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knowledge
management
practices aimed at
accessible source of information about designs and processes. other stakeholders will differ from
discovering and harnessing
Along with this information, employees use the software to share you in race, ethnicity, age, gender, an organization’s
their knowledge—best practices they have developed for design physical characteristics, or sexual intellectual resources
and manufacturing.70 At Toyota, knowledge management sup- orientation. To be an effective
ports collaboration and vice versa. manager, you’ll need to under-
stand, relate to, and work productively with these individuals.
Collaboration also occurs beyond the boundaries of the organiza-
How diverse are we becoming at work? The following trends
tion itself. Companies today must motivate and capitalize on the
in the U.S. labor force are expected from 2008 through 2018:75
ideas of people outside the organization. AT&T, in an effort to
connect with more small business owners (a key source of poten- • The labor force will continue to grow more diverse.
tial customers) over the Internet, is collaborating with an outside
• Fast growth of “older workers” will occur to the point that
firm to develop over 100 how-to articles.71 Topics include every- approximately 1 out of 4 workers will be 55 and older.
thing from writing a business plan to setting up a wireless net-
work. AT&T is putting content like this on the web to attract these • Hispanics will grow to about 18 percent and Asians to about
new customers when they use search engines and social media.72 6 percent of the labor force.

Customers, too, can be collaborators. Creating outstanding • A higher percentage of women than men will join the labor force.
products and services can start with involving customers in • White (non-Hispanic) workers’ participation in the labor force
company decisions. Procter & Gamble has been getting cus- will drop from 68 to 64 percent.
tomers to think creatively and talk with one another online to
come up with new product and service ideas.73 Tapping into The increase in gender, racial, age, and ethnic diversity in the
the popularity of social networking websites like Facebook and workplace will accentuate the many differences in employees’
Twitter, P&G set up two websites aimed at bringing its custom- values, attitudes toward work, and norms of behavior. In addi-
ers together. One site, the People’s Choice Community, pro- tion to leveraging the strengths of diverse employees, effective
vides content about the winners of the People’s Choice Awards, managers need to find ways to connect with diverse customers,
along with opportunities to join a “community” of people who suppliers, and government officials, both in the United States
want to share messages about those celebrities. The other site, and internationally. As will be discussed in greater detail in
called Capessa, is a discussion group for women where they can later chapters, managers need to be acutely aware of these dif-
trade thoughts about health and other concerns. Although both ferences and be prepared to prevent (or deal with) miscommu-
sites offer advertising opportunities, P&G intends to use them nication, insensitivity, and hostility on the part of an employee,
primarily as a way to learn more about consumers’ attitudes.74 customer, or other stakeholder who doesn’t embrace the ben-
efits of diversity management.
4.5 | Diversity Needs to be Fortunately, effective managers and organizations are tak-
Leveraged ing steps to address these concerns and leverage the diver-
sity of their resources and talent in new ways. IBM’s board
The labor force is becoming more and more diverse. This means
of directors and its Worldwide Executive Council (WEC) are
that it is likely that your coworkers, customers, suppliers, and
57 percent and 40 percent (respectively) female and
multicultural (not U.S.-born). The WEC is respon-
E X H I B I T 1 . 5 The T-shaped manager at BP sible for overseeing the company’s worldwide diver-
sity initiatives, including recruiting, retaining, and
T-shaped managers increase organizational effectiveness by
promoting talent, and linking diversity initiatives to
sharing knowledge with others across the organization...
the global marketplace.76 Accounting, taxation and
consulting firm Deloitte LLP has undertaken several
steps to break the “glass ceiling” and retain more of
its talented female employees. The firm decreased
the amount of travel for employees to allow them
to have better work/life balance, provided enhanced
career opportunities for women, and made diversity
management a key priority for the entire organi-
zation. By making a concerted effort to retain and
value female employees, Deloitte is managing its
talent in a more effective and efficient manner. The
....while simultaneously focusing on achieving
company now has more than 1,000 female partners,
strong performance in their own business units.
principals, and directors.77 By retaining valuable
Source: Adapted from M. Hansen and B. von Oetinger, “Introducing T-Shaped Managers: human resources, Deloitte avoids having to spend
Knowledge Management’s Next Generation,” Harvard Business Review, March 2001, time and money on recruiting, selecting, orienting,
pp. 106–16. and training new employees who may or may not fit

