Operations →
- 08 Dec 2008
- Research & Ideas
Thinking Twice About Supply-Chain Layoffs
Cutting the wrong employees can be counterproductive for retailers, according to research from Zeynep Ton. One suggestion: Pay special attention to staff who handle mundane tasks such as stocking and labeling. Your customers do. Closed for comment; 0 Comments.
- 13 Nov 2008
- Working Paper Summaries
The Effect of Labor on Profitability: The Role of Quality
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. Key concepts include: How well employees execute prescribed processes is an important driver of financial performance. It is important to design processes that are simple and easy to follow, especially when there is high employee turnover, as in the retail industry and when offering a self-service environment. Good process design needs to be backed up with an organizational culture that emphasizes conformance to these processes. Too much corporate emphasis on payroll management may motivate managers to operate their stores with insufficient labor capacity that, in turn, degrades financial performance. Emphasis on payroll management can also degrade employee morale. Closed for comment; 0 Comments.
- 06 Nov 2008
- Working Paper Summaries
Extending Producer Responsibility: An Evaluation Framework for Product Take-Back Policies
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. Key concepts include: The authors identify key policy levers that promote cost efficiency while reducing risks to the environment, public health, and the workers involved in recovery operations. Key policy decisions include setting the scope of manufacturer responsibilities, the stringency of recovery and recycling targets, design-for-environment requirements and substance bans, restrictions on when customer fees can be imposed, and limitations on the industrial organization of the recycling market. Closed for comment; 0 Comments.
- 31 Mar 2008
- HBS Case
JetBlue’s Valentine’s Day Crisis
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. Key concepts include: JetBlue's dependence on a reservations system that relied on a dispersed workforce and the Web broke down when thousands of passengers needed to rebook at once. A crisis forces an organization to evaluate its operating processes rapidly and decide where it needs to create greater formalization or structure. Closed for comment; 0 Comments.
- 27 Mar 2008
- Working Paper Summaries
Exploring the Duality between Product and Organizational Architectures: A Test of the Mirroring Hypothesis
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. Key concepts include: A product's architecture tends to mirror the structure of the organization within which it is developed. New organizational arrangements can have a distinct impact on the nature of the resulting design, and hence may affect product performance in unintended ways. There are substantial differences in relative levels of modularity between software systems of similar size and function. Closed for comment; 0 Comments.
- 03 Mar 2008
- Research & Ideas
Marketing Your Way Through a Recession
In a recession, consumers become value oriented, distributors are concerned about cash, and employees worry about their jobs. But a downturn is no time to stop spending on marketing. The key, says professor John Quelch, is to understand how the needs of your customers and partners change, and adapt your strategies to the new reality. Key concepts include: Brands that increase advertising during a downturn can improve market share and return on investment. Early-buy allowances, extended financing, and generous return policies motivate distributors to stock your full product line. In tough times, price cuts attract more consumer support than promotions. CEOs must spend more time with customers and employees. Closed for comment; 0 Comments.
- 19 Feb 2008
- Research & Ideas
Radical Design, Radical Results
Consumers appear increasingly willing to make purchase decisions based upon their emotions about a product—how it looks, or sounds, or makes them feel using it. But the traditional design process based on user experience goes only so far in creating radical innovation. Harvard Business School visiting scholar Roberto Verganti is exploring the new world of "design-driven innovation." Key concepts include: Innovative product design is risky, but provides competitive advantage to companies that understand how a product "speaks" to customers. Little theory exists to point the way for companies that want to create a successful design strategy beyond the traditional user-driven design process. Companies often adopt one of three design strategies: launch and see, see and launch, or wait and see. Innovators may often be in the see and launch category. Innovators understand and build off each other's ideas better than the imitators do. Closed for comment; 0 Comments.
- 10 Jan 2008
- Sharpening Your Skills
- 22 Oct 2007
- Research & Ideas
Bringing ‘Lean’ Principles to Service Industries
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. Key concepts include: In terms of operations and improvements, the service industries in general are a long way behind manufacturing. Not all lean manufacturing ideas translate from factory floor to office cubicle. A lean operating system alters the way a company learns through changes in problem solving, coordination through connections, and pathways and standardization. Successful lean operations at Wipro involved a small rollout, reducing hierarchies, continuous improvement, sharing mistakes, and specialized tools. Closed for comment; 0 Comments.
- 18 Sep 2007
- Working Paper Summaries
Modularity, Transactions, and the Boundaries of Firms: A Synthesis
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. Key concepts include: Transaction locations are not technologically determined, but arise through the interplay of firms' strategies and knowledge and the requirements of specific technologies. Because strategies, knowledge, and technologies all change over time, the location of transactions changes as well. Each firm participating in a task network will have inexhaustible opportunities to gain advantage by redesigning the portions of the task network it controls and the transactions it influences. At the same time, new firms can quite easily attach themselves to the network at the boundaries of modules. Closed for comment; 0 Comments.
