Operational failures occur within organizations across all industries, with consequences ranging from minor inconveniences to major catastrophes. How can managers encourage frontline workers to solve problems in response to operational failures? In the health-care industry, the setting for this study, operational failures occur often, and some are reported to voluntary incident reporting systems that are meant to help organizations learn from experience. Using data on nearly 7,500 reported incidents from a single hospital, the researchers found that problem-solving in response to operational failures is influenced by both the risk posed by the incident and the extent to which management demonstrates a commitment to problem-solving. Findings can be used by organizations to increase the contribution of incident reporting systems to operational performance improvement.
As the global economy grows increasingly knowledge-based, organizations in a wide variety of settings, from manufacturing to service operations, rely increasingly on project teams. Organizational performance is therefore strongly affected by the learning that occurs within teams. But how do teams learn best? This study examines whether and how learning in teams is dependent on the teams' prior experience working together. Findings may help managers to design well-functioning learning organizations.
In an industry setting, classic supply chains display strict hierarchy, whereas clusters of firms have linkages going in many different directions. Previous theory has often assumed the existence of the hierarchical relationships among firms, and empirical industry studies tend to focus on a single-layer industry, or a two-layer structure comprising buyers and suppliers. And yet, some industries have a multilayer structure with a multistep supply chain. Others comprise a cluster of complementary firms producing different parts of a large system. HBS professor Carliss Y. Baldwin and colleagues use network analysis to study multilayer industries both empirically (in the case of Japan) and theoretically and to explore how industries are organized at the sector level in an attempt to reveal the underlying rules that determine how industry architectures form and change.
What is the optimal scope of operations for firms? This question has particular relevance for the U.S. hospital industry, because understanding the effects of focus and spillovers might help hospitals determine how they should balance focusing in a single clinical area with building expertise in related areas. While some scholars argue that narrowing an organization's set of activities improves its operational efficiency, others have noted that seemingly unfocused operations perform at a high level and that a broader range of activities may in fact increase firm value. This study by HBS doctoral student Jonathan Clark and professor Robert Huckman highlights the potential role of spillovers—specifically complementary spillovers—in generating benefits from focus at the operating unit level.
Published in 2008
Cutting the wrong employees can be counterproductive for retailers, new research from Harvard Business School professor Zeynep Ton concludes. One suggestion: Pay attention to staff who handle mundane tasks such as stocking and labeling. Your customers do.
Some 900 Harvard Business School students were asked to recreate a study assessing the potential "offshorability" of more than 800 occupations in the United States. Their findings: It might be a larger number than we thought.
Determining staffing levels is an important decision in retail operations. In 2006, retailers spent $393 billion on employee wages, more than 10 percent of their revenue that year and more than their inventory holding costs. Hence, staffing levels have a major impact on retailers' costs. But at the same time, staffing levels affect conformance quality—how well employees execute prescribed processes—and service quality—the extent to which customers have a positive service experience at the stores. While there is overwhelming evidence that conformance quality and service quality improve sales, both generally and in retail settings, their effect on profitability is not clear. To examine how the amount of labor at a store affects profitability through its impact on conformance quality and service quality, Zeynep Ton analyzed extensive data from stores of a large retailer.
Managing products at the end of life (EOL) is of growing concern for durable goods manufacturers. While some manufacturers engage in voluntary "take back" of EOL products for a variety of competitive reasons, the past 10 years have seen the rapid proliferation of government regulations and policies requiring manufacturers to collect and recycle their products, or pay others to do so on their behalf. Toffel, Stein, and Lee develop a framework for evaluating the extent to which these product take-back regulations offer the potential to reduce the environmental impacts of these products in an effective and cost-efficient manner, while also providing adequate occupational health and safety protection. The evaluation framework is illustrated with examples drawn from take-back regulations in Europe, Japan, and the United States.
It was the Valentine's Day from hell for JetBlue employees and more than 130,000 customers. Under bad weather, JetBlue fliers were trapped on the runway at JFK for hours, many ultimately delayed by days. How did the airline make it right with customers and learn from its mistakes? A discussion with Harvard Business School professor Robert S. Huckman.
Products are often said to "mirror" the architectures of the organization from which they come. Is there really a link between a product's architecture and the characteristics of the organization behind it? The coauthors of this working paper chose to analyze software products because of a unique opportunity to examine two different organizational modes for development, comparing open-source with proprietary "closed-source" software. The results have important implications for development organizations given the recent trend toward "open" approaches to innovation and the increased use of partnering in research and development projects.
Can lean production methods be used in service industries? How can operations be used to competitive advantage? These are several of the questions answered in this month's Sharpening Your Skills on the topic of operations management.