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the organizational culture or be able to do the job as well as a

current employee.
Globalization, technological change, the monumental impor-
tance of new ideas, collaboration across disappearing bound-
aries, diversity—what are the effects of this tidal wave of new
forces? The remainder of this chapter and the following chap-
ters will answer this question with business and management
principles, real-world examples, and insights from successful
managers and leaders.

LO5
Recognize how successful managers achieve competitive
advantage

SOURCES OF COMPETITIVE An important source of competitive advantage for Apple is how it excites
ADVANTAGE customers with new product offerings.

Why do some companies lose their dominant positions while sell for nearly as long as they used to because so many competi-
others manage to stay on top?78 Blockbuster was a successful tors are introducing so many new products all the time. Like-
video rental chain until Netflix, cable companies, and online wise, you have to be ready with new ways to communicate with
enterprises changed the delivery and pricing of videos and enter- customers and deliver products to them, as when the Internet
tainment content. Then there’s Eastman Kodak. For over 100 forced traditional merchants to learn new ways of reaching cus-
years, this company dominated the camera and film markets until tomers directly. Globalization and technological advances have
being upended by the invention of digital photography, file shar- accelerated the pace of change and thus the need for innovation.
ing, and the like. On the other hand, how does a company like
Apple continually excite customers with its “iGadget” offerings?79 Sometimes the most important innovation isn’t the product
How does the Chinese electric car manufacturer BYD compete itself but the way it is delivered. Borrowing an idea that has
effectively in this emerging segment of the automobile industry? proved popular in Europe, Opaque–Dining in the Dark has
How does the Indian technology company Infosys compete effec- collaborated with the Braille Institute of America to present
tively against its American rivals, Accenture and McKinsey?80 dining events at the Hyatt West Hollywood in total darkness.
Diners select gourmet meals from a menu in a lighted lounge
These successful companies have strong managers who know and then are led into a dark banquet room by blind or visually
they are in a competitive struggle to survive and win. To do impaired waiters. The attraction is that diners experience the
this, you have to gain advantage over your competitors and meal in a completely new way because they are forced to con-
earn a profit. You gain competitive advantage by being bet- centrate on their senses of taste, smell, and touch.83
ter than your competitors at doing valuable things for your
customers. But what does this mean, specifically? To succeed, Innovation is today’s holy grail.84 And like the other sources of
managers must deliver the fundamental success drivers: inno- competitive advantage, innovation comes from people, it must
vation, quality, service, speed, and cost competitiveness. be a strategic goal, and it must be managed properly. Later
chapters will show you how great companies innovate.

5.1 | Innovation Keeps You Ahead 5.2 | Quality Must Continuously

of Competitors Improve
If the Kindle Fire’s Internet browser is as fast as predicted81 and
When Spectrum Health, a hospital chain based in Grand
the new tablet’s relatively low price of $19982 proves attractive
Rapids, Michigan, asked patients how well they were served, the
to consumers, will the Kindle Fire become the number one
hospital learned that it had a problem. Patients rated staff low on
tablet computer? One thing is fairly certain: we can count on
helpfulness and said they didn’t get good information about the
Apple to counter with its own innovations when it releases its
procedures they received in the hospital, or the way they were
next generation iPad.
supposed to take care of themselves after being released to return
Innovation is the introduction of new goods and services. home. Spectrum responded to the survey results by setting up an
Your firm must adapt to changes in consumer demand and to advisory council of patients and family members, making visit-
new competitors. Products don’t sell forever; in fact, they don’t ing hours more flexible, getting patient input on who was allowed

