Great management formulas aren't handed down on stone tablets. At even the smartest companies, they emerge from years of trial and error. Here are some of the best practices you've probably never heard of — and might want to start implementing tomorrow.

Compare everything you do against your rivals. (Hewlett-Packard)
HP CEO Mark Hurd loves numbers — and insists that his managers learn to love them, too. Since Hurd came onboard last March, one of the key tools he's used to keep pace with rivals is his extreme form of industry benchmarking. Instead of comparing HP's sales and profits with Dell's or IBM's, the company now tracks itself against rivals by every conceivable measure. "We want to make sure we break down every unit and business function," explains Marius Haas, senior strategy officer at HP, "so we can become best in class in each one."

Here's how it works: Imagine a matrix with various business units running down the side (printing, servers, storage, IT services, etc.) and business functions across the top (finance, HR, marketing, R&D, etc.). Now create benchmarks for each of the 72 resulting cells and you have a good idea of how Hurd is managing the $87 billion company. The benchmarks are the best guess of where HP's rivals are going to be in 2007, based on more than a dozen variables, from real estate cost per square foot to operating expenses as a percentage of gross margin.

Before Hurd took over, HP measured itself primarily against IBM, using one very blunt tool: costs as a percentage of revenues. That ignored IBM's higher gross margins and the fact that it has more gross profit to spread around. Hurd's new benchmarking method formed the basis of HP's reorganization effort announced last July, through which HP has promised to save $3 billion by 2008. Already there is key evidence of success: Operating expenses as a percentage of gross margin dropped 2 percent in 2005, helping to fatten profits by $385 million.

Create a lending library of ideas. (Ideo)
Ideo helped create the Treo phone for Palm, the Leap chair for Steelcase, the stand-up toothpaste tube for Procter & Gamble, and hundreds of other products for top manufacturers. But there's one invention the Silicon Valley design shop keeps in-house: the "tech box," a freezer-size chest of drawers in each of its seven offices around the world. Inside each is the same library of up to 2,000 gadgets, materials, textiles, and artifacts that keep the creative gears of Ideo designers in constant motion. In drawers with labels like "thermal optical technologies," "amazing materials," and "cool mechanisms," designers can browse through everything from a swatch of fabric that glows in the dark to holographic candy, plywood tubes, and space shuttle tiles.

"It's not a typical lending library," says Ideo designer Dennis Boyle, one of the company's principals and co-creator of the tech box along with Rickson Sun, Ideo's chief technologist. "People will pick out 20 items and bring them to a brainstorming session. We use the tech box to cross-pollinate every new project."

Take the Swiffer® CarpetFlick, a recent Ideo project for P&G. During prototype tests, users gave the portable rug sweeper low marks for picking up carpet lint and other clingy materials. "The design team ran into a real roadblock," Boyle recalls. After a designer returned from the tech box with a lint brush, "we found that if we put a strip of it on the bottom of the Swiffer," Boyle says, "it rolled up lint in a way that gave it enough mass to be picked up by the scoop." The cheap fix helped support premium pricing: The CarpetFlick now sells for $12.99.

Appoint official devil's advocates to challenge the merits of deals. (Toro)
The appetite for mergers only gets bigger: U.S. companies consummated an estimated $1 trillion worth of M&A deals last year, up from $781 billion in 2004. All this despite the grim reality: Two-thirds of all acquisitions fail to meet their goals, according to a study by Booz Allen Hamilton.

Toro, the $1.8 billion lawn-mower giant, knows how to curb the urge to merge. Anytime an M&A pitch reaches the desk of CEO Mike Hoffman, he asks a due-diligence group to make the case to the company's board. But he also turns to the "contra team"--half a dozen vice presidents and directors--to deliver the voice of dissent. According to chairman Ken Melrose, who got the idea from reading about a similar practice at Japanese firms, a few years ago the contras killed an eight-figure acquisition of a manufacturer that had pitched itself as a turnaround success. The contras' number crunching showed that its sector was facing a slump. The prospect's revenues have since tanked, while Toro has nearly doubled its sales. "Nay-saying in corporate America isn't popular," Melrose says. "The contra team is a way to create negative views that are in the shareholders' best interest and the company's best interest."

