Harvard Business Review on Managing the Value Chain (a Harvard Business Review Paperback)

Overview

As technology and globalization have disrupted traditional operations along the supply chain, the relationship between suppliers, customers, and competitors has changed dramatically. Examining this issue from several strategic perspectives, this collection of essays outlines key ideas and provides guidance for incorporating shifts in the value chain into your strategic outlook.
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Overview

As technology and globalization have disrupted traditional operations along the supply chain, the relationship between suppliers, customers, and competitors has changed dramatically. Examining this issue from several strategic perspectives, this collection of essays outlines key ideas and provides guidance for incorporating shifts in the value chain into your strategic outlook.
Read More Show Less

Product Details

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Chapter 1: Managing in an Age of Modularity

A Solution to Growing Complexity

The popular and business presses have made much of the awesome power of computer technology. Storage capacities and processing speeds have skyrocketed while costs have remained the same or have fallen. These improvements have depended on enormous growth in the complexity of the product. The modern computer is a bewildering array of elements working in concert, evolving rapidly in precise and elaborate ways.

Modularity has enabled companies to handle this increasingly complex technology. By breaking up a product into subsystems, or modules, designers, producers, and users have gained enormous flexibility. Different companies can take responsibility for separate modules and be confident that a reliable product will arise from their collective efforts.

The first modular computer, the System/360, which IBM announced in 1964, effectively illustrates this approach. The designs of previous models from IBM and other mainframe manufacturers were unique; each had its own operating system, processor, peripherals, and application software. Every time a manufacturer introduced a new computer system to take advantage of improved technology, it had to develop software and components specifically for that system while continuing to maintain those for the previous systems. When end users switched to new machines, they had to rewrite all their existing programs, and they ran the risk of losing critical data if software conversions were botched. As a result, many customers were reluctant to lease or purchase new equipment.

The developers of the System/360 attacked that problem head-on. They conceivedof a family of computers that would include machines of different sizes suitable for different applications, all of which would use the same instruction set and could share peripherals. To achieve this compatibility, they applied the principle of modularity in design: that is, the System/360's designers divided the designs of the processors and peripherals into visible and hidden information. IBM set up a Central Processor Control Office, which established and enforced the visible overall design rules that determined how the different modules of the machine would work together. The dozens of design teams scattered around the world had to adhere absolutely to these rules. But each team had full control over the hidden elements of design in its module-those elements that had no effect on other modules. (See "A Guide to Modularity" at the end of this article.)

When IBM employed this approach and also made the new systems compatible with existing software (by adding "emulator" modules), the result was a huge commercial and financial success for the company and its customers. Many of IBM's mainframe rivals were forced to abandon the market or seek niches focused on customers with highly specialized needs. But modularity also undermined IBM's dominance in the long run, as new companies produced their own so-called plug-compatible modules-printers, terminals, memory, software, and eventually even the central processing units themselves-that were compatible with, and could plug right into, the IBM machines. By following IBM's design rules but specializing in a particular area, an upstart company could often produce a module that was better than the ones IBM was making internally. Ultimately, the dynamic, innovative industry that has grown up around these modules developed entirely new kinds of computer systems that have taken away most of the mainframe's market share.

The fact that different companies (and different units of IBM) were working independently on modules enormously boosted the rate of innovation. By concentrating on a single module, each unit or company could push deeper into its workings. Having many companies focus on the design of a given module fostered numerous, parallel experiments. The module designers were free to try out a wide range of approaches as long as they obeyed the design rules ensuring that the modules would fit together. For an industry like computers, in which technological...

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Table of Contents

Managing in an Age of Modularity 1
Fast, Global, and Entrepreneurial: Supply Chain Management, Hong Kong Style: An Interview with Victor Fung 29
How Chrysler Created an American Keiretsu 61
The Power of Trust in Manufacturer-Retailer Relationships 91
What is the Right Supply Chain for Your Product? 127
Make Your Dealers Your Partners 155
From Value Chain to Value Constellation: Designing Interactive Strategy 185
From Lean Production to the Learn Enterprise 221
About the Contributors 251
Index 257
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