Understanding Fire Fighting in New Product Development

Despite documented benefits, the processes described in the new product development literature often prove difficult to follow in practice. A principal source of such difficulties is the phenomenon of fire fighting the unplanned allocation of resources to fix problems discovered late in a product's development cycle. While it has been widely criticized, fire fighting is a common occurrence in many product development organizations. To understand both its existence and persistence, in this article I develop a formal model of fire fighting in a multi-project development environment. The major contributions of this analysis are to suggest that: (1) fire fighting can be a self-reinforcing phenomenon; and (2) multi-project development systems are far more susceptible to this dynamic than is currently appreciated. These insights suggest that many of the current methods for aggregate resource and product portfolio planning, while necessary, are not sufficient to prevent fire fighting and the consequent low performance.MIT Center for Innovation in Product Development under NSF Cooperative Agreement Number EEC-9529140, the Harley-Davidson Motor Company and the Ford Motor Compan

Meanings, Measures, Maps, and Models: Understanding the Mechanisms of Continuous Change

There is now considerable controversy concerning the role that incremental change plays in the process of organizational transformation. Some scholars assert that incremental change is the primary source of resistance to more radical re-orientations, while others argue that on occasion, ongoing incremental change can produce dramatic transformation. To help reconcile these competing perspectives, in this paper I report the results of an inductive study of one firm's successful attempt to improve continuously and incrementally its core manufacturing process. The principal results of this effort are: (1) to challenge the current view of the source of change in process-oriented improvement initiatives; and (2) to offer an alternative characterization of the mechanisms through which competence-enhancing, incremental change actually occurs. The theory emerging from this analysis provides one path to resolving the dilemma posed by incremental change processes that can, on occasion, produce organizational transformation, but more often limit the organization's ability to adapt to its environment.MIT Center for Innovation in Product Development under NSF Cooperative Agreement Number EEC-952914

Why Firefighting Is Never Enough: Preserving High-Quality Product Development

Understanding the wide range of outcomes achieved by firms trying to implement TQM and similar process improvement initiatives presents a challenge to management science and organization theory: a few firms reap sustained benefits from their programs, but most efforts fail and are abandoned. A defining feature of such techniques is the reliance on the front-line workforce to do the work of improvement, thus creating the possibility of agency problems; different incentives facing managers and workers. Specifically, successfully improving productivity can lead to lay-offs. The literature provides two opposing theories of how agency interacts with the ability of quality-oriented improvement techniques to dramaticlly increase productivity. The 'Drive Out Fear' school argues that firms must commit to job security, while the 'Drive In Fear' school emphasizes the positive role that insecurity plays in motivating change. In this study a contract theoretic model is developed to analyze the role of agency in process improvement. The main insight of the study is that there are two types of job security, internal and external, that have opposite impacts on the firm's abilty to implement improvement initiatives. The distinction is useful in explaining the results of different case studies and can reconcile the two change theories.National Science Foundation, grant SBR-9422228, the Ford Motor Company and the Harley-Davidson Motor Company. MIT Sloan School of Management, Center for Innovation in Product Developmen

Why Firefighting Is Never Enough: Preserving High-Quality Product

In this paper, we add to insights already developed in single-project models about insufficient resource allocation and the "firefighting" and last-minute rework that often result by asking why dysfunctional resource allocation persists from project to project. We draw on data collected from a field site concerned about its new product development process and its quality of output to construct a simple model that portrays resource allocation in a multi-project development environment. The main insight of the analysis is that under-allocating resources to the early phases of a given project in a multi-project environment can create a vicious cycle of increasing error rates, overworked engineers, and declining performance in all future projects. Policy analysis begins with those that were under consideration by the organization described in our data set. Those policies turn out to offer relatively low leverage in offsetting the problem. We then test a sequence of new policies, each designed to reveal a different feature of the system's structure and conclude with a strategy that we believe can significantly offset the dysfunctional dynamics we discuss. The paper concludes with a discussion of the challenges managers may face in implementing the strategy that can prevent persistent under-allocation of resources to projects.MIT Center for Innovation in Product Development under NSF Cooperative Agreement Number EEC-952914

Capability erosion dynamics

The notion of capability is widely invoked to explain differences in organizational performance, and research shows that strategically relevant capabilities can be both built and lost. However, while capability development is widely studied, capability erosion has not been integrated into our understanding of performance heterogeneity. To understand erosion, we study two software development organizations that experienced diverging capability trajectories despite similar organizational and technological settings. Building a simulation-based theory, we identify the adaptation trap, a mechanism through which managerial learning can lead to capability erosion: well-intentioned efforts by managers to search locally for the optimal workload balance lead them to systematically overload their organization and, thereby, cause capabilities to erode. The analysis of our model informs when capability erosion is likely and strategically relevant

