Operations

Many companies keep their suppliers and partners at arm's length, zealously guarding internal knowledge. Toyota Motor Corp., however, embraces its suppliers and encourages knowledge sharing through established networks. Toyota has developed interorganizational processes that facilitate the transfer of both explicit and tacit knowledge. The three key processes revolve around supplier associations (for general sharing of information), consulting groups (for workshops, seminars and on-site assistance from Toyota) and learning teams (for on-site sharing of know-how within small groups). With Toyota's help, suppliers have fine-tuned their operations until, compared with their work for Toyota's rivals, they have 14% higher output per worker, 25% lower inventories and 50% fewer defects. Quality improvements enable Toyota to charge price premiums for its products. Toyota's experience suggests that competitive advantages can be created and sustained through superior knowledge-sharing processes within a supplier network. The authors believe those principles have applicability in other types of alliances, too, including joint ventures. In fact, they contend that establishing effective interorganizational knowledge-sharing processes with suppliers and partners can be crucial for any company. The authors claim that knowledge sharing with suppliers is the reason for Toyota's dynamic learning capability and might be the company's one truly sustainable competitive advantage.

When executives began outsourcing substantial portions of their operations more than a decade ago, they did it to offload activities they declared to be noncore in order 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 has identified four broad organizational categories that can benefit from transformational outsourcing. Startups 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."

It is not uncommon in many companies for tactical planners to use computer models to optimize the supply chain -- while, in a completely separate activity, senior managers formulate strategy. The endeavors are understandably separate as they differ fundamentally in nature. But today, the author posits, a few leading organizations are discovering the benefits of having the tactical planners in close communication with the big-picture strategists early on. A new approach called strategic supply-chain planning can ensure that critical supply-chain details inform a company's business strategy and that supply-chain management aligns with the strategic direction -- a synergy companies could benefit from at any time but is often most urgently needed after mergers or acquisitions. Companies routinely weigh long-term supply-chain-related decisions in light of alternative sources of supply, new geographic markets or new products, but tactical managers think about the issues differently than strategic managers. According to the author, a step-by-step approach can leverage the best of both worlds, and his research suggests how to combine the strategist's scenario planning with the tactical planner's optimization modeling while avoiding the downsides of each approach. As long as the two teams work together, he says, strategic supply-chain planning can improve a company's competitiveness.

Some observers see outsourcing as a key trend (perhaps even the key trend) shaping the future of human resources (HR). They envision HR departments focused entirely on strategic activities, leaving all the transactional and administrative activities to vendors. But, the author cautions that outsourcing any business activity creates potential risks as well as benefits: Companies can find themselves overly dependent on suppliers, and they can lose strength in strategically core competencies. Given the importance of the outsourcing decision and the amount of academic and practitioner literature on it, there is surprisingly little consensus about the topic, says the author, probably because of the multiplicity and complexity of the factors involved. The author synthesizes the strongest of the available research and identifies the six key factors that companies should consider when making important outsourcing decisions. The framework, which helps assess the pros and cons of outsourcing, can be applied specifically to HR functions. In particular, it can help explicate the managerial issues of outsourcing agreements such as the recent landmark deal between BP and Exult Inc. That $600 million, seven-year arrangement provides a window into the many opportunities -- and complexities -- of HR outsourcing.

Over the last decade, supply-chain-management concepts have sparked a boom in internal cross-business coordination. But although definitions have broadened and shifted, many executives believe that the field is mainly about installing IT systems for streamlined processes. Wrong, say two researchers from Dartmouth’s Tuck School of Business. Their data on companies that lead in supply-chain management illuminate six ways it spurs more-creative thinking on growing a business. The researchers predict that current trends toward restructured supply networks and improved coordination will continue, with more supplier integration and a proliferation of product customization, business complexity and uniquely defined customer relationships. But supply-chain management also will affect industry structure in new ways. Companies in the middle of the supply chain & #8212; contract manufacturers, logistics-service providers and distributors & #8212; will redefine themselves. Also, rebranding and repositioning will occur. Companies across the chain will vie for control of the customer relationship and will find that when value propositions derive from supply-chain capabilities, new cobranding and copositioning strategies are critical. When executives look back after another decade, they’ll understand that supply-chain management, having shifted business focus in its first 10 years, created an opportunity for the second 10 years to redefine the competitive landscape.

When it comes to thinking about scale, the assumption of corporate leaders since Henry Ford’s day has been that bigger is better. And in many situations, such thinking is inarguably correct because of the cost efficiencies that size provides. But sometimes efficiencies can mask opportunities. In their research, the authors found that small-scale operations provide significant advantages in four areas. They allow companies to locate hot spots and tap into local knowledge networks; they make it possible to respond more rapidly to customer needs and to trends in regional demand; they enable companies to monitor potentially disruptive technologies; and they help hold down labor costs while developing managerial talent. Using case studies, the authors illustrate how companies in a wide variety of industries have found the hidden benefits of small-scale approaches to corporate needs. They conclude that executives who develop a deeper understanding of scale and learn when it is better to think small can have a potentially huge impact on their companies’ long-term success.

A framework for gaining a clearer understanding of customer preferences.

Why do your customers choose to buy from you rather than from your competition? For the past three years, marketing professors Mark Vandenbosch and Niraj Dawar have posed that question to more than 1,500 senior executives in interviews and group discussions. And despite the vast range of industries represented by the executives they probed, the responses they got were remarkably similar. The executives agreed almost universally that offering great products, technologies or services is merely the entry stake into the competitive arena. Most spoke of the need to maintain an edge in the way their companies interact with customers; that is, they recognized that customers often value how they interact with their suppliers as much or more than what they actually buy. As the main drivers of customer choice, the executives cited cost-oriented factors such as convenience, ease of doing business, product support and risk-oriented factors such as trust, confidence and the strength of relationships. Strategies built around reducing customers’ interaction costs and risk are strategies that offer a systematic way to tap into new sources of customer value while avoiding the often futile attempt to compete on product innovation. The authors illustrate five different strategies that some companies are using to build a sustainable advantage through their approach to customers. These strategies are not easy to devise or implement; they require creativity, imagination, hard work and a willingness to take risks. But as the examples in this article demonstrate, the rewards are more than worth the effort.

When companies first plunged into e-commerce, they thought success meant cutting out middlemen. That approach didn’t work, in part because e-businesses misunderstood the role of intermediaries. Middlemen are not costly, necessary evils. They solve problems for customers and, in so doing, they enable sales and create value for producers. INSEAD’s Philip Anderson and Erin Anderson show how intermediaries are helping smart companies realize the promise of the Web. They explain intermediaries’ nine ways of adding value, suggesting that three will change, three will survive in a new form, and three (reducing uncertainty about quality, preserving customer anonymity and tailoring offerings to customer needs) present growth opportunities. Middlemen can co-opt the Internet by offering services that would be too difficult for individual producers to provide. However, the authors caution, intermediaries must be open to new ways of doing business with suppliers and vice versa. The Web transforms but does not eliminate the advantages of the middleman’s central lookout position. But what was once thought of as a straight distribution channel from supplier through middleman to customer is now more accurately described as a service hub. The player that takes the customer order & #8212; possibly a Web site & #8212; occupies the center and interacts with many partners. The authors specify appropriate, fair incentives (for example, because Ethan Allen has quasi-independent furniture stores that customers browse before buying directly from the manufacturer’s Web site, the company automatically gives the nearest retailer a 10% tip). And they describe service-hub management that will generate enough trust to permit producers to get closer to customers & #8212; indirectly.