The conventional way of looking at a network is through the direct-value lens: How much does it cost to run the network? Networks are a great deal more complicated than that, and managing them—or, more fittingly, optimizing them—requires an expansive strategic imagination.

No matter what kind of network one manages—hospitality, retailing, banking, leisure, telecommunications whatever it might be—once the network is built, it immediately begins its evolution. Even within a single local market, the network is evolving all the time. As the network goes through its life cycle, perspectives on sustaining it must change as well. The means for doing this are distilled in A.T. Kearney’s Network Optimization Tools, or KNOTs, comprised of eight elements, each focused on a strategic element of the network.

The English word knots translates as les nœuds in French, or nodes. This is an apt image for thinking about the symbiosis of the local and the networked—the balance of savoir-faire métier and savoir-faire local, of the collective intelligence of the network and the specific intelligence of the individual.

Think of KNOTs not as a laundry list of best practices used to build an optimal network but as electrons—each one discrete and at the same time interacting around the nucleus. A national bank develops financial products centrally, but the local branch manager manages the relationship with customers. The national bank maintains good relations with the regulators while the branch manager cultivates the good will of the town mayor. A manufacturer’s leverage with suppliers may be directly proportionate to its number of plants, yet procurement is not only about concentrated volume. It is also about expertise the manufacturer owns in a multitude of categories and brings to bear in the local nodes of its network.

A sobering counterexample is the flameout of video retailer Blockbuster, which channeled its energies into adding thousands of stores and tens of thousands of employees in North America and Western Europe only to be caught off guard by competitors such as Netflix and the rapid adoption of streaming video. In hindsight, Blockbuster’s history suggests an unbalanced emphasis on its real estate network and not enough on the customer experience. The result was catastrophic.

We organize our network nomenclature into three types: production networks, service networks, and distribution networks. La Poste, for example, is a production network in that it operates like a factory producing a product: collecting and distributing mail. Taxi companies, railroads, and airlines are other good examples of production networks. The nodes in these networks are more than just infrastructure. One must own the nodes or there is no business to manage. Closely related to the production network is the service network, typified by telecommunications and hospitality. A hotel network, for instance, cannot deliver a night’s sleep over the Internet. The consumption of its product is done at the local level even though each node in the network is supported by the expertise of the whole. The service is the network.

A distribution network is retail in all senses of the word, especially in its tailoring of products to meet the needs of local customers. Distribution networks are high touch and in certain ways are the easiest networks to think about in terms of nodes. The most familiar example, literally the most concrete, is a brick-and-mortar retail chain. Find a Wal-Mart, and its distribution center will not be very far away.

India’s airline industry has enjoyed tremendous growth in recent years, with its revenue passenger kilometers boasting a compound annual growth rate of more than 20 percent from 2004 to 2011. More importantly, India is poised for significant growth in air traffic. If India’s airlines are to make the most of this growing demand, they will need to expand their fleets. And while fleet growth is likely to occur across all aircraft categories, we believe aircraft designed for regional service (60–120 seats) will grow fastest.

Five key factors will drive the demand for regional aircraft in India over the next 15 years:

• There will be Increased demand for travel between regional hubs and tier 2 and 3 towns.
• There is limited  aircraft handling capability at smaller airports.
• Demand for “long-thin” routes will increase. 
• New short-haul aircraft will emerge.
• Favorable regulations continue to reign in India. 

The combination of these factors leaves little doubt that the concept of regional routes flown by a new generation of short-haul regional aircraft is poised to take off in India.

What causes one leading company to stay consistently ahead of the market while another formerly thriving company flounders? The question is intriguing—and pressing, too, during these times of volatility. To explore the reasons and possible solutions, we conducted a study of industry champions. The result was a matrix that measures market success—a combination of growth in sales relative to market growth, and market share relative to the next largest competitor. Where BCG's matrix was created to help companies plan their portfolios, this matrix is used to chart a company's evolution and derive insights about its strategies. We call it the four seasons matrix:

• Spring. Companies that have outgrown their market but are not (yet) market leaders
• Summer. World leaders that have outgrown their markets
• Autumn. World leaders with below-average growth, gradually losing their positions
• Winter. Market followers that are growing more slowly than their market

We chose the axes of growth and market share because both metrics have a strong, proven relationship to long-term profitability and shareholder value. Combining those measures provides a solid basis for picking long-term winners.

Not long ago, The Accor Group, a European leader in hotels, was looking for a way of distinguishing its brands among travelers by reimagining the decor of its rooms. Instead of a predictable experience, it wanted guests to enjoy almost infinite variation in room design. The challenges were many, not least that the physical layout of the rooms could not be altered. And another thing: The hotel chain wanted to pursue this innovative concept in branding while reducing its costs of construction and refurbishment by 50 percent.

A model existed for such an undertaking, and it came not from the hospitality industry but from the automotive business. Companies such as Volkswagen and PSA Peugeot Citroën are masters at design differentiation on a common platform. The Volkswagen Tiguan, for example, is built on the same platform as the Audi SUV. But the model of a common platform is not restricted to the factory floor. Rather, it is a process that extends across the value chain. It begins with a broad concept, continues with a multifunctional team overseeing design and development, building and testing prototypes, and finally rolling out a new automobile. The result is a kind of plug-and-play approach to building an entire car.

