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Best Business Books 2004: Strategy

Some people try to fend off disruptive forces of change by denouncing or ignoring them. But in this new environment, confronting reality has to become a leadership priority of the highest order — a nonnegotiable behavior for everyone at all levels of an organization.

Plenty of savvy businesspeople around the world are willing to try something different. As a result, we predict, most businesses will be required to change more and more often in the coming decade than they have in their previous histories. And if they stick with their old practices and behaviors, a great many won’t be able to handle the changes.

Confronting reality is especially important for CEOs of established companies, often shielded from the marketplace by layers of managers who put their own spin on events. Changing the business model that has made a company successful is difficult because the model itself defines the information managers seek, shapes their interpretation of information, and is embedded in a firm’s metrics. The most critical tasks for a CEO are to recognize when the business model needs to be significantly altered, and to lead the coordinated transformation of the company into its new reality.

Bossidy and Charan don’t offer managers the pragmatic, in-depth advice about how to develop and refine a business model that made their previous collaboration, Execution: The Discipline of Getting Things Done (Crown Business, 2002), so successful. Instead, they offer their perspectives about the business models and changes in business models at Cisco, Sun, Home Depot, and several other businesses. Although the case studies don’t offer the kinds of lessons that could help inform young managers, the description of how effective managers formulate strategy — and the reminder of the need to confront reality — make Confronting Reality a worthwhile read.

Customer Interaction
C.K. Prahalad and Venkat Ramaswamy argue that the future of competition will be to offer customers superior experiences by “co-creating unique value” with them. A focus on customer experience isn’t new, of course. Most companies recognize that ever more demanding customers, fast following by competitors, and increasing product parity make customer experience the next frontier. The contribution of Prahalad and Ramaswamy is to recognize that the delivery of superior customer experiences requires a fundamental change in company mind-sets and business models. Traditionally, companies have seen customers as passive — exactly as Bossidy and Charan depict. It has been up to the company to engineer products and value chains to serve customers’ needs. In contrast, Prahalad and Ramaswamy demonstrate that personalized experiences are created through the interaction of companies and customers: More-active customers and less-in-control companies “co-create” value, making customers a full element of the business model.

The authors use four case studies to illustrate the meaning of co-create. is a great example of a company that, instead of offering products, offers “experience environments that shape themselves to consumers’ needs and preferences, not the other way around,” they write. “As a customer, I get recommendations for books, music, and movies based on my tastes, on the selections of those who have purchased the same books I have, on bestseller lists, [and] on reviews by professional critics and fellow Amazon users.” Although Amazon develops the overall environment and contributes data and algorithms, its recommendations also reflect the customer’s past choices: What’s on each screen is co-created.

Another case illustrates how marketers can give customers the opportunity to contribute directly to product development — to improve product targeting, to generate excitement, and to accelerate penetration of new products. Prior to the release of Lord of the Rings: Fellowship of the Ring, New Line Cinema provided more than 400 unofficial Tolkien Web sites with insider tips, rough sketches of costumes, handwritten production notes, and other exclusive content, and then asked for feedback — co-opting the rabid fans and increasing buzz for the movie.

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