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innovation the
introduction of new goods
and services
to hear medical information and make decisions about treat- of product performance, customer
ment, and calling discharged patients at home to make sure they service, reliability (avoidance of quality the excellence
understood the directions they had received. Within two years failure or breakdowns), confor- of your products (goods or
of conducting the survey and beginning to make these changes, mance to standards, durability, and services)
satisfaction scores of Spectrum patients improved dramatically.85 aesthetics. At the beginning of this
section, we mentioned how hos- service the speed and
Spectrum Health’s efforts reflect a commitment to quality. In pitals are using patient surveys to dependability with which an
general, quality is the excellence of your product or service. The measure quality. However, a recent
organization delivers what
importance of quality and the standards for acceptable quality have customers want
study conducted by the University
increased dramatically. Customers now demand high-quality of Pennsylvania School of Medi-
goods and services, and often they will accept nothing less. cine determined that a patient’s
Historically, quality pertained primarily to the physical goods risk of dying was not significantly less at hospitals that scored well
that customers bought, and it referred to attractiveness, lack on Medicare’s quality measures.89 Certainly, if you enter a hos-
of defects, reliability, and long-term dependability. The tra- pital, you hope to come out alive! Only when you move beyond
ditional approach to quality was to check work after it was broad, generic concepts like “quality” and identify specific quality
completed and then eliminate defects. But then W. Edwards requirements can you identify problems, target needs, set perfor-
Deming, J. M. Juran, and other quality gurus convinced man- mance standards more precisely, and deliver world-class value.
agers to take a more complete approach to achieving total qual-
ity. This includes several objectives: 5.3 | Services Must Meet
• Preventing defects before they occur. Customers’ Changing Needs
As we noted in the discussion of quality, important quality mea-
• Achieving zero defects in manufacturing. sures often pertain to the level of service customers receive. This
• Designing products for quality. dimension of quality is particularly important because the ser-
vice sector now dominates the U.S. economy. Services include
The goal is to plan carefully, prevent from the beginning all intangible products like insurance, hotel accommodations,
quality-related problems, and live a philosophy of continuous medical care, and haircuts. Between now and 2018, the Bureau
improvement in the way the company operates. Deming and his of Labor Statistics forecasts that Americans will spend a higher
ideas were actually rebuffed by U.S. percentage of their personal income
managers; only when he found an on services than tangible goods.90 The
audience in Japan, and Japan started total number of jobs in service compa-
grabbing big chunks of market share nies—not including retailing, whole-
from the United States in vehicles, saling, and government workers—is
computer chips, and TVs, did U.S. nearly five times the number in man-
managers start internalizing and ufacturing companies. And that pat-
practicing his quality philosophy.86 tern is expected to intensify. Between
now and 2018, the fastest-growing job
Although these principles were
categories will be almost entirely ser-
originally applied to manufactur-
vices and retailing jobs, and the jobs
ing tangible goods, the experiences
expected to see the greatest declines are
of Spectrum Health remind us that
almost all in manufacturing.91
service quality is vital as well. Qual- People enter the Dans le Noir (In the Black) restaurant
ity is also enhanced when companies in Paris, where they will enjoy a dining experience In a competitive context, service
customize goods and services to indi- in complete darkness as if they were blind. Blind means giving customers what they
vidual consumers’ wishes. Choices waiters serve as guides. The concept is an innovative want or need, when and where they
at Starbucks give consumers literally approach to fine dining, and restaurants such as this want it. So service is focused on con-
thousands of variations on the drinks are spreading around the globe. tinually meeting the changing needs of
they can order, whether it’s half-caff customers to establish mutually benefi-
or full caffeine, skim milk or soy milk, or shots of espresso and cial long-term relationships. Service is also an important offering
any of a variety of flavored syrups. Car buyers can go online to for many companies that sell tangible goods. Software compa-
choose from hundreds of features to “build their own” Mini nies, in addition to providing the actual programs, may help
Cooper, down to the color of the light for the speedometer. And their customers identify requirements, set up computer systems,
for a premium price, candy lovers can select M&M’s candies and perform maintenance.
bearing the message of their own creation.87
Stores offer a shopping environment and customer service along
Providing world-class quality requires a thorough understand- with the goods on their shelves. To improve service for a wider
ing of what quality really is.88 Quality can be measured in terms customer base, Best Buy adjusted its store environment so it

