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First: Read the  (That is what the question is based from, also the supplemental links and attachments other than the Adam Burke case study will help with framing the 2 page response).

Question: What leadership issues did Adam Burke face? What made him an effective strategic leader? A valid explanation will synthesize concepts and ideas provided not only in the case but also in assigned videos and readings.

Form a response citing and referencing the supplemental  readings.

Requirements: 2 pages / 12 font / single spacing

Readings:

https://hbr.org/2008/05/when-winning-is-everything

https://hbr.org/2017/11/many-strategies-fail-because-theyre-not-actually-strategies

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ADAM BURKE AND PBM PLASTICS: MESSAGE IN A BOTTLE1
Between his responsibilities at his new job and trips to his old company, Adam Burke,
former president of PBM Plastics, was scrambling. Only four months after selling his disposable
preformed baby bottle liner business in August 2005, the buyers were unable to meet orders.
Ordinarily, that might not be a former owner’s problem—but his current company, PBM
Products, had a supplier exclusivity contract with his former firm, which was now part of a
company called SparPack.
Within weeks, PBM Products needed to ship SparPack product to retailers or default and
incur hundreds of thousands of dollars in fines—not to mention let customers down. On top of
that, pulling the contract from his former company could put the SparPack division out of
business and all his former employees out of work. Given the scarcity of liner suppliers, Burke
was in a bind—there was no one else who could meet the obligation. Was there something he
could do to get his former company back on track in time? What should he do next?
Disposable Baby Bottles
The traditional baby feeding bottle was made of reusable glass or plastic and required
sterilization. In the 1980s, Playtex introduced the disposable bottle liner and eliminated the need
for bottle sterilization; the new system also reduced the amount of air a baby ingested during
feeding. Bottle liners became an industry standard, putting the Playtex brand left, right, and
center in the baby product space.
In the system first introduced by Playtex, a flat plastic liner was stretched over the lip of a
bottle cylinder and filled with milk. As the baby drank, the flat liner collapsed around the
remaining milk until it had collapsed into a vacuum, preventing the intake of air through the
1
Some names, dates, financial data, and examples are disguised, and some material is fictionalized for
pedagogical reasons.
This field-based case was prepared by Gerry Yemen, Senior Researcher, and Elliott Weiss, Ethyl Corporation
Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective
or ineffective handling of an administrative situation. Copyright  2013 by the University of Virginia Darden
School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the Darden School Foundation.
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nipple. The only downside to the system was that as the liner was filled, the weight of the milk
could pull the liner off the bottle rim, spilling its contents. Playtex responded by developing a
preformed, three-dimensional liner with a rim that functioned as a gasket, making its use easier
and more secure.
With every good idea comes a competitor. PBM Products Company (PBM Products), a
manufacturer of infant formula in Gordonsville, Virginia, noticed that no one was making a
private-label preformed liner to compete with Playtex. It didn’t want to enter the market, but it
did want to get word of its brand to infant formula customers and figured distributing formula
coupons through liner packaging (Figure 1) would serve as an effective marketing vehicle. So it
contacted Adam Burke, an executive trained as an engineer who had worked at Procter &
Gamble and GE in baby products and plastics, with an offer: PBM Products would be the main
investor and make him an equity partner and president in the preformed liner business if he
agreed to a distribution arrangement. For Burke, it would be an opportunity to own and run his
own business.
Figure 1. Baby formula coupon.
Source: Adam Burke. Used with permission.
With seed money ready to go by 2000, Burke set out to produce Playtex-compatible
preformed plastic baby bottle liners in Newport News, Virginia, a city about a two-hour drive
east of Gordonsville. He leased the first factory, planning to find a suitable one to purchase later.
Burke was confident no one else was going to be able to make a private-label product (see
Exhibit 1 for Burke’s product).
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The Production Process
Burke’s patented technology2 used a proprietary process—essentially a modification of
thermoforming and blow molding3—called melt-phase forming, in which plastic was heated to an
almost-molten state, then stretched and shaped by a plug and air. Discs were punched out of a
thin sheet of plastic, heated, and pushed into a mold with a plug; air then formed the thin liner
within the thick rim, similar to how a gum chewer blows a bubble by shaping the gum with the
tongue, then blowing.
Buying the raw plastic sheeting turned out to be complicated. Only two suppliers in the
world could produce the highly specialized “low-orientation” sheet plastic for Burke’s operation:
one in Newburyport, Massachusetts, and the other in Williamsburg, Virginia. Burke bought large
rolls of plastic and housed six weeks’ worth of it in the factory warehouse. The plastic sheet was
fed into a cutting machine and was processed into round pieces of plastic called billets. Cutting
the billets first, as opposed to using whole sheets, enabled about 30% better utilization of the
rolls of plastic.
Once cut, billets were fed to the back of the production machine (Exhibit 2). The plant
had three production machines: the 4000, which produced four-ounce liners for newborns; and
the 5001 and 5002, which produced the eight-ounce liners that made up 80% of the market. The
billets were fed into tubes and sorted onto trays in three rows of 10 liners (30 per tray) The trays,
held in place by a mechanical press lock, ran through heaters that were positioned above and
below; they raised the billets’ temperature to 800ºF. On occasion, billets that got too hot would
drop onto the bottom heater and would ignite if they weren’t removed.
Once heated, billets were stretched and blown into a long, cylindrical vessel shape.
Finished product came out the front of the production machine. Then the liners were tested for
quality, stacked, and packaged. While packaging its product, the company put infant formula
advertising in each box.
Each box of liners was then sealed and sent to a company called Sterygens for
presterilization. Pallets of Burke’s product were placed on a conveyor belt and sent into a leadwalled room containing advanced sterilization technology. As conveyers moved the pallets
around the room, doors in the floor pulled away and a sterilization technology rose up to
eradicate any kind of bacteria on the liners. “What it meant,” Burke said, “was an extra level of
guarantee for customers.” From there, the liners were shipped to a warehouse that jointly
delivered PBM Plastics bottle liners and PBM Products infant formula to stores.
2
The first patent was granted in 1987; new patents were filed in 2002.
Thermoforming was a horizontal process in which products were formed and cut out of stretched and heated
sheets of plastic. Blow molding was a vertical process in which plastic was heated into a viscous liquid and poured
into a mold that could close and open.
3
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Burke’s plant used an elaborate data collection web camera system that was completely
integrated across the operation. Each machine had a PLC system 4 that, if temporarily down,
would text the appropriate operator and let a supervisor know there was a problem (Figure 2).
For example, it would notify mechanics of mechanical errors, quality supervisors of quality
issues, or electricians of electrical drive problems. The machines knew what was wrong, and the
cameras offered visuals of the problems. Daily output and throughput rate numbers were all
automated via e-mail—it was very much a living system.
Figure 2. Sample PLC error message.
Source: Jamie Clark. Used with permission.
The Business
When Burke started out in his new business, he recognized that plastic prices were not
sustainable—he was paying $1.92/lb. Running his materials and cost of goods in his pro forma,
he realized that plastic needed to be $0.85/lb. or he would be out of business. He needed to either
negotiate a lower price or double his yield per pound of plastic. The first thing Burke did was
look to improve his defect rate—which was over 25%, a troubling figure for Burke. It turned out
that microscopic pin pricks were creating leaks around the bottom of the liners. Once that was
fixed, the default rate decreased to less than 2%.
But Burke still needed to lower costs, so he contacted his plastic supplier and said he
needed to lower the price to $0.92/lb. The Newburyport supplier said the lowest they could go
was $1.85, and SparPack in Williamsburg said that based on prior history with the business it
would never supply Burke. Burke recalled:5
PLC stood for “programmable logical controller”; these usually connected to sensors and were used to control
assembly line systems.
5
This is a field-based case. All information and quotations, unless otherwise noted, derive from case writer
interviews with company representatives.
4
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What do you do when a supplier won’t supply you? Do you buy product that you
can’t afford or do you shut it down? What do you do? When I first talked to the
team in Newburyport, they said, “We might be able to get you to $1.90, Adam.”
And I said, “Guys, we’re going to be at $0.85 one year from today.” I eventually
got the price down to $1.35 a pound and this was in August. I said, “Guys, I’m
going to be below $0.90.” They said, “Adam, $1.35 is as low as we can possibly
go”—so I’d been constantly driving cost reductions with them and then finally,
one day I said, “Guys, would you be willing to lose the business at $0.85?” They
said, “Absolutely.” I called them two weeks later and told them they lost the
business, and they said, “Well, we can go lower.” I said, “I’ve made a one-year
agreement. We can talk about dual sourcing in six months, but right now, you’ve
lost the business.” I had worked out an arrangement with SparPack.
Although there were a number of companies that made traditional baby bottles (among
them Playtex, Munchkin Inc., and Johnson & Johnson), there was money to be made in the
disposable liner market. But Burke was concerned that only Playtex was making the bottle for
the disposable liners. “What kept me up at night was, they were selling the razors, and we were
selling the store-brand razor blades,” Burke said. “So if they changed the razor…as the story
goes…changing the bottle was one of our biggest threats.” In spite of Burke’s concerns, PBM
Plastics operated at a 30% margin.
The rapid switch from flat to preformed liners had placed extreme margin pressure on
companies such as Evenflo, which produced flat liners. Because of the eroding financials and the
prohibitive intellectual property on the technology to develop its own preformed liner, Evenflo
executives had decided to get out of flat liners and bottles. Burke reached out to people he knew
at Evenflo and negotiated a contract to source bottles from Evenflo’s operation in Mexico City.
