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Group Therapy: The Role of Business Groups in Emerging Economies Group Therapy: The Role of Business Groups in Emerging Economies
Strategy scholars have often emphasized how industry- and firm-specific characteristics affect company choices. But, Khanna observes, location matters as well, since the economic environments of emerging markets such as Indonesia, Chile, India, or Mexico vary so greatly. Because business groups are fundamental to many economies, understanding how these networked organizations function also becomes important.
“It is important to recognize that emerging economies, unlike those of developed nations, typically lack many of the essential supporting institutions we tend to take for granted in the United States,” notes Khanna. “Court systems, contract law, stock markets, accounting standards, and other elements that facilitate entrepreneurship and growth are often weak, archaic, or entirely missing in these economies.” Business groups, Khanna explains, can help fill some of these gaps in a nation’s infrastructure. They boost entrepreneurship by supplying seed capital for budding entrepreneurs, providing a range of support activities, and assisting in the distribution and marketing of goods and services. And if an entrepreneur decides to sell a business, one group or another is often a willing and able buyer, a valuable “exit” option when public capital markets are underdeveloped. On the other hand, some groups’ close connections to a nation’s power structure may serve as a barrier to entry, stifling entrepreneurship and growth. “Through our ongoing work in Argentina and Brazil, as well as in several countries in Asia and Africa,” Khanna says, “we want to determine when groups enhance entrepreneurship and when they deter it.” Although Khanna says there is still much to learn about business groups and how they affect economic development, his research has important implications for leaders in three distinct areas. First, he stresses, managers should not assume that conventional wisdom based on contemporary U.S. experience will transfer to developing countries unaltered. For example, highly diversified organizations may work poorly in advanced economies like the United States, but they sometimes deliver superior value in certain emerging markets, where their scope allows them to leverage their own resources to compensate for deficiencies in the economic support system. Second, Khanna’s work suggests that the economic development that should be the overriding priority of policymakers in emerging markets cannot be achieved rapidly nor by government decree. After all, it took the United States a cen-tury to achieve its present level of development. Finally, agencies and multinational companies that operate in emerging economies should realize that the business environment they encounter in one developing country is likely to differ substantially in the next. Markets in Latin America and other emerging regions are not, in fact, cut from the same cloth. Today, while grupos are thriving in many Latin American countries, governments in other parts of the world are responding to business groups in different ways. Although some nurture their growth, others neglect them, and still others attempt to banish them entirely, wary of their concentrated power and wealth. While curtailing business groups may sometimes be politically expedient, the leaders of developing nations will provide a greater service in the long run, Khanna argues, by focusing instead on building the infrastructure required to compete in a global economy. — Peter K. Jacobs Adapted from Working Knowledge: A Report on Research at Harvard Business School, Vol. IV, No. III. RETURN TO THE TOP OF THE PAGEPoint, Click, Give: Internet Fuels Philanthropic Fundraising Revolution
Leading the shake-up is a host of Web-based social enterprises (WEBSEs): nonprofit information hubs, online giving directories, click-to-donate sites, workplace-giving centers, charity shopping malls and auctions, and volunteer clearinghouses. These start-ups are mobilizing philanthropic funds in entirely new ways, according to “The e-Philanthropy Revolution,” a recent working paper by HBS professor James E. Austin. His study of more than 150 WEBSEs illuminates the dynamics, challenges, and strategies of this nascent industry that links potential donors to good causes.
