MIT Sloan Management Review – The OM Blog by Heizer, Render, & Munson

Good OM Reading: Seven Technologies Remaking the World

A new report by MIT Sloan Management Review (March, 2018) identifies 7 core technologies and describes their implications for commerce, health care, learning, and the environment. You can use it as a guide for discussion with your OM students to understand today’s business frontiers.

“Technology provides the spark that enables us to push beyond the established boundaries of our world,” says the report. The mechanized spinning of textiles, large-scale manufacturing of chemicals, steam power, and efficiencies in iron-making sparked the first Industrial Revolution (1760-1840). Railroads, the telegraph and telephone, and electricity and other utilities sparked the second Industrial Revolution (1870-1940). Radio, aviation, and nuclear fission sparked the Scientific/Technical Revolution (1940-1970). The internet and digital media and devices sparked the Information Revolution (1985-present). In each instance, appearance of new technologies fundamentally reshaped key aspects of the OM world.

Here are the 7 technologies in brief:

Pervasive computing delivers information, media, context, and processing power to us. It is characterized by vast networks of connected microprocessors embedded in everyday objects.

Wireless mesh networks are ad hoc loops of wireless connectivity in which only one device requires an internet connection. These are smart networks of wireless devices that can form, disperse, and re-form at the user’s command.

Biotechnology is the use of living systems and organisms to develop or make products. Today, advances in digital technology, genetic engineering, informatics, cell technology, and chemical sciences are greatly expanding its boundaries.

3D printing, or additive manufacturing, transforms a digital blueprint of an object into a physical finished good.

Machine learning covers a broad context of technologies and capabilities, including cloud computing, big data, and AI.

Nanotechnology is a radical engineering science that is designing and manufacturing incredibly small circuits and devices that are built at the molecular level of matter.

Robotics is the design and development of mechanical systems that can operate autonomously or semi-autonomously.

This report, about 20 pages long, might be the basis for student reports on specific applications to operations.

Good OM Reading: The Hard Work Behind Analytics Success

The hype around business analytics, our topics in Modules A-F, has reached a fever pitch. From baseball to biomedical advances, stories abound about data scientists applying their wizard like talents to find untapped markets, make millions, or save lives. Data has been described as the new oil, the new soil, the next big thing, and the force behind a new management revolution. Despite the hype, the reality is that many companies still struggle to figure out how to use analytics to take advantage of their data. The experience of managers grappling, sometimes unsuccessfully, with ever-increasing amounts of data and sophisticated analytics is often more the rule than the exception, concludes a new MIT Sloan Management Review study (March, 2016).

Five key findings came from the research:

Competitive advantage with analytics is waning. The percentage of companies that report obtaining a competitive advantage with analytics has declined significantly as increased market adoption of analytics levels the playing field and makes it more difficult for companies to keep their edge.
Optimism about the potential of analytics remains strong, despite the decline in competitive advantage. Most managers are still quite positive about its potential. They’ve seen increased interest in analytics over the past few years, and they expect its use to continue to grow.
Achieving competitive advantage with analytics requires a sustained commitment to changing the role of data in decision making. This commitment touches many organizational aspects, from revamping information management to adapting cultural norms.
Companies that are successful with analytics are much more likely to have a strategic plan for analytics, and this plan is usually aligned with the organization’s overall corporate strategy.
Most companies are not prepared for the investment and cultural change that are required to achieve sustained success with analytics, including expanding the skill set of managers who use data and broadening the types of decisions influenced by data.

Good OM Reading: What Successful Project Managers Do

In today’s dynamic and competitive world, a project manager’s key challenge is coping with frequent unexpected events. Despite meticulous planning, the manager may daily encounter such events as the failure of workers to show up at a site, the bankruptcy of a key vendor, a contradiction in engineering guidelines, or changes in customers’ requirements. Some of these events were anticipated but whose impacts were much stronger than expected, some could not have been predicted, and others could have been predicted but were not. All three types of events can become problems. A new research article in MIT Sloan Management Review (Spring, 2015) describes how successful project managers cope with these challenges with 4 approaches.

1. Since project progress depends on individuals who represent different disciplines and parties, collaboration is crucial for the early detection of problems as well as the quick implementation of solutions. But the various parties to the project are loosely coupled, whereas the tasks themselves are tightly coupled. When unexpected events affect one task, many other interdependent tasks are quickly affected. Thus, project success requires both interdependence and trust among the various parties.

2. Project managers faced with unexpected events employ a “rolling wave” approach to integrate planning/reviewing with learning. Recognizing that firm commitments cannot be made on the basis of volatile information, they develop plans in waves as the project unfolds and information becomes more reliable. They develop detailed short-term plans with firm commitments, while also preparing tentative long-term plans (that include redundancies, such as backup systems or human resources).