Now, instead of building its own bottle-only molds, PBM had its own complete bottle—
including body, tops, nipples, and rings—for less than $0.50, all sourced within about a month.
“We didn’t have to amortize any kind of molding costs, tooling costs, and we didn’t really know
if we needed that bottle long term or if Playtex had anything in the works to change,” Burke said.
“So this was a variable cost solution that allowed us to go quickly to market.”
Running Production
As was common in manufacturing, equipment problems occurred from time to time.
Many parts had long replacement lead times, so having spares was critical. One such part was the
actuator that cycled trays through the machines. One Friday evening around 6:00 p.m., Burke
was notified that an actuator had gone out and that they didn’t have a spare. He explained:
This actuator was a three-week-lead item, and I had been told by my maintenance
manager, Tim, that we had critical spares on everything. I said, “You gave a
monthly spare parts list, and on the list there’s the needed actuator, and it shows
we have a critical spare.” He goes, “Yeah, but it’s broken.” I said, “Well, that’s
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not a critical spare. That’s a broken part.” Tim says, “I really screwed up. I’m so
sorry. The 5001’s going to be down for three weeks.” I said, “No, it’s not.” Tim
flatly stated, “Yes, it is, this is the only part. Nobody else can make it. There’s no
way to get this fixed.” I said, “We will have this up and running by noon
tomorrow.”
Burke set out to fix this critical problem as quickly as possible by embarking on three
parallel paths, and was confident that at least one was sure to work out. First, he sought out a
brilliant staff mechanic and asked him to take both the broken machine part and the broken spare
part and try to create one working actuator. Second, he assigned a team to try to develop a more
manual work-around. Third, Burke asked his sourcing people to contact the actuator supplier by
whatever means necessary (the company had mobile and home numbers for all crucial suppliers)
and find out what it would take to accelerate delivery of the part no later than the next day. If the
supplier dragged its feet, sourcing was to get an inventory list of everyone the supplier had
shipped an actuator to in the last six months and call them to see if PBM Plastics could buy out
their inventory.
In the end, his mechanic and a machine company Burke had previously worked closely
with figured out a way to get the combination of two broken actuators to work. The 5001 was up
and running by 11:15 the next morning. And two people who had bought actuators in the last six
months sold PBM Plastics their spares, which arrived the following Wednesday. Burke said:
When you create a mission for people that this is what we’re going to do—not ask
them, “Can you do it?”—it changes the way people think because no isn’t an
answer to “How do we get it done?” Once they say no, from an ego and a pride
perspective, you have to change their position and then get them to relook at the
situation once they told you it can’t be done. However, if you ask how to do
something and help the team develop options and choices, what you offer is
magic. The secret is that you must develop something that’s aggressive enough to
meet the needs of the business, but not so aggressive that you lose the confidence
of the team by asking something completely impossible. I had three strategies and
one of them needed to work—in this case, it was a combination of not accepting
the machine shutting down for three weeks, asking “How do we get it done?”, and
providing suggestions to meet the end goal.
Another example of the type of manufacturing problems that required fresh thinking
happened just as PBM Plastics was in the middle of a major inventory build for a big promotion.
On a steamy August day, the factory air conditioner broke down. New air conditioning required
a three-and-a-half week delivery time and a two-week service call for installation. With all three
machines’ heaters running, the temperature inside the factory was stifling. The manufacturing
manager approached Burke and said, “It’s too hot; we gotta shut down and send everybody
home.” Burke reminded him that they had customers depending on them. The maintenance
manager came to talk to him, then the quality manager came, and finally the procurement
manager said she was shutting down. “I kept telling them that we had customers who were
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counting on us and we had to make it work,” Burke said. If PBM Plastics failed to meet the
contract date, it would not get another chance for that order for another year. Finally, one
manager suggested they rent portable air conditioning units for $20,000 a day to pump in cold
air. “That’s not the only option, guys,” Burke said. “I need you to come up with a balanced
solution to keep us running—balance the needs of the people and the needs of the business. I’ll
give you a few hours.” At the end of the day, the whole group came back to Burke, “like one big
mob,” and told him they were going to quit as a team if he didn’t do the right thing for the people
and shut down the plant. At that point, Burke told them he had a solution that would solve the
problem quickly and easily. No one believed him. Burke recalled:
I said, “If I solve this problem in 10 minutes for less than $100, will you promise
me you won’t ever bring me a problem without an elegant solution?” In my
opinion, management means optimizing resources you have: cost, labor,
resources, etc. Leadership gets results independent of the constraints. So one
optimizes variables and constraints, the other delivers results in spite of the
constraints, and that is what I consider delivering an elegant solution.
I went to Food Lion, which is two minutes around the corner—and one of the
things to understand is that our work force was mostly making minimum wage
and had not previously been a part of high-performance, winning team. I loaded
up a grocery cart with Häagen-Dazs ice cream, fruit bars, Klondike bars, and ice
cream sandwiches—I think I spent around $48.00—and then I got a bunch of
soda. I went through the back door of the plant and filled up the freezer in the
break area. Then I gathered the management team and said, “Come with me.” I
pulled a meeting together with all the employees on the floor and said:
“Guys, thank you so much for your hard work over the past day. I know it’s
brutally hot and exhausting and we’re at a point where everybody has a choice to
make. We have a customer that’s betting on us and depending on us, and we need
them also for the long-term survival of our business. If we don’t deliver the
product, we’re going to let them down. So we have a choice, to keep the plant
running with me and every other member of the senior team working right by
your side until we get the air conditioner repaired or shut down the plant and fail
our customer. If we keep running, nobody’s going to be using air conditioning—
in fact, the air conditioning is shut down in the offices. There’s not going to be air
conditioning in this entire building while we’re working through this. We’re all in
this together, and I’m confident we can pull through as a team. We’re doing
everything we can to get it fixed. Until then, we are going to fill up the freezer
and the refrigerator with ice cream, fruit bars, sodas, and you guys drink and eat
as much as you want, as much as you need for free. As of now, everybody can go
on breaks as often as they want, but we have to help each other, relieve each
other.”
They took one look at the freezer and said, “We’ll make it happen.”
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Two days later, the air conditioning was operational because the team was able to
develop more options to bring it back on-line more quickly, the firm had not lost a single person,
and the company had met its commitment to the customer. Indeed, once it was all over, Burke
heard several people say, “We could have gone longer without the AC if we needed to. Can we
still get the free ice cream and soda?”
The Offer
Around 2005, the price of plastic began to increase again. This time, when Burke went to
SparPack to discuss plastic pricing, they also discussed a vertical integration option. After
meeting with PBM Products, his affiliate, they worked out a deal to sell the PBM Plastics
business to SparPack. Burke joined PBM Products a few months later as COO in the infant
formula, foods and cereals, and baby bottle business. Terms of the sale to SparPack included a
five-year supply agreement for preformed liners to PBM Products. As he left, Burke told the new
owners to “do three things.” The first was to keep the camera system going. He explained:
I told them not to disable the living system that I had. “Keep it up and running.
It’s your missile defense system. If anything’s going wrong, this system will tell
you.” What you find is in these very fast-paced businesses, you don’t want to only
leave it up to the people to escalate. Sometimes people don’t want to tell you
when there’s a problem and you’re not hitting goals until it’s too late. So that was
a crucial living network, a neural net that we had.
The second item was to be sure to have six weeks of inventory available. Although
generally considered a large amount for a small company, it had an effect on production.
Unrolling plastic from the rolled form somehow introduced oxygen, which accelerated the halflife of the slip agent coming to the surface. Anecdotally, Burke knew that if the plastic didn’t age
for six weeks, it became what they called “snotty plastic,” which tended to get overheated, drop
onto the bottom heater, and stick to the equipment.
The third recommendation was to take care of two highly valued individuals—an
engineering manager and a maintenance manager who had been with Burke since the beginning
and had designed some of the equipment. “Whatever you do, protect these guys, reward them,
recognize them,” Burke said. “Don’t let them get lost in your organization, because these two
guys alone can help with any problem you will ever run into.” Indeed, Burke believed that
reward was a powerful incentive for most employees; he had offered gift certificates to teams
exceeding output goals (see Exhibit 3 for output charts and the contest).
One month after he left, Burke got a call from one of the managers at SparPack, asking
him to come help solve a problem. The hydraulic press that formed and stretched the liners had
been down for three days. Burke went to Williamsburg, walked into the plant, greeted all his
former employees, and asked them what was going on. Both of the highly valued individuals
Burke had recommended to the new owners said, “Those guys think they know what they’re
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doing, so we’re just letting them figure it out.” Burke asked if they knew what was wrong and
they confirmed they did. When asked why they weren’t helping out, they repeated that their new
employer didn’t need their help. At that point, Burke gathered a few plant employees and said:
“Guys, we’ve got an order that needs to go out. I really need you to go get this
fixed. This is still a team; you’ve got to make this work.” They said, “No
problem,” walked over to the machines and had them up and running 15 minutes
later. SparPack’s culture was hierarchical, versus when we owned it and were
very team-based. I didn’t have an org chart in my company for three years, and it
wasn’t a “who can prove they’re better” culture, it was a “how do we take care of
the customer” culture.
