PACE 70

CREATING CORPORATE
EXECUTIVE ADVANTAGE

SUMMARIES DAVID J. COLLIS AND

CYNTHIA A. MONTGOMERY

What differentiates truly great corpo-

Harvard Business Review
MAY-JUNE 199S
COMING IN HBR
THE END OF CORPORATE IMPERIALISM
C.K. PRAHALAD
LEADERSHIP WHEN THERE'S
NO ONE TO ASK: AN INTERVIEW WITH
ENI'S FRANCO BERNABE
LINDA HILL AND SU2Y WETLAUFER
PERSPECTIVES:
CONNECTIVITY AND CONTROL IN THE
YEAR 2000 AND BEYOND
Copyright© 1998
by the President
and Fellows of
Harvard College.
All rights reserved.
rate strategies from the merely ade-
quate? How can executives at the cor-
porate level create tangible advantage
for their businesses that makes the
whole more than the sum of the parts?
This article presents a comprehen-
sive framework for value creation in
the multibusiness company. It addresses
the most fundamental questions of
corporate strategy: What businesses
should a company be in? How should it
coordinate activities across businesses?
What role should the corporate office
play? How should the corporation mea-
sure and control performance?
Through detailed case studies of Tyco
International, Sharp, the Newell Com-
pany, and Saatchi and Saatchi, the au-
thors demonstrate that the answers to
all those questions are driven largely hy
the nature of a company's special re-
sources-its assets, skills, and capabili-
ties. These range along a continuum
from the highly specialized at one end
to the very general at the other. A cor-
poration's location on the continuum
constrains the set of businesses it
should compete in and limits its choices
about the design of its organization.
Applying the framework, the authors
point out the common mistakes that
result from m.isaligned corporate strat-
egies. Companies mistakenly enter
businesses based on similarities in
products rather than the resources that
contribute to competitive advantage in
each business. Instead of tailoring orga-
nizational structures and systems to
the needs of a particular strategy, they
create plain-vanilla corporate offices
and infrastructures. The company ex-
amples demonstrate that one size does
not fit all. One can find great corporate
strategies all along the continuum.
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HARVARD BUSINESS REVIEW May-June 1998 189

 EXECUTIVE SUMMARIES
PAGE 8 4
THE NECESSARY ART OF
PERSUASION
JAY A. CONGER
Business today is largely run by teams
and populated by authority-averse baby
boomers and Generation Xers. That
makes persuasion more important than
ever as a managerial tool.
But contrary to popular belief, the au-
thor asserts, persuasion is not the same
as selling an idea or convincing oppo-
nents to see tbings your way. It is in-
stead a process of learning from otbers
and negotiating a shared solution. To
that end, persuasion consists of four es-
sential elements: establishing credibil-
ity, framing to find common ground,
providing vivid evidence, and connect-
ing emotionally.
Credibility grows, the author says,
out of two sources: expertise and rela-
tionships. Tbe former is a function of
product or process knowledge and tbe
latter a history of listening to and work-
ing in tbe best interest of otbers.
But even if a persuader's credibility is
bigh, his position must make sense-
even more, it must appeal-to tbe audi-
ence. Therefore, a persuader must frame
his position to illuminate its benefits to
everyone who will feel its impact.
Persuasion tben becomes a matter of
presenting evidence-but not just ordi-
nary cbarts and spreadsheets. The au-
thor says tbe most effective persuaders
use vivid-even over-the-top-stories,
metaphors, and examples to make tbeir
positions come alive.
Finally, good persuaders bave tbe
ability to accurately sense and respond
to their audience's emotional state.
Sometimes, tbat m.eans they have to
suppress tbeir own emotions; at other
times, they must intensify them.
Persuasion can be a force for enor-
mous good in an organization, but peo-
ple must understand it for what it is: an
often painstaking process tbat requires
insight, planning, and compromise.
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PAGE 9 8
EMPOWERMENT:
THE EMPEROR'S NEW CLOTHES
CHRIS ARGYRIS
Everyone talks about empowerment,
hut it's not working. CEOs subtly under-
mine empowerment. Employees are of-
ten unprepared or unwilling to assume
tbe new responsibilities it entails. Even
change professionals stifle it.
Wben empowerment is used as the
ultimate criteria of success in organiza-
tions, it covers up many of tbe deeper
problems that tbey must overcome. To
understand tbis apparent contradic-
tion, tbe author explores two kinds of
commitment: external and internal.
