Managing across Borders: New Organizational Responses
Christopher A and Ghoshal, Sumantra , Sloan Management Review, Fall
1987, pp. 43-53.
allows global companies to sense, analyze, and respond to the needs
of different national markets. Business management capabilities with
global product responsibilities help MNCs achieve global efficiency
and integration. These managers can facilitate manufacturing
rationalization, product standardization, and low-cost global
sourcing. Functional management capabilities are needed to builds
and transfers core competencies across a global organization.
assumptions block organizational development. There is a widespread,
often implicit assumption that roles of different organizational
units are uniform and symmetrical. Internal interunit relationships
are assumed to be clear and unambiguous. One of corporate
management's principal tasks is to institutionalize clearly
understood mechanisms for decision making and to implement simple
means of exercising control.
companies do not treat different businesses, functions, and
subsidiaries similarly. They systematically differentiate tasks and
responsibilities. Instead of seeking organizational clarity by
basing relationships on dependence or independence, they build and
manage interdependence among the different units of the companies.
And instead of considering control their key task, they search for
complex mechanisms to coordinate and co-opt the differentiated and
interdependent organizational units into sharing a vision of the
company's strategic tasks.
Independent units risk
being attacked one-by-one by competitors whose coordinated global
approach gives them two important strategic advantages – the ability
to integrate research, manufacturing, and other scale efficient
operations, and the opportunity to cross subsidize the losses from
battles in one market with profits generated in other markets. On
the other hand, foreign operations totally dependent on a central
unit must deal with problems reaching beyond the loss of local
It is not easy to change
relationships of dependence or independence that have been built up
over a long time. But some companies have done this by changing the
basis of the relationships among product, functional, and geographic
management groups. From relations based on dependence or
independence, they have moved to relations based on formidable
levels of explicit, genuine interdependence. In essence, they have
made integration and collaboration self-enforcing by making it
necessary for each group to cooperate in order to achieve its own
A unit with strategic
leadership responsibility must be given freedom to work in an
entrepreneurial fashion. But it must also be strongly supported by
headquarters. For this unit, operating controls may be light and
quite routine, but coordination of information and resource flows to
and from the unit may still require intensive involvement from
senior management. In contrast, units with implementation
responsibility might be managed through tight operating controls,
with standardized systems used to handle much of the coordination.
Because the tasks are more routine, the use of scarce coordinating
resources can be minimized.
multidimensional perspectives and capabilities does not mean that
product, functional and geographic management must have the same
level of influence on all key decisions. Different groups have
different roles for different activities and these roles are likely
to change from time to time. The ability to manage these
multidimensional aspects in a flexible manner is the hallmark of a
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Learning to lead at
by Spear, Steven J.,
Harvard Business Review, May2004, pp. 78-86.
Many companies have tried to copy the Toyota Production System (TPS)
– but without success. Part of the reason is that imitators fail to
recognize the underlying principles of TPS. This article explains
how Toyota makes new managers familiar with TPS principles. Spear
describes the training of a talented young American selected for a
high-level position at one of Toyota’s US plants. There are four
basic lessons for any company wishing to train its managers to apply
There's no substitute for direct observation.
Proposed changes should always be structured as experiments.
Workers and managers should experiment as frequently as possible.
Managers should coach, not fix the problem.
Instead of going through cursory walk-throughs, orientations, and
introductions as incoming fast-track executives at most companies
might, the executive in this story learned TPS the long, hard
way--by practicing it. This is how Toyota trains any new employee,
regardless of rank or function. This article is a sequel to the
author’s 1999 article on the Toyota Production System.
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Better Boards by
Nadler, David A. .Harvard Business Review, May2004, pp. 102-111,
Boards must be able to add value without
meddling and make CEOs more effective but not all-powerful. A board
can do that if it functions as a high-performance team, one that is
competent, coordinated, collegial, and focused on an unambiguous
goal. There are limits to how much good governance can be imposed
from the outside.