No More Liners
The first indication of an issue that would have a huge effect on PBM Products came in
the form of another phone call from SparPack—150 days after the sale. The caller told Burke
that PBM Products wasn’t buying the promised amount of liners specified in the sales
agreement. Burke checked into the POs, saw they were ordering plenty, and got back to the
caller. A couple weeks later, Burke got another call claiming that PBM Products orders were
down another 20%. Burke told the caller to keep shipping; maybe it was a catch-up between the
group processing the orders and manufacturing. Two weeks later, the plant manager called and
asked Burke for a meeting. When he arrived at the plant, Burke sat in the board room with the
CFO, the marketing manager, and the plant manager. They asked Burke what he was going to do
about the problem (they were convinced it was a slowdown because PBM Products was ordering
less). Trying to grasp the situation, Burke asked for their output numbers over the past eight
weeks. As they called out the numbers, Burke wrote them on the board, and that was the first
time it became clear to everyone what was happening (Table 1).
Table 1. PBM Plastics output numbers.
Week
1
2
3
4
5
6
7
8
Orders
45,000
47,000
49,000
47,000
46,000
50,000
48.000
47,000
Production
48,000
47,000
32,000
28,000
23,000
18,000
18,000
12,000
Shipped
45,000
47,000
25,000
24,000
21,000
15,000
14,000
10,000
Data source: Adam Burke. Data is disguised.
The production numbers meant that SparPack was never going to meet the demand that
PBM Products needed to fulfill its retail buyers’ orders—and Burke had signed a volume
commitment exclusivity agreement with his former firm. In addition, he knew that once the
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company defaulted on one product, retailers tended to jump to conclusions and would likely
believe that the whole PBM Product business could be out of stock. Burke told them:
We’re likely to start getting massive fines and fees from retailers such as WalMart, Target, Winn-Dixie, Kroger, you name it; they’re all going to start
penalizing us for missed shipments, and that’s going to cost hundreds of
thousands of dollars. We need to set the production process back up quickly and
we must meet the demand to keep customers supplied.
As it turned out, failing to follow Burke’s three recommendations had a huge impact on
production. The IT department had shut down the camera and notification system because it
didn’t comply with company standards. For cost-saving reasons, SparPack had dropped its
plastic roll inventory to two weeks, and it had moved Burke’s two best employees under a
maintenance manager who discounted their input. As a result, the plastic became “snotty,” got
jammed in the machines, and overheated. That error wasn’t discovered until later because there
was no monitoring system, so all the trays were damaged—it would take up to four weeks and
tens of thousands of dollars to replace them. To make matters worse, the two employees who
likely knew what was happening and might have been able to devise an alternative solution felt
undervalued and were disengaged from the whole mess.
Despite SparPack claiming it could make up the shortfall quickly, Burke knew the system
too well to be convinced of it. He was now in a situation where he had a volume commitment
exclusivity agreement with a supplier who couldn’t supply, and he had no options to source
elsewhere. His former employees would all lose their jobs if he pulled the PBM Products
contract. And in just a couple of weeks, the company he currently worked for would be shipping
shortages and letting customers down. What now?
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Exhibit 1
ADAM BURKE AND PBM PLASTICS: MESSAGE IN A BOTTLE
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Disposable Feeding Bottle Liner
Source: Adam Burke. Used with permission.
Exhibit 2
ADAM BURKE AND PBM PLASTICS: MESSAGE IN A BOTTLE
Production Machine
Source: Jamie Clark. Used with permission.
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Exhibit 3
ADAM BURKE AND PBM PLASTICS: MESSAGE IN A BOTTLE
Monthly Machine Scorecard for February
120
Record
Goal 100
80
Percentage to
Goal
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Output Charts
60
100%
109%
100%
111%
40
20
0
5001 Shift 1
5001 Shift 2
5002 Shift 1
5002 Shift 2
Machine Shift
Metric
Percentage PFC Output Goal
Uptime Percentage
Scheduled Downtime
PE Percentage
Percentage Loss
Avg PFCs/Hour
LHU Percentage
Scrap Percentage
Total NC
NC Percentage
Percentage Detection
Total Critical Defects
Pass PFC
Calcuated Goal
Total PFCs Made
5001
Shift 1
100.3%
85.2%
1006 min.
79.3%
6%
157
92.7%
2%
0
0%
85%
554
43340
432000
43340
5001
Shift 2
109.20%
93.7%
0 min.
86.3%
7.4%
155
96.6%
2%
0
0%
77%
216
47158
43200
47158
5002
Shift 1
99.60%
86.3%
1255 min.
80%
6.3%
157
96.8%
2%
740
1.7%
67%
477
43013
43200
43753
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5002
Shift 2
110.8%
94.2%
0 min.
88.5%
5.7%
159
97.4%
3%
525
1.1%
69%
295
47875
43200
48400
Totals
Goals
105 100%
89.9%
95%
2261 min.
84%
90%
6.3%
157
160
95.9%
95%
2%
5%
1265
0
0.7%
0%
74%
80%
1542
0
181386
172800
182651
DardenBusinessPublishing:242419
-13-
UVA-OM-1491
Exhibit 3 (continued)
Record: 110%
Goal
Percent
This document is authorized for use only by Darlene Ames.
Please do not copy or redistribute. Contact permissions@dardenbusinesspublishing.com for questions or additional permissions.
Operations Contest
113
111
109
107
105
103
101
99
97
95
93
91
89
87
85
$200 gift certificate
Any team to average 105% or above of the PFC output goal for the month (3,360 passed PFCs/shift)
$100 gift certificate
Average 100–104.9% or above of the PFC output goal for the month (3,200–3,359 passed PFCs/shift)
107%
103%
92%
Team A
92%
Team B
Team C
Team D
Data source: Jamie Clark. Used with permission.
Page 13 of 13
www.hbr.org
The primal urge to win often
overwhelms rational decision
making. Here’s how to tame
competitive arousal, head off
emotionally charged
competitions, or manage
them to your advantage.
When Winning Is
Everything
by Deepak Malhotra, Gillian Ku, and
J. Keith Murnighan
Included with this full-text Harvard Business Review article:
1 Article Summary
The Idea in Brief—the core idea
The Idea in Practice—putting the idea to work
2 When Winning Is Everything
10 Further Reading
A list of related materials, with annotations to guide further
exploration of the article’s ideas and applications
Reprint R0805E
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COPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
When Winning Is Everything
The Idea in Brief
The Idea in Practice
Have you ever made a decision in the
heat of competitive battle only to ask yourself later, “What was I thinking?” If so, you’ve
experienced competitive arousal, a desire
to beat rivals at any cost. This adrenalinefueled, emotional state can lead to expensive
mistakes in business decisions, including
overpaying for acquisitions or managerial
talent when other players enter the fray.
To avoid falling prey to competitive arousal,
consider these practices:
UNDERSTAND THE DRIVERS OF
COMPETITIVE AROUSAL
Competitive arousal comes from these drivers:
• Rivalry. Going head-to-head with one or
two opponents creates strong feelings of
excitement and anxiety, which intensify
arousal.
To combat competitive arousal, Malhotra,
Ku, and Murnighan recommend two steps.
First, understand the affliction’s three drivers:
1) intense rivalry (especially in a small field),
2) time pressure, and 3) the presence of
an audience (including media attention
and colleagues’ scrutiny). Then take preventative action; for example, reduce time pressure during a high-stakes negotiation by
insisting on a short time-out.
• Time pressure. An externally mandated
or self-imposed deadline increases psychological arousal, which then prevents
you from finding and applying relevant
information to make a decision. So, you
may overrely on simple decision rules
(such as “Strategies that worked before will
help me now”).
Manage the risk factors for competitive
arousal, and you focus your competitive
energies on winning contests where
you have a real advantage—and away
from those where winning comes at too
high a price.
• Presence of an audience. Imagine the
media or your colleagues watching your
every move during a high-stakes decision.
When you’re in the spotlight, it’s hard to
avoid a rush of adrenaline and to resist the
urge to show you’re a winner.
Any of these drivers fuels competitive arousal.
When they’re all present, the risk of making a
bad decision increases exponentially.
MANAGE COMPETITIVE AROUSAL
You can’t avoid dealing with rivals, making
quick decisions, and operating in a spotlight.
But you can minimize the potential for competitive arousal and the harm it can inflict.
• Be willing to step away from the bargaining
table if you can’t control your competitive
fire in an intense rivalry. Put someone else
in charge of the negotiation who’s less
emotionally invested and who can act as
a devil’s advocate regarding the worth
of the deal.
To reduce time pressure:
• Ask yourself: “Do I really need to make this
decision today?” If not, extend or eliminate
arbitrary deadlines.
Example:
An executive used to negotiate important
deals over breakfast because he was at
his best early in the day. But he realized this
gave him insufficient time to consider and
respond to unexpected proposals. He
had often agreed to price concessions he
later regretted. He abandoned the breakfast-only rule.
To deflect the effects of an audience:
• Spread responsibility for critical decisions
across team members, so no one will stand
alone in the spotlight.
• If you anticipate that an acquisition will
make headlines, calculate the price above
which you’re unwilling to go before word of
your potential bid hits newsstands. Include
premiums you’re willing to pay; for example, paying extra to eliminate a competitor.
First, consider circumventing competition
entirely. For example, noncompete clauses
can help you avoid hyper-rivalry with firms
eyeing your star employees.
Second, mitigate the drivers. For instance:
To defuse rivalry:
• Remember: competitors aren’t evil; they’re
simply parties with their own interests—
like you. You’ll view them with a cooler eye.
page 1
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The primal urge to win often overwhelms rational decision making.
Here’s how to tame competitive arousal, head off emotionally charged
competitions, or manage them to your advantage.
When Winning Is
Everything
by Deepak Malhotra, Gillian Ku, and
J. Keith Murnighan
COPYRIGHT © 2008 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.
Have you ever made a decision in the heat of
competition only to wonder, when faced
with the consequences, “What was I thinking?”