WEBSEs confront several hurdles besides raising money. To channel donations, many need to create links to nonprofits and often face mistrust. Some dot-com CEOs said they were perceived as Internet “robber barons,” out to take advantage of the nonprofit community. WEBSEs must also contend with weak Internet infrastructures common in nonprofits, as well as frequent culture clashes. “Eight months in nonprofit time is about a morning in Internet time,” one Web executive noted. Technical challenges, such as incorporating a charitable aspect into e-commerce transactions, and legal issues further complicate many WEBSE business models. To succeed, Austin argues, WEBSEs must execute effective strategies in three key areas. For driving traffic to the site, he uncovered two primary models: WEBSEs can generate the traffic themselves, or individual nonprofits can assume that responsibility. The charity shopping mall GreaterGood.com, for example, uses traditional advertising to draw visitors to its site. Charity mall iGive.com, in contrast, relies on its nonprofits to publicize its fundraising opportunities. Most WEBSEs use some combination of the two approaches. The second strategic issue involves the size of the database the WEBSE offers users. Whether a WEBSE is operating an online giving directory, workplace-giving center, or any other transaction-based service, it must decide how many nonprofits will be eligible for the service. Some, such as the AOL Time Warner Foundation’s Helping.org, use the entire IRS database of almost 700,000 nonprofits. Its leaders believe this strategy helps “democratize” the giving process. Others, such as Working Assets, include a much smaller number of organizations. How to capture revenue is the final strategic issue. Austin outlines five revenue models: transaction fees, advertising fees, application services fees, partnering revenue, and cross-subsidization (using revenue from selling applications to subsidize other components of the business). This is often the most difficult aspect of e-philanthropy; Austin unearthed only one WEBSE earning a profit. Given all the challenges, what motivates the e-philanthropy entrepreneurs? Dot-com creators relish the business opportunity but are also energized by the social purpose of their enterprises. “I’ve never worked at a place more passionate about doing good,” reported an iGive executive. “It’s incredibly refreshing.” Many also believe their enterprises can achieve greater good as for-profits. Rea Callender, a former schoolteacher who cofounded Schoolpop.com, a charity mall for K–12 schools, concurs. The company has raised $50 million and snagged Reader’s Digest Association, Inc., as an investor. “As a nonprofit, I think we’d be in fifty schools in Silicon Valley versus fifty thousand schools across the country,” he said. WEBSE efforts are paying off. Austin reports that they are connecting donors and nonprofits more effectively, increasing access to information, and making giving easier. WEBSEs are also leveling the field between brand-name and smaller nonprofits. Nonetheless, dot-coms in the philanthropic space are experiencing the same downturn as their Internet counterparts on the commercial side. About forty have closed or merged during the last year, and Austin expects further consolidation as capital becomes even scarcer. Yet, he notes, thirteen new ventures have emerged during the same time period. “These e-philanthropy enterprises have irreversibly altered the landscape,” he says. “Ultimately, they have the potential to stimulate more giving.” — Anne Kavanagh RETURN TO THE TOP OF THE PAGE
Judo Strategy
by David B. Yoffie and Mary Kwak
By mastering the principles of movement, balance, and leverage, practitioners of judo, a centuries-old martial art, learn to overcome more powerful opponents. These principles can also help companies defeat larger or more established competitors, argue HBS professor David Yoffie and research associate Mary Kwak in Judo Strategy: Turning Your Competitors’ Strength to Your Advantage. “We picked up on this idea while conducting interviews at Netscape in the summer of 1997,” the authors note in the book’s preface. “When we asked Netscape’s head of engineering how he could ever hope to compete successfully with Microsoft, given the dominant position of Windows, he gave a very judo-like answer. ‘You can look at Microsoft’s operating system as an asset, or you can think of Windows as a liability that slows Microsoft down.’ ” The Netscape research was documented in Competing on Internet Time, an earlier book by Yoffie and MIT colleague Michael A. Cusumano, and inspired Yoffie to pursue the concept further. After tracking references to judo in the management literature and consulting with judo experts in the United States and Japan, Yoffie and Kwak interviewed more than fifty executives at a broad range of firms, including eBay, Frontier Airlines, Charles Schwab, Juniper Networks, Microsoft, and Intel. Finding that many companies, both large and small, have successfully employed judo-like techniques, they set out to develop the metaphor into a systematic way of thinking about strategy. The approach they describe minimizes the importance of brute size and strength by teaching companies how to make the most of their advantages — and transform their opponents’ capabilities into disadvantages. Judo Strategy illustrates this lesson with examples from new- and old-economy firms that have learned to “push when pulled” and leverage their opponents’ assets. The authors discuss in detail how the leaders of three companies — Palm Computing (and later Handspring), RealNetworks, and CNET Networks — have earned their black belts in putting judo strategy to work. They also suggest why this approach can sometimes fail. Managers reading this book will gain insights that will help them develop their own judo strategies, and sharpen their defenses against judo attacks. “Judo strategy is not the answer for every strategic problem,” write Yoffie and Kwak, but “it can help you win whenever you face intense competition and a strategy of head-on attack is likely to fail.” RETURN TO THE TOP OF THE PAGE
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ook beyond the United States and Great Britain and you are likely to find
networks of companies — ranging from Latin America’s grupos to
India’s business houses to Japan’s keiretsu — that are
integral parts of the global economy. For HBS associate professor Tarun
Khanna, studying business groups and their role in emerging markets has been
part of a larger effort to understand how local business environments
influence company strategy.