The board must conduct regular
self-assessments. As a first step, the directors and the CEO should
agree on which of the board models best fits the company: passive,
certifying, engaged, intervening, or operating. The directors and
the CEO should then analyze which business tasks are most important
and allot sufficient time and resources to them. Next, the board
should assess each director's strengths to ensure that the group as
a whole possesses the skills necessary to do its work. Directors
must exert more influence over meeting agendas and ensure they have
the right information at the right time and in the right format to
perform their duties. Finally, the board needs to foster an engaged
culture characterized by candor and a willingness to challenge.
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The Perils of the
Imitation Age by Bonabeau,
Eric. Harvard Business Review, Jun2004, pp. 45-54.
Imitation exerts enormous influence
over contemporary society. The influence of imitation has grown as
the avenues by which people imitate have multiplied. In consumer
purchases, financial markets, and corporate strategy, what others do
matters more to us than the facts. When there's too much
information, imitation becomes a convenient heuristic.
Imitation has its virtues, but it also
promotes instability and unpredictability. That's because, it can
swell a single opinion into a mass movement or catapult the smallest
player to the forefront of a market.
Businesses that understand how imitation
works can be better prepared by accounting for it in their forecasts
and risk-management plans, by becoming more sensitive to
unexpectedly changing circumstances, and by avoiding mindless
imitation of other companies' moves. In some instances, they may
even be able to use the tools of imitation to capture new business.
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Sharpening the Intangibles
Lev, Baruch , Harvard Business Review,
intangible assets generate most of a company's growth and
shareholder value. Yet extensive research indicates that investors
systematically misprice the shares of intangibles-intensive
enterprises. While, overpricing wastes capital, underpricing raises
the cost of capital. So companies must generate better information
about investments in intangibles, and disclose at least some of that
data to the capital markets.
that information is easier said than done, however. There are no
markets generating visible prices for intellectual capital, brands,
or human capital to assist investors in correctly valuing
intangibles-intensive companies. And current accounting practices
lump funds spent on intangibles with general expenses, so that
investors and executives don't even know how much is being
invested in them, let alone what a return on those investments might
At the very
least, companies should separate the amounts spent on intangibles
and disclose them to the markets. Executives should also start
thinking of intangibles not as costs but as assets, so that they are
recognized as investments whose returns are identified and
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By making the
most of organizational capabilities we can dramatically improve the
company's market value. The authors identify 11 intangible assets
that well-managed companies tend to have: talent, speed, shared
mind-set and coherent brand identity, accountability, collaboration,
learning, leadership, customer connectivity, strategic unity,
innovation, and efficiency. Such companies typically excel in only
three of these capabilities while maintaining acceptable performance
by industry standards in the other areas. Organizations that fall
below the norm in any of the 11 are likely candidates for
dysfunction and competitive disadvantage.
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Creativity is often touted as a
miraculous road to organizational growth and affluence. But new
ideas can hinder rather than help a company if they are put forward
Too often, the creative types who
generate a proliferation of ideas confuse creativity with practical
innovation. They usually pepper their managers with intriguing but
short memoranda that lack details about what is at stake or how the
new ideas should be implemented. They pass off onto others the
responsibility for getting down to brass tacks.
In this classic HBR article from 1963,
Levitt emphasizes that the person with a great new idea must
recognize that managers are already bombarded with problems. He must
act responsibly by including in the proposal at least a minimal
indication of the costs, risks, manpower, and time the idea may
Conformity and rigidity are necessary
for corporations to function. Indeed, the purpose of an organization
is to achieve the order and conformity necessary to do a particular
job. Otherwise there would be chaos and decay. But even then, large
companies do have important attributes that actually facilitate
innovation. For one thing, big businesses distribute risk, making it
safer for individuals to break new ground. For another, bigness and
group decision making function as stabilizers. Stability encourages
people to risk presenting ideas that might rock the boat.