Such charged decision making is driven by an
adrenaline-fueled emotional state we call competitive arousal. It’s all too common in business—
and all too often leads to costly mistakes.
Consider Boston Scientific’s disastrous
acquisition of medical-device maker Guidant.
In December 2004, Johnson & Johnson announced plans to acquire Guidant for $25.4
billion. Soon after, Guidant recalled 170,000
pacemakers, 56% of its total production.
Not surprisingly, J&J threatened to pull out.
Guidant responded by suing J&J to complete
the deal, and J&J countered with a reduced
offer of $21.5 billion.
Suddenly, Boston Scientific—J&J’s longtime
rival—offered $24.7 billion for Guidant. This
triggered a bidding war, even as Guidant’s financial and public relations woes worsened.
The bidding finally ended in January 2006
with Boston Scientific’s offer of $27.2 billion—
$1.8 billion more than J&J’s initial bid.
harvard business review • may 2008
Was this a good deal? In June 2006, Boston
Scientific had to recall 23,000 Guidant pacemakers and advise 27,000 patients who’d
already had them implanted to consult
their doctors. Boston Scientific’s share price,
which was near $25 at the start of bidding, fell
below $17. Fortune later called the Guidant acquisition “arguably the second-worst ever”—
behind only AOL’s infamous purchase of
Time Warner.
The Guidant case exemplifies the decision
errors that can result when managers and
executives, overcome by competitive arousal,
shift their goals from maximizing value to
beating an opponent at almost any cost.
Fortune’s investigation of the Guidant acquisition reveals the role that competitive arousal
played in the bidding war. “What emerges is
a roller-coaster tale of bet-the-franchise corporate
brinkmanship, miscalculation and overreaching,” Fortune’s writer noted. “It is a stark
lesson on how the single-minded pursuit of
victory can blind even brilliant execs to the
true costs of a deal….it sheds new light on [an
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When Winning Is Everything
industry that] is marked by deep personal
animosity and ferocious combat in the marketplace and the courtroom….”
As we’ll show, there is strong evidence that
competitive arousal has fueled many other
high-profile business mistakes. In a variety
of contexts—be they auctions, negotiations,
legal disputes, mergers and acquisitions,
employee promotion contests, or the pursuit
of hot managerial talent—decision makers
can easily become fixated on beating their
competitors. There is nothing necessarily irrational about incurring a cost to win; people
enjoy winning—especially against their rivals—
even at a price. There may actually be strategic
benefits in doing so: If winning a contract will
damage a competitor for the long term, it
may make sense to pay more than fair
value for that victory. But cases like that require a clear, upfront analysis of the limits of
acceptable losses and the benefits that winning will yield. When analyses are conducted
in the heat of the moment, competitive
arousal crowds out clarity. The result is often
a Pyrrhic victory.
In this article, we describe the causes of
competitive arousal, when it is most likely to
derail strategy and destroy value, and how
managers can avoid or reduce its pernicious
effects. We identify three principal drivers of
competitive arousal in business settings: rivalry, time pressure, and audience scrutiny—
what we call the “spotlight.” Individually,
these factors can seriously impair managerial decision making. Together, their consequences can be all the more dire.
Rivalry
Deepak Malhotra (dmalhotra@
hbs.edu) is an associate professor of
business administration at Harvard
Business School in Boston. He is the
coauthor, with Max Bazerman, of Negotiation Genius (Bantam, 2007).
Gillian Ku (gku@london.edu) is an
assistant professor of organizational
behavior at London Business School.
J. Keith Murnighan (keithm@
kellogg.northwestern.edu) is the
Harold H. Hines Jr. Distinguished
Professor of Risk Management at
Northwestern’s Kellogg School of
Management in Evanston, Illinois.
harvard business review • may 2008
As the Guidant case suggests, competitive
arousal is most common—and most dangerous—
when rivalry is intense. In our research, we
theorized that head-to-head rivalry would
interfere with rational decision making more
than any other kind of rivalry. Our first test of
the theory was a large field study of auctions
of artist-designed, life-size fiberglass cows.
The proceeds of the auctions would go to charitable causes. In November 1999, 140 cows
were auctioned live in Chicago and on the
internet, generating almost $3.5 million—
seven times initial estimates. Other cities soon
followed suit, auctioning fiberglass cows as well
as pigs, moose, fish, and bears. We collected
bidding data from these auctions (including
chronological listings of how much was bid
and by whom) and conducted pre- and postauction surveys. We found that people were
more likely to bid past their preset limits
when they were competing against a few
rather than many other bidders: A small
field—particularly a field of just two—created
intense feelings of rivalry, more bidding,
and more overbidding. We’ve seen this same
phenomenon in laboratory experiments: People tend to overbid more when they face only
one bidder (even when we control for their
perceived chances of winning); they also
report more psychological arousal (in the
form of excitement and anxiety), which fuels
their overbidding.
Rivalry can derail one-on-one negotiations,
too. Consider a large Asian conglomerate that
recently contemplated selling its telecommunications holdings. Because one potential
buyer had been a competitor, there was personal animosity between the two companies’
executives. As the conglomerate considered
the sale, one of its owners told us, “We don’t
care if they are willing to pay $100 million
more than everyone else. We won’t sell to
them. We don’t want to give them the satisfaction….Now we have what they want, and
we’re not going to let them score one last
win.” It did not seem to matter that the seller
and the buyer would no longer be competitors
once the assets were sold; what did matter
was their past enmity and the chance to
thwart an archrival.
Time Pressure
A ticking clock—in auctions, negotiations,
disputes, and other competitions—can overwhelm people with the desire to win. In live
auctions, bidders must make decisions rapidly
as the auctioneer calls out, “Going once!
Going twice!…” Job seekers often confront
“exploding” offers. Home sellers get bids that
can expire in a matter of hours. Potential
acquirers often face bidding deadlines.
Years of research has provided compelling
evidence that time pressure seriously impairs
decision making by increasing psychological
arousal, which decreases the ability to find
and apply relevant information and leads to
an overreliance on simple decision heuristics,
such as pursuing a strategy simply because it
has worked in the past. In our auction studies,
we found that people were more likely to bid
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When Winning Is Everything
past their preset limits as the deadline approached (this finding held even after we
controlled for the size of their bids and the
number of other bidders). When time was
running out, bidders seemed increasingly fixated and limited in their thinking, clinging to
the hope that their next bid would clinch the
deal. Although one more bid may indeed
increase the chances of winning an item, it
can also result in overpaying for it.
Sometimes the rules of the game include
deadlines, so time pressure is unavoidable.
Other times, though, decision makers create
unnecessary pressure for themselves. One
executive told us that he used to negotiate
important deals over breakfast because this
provided an informal atmosphere at a time of
the day when he was at his best. After years
of using this approach, he came to understand that a breakfast meeting did not give
him enough time to seriously consider and
respond to unexpected proposals and requests. During these breakfasts, he realized,
he had often agreed to provisions and price
concessions that he later regretted.
The Spotlight
Psychological research shows that the presence
of an audience, particularly one that’s highly
engaged, increases psychological arousal and
The High Cost of High Stakes
Many of the examples of competitive
arousal we cite in this article entail
high-stakes decisions, suggesting that
even when millions or billions of dollars
are on the line, the overwhelming desire
to win can derail sound strategy. Our
recent research suggests that high stakes
may in fact be part of the problem,
exacerbating the effects of competitive
arousal.
In an auction experiment that varied
the stakes, a relatively low-value prize
led winning bidders to pay an average
of 14% more than the item was worth; a
relatively high-value prize led winning
bidders to pay an average of 54% more
than it was worth. People bidding in
high-stakes auctions reported feeling
more psychologically aroused—that is,
harvard business review • may 2008
excited and anxious—than those in
low-stakes auctions, and this predicted
their overbidding. When high stakes
were combined with time pressure,
winning bidders overpaid by an average
of 71%—the highest level of overbidding
we observed in the study. People who
experienced the combination of high
stakes and strong time pressure reported extremely high levels of psychological arousal, which in turn accounted
for their exceedingly high bids.
Economists have long argued that
high stakes can remedy the problem of
irrational decision making by creating
incentives for clear thinking and careful
analysis. In our study of competitive
decision making, however, higher stakes
led to considerably worse decisions.
can reduce performance on physical tasks
as well as on tasks that require problem
solving or creativity. This means, for example,
that live auctions incite considerably more
competitive arousal than internet auctions.
When an auctioneer or a bid spotter has
singled you out with a challenge to increase
your bid, and the audience is watching your
every move, it’s hard to avoid a rush of adrenaline and the urge to bid even higher. In
contrast, online bidding is more private; the
“spotlight” is dimmer. As a result, online bidding tends to be more temperate and rational.
In the fiberglass-animal auctions, for example,
internet overbidders exceeded their limits, on
average, by $1,134; live-auction bidders overbid
by an average of $5,609—almost five times
as much. We also found that when these auctions garnered less media attention, which
dimmed the spotlight further, fewer people
overbid. This finding held even after we
controlled for a host of macroeconomic
variables, such as stock market performance
and consumer confidence index.
In negotiations, bidding wars, and business
disputes, the strength of the spotlight can
vary considerably. Some disputes are public
affairs; others are shielded by gag rules. The
brighter the spotlight, the greater is the
potential for competitive arousal and bad
decisions. The Blackstone Group, a prominent
private-equity and investment management
firm, provides an example. In early 2007,
under the glare of the business-media spotlight, Blackstone acquired Equity Office
Properties Trust, the largest owner of office
buildings in the United States. Blackstone’s
final offer of $23 billion in cash and an assumption of $16 billion in debt surpassed
Vornado Realty Trust’s final offer by $3 billion
and was the largest private-equity deal ever.