Khanna has been studying the causes and consequences of group affiliation in
Asia and Latin America for several years, often with HBS professor Krishna
G. Palepu. His current research focuses on several important aspects of
business groups: their effect on entrepreneurial activity in emerging
markets; the ways they undertake coordinated action despite the fact that
they are often composed of diverse units; and the role families play in
these organizations.
uick. What does the word “philanthropy” conjure up? Large
foundations? Well-heeled patrons? Reams of direct mail? How about nimble
start-ups, passionate entrepreneurs, and powerful technology? That’s
the new world of philanthropy, one the Internet is fast transforming.
While both for-profit (dot-com) and nonprofit (dot-org) WEBSEs populate
e-philanthropy, Austin found that dot-coms dominate. They can more readily
attract the venture capital and technical talent vital to Internet
companies. “Imagine a start-up dot-org asking a major foundation for
$35 million,” one entrepreneur explained. “Absolutely not.”
The Digital Enterprise: How to Reshape Your Business for a Connected
World is an authoritative collection of cutting-edge Harvard
Business Review articles, edited by HBR executive editor Nicholas G. Carr.
Containing the latest thinking from leading minds in the new economy, the
book focuses on the fundamental changes that are happening to business as a
result of the Internet, digital communications, and ubiquitous connectivity.
From building online business models, to formulating digital strategies, to
competing in the uncertain world of e-commerce, this book shows executives
exactly what they must do to reshape their businesses for the 21st century.
The Attention Economy: Understanding the New Currency of
Business, by Thomas H. Davenport and John C. Beck, presents a
revolutionary model for managing and measuring attention. In today’s
information-flooded world, the new scarcest resource is not ideas or even
talent, it is attention. This groundbreaking book argues that unless
companies learn to capture, manage, and keep it — both internally and
out in the marketplace — they will fall hopelessly behind. Drawing from
an exclusive global research study and using examples from a range of
companies, the authors show how a few pioneering organizations are turning
attention management into a potent competitive advantage.
Place to Space: Migrating to e-Business Models, by Peter Weill
and Michael R. Vitale, is the first e-business playbook for successfully
migrating to the Web. While the e-business revolution has focused on highly
publicized, often overvalued start-ups and the radical new business models
they have created, this book argues that it is the established, traditional
firms that will do the difficult work of making e-business successful —
and profitable. Place to Space explains how traditional companies can adapt
their bricks-and-mortar legacies to complement and bolster their online
ventures. It is a hands-on guide that will give leaders the insight and
confidence to operate successfully in both place and space.
Customer Equity: Building and Managing Relationships as Valuable
Assets, by Robert C. Blattberg, Gary Getz, and Jacquelyn S. Thomas,
is the first book to provide a unifying framework and practical tools for
measuring customer value — the potential profitability of each customer
to a company — as a financial asset. Drawing from successful examples
of customer-equity management in a variety of industries, the authors
outline how to build and implement powerful new business and marketing
systems. A comprehensive guide to managing customer portfolios across
segments and over time, Customer Equity enhances the ability of marketers,
IT professionals, and senior executives to make better decisions, generate
higher profits, and increase shareholder wealth.