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Strategy and the
by Michael E. Porter
Many dot-coms have violated nearly every
precept of good strategy. Instead of focusing on profits, they have
chased customers indiscriminately through discounting, channel
incentives, and advertising. Instead of delivering value that earns
an attractive price from customers, they have pursued indirect
revenues such as advertising and click-through fees. Instead of
making trade-offs, they have rushed to offer every conceivable
product or service.
Porter argues that the Internet rarely
nullifies traditional sources of competitive advantage in an
industry; it often makes them even more valuable. And as all
companies embrace Internet technology, the Internet itself will be
neutralized as a source of advantage. Competitive advantages will
continue to result from traditional strengths such a unique
products, proprietary content, and distinctive physical activities.
Internet technology may be able to fortify those advantages, but it
is unlikely to supplant them.
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Strategy Under Uncertainty
by Hugh Courtney, Jane
Kirkland, and Patrick Viguerie
The traditional approach to strategy
assumes that by applying a set of powerful analytic tools,
executives can predict the future of any business accurately
enough to allow them to choose a clear strategic direction. But
what happens when the environment is very uncertain? The authors
argue that uncertainty requires a new way of thinking about
strategy. All too often, executives take a binary view: either
they underestimate uncertainty and come up with very accurate
forecasts or they overestimate it, abandon all analysis, and go
with their gut instinct.
The authors draw a crucial distinction
among four discrete levels of uncertainty that any company might
face. They then explain how a set of generic strategies-shaping
the market, adapting to it, or reserving the right to play at a
later time-can be used in each of the four levels. And they
illustrate how these strategies can be implemented through a
combination of three basic types of actions: big bets, options,
and no-regrets moves.
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We are in the midst of a fundamental
shift in the economics of information, a shift that will precipitate
changes in the structure of entire industries and in the ways
companies compete. This shift is made possible by the widespread
adoption of Internet technologies, but it is less about technology
and more about a new behavior reaching critical mass. Millions of
people are communicating at home and at work in an explosion of
connectivity that threatens to undermine the established value
chains for businesses in many sectors of the economy.
The authors present a conceptual
framework for understanding the relationship of information to the
physical components of the value chain and how the Internet's
ability to separate the two will lead to the reconfiguration of the
value proposition in many industries. In any business where the
physical value chain has been compromised for the sake of delivering
information, there will be an opportunity to create a separate
information business and a need to streamline the physical one.
Executives must keep examining the potential to deconstruct their
businesses to see the real value of what they have. If they do not,
someone else will.
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In our personal life, experience is
often the best teacher. Not so in corporate life. After a major
event- a product failure, a downsizing crisis, or a merger, many
companies stumble along, oblivious to the lessons of the past.
Mistakes get repeated.
A useful tool in this context is the
learning history, a written narrative of a company's recent critical
event, nearly all of it presented in two columns. In one column,
relevant episodes are described by the people who took part in them,
were affected by them, or observed them. In the other, learning
historians - trained outsiders and knowledgeable insiders- identify
recurrent themes in the narrative, pose questions, and raise "undiscussable"
issues. The learning history forms the basis for group discussions,
both for those involved in the event and for others who also might
learn from it. This tool based on the ancient practice of community
story telling can build trust, raise important issues and transfer
knowledge from one part of a company to another.
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Core competencies and focus are popular
mantras in the west. Managers in the West have dismantled many
conglomerates assembled in the 1960s and 1970s. But large,
diversified business groups continue to dominate many emerging
markets. Consultants and foreign investors are increasingly
pressuring groups to conform to Western practice by reducing the
scope of their business activities. But the authors argue that this
advice may be wrong. Companies must adapt their strategies to fit
their institutional context: a country's product, capital, and labor
markets; its regulatory system; and its mechanisms for enforcing
contracts. Unlike advanced economies, emerging markets suffer from
weak institutions in all or most of these areas. Conglomerates can
add value by imitating the functions of several institutions that
are present only in advanced economies.