Published in 2007
Toyota and other top manufacturing companies have embraced, improved, and profited by lean production methods. But the payoffs have not been nearly as dramatic for service industries applying lean principles. HBS professor David Upton and doctoral student Bradley Staats look at the experience of Indian software services provider Wipro for answers.
For the last 30 years economists have used the concepts of "transaction," "transaction cost," and "contract" to illuminate a wide range of phenomena, including vertical integration; the design of employment, debt, and equity contracts; and the structure of industries. These concepts are now deeply embedded in the fields of economics, sociology, business, and law. Theories explain how to choose between different forms of transactional governance. But why does a transaction occur where it does? Without this answer, the forces driving the location of transactions in a system of production remain largely unexplored. This paper explains the location of transactions (and contracts) in a system of production. It also presents a theory of technological change that predicts changes in the location of transactions and therefore in the structure of industries.
Research in psychology over the past several decades teaches us that behavioral biases and cognitive limits are not just "noise"; they systematically affect (and often distort) people's judgment and decision making. Despite such advances, however, most scholarly research in operations management still assumes that agents—be they decision makers, problem solvers, implementers, workers, or customers—either are fully rational or can be induced to behave rationally, usually with economic incentives. This paper builds on earlier studies to explore the theoretical and practical implications of incorporating behavioral and cognitive factors into operations management models. It then points to fruitful areas for future research.
Organizational behavior has become an increasingly important aspect of operations management. In this paper, alignment refers to an organization's sales and manufacturing groups working toward the same target for the sales of a particular product. What are the best conditions in supply chain planning for alignment across functions and across the firm? Kraiselburd and Watson push the frontier of theory with their use of mathematical modeling and game theory. They show that seemingly behavioral and psychological effects may still occur if both parties are rational profit maximizers in an economic sense.
Designers have long recognized the value of modularity. But because design principles are informal, successful application depends on the designers' intuition and experience. Intuition and experience, however, do not prevent a company such as Microsoft from constantly grappling with unanticipated challenges and delays in bringing software to market. Clearly, designers need a formal theory and models of modularity and software evolution that capture the essence of important but informal design principles and offer ways to describe, predict, and resolve issues. This paper evaluates the applicability of model and theory to real-world, large-scale software designs by studying the evolution of two complex software platforms through the lens of design structure matrices (DSMs) and the design rule theory advanced by Kim Clark and Carliss Baldwin.
Benchmarking and forecasting firm level performance are key activities for both managers and investors.
Retailer performance can be tracked using a number of metrics including sales, inventory, and gross margin. For operational reasons, the sales, inventory, and gross margin for a retailer are interrelated. Retailers often use inventory and margin to increase sales; and sales, conversely, provide input to the retailer's decisions on inventory and margins. Inventory and margin also influence each other. This research uses firm-level annual and quarterly data for a large cross-section of U.S. retailers listed on NYSE, AMEX, or NASDAQ to construct a model that examines the interrelationships among sales per store, inventory per store, and margin.
The interdisciplinary research of economist Kim Clark, former dean of Harvard Business School and now President of Brigham Young University-Idaho, occupies a unique place in management scholarship for three reasons. First, he tended to focus on little known and under-appreciated management groups such as manufacturing managers, product development managers, and product and process architects. Thus, he directly positioned himself outside the "traditional" management disciplines of strategy, finance, marketing, and organizational behavior. Second, he swam against the academic tide by recognizing the power of comparative and longitudinal field studies. Third, he sought frameworks beyond his own field in design theory, the engineering sciences, and finance. This paper reviews his research contributions over almost thirty years.
Self-regulation has been all over the news, but are firms that adopt such programs already better on important measures like labor and quality practices? Does adopting a program help companies improve faster? In this Q&A, HBS professor Michael Toffel gives a reality check and discusses the trends for managers.
Scholars have long been interested in the impact of information technology on the organization of work. As Andrew McAfee and colleagues argue in this study, the appropriate governance mechanism for an IT-facilitated collaboration depends on the type of IT being deployed: When an enterprise technology is required, so is an electronic hierarchy. The paper explores the issue of relationship specificity of IT assets, proposes a categorization of information technologies based on their levels of relationship specificity, and uses data from more than forty Italian industrial districts to test three hypotheses around governance of interfirm IT. These districts typically have close ties, both horizontal and vertical, and have historically worked in close collaboration with each other.
