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In today's competitive and volatile business environment, depending on forecasting as the basis for planning and strategy has become a particularly risky way to operate. Especially vulnerable are manufacturing projects that are locked into early-stage decision-making and rigid development cycles and can't respond in mid-project to changing customer needs.
But there's a solution to this dilemma, according to HBS assistant professor Stefan H. Thomke and Donald G. Reinertsen (MBA '79) of Reinertsen & Associates in California. In a working paper titled "Agile Product Development: Managing Development Flexibility in Uncertain Environments," the authors assert that increasing flexibility during the product development cycle can enable a firm to adjust to unanticipated circumstances so opportunely and cost effectively that the need for high-accuracy, product-requirement forecasts is substantially lessened.
Thomke and Reinertsen, while studying several hundred development projects in the fast-paced integrated circuit (IC) design industry, focused on the efficacy of two production technologies. One technology had low flexibility, meaning that any mid-process alterations to the product prototype would have meant costly and time-consuming changes. In contrast, the second technology could adapt much more readily to design changes, including late-stage customer requests, thus allowing designers greater latitude and risk-taking - in short, high flexibility.
In light of their research, Thomke and Reinertsen suggest that many managers need to think much more precisely about product development flexibility. The authors note that flexibility is not some vague, general property but rather the ability to react easily to specific changes in the environment. Managers should only invest in flexibility where the likelihood of future changes makes this valuable.
The authors identify three general ways managers can increase flexibility in product development. First, they should consider adopting inherently flexible tech- nologies. By combining rapid prototyping technology with some of the latest computer-aided tools, managers can dramatically lower the time and cost of changes. Second, they should review management processes. Many companies cannot exploit these new technologies because their management approaches are optimized for older technologies. Finally, managers should examine the issue of product architecture. Careful attention to modularity and intermodule coupling can dramatically lower the cost of change.
Chinese Corporate Culture
As China moves from a planned to a market-oriented economy, the success of Chinese firms will depend to a great extent on the values of their managers and the organizational culture they create. In their working paper, "Chinese Corporate Culture, Market Orientation, Innovation, and Firm Performance," HBS professor Rohit DeshpandŽ and John U. Farley, a professor at both the China-Europe International Business School in Shanghai and Dartmouth's Tuck School, argue that Chinese enterprises are characterized by a unique organizational culture and climate.
The authors classified corporate culture according to four types: entrepreneurial, bureaucratic, consensual (emphasizing loyalty and tradition), and competitive (focused on market superiority). They discovered that Chinese firms "show a unique combination of bureaucracy and entrepreneurialism." In contrast, say the authors, their earlier studies of firms based in Thailand and Japan showed that Japanese firms tend to be both consensual and competitive, while Thai firms combine bureaucracy and consensualism.
Deshpande and Farley assert that their study of Chinese companies, based on interviews with one hundred senior managers at Chinese companies headquartered in Shanghai, supports the conclusion that there is a "universal model" for successful business organizations. The authors analyzed the companies in the top-performing quartile of their sample and discovered that "the better performers follow a pattern that we have found elsewhere in the industrial and industrializing world: successful firms are innovative and market-oriented and have cultures and decision-making climates that are externally oriented." The lesson for managers, the authors say, is that instead of adapting their management practices to local norms, multinational firms should strive to create the kind of organizational contexts universally associated with high performance.
The study included both state-owned enterprises and joint ventures and found that the latter group was consistently more innovative and market-oriented, and had a more competitive corporate culture. "One hope," the authors write, "is that through the introduction of appropriate foreign management techniques, joint ventures will help move Chinese management to a more market-oriented outlook, with improved organization and ultimately improved performance."
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