External commitment-01 contrac-
tual compliance-is wbat employees
display wben tbey have little control
over tbeir destinies and are accustomed
to working under tbe command-and-
control model. Internal commitment
occurs when employees are committed
to a particular project, person, or pro-
gram for their own individual reasons or
motivations. Internal commitment is
very closely allied with empowerment.
Tbe problem with change programs
designed to encourage empowerment is
that they actually end up creating more
external than internal commitment.
One reason is tbat these programs are
rife with inner contradictions and send
out mixed messages like "do your own
thing - the way we tell you." Tbe result
is that employees feel little responsibil-
ity for the change program, and people
throughout the organization feel less
empowered.
What can be done? Companies would
do well to recognize potential inconsis-
tencies in their change programs; to un-
derstand tbat empowerment has its
limits; to establish working conditions
that encourage employees' internal
commitment; and to realize that morale
and even empowerment are penulti-
mate criteria in organizations. Tbe ul-
timate goal is performance.
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PAGE 108
SIX DANGEROUS MYTHS
ABOUT PAY
JEFFREY PFEFFER
Every day, executives make decisions
about pay, and they do so in a landscape
that's shifting. As more and more com-
panies base less of their compensation
on straight salary and look to other fi-
nancial options, managers are bom-
barded v^'ith advice about the best ap-
proaches to take.
Unfortunately, much of that advice is
wrong. Indeed, much of the conven-
tional wisdom and public discussion
about pay today is misleading, incor-
rect, or both. The result is that busi-
nesspeople are adopting wrongheaded
notions about how to pay people and
why. In particular, they are subscribing
to six dangerous myths about pay.
• Myth #1: labor rates are the same as
labor costs.
• Myth #2: cutting labor rates will lower
labor costs.
• Myth #3: labor costs represent a large
portion of a company's total costs.
• Myth #4: keeping labor costs low cre-
ates a potent and sustainable competi-
tive edge.
• Myth #5: individual incentive pay im-
proves performance.
• Mytb #6: people work primarily for
the money.
The author explains why these myths
are so pervasive, shows where they go
wrong; and suggests how leaders might
think more productively about com-
pensation.
With increasing frequency, the au-
thor says, he sees managers harming
their organizations by buying into - and
acting on-these myths. Those that do,
he warns, are probably doomed to end-
less tinkering with pay that at the end
of the day will accomplish little but
cost a lot.
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EXECUTIVE SUMMARIES
PAGE 121
THE ALTERNATIVE WORKPLACE:
CHANGING WHERE AND
HOW PEOPLE WORK
MAHLON APGARJV
Today many organizations, including
AT&.T and IBM, are pioneering the alter-
native workplace-the. combination of
nontraditional work practices, settings,
and locations that is beginning to sup-
plement traditional offices. This is not
a fad. Although estimates vary widely,
it is safe to say tbat some 30 million to
40 million people in the United States
are now either telecommuters or home-
based workers.
What motivates managers to exam-
ine how people spend their time at the
office and where else they might do
their work? Among the potential bene-
fits for companies are reduced costs, in-
creased productivity, and an edge in vy-
ing for and keeping talented employees.
They can also capture government in-
centives and avoid costly sanctions.
But at the same time, alternative work-
place programs are not for everyone. In-
deed, such programs can be difficult to
adopt, even for those organizations that
seem to be most suited to them. In-
grained behaviors and practical hurdles
are hard to overcome. And the chal-
lenges of managing both the cultural
changes and systems improvements re-
quired by an alternative workplace ini-
tiative are substantial.
How should senior managers think
about alternative workplace programs?
What are the criteria for determining
whether the alternative workplace is
right for a given organization? What are
the most common pitfalls in imple-
menting alternative workplace pro-
grams? The author provides the answers
to these questions in his examination
of this new frontier of where and how
people work.
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191
 EXECUTIVE SUMMARIES
PAGE 139
PROFIT POOLS:
A FRESH LOOK AT STRATEGY
ORITGADIESH AND
JAMES L. GILBERT
In charting strategy, many managers fo-
cus on revenue grov^'th, assuming that
profits will follow. But that approach is
dangerous: today's deep revenue pool
may become tomorrow's dry hole. To
create strategies that result in prof-
itable growth, managers need to look
beyond revenues to see the shape of
their industry's profit pool.