Bring in experts to help spark new ideas. (Corning)
This year, Corning will spend about $450 million — some 10 percent of its revenues — on research and development. And it will also realize the fruits of such lavish spending, with plans to launch dozens of high-tech products, from a new diesel emissions technology to exotic green lasers. But the company's new-product pipeline doesn't begin and end with R&D. Rather than relying solely on scientists toiling in the labs, Corning regularly teams up its workers with entrepreneurs and big thinkers from outside the company to come up with ideas for new products.

A few times a year, the company runs half-day brainstorm sessions at its New York headquarters to kick off the quest for innovations. First, managers from a special marketing group — a 15-person unit tasked with identifying $500 million-plus business opportunities — gather for several hours to listen to outside experts, from renewable-energy gurus to nanotech engineers.

The group then breaks into teams of five, each assigned to drum up ideas related to the talk. After that, the most promising ideas are handed off to teams of two employees: one with a marketing background, the other with technical expertise. ("We find great constructive conflict this way," says Deborah Mills, head of the early-stage marketing team.) The two spend up to four months hashing out feasibility and market potential, and then present the plan to execs, who give it the go-ahead or send it back for more research. In October 2004, one team devised a method for making water desalinization faster and cheaper, using carbon electrodes. Up to $74 million has been set aside to bring that project, and several others, to market.

Turn going-through-the-motions meetings into no-holds-barred debates. (Procter & Gamble)
Since A.G. Lafley became CEO of Procter & Gamble in 2000, the company's portfolio of billion-dollar brands has swelled from 10 to 17 and sales have jumped from $40 billion to more than $57 billion. So what's behind the good-to-great transformation? Lafley chalks it up to the way the company conducts annual strategy reviews — the all-day powwows that set the tone and direction for every product.

When Lafley arrived, the reviews were more theater than debate. Division presidents would march to the podium, click through preapproved PowerPoint slides, and wait for the execs to rubber-stamp the plan. The problem? "They were justifying why bad performance wasn't so bad if you looked at it properly," says Roger Martin, an adviser to Lafley and dean of the University of Toronto's Rotman School of Management. "And they had thick briefing books to back that up."

So Lafley junked the old agenda and installed a new one. First, he asks each division head to send the presentation to him before the formal review. He sends it back with a handful of key concerns to concentrate on at the gathering. (Presenters are limited to three pages to save time for questions.) Second, the reviews don't wrap up by 5 PM; the process can last days or weeks until everyone agrees. Third, Lafley focuses each debate around two objectives: "where to play" and "how to win." According to Martin, the bare-knuckles review process is responsible for Pampers's recent market-share gains over Kimberly-Clark's Huggies. Lafley and other execs helped division president Deb Henretta plot "where to play" (in the more profitable training-pants segment instead of regular diapers) and "how to win" (attacking Pampers's cost structure so that P&G could better match its rival's prices). "When we get it right," Lafley says, "we can boil it down into a one-page document that provides clarity for everyone--and more consistent execution."

Let employees choose their leaders. (W.L. Gore)
The invention in the mid-1970s of wonder fabric Gore-Tex, an offshoot of W.L. Gore's development of high-speed computer cables, put the Delaware-based company on the map. But the successes that have come since that breakthrough — including Glide dental floss and high-end Elixir guitar strings — owe more to the company's grassroots management structure than to high-tech R&D.

Except for a handful of top executives, all 6,800 employees have the same title: associate. From there, upward mobility follows an unusual path. Some associates act as "sponsors" to help pair colleagues' interests to particular projects. If you want to become a "team leader," you don't lobby the higher-ups for a promotion; you form an alliance of people willing to commit to a specific goal, whether it's pitching a product or a new health plan. Beyond the egalitarian appeal, the org structure helps ideas bubble up faster than they might through conventional R&D. Elixir strings, for example, came about after engineering associate Dave Myers wondered whether the hard coating on cables might make guitar strings more durable. He paired up with a musician colleague, and the company green-lighted the project. Today, Elixir has become the top-selling acoustic guitar string in the United States. And worker turnover at Gore averages 5 percent annually, far lower than the manufacturing industry average of 13 percent.

