Recent disruptive events like the pandemic and war in Europe have exposed businesses weakened by short-sighted leadership decisions, and many companies risk being unprepared for the new challenges that will inevitably emerge. The authors analyzed Southwest Airlines, Boeing, and GE to understand how and why successful companies sacrifice the business excellence they spent years building for near-term financial gains that ultimately harm investors, employees, and customers.
This article was controversial when first published in 1980. At the time, American business was suffering from marked deterioration in competitive vigor and economic well-being, which most economists and business leaders attributed to factors such as the virus of inflation, the limitations imposed by government regulation and tax policy, and the feverish price escalation by OPEC. Not quite right, say the authors. In their judgment, responsibility rests not with general economic forces alone but also with the failure of American managers to keep their companies technologically competitive over the long run. Drawing on their extensive work in the manufacturing sector, as well as their association with Harvard's International Senior Managers Program in Vevey, Switzerland, the authors prescribe some strong medicine for American business. They compare the U.S. system of management with those of Europe and Japan and call for fundamental shifts in management attitudes and practices. In advocating change, they also reaffirm the importance of following business basics: to invest, innovate, lead, and create value where none existed previously. The original article now includes a sidebar by Robert Hayes, who summarizes what has--and what has not--changed in American management over the past 27 years. He encourages managers to go beyond the traditional fundamentals to implement a new set of essentials for today's networked, virtual world.
Although most companies confine their operations organizations to restricted, tactical roles, in some of the most successful firms operations has served as the foundation for--indeed, the driver behind--successful strategic attacks and defenses. This is most clearly seen in cases where small companies--although lacking the advantages of size, market position, and proprietary technology--take on big companies and in a relatively short time push their way to industry dominance. In such cases, the key to success often is an operations-based advantage. The peculiar nature of this advantage provides insight into the reasons many former industry leaders did not react more promptly and vigorously to such attacks, and why others, in contrast, were able to defend themselves successfully.
The European organization of Alden Products, Inc. is contemplating a doubling of unit sales over the next ten years. Their largest plant, located in Holland, was set up 25 years earlier to supply all demands of the EEC countries on the continent. It has since expanded six times. Should it expand again? Should it build a new plant in Southern Europe? Or should it increase subcontracting?
Engineering Inspection & Insurance Co. (EIIC) is a small but highly successful company that offers machinery and boiler inspection and insurance services. After years of above-average growth and profits, both are retreating toward the industry average, policy delivery times are excessive, and employee morale is low. There is increasing concern that the company's current strategy and organization are no longer working. The problem appears to be that, while the company initially was organized to provide inspection and insurance services for complex equipment, most of its premium revenue in 1991 comes from relatively simple, low-premium objects for which inspection probably is unnecessary. Reconciling the conflicting demands of these two types of businesses with the company's existing structure and value system is the essential issue. Teaching Purpose: To illustrate the basic operations strategy framework in the context of a service company, and to engage students in a discussion of the advantages and disadvantages of different methods for refocusing operations.
Virtually all manufacturers aspire to "world-class" status. But even those who attain it will only be as good as their toughest competitors. This explains why so many companies that have adopted improvement programs like just-in-time, lean production, and total quality management lament that they never seem to get ahead. The problem is that managers tend to view such programs as solutions to specific problems, like high inventories or products that are difficult to manufacture. As such, they are not manufacturing strategies. In the turbulent 1990s, the goal of competitive strategy should be strategic flexibility. A company must be able to switch gears relatively quickly and with minimal resources. A true manufacturing strategy is a plan for developing the skills and capabilities that will enable a company to do certain things better than competitors over the long haul.
In early 1990, the company is contemplating changes in its European plant network for producing hypodermic products, including the total production capacity to be provided, the number and location of plants over which to spread this capacity, and which products should be allocated to various plants (and countries). After years of having too much capacity, the latest sales forecasts indicate that it will soon be running out of capacity, and the company has to decide how to react. In analyzing this decision, students are invited to review the decision-making processes that the company has followed in the past--and that have resulted in too much capacity and high manufacturing costs--and asked to propose changes in the way it approaches such decisions in the future.
Cummins Engine Co. is starting up production of diesel engine crankshafts in its plant in central Mexico. This operation requires much tighter tolerances than any product previously produced at the plant, and the young (recent MBA) manager who is in charge of the start-up is faced with several difficult decisions regarding the equipment to be used for crankshaft machining in Mexico. On the one hand, some of the equipment used for this purpose in Cummins' U.S. plant is inappropriate in the Mexican context. On the other, he has to operate under severe budgetary and supplier constraints. A subsidiary issue has to do with the long-term strategy for the Mexican plant, which has developed into one of the best in Cummins' worldwide network but risks being fragmented by the many opportunities for adding products that are available to it.