Making the Numbers? “Short Termism” and the Puzzle of Only Occasional Disaster

Recent work suggests that an excessive focus on "managing the numbers"- delivering quarterly earnings at the expense of longer-term performance-makes it difficult for firms to make the investments necessary to build competitive advantage. "Short termism" has been blamed for everything from the decline of the U.S. Automobile industry to the low penetration of techniques such as total quality management and continuous improvement. Yet a significant body of research suggests that firms that sacrifice longterm investment to manage earnings are often rewarded for doing so. This paper presents a model to help reconcile the tension between these apparently contradictory perspectives. We show that if the source of long-term advantage is modeled as a stock of capability that accumulates over time, the intensity of the firm's effort to manage short-term earnings at the expense of long-term investment can have very different consequences depending on whether the firm's capability is close to a critical "tipping threshold." When the firm operates above this threshold, aggressively managing earnings smooths revenue and cash flow with few long-term consequences. Below it, managing earnings can tip the firm into a vicious cycle of accelerating decline. Our results have important implications for understanding managerial incentives and the internal processes that create sustained advantage. Keywords: capability; short-termism; system dynamics; tipping point; resource allocatio

Drive Out Fear (Unless You Can Drive It In):The role of agency and job security in process improvement

Understanding the wide range of outcomes achieved by firms trying to implement TQM and similar process improvement initiatives presents a challenge to management science and organization theory: a few firms reap sustained benefits from their programs, but most efforts fail and are abandoned. A defining feature of such techniques is the reliance on the front-line workforce to do the work of improvement, thus creating the possibility of agency problems; different incentives facing managers and workers. Specifically, successfully improving productivity can lead to lay-offs. The literature provides two opposing theories of how agency interacts with the ability of quality-oriented improvement techniques to dramaticlly increase productivity. The 'Drive Out Fear' school argues that firms must commit to job security, while the 'Drive In Fear' school emphasizes the positive role that insecurity plays in motivating change. In this study a contract theoretic model is developed to analyze the role of agency in process improvement. The main insight of the study is that there are two types of job security, internal and external, that have opposite impacts on the firm's abilty to implement improvement initiatives. The distinction is useful in explaining the results of different case studies and can reconcile the two change theories.National Science Foundation, grant SBR-9422228, the Ford Motor Company and the Harley-Davidson Motor Compan

A Simulation-Based Approach to Understanding the Dynamics of Innovation Implementation

The history of management practice is filled with innovations that failed to live up to the promise suggested by their early success. A paradox facing organization theory is that the failure of these innovations often cannot be attributed to an intrinsic lack of efficacy. To resolve this paradox, in this paper I study the process of innovation implementation. Working from existing theoretical frameworks, I synthesize a model that describes the process through which participants in an organization develop commitment to using a newly adopted innovation. I then translate that framework into a formal model and analyze it using computer simulation. The analysis suggests three new constructs—reversion, regeneration and the motivation threshold—characterizing the dynamics of implementation. Taken together, these constructs offer an alternative explanation for the paradox of innovations that produce early results but fail to find a permanent home in the organizations that adopt them

Making the Numbers? "Short Termism" & the Puzzle of Only Occasional Disaster

Much recent work in strategy and popular discussion suggests that an excessive focus on “managing the numbers” ―delivering quarterly earnings at the expense of longer term investments―makes it difficult for firms to make the investments necessary to build competitive advantage. “Short termism” has been blamed for everything from the decline of the US automobile industry to the low penetration of techniques such as TQM and continuous improvement. Yet a vigorous tradition in the accounting literature establishes that firms routinely sacrifice long-term investment to manage earnings and are rewarded for doing so. This paper presents a model that reconciles these apparently contradictory perspectives. We show that if the source of long-term advantage is modeled as a stock of capability that accumulates over time, a firm’s proclivity to manage short-term earnings at the expense of long-term investment can have very different consequences depending on whether the firm’s capability is close to a critical “tipping threshold”. When the firm operates above this threshold, managing earnings smoothes revenue and cash flow with few long-term consequences. Below it, managing earnings can tip the firm into a vicious cycle of accelerating decline. Our results have important implications for understanding managerial incentives and the internal processes that create sustained advantage

Making the Numbers? "Short Termism” & the Puzzle of Only Occasional Disaster

Much recent work in strategy and popular discussion suggests that an excessive focus on “managing the numbers” --delivering quarterly earnings at the expense of longer term investments--makes it difficult for firms to make the investments necessary to build competitive advantage. “Short termism” has been blamed for everything from the decline of the US automobile industry to the low penetration of techniques such as TQM and continuous improvement. Yet a vigorous tradition in the accounting literature establishes that firms routinely sacrifice long-term investment to manage earnings and are rewarded for doing so. This paper presents a model that can reconcile these apparently contradictory perspectives. We show that if the source of long-term advantage is modeled as a stock of capability that accumulates gradually over time, a firm’s proclivity to manage short-term earnings at the expense of long-term investment can have very different consequences depending on whether the firm’s capability is close to a critical “tipping threshold”. When the firm operates above this threshold, managing earnings smoothes revenue with few long-term consequences. Below it, managing earnings can tip the firm into a vicious cycle of accelerating decline. Our results have important implications for understanding managerial incentives and the internal processes that lead to sustained advantage.