The authors define an industry's
profit pool as the total profits earned at
all points along the industry's value
chain. Although the concept is simple,
the structure of a profit pool is usually
quite complex. The pool -will be deeper
in some segments of the value chain
than in others, and depths will vary
within an individual segment as well.
Segment profitability may, for example,
vary widely by customer group, product
category, geographic market, and dis-
tribution channel. Moreover, the pat-
tern of profit concentration in an indus-
try will often be very different from the
pattern of revenue concentration.
The authors describe how successful
companies have gained competitive ad-
vantage by developing sophisticated
profit-pool strategies. They explain
how U-Haul identified new sources of
profit in the consumer-truck-rental in-
dustry; how Merck reached beyond its
traditional value-chain role to protect
its profits in the pharmaceuticals in-
dustry; how Dell rebounded from a
misguided channel decision by refocus-
ing on its traditional source of profit;
and how Anheuser-Busch made a series
of astute product, pricing, and operat-
ing decisions to dominate the beer in-
dustry's profit pool.
The companies with the best under-
standing of their industry's profit pool,
the authors argue, will be in the best po-
sition to thrive over the long term.
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PAGE 149
HOW TO MAP YOUR
INDUSTRY'S PROFIT POOL
ORITGADIESH AND
JAMES L.GILBERT
Many managers ehart strategy without
a full understanding of the sources and
distribution of profits in their industry.
Sometimes they focus their sights on
revenues instead of profits, mistakenly
assuming that revenue growth will
eventually translate into profit growth.
In other eases, they simply lack the
data or the analytical tools required to
isolate and measure variations in prof-
itability.
In this Manager's Tool Kit, the au-
thors present a way to think clearly
about where the money's being made in
any industry. They describe a frame-
work for analyzing how profits are dis-
tributed among the activities that form
an industry's value chain. Such an
analysis can provide a company's man-
agers with a rich understanding of their
industry's profit structure-what the
authors call its profit pool-enabling
them to identify which activities are
generating disproportionately large or
small shares of profits. Even more im-
portant, a profit-pool map opens a win-
dow onto the underlying structure of
the industry, helping managers see the
various forces that are determining the
distribution of profits. As such, a profit-
pool map provides a solid basis for
strategic thinking.
Mapping a profit pool involves four
steps: defining the boundaries of the
pool, estimating the pool's overall size,
estimating the size of eaeh value-chain
activity in the pool, and checking and
reconciling the calculations. The au-
thors briefly describe each step and
then apply the process by providing a
detailed example of a hypothetical re-
tail bank. They eonclude by looking at
ways of organizing the data in chart
form as a first step toward plotting a
profit-pool strategy.
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PAGE 2 4
DOES THIS COMPANY
NEED A UNION?
CONSTANTINE VON HOFFMAN
No doubt about it, the top managers in
this fictitious case study agree, Well-
ington Associates is a great place to
work. Analysts at the high-tech con-
sulting firm enjoy some of the best pay
in the industry. And their benefits are
extensive: flextime, liberal educational
opportunities, comprehensive medical
and dental coverage, generous vacation
leave, and even on-site day care.
So it came as something of a shock to
CEO Jane Wellington and her top exec-
utives when HR chief Elvin Cusack
started out the weekly senior-manage-
ment meeting hy declaring that the
United Office Workers Union had be-
gun organizing the support staff.
Turns out, Cusaek explained, that
the company looks very different from
the support staff's point of view. Al-
though their starting salaries are indeed
competitive, raises average a mere 2%
to 3%, and prom^otions to professional
ranks are rare. Medical and dental cov-
erage take a greater chunk out of cleri-
cal pay than out of the larger profes-
sional salaries, and the cost of the day
care center is pretty much out of reach
for the support staff. Flextime is im-
practical for workers who need to be in
the office to answer phones and to file
papers. Worse, the support staff is ex-
pected to accommodate the analysts'
flexible schedules,- if an analyst decides
to work late to finish a project, the sec-
retary has to stay as well.
What to do? Suggestions ranged from
"fire 'em" to "say nothing before call-
ing in legal counsel." Five commenta-
tors examine Wellington's options and
its legal obligations.
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HARVARD BUSINESS REVIEW May-fune 1998
EXECUTIVE SUMMARIES
PAGE 41
STRATEGIC STORIES:
HOW 3M IS REWRITING
BUSINESS PLANNING
GORDON SHAW, ROBERT BROWN,
AND PHILIP BROMILEY
Virtually all business plans are written
as a list of bullet points. Despite the
skill or knowledge of their authors,
these plans usually aren't anything
more than lists of "good things to do."
