Strategy + Business magazine 10 issues

It is no wonder then that the Internet has inspired a crisis of confidence in that industry. With its 24-hour access, national footprint, low barriers to entry and attractive demographics, the Internet has confronted retail banks with a series of difficult strategic questions: How soon will the Internet have an impact on retail banking? How will it change the competitive dynamics of the industry? What needs to be done to prepare for these changes?

The results of these best-practice relationships are demonstrable. In our most recent case work, we have found opportunities to reduce total cost by 15 to 30 percent by creating more effective supplier relationships. We have also found that these best-practice savings can be sustained. But how are such relationships achieved?

Yet despite all that attention, surprisingly little is said about a core problem many a chief executive faces: how do I insure that my end customers receive the right service at the right price? Indeed, although at least half of all goods and a significant portion of services flow through distribution channels, most of the extensive body of writing about customer care either addresses services provided directly to customers - by airlines, banks, hotels - or simply skirts the complication of dealing through intermediaries.

Soon after taking over, Mr. Fourtou, who is now 57 years old, began to transform the company. Not only did he revamp and decentralize the management system, but he also worked to change the culture and make the company more global. Mr. Fourtou quickly began selling off poorly performing businesses while buying new businesses that matched his growth-oriented global strategy.

They have come up with what they call "assembly rules." These rules tell which species can coexist in a community, as well as the sequences in which species are likely to colonize an ecosystem. Not until a plant establishes itself can the grasshopper that feeds off it arrive. Not until the grasshopper is there can the dragonfly that dines on it enter. Other assembly rules describe how much competition can exist in an ecosystem. A songbird species may arrive and multiply, consuming so much of the food supply that when additional songbird species come along, only one or perhaps two can squeeze into the ecosystem. The others must settle elsewhere.

The parallels to the business world are strong. Business "ecosystems," like biological ones, do not spring full blown upon the earth, but rather develop over time. Life arrives only through spectacular stamina, patience and luck. And in both worlds, a system and a sequence of symbiotic relationships are established.

The company is a financial network called the Lippo Group. Its base is Southeast Asia, one of the world’s most important growth opportunities, an area sometimes called "the Asia America is ignoring." In the past, American companies have served as teachers and talent scouts for companies like Lippo. Now, in a fascinating reversal of roles, Lippo and others like it will be the allies, or rivals, of the Americans in future competition. And they will teach the rest of the world how to build effective networks for the coming alliance-based competition of group against group.

This blurring of identity has profound causes and consequences. Governments have to understand both their causes and their effects to govern effectively in today’s world; and corporate managers, too, need to understand the forces that have suddenly invited them to condition economic government, rather than be conditioned by it. The strongest creator of the new reality is the way that corporate involvement in other countries is reshaping, and even replacing, trade.

Simply put, a data warehouse is just another database. What sets it apart is that the information it contains is not used for operational purposes, but rather for analytical tasks - everything from identifying new market segments to corporate brainstorming. It is not a new device; the first decision-support systems, as they were then known, appeared in the early 1970’s. But those systems were fiercely expensive, difficult to use and narrowly deployed. And most industries were more stable then, leaving companies with little incentive to pour resources into a system whose main purpose was to improve understanding.

With his most recent co-author, Gary Hamel, a professor at the London Business School, Professor Prahalad has written a number of pathbreaking articles and coined such phrases as the "core competencies of the corporation," "strategy as stretch and leverage" and "strategic intent." The articles were more than just scholarly, well-researched presentations. They also withstood what Professor Prahalad has called the "managerial test" - they were actionable. Indeed, the professor’s consistent ability to articulate leading-edge, actionable ideas has made him a popular speaker at gatherings around the world as well as a sought-after adviser to chief executives.

"The Brand Called You," published in the August/September 1997 Fast Company, was born, like so many pieces of business punditry, on the lecture circuit, during the apogee of corporate cutbacks. A middle manager in his mid-30s stood up during one of Mr. Peters’s seminars and asked him directly: "Are you some kind of corporate stooge?" The pundit, shaken and irritated, blurted out his authentic reaction from the stage:

Hey, don’t whine to me. Are you s-o-o-o-o cool, s-o-o-o-o obviously distinct, that you can survive? Do you have a ‘signature’ that’s as unmistakable in its own right as BMW’s? Or Tiffany’s? Or Nordstrom’s?

Beating the B2B Odds 5pages $7 Color Reprint

Are the savings real? Are they sustainable? Fifty years of research in game theory suggests that B2B auctions will certainly drive real savings - but not always for good reasons. Over time, auctions may winnow the field of suppliers, leaving the cleverest survivors in a stronger negotiating position with their customers. These previously downtrodden suppliers will surely seek penance from their erstwhile overlords.

The Great Portal Payoff 5pages $7 Color Reprint

Detail: In the early days of the World Wide Web, e-commerce was the bull’s-eye, and portals were the arrows to it. Gateway sites such as Yahoo, AltaVista, Excite, and Lycos were, it was thought, natural and enduring stopovers for people desperate for guidance through the vast, confusing byways of the Internet. The promise of click-through riches led venture capitalists to flood portals with cash, and prompted marketers at such companies as drkoop.com Inc. and Barnes & Noble Inc. to sign lofty deals to get their banner ads on the sites.

