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excellent discussion from author of Built to Last about new mentality toward building companies and the associated implications

Read follow-up article, "Built to Flip - Where Do You Come Down?"
http://www.fastcompany.com/magazine/32/flipdia.html

Note: Business 2.0 is now part of CNNmoney and some older articles are no longer available

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insightful article series from Business 2.0

Authors offer a theory of business - creating value that can be captured is the essence of business. The basis of this concept is the idea of added value, a term derived from game theory.

What makes a value leader, and how much do industry dynamics determine value creation for different types of firms? Professor Gabriel Hawawini, Professor Paul Verdin and PhD candidate Venkat Subramanian re-examine the question to reveal new findings. Using 55 industries, they categorise firms within each industry into 3 main groups - the leading value creators, the value destroyers (the losers) and the rest that lie between. Applying a random industry model, they found industry does indeed matter for the majority of those firms in the middle, but for the extreme winners and losers, there's different story.

Imagine a company (iFormation) started by the best-connected investment bank in the world, by a leading management-consulting firm, and by one of the top venture-capital firms. Give it $300 million -- and set it loose to reinvent big business.

Start with 1,435 good companies. Examine their performance over 40 years. Find the 11 companies that became great. Now, here's how you can do it too.

Note: Older EBF articles are not currently online. I'm not sure if this is temporary or permanent. If you click you will be taken to the Archive.org site to find an archived copy.

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Jagdish Sheth and Rajendra Sisodia say their research demonstrates that in mature, competitive markets there is only space for three large volume-driven companies alongside several niche specialists.

Key messages:
- Efficient markets eventually get organised into two kinds of competitors: full-line generalists and product/market specialists.

- Generalists are large scale companies, which compete across a range of products and markets, and are volume-driven. Specialists operate on a smaller scale, focus on niche markets and tend to be margin-driven.

- The Rule of Three holds that in competitive, mature markets, there is only room for three full-line generalists, along with several product or market specialists.

Looking over the current crop, you might think so. Look harder.

Actually, technology did, by speeding up the maturation of industries-but you can fight back.

Measuring performance can cut both ways. It can play a valuable role in improving organizations - or it can stand in the way of necessary change.

Here are seven fundamental lessons about IT value that Mohanbir Sawhney has learned in a decade-long career as an academic researcher, consultant and teacher:
1. Value is customer-defined... To understand the true nature of value, you need to get inside the minds and hearts of your customers, whether they're internal or external...
2. Value is opaque...Understand all factors that customers take into consideration in assessing value, and you have to understand the relative importance that customers place on each factor...Once you understand the factors that specific customers consider when making decisions, and how they make trade-offs, you can develop a better understanding of the value propositions that might appeal to each one...
3. Value is multidimensional. A common myth in business is that IT investment decisions are made solely on functional value-a product's features and functionality. Value has two other dimensions as well: economic value-what these features and functions are worth to customers in terms of time and money; and psychological value-the emotional benefits that customers get from your products or your company...
4. Value is a trade-off. Value is the perceived worth of something in relation to the total cost that customers pay for it. This definition underscores the fact that value is a trade-off between costs and benefits...
5. Value is contextual. You cannot divorce the value of an IT system from the context in which it will be used...
6. Value is relative. Customers never assess value of an offering in isolation. They always consider value relative to alternatives. These alternatives may not be other products or systems, but other ways of accomplishing the same goals or doing nothing at all...
7. Value is a mind-set. Value-based management is more than models or processes. The value mind-set is grounded in the belief that the sole purpose of a company is to create value for its customers and to be compensated equitably for its efforts."

Note: Older EBF articles are not currently online. I'm not sure if this is temporary or permanent. If you click you will be taken to the Archive.org site to find an archived copy.

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Entrepreneurship is once again fashionable with policymakers, business schools, large corporations and the media. But in the light of the dot-com crash, many wonder whether it can provide the much needed spark to re-ignite growth. What exactly is the link between rates of new business formation and the wider performance of an economy? Can large corporations replicate the conditions in which small companies successfully innovate and expand, or alternatively manage their own ‘intrapreneurs'? Does large business have a social obligation to support entrepreneurs? Is Europe destined to lag behind the United States? How can more women be encouraged to start their own enterprises? These and other questions are addressed in this edition of EBF.

Editor's Note: as with most of the EBF debates, the articles are a mixture of quality. For my money, the most significant reads are the articles by Roy Thurik, Andrew Campbell, Robert Burgelman, Chris West, and Emmanuel Peltier.

This EBF debate was re-opened in the subsequent issue with three excellent follow-up articles by Andrew Campbell, Robert Burgelman and Rosabeth Moss Kanter. Find them at:
http://www.ebfonline.com/at_forum/at_forum.asp?id=442

New research suggests a link between religion and attitudes that are conducive to economic growth.

Precise thinking and business discipline are essential for business success. Yet, for too many managers in too many companies, "self-evident truths," that really are vague generalities, get in the way. Jonathan Byrnes calls these "business myths" and exposes ten of the worst offenders in this article.

Corporate operations - their value-delivery systems - are subject to a challenging set of rules. These are the rules of response.

Whenever real (deflated) prices fail to parallel real (deflated) cost trends, then market shares will shift. When market share shifts, then relative costs of competitors will shift also.

Editor's Note: written in 1974...

A short introduction to the concepts involved in the BCG experience curve which holds that the cost of value added declines approximately 20-30 percent each time accumulated experience is doubled..

Editor's Note: written in 1974...

Experience curve is the name applied in 1966 to overall cost behavior by The Boston Consulting Group. The name was selected to distinguish this phenomenon from the well known and well documented learning curve effect. The two are related, but quite different. Read on for background on the development of this concept.

Editor's Note: written in 1974...

The whole history of increased productivity and industrialization is based on specialization of effort and investment in tools. So is the experience curve. It is a measure of the potential effect of specialization and investment.

Editor's Note: written in 1974...

The use of cash is proportional to the rate of growth of any product. The generation of cash is sa function of market share because of the experience curve effect. The BCG growth share matrix is a diagram of the normal relationship of cash use and cash generation.

Editor's Note: written in 1973...

Emerging alternatives to the shareholder-centric model could help companies avoid ethical mishaps and contribute more to the world at large.