For example:
• Increase sales by 10%.
" Reduce distribution costs by 5 %.
• Develop a synergistic vision for tradi-
tional products.
Rarely do these lists reflect deep
thought or inspire com.mitment.
Worse, they don't specify critical rela-
tionships between the points, and they
can't denaonstrate how the goals will
be achieved.
3M executive Gordon Shaw began
looking for a more coherent and com-
pelling way to present business plans.
He found it in the form of strategic sto-
ries. Telling stories was already a habit
of mind at 3M. Stories about the advent
of Post-it Notes and the invention of
masking tape help define 3M's identity.
They're part of the way people at 3M
explain themselves to their customers
and to one another.
Shaw and his coauthors examine
how business plans can he transformed
into strategic narratives. By painting a
picture of the market, the competition,
and the strategy needed to beat the
competition, these narratives can fill in
the spaces around the bullet points for
those who will approve and those who
will implement the strategy.
When people can locate themselves
in the story, their sense of commitment
and involvement is enhanced. By con-
veying a powerful impression of the
process of winning, narrative plans can
mobilize an entire organization.
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 EXECUTIVE SUMMARrES
PAGE 55
EVOLUTION AND REVOLUTION
AS ORGANIZATIONS GROW
LARRY E. GREINER
The influence of history on an organi-
zation is a powerful but often over-
looked force. Managers, in tbeir baste
to build companies, frequently fail to
ask sucb critical developmental ques-
tions as, Wbere bas our organization
been? Wbere is it now? and What do the
answers to tbese questions mean for
where it is going? Instead, when con-
fronted witb problems, managers fix
their gaze outward on tbe environment
and toward tbe future, as if more pre-
cise market projections will provide tbe
organization with a new identity.
In this HBR Classic, Larry Greiner
identifies a series of developmental
phases tbat companies tend to pass
through as they grow. He distinguishes
tbe phases by their doininant themes:
creativity, direction, delegation, coordi-
nation, and collaboration.
Each phase begins with a period of
evolution, steady growtb, and stability,
and ends with a revolutionary period of
organizational turmoil and change. The
critical task for management in each
revolutionary period is to find a new set
of organizational practices that will be-
come the basis for managing tbe next
period of evolutionary growth. Those
new practices eventually outlast tbeir
usefulness and lead to anotber period of
revolution. Managers tberefore experi-
ence the irony of seeing a major solu-
tion in one period become a major prob-
lem in a later period.
Originally published in 1972, the ar-
ticle's argument and insights remain
relevant to managers today. Accompa-
nying tbe original article is a commen-
tary by the author updating his earlier
obseryations.
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PAGE 167
OPENING THE DOORS
FOR BUSINESS IN CHINA
JEFFREY E. GARTEN
Cbina is an alluring market for multi-
national companies, but tbose based in
the United States have suffered from
the foreign-policy demands that tbeir
government bas imposed on relations
with this emerging giant. The author, a
former undersecretary of commerce in
the Clinton administration and now
dean of tbe Yale Scbool of Manage-
ment, reviews two new hooks that help
point tbe way to a consistent foreign
policy in tbe interests of botb govern-
ment and business.
Big Dragon, by Daniel Burstein and
Arne de Keijzer, takes a broad look at
China and persuasively argues for a co-
operative foreign policy that respects
the country's power witbout treating it
as an adversary. Greg Mastel's Rise of
the Chinese Economy, which focuses
on trade issues, delivers an important
warning tbat the developed countries
need China to reduce government in-
tervention in its economy before they
can safely integrate it into tbe World
Trade Organization. Sucb change, Mas-
tel says, would require a total restruc-
turing of China's totalitarian political
system; he urges tbe West to push
Cbina forward now, using WTO admit-
tance as a lever.
Whether we push China forward or
not, Garten adds, the sheer size of the
country combined witb its serious in-
ternal strains means that it is likely to
disrupt tbe world economy in a number
of ways, and he advises companies on
ways to minimize tbeir risk. He recom-
mends that companies maintain a
wide portfolio of investments in China,
appoint sophisticated government-
relations managers, and invest heavily
in local communities and projects of
broad interest to the country.
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HARVARD BUSINESS REVIEW May-June 1998
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