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Many companies do not tap the full
potential of their foreign factories. They try to derive benefits
only from tariff and trade concessions, cheap labor, capital
subsidies, and reduced logistics costs. As a result foreign
factories are given a limited range of work, responsibilities, and
resources. But there are companies that expect much more from their
foreign factories and, as a result, get much more. They use them to
get closer to their customers and suppliers, to attract skilled and
talented employees, and to create centers of expertise for the
entire company. The author points out that managers must consider
manufacturing as a major source of competitive advantage, not just a
way of cutting costs or getting around regulatory barriers.
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In the past, companies kept most of
their R&D activities in their home country. They thought it
important to have R&D close to where strategic decisions were being
made. But today many companies choose to establish R&D networks in
foreign countries in order to tap the knowledge there or to
customise products for those markets rapidly.
Adopting a global approach means linking
R&D strategy to a company's overall business strategy. Companies
must determine whether an R&D site's primary objective is to augment
the expertise that the home base has to offer or to exploit that
knowledge for use in the foreign country. That determination affects
the choice of location and staff. For example, to augment the home
base laboratory, a company would want to be near a foreign
university. To exploit the home base laboratory, it would need to be
near large markets and manufacturing facilities. Leaders of these
R&D set ups must combine the qualities of good scientist and good
manager, know how to integrate the new site with existing sites,
understand technology trends, and be good at gaining access to
foreign scientific communities.
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What Is Strategy?
by Michael E. Porter
Today's dynamic markets and technologies
have called into question the sustainability of competitive
advantage. Under pressure to improve productivity, quality, and
speed, managers have embraced tools such as TQM, benchmarking, and
reengineering. Dramatic operational improvements have resulted, but
rarely have these gains translated into sustainable profitability.
Porter explains how efforts to improve
operational efficiency have led to the rise of mutually destructive
competitive battles that erode profitability. Operational
effectiveness, although necessary for superior performance, is not
sufficient, because its techniques are easy to imitate. In contrast,
the essence of strategy is choosing a unique and valuable position
rooted in systems of activities that are much more difficult to
Porter traces the economic basis of
competitive advantage down to the level of the specific activities a
company performs. He shows how making trade-offs among activities is
critical to the sustainability of a strategy.
Whereas managers often focus on
individual components of success such as core competencies or
critical resources, Porter shows how managing fit across all of a
company's activities enhances both competitive advantage and
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The prevailing view is that there is an
inherent and fixed trade-off: ecology versus the economy. On one
side are the social benefits that arise from environmental
standards. On the other side are the private costs to industry of
prevention and cleanup that lead to higher prices and reduced
industrial competitiveness. The authors argue that this is a static
view. Companies are constantly finding innovative solutions in
response to pressures of all sorts-from competitors, from customers,
from regulators. The authors emphasise that tougher environmental
standards can actually enhance competitiveness by pushing companies
to use resources more productively.
Today managers and regulators focus on
the actual costs of eliminating or treating pollution. To end the
stalemate, they should focus instead on the enormous opportunity
costs of pollution- wasted resources, wasted effort, and diminished
product value to the customer. Managers must start to recognize
environmental improvement as an economic and competitive
opportunity, not as an irritant or a compliance issue.
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Discovery-driven planning is a practical
tool that is useful in planning for new ventures, which are often
undertaken with several assumptions. But assumptions about the
unknown are often wrong. New ventures inevitably experience
deviations, often huge ones from their original targets. Indeed, new
ventures frequently require fundamental redirection from time to
time. The authors offer managers a tool that highlights potentially
dangerous implicit assumptions. Discovery-driven planning converts
assumptions into knowledge as a new venture unfolds, forces managers
to articulate what they don't know, provides a discipline to help
them address the make-or-break unknowns before making major resource
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In the post war years, planning and
control systems enabled companies to grow and helped managers deal
with sprawling enterprises. But this strategy-structure-systems
doctrine is increasingly losing relevance.
Systems can control employees but they
also inhibit creativity and initiative. Today the challenge for
top-level managers is to engage the knowledge and skills of each
person in the organization in order to create what the authors call
an individualized corporation.