Would Blackstone have been willing to pay
such a premium without the tremendous
media attention? Our research on competitive
arousal suggests that the spotlight may have
been influential in this case. In its coverage
of the deal, the Wall Street Journal highlighted
the increasing tension created by the sometimes incompatible goals of wanting to score
a much publicized win and wanting to make a
sound economic decision. “The culture of
private-equity giants like Blackstone,” the
Journal wrote, “is built on two competing
foundations, the reluctance to lose any deal—
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When Winning Is Everything
particularly one as big as this—and an equal
unwillingness to pay too much for any deal.”
A Perilous Mix
Rivalry, time pressure, and a bright spotlight
can each fuel competitive arousal. Collectively, they can lead to decision disasters. We
demonstrated this in a recent experiment, in
which participants who were outbid in an
online charity auction received one of three
messages: a default message informing them
that they had been outbid and could continue
bidding by returning to the auction’s website;
a charity message appealing to their sense
of compassion (“We hope you will continue
to support this charity”); or a competitive
message fueling their desire to win (“The competition is heating up…are you up for the
challenge?”). Bidders who received the
competitive message were 50% more likely to
bid again than those who received default or
charity messages if two conditions were simul-
taneously met: high time pressure because it
was the last day of the auction and high rivalry
because only one other bidder remained.
In another case, involving a company we
consult for, we saw rivalry, time pressure, and
a spotlight conspicuously reinforcing one
another. The company had hired us to advise
it in its first business-to-business reverse auction. As with many such auctions, our client and
its unidentified competitors were prequalified
to bid in a computer-based auction in which
the lowest bidder was contractually bound to
provide services at that price. A company vice
president was in charge of making the key
decisions, but 10 of his colleagues were watching,
placing him under intense scrutiny. The
format of the auction gave him precious little
time to make his bids, even though the stakes
were many millions of dollars. Before the
bidding ended, the VP had bid well below his
previously calculated, rational limit. Luckily,
the company lost the auction. The VP later
How Lawyers Can Fuel Competitive Arousal
Intense rivalry, time pressure, and an engaged audience, we found, can incite the
win-at-all-costs emotional state we call competitive arousal. In our recent research, we
have also identified a powerful catalyst: the
over-involvement of lawyers. Of course, lawyers
can play an important role in business disputes, but it is important to recognize that
most of them are trained to see conflicts and
competitions in terms of right (who deserves
to win?) and wrong (who deserves to lose?).
Managers who cede too much control of business
disputes to their lawyers are themselves
likely to adopt a legalistic win-lose mind-set.
In a survey of commercial mediators (all
participants at the Advanced Commercial
Mediation Institute), we asked respondents
to reflect on their recent mediations. In
particular, we asked them if the disputing
parties had seemed more focused on
winning or on getting a good deal. Their responses revealed that disputants were significantly more likely to focus on winning when
their lawyers were heavily involved and influential at the beginning of the dispute. In
other words, the heavier the hand of the legal
team, the more easily the parties succumbed
to competitive arousal.
harvard business review • may 2008
Consistent with these findings is the story
of a dispute that arose in a Manhattan condominium building a few years ago. A unit
owner and the condominium association disagreed about who should pay $909 to install
window bars to childproof the owner’s unit.
Once lawyers became involved, the dispute
continued for six years and resulted in legal
costs exceeding $100,000. Both sides clearly
wanted to win at any cost. In the end, a judge
threw them out of court.
Although legal expertise is often critical
in negotiations and business disputes, business expertise should not be sidelined. The
key to success is striking the right balance.
Constance Bagley of Harvard Business
School suggests that managers and lawyers
learn each other’s language: Managers
should educate themselves on the legal issues
so that they can leverage legal expertise without relinquishing control, and lawyers should
learn about the commercial aspects of the
deal so that they will be less likely to suggest
value-destroying tactics.
If the situation allows, the lawyers’ role can
be limited or eliminated altogether. Procter
& Gamble’s $57 billion acquisition of Gillette
in 2005, for instance, provides a high-stakes
example of CEOs’ ousting the lawyers early in
the negotiations. In an interview with Fortune, Procter & Gamble’s CEO, A.G. Lafley,
recalled how substantive discussions began
with Jim Kilts, his counterpart at Gillette: “I
decided that we were going to be collaborative in the negotiations….I called one person
Jim trusted and I trusted, Rajat Gupta, the
head of McKinsey, who urged Jim to give
me an open-book look at the cost synergies
and a look at Gillette’s technology into the
future. We did collaborate—and without all
the typical advisors. At one point Jim said to
me, ‘Aren’t you bringing your bankers?’ I
said, ‘We don’t need any bankers.’ He said,
‘Aren’t you bringing any lawyers?’ I said,
‘We don’t need any lawyers.’ It was me and
Clayt Daley, our CFO, negotiating with Jim
and his CFO, Chuck Cramm, and Ed DeGraan, Gillette’s vice chairman who runs
manufacturing and technology operations.
That was a very important signal that we
trusted each other.” The success of the deal,
in which substantive negotiations began
without lawyers at the table, shows that parties with competing interests can reduce
competitive arousal by banishing the lawyers
until they’re clearly needed.
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When Winning Is Everything
admitted that he had stopped when he did
only because he was unsure who the remaining
rival was; had he known it was his company’s
biggest competitor, he said, he probably
would have continued to bid.
The pitched battle for Paramount Pictures
offers yet another example of how the combination of these potent factors can distort
decision making. In late 1993, longtime rivals
Sumner Redstone (then the CEO of Viacom)
and Barry Diller (then the CEO of QVC)
locked horns in a public pursuit of Paramount. After a series of bids and counterbids,
Viacom triumphed. Research by Pekka Hietala,
Steven Kaplan, and David Robinson suggests
that Viacom overpaid by $2 billion and that
QVC would have overpaid by $688 million
had it won. Indeed, Redstone himself admitted to Time that as a result of the bidding war
he paid about $1.5 billion more than he had
intended to. The magazine described how the
decision-making process looked behind the
scenes: “Time was running out on the Viacom
executives and advisers who hunkered down
to a Sunday-afternoon skull session….Unless
Viacom came back fast and hard, everyone
present knew, the fight would soon be
over….one thought dominated all those at
the meeting: how to throw a knockout punch
that would be, as one of them put it, a ‘Dillerkiller.’” This hardly reads like a description
of rational decision making. Rather, a longstanding rivalry, mounting time pressure, and
a glaring media spotlight seem to have converged to drive the overpayment. The root
of the problem can perhaps be found in the
title of Sumner Redstone’s autobiography,
published a few years after the Paramount
acquisition: A Passion to Win.
Managing Competitive Arousal
The risk factors for competitive arousal are
ever present: Managers and executives must
constantly deal with rivals, make quick decisions, and operate in the public eye. They
can minimize the potential for competitive
arousal as well as the harm it can inflict by
following two broad strategies: avoiding
certain types of competitive interaction and
mitigating the risk factors.
Circumventing competition. Managers can
prevent competitive arousal altogether by
anticipating potentially harmful dynamics
and then creatively restructuring the deal-
harvard business review • may 2008
making process. Consider how NBC revised its
approach to deal making after a protracted
and costly negotiation with Paramount over
the TV rights for Paramount’s hit comedy series
Frasier. The show had aired on NBC for eight
years and had done spectacularly well. As the
contract period neared its end, Paramount
demanded a three-year contract with a 10%
price-per-episode increase, despite the show’s
(arguably) waning popularity. NBC executives
wanted a lower price and a one-year contract
(or a provision allowing them to forgo the
third year if ratings faltered) and were confident that no other network could profitably
pay even that amount for Frasier.
But Paramount was in a peculiar position:
Its parent company, Viacom, had recently
acquired NBC’s chief rival for the Frasier deal,
CBS. This created a difficult (and unexpected)
competitive dynamic for NBC. Even though
NBC executives were sure that CBS could not
profitably outbid NBC for Frasier, CBS might
persuade Viacom to force Paramount to sell
to CBS just to score a win against NBC. This
implied threat may have been sufficient to
stimulate competitive arousal among NBC’s
executives, but several other risk factors were
also present: The media were all over the
story. The lead negotiator for NBC, Mark
Graboff, had recently been hired away from
CBS, and Frasier was his first negotiation on
the job, putting him under both external and
internal spotlights. And time pressure was
intense—negotiations continued not only
beyond the contract’s expiration date but also
past the deadline set for an exclusive negotiation period between Paramount and NBC.
NBC got the show but appears to have paid
more than it was worth. Frasier did well for
one more year but then, consistent with the
network’s initial analysis (and biggest fears),
had its two worst years. Alas, NBC had not
managed to negotiate the provision allowing
it to forgo those disastrous years.
As a result of this experience, NBC restructured its deal-making process. In particular, the
company began to include a “no self-dealing”
clause, barring producers negotiating with
NBC from shopping their shows to networks
they own (or to those owned by their parent
company). We’ve seen other companies avoid
damaging bidding wars and escalating competition by using rolling contracts, which can be
renewed prior to expiration without lengthy
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When Winning Is Everything
renegotiation, limiting the possibility that
competing bidders will enter and trigger
irrational price wars. Similarly, noncompete
clauses can help firms avoid hypercompetition with rivals that might otherwise threaten
to steal their star employees. And, having
learned from bitter experience, some companies
avoid B2B reverse auctions altogether because
bidding wars can drive competitors to make
irrationally low bids.