Use prediction markets to tap hidden knowledge. (Microsoft)
If so-called prediction markets — betting pools in which shares are traded to gauge the odds of upcoming events — can call presidential elections and Oscar races with accuracy, why not use them inside companies to identify their next hit products? The answer: It's a lot harder to tap into collective brainpower about a product's market potential, and other key business questions, than it is to foretell the winner for Best Picture.

Microsoft, though, is trying to crack the code — and has been developing prediction markets as a serious alternative to blunt forecasting tools. Todd Proebsting, director of Microsoft's Center for Software Excellence, began running a series of prediction markets in 2004 to better gauge how many bugs a new software application might contain and to make more accurate calls about product ship dates. In his first effort, Proebsting chose 25 programmers and quality-control testers from a team of more than 50 working on a new Windows testing application. Via an internal website, workers could buy shares for the month they believed the product would ship. Shares were valued at $1 apiece, and the engineers drew on accounts stocked with $50 each to fund their bids. Within minutes of the site's launch, shares for a February ship date shot up in value while those for November, the scheduled release date, dropped to almost zero. That came as a shock to the project director, who had heard nothing but optimism in meetings and e-mail updates.

Exposing such communication gaps gives prediction markets even more potential value to businesses, Proebsting says. "Face-to-face communication breaks down, and opinions are filtered," he says. "Prediction markets show where the gap is and allow you to short-circuit it." In this case, the project manager did more troubleshooting ahead of time and avoided a delivery crisis. On the strength of those results, Proebsting ran another two dozen markets on a variety of software projects. Each, he says, accurately predicted the completion date. What's next, then, for this nascent technology in Redmond? Daniel Ling, chief of Microsoft Research, will say only that it's something the company "continues to explore."

Head off shareholder trouble before it starts. (Coca-Cola)
When you're a multibillion-dollar household name, it can take more than shareholder meetings and proxy mailings to keep thousands of investors in the loop — or from stirring-up unnecessary trouble. One of the few public companies to make investor relations something more than just an extension of PR is $23 billion Coca-Cola. Mark Preisinger, Coke's director of shareowner affairs since 1999, is considered the top-ranking investor-relations chief in the United States. Not because of his title, but because of his clout and independence from the CEO.

Unlike his counterparts at the vast majority of public companies, Preisinger reports directly to Coke's general counsel, not to CEO Neville Isdell, and relays investor concerns straight to the company's board. That's a tough job at Coke, which is a constant target of activist shareholder resolutions. Many stray far outside the realm of day-to-day business, demanding everything from an investigation of antiunion violence in Colombia to a review of Coke's impact on the AIDS and avian flu crises. "When most companies get hit with these resolutions, they adopt a bunker mentality and never call the shareholders who file them," says Nell Minow, a top corporate governance critic and co-founder of the Corporate Library. "Mark calls all of the people who file resolutions, and he often gets them to withdraw the resolution."

And when he can't, on more substantive issues? He pushes both sides to broker a deal. Preisinger recently spent 12 months working with the International Brotherhood of Teamsters General Fund, which demanded a cap on executive severance packages. In 2005 the board signed the deal, limiting severance to three times annual salary and bonuses.

Seek brutally honest feedback from customers. (Medtronic)
Aloof. Arrogant. Inwardly focused. That's how Bill George recalls customers describing Medtronic when he became CEO of the $10 billion medical-device maker in 1991. So George set out to change the perceptions. During his first month on the job, he watched a surgeon perform an angioplasty using a new Medtronic balloon catheter. As the device was fed through an artery, it disintegrated. In a fury, the surgeon flung the bloody mess at George, who avoided a direct hit.

A perfect opportunity, it turned out, to make some changes. Chastened, George made sure that an improved catheter hit the market within three months. Then he began requiring all engineers and designers to attend one surgical procedure a year to see Medtronic products in action. Their presence doesn't only give surgeons a chance to vent; the company claims it gets new product ideas just from watching. "Observing helps to constantly improve product design," says George, who retired in 2002, "because the customer is never going to be completely satisfied."