Like much early e-business theory, portal power crumpled from the relentless blows of economic reality. Abysmal click-through rates signaled that portals were failing to deliver on their promise of direct-marketing riches. Between October 1999 and October 2000, click-through rates fell more than 40 percent, with only 0.1 to 0.2 percent of page visitors clicking on banner ads at top portal sites. Dying dot-coms vanished as a source of advertising dollars. Portals lost their luster - and their elevated valuations- as marketers and investors re-thought their Web strategies.

And the New Economy Winner is...Europe 8pages $8 Color Reprint

Detail: The driving force behind the New Economy is clear. Stock market fluctuations aside, the force is with the United States. In economic terms it is the colossus, and its success is not simply admired. The ways in which it organizes and manages its enterprises are emulated with enthusiasm. The British Empire bequeathed a bureaucratic civil service; the United States’ legacy may well be its economic and business strategy and management prowess. Nowhere is the emulation more apparent than in the countries of the European Union. Companies throughout Europe have for decades accepted the American management model as the management model. Business heroes are largely Americans. American success stories are devoured in Europe.

America’s economic system receives much the same adulation from abroad. Its embrace of free markets, low taxation, and the individual pursuit of business achievement are the apotheosis of unfettered capitalism. The arrival of the New Economy has simply made this more apparent.

Why Banks and Telecoms Must Merge to Surge 12pages $8 Color Reprint

Detail: In a 1995 speech, Hugh McColl, Jr. said, "As every school child knows, the dinosaur didn’t survive the Ice Age-. It’s not that he lacked the capacity to evolve. He just didn’t have the time. Unlike the dinosaur, bankers can see the changes ahead. We have a choice in the matter. The dinosaur never did." The CEO of what is now called Bank of America was speaking to an audience assembled by the Banking Administration Institute, an old-line education and research organization serving the industry.

Mr. McColl’s leap from Ice Age dinosaurs to Internet Age banks may have been a stretch. But there’s no doubt that after more than 20 years of change, and innumerable predictions of their demise, commercial banks are bigger and more profitable than ever. Retail banks have held their own despite a declining share of financial assets and successive threats from brokerage houses, national retailers, automobile companies, and even software makers. However, none of the banks’ challengers have put together the combination of customer value, convenience, and trust necessary to be an effective alternative. Banks have been protected mainly by a strong hold over payments, branch banking, and deposit insurance systems, as well as sheer consumer inertia.

Italy's Economic Half-Miracle 12pages $8 Color Reprint

Detail: When Italians want to watch AC Milan, one of the country’s best professional soccer clubs, they tune in to the channel of Mediaset, a major TV network. It’s only natural that the team appears on Mediaset: both are owned by Silvio Berlusconi - media magnate, sportsman, and politician. While AC Milan was scoring goals on Mediaset in the spring of 2000, Mr. Berlusconi had the pleasure of watching Forza Italia, the conservative political party he created, defeat the center-left coalition of Prime Minister Massimo D’Alema in regional elections. The victory was an early indication that Mr. Berlusconi had an excellent chance of being elected prime minister the following year. Indeed, as events unfolded last winter, all signs indicated that by spring 2001, Mr. Berlusconi would be prime minister. (As s+b went to press, the election was scheduled for May 13.)

Mr. Berlusconi held that position in the mid-1990s until the collapse of his coalition led him to resign. He was prime minister during a period when Italy made laudable strides toward modernizing its economy, as the government reduced budget deficits and inflation, eliminated trade deficits, and shrank the public sector through privatization.

The Dilemma Doctors 12pages $8 Color Reprint

Detail: "We have three fundamentally different cultures," says Martin Gillo of his company. Born in East Germany, raised in West Germany, and a 20-year veteran of the American microprocessor industry, Mr. Gillo is a living embodiment of those three cultures. He is the director of human resources at one of the most innovative semiconductor factories in the world, the Advanced Micro Devices (AMD) plant in Dresden, Germany. An afi-cionado of management thought, he is convinced that the success of the enterprise depends on AMD’s ability to synthesize the best of the triad.

"The Americans are can-do, pioneering, optimistic," Mr. Gillo says. "They shoot first, aim later. The West Germans want to be absolutely thorough and correct, and sometimes they fall into ‘analysis paralysis.’ And then you have the East Germans. For 40 years, under Communism, they smuggled their machine tools in from the West. When something broke, they couldn’t call up for a spare part. They created brilliant solutions on their own, but they never learned how to take entrepreneurial risks because the official party lines did not like to see them fail. Now here we are, in our state-of-the-art plant, trying to build computer chips together."