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speed fast and timely

execution, response, and
delivery of results
would be more inviting to female essential just for keeping up with the competition. A recent study
cost shoppers. found that the top assembly plant in the United States was Ford’s
competitiveness The chain’s loud music and
Atlanta facility, where employees needed just 15.4 hours to assem-
keeping costs low to ble a vehicle. Compare that with the 1980s, when GM employees
emphasis on high-tech features had
achieve profits and to be needed 40 hours to assemble a vehicle.94 Another important mea-
able to offer prices that are
been aimed at young men, but the
sure of speed in the auto industry is the time a company takes to
attractive to consumers store found that women influence
go from product concept to availability of a vehicle in the show-
9 out of 10 consumer electron-
room. During the 1980s, that time was about 30 or 40 months.
ics purchases. Best Buy lowered
Today Toyota has cut the process to an average of 24 months; it
the volume, dimmed the lighting, and trained staff to discuss
needed just 22 months to launch its Tundra pickup.95
what customers want the technology to do for them, rather than
merely pointing out bells and whistles. The chain is also trying to Speed isn’t everything—you can’t get sloppy in your quest to be
hire more female salespeople.92 first. But other things being equal, faster companies are more
likely to be the winners, slow ones the losers.
An important dimension of service quality is making it easy and
enjoyable for customers to experience a service or to buy and 5.5 | Low Costs Help Increase
use products. For example, Apple made it easy and enjoyable Your Sales
for online customers to sample their favorite music and then
Walmart keeps driving hard to find new ways to cut billions of
download it from the iTunes store. Amazon allows customers
dollars from its already very low distribution costs. It leads the
to look at a free sample of a book to help them decide whether
industry in efficient distribution, but competitors are copying
they want to read and purchase the entire book. These innova-
Walmart’s methods, so the efficiency no longer gives it as
tions in service are changing the way companies do business.
much of an advantage. To stay on top of the game, Walmart
has urged its suppliers to use radio frequency ID (RFID) tags
5.4 | Do It Better and Faster on products for instantaneous identification and better inven-
Google’s culture, based on rapid innovation, is constantly try- tory tracking.96 Walmart also has sought to keep costs down
ing to make improvements in its product. Sheryl Sandberg, a by scheduling store employees more efficiently. It introduced
Google vice president, once made a mistake because she was a computerized system that schedules employees based on

BE EVERYWHERE, DO EVERYTHING, AND NEVER FAIL

TO ASTONISH THE CUSTOMER.
—Macy’s motto

moving too fast to plan carefully. Although the mistake cost the each store’s sales, transactions, units sold, and customer traf-
company a few million dollars, Google cofounder Larry Page fic. It compares seven weeks’ worth of data in those areas with
responded to her explanation and apology by saying he was the prior year’s performance and uses the results to determine
actually glad she had made the mistake. It showed that Sand- how many employees will be needed during which hours. The
berg appreciated the company’s values. Page told her, “I want to system is intended to schedule just enough workers, with full
run a company where we are moving too quickly and doing too staffing only at the busiest times and days of the week, so it
much, not being too cautious and doing too little. If we don’t requires more flexibility from Walmart’s employees.97
have any of these mistakes, we’re just not taking enough risks.”93
Walmart’s efforts are aimed at cost competitiveness, which
While it’s unlikely that Google actually favors mistakes over means keeping costs low enough so the company can realize
money-making ideas, Page’s statement expressed an appreciation profits and price its products (goods or services) at levels that
that in the modern business environment, speed—rapid execu- are attractive to consumers. Toyota’s efforts to trim product
tion, response, and delivery of results—often separates the winners development processes are also partly aimed at cost competi-
from the losers. How fast can you develop and get a new product tiveness. Making the processes more efficient through collabo-
to market? How quickly can you respond to customer requests? ration between design and manufacturing employees eliminates
You are far better off if you are faster than the competition—and wasteful steps and procedures. Needless to say, if you can offer a
if you can respond quickly to your competitors’ actions. desirable product at a lower price, it is more likely to sell.
Speed is no longer just a goal of some companies; it is a strategic Managing your costs and keeping them down require being effi-
imperative. Speed combined with quality is a measure that a com- cient: accomplishing your goals by using your resources wisely
pany is operating efficiently. In the auto industry, getting faster is and minimizing waste. Little things can save big money, but