Mitigating the risk factors. It’s not possible
to avoid potentially destructive competitions
and bidding wars completely. However, by
targeting the underlying causes of competitive
arousal, organizations can head off the escalation of irrational behavior.
Defusing rivalry. The desire to win at any
cost is most powerful when the competitor is
an erstwhile nemesis or is seen as evil. In such
instances, it is helpful to remember that
competitors are simply parties with their own
interests. Like you, they are probably smart,
reasonably rational, and somewhat emotional,
and they probably see you as the nemesis. Of
course, it is not always easy to control your
feelings about rivals, but adopting your com-
Defusing Competitive Arousal
Irrational, win-at-any-cost decision making is caused by an adrenaline-fueled
emotional state called competitive
arousal. Several strategies that target
its main drivers can reduce or eliminate
its negative impact.
and leads to an overreliance on simple
decision heuristics.
• Extend or eliminate arbitrary deadlines
• Change your environment to reduce
your perception of time pressure
Rivalry
The Spotlight
Competitive arousal is most common—
and most dangerous—when rivalry is intense. Head-to-head rivalry, in particular,
interferes with rational decision making.
• Design contracts that help prevent
rivalry
• Adopt your competitor’s perspective
• Sideline those who feel rivalry the most
intensely
• Quantify in advance the costs you’re
willing to incur in order to win
The presence of an audience—particularly
one that’s highly engaged and in a
position to pass judgment—increases
competitive arousal and can reduce
performance on physical and problemsolving tasks.
• Spread responsibility for competitive
decisions across team members
• Put individual managers in charge of
multiple accounts and judge them on
their overall—rather than on accountspecific—performance
• In acquisitions, calculate contingent
reservation prices before word of the
bid hits newsstands and before other
players react to your strategy
Time Pressure
A ticking clock can increase competitive
arousal, which decreases the ability to
find and apply relevant information
harvard business review • may 2008
petitor’s perspective can promote cool, rational
decision making, even in tough competitions.
When rivalry is intense, organizations
should consider limiting the roles of those
who feel it most. For instance, the COO of a
large family-owned business, one of our clients,
is a seasoned manager who was once a top
political administrator in his country. His role
in the company is to act as a devil’s advocate
and thereby temper the CEO’s competitive
arousal. His stature allows him to speak truth
to power even when no other executive or
board member feels comfortable doing so.
In more than one instance, the COO has
persuaded the CEO to step aside as the lead
decision maker or negotiator when the CEO’s
feelings of rivalry seem to be undermining
his judgment. As this COO understands, when
an arousal-prone negotiator can’t control the
competitive fire in an intense rivalry, it may
be in everyone’s interest to remove him or her
from the bargaining table.
Managers for the National Hockey League
saw the wisdom in this approach, albeit belatedly, during a highly publicized labor dispute
in 2005 and 2006. Most observers realized
that the rivalry between commissioner Gary
Bettman and Players’ Association executive
director Bob Goodenow made effective negotiating impossible. The two had a history of
contentious, win-lose negotiations and even
disagreed on details as trivial as how many
meetings they had conducted. As a result,
their seconds-in-command (chief legal officer
Bill Daly for the owners and senior director
Ted Saskin for the players) took over many of
the substantive discussions, preventing the
conflict from escalating further.
Another way to dilute the impact of rivalry
is to quantify early on—before competitive
arousal kicks in—how much you are willing
to lose in order to “win.” In negotiations,
auctions, legal disputes, and the like, this involves identifying not only the benefits that
can accrue from the deal (assets, synergies,
reputational advantages, and so on) but also
the costs that you are willing to incur in the
name of pride and ego.
We recently worked with an executive to do
exactly this. He was planning to sell his 50%
stake in a company to his partner. They had
come to hate each other and could no longer
work together effectively. When we asked
how much he would accept for his share in
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When Winning Is Everything
One way to dilute the
impact of rivalry is to
quantify early on—
before competitive
arousal kicks in—how
much you are willing to
lose in order to “win.”
harvard business review • may 2008
the company, he declared that he would not
sell for less than $8 million. After some financial
analysis and a consideration of his alternatives
(whether he could sell to an outside party),
we calculated that his bottom line should
be closer to $7 million. “He doesn’t deserve
that good a price,” the seller responded. After
explaining that he was implicitly pricing
his pride and his ego at $1 million, we asked
him to explicitly put a price on beating his
partner and to enter it into the spreadsheet
we had created. After thinking this through
overnight, he priced his pride at $200,000; he
acknowledged that his original, emotional response had led him to overprice this element
of the deal and that he was comfortable with
the new figure (as large as it seemed to us).
Once you have carefully assessed your limit
in an auction, a negotiation, an acquisition,
or a dispute, publicizing it to colleagues or
to your executive board can provide additional safeguards against competitive arousal.
Public commitments make it harder to violate
your limits.
Reducing time pressure. Who can stop a bidding war that has spiraled out of control? Let’s
reexamine the battle over Paramount. Time
reported that Barry Diller came to his senses
at the end of 1993, realizing that the acquisition was strategic and financial rather than
a competition with Sumner Redstone. His
first step was to defuse his dangerous feelings
of rivalry. He then removed himself from
the time-pressured deal-making environment.
“Diller had packed up 10 lbs. of Paramount
documents and hauled them along on a yearend Caribbean vacation,” Time reported.
“Running the numbers while onboard the
rented yacht Midnight Saga as he cruised off
St. Barts, Diller decided that Paramount was
not worth a penny more than the $10 billion in
cash and stock that QVC was bidding.” When
Diller returned from the trip, he held to his
original offer—and lost the deal. Although
time pressure can be imposed from outside, as
with deadlines, it is essentially perceptual,
shaped by how one feels about time ticking
away. By shifting contexts, from his office to
his yacht, Diller reduced perceived time pressure, slowing the ticking clock so that he could
make a calculated, rational decision.
Effective decision makers create time to reevaluate the bases of their value calculations,
to discuss substantive issues, and to negotiate.
Because individuals consistently underestimate the time needed for complicated tasks—
and consistently overestimate their ability to
make wise decisions, particularly under time
pressure—it is easy to set ill-considered deadlines that lead to bad decisions.
Extending or eliminating arbitrary deadlines may serve the purposes of both parties.
Recent negotiations between Comair and its
flight attendants and pilots are an excellent
example of this kind of temporal flexibility.
The airline’s union and management agreed
to extend negotiation deadlines twice, in both
cases to prevent time pressure from leading to
value-destroying competitive behaviors. As
Captain J.C. Lawson, chairman of the Comair
pilots’ union, said, “The pilots and flight
attendants will not have contract terms
imposed upon them, regardless of some artificial
deadline.” Comair spokeswoman Kate Marx
conveyed the same message, albeit in different terms: “We have agreed to the deferral as
a way to continue our work toward a consensual agreement, which has been our goal
since we began this process over a year ago.”
Given the simplicity of deferral as a solution,
executives need only ask themselves in negotiations and in other high-stakes decisions,
“Do I really need to make this decision today?”
If the answer is no, a short deferral can be
tremendously effective. Asking this simple
question, however, may not always be easy—
after all, it took our negotiate-over-breakfast
executive several years to recognize the time
trap he had set for himself.
Deflecting the spotlight. A spotlight can
originate outside an organization—in the
media, for example. It can also shine from
within, in the form of observant colleagues.
To counter the effects of an internal spotlight
on competitive arousal, organizations should
consider spreading the responsibility for critical,
competitive decisions across team members.
That way, no one manager or executive will
stand alone in the spotlight. For instance, one
of our clients, a financial services company,
recently adopted a policy requiring sales managers to report any large push by a customer
for price concessions to a team of peers and
bosses. The team then formulates a strategy
and takes collective responsibility for the
consequences. In the past, if clients threatened
to switch to a competitor, sales managers
feared that they would be held personally
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When Winning Is Everything
responsible for the loss and that their failure
would be highly visible throughout the organization. This anxiety often pushed them to
agree to extreme and unnecessary concessions. The new policy deflects the spotlight,
allowing them to feel more comfortable
holding the line on prices.
Another way to deflect the spotlight is
to put individual managers in charge of multiple
accounts and judge them on their overall—
rather than on account-specific—performance.
Editors at publishing companies, for instance,
are often caught in emotionally charged
bidding wars as they try to woo attractive
authors. A big deal may come along rarely for
an individual editor, and so the spotlight
shines brightly. It’s not hard to understand
why he or she may have a hard time resisting
competitive arousal. To address this problem,
some book publishers allow only one person
in the organization—the CEO, who is familiar
with the company’s entire portfolio—to
approve advances above a set amount (for
example, $250,000). The CEO won’t suffer the
glare of the spotlight because each deal represents just one of many.
Many of the acquisition battles we have
discussed here have had widespread media
coverage, with analysts dissecting the competitors’ every action and reaction. The media
spotlight can be difficult to deflect, but advance
work can limit its effects on decision making.
If negotiators anticipate that an acquisition
will make headlines, they should carefully
calculate their reservation prices before word
of their potential bid hits the newsstands.
These calculations should include the premiums that an acquirer is willing to pay in a
variety of scenarios (for example, if competitor
X enters the bidding or if the media begin
to play up the rivalry between bidders). Although this prescription is not difficult to follow,
firms routinely wait until after a new competitor
has outbid them to reevaluate the premium
they’re willing to pay. By then, competitive
arousal may be clouding their judgment.
