12 Apr 2004  Research & Ideas

Operations and the Competitive Edge

Many managers expect operations organizations to fulfill only a support role. But an effective operations strategy can give you a competitive advantage. An interview with professor Robert Hayes.

 

Obstacles facing companies in today's hyper-competitive global markets are seemingly more complex than ever, to the point that managers must rethink many of the basic principles of good operations management, says Robert Hayes.

In a new book, Hayes and three co-authors from Harvard Business School—Gary Pisano, David Upton, and Steven Wheelwright—show how a well-designed operations function can become a strategic competitive weapon.

Their book is titled Operations, Strategy, and Technology: Pursuing the Competitive Edge (Wiley). For the authors, operations includes "all those activities required to create and deliver a product or service, from procurement through conversion to distribution."

In the following interview, Hayes explains why operations usually gets relegated to a support role and what needs to be done to put it front and center in your organization. Prior to his appointment to the Harvard Faculty in 1966, Hayes worked for IBM and McKinsey & Company. He is currently the School's Philip Caldwell Professor of Business Administration, Emeritus.

Martha Lagace: You write in the book that many managers relegate operations organizations to a support role. Tell us where the four of you see the place for operations, and some of the hurdles that operations might face getting there.

Robert Hayes: Most companies in the late 1990s were preoccupied with keeping up with burgeoning demand, and exploring the possibilities created by the explosion of information and telecommunications technologies, particularly the Internet, which enabled entirely new ways to communicate with customers and suppliers, as well as internally. This was the era when everybody was developing new initiatives in B2C (business-to-consumer) communications and B2B (business-to-business) supply chains, installing ERP (enterprise resource planning systems, as exemplified by SAP), and worrying about Y2K. The threat posed to our economy by Japan and Germany had eased, the stock market was going crazy, and everybody was pursuing dot-com start-ups.

In that kind of climate, traditional operations took somewhat of a back seat. There were just too many new things to think about and explore, and everybody's attention was focused on "breakthrough improvements," so the mandate for operations became "just keep up with business while we pursue the pot of gold at the end of the rainbow everyone sees out there."

Now, of course, the economic bubble has burst, the "easy money" is gone, and managers are worrying about how to stay competitive in the new world economy that has emerged. It's time, once again, to concentrate attention on your core business, squeeze out the waste, and focus on how to differentiate yourself from your competitors in meaningful ways. But the tools available to—and the challenges facing—companies are so much greater now than before, that managers have to rethink many of the basic principles of good operations management that they have adopted in the past and decide if these are still appropriate in today's world. And, if not (for a variety of reasons that we describe in the book), what new principles and methodologies should replace them?

Q: Your book focuses on strategy, technologies, and encouraging/managing improvement. Could you give us a snapshot of the general challenges and opportunities in each of these three areas?

A: The basic theme of the book is that there isn't "one best way" to do anything—whether it's creating an organizational structure; hiring, training, and motivating a sales force; or designing and managing an operations organization. The best way to do something depends critically on the characteristics and capabilities of your organization and the competitive context in which it finds itself. That is, lean manufacturing shouldn't necessarily be the goal for every company any more than mass production or mass customization should be.

So the book's first section, on operations strategy, focuses on how a company can go about creating an operations organization and approach that best fits and supports a particular business's economic environment and chosen competitive strategy.

Managers have to rethink many of the basic principles of good operations management.

The second section applies that point to choosing and designing operating technologies, particularly information technologies. IT is becoming critically important in operations, as it is in all other aspects of business, but we see too many companies adopting "cookie cutter" software packages, and seeking the assistance of facilitators that adopt one-size-fits-all approaches. One has to approach the development and implementation of an IT system—in fact, of any key process technology—in a way that is sensitive to one's organizational capabilities and competitive priorities.

And the same is true of improvement efforts. People (and too many books directed at managers) often appear to assume that the biggest problem is simply getting their organizations to realize that they need to improve. They say that once that need is accepted, and management commits to supporting the improvement effort and applying continual pressure, it will happen. We point out that while managers obviously need to accept the importance of internalizing the desire to improve, and provide that effort with ongoing support and leadership, there are different approaches that can be taken in seeking improvement.

One has to adopt a strategy for improvement that fits the specific needs of the organization at that point in its life. Slow, steady improvement is appropriate in some situations, and attempts at dramatic breakthroughs through process reengineering are appropriate in others. Moreover, different improvement strategies require different resources, management styles, and support structures. They not only require different organizational capabilities, they also create new capabilities.