- 12 Jul 2007
- Working Paper Summaries
Toward a Theory of Behavioral Operations
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. Key concepts include: A behavioral approach to operations management can lead to a better understanding of underlying drivers of operating systems performance and also to a better understanding of puzzling "pathologies" such as excess inventory, late product development projects, and overcommitment to research and development projects. A behavioral perspective can lead to better identification of appropriate management interventions. Closed for comment; 0 Comments.
- 28 Jun 2007
- Working Paper Summaries
Alignment in Cross-Functional and Cross-Firm Supply Chain Planning
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. Key concepts include: Alignment can be achieved even if incentives are misaligned. The communication structure often determines whether or not alignment occurs. The key to alignment is less how each function is rewarded (i.e., transfer prices) but rather what each function knows about the other function's beliefs. Any effort to increase knowledge of each other's perspective, especially the final perspective, will improve the changes of alignment even if there is no change in incentives. Closed for comment; 0 Comments.
- 14 Jun 2007
- Working Paper Summaries
Evolution Analysis of Large-Scale Software Systems Using Design Structure Matrices and Design Rule Theory
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. Key concepts include: Important software modularity principles have remained informal. DSM models reveal a key characteristic of modular architectures: The design rules must be explicitly defined so that otherwise dependent modules can be decoupled. Each independent module can then be replaced with a better version. DSM modeling and the design rule theory of Clark and Baldwin have the potential to formally account for how design rules create options in the form of independent modules and how they enable independent substitution. DSM modeling and design rule theory are general enough to model decisions other than those encoded in source code. Closed for comment; 0 Comments.
- 13 Apr 2007
- Working Paper Summaries
Incorporating Price and Inventory Endogeneity in Firm-Level Sales Forecasting
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. Key concepts include: This model can be used to benchmark retailers' performance in sales, inventory, and gross margin simultaneously. The model can also be used to generate sales forecasts even when sales were managed using inventory and gross margin. Closed for comment; 0 Comments.
- 12 Apr 2007
- Working Paper Summaries
From Manufacturing to Design: An Essay on the Work of Kim B. Clark
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. Key concepts include: Throughout his career, Clark has brought fresh insights to old questions and opened up new territories of research. He helped to replace Frederick Taylor's scientific management principles with the dynamic concepts of continual learning and learning organizations. Clark showed how product development could be actively managed for greater efficiency and effectiveness. He developed a theory of the embedding of knowledge in organizations, which he used to explain why established firms often fail in the face of "seemingly minor innovations." He showed how changes in the modular structure of products and processes could bring about fundamental change in the structure of industries. Finally, in Clark's later works, he built bridges from design theory to user innovation, transaction- and knowledge-based theories of the firm, and strategy. Closed for comment; 0 Comments.
- 09 Apr 2007
- Research & Ideas
Industry Self-Regulation: What’s Working (and What’s Not)?
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. Key concepts include: Many more of these programs are targeted at business customers than at end consumers. Most studies that have examined industry-initiated programs have found that, at the time of adoption, participants are no better than others. The results of government-initiated programs, however, are more ambiguous. Managers increasingly realize that some so-called voluntary programs are actually not very voluntary. In order to really deliver on the promise of these programs, third-party verification will become increasingly important. Closed for comment; 0 Comments.
- 13 Feb 2007
- Working Paper Summaries
Electronic Hierarchies and Electronic Heterarchies: Relationship-Specific Assets and the Governance of Interfirm IT
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. Key concepts include: When an enterprise technology is required, so is an electronic hierarchy. Future research could reveal if there is a general pattern in relationship-specific investments and how entities other than powerful incumbent firms can successfully build electronic hierarchies. Future research could also help define the full spectrum of IT-based interactions and the appropriate governance mechanisms for each. Closed for comment; 0 Comments.
- 11 Jan 2007
- Working Paper Summaries
A Perceptions Framework for Categorizing Inventory Policies in Single-stage Inventory Systems
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. Key concepts include: This is a technical article intended for an academic audience. Current models track forecast errors and use them and past demand realizations to predict future demand. But the results may not accurately reflect the reality of the demand process. This proposed framework categorizes a range of inventory policies in a single-stage supply chain. The framework will be useful for more robust examinations of supply chain management dynamics. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning
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. Key concepts include: Better and more integrated information is not sufficient for a good forecast. Design the process so that social and political dimensions of the organization are effectively managed. Create an independent group to manage the forecast process, not the forecast itself. This helps to stabilize the political dimension. Unintended incentives and blind spots can arise as a result of newly implemented processes, so managers need to control for biases and their effects on system performance. Insights from this case study can be generalized and extended to other settings that require cross-functional coordination. Closed for comment; 0 Comments.
Broadening Focus: Spillovers and the Benefits of Specialization in the Hospital Industry
What is the optimal scope of operations for firms? This question has particular relevance for the US 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. Key concepts include: Hospitals devoting a greater portion of their business to treating patients in related service categories (i.e., those with the potential for knowledge spillovers) experience higher returns to specialization in a focal service. Ultimately, these results provide a potential explanation for why there might be decreasing returns to focusing an organization on a single operating activity (or narrow set of activities), especially when it is possible to invest in other activities that complement the organization's area of concentration. Closed for comment; 0 Comments.