Reviews the history of Pohang Iron & Steel Co.'s (POSCO) development under its founding Chairman, Mr. T. J. Park. Between 1968 and 1991 the company grew from nothing to the third largest steel producer in the world. Now POSCO's opportunities for further growth in steel appear limited and Chairman Park is raising the possibility of leaving the company to enter Korea's political arena. Teaching Purpose: Strategy of a developing country, and how what appeared to be outstanding opportunities at one stage of development no longer appear as attractive at a later stage.
Few U.S. companies are absorbing the advanced production technologies - such as CAD, CAM, FMS, or CIM - they need to stay competitive. Many are put off by the stringent demands of programmable automation. Most manufacturers are inhibited by organizational structures and practices. Also, approaches to plant construction and capital improvement are incremental, which often precludes investing in advanced, integrated plants.
Before managers can take meaningful steps to boost factory performance, they need an accurate way to judge what good performance is and to compare performance among facilities. The measurement systems in place at many factories fail to tell managers what they really need to know. To clarify the variables that affect productivity, 12 factories in 3 companies were studied over time. A new measuring system called total factor productivity (TFP) was devised to gauge each plant's overall efficiency. Then, the managerial practices that, when done right, make a difference were identified: investing in new equipment, reducing waste, and cutting work-in-process inventories by solving the problems that produced them in the first place.
Even as the notion of strategic planning has come to dominate business education and practice in the United States, manufacturing companies in this country often miss goals and lag behind foreign competitors. Under certain circumstances, the problem lies with the logic shaping the strategic planning process: establish ends, develop ways to attain them, and assemble the necessary means. A reverse logic--means-way-ends--may be more appropriate in a changing environment. A company can develop broad capabilities (means) and match these with technological and market opportunities as they arise (ways). A shared vision of what the company can become rather than a set of directions or controls provides the guiding force for such an organization.
The different roles that manufacturing can play in a company's efforts to formulate and achieve its strategic objectives can be described in terms of a developmental continuum. At the lowest "internally neutral" stage, top managers regard production as a low-tech operation, incapable of influencing competitive success. Stage 2 companies seek an "externally neutral" parity with major competitors on the manufacturing dimension. This attitude is often found in America's smokestack industries. Stage 3 organizations, on the other hand, expect production to support and strengthen the company's competitive position, and manufacturing investments are screened for consistency with the business strategy. The fourth and most progressive stage arises when competitive strategy rests to a significant degree on a company's production capability.
Investments in plant and equipment are sensitive to differences in how managers view the importance of short- vs. long-term issues. Yet most managers depend on highly analytic techniques like discounted cash flow analysis to evaluate capital investment proposals, and these techniques are often biased against long-term investment. Such methods place most of their emphasis on net present value or internal rate of return calculations, and as their use has increased, the growth of capital investment and R&D spending in the United States has decreased. McKinsey Award Winner.
Contrary to popular opinion, the secret of Japanese manufacturing success lies not in the use of futuristic techniques but in an emphasis on manufacturing basics. First-hand observation of six Japanese companies reveals that the Japanese direct special attention to several areas: maintenance of an orderly workspace, minimization of inventory, solution of problems before they reach the plant floor, prevention of machine overload, the use of comprehensive equipment monitoring and early warning systems, and creation of a no-crisis atmosphere. Japanese managers achieve high quality by regarding all problems as important. McKinsey Award Winner.
The process-product matrix can be used to explain company failures due to lack of coordination and focus on marketing and manufacturing functions. More importantly, however, it provides a framework for describing alternate business strategies. The matrix provides insight for planning product and process changes, coordinating marketing and manufacturing goals and functions, and avoiding internal problems brought about by evolving markets and technologies.
Focusing on the manufacturing process gives a new dimension to strategy. The "process life cycle," related but distinct from the product life cycle, facilitates the understanding of strategic options available. Most companies occupy a particular region on a natural, diagonal matrix of the stages of the product life cycle and the choices of production process for that product. A company may seek competitive advantage off the diagonal, but should understand the implications of each move.
The structure and management of manufacturing should reinforce corporate priorities. The company's "manufacturing mission" is to help the company do what it wants to without wasting resources in lesser efforts. Any shift in corporate strategy usually requires changes in both the infrastructure and facilities of manufacturing. Approaches to the design of an appropriate manufacturing system range from a "product-focused" to a "process-focused" organization. While simplicity of organizational design is important, both can be allowed to operate in the same company if the operations are separated to avoid cross purposes. The proper choice between these organizational types smoothes a company's growth by lending stability to its operations.