3. Successful project managers never stop expecting surprises, even though they may effect major remedial changes only a few times during a project. They’re constantly anticipating disruptions and maintaining the flexibility to respond proactively. The book Great by Choice describes one of the core behaviors of great leaders as “productive paranoia.”

4. When unexpected events affect one task, many other interdependent tasks may also be quickly impacted. Thus, solving problems as soon as they emerge is vital. Corrective action is possible only during a brief window. One study of construction project managers found that they addressed 95% of the problems during the first 7 minutes following problem detection.

Good OM Reading: Sustaining Sustainability

Steve Zaffron, CEO of the Vanto Group and co-author of the best-selling business book, The Three Laws of Performance, believes that sustainability nirvana occurs when social responsibility moves from being expressed in one-off initiatives, siloed in the corporate CSR office, to a way of being and acting that is embedded in the company culture and work habits of employees. Achieving this kind of breakthrough in an established company, with its legacy systems and time-honored practices, is proving to be a tough nut to crack for many sustainability executives, according to a new MIT Sloan Management Review (Feb. 2015) article.

Zaffron, interviewed for the article, has worked with a diverse group of organizations — from rocket-scientist NASA to labor-intensive mining — to achieve this kind of deep organizational renovation. His experience shows that leaps in human performance come less from tangible investments in things like automation, equipment or compensation schemes, and more through intangible transformations in the way people in organizations see themselves and others.

“It’s not an easy thing to change the way in which people see the world and themselves. It takes time to develop,”says Zaffron. And time is an underappreciated variable in sustainability. “It’s obvious when you say it, that sustainability means through time,” states Zaffron, but while perhaps obvious, managing time is a recurring sustainability challenge. If it interjects itself in business sustainability, time usually appears as a constraint imposed by market short-termism. “We’re talking about long-term engagements that are substantial investments,” says Zaffron. “Managers have to know they’re in for the long haul.” Unfortunately, today’s sustainability management is dominated by the search for “quick wins,” which account for over two-thirds of corporate sustainability initiatives.

As opposed to the tangible “quick wins” mindset, the intangible benefits arising from embedded sustainability behaviors take sustained effort to produce. But over time, they create differentiated capabilities that can set an organization apart in the marketplace.

Good OM Reading: The Pitfalls of Project Management Reporting

Will every corporate project be on time and deliver what was promised? Maybe — but maybe not, write four profs in MIT Sloan Management Review (Spring, 2014). Accepting 5 inconvenient truths about project status reporting can greatly reduce the chance of unpleasant surprises.

INCONVENIENT TRUTH 1: Executives can’t rely on project staff and other employees to accurately report project status information and to speak up when they see problems. Most executives expect and assume that employees will report when they see problems that might adversely impact a project. In negotiations between the U.S. and the Soviet Union, President Reagan’s signature phrase was “trust, but verify.”

INCONVENIENT TRUTH 2: A variety of reasons can cause people to misreport about project status; individual personality traits, work climate and cultural norms can all play a role. Executives tend to attribute misreporting to poor ethical behavior on the employee’s part. But one of the best remedies is building diverse teams, which can help balance out culturally specific behavior that might inhibit accurate project reporting.

INCONVENIENT TRUTH 3: An aggressive audit team can’t counter the effects of project status misreporting and withholding of information by project staff. The importance of promoting trust between those who report project status and those who receive the reports is the solution.

INCONVENIENT TRUTH 4: Putting a senior executive in charge of a project may increase misreporting. Research actually suggests that the stronger the perceived power of the sponsor or the project leader, the less inclined subordinates are to report accurately.

INCONVENIENT TRUTH 5: Executives often ignore bad news if they receive it. Executives should not only listen to a variety of stakeholders but should also take the warnings they receive seriously. If they do not, they may unwittingly contribute to a climate of silence in which employees grow even more reluctant to report bad news.

This research study nicely complements our treatment of Project Controlling in Chapter 3.

Good OM Reading: Reducing the Risk of Supply Chain Disruptions

For supply chain executives, recent years have been notable for major supply chain disruptions that have highlighted vulnerabilities for individual companies and for entire industries globally. (The Japanese tsunami in 2011 left the world auto industry reeling for months. Thailand’s 2011 floods affected the supply chains of computer manufacturers dependent on hard disks. The 2010 eruption of a volcano in Iceland disrupted millions of air travelers and affected time-sensitive air shipments.) This excellent article in the MIT Sloan Management Review (Spring, 2014), by Professors Sunil Chopra and ManMohan Sodhi, is worth the 23 minutes it will take you to read it–especially if you teach Chapter 11 and Supp.11 in our text.

