By helping the leadership team cut through layers of management, bypass formal reviews, and force a wider and more urgent discussion of uncertainty and the available options, the portfolio-of-initiatives approach can speed up and increase the flexibility of a company's response to the pressures of extreme competition.

Count on Strategic Risk. Extreme competition means more volatile earnings — something that worries equity markets obsessed by predictable earnings per share. Most businesses monitor and control operational risks but pay too little attention to the more complex range of strategic ones. Four in particular merit attention: the value proposition risk (will a cheaper product knock the company out of the water?), the cost curve risk (will a low-cost competitor steal the company's market share?), the bad-conduct risk (will a price war destroy the company's profitability?), and the bad-bet risk (will the company's assumptions prove too optimistic?). Companies should assess the source, extent, and timing of all these risks, communicate them appropriately to investors, and define the activities that will help mitigate them. Two things are fundamental to making such an assessment: a dispassionate view of businesses whose trajectory indicates that they will never generate satisfactory returns and a willingness to close or divest them.

Powerful supply-side forces — globalization, technology, and liberalization — are increasing the pace and altering the shape of competition across the world. Traditional players will be toppled if they don't respond by embracing the spirit of youth, by adopting a forward-looking perspective, and by implementing radical solutions rapidly. Those that make the transition will find a world of bright new opportunities.

About the Authors
Bill Huyett is a director in McKinsey's Boston office, and Patrick Viguerie is a director in the Atlanta office.

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