Localization--the revolution in consumer markets.

Standardization has been a powerful strategy in consumer markets, but it's reached the point of diminishing returns. And diversity is not the only chink in standardization's armor: Attempts to build stores in the remaining attractive locations often meet fierce resistance from community activists. From California to Florida to New Jersey, neighborhoods are passing ordinances that dictate the sizes and even architectural styles of new shops. Building more of the same--long the cornerstone of retailer growth--seems to be tapped out as a strategy. Of course, a company can't customize every element of its business in every location. Strategists have begun to use clustering techniques to simplify and smooth out decision making and to focus their efforts on the relatively small number of variables that usually drive the bulk of consumer purchases. The customization-by-clusters approach, which began as a strategy for grocery stores in 1995, has since proven effective in drugstores, department stores, mass merchants, big-box retailers, restaurants, apparel companies, and a variety of consumer goods manufacturers. Clustering sorts things into groups, so that the associations are strong between members of the same cluster and weak between members of different clusters. In fact, by centralizing data-intensive and scale-sensitive functions (such as store design, merchandise assortment, buying, and supply chain management), localization liberates store personnel to do what they do best: Test innovative solutions to local challenges and forge strong bonds with communities. Ultimately, all companies serving consumers will face the challenge of local customization. We are advancing to a world where the strategies of the most successful businesses will be as diverse as the communities they serve.

CRM done right.

Disappointed by the high costs and elusive benefits, early adopters of customer relationship management systems came, in the post dot-com era, to view the technology as just another overhyped IT investment whose initial promise would never be fulfilled. But this year, something unexpected is happening. System sales are rising, and executives are reporting satisfaction with their CRM investments. What's changed? A wide range of companies are successfully taking a pragmatic, disciplined approach to CRM. Rather than use it to transform entire businesses, they've directed their investments toward solving clearly defined problems within their customer relationship cycle. The authors have distilled the experiences of these CRM leaders into four questions that all companies should ask themselves as they launch their own CRM initiatives: Is the problem strategic? Is the system focused on the pain point? Do we need perfect data? What's the right way to expand an initial implementation? The questions reflect a new realism about when and how to deploy CRM to best advantage. Understanding that highly accurate and timely data are not required everywhere in their businesses, CRM leaders have tailored their real-time initiatives to those customer relationships that can be significantly enhanced by "perfect" information. Once they've succeeded with their first targeted CRM project, they can use it as a springboard for solving additional problems. CRM, in other words, is coming to resemble any other valuable management tool, and the keys to successful implementation are also becoming familiar: strong executive and business-unit leadership, careful strategic planning, clear performance measures, and a coordinated program that combines organizational and process changes with the application of new technology.

Open-market innovation.

Companies in many industries are feeling immense pressure to improve their ability to innovate. Even in these tough economic times, executives have pushed innovation initiatives to the top of their priority lists, but they know that the best ideas aren't always coming out of their own R&D labs. That's why a growing number of companies are exploring the idea of open-market innovation--an approach that uses tools such as licensing, joint ventures, and strategic alliances to bring the benefits of free trade to the flow of new ideas. For instance, when faced with the unanticipated anthrax scare last fall, Pitney Bowes had nothing in its R&D pipeline to help its customers combat the deadly spores. So it sought help from outside innovators to come up with scanning and imaging technologies that could alert its customers to tainted letters and packages. And Dow Chemical and Cargill jointly produced a new form of plastic derived from plant starches--a breakthrough product that neither company could have created on its own. In this article, Bain consultants Darrell Rigby and Chris Zook describe the advantages and disadvantages of open-market innovation and the ways some companies are using it to gain competitive advantage. By importing ideas from the outside, the authors say, companies can collect more and better ideas from different kinds of experts. Creative types within a company will stick around longer if they know their ideas will eventually find a home--as internal R&D projects or as concepts licensed to outside buyers. Exporting ideas also gives companies a way to measure an innovation's real value. However, the authors warn against entering into open-market innovation without properly structuring deals: Xerox and TRW virtually gave away their innovations and had to stand by while other companies capitalized on them.

Avoid the four perils of CRM.

Customer relationship management is one of the hottest management tools today. But more than half of all CRM initiatives fail to produce the anticipated results. Why? And what can companies do to reverse that negative trend? The authors--three senior Bain consultants--have spent the past ten years analyzing customer-loyalty initiatives, both successful and unsuccessful, at more than 200 companies in a wide range of industries. They've found that CRM backfires in part because executives don't understand what they are implementing, let alone how much it will cost or how long it will take. The authors' research unveiled four common pitfalls that managers stumble into when trying to implement CRM. Each pitfall is a consequence of a single flawed assumption--that CRM is software that will automatically manage customer relationships. It isn't. Rather, CRM is the creation of customer strategies and processes to build customer loyalty, which are then supported by the technology. This article looks at best practices in CRM at several companies, including the New York Times Company, Square D, GE Capital, Grand Expeditions, and BMC Software. It provides an intellectual framework for any company that wants to start a CRM program or turn around a failing one.