Scrambled Egg: The Making and Breaking of an Online Bank 10pages $8 Color Reprint

Detail: On April 15, 2000, Mike Harris, CEO of the British online bank Egg PLC, was glued to the computer screen as he watched the Internet stock bubble burst. The Nasdaq plummeted 355 points that day, and London technology stocks followed suit. For Egg, which was about to launch an initial public offering, it was a moment of crisis. "My first thought was, that was it, we’d never be able to pull it off," said Mr. Harris. "It was a nightmare." At 8:00 that evening, with the U.S. markets still churning, Mr. Harris and some co-workers went to a London pub around the corner from his office for some sorely needed drinks. Pulling out his cell phone, Mr. Harris called Jonathan Bloomer, then the newly appointed CEO of the U.K.’s Prudential Banking PLC, and Derek Higgs, an executive director. Prudential, a London-based financial services group that has no ties to U.S. companies with the same name, had launched Egg just 18 months earlier, and had been looking forward to the initial public offering for an infusion of cash.

As the gloomy group sipped beers, they weighed the pros and cons of the IPO. Mr. Bloomer was pushing the offering. "I think we should just go for it," he told his colleagues. "To not do it now would show a tremendous lack of conviction." Although Mr. Harris was still skeptical, his Prudential bosses won him over.

Beyond Utopia: The Realist’s Guide to Internet–Enabled Supply Chain Management 10pages $8 Color Reprint

Detail: For decades, academics, economic philosophers, and Communist dictators dreamed of a Utopia founded upon a planned economy. In this magical place, an elite intelligentsia with perfect data, analyses, and insight would plan and control economic life; in this place the distortions of the market would be eliminated.

The central planning concept clearly failed in its most radical form, the economies of the former Eastern Bloc. Yet today, core elements of the central planner’s Utopian dream live on in academic papers, in the business press, and in the sales brochures of uncounted software and technology vendors. Nowhere is this fantasy more evident than in supply chain management. Armed with more real-time data, a better algorithm, more connectivity, and a bigger IT budget, managers (or their computers), the dreamers believe, could control their extended enterprise free of market imperfection.

Customer–izing the IRS 12pages $8 Color Reprint

Detail: If the Internal Revenue Service were a company, it would be among the largest in the world. The IRS collected $2 trillion in taxes last year. This year we should receive more than 230 million tax returns - individual, partnership, corporate, fiduciary, estate, employment, excise, and others - touching virtually every American. Since the agency accomplishes this huge task with fewer than 118,000 employees - about one-third the size of the workforce of the General Motors Corporation - you might also conclude that the IRS has ranked among the best-managed and most efficient organizations on earth.

Unfortunately, it has not. Far from it: Through the 1980s and ’90s, America’s tax agency was the subject of a growing chorus of criticism, from a presidential commission, several congressional committees, and the vice president’s National Partnership for Reinventing Government - as well as the public. Tax forms were difficult to follow, and answers to questions about them were hard to come by; some taxpayers felt their rights too often were ignored, . or trampled, by agency field personnel; tax collection and compliance in many areas were spotty, or worse.

Arie de Geus: The Thought Leader Interview 8pages $8 Color Reprint

Detail: Conventional wisdom holds that corporations are largely economic entities whose primary purpose is rewarding shareholders. When that premise is challenged, it is usually on moral or political grounds. That’s the essence of the "stakeholder" argument: A company owes fealty not just to shareholders, but also to its other constituents, such as employees and its government charter. Arie de Geus starts from a very different premise: that a company’s first loyalty is not to any individual stakeholder, but to itself. Companies that focus single-mindedly on profits don’t learn, and therefore, they don’t thrive - or even survive.

His is not an outsider’s perspective. Indeed, Arie de Geus had a long career in one of Europe’s largest companies, the Royal Dutch/Shell Group of Companies. He first came to prominence among management thinkers in 1988, when he was the coordinator (a role akin to that of an executive vice president) in charge of the corporate planning function at Royal Dutch/Shell’s central offices in London. That year, Mr. de Geus published an article in the Harvard Business Review called "Planning as Learning," which argued that the ability to continually rethink one’s purpose and methods was not just a valuable add-on to corporate practice, but the single factor most responsible for competitive advantage. Companies could have their assets devalued or their ideas stolen, but as long as they possessed the ability to innovate and to develop people, they would always remain one jump ahead of their competitors.

Terrae Incognitae: Survival Guides for Curious Globalists 5pages $7 Color Reprint

Detail: You’ve been a senior executive of a major multinational for quite some time. Of course, you know that globalization is here to stay. And no doubt you are keenly aware that Yyour company’s growth prospects lie beyond your nation’s shores, especially in unpredictable emerging-market countries.

In line with the steady expansion of your management responsibilities, you’ve led a regional business unit from London, Sydney, or Toronto and visited a total of 15 different countries, on four continents. By some yardsticks, you are as global-minded a manager as they come. Yet you harbor a real sense of frustration inside your chest.

No, it’s not the job stress, or all the hectic travel. Your frustration is deeper than that. How much do you really know about the world? How well prepared are you to judge strategic opportunities outside the mature economies of North America, Europe, and Asia? There are many places in the world you have never seen, and given what’s on your plate already, you may never see them.