In research surrounding inventory policies, there is a prevailing assumption of completely rational agents. In practice, however, deviations from the optimal policy abound, and analytical models to understand the effects of inventory dynamics on practice may require ways to model these deviations. Modeling deviations from the optimal policy is also important for better understanding inventory systems and supply chains. The term "perceptions" in Watson's research is not meant in its conventional sense, as in the perceptions of individual managers, but rather forms the basis for a framework for modeling and categorizing a range of inventory policies, including optimal inventory policy. This paper, which is a technical article meant more for an academic audience, explores the usefulness of his framework for categorizing the range of inventory policies that can be employed in a single-stage supply chain.
Published in 2006
By their very nature, consensus forecasts contain subjective elements that can compromise forecast accuracy. In this case study of the implementation of a sales and operations planning process in a consumer electronics company, Oliva and Watson studied the organizational and political dimensions of forecast generation and improvement. Ultimately, consensus forecasting constructively managed the influence of biases (such as overconfidence) on forecasts.
Why do companies have such a hard time getting various functions to coordinate? Leitax, the pseudonym for a consumer electronics company studied by the authors, was suffering major supply-chain planning problems in 2002. The chief reason was typical to organizations: poor integration among the various functions. In response, the company introduced a system (rather than just a set of mechanisms) to better coordinate all processes and functions. The new system led to better collaboration from all participants, improved information-sharing, accurate and validated plans, and alignment in the execution of those plans.
It seems clear that firms with an existing R&D function are better able to use related outside research than firms without an R&D function. But can specific products also "absorb" a firm's knowledge of related technologies? Using patent data and the example of automobile carburetors, Daniel Snow studied how companies may adapt a component of a "radical innovation" technology for their own current-technology products. He also poses a far-reaching question for companies: Can they capture the returns of these inventive activities?
Too often channel strategies develop at the last minute--when a product is ready to go to market. But this haphazard approach leaves a lot of efficiencies and synergies by the wayside, says V. Kasturi Rangan. Enter the concept of the "channel steward."
Harvard Business School faculty dissect where U.S. auto makers went wrong, and how they might again get on the road to growth. From HBS Alumni Bulletin.
A new book argues that globalization has led corporations to outsource too much of their work and, more important, their intellectual capital. What with the increasing fluidity of labor markets, is it all too much for global managers to handle?
An IT ecosystem is "the network of organizations that drives the creation and delivery of information technology products and services." To understand the health and well being of the IT industry in the context of an ecosystem, the authors looked at three crucial IT ecosystem metrics: productivity, robustness, and innovation.
Organizations often commit to more product development projects than they can handle. And while people do not always behave rationally, most research on operations management still assumes they do. This paper explores theoretical and practical ways to study the effects of behavior and cognition on operations.
For better or worse, why do so many companies veer off their strategic plan? Look for a disconnect between strategy and how resources are allocated, say Harvard Business School’s Joseph L. Bower and Clark G. Gilbert.
Published in 2005
Malcolm P. McLean (1914-2001) hit on an idea to dramatically reduce labor and dock servicing time. An excerpt from In Their Time: The Greatest Business Leaders of the Twentieth Century by Harvard Business School's Anthony J. Mayo and Nitin Nohria.
What does IT actually contribute to a business? Is IT a commodity like electricity or is it a crucial element of competitive advantage? In a study of over 600 medium-sized global firms to analyze the business benefits that IT can enable, the authors found that IT capability was key to profitable business growth. This was true in both the U.S. product and services sectors as well as in Germany and Brazil.
This paper reviews research and trends in three key areas of movie making: production, distribution, and exhibition. In the production process, the authors recommend risk management and portfolio management for studios, and explore talent compensation issues. Distribution trends show that box-office performance will increasingly depend on a small number of blockbusters, advertising spending will rise (but will cross different types of media), and the timing of releases (and DVDs) will become a bigger issue. As for exhibiting movies, trends show that more sophisticated exhibitors will emerge, contractual changes between distributor and exhibitors will change, and strategies for tickets prices may be reevaluated.
Published in 2004
HBS Professors Benson Shapiro and Kash Rangan bring us up to date on their pioneering research that helped ignite today’s intense focus on the customer. The key? Know your order cycle management.
Real estate is the largest asset class in the world—and also the most imperfect, says Harvard Business School professor Arthur Segel. He discusses trends toward institutionalization, environmentalism, and globalization.
Surprise: Managers are not always rational decision makers. In this interview, professors Rogelio Oliva and Noel Watson discuss how human behavior affects supply chain coordination.
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.
It looks like productivity increases in the U.S. are accommodating growth with little increase in the number of jobs. Doesn’t it suggest that the jobs that people do hold must be getting better?