Senior executives must spend much of
their time coaching their management teams. The direct personal
contact that top-level managers maintain with others not only keeps
those at the top apprised of the real issues and challenges their
businesses face but also gives them the opportunity to shape
frontline managers' responses to those issues.
Top-level managers must not direct and
correct middle and frontline managers. Instead they must create an
environment in which individuals monitor themselves. The assumption
is that given the same information, incentives, and authority to
act, frontline managers will reach the same decisions that top-level
managers would have reached.
Systems, no matter how sophisticated,
can never replace the richness of close personal communication and
contact between top-level and frontline managers.
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The hierarchical organization based on
the strategy-structure-systems doctrine of management no longer
delivers competitive results. A top-down structure gives managers
tight control and allows companies to grow. But it also fragments
resources and creates a vertical organization that prevents small
units from sharing their strengths with one another. Structural
fixes, such as skunk works, alliances, and acquisitions, have also
not solved the problem.
The authors emphasize that management
must promote three core organizational processes: frontline
entrepreneurship, competence building, and renewal. Companies should
encourage bottom-up initiatives from operating units, which are
closest to customers. Managers must balance discipline and support
to create a self disciplined organization. Similarly, managers must
trust operating units with creating competencies and limit their own
role to seeing that those strengths are shared throughout the
In addition to providing direction,
managers must sometimes disrupt organizational equilibrium-for
example, by stretching the company with increasingly challenging
goals. They must create an environment that asks employees to
challenge conventional wisdom.
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Technologies: Catching the Wave
by Joseph L. Bower and
Clayton M. Christensen
Many leading companies lose their market
leadership when technologies or markets change. Why is it that
established companies invest aggressively- and successfully- in the
technologies necessary to retain their current customers but then
fail to make the technological investments that customers of the
future will demand?
Most established companies are
consistently ahead of their industries in developing and
commercializing new technologies as long as those technologies
address the next-generation-performance needs of their customers.
However, an industry's leaders are rarely in the forefront of
commercializing new technologies that do not initially meet the
functional demands of mainstream customers and appeal only to small
or emerging markets.
To remain at the top of their
industries, managers must first be able to spot the technologies
that fall into this category. Managers must protect them from the
processes and incentives that are geared to serving mainstream
customers. And the only way to do that is to create organizations
that are completely independent of the mainstream business.
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To compete around the world, a company
needs three strategic capabilities: global-scale efficiency, local
responsiveness, and the ability to leverage learning worldwide. No
single "global" manager can build these capabilities. Rather, groups
of specialized managers must integrate assets, resources, and people
in diverse operating units.
Bartlett and Ghoshal identify three
types of global managers. They also illustrate the responsibilities
each position involves through a close look at the careers of
The first type is the global business or
product-division manager who must build worldwide efficiency and
competitiveness. These managers recognize cross-border opportunities
and risks as well as link activities and capabilities around the
The second is the country manager who is
responsible for understanding and interpreting local markets,
building local resources and capabilities, and contributing inputs
to the development of global strategy.
Finally, there are worldwide functional
specialists. To transfer expertise from one unit to another and
leverage learning, these managers must scan the company for good
ideas and best practices, transfer them across units, and champion
innovations with worldwide applications.
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Unilever, the Anglo-Dutch multinational
with operations in some 75 countries, is one of the world’s leading
transnationals. In this article, Unliver co-chairman, Floris A
Maljers provides an inside look at Unilever's evolution. Through all
the changes, many based on trial and error, the company has
maintained two consistent practices: developing high-quality
managers and linking decentralized units through the "Unileverization"
of those managers.
Many consider Unilever's managerial
recruitment and training policies to be the best in the world. The
company has a strong tradition of developing local talent in its
subsidiaries. At the same time, the head office also expects
managers to gain experience in more than one country or product
line. According to Maljers, a matrix is only as good as the people
in it. It can only work if everyone in the organization accepts and
supports its flexibility.
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Traditional performance measurement
systems are inadequate. A balanced presentation of measures that
allow managers to view the company from several perspectives
simultaneously is needed.
