Infrastructure →
- 03 Oct 2011
- Research & Ideas
Transforming Manufacturing Waste into Profit
Every manufacturing process leaves waste, but Assistant Professor Deishin Lee believes much of this left-behind material can be put to productive—and profitable—use. Key concepts include: The concept of "by-product synergy" consists of taking the waste stream from one production process and using it to make a new product. Productively using waste instead of trashing it can cut costs by reducing disposal fees and opening up additional revenue streams through by-product sales. The greatest returns are realized when a company widens its scope to think strategically to consider waste processing as a joint-production process. In some cases, maximizing profit might mean, paradoxically, creating more waste. Closed for comment; 0 Comments.
- 19 Jul 2011
- Working Paper Summaries
Signaling to Partially Informed Investors in the Newsvendor Model
Why might firms make operational decisions that purposefully do not maximize expected profits? This model looks at the question by developing scenarios using the example of inventory management in the face of an external investor. The research was conducted by Vishal Gaur of Cornell University, Richard Lai of the University of Pennsylvania, and Ananth Raman and William Schmidt of Harvard Business School. Key concepts include: Companies face pressure from external investors that leads them to make suboptimal operations decisions. This pressure arises from three forces: a strong prior belief that firms are of a "low" type (one with a low quality investment opportunity), an inability for firms to mitigate the information asymmetry regarding their actual type, and an emphasis on short-term valuation. Surprisingly, this scenario includes instances in which a firm with a high quality investment opportunity finds it attractive to underinvest. There have been relatively few applications of signaling games in the operations management literature and this model provides an important application of signaling game theory to the problem of inventory management in the face of an external investor. The researchers find several real-life examples in which firms faced pressure to underinvest, and how the firms chose to deal with those situations. One example is the decision by French upscale beauty brand Clarins Group to go private in 2008. The move relieved management of shareholder pressure for short-term profits and allowed them to pursue longer-term opportunities that eventually paid off. The model can be effectively applied regardless of whether the decision is about inventory or some other type of capacity investment, including plant expansions, capital expenditures, and contracting for production inputs. Closed for comment; 0 Comments.
- 08 Jul 2011
- Working Paper Summaries
Delegation in Multi-Establishment Firms: Adaptation vs. Coordination in I.T. Purchasing Authority
Scholars have intensely studied the similarities and differences between organizations that are decentralized in their decision making versus those favoring more command-and-control central authority. What leads to a firm following a decentralized approach, and can that approach be predicted? Professor Kristina McElheran advances previous, largely theoretical, research on this subject to explore in the real world the economic determinants affecting how IT purchasing authority in 3,000 multi-establishment companies was allocated between central headquarters and outlying establishments. Key concepts include: Theoretically, organizations are expected to delegate authority when local choices are most important to the overall value of the firm, when local information advantages are significant, or when the cost of processing firm-wide information at the center grows too great. Centralization is predicted when the value of firm-wide coordination dominates these adaptation and information-processing concerns. The research confirmed most of those assumptions, but surprisingly, and contrary to leading models, found that the larger the size of the firm the less likely it was to delegate IT purchasing authority. Contrary evidence was also found in firms that produce a great variety of products and in units that operate outside the mainstream of the parent. These findings provide some of the first empirical evidence supporting prominent team theory models of organizational design, where demands for adaptation and coordination conflict within the organization and determine decision rights based on their relative importance as well as the information-processing and communication costs within the firm. Closed for comment; 0 Comments.
- 07 Jun 2011
- Working Paper Summaries
The Institutional Logic of Great Global Firms
In practice, many large firms are now realizing the importance of humanism in corporate management. But in academia, much of management theory is still stuck on the ideas of early industrialization - focusing solely on the idea that the only real value is financial value. In this paper, Rosabeth Moss Kanter discusses how social logic guides the practices of many high-performing companies. Kanter suggests that such successful practices should provoke the creation of new economic theory, which will in turn provoke other firms to take note. She puts forth several propositions to make the case. Key concepts include: Regarding the firm as a social institution is a buffer against uncertainty and change, and generates a longer-term perspective than merely considering financial concerns. Articulation and transmission of social values can evoke positive emotions, stimulate intrinsic motivation, and propel self- or peer-regulation among a firm's employees. Embracing globalization requires a concern for social issues that extend beyond the boundaries of the firm. Closed for comment; 0 Comments.
- 25 May 2011
- HBS Case
QuikTrip’s Investment in Retail Employees Pays Off
Instead of treating low-paid staffers as commodities, a new breed of retailers such as QuikTrip assigns them more responsibility and invests in their development, says professor Zeynep Ton. The result? Happy customers and even happier employees. Key concepts include: Unusual for a retailer, QuikTrip offers its operational employees above-average wages, job security, and significant benefits. By using operational efficiencies and standardization, QuikTrip reduces complexity to create higher employee productivity and fewer errors. By investing in employees and giving them more responsibility, QuikTrip enjoys a competitive advantage in service and benefits from continuous process improvement. Closed for comment; 0 Comments.
- 14 Mar 2011
- Research & Ideas
Water, Electricity, and Transportation: Preparing for the Population Boom
By 2050, the world's cities will have to support 3 billion more inhabitants, mostly in developing countries, with crucial investments needed in three areas: water, energy, and transportation. Several of the planet's top city planning and environmental business experts gathered at Harvard Business School earlier this month to discuss available options. Closed for comment; 0 Comments.