Today’s managers, they write, know that they need to protect their supply chains from serious and costly disruptions, but the most obvious solutions — increasing inventory, adding capacity at different locations and having multiple suppliers — undermine efforts to improve supply chain cost efficiency. While managers appreciate the impact of supply chain disruptions, they have done very little to prevent such incidents or mitigate their impacts.This is because solutions to reduce risk mean little unless they are weighed against supply chain cost efficiency. Financial performance is, we know, what pays the bills.

Supply chain efficiency, which is directed at improving a company’s financial performance, is different from supply chain resilience, whose goal is risk reduction. Although both require dealing with risks, recurrent risks (such as demand fluctuations) require companies to focus on efficiency in improving the way they match supply and demand, while disruptive risks require companies to build resilience despite additional cost.

The authors suggest two strategies for reducing supply chain fragility through containment while simultaneously improving financial performance: (1) segmenting the supply chain or (2) regionalizing the supply chain. In many instances, though, reducing disruption risk involves higher costs. The reason executives are reluctant to deal with supply chain risk comes from the perception that risk reduction will reduce cost efficiency significantly. Managers can do much to ensure that loss of cost efficiency is minimal while the risk reduction is substantial by avoiding excessive concentration of resources like suppliers or capacity. And nudging trade-offs in favor of less concentration by overestimating the probability of disruptions can be much better in the long run compared to underestimating or ignoring the likelihood of disruptions.

Good OM Reading: Sustainabilty’s Next Frontier

For the past 5 years, MIT and the Boston Consulting Group have studied the sustainability challenges facing US firms. This new report’s findings are both encouraging and disconcerting. The study found a disconnect between thought and action on the part of many firms. For example, 2/3 of respondents rate social and environmental issues, such as pollution, as “significant” or “very significant” among their sustainability concerns. Yet only about 40% report that their organizations are addressing them. Even worse, only 10% say their companies fully tackle these issues.

More than 90% have developed a sustainability strategy, compared to 62% among all respondents.
70% have placed sustainability permanently on their top management agenda, compared to an average of 39%.
69% have developed a sustainability business case, compared to only 37% of all respondents.

These leading companies suggest a path forward. MIT calls them “Walkers” — companies that “walk the talk” by identifying and addressing significant sustainability concerns. “Talkers,” on the other hand, are equally concerned about the most significant sustainability issues, but address those issues to a far lesser degree.

Data from the past 5 years shows that many organizations are struggling to move forward. For example, the percentage of companies that have established a sustainability business case has only grown from 30% to 37% during this period. More than half of the respondents have either failed to establish a business case or haven’t even tried to create one. The percentage of companies that report their sustainability efforts are adding to profits has consistently come in at roughly 35% since 2010. Many companies have hit a crucial inflection point. They have reaped the immediate gains from sustainability but have yet to embark on the next level: addressing the most significant sustainability issues.

This is an interesting report that you may wish to share with your class when you cover our new chapter on Sustainability in the Supply Chain (Supp.5).

Good OM Reading: The Power of Logistics Clusters

Everyone understands the concept of industrial clusters that have developed around the world: Silicon Valley (for information technology), Hollywood (for entertainment), and Boston (for life sciences). Strong clusters are ecosystems of venture capital resources, universities, research centers, employers, highly skilled workers and institutions for collaborations.

The MIT Sloan Management Review (Fall, 2012), however, introduces the concept of logistics clusters— local networks of businesses that provide a wide array of logistics services, including transportation carriers, warehousing companies, freight forwarders and third-party logistics service providers. They also include the distribution operations of retailers, manufacturers and distributors. These clusters attract companies for whom logistics is a critical element of their service offering or a large part of their overall costs.

Logistics clusters are located strategically to enable efficient transportation and delivery services to large populations. They are positioned in mode-changing locations such as busy seaports (Rotterdam, Shanghai, Los Angeles), airport hubs (Hong Kong, Seoul, Memphis) and major intermodal yards where freight shipments transfer from railcars to trucks (such as Chicago, Dallas and Kansas City). Some of the world’s largest logistics hubs, including Singapore, São Paulo and Memphis, bring together multiple elements at once. The economics of transportation means that cargo has to travel long distances in bulk, while demand from retailers and JIT manufacturers means that final distribution must be handled locally in small quantities in response to the ups and downs of customer demand.

The Sloan article notes 3 major advantages of logistics clusters:

1. Value additions. For example, UPS repairs Toshiba laptops at its facility in Louisville, next to the UPS Worldport air hub, reducing service turnaround times from 2 weeks to 4 days.

2. Facilitating returns. Miami’s Neptune Lines specializes in refurbishing secondhand pieces of heavy equipment for Caterpillar and Komatsu. It handles about 5,000 pieces of equipment per year.

3. Attracting other industries and jobs. Indianapolis has some 1,500 logistics and related services companies, including distribution centers for Amazon.com, Hewlett-Packard, and CVS Caremark.

This is a nice article to ask your students to read before you discuss the topic of logistics in Chapter 11.