Published in 2003
Activity-based costing (ABC) has become popular in business writing and management circles. (An example of an activity would be process customer complaints.) However, calculating baselines for activities, developing the model, and retesting the model once it is implemented is time-consuming and costly. Kaplan and Anderson developed improvements in the process through what they call time-driven ABC. Time-driven ABC decreases the amount of data needed, and only requires estimates of two things: (1) the practical capacity of committed resources and their cost, and (2) unit times for performing transactional activities.
HBS professors F. Warren McFarlan and Richard L. Nolan respond to the much-discussed assertion by Nicholas Carr that company investments in IT are less and less likely to produce competitive advantage.
How do you turn short-term transactions into long-term relationships? Harvard Business School professor Narakesari Narayandas finds answers in mature industrial markets.
Operational problems are a drag on business and often can be traced to poor controls in interorganizational settings, says HBS professor V.G. Narayanan. Here are his suggestions for tightening up those controls.
Suddenly your supply chain is full of weak links, everything from terrorism to political instability to dock strikes. Could you and your customers withstand a disruption?
Are executives who ask this question overreacting to current events? Or, if the current geopolitical events are merely symptoms of a greater and longer struggle, should we begin to think about devaluing, discounting, or postponing global initiatives in favor of more predictable business investments "closer to home"?
A new Harvard Business School working paper traces the evolution of IT management consulting and trends for the future. Read our e-mail interview with professor Richard Nolan and HBS Interactive Senior Vice President Larry Bennigson.
Published in 2002
Created in 1992, the Balanced Scorecard has become an effective tool for managing strategy. Now authors Robert S. Kaplan and David P. Norton propose using it to communicate values and vision to employees and partners. The payoff? Better strategic relationships with partners.
Sometimes a seemingly harmless corporate decision such as a budget trim can lead to big problems elsewhere. HBS professor W. Earl Sasser tells what happens when budget constraints and customers collide.
That little red number looked smashing onscreen, but the puce caftan the delivery guy brought is just one more casualty of the online shopping battle. HBS professor Jan Hammond researches what the textile and apparel industries can do to curtail returns.
Published in 2001
Toyota's reputation for sustaining high product quality is legendary. But the company's methods are not secret. So why can't other carmakers match Toyota's track record? HBS professor Steven Spear says it's all about problem solving.
HBS professor Andrew McAfee researches how the Internet affects manufacturing and productivity and how business can team up to get the most out of technology.
"Manufacturers of consumer goods are in the hot seat these days," the authors of this Harvard Business Review article remind readers. But there is no need to surrender to escalating costs of inventories. In this excerpt, they describe one new way to help lower inventory costs.
Published in 2000
Dramatic change is taking place in today's supply chain, say HBS professors Ananth Raman and Roy Shapiro, and it's up to the general manager to assemble a team that can implement the new principles and practices the change requires.
Retailers and e-tailers have enormous amounts of data available to them today. But to take advantage of that data they need to move toward a new kind of retailing, one that blends the instinct and intuition of traditional systems with the prowess of information technology.
Spending on information technology on the part of U.S. manufacturers is
finally starting to pay off in increased productivity. Why now? Have IT investments, growing steadily since the 1970s, suddenly crossed a magic threshhold? HBS Professor Andrew McAfee believes the answer lies neither in magic nor in the growing power of computers themselves. Productivity gains, he writes in this article from the online journal Exec, may have more to do with the evolution of computing from PC "islands" to integrated networks that bridge distances and bring people together.
Planning R&D facilities in the new global economy calls for a complex
decision making process, based in part on whether a particular site is intended
to tap local knowledge or to support a company's manufacturing and marketing
abroad. HBS Professor Walter Kuemmerle offers a look at two
contrasting foreign-based R&D decisions in this excerpt from his article in World View: Global Strategies for the New Economy (HBS Press).
Published in 1999
A simple bar code scan at your local department store today launches a whirlwind of action: data is transmitted about the color, the size, and the style of the item to forecasters and production planners; distributors and suppliers are informed of the demand and the possible need to restock. All in the blink of an electronic eye. It wasn’t always this way, though. HBS Professor Janice Hammond has focused her recent research on the transformation of the apparel and textile industries from the
classic, limited model to the new lean inventories and flexible manufacturing
capabilities.
How can one production operation be both rigidly scripted and enormously flexible? In this summary of an article from the Harvard Business Review, HBS Professors H. Kent Bowen and Steven Spear disclose the secret to Toyota's production success. The company's operations can be seen as a continuous series of controlled experiments: whenever Toyota defines a specification, it is establishing a hypothesis that is then tested through action. The workers, who have internalized this scientific-method approach, are stimulated to respond to problems as they appear; using data from the strictly defined experiment, they are able to adapt fluidly to changing circumstances.