- 16 Nov 2010
- Lessons from the Classroom
Data.gov: Matching Government Data with Rapid Innovation
Data.gov is a young initiative of President Barack Obama for making raw data available on the Web. In an HBS executive education class for technology specialists, professor Karim Lakhani and the US Chief Information Officer, Vivek Kundra, sparked dialogue about new routes to innovation. Key concepts include: Data.gov makes government data--as long as it does not compromise national security or individual privacy--available on the Web in raw, machine-readable format. Data.gov is part of the Open Government initiative launched by President Barack Obama on his first day in office. As a lean organization with a mandate to move fast, Data.gov posted the first datasets five months later. Its goals are transparency, participation, collaboration, and management of systems and processes. The HBS case study of Data.gov, coauthored by professor Karim R. Lakhani, highlights a number of useful applications sparked by the Web site. One in particular creates benefits for taxpayers by sharing information between the Internal Revenue Service and the Department of Education. Closed for comment; 0 Comments.
- 19 Oct 2010
- Working Paper Summaries
The Impact of Supply Learning on Customer Demand: Model and Estimation Methodology
"Supply learning" is the process by which customers predict a company's ability to fulfill product orders in the future using information about how well the company fulfilled orders in the past. A new paper investigates how and whether a customer's assumptions about future supplier performance will affect the likelihood that the customer will order from that supplier in the future. Research, based on data from apparel manufacturer Hugo Boss, was conducted by Nathan Craig and Ananth Raman of Harvard Business School, and Nicole DeHoratius of the University of Portland. Key concepts include: Two key measures of supplier performance include "consistency", which is the likelihood that a company will continue to keep items in stock and meet demand, and "recovery", which is the likelihood that a company will deliver on time in spite of past stock-outs. Improvements in consistency and recovery are associated with increases in orders from retail customers. Increasing the level of service may lead to an increase in orders, even when the service level is already nearly perfect. Closed for comment; 0 Comments.
- 22 Sep 2010
- Working Paper Summaries
The Task and Temporal Microstructure of Productivity: Evidence from Japanese Financial Services
Boredom and fatigue often hamper the productivity of workers whose jobs consist of repeating the same tasks. This paper explores ways in which companies can combat this problem, introducing the idea of the "restart effect" - a deliberate disruption that kindles productivity. Research, which focused on a loan-application processing line at a Japanese bank, was conducted by HBS professor Francesca Gino and Kenan-Flagler Business School assistant professor Bradley R. Staats. Key concepts include: Even taking acclimation into account, a worker's productivity will improve immediately after switching from one task to another, so it behooves managers to introduce a variety of tasks into the workday. All else being equal, workers perform better during the first half of the day than the second half. Productivity improves markedly when workers are given the incentive of leaving as soon as the day's tasks are completed. (The researchers found that workers performed 13.1% better on Saturdays, when they had the option of leaving early, than on Mondays, when they were required to work a nine-hour day.) Closed for comment; 0 Comments.
- 30 Aug 2010
- Research & Ideas
Turning Employees Into Problem Solvers
To improve patient safety, hospitals hope their staff will use error-reporting systems. Question is, how can managers encourage employees to take the next step and ensure their constructive use? New research by Julia Adler-Milstein, Sara J. Singer, and HBS professor Michael W. Toffel. Key concepts include: Patient-safety information campaigns can help hospital staff do more than just report problems when they occur. Thanks to information campaigns, frontline workers increased the rate of suggesting constructive solutions to problems by 74 percent. The frequency increased even more when unit managers joined in problem solving. By serving as role models, managers who actively engage in problem solving can lead their frontline workers to create and share solutions. Closed for comment; 0 Comments.
- 19 Jul 2010
- Research & Ideas
How Mercadona Fixes Retail’s ’Last 10 Yards’ Problem
Spanish supermarket chain Mercadona offers aggressive pricing, yet high-touch customer service and above-average employee wages. What's its secret? The operations between loading dock and the customer's hands, says HBS professor Zeynep Ton. Key concepts include: The last 10 yards of the supply chain lies between the store's loading dock and the customer's hands. Poor operational decisions create unnecessary complications that lead to quality problems and lower labor productivity and, in general, make life hard for retail employees. Adopting Mercadona's approach requires a long-term view and a leader with a strong backbone. Closed for comment; 0 Comments.
- 12 Jul 2010
- Research & Ideas
Rocket Science Retailing: A Practical Guide
How can retailers make the most of cutting-edge developments and emerging technologies? Book excerpt plus Q&A with HBS professor Ananth Raman, coauthor with Wharton professor Marshall Fisher of The New Science of Retailing: How Analytics Are Transforming the Supply Chain and Improving Performance. Key concepts include: Retailers can better identify and exploit hidden opportunities in the data they generate. Integrating new analytics within retail organizations is not easy. Raman outlines the typical barriers and a path to overcome them. Incentives must be aligned within organizations and in the supply chain. The first step is to identify the behavior you want to induce. To attract and retain the best employees, successful retailers empower them in specific ways. Closed for comment; 0 Comments.
- 07 May 2009
- Working Paper Summaries
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.
- 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.
- 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.
- 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.
- 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.
Observation Bias: The Impact of Demand Censoring on Newsvendor Level and Adjustment Behavior
As the fundamental model for managing inventory under demand uncertainty, the newsvendor model has received significant research attention, but behavioral issues—the focus of this paper—have been less well studied. Nils Rudi and David Drake demonstrate how different aspects of the newsvendor model, a rather complex managerial decision setting, result in a combination of behavioral deviations from the normative solution prescribed within existing literature. The results can help managers prioritize order quantity improvements based on product margins and the degree of demand feedback available in the setting that they operate in. Key concepts include: In general, changing how order quantity decisions are made preferably comes through training by building awareness of level and adjustment costs and their sources. This research provides managers with insight into how adjusting order quantity policy over time and ordering at a suboptimal level combine to erode profits. These results also provide guidance on which of sources of behavioral cost (adjustment cost and level cost) managers are likely to be most exposed to given a product's unit cost and margin and the degree of demand visibility. Closed for comment; 0 Comments.