The balanced scorecard includes
financial measures that tell the results of actions already taken
and three sets of operational measures - customer satisfaction,
internal processes, and the organization's ability to learn and
Managers can create a balanced scorecard
by translating their company's strategy and mission statements into
specific goals and measures. To create the part of the scorecard
that focuses on the customer perspective, for example, executives
can establish general goals for customer performance. These might be
to get standard products to market sooner, to improve customers'
time-to-market, to become customers' supplier of choice through
partnerships, and to develop innovative products tailored to
customer needs. Managers can translate these elements of strategy
into four specific goals and identify a measure for each.
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Leadership is not just about making
people happy in the hope that happy people will do the right things.
Leadership must ensure that the company's vision and strategy
capture people's emotional excitement, engage their intellectual
capacities, and produce a sense of urgency for taking action.
Companies can be in one of four zones.
Companies in the comfort zone have low
animation and a relatively high level of satisfaction. With weak but
positive emotions such as calm and contentedness, they lack the
vitality, alertness and emotional tension necessary for initiating
bold new strategic thrusts or significant change.
Companies in the resignation zone
demonstrate weak, negative emotions -- frustration, disappointment,
sorrow. People suffer from lethargy and feel emotionally distant
from company goals. They lack excitement or hope.
Companies in the aggression zone
experience internal tension founded on strong, negative emotions.
Tension drives their intensely competitive spirit, which manifests
itself in high levels of activity and alertness -- and focused
efforts to achieve company goals.
In the passion zone, companies thrive on
strong, positive emotions -- joy and pride in the work. Employees'
enthusiasm and excitement mean that attention is directed toward
shared organizational priorities.
Companies in the comfort zone or the
resignation zone operate at low levels of attention, emotion and
activity. Companies in the aggression zone or the passion zone
display higher levels of focused emotional tension, collective
excitement and action taking.
High-energy companies display an urgency
that makes them more productive. Being constantly alert allows them
to process information and mobilize resources quickly. They strive
for larger-than-life goals. Low-energy companies prefer
standardization and institutionalization. They try to avoid the
surprises, exceptions and risks on which high-energy companies
Energy is not an unmixed blessing,
however, and unless managed wisely, it can degenerate into one of
three main pathologies or energy traps. In the Acceleration Trap,
CEOs drive an organization beyond its capabilities. Relentless
efforts to accelerate can lead to organizational burnout. Companies
that keep adopting major change initiatives without making time for
regeneration are susceptible to the acceleration trap. Inertia Trap
results when a company's ability to leverage resources is weakened.
This trap ensnares victims after too long a stretch of either
success or poor performance. When a company faces external threats
(or opportunities) at the same time as it confronts internal
discord, it may fall into the corrosion trap. Instead of working
together to meet external challenges, people channel their energy
into internal fights.
Companies that succeed at radical change
generally adopt one of two approaches for unleashing and channeling
organizational energy. In the "slaying the dragon" strategy they
move into the aggression zone by focusing people's attention,
emotions and effort on a threat. In the "winning the princess"
strategy, they move into the passion zone by building enthusiasm for
an exciting vision. On the rare occasions when a company can combine
the strong positive and negative emotions of both zones, the results
are spectacular. Companies with neither strategy fall victim to an
energy trap and decline to mediocrity or to crisis.
Slaying the Dragon involves a clear
articulation of an imminent threat, the release of strong, negative
emotions and the channeling of those emotions toward overcoming the
threat. Threats such as bankruptcy, a dangerous competitor or a
disruptive technology require moving employees from the comfort or
resignation zone to the aggression zone.
Because anger, fear, hate or shame are
such powerful emotions, slaying the dragon can effectively shock
people into action. However, the strategy has its downside.
Sometimes, it leads to organizational myopia, with people overly
focused on one well-defined threat. Also, the slay-the-dragon
strategy rarely leads to major innovations or new growth
trajectories. And once the dragon is slain, there may be a rush for
the comfort zone.