Q: You write, "Companies too often treat decisions about operations on an ad hoc basis, regarding them as a series of technical problems that can be surmounted one by one without regard for the interactions among them." How should senior managers guide the organization?

A: Since there isn't one best way to do anything, it naturally follows that senior managers can't simply delegate critical decisions involving operations, the adoption of IT or other technologies, and improvement efforts to "experts," whether they're internal or external (e.g., consulting firms).

Such experts are likely to make decisions based on what has worked at other companies or even at your own company in the past. But your company (and, in particular, its competitive strategy) may have changed over time, and/or be different from these other companies in critical ways. So top managers have to get involved in these decisions, to ensure that these decisions are based on a complete understanding of what the company hopes to achieve, what it has the resources to support, and how they fit with the other activities that are underway.

Q: Tell us about teams. You and your co-authors say "team" is one of the most overused and least understood words in the current management vocabulary. Why?

A: We're not against "teams" per se. After all, the authors of this book are, in a sense, a team. What we argue against is some people's apparent assumption that, first, teams are the solution to all problems and, second, that simply assigning a group of people to work together makes them a team.

We point out that assigning a team to carry out a job may not always be the best way. Sometimes it's more effective to let a gifted individual do it by him or herself or with the help of a few selected subordinates. Moreover, as we see every day in sporting contexts, there are such things as bad teams: teams that aren't very successful and cause their participants to perform more poorly than if they worked alone.

In the book we address the different ways teams, particularly project teams, can be organized, and the key supporting activities that have to be undertaken in order to prepare people to be effective team leaders (or team members). We also provide guidance as to how senior managers can manage a portfolio of team projects, and monitor their ongoing activities effectively.

Q: Which companies exemplify the best in operations vis-à-vis strategy? What are they doing differently from their competitors?

A: The companies that jump to most people's minds are big ones, such as Dell Computer, Southwest Airlines, Toyota, and Wal-Mart. But there are lots of smaller ones that are not as well known, several of which are described in our book. All these companies compete in markets that have long existed, and in which they were minor players up to a few years ago. None offers products or services that are markedly different from those their competitors offer.

The basic theme of the book is that there isn't one best way to do anything.

None has chosen a highly unusual competitive strategy. For example, lots of companies try to compete on the basis of low cost, or high reliability, or fast response. All have risen to industry dominance because they adopted and followed a consistent, coherent strategy for operations, and through operating superiority have been able to achieve lower cost, better reliability, or faster responsiveness than their competitors have been able to provide.

Q: You don't seem to be particularly enthusiastic about TQM, process reengineering, and several of the other operational improvement programs that have been so popular in the past. Why not?

A: That's not true! We often have recommended in our writing and consulting both TQM and reengineering, as well as other types of improvement programs. And we've seen many of these programs produce excellent results.

But we've also seen even more fail. In fact, a number of studies have shown that about two-thirds of these programs "fail" in the sense that they don't produce the results expected of them (the same success ratio, by the way, has been experienced with the implementation of ERP systems). Many commentators suggest that the primary reason for these failures is poor implementation, particularly a lack of sufficient, forceful leadership by top management, and that's certainly an important factor in many cases. But in our book we point out that another reason for many failures is that the selected improvement program simply may not be appropriate for that organization. TQM is appropriate in some cases; process reengineering in others, and lean manufacturing in still others. But none is appropriate for all companies all the time—the basic theme of our book.

Q: It's pretty unique to write a book with four co-authors. How did your collaboration for Pursuing the Competitive Edge come about?

A: An earlier book, Restoring Our Competitive Edge: Competing Through Manufacturing, that Steve Wheelwright and I wrote, had been so successful—it won a Best Book in Business & Economics award from the Association of American Publishers—that in the early '90s our publisher, John Wiley, asked us if we would develop a new, updated edition. Steve and I did some preliminary thinking about this, even prepared a possible chapter outline, but then got distracted by other commitments: I was serving as the School's Senior Associate Dean for Faculty Planning and Development, and Steve was Director of the MBA program.

By the time we had a chance to think seriously about this project again, in the late '90s, we came to the conclusion that a simple "update" was no longer appropriate. The world had changed so profoundly since the early '80s when we wrote the previous book, and the concerns of managers were so different, that what was required was a complete reconceptualization of that first book. Moreover, this reconceptualization would have to include several topic areas, such as outsourcing and information technology, that were moving so rapidly that we no longer felt we were the best informed people to write about them. So we enticed two of our colleagues, Gary Pisano and Dave Upton, who were experts in those fields, to contribute their expertise and share the load. Both had been working with us on other teaching and research projects, and fortunately both also saw a need for this "new" kind of book.