Good OM Reading: Kimberly Clark’s Drive for Sustainability

The latest MIT Sloan Management Review (May 15, 2012) reports on consumer products giant Kimberly Clark’s efforts towards sustainability, an important topic in our OM courses (Supplement 5). The 140 year old company (57,000 employees in 36 countries)has more than a billion people use its products (which include Kleenex, Huggies, and Kotex) every day!

The company has had 4 global five-year goals, looking at energy reduction and energy efficiency, water use reduction and efficiency gains. For 2000, it addressed chemical issues. For 2005, it addressed packaging, and had a 10% reduction in weight in packaging goal. For 2010, it looked at lifecycle analysis of all product initiatives. For 2015, the focus is broader– on people, the planet and products. “That equates to the social, environmental and economic pillars of sustainability. That’s the triple bottom line for us,” says Peggy Ward, director of sustainability.

“On the planet side, we’re still following our traditional focus on energy, waste and water,” she adds, “but we’re pushing ourselves even further. So, we’ve set an absolute greenhouse gas reduction goal of 5%. On the water side, our goal is a 25% reduction in water use. And in waste, our goal is to achieve zero manufacturing waste sent to landfill. About 48% of our mills are landfill-free currently.”

New products at Kimberly Clark include Scott Naturals Tube Free– bath tissue rolls that do not have that cardboard core ( meaning you can use every single sheet of the roll.) The amount of waste that will be eliminated that’s going to landfills is large — basically it’s enough to go to the moon and back two times. Huggies Pure and Natural diapers have a component that has a renewable alternative material in it — instead of a petrochemical-based input. It has organic cotton, it’s fragrance-free and dye-free and it has 20% post-consumer recycled content.

This is a good article to share with your class when you are discussing sustainability.

Good OM Reading: Analytics–The Widening Divide

Why don’t more managers embrace the business analytic tools we use in so many aspects of our OM courses? A new report by MIT Sloan Management Review (Nov.8, 2011) answers the question with a survey of 4,500 executives regarding the integration of analytics in their enterprises. The report, Analytics: The Widening Divide, concludes that cultural biases, such as the need for new management competencies and organizational resistance to new ideas –more than technological hurdles–are the primary barriers.

First, a definition of business analytics: “the use of statistical, quantitative, predictive, and other models to drive fact-based planning, decisions, execution, management, measurement, and learning. Analytics may be descriptive, predictive. or prescriptive”.

The MIT Sloan report breaks companies down into 3 categories: Transformed (heavy users), Experienced (moderate users), and Aspirational (companies least experienced in the use of business analytics). The good news is that the number of firms in the 1st two categories, who use analytics for competitive advantage, has surged by 57% in the past year. The Aspirational group’s use of analytics actually declined by 5%. Transformed organizations have set the pace in expanding use of analytics and were found to be 2.2 times more likely to substantially outperform industry peers.

The Transformed group keenly appreciates the value of precise and real-time decisions, and is 3 times more likely to focus on speed of decision-making than Aspirational firms. This means managing operations and improving output levels based on real-time supply and demand management. Inventory replenishment processes, for example, are automated and production is optimized in these companies. As a case study, the report follows McKesson, which processes 2 million hospital orders per day. McKesson does so by embedding algorithms into customer orders to manage the inventory process without human intervention.

When students ask you why analytics are important in your OM course, this report provides a ready response.

Good OM Reading: What Great Projects Have in Common

Every once in a while, a “great” project comes along. The last one I have memories of was the rebuilding of the Pentagon after the 9/11 terrorist attacks. Jay and I wrote about “Project Phoenix” in Ch.3, describing how the estimated 3-year, $3/4 billion project was completed in 11 months for only $501 million with handshake contracts, creativity, teamwork, and ingenuity.

So when the MIT Sloan Management Review article (March 23,2011), “What Great Projects Have in Common” just came out, it caught my eye as a good teaching tool. Authors Dov Dvir and Aaron Shenhar use the creation of the IBM AS/400 computer and the Apple iPod as their examples of “great projects”, and then ask: “Why are such projects so rare”?

Their answer after analyzing 400 projects: 7 managerial characteristics were held in common.

Here they are: (1)They all created a unique competitive advantage or exceptional value for stakeholders. (2) They had lengthy periods where the project was defined. (3) There was a revolutionary (and different)project culture. (4) The project leader was highly qualified and had support of top management. (5) The project maximized use of existing knowledge, often with the cooperation of outside organizations. (6) The projects had integrated development teams with fast problem-solving capability. (7) The teams had a strong sense of partnership and pride…which was indeed the case when the Pentagon was being rebuilt.

This 3-page article is short enough to ask your students read it when you cover Chapter 3 and it complements our coverage of this important topic.

To see other articles in MIT Sloan Management Review go to sloanreview.mit.edu.