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This is an MIT Sloan Management Review article. Executives began outsourcing substantial portions of their operations more than a decade ago to offload activities they declared to be noncore to cut costs and improve strategic focus. Today, however, companies are looking outside for help for more fundamental reasons--to facilitate rapid organizational change, to launch new strategies, and to reshape company boundaries. In doing so, they are engaging in transformational outsourcing: partnering with another company to achieve a rapid, substantial, and sustainable improvement in enterprise-level performance. On the basis of research on 20 companies that have attempted the practice, the author identifies four broad organizational categories that can benefit from transformational outsourcing. Start-ups such as TiVo, for example, need partners to scale up rapidly. "Crouching tigers" such as Family Christian Stores are being stymied by a deficiency in some key capability from meeting their strategic aspirations. "Fallen angels"--such as BP in the mid-1990s--settle into the wrong performance trajectory and need strong action to change their tack. And organizations on the edge of survival--as Britain's National Savings and Investments was several years ago--need transformational outsourcing to become "born again."

This case presents a firsthand account of a flying experience on JetBlue Airways in June 2004. The narrative reports on the cross-country flying experience of one passenger.

This case details the history of Southwest Airlines from its inception, in 1971, until 2004. The case provides details of Southwest's business model and reasons for success. It ends with a description of the company's competitive pressures in 2004. The case can be used for a course in service operations or strategy.

This case outlines the history of JetBlue Airways from its inception, in 2000, until 2004. The case provides details of JetBlue's business model and reasons for success. It can be used in a course on service operations or strategy.

In June 2004, members of the Material Flow Committee at Stanford Hospital and Clinics were faced with the challenge of implementing important process improvements in the operating room. Though notable progress had been made in the recent past, complaints from surgeons, nurses, and technicians regarding the availability of surgical instrumentation had reached an all-time high. Finding a solution was urgent, but opinions varied widely regarding the best course of action. Some individuals believed that instrumentation sterilization and processing should be adopted as a core competency (and made central to employee training and compensation). Others felt the hospital should invest in additional instruments and information technology to improve efficiencies. A third faction believed that instrumentation issues resulted, in large part, from low morale and a lack of cross-functional camaraderie and teamwork within the operating room. A decision had to be made to devote Stanford's limited time and resources to the solution that would have the greatest, most immediate impact on its operating room effectiveness.

An executive must estimate the demand for rolls of film in various countries based on demographic data about the counties. She must determine the process and develop a spreadsheet model that will provide the results based on data (GNP per capita, population, income distribution) from the various countries. The purposes of the case are to show the relation between national statistics and company decisions and to provide training in advanced spreadsheet skills, conceptualizing a problem and modelling.

An executive wonders if it is possible to increase profits by changing the mix of products at a shipyard. The yard currently operates below the breakeven point, so must achieve profitability or default on loan payments.

A major advancement is taking place in supply chain management. Radio frequency identification (RFID) technology has now been developed to the point at which it can provide suppliers, manufacturers, distributors, and retailers with precise real-time information on where their products are in the supply chain--information that can be valuable in terms of improving supply chain management (SCM) efficiencies and revenue generation. Several companies in the food and consumer packaged goods industries are involved in one or more major RFID pilot programs. Describes the critical trends and implications of applying this technology to SCM, detailing its benefits, as well as impediments, to implementation.

The Electronic Product Code (EPC) is a successor to the Uniform Product Code and will improve the efficiency and traceability of the global food system. Focuses on how best to implement this new system and respect the privacy of the ultimate consumer. Teaching Purpose: To analyze the impact of EPC on the global food system.

The Department of Corporate Sponsored Research & Licensing (CSRL) at the Massachusetts General Hospital (MGH) serves as the primary interface between the hospital and the private sector. Examines the range of issues related to the commercialization of MGH's technologies. Discusses the debates surrounding the CSRL office mission and measures of its success as well as the impact of conflict of interest policies on technology development and commercialization.

In 1998, STMicroelectronics initiated the e-Chain Optimization (eChO) project with one of its major customers in a joint effort to streamline the company's planning and replenishment operations. Prior to eChO, inefficient and disconnected manual processes were used to match customer demand with ST's fab capacity. This, combined with high demand uncertainty, resulted in inefficiencies in capacity utilization, inventory management, product-mix decisions, and capacity investments. As part of the eChO project, a new B2B system, based on RosettaNet standards, was put in place to enable collaborative planning and replenishments. The new solutions were to be based on a vendor-managed-inventory (VMI) model. The eChO project was successful, allowing both business partners to improve substantially the efficiency of their internal operations and increase customer satisfaction while simultaneously reducing their inventory-related and other operating costs. In addition, it helped foster greater customer loyalty. The discovery process for the first implementation project took a total of three years and required significant investments from both business partners. To reap the most benefits from this investment, ST had to apply the key findings and duplicate the RosettaNet-enabled business processes to other trading partners. However, ST was likely to face several major obstacles along the way, such as an unwillingness of other customers to make the required initial investments.

