT FROM AUTHOR]

“Planned opportunism” is the author’s term for responding to an unpredictable future by paying attention to weak signals—early evidence of emerging trends from which it is possible to deduce important changes in demography, technology, customer tastes and needs, and economic, environmental, regulatory, and political forces. That attention gives rise to fresh perspectives and nonlinear thinking, which help an organization imagine and plan for various plausible futures. Planned opportunism is a discipline that creates a “circulatory system” for new ideas; develops the capacity to prioritize, investigate, and act on those ideas; and builds an adaptive culture that embraces continual change. Govindarajan illustrates his thesis with several compelling company stories. For example, Tata Consultancy Services decided to divest its fast-growing call-center operations at the height of the boom in that business, because its leaders could see that technologies were moving to the cloud and that global enterprises would eventually demand higher-level, more strategic outsourced services. Call centers would just get in the way of that future. And Hasbro, the toy and game maker, acted on numerous technological and demographic shifts in the 1990s to significantly outpace its leading competitor, Mattel. INSET: How Hasbro Responded to Nonlinear Change. [ABSTRACT FROM AUTHOR]

Multinationals are starting to catch on to the logic of reverse innovation, in which products are designed first for consumers in low-income countries and then adapted into disruptive offerings for developed economies. But only a handful of companies have managed to do it successfully until now. In this article an MIT engineering professor and a Tuck professor of management explain why. After conducting a three-year study of reverse innovation projects, they’ve concluded that the main hurdle facing product developers is a mindset. Western designers, who usually create products by following time-tested methods, struggle to overcome the constraints and leverage the freedoms of emerging markets. They tend to fall into common mental traps that prevent the development of reverse innovations: matching segments to existing products, lowering price by removing features, failing to think through all the technical requirements, neglecting stakeholders, and refusing to believe products created for low-income markets could have global appeal. But companies can avoid these traps, the authors found, by adhering to five design principles. The success of several new products illustrates how. One is the Leveraged Freedom Chair, a low-cost wheelchair that can navigate rugged terrain in places with poor infrastructure; a modified version is taking Western markets by storm. INSET: Idea in Brief.. [ABSTRACT FROM AUTHOR]

India might appear to be the last place on earth where you would find health care innovation. Although government programs have finally brought some infectious diseases under control, the nation’s ability to meet the basic medical needs of its citizens remains abysmal. However, necessity spawns innovation. Despite the pressing demand and constrained supply, a few relatively new Indian hospitals have devised ways of providing world-class health care affordably—and to scale. The authors identified more than 40 hospitals in India with innovative strategies and selected nine that were consistently providing high quality care at ultralow prices. To deliver on those dual commitments, the Indian exemplars developed three powerful organizational advantages: a hub-and-spoke configuration of assets, an innovative way of determining who should do what, and a focus on cost-effectiveness rather than just cost cutting. Those moves don’t require changes in legislation; only a commitment to reverse the inexorable rise in costs. Indian hospitals, doctors, and administrators have traditionally looked to the West for advances in medical knowledge, but it’s time the West looked to India for innovations in health care delivery. INSET: SALARIES ARE ONLY PART OF THE EQUATION. [ABSTRACT FROM AUTHOR]

Reverse innovation-developing ideas in an emerging market and coaxing them to flow uphill to Western markets-poses immense challenges, because it requires a company to overcome the institutionalized thinking that guides its actions. That's why the experience of the automobile-infotainment division of Harman International is so impressive. The U.S.-based business, known for ultrasophisticated dashboard audiovisual systems designed by German engineers, developed a radically simpler and cheaper way of creating products in emerging markets and then applied what it had learned in the process to its product- development centers in the West. Harman did this using a two part approach: radical change from below combined with astute leadership from above. A small team based in India and China set audacious goals, created a new organizational structure, and adopted new design methods, while the chief executive, Dinesh C. Paliwal, rebranded the company's future,shifted the corporate center of gravity to emerging markets, made sure that legacy units continued to thrive, and averted conflict between old and new. INSETS: Reversing the Flow of Innovation;Demise of the Dominant Logic. [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]

HBR asked top management thinkers to share what they were resolved to focus on in 2011. Here are their answers: Joseph E. Stiglitz will be crafting a new postcrisis paradigm for macroeconomics whereby rational individuals interact with imperfect and asymmetric information. Herminia Ibarra will be looking for hard evidence of how "soft" leadership creates value. Eric Schmidt will be planning to scale mobile technology by developing fast networks and providing low-cost smartphones in the poorest parts of the world. Michael E. Porter will be using modern cost accounting to uncover--and lower--the real costs of health care. Vijay Govindarajan will be trying to prototype a $300 house to replace the world's poorest slums, provide healthy living, and foster education. Dan Ariely will be investigating consumers' distaste for genetically modified salmon, synthetic pharmaceuticals, and other products that aren't "natural." Laura D. Tyson will be promoting the establishment of a national infrastructure investment bank. Esther Duflo will be striving to increase full immunization in poor areas of India. Clay Shirky will be studying how to design internet platforms that foster civility. Klaus Schwab will be undertaking to create a Risk Response Network through which decision makers around the world can pool knowledge about the risks they face. Jack Ma will be working to instill a strong set of values in his 19,000 young employees and to help clean up China's environment. Thomas H. Davenport will be researching big judgment calls that turned out well and how organizations arrived at them. A.G. Lafley will be proselytizing to make company boards take leadership succession seriously. Eleven additional contributors to the Agenda, along with special audio and video features, can be found at hbr.org/2011-agenda. [ABSTRACT FROM AUTHOR]

A letter to the editor is presented in response to the article "Building Breakthrough Businesses Within Established Organizations," from the May 2005 issue.

Letters to the editor are presented in response to a blog posted on "Harvard Business Review" journal's website in April 2013 which presents a traditional puzzle featuring a grid of boxes and discusses the need for innovation and creative problem solving in business.