Winning the Princess relies on strong,
positive emotions like excitement and enthusiasm to move people into
the passion zone. To engage people's dreams and openness to heroic
effort, leaders have to create an object of desire and invoke
passion so strong that people will overcome passivity and
satisfaction with the status quo.
Slaying the dragon requires high-energy,
brave and commanding leadership. Winning the princess needs calm,
gentle, inspiring and empathic leaders. Because the former strategy
channels aggressive energy into disciplined execution, it requires
top-down instructions and meticulous plans. A strategy that
unleashes passion, however, needs leaders who create an environment
of curiosity, excitement and ownership.
Making people see, believe in and commit
to an opportunity is inherently more difficult than getting them to
acknowledge a threat. The first and most difficult task in pursuing
the winning-the-princess strategy is to define, describe and
substantiate the intangible. Leaders fail when the vision remains
too abstract. It must be simple, clear, convincing and moving.
Second, leaders must embody that vision. Their personal credibility
and actions hold the key to attracting and retaining people's
commitment. Third, leaders have to balance the often playful
activities involved in seeking an intangible future with the
comparatively unexciting protection of the ongoing business.
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Managing across Borders: New Strategic Requirements
by Bartlett, Christopher A and Ghoshal,
Until recently, most worldwide
industries presented relatively unidimensional strategic
requirements. In each industry, a particular set of forces
dominated the environment and led to the success of firms that
possessed a particular set of corresponding competencies.
Take the consumer electronics industry.
In an environment characterized by incrementally changing
technologies, falling transportation and communication costs,
relatively low tariffs and other protectionist barriers, and
increasing homogenization of national markets, huge scale economies
progressively increased the importance of global efficiency. The
industry gradually assumed the attributes of a classic global
industry. Important characteristics like consumer needs, minimum
efficient a scale, and context of competitive strategy were defined
not by individual national environments, but by the global economy.
Firms like Matsushita were ideally
placed to exploit the emerging global-industry demands. Having
expanded internationally much later than their American and European
counterparts, they were able to capitalize on highly centralized
scale intensive manufacturing and R&D operations, and leverage them
through worldwide exports of standardized global products. Such
global strategies fit the emerging industry characteristics far
better than the more tailored country-by-country approach that
companies like Philips and GE had been forced to adopt in an earlier
era of high trade barriers, differences in consumer preferences, and
pretransistor technological and economic characteristics.
Today, it is more difficult for a firm
to succeed with a relatively unidimensional strategic capability
that emphasizes only efficiency, or responsiveness, or learning. To
win, it must now achieve all three goals at one time, i.e., global
efficiency, national responsiveness, and worldwide learning. These
are the characteristics of what the authors call a transnational
A company's organizational capability
develops over many years and is tied to a number of attributes: a
configuration of organizational assets and capabilities that are
built up over decades; a distribution of managerial responsibilities
and influence that cannot be shifted quickly; and an ongoing set of
relationships that endure long after any structural change has been
made. Collectively, these factors constitute a company's
administrative heritage. It can be, at the same time, one of the
company's greatest assets-the underlying source of its key
competencies-and also one of its most significant liabilities, since
it resists change and thereby prevents realignment or broadening of
company's administrative heritage is shaped by many factors. Strong
leaders often leave indelible impressions on their organizations.
Home country culture and social systems also have significant
influences on a company's administrative heritage. For example, the
more important roles that owners and bankers play in corporate level
decision making in many European companies have led to an internal
culture quite different from that of their American counterparts.
These companies tend to emphasize personal relationships rather
than formal structures, and financial controls rather than
coordination of technical or operational detail. Finally, the
internationalization history of a firm also influences its
The companies that were slow to adapt to
the new environment never seemed to recognize the importance of
their administrative heritage.
The ability of a company to survive and
succeed in today’s turbulent international environment depends on
two factors: The fit between its strategic posture and the dominant
industry characteristics, and its ability to adapt that posture to
the multidimensional task demands shaping the current competitive
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