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Walmart controls costs by continuously improving the efficiency and speed of its inventory management system. One of its
distribution centers is pictured above.

cost cuts involve trade-offs. That explains some of the growth their employees through Aetna. Together the companies rene-
in the market for private jets. Flying on a private jet is more gotiated the standard procedures physicians would follow and
expensive than buying a ticket on a commercial airline. But for the rates Aetna would pay so that some of the most expensive
a highly paid, frequently traveling business executive, the time conditions could be treated in ways that were ultimately more
spent hanging around an airport can become more costly than economical to insure but paid for at higher rates that would be
the cost of a jet. If the company can arrange to participate in a profitable for Virginia Mason. The facility presented the plan
service such as NetJets, where the company buys only shares in to its department heads, helping them pay attention to how
a jet with the rights to use it, this can trim the price and make their decisions affect the cost of care. Virginia Mason has also
the arrangement even more beneficial.98 improved quality through measures that enhance speed—in
this case, cutting waiting times for patients, such as a reduc-
One reason every company must worry about cost is that con- tion in the four-hour wait for chemotherapy to 90 minutes.99
sumers can easily compare prices on the Internet from thou-
sands of competitors. DealTime, Shopzilla, and PriceGrabber Trade-offs may occur among the five sources of competitive
are only a few of the search tools that can generate lists of prices advantage, but this doesn’t need to be a zero-sum game where
at which a product is available from various suppliers. Con- one has to suffer at the expense of another. Columbia Hotel
sumers looking to buy popular items, such as cameras, printers, Management is in the business of managing hotel properties
and plane fares, can go online to research the best models and around the country. Some of these hotels include Best Western
the best deals. If you can’t cut costs and offer attractive prices, (Georgia), Holiday Inn (Illinois), Ramada Plaza (Texas), and
you can’t compete. the Quality Inn (Mississippi).100 Milan Yager, the director of
human resources for the company, focused on cost savings
5.6 | The Best Managers Deliver when he decided to outsource some of the more routine human
resources tasks such as payroll and benefits management.101
All Five Advantages Turning over those responsibilities to a vendor that special-
Don’t assume that you can settle for delivering just one of the izes in performing them efficiently freed Yager to engage in
five competitive advantages: low cost alone or quality alone, for higher-level HR strategies and projects that can help his orga-
example. The best managers and companies deliver them all. nization provide outstanding services for the hotel properties
it manages.
Virginia Mason Medical Center, like many hospitals, felt chal-
lenged in delivering low costs along with high quality and Making decisions about outsourcing and cost savings are just
superior services. Virginia Mason has a reputation for high- some important ways to help your organization achieve com-
quality care, but it was losing money treating certain patients. petitive advantage. As you read this chapter, you learned about
Complicated, high-tech procedures generate higher fees, but several of the challenges facing managers today and what func-
they aren’t necessarily what a patient needs the most. Some tions and activities managers engage in at different levels of the
patients may benefit more from a simple doctor visit, but that’s organization. The next chapter (Chapter 2) looks back to help
not as profitable. So Virginia Mason collaborated with Aetna, provide a lens for understanding how we got to where we are
an insurer that pays for 10 percent of the medical center’s today. It provides a brief look at the evolution of management
business, and with local employers that provide coverage for thought and practice. ■

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