In some contexts, competitors are shielded
from the spotlight as a matter of policy:
Dispute mediations often have gag rules that
harvard business review • may 2008
prevent parties from discussing the process or
the outcome. This policy has a dark side, of
course, which must be considered before
implementing it, especially in out-of-court
settlements involving harmful behavior that
might be repeated. For example, a company
that has created products that can harm consumers may be free to continue manufacturing
these products if guilt cannot be disclosed.
Whenever competitive arousal can be
anticipated—whether because of rivalry, time
pressure, or the spotlight, or because all three
are likely to emerge—mental preparation can
be an important defense. A simple and effective
way to avoid unwise competitive behavior is
to consider not simply prior mistakes but
potential mistakes that may occur in competitive interactions. A number of our former
students and clients role-play to prepare for
major negotiations. By simulating upcoming
deals, negotiators can anticipate the emotional reactions of competitive arousal and
avoid behaviors that might derail otherwise
sound strategy. Our research has shown that if
managers do not have time to simulate an
entire deal, they can still help avoid missteps
by imagining future regrets about overpaying.
•••
Research clearly demonstrates that we tend to
overestimate how rational, careful, and logical
we are. We are also prone to believe that
others are more susceptible than we are to
irrational decision making. Both of these
biases make it easy to ignore or underestimate
the harm that can befall us as a result of competitive arousal. Executives and managers
will be most successful in competitions when
they not only prevent or mitigate competitive
arousal, but also set in place organizational
processes that help focus their competitive
energies toward efficiently winning contests
in which they have a real advantage—and
away from those in which winning comes at
too high a cost.
Reprint R0805E
To order, see the next page
or call 800-988-0886 or 617-783-7500
or go to www.hbr.org
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When Winning Is Everything
Further Reading
ARTICLES
Six Habits of Merely Effective
Negotiators
by James K. Sebenius
Harvard Business Review
March 2002
Product no. R0104E
Sebenius sheds additional light on the forces
that can intensify competitive arousal and
explains how to mitigate them. For example,
partisan perceptions—painting your side
with positive qualities while vilifying your
“opponent”—can foster a stronger sense of
rivalry and thus heighten your desire to beat
the other side at all costs. To counteract this
bias, find a trusted partner and role-play negotiating from the perspective of the other
side. Remember, too, that participants in any
negotiation have interests in addition to just
price, such as a positive working relationship
that could prove crucial in longer-term deals.
When to Walk Away from a Deal
by Geoffrey Cullinan, Jean-Marc Le Roux,
and Rolf-Magnus Weddigen
Harvard Business Review
April 2004
Product no. R0404F
To Order
For Harvard Business Review reprints and
subscriptions, call 800-988-0886 or
617-783-7500. Go to www.hbr.org
Deals Without Delusions
by Dan Lovallo, Patrick Viguerie,
Robert Uhlaner, and John Horn
Harvard Business Review
December 2007
Product no. R0712G
Mental biases can further amp up competitive
arousal during an acquisition negotiation.
For instance, during preliminary due diligence,
you may seek out only information that
validates your initial interest in the target company. That information can make you feel
even more certain that you should win the
contest, igniting your competitive fire. The
antidote: Seek evidence that challenges your
estimates of the deal’s potential value. Or,
during final due diligence, you may fall prey
to the sunk costs fallacy, refusing to walk away
from the deal even if the costs are unrecoverable because you’ve already invested so
much time, money, effort, and reputation.
The antidote: Hire fresh, dispassionate experts to examine relevant aspects of the
deal—but don’t tell them your initial estimate
of the deal’s value.
The authors further explore a strategy for
deflecting the effects of an audience: determining your walk-away price (the price above
which you’re unwilling to go in a negotiation).
For example, if you’re negotiating the purchase price of an acquisition, give most
weight to the current worth of the target
company. And don’t overestimate synergies’
potential value—which may not materialize.
Assemble a team of trusted individuals who
are less attached to the deal than senior
management. This team can provide an unbiased examination of the target firm and hold
everyone to the walk-away criteria.
For customized and quantity orders of
Harvard Business Review article reprints,
call 617-783-7626, or e-mail
customizations@hbsp.harvard.edu
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REPRINT H03ZPM
PUBLISHED ON HBR.ORG
NOVEMBER 08, 2017
ARTICLE
STRATEGY EXECUTION
Many Strategies Fail
Because They’re Not
Actually Strategies
by Freek Vermeulen
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STRATEGY EXECUTION
Many Strategies Fail
Because They’re Not
Actually Strategies
by Freek Vermeulen
NOVEMBER 08, 2017
Lobo Press/Getty Images
Many strategy execution processes fail because the firm does not have something worth executing.
The strategy consultants come in, do their work, and document the new strategy in a PowerPoint
presentation and a weighty report. Town hall meetings are organized, employees are told to change
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2
their behavior, balanced scorecards are reformulated, and budgets are set aside to support initiatives
that fit the new strategy. And then nothing happens.
One major reason for the lack of action is that “new strategies” are often not strategies at all. A real
strategy involves a clear set of choices that define what the firm is going to do and what it’s not going
to do. Many strategies fail to get implemented, despite the ample efforts of hard-working people,
because they do not represent a set of clear choices.
Many so-called strategies are in fact goals. “We want to be the number one or number two in all the
markets in which we operate” is one of those. It does not tell you what you are going to do; all it does
is tell you what you hope the outcome will be. But you’ll still need a strategy to achieve it.
Others may represent a couple of the firm’s priorities and choices, but they do not form a coherent
strategy when considered in conjunction. For example, consider “We want to increase operational
efficiency; we will target Europe, the Middle East, and Africa; and we will divest business X.” These
may be excellent decisions and priorities, but together they do not form a strategy.
Let me give you a better example. About 15 years ago, the iconic British toy company Hornby
Railways — maker of model railways and Scalextric slot car racing tracks — was facing bankruptcy.
Under the new CEO, Frank Martin, the company decided to change course and focus on collectors
and hobbyists instead. As a new strategy, Martin aimed (1) to make perfect scale models (rather than
toys); (2) for adult collectors (rather than for children); (3) that appealed to a sense of nostalgia
(because it reminded adults of their childhoods). The switch became a runaway success, increasing
Hornby’s share price from £35 to £250 over just five years.
That’s because it represented a clear set of just three choices, which fit together to form a clear
strategic direction for the company. (Unfortunately, in recent years Hornby abandoned its set of
choices, to quite disastrous consequences, where it was forced to issue a string of profit warnings and
Martin was encouraged to take early retirement.) Without a clear strategic direction, any
implementation process is doomed to fail.
Communicate your logic. Sly Bailey, at the time the CEO of UK newspaper publisher Trinity Mirror,
once told me, “If there is one thing I have learned about communicating choices, it is that we always
focus on what the choices are. I now realize you have to spend at least as much time on explaining
the logic behind the choices.”
A set of a limited number of choices that fit together — such as Hornby’s “perfect-scale models for
adult collectors that appeal to nostalgia” — is easy to communicate, which is one reason you need
them. You cannot communicate a list of 20 choices; employees simply will not remember them. And
if they don’t remember them, the choices cannot influence their behavior, in which case you do not
have a strategy (but merely a PowerPoint deck). However, as Bailey suggested, communicating the
choices is not enough.
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3
Consider Hornby again. Its employees — product designers and technical engineers, for example —
could all tell me their company’s new choices. But they could also tell me the rudimentary logic
behind them: that their iconic brand names appealed more to adults, who remembered them from
their childhoods; that the hobby market was less competitive, with more barriers to entry and less
switching by consumers. It is because they understood the reasoning behind Frank Martin’s choices
that they believed in them and followed up on them in their day-to-day work.
It’s not just a top-down process. Another reason many implementation efforts fail is that executives
see it as a pure top-down, two-step process: “The strategy is made; now we implement it.” That’s
unlikely to work. A successful strategy execution process is seldom a one-way trickle-down cascade
of decisions.
Stanford professor Robert Burgelman said, “Successful firms are characterized by maintaining
bottom-up internal experimentation and selection processes while simultaneously maintaining topdriven strategic intent.” This is quite a mouthful, but what Burgelman meant is that you indeed need
a clear, top-down strategic direction (such as Hornby’s set of choices). But this will only be effective
if, at the same time, you enable your employees to create bottom-up initiatives that fall within the
boundaries set by that strategic intent.
Burgelman was speaking about Intel, when it was still a company focused on producing memory
chips. Its top-down strategy was clear: (1) to be on the forefront of (2) semiconductor technology and
(3) to be aimed at the memory business (not coincidentally a set of three clear choices!). But Intel
implemented it by providing ample autonomy and decentralized budgets to its various groups and
teams, for employees to experiment with initiatives that would bring this strategic intent to life and
fruition.
Many of these experiments failed — they were “selected out,” in Burgelman’s terminology — but
others became successes. One of them formed the basis of the Pentium microprocessor, which would
turn Intel into one of most successful technology companies the world has ever seen. It was the
combination of a broad yet clear top-down strategic direction and ample bottom-up initiatives that
made it work.
Let selection happen organically. A common mistake in the bottom-up implementation process is
that many top managers cannot resist doing the selection themselves. They look at the various
initiatives that employees propose as part of the strategy execution process and then they pick the
ones they like best.
In contrast, top executives should resist the temptation to decide what projects live and die within
their firms. Strategy implementation requires top managers to design the company’s internal system
that does the selection for them. Intel’s top management, for example, did not choose among the
various initiatives in the firm personally, but used an objective formula to assign production capacity.
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4
They also gave division managers ample autonomy to decide what technology they wanted to work
on, so projects that few people believed in automatically failed to get staffed.