We applied the same approach to hotel rooms. Figure 1 illustrates our hotel value chain—from concept rooms, design, and prototypes to reference rooms and launch. Franchisees use an online room configuration tool to choose room designs and expedite assembly. Rooms are customized using plug-and-play modules of wall treatments, colors, patterns, furniture, accessories, and more.

This innovative approach to room design has been a huge success. We did not look at innovation as a succession of grand themes and big ideas—vision, principles, leadership, or culture—as many people do. Talking about it this way can lead one to pursue the perfect rather than the optimal. Instead, we viewed the project as the "practical work" of innovators as we endeavored to achieve optimal innovation.

Freight forwarding is rebounding from the economic meltdown. In North America, the segment earns annual revenues upwards of $40 billion, operating margins up to 30 percent of net sales and, over the next five years, is expected to see 10 percent or more in annual revenue growth . But the market is still fragmented—with a mix of global providers, thousands of small competitors, and a rash of market forces disrupting business as usual. These disruptive forces range from shifting demand patterns, more complex and global supply chains, and an evolving customer base (as new customers from developing countries enter the market and traditional customers seek to reduce costs), to changing relationships with shippers; relationships change as forwarding becomes commoditized and switching costs are no longer relevant.

Unless these industry dynamics are addressed and soon, freight forwarders will be condemned to competing in an industry in which slashing prices is their only competitive option. To ensure both medium-and long-term survival, we believe freight forwarders have several strategic imperatives:

• Protect revenues with innovation—develop a "sticky," differentiated offering
• Maximize profits by adapting the offering to serve the most attractive customer segments
• Win new business by attracting new customers in developing markets
• Avoid commoditization by adding value-added services to the offering

Strategies for attending to these imperatives can be found in our Freight Forwarding Profitability Framework.

The courier, express, and parcel industry (CEP) in Pakistan, Bangladesh, and Sri Lanka had a stellar performance in the past two years, posting impressive growth and experiencing a complete recovery from the slowdown caused by the global financial crisis. Revenues rose 13 percent per year and volumes increased 3 percent per year. Now the market is becoming increasingly competitive, with local CEP players competing with multinational companies for market share. The industry is also undergoing structural changes as parcel customers consolidate shipments to cut expenses, and document shipments stabilize following a sharp decline in the past few years.

As CEP customers look for more cost-saving opportunities, smaller CEP providers, working at lower yields, are able to provide such cost savings and capture market share as a result. They are also simplifying their business models for select lanes. And, increasingly, all CEP players, including the large integrators, are focusing on price to win more new customers or simply retain their existing customers.

The financial crisis contributed to a significant imbalance between supply and demand in the container shipping industry. Now, burdened by falling freight rates and profit margins, carriers are looking for answers.

Despite economic downturns and uncertainty, world trade value is expected to grow by 19 percent from 2011 to 2014, which will result in an almost 90 percent increase since 2005. Recent forecasts of container shipping volumes show similarly attractive growth rates taking place in the next three to five years.

Looking ahead to 2014, the market is expected to be served by a carrier fleet with an approximate capacity of 19.3 million twenty-foot equivalent units (TEU), which is around 24 percent above today's fleet size. From 2005 to 2014, the global container vessel fleet will have expanded disproportionally to trade value growth by as much as 144 percent. This imbalance between trade and fleet capacity is partially absorbed by a further increase in the share of containerized freight. Yet overcapacity is, to a large extent, structurally imbedded, increasing, and likely to last for a long time.

We sought to answer several important questions: Is the industry behaving irrationally? Or are the stronger carriers crowding out weaker carriers by intentionally flooding the market with additional capacity? Is the growth in capacity due to the increased marginal return carriers secure with new technology? Are carriers that did not invest rendered noncompetitive in the long run? No matter which view one takes on the causes, the effects of the supply-demand imbalance will continue to have a substantial impact on the market and the industry on a whole.

As Vietnam attracts foreign investment—relying mainly on cheap labor—its inadequate freight infrastructure and high logistics costs are still holding it back. For Vietnam to reach its true growth and outsourcing potential, it has to invest in the three Rs—roads, rails, and rivers.

Vietnam started its economic renovation eight years later than China, took more cautious steps, and did not become a member of the World Trade Organization (WTO) until 2007. But a slow start has not prevented Vietnam from becoming one of the world's fastest-growing economies.

The growing interest in Vietnam as a sourcing destination has led to more freight throughput and placed more pressure on Vietnam's humble freight infrastructure, which must be improved if the country is to succeed on the global sourcing stage.

Europe's courier, express, and parcel industry had a banner year in 2010, posting impressive gains and returning to pre-downturn volumes. However, revenues still lag in the wake of tough renegotiations in 2009. Customers are moving to cheaper forms of shipping, and with less expensive standard offerings stealing business, the pressures will not ease any time soon. The latest A.T. Kearney study on the CEP industry finds that several dominant trends are having a huge impact on companies and their future prospects.