All complex systems have four distinct hierarchical design levels: system objectives, architecture, interfaces, and components. Each level has a distinct design question associated with it. Distinguishing among these levels and understanding the questions associated with each offers insight into the evolution of products and markets as well as the principles by which organizations should be structured to accomplish each task. The first section of the note contains examples that illustrate the four levels of complex-product design and how each level cascades naturally to the next. The second section discusses the implications of the hierarchy in terms of project management, product evolution, and market evolution. The third section introduces the idea that a similar framework of hierarchical design levels can be used when thinking about the design of complex processes.

Most companies don't worry about the behavior of their supply chain partners. Instead, they expect the supply chain to work efficiently without interference, as if guided by Adam Smith's famed invisible hand. In their study of more than 50 supply networks, V.G. Narayanan and Ananth Raman found that companies often looked out for their own interests and ignored those of their network partners. Consequently, supply chains performed poorly. Those results aren't shocking when you consider that supply chains extend across several functions and many companies, each with its own priorities and goals. Yet, all those functions and firms must pull in the same direction for a chain to deliver goods and services to consumers quickly and cost effectively. According to the authors, a supply chain works well only if the risks, costs, and rewards of doing business are distributed fairly across the network. In fact, misaligned incentives are often the cause of excess inventory, stock-outs, incorrect forecasts, inadequate sales efforts, and even poor customer service. The fates of all supply chain partners are interlinked: If the firms work together to serve consumers, they will all win. However, they can do that only if incentives are aligned. Companies must acknowledge that the problem of incentive misalignment exists and then determine its root cause and align or redesign incentives. They can improve alignment by, for instance, adopting revenue-sharing contracts, using technology to track previously hidden information, or working with intermediaries to build trust among network partners. It's also important to reassess incentives periodically, because even top-performing networks find that changes in technology or business conditions alter the alignment of incentives.

Would you send a half-empty truck across Europe or pay to airfreight coats to Japan twice a week? Would you move unsold items out of your shop after only two weeks? Would you run your factories just during the day shift? Is this any way to run an efficient supply chain? For Spanish clothier Zara it is. Not that any one of these tactics is especially effective in itself. Rather, they stem from a holistic approach to supply chain management that optimizes the entire chain instead of focusing on individual parts. In the process, Zara defies most of the current conventional wisdom about how supply chains should be run. Unlike so many of its peers, which rush to outsource, Zara keeps almost half of its production in-house. Far from pushing its factories to maximize output, the company focuses capital on building extra capacity. Rather than chase economies of scale, Zara manufactures and distributes products in small batches. Instead of outside partners, the company manages all design, warehousing, distribution, and logistics functions itself. The result is a superresponsive supply chain exquisitely tailored to Zara's business model. Zara can design, produce, and deliver a new garment to its 600-plus stores worldwide in a mere 15 days. So in Zara's shops, customers can always find new products--but in limited supply. Customers think, "This green shirt fits me, and there is one on the rack. If I don't buy it now, I'll lose my chance." That urgency translates into high profit margins and steady 20% yearly growth in a tough economic climate. Some of Zara's specific practices may be directly applicable only in industries where product life cycles are very short. But Zara's simple philosophy of reaping bottom-line profits through end-to-end control of the supply chain can be applied to any industry.

The (A) and (B) cases describe the evolution of HP supply chain for its PC business in Europe between years 1992 and 1999 and the different initiatives: build-to-order, vendor-managed inventory, supply hubs, top value, channel assembly program, etc. What should be the next step in this highly competitive environment?. Case (C) deals with HP strategy of outsourcing production to SCI, a contract manufacturer.

Supplements the (A) case.

The president of Nutan Mumbai Tiffin Box Suppliers Charity Fund is faced with the decision of how to expand the Dabbawallahs of Mumbai service. The service could be expanded in terms of product offering or geographical setting. This is a supplement to Dabbawallahs of Mumbai (A), product 9B04D011, and asks students to examine the opportunities and challenges in growing the service, and decide upon the most appropriate course of action.

The president of Daikin Industries Residential Air Conditioning Shiga Factory was confronted by the prospects of an unseasonably cold summer, at a time when the Shiga Factory had large quantities of its products in inventory in anticipation of strong summer sales. The president was concerned not only about pending losses in the current year, but also about the factory's long-term survival. Unprofitability was unacceptable and Daikin was caught in a stagnant market in which it was increasingly difficult to build share by product differentiation. The Shiga Factory had been forced to use large inventories to cope with uncertain demand and a long and unwieldy supply chain. The president must decide whether to reduce the number of models, build a lower-cost factory outside Japan, or exit the business. He must also determine if there are any other options.

Professor Robert Langer's laboratory at MIT is the source of an unusually large number of published papers, patents, and technology licenses to start-up and established companies in the biomedical industry. Explores Langer's leadership and other factors that create a successful research enterprise.

Alibris, an online marketplace for rare, used, and out-of-print books, is trying to communicate to the professional book dealers who are its main suppliers that they are in the middle of a crisis. Supply is flooding the market, in part from individuals who simply want to clean out their bookshelves and make a bit of money. These individuals' sales are facilitated by a number of online merchants, including Alibris, Half.com, Amazon.com, and eBay. Alibris has built a number of powerful capabilities to help both buyers and sellers of books. Among these is a pricing service that allows sellers to set market prices for their books automatically. Alibris wants to encourage its dealers to use this service: the problem is that most market prices are far below the prices dealers have set for their books.