Be brave enough to resist making these bottom-up choices, but design a system that does it for you.
Make change your default. Finally, another reason many implementation efforts fail is that they
usually require changing people’s habits. And habits in organizations are notoriously sticky and
persistent. Habits certainly don’t change by telling people in a town hall meeting that they should act
differently. People are often not even aware that they are doing things in a particular way and that
there might be different ways to run the same process.
Identifying and countering the bad habits that keep your strategy from getting executed is not an
easy process, but — as I elaborate on in my book Breaking Bad Habits — there are various practices
you can build into your organization to make it work. Depending on your specific circumstances and
strategy, this might involve taking on difficult clients or projects that fit your new strategy and that
trigger learning throughout the firm. It may involve reshuffling people into different units, to disrupt
and alter habitual ways of working and to expose people to alternative ways of doing things. It may
also involve identifying key processes and explicitly asking the question “Why do we do it this way?”
If the answer is a shrug of the shoulders and a proclamation of “That’s how we’ve always done it,” it
may be a prime candidate for change.
There are usually different ways of doing things, and there is seldom one perfect solution, since all
alternatives have advantages and disadvantages — whether it concerns an organization’s structure,
incentive system, or resource allocation process. We often resist change unless it is crystal clear that
the alternative is substantially better. For a successful strategy implementation process, however, it
is useful to put the default the other way around: Change it unless it is crystal clear that the old way is
substantially better. Execution involves change. Embrace it.
Freek Vermeulen is an associate professor of strategy and entrepreneurship at London Business School and the author
of Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business (Harvard Business Review Press, 2017).
Twitter: @Freek_Vermeulen.
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5
BR
NOVEMBER-DECEMBER 1996
I. Operational Effectiveness Is Not Strategy
For almost tv^fo decades, managers have been
learning to play by a new set of rules. Companies
must be flexible to respond rapidly to competitive and market changes. They must benchmark
continuously to
achieve best practice. They must
outsource aggressively to gain efficiencies. And
they must nurture a few core eompetencies in the by Michael
race to stay ahead of rivals.
Positioning-once the heart of strategy-is reject- !
ed as too static for today’s dynamic markets and
changing technologies. According to the new dogma, rivals can quickly copy any market position,
and competitive advantage is, at hest, temporary.
But those beliefs are dangerous half-truths, and
they are leading more and more companies down
the path of mutually destructive competition.
True, some barriers to competition are falling as
regulation eases and markets become global. True,
companies have properly invested energy in beeoming leaner and more nimble. In many industries,
however, what some call hypcrcompetition is a
self-inflicted wound, not the inevitahle outcome of
a changing paradigm of competition.
The root of the problem is the failure to distinguish between operational effeetiveness and strat-
egy. The quest for productivity, quality, and speed
has spawned a remarkable number of management
tools and techniques: total quality management,
benchmarking, time-based competition, outsourcing, partnering,
rcungineer’ing,
change management. Although
the resulting operational improvements have often
E. Porter ^^^^ dramatic, many companies have
been frustrated hy their inability to
translate those gains into sustainahle profitahility.
And hit by bit, almost imperceptibly, management
tools have taken the place of strategy. As managers push to improve on all fronts, they move farther
away from viable competitive positions.
What Is Strategy r
HARVARD BUSINESS REVIEW
N,)vt;mbt;r-D(.ct;mbi;r 1996
Operational Effectiveness:
Necessary but Not Sufficient
Operational effectiveness and strategy are both
essential to superior performance, wbich, after all,
is the primary goal of any enterprise. But they work
in very different ways.
Michael E. Porter is the C. Roland Chiistensen Professor
of Business Adminislralion at the Harvard Business
School in Boston, Massachusetts.
61
A company can outperform rivals only if it can
establish a difference that it can preserve. It must
deliver greater value to customers or create comparable value at a lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher
average unit prices; greater efficiency results in
lower average unit costs.
Ultimately, all differences between companies in
cost or price derive from the hundreds of activities
required to create, produce, sell, and deliver their
products or services, such as calling on customers,
assembling final products, and training employees.
Cost is generated by performing activities, and cost
advantage arises from performing particular activities more efficiently than competitors. Similarly,
differentiation arises from both the choice of activities and how they are performed. Activities, then,
are the hasic units of competitive advantage. Overall advantage or disadvantage results from all a
company’s activities, not only a few.’
Operational effectiveness (OE) means performing
similar activities better than rivals perform them.
Operational effectiveness includes but is not limited to efficiency. It refers to any number of practices
that allow a company to better utilize its inputs by,
for example, reducing defects in products or developing better products faster. In contrast, strategic
positioning means performing different activities
from rivals’ or performing similar activities in different ways.
Differences in operational effectiveness among
companies are pervasive. Some companies are able
Operational Effectiveness
Versus Strategic Positioning
high
O
Relative cost position
tional effectiveness are an important source of differences in profitability among competitors because they directly affect relative cost positions
and levels of differentiation.
Differences in operational effectiveness were at
the heart of the Japanese challenge to Western companies in the 1980s. The Japanese were so far ahead
of rivals in operational effectiveness that they
could offer lower cost and superior quality at the
same time. It is worth dwelling on this point, because so much recent thinking about competition
depends on it. Imagine for a moment a productivity
frontier that constitutes the sum of
all existing best practices at any given time. Think of it as the maximum
value that a company delivering a
particular product or service can create at a given eost, using the hest
availahle technologies, skills, management techniques, and purchased
inputs. The productivity frontier can
apply to individual activities, to groups of linked
activities such as order processing and manufacturing, and to an entire company’s activities. When a
company improves its operational effeetiveness, it
moves toward the frontier. Doing so may require
capital investment, different personnel, or simply
new ways of managing.
The productivity frontier is constantly shifting
outward as new technologies and management approaches are developed and as new inputs become
available. Laptop computers, mobile communications, the Internet, and software such as Lotus
Notes, for example, have redefined the produetivity
A company can outperform
rivals only if it can establish
a difference that it can preserve.
to get more out of their inputs than others because
they eliminate wasted effort, employ more advanced technology, motivate employees better, or
have greater insight into managing particular activities or sets of activities. Such differences in operaThis article has benefited greatly from the assistance
of many individuals and companies. The author gives
special thanks to Ian Rivkin, the coauthor of a related
paper. Substantial research contributions have been
made by Nicolaj Siggelkovi/. Dawn Sylvester, and Lucia
Marshall. Tarun Khanna, Roger Martin, and Anita McGahan have provided especially extensive comments.
62
HARVARD BUSINESS REVIEW
November-December 1996
WHAT IS STRATEGY?
frontier for sales-force operations and created rich
possibilities for linking sales with such activities as
order processing and after-sales support. Similarly,
lean production, which involves a family of activities, has allowed substantial improvements in
manufacturing productivity and asset utilization.
For at least the past decade, managers have been
preoccupied with improving operational effectiveness. Through progratns such as TQM, time-based
competition, and benchmarking, they have changed
how they perform activities in order to eliminate
inefficiencies, improve customer satisfaction, and
achieve best practice. Hoping to keep up with
shifts in the productivity frontier, managers have
embraced continuous improvement, empowerment,
chan^t management, and the so-called learning
organization. The popularity of outsourcing and
the virtual corporation reflect the growing recognition that it is difficult to perform all activities as
productively as specialists.
As companies move to the frontier, they can often
improve on multiple dimensions of performance at
the same time. For example, manufacturers that
adopted the Japanese practice of rapid changeovers
in the 1980s were able to lower cost and improve
differentiation simultaneously. What were once believed to be real trade-offs – between defeets and
costs, for example – turned out to be illusions created by poor operational effectiveness. Managers
have learned to reiect such false trade-offs.
Constant improvement in operational effectiveness is necessary to achieve superior profitability.
However, it is not usually sufficient. Few companies have competed successfully on the basis of operational effectiveness over an extended period, and
staying ahead of rivals gets harder every day. The
most obvious reason for that is the rapid diffusion
of best practices. Competitors can quickly imitate
management techniques, new technologies, input
improvements, and superior ways of meeting customers’ needs. The most generic solutions – those
that can be used in multiple settings–diffuse the
fastest. Witness the proliferation of OE techniques
accelerated by support from consultants.
OE competition shifts the productivity frontier
outward, effectively raising the bar for everyone.
But although such competition produces absolute
improvement in operational effectiveness, it leads
to relative improvement for no one. Consider the
$5 hillion-plus U.S. commercial-printing industry.
The major players-R.R. Donnelley Sk Sons Company, Quehecor, World Color Press, and Big Flower
Press-are competing head to head, serving all types
of customers, offering the same array of printing
technologies (gravure and weh offset}, investing
heavily in the same new equipment, running their
presses faster, and reducing crew sizes. But the resulting major productivity gains are being captured
by customers and equipment suppliers, not retained in superior profitability. Even industry-
Japanese Companies Rarely Have Strategies
The lapanese triggered a global revolution in operational effectiveness in the 1970s anij 1980s, pioneering
practices such as total quality management and continuous improvement. As a result, Japanese manufacturers enjoyed substantial cost and quality advantages
for many years,
But lapanese companies rarely developed distinct
strategic positions of the kind discussed in this article.
Those that did – Sony, Canon, and Sega, for example were the exception rather than the rule. Most Japanese
companies imitate and emulate one another. All rivals
offer most if nt)t all product varieties, features, and services; they employ all channels and match one anothers’ phint configurations.
The dangers of Japanese-style competition are now
becoming easier to reco…
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