Managing in the New World Economy

The end of the twentieth century ushered in what came to be called the New World Economy, which combined increasing globalization advances in information technology and new forms of corporate organization in ways that redefined the role of operations management. None of these aspects were novel by themselves of course. Business has been international since nations were first created and traded among themselves and international corporations date from the trading companies of the Middle Ages. Similarly modern information technology has been progressing rapidly since the development of the computer in the mid-twentieth century in fact, since the telegraph a hundred years earlier. And companies have been experimenting with different forms of organization for hundreds of years. What made the New World Economy different however was the way the newest forms of all three intertwined in complex ways to create whole new industries and approaches to business.

Three factors made the New Economy’s form of globalization different from that which existed before:

The collapse of the Soviet empire in the late 1980s led to a repudiation of state controlled central planning around the world. This failure, when contrasted with the success of Japan and other East Asian countries that had adopted various forms of market capitalism eventually led more than half the world’s population to enter the global market economy during the last fifteen years of the twentieth century. In addition to Russia and Eastern Europe, China, India and several Latin American   countries opened up their borders to foreign commerce.

Advances in information technology and corporate organization made managing foreign operations much easier than ever before. This particularly applied to global sourcing.

Companies combined the power of Information Technology (IT) with an increased willingness to outsource operations to create novel types of partnerships with customers, suppliers, and even competitors. These networks interacted in synergistic and self-supporting ways, and rapidly became global in scope as managers recognized that countries they earlier had dismissed as developing were fully capable of mastering the latest advances in information and process technology.

Indeed, many companies found that these developing countries, which previously had tended to focus on making components and relatively low value added products, were now becoming tough competitors in high-tech products. Ironically they often found it easier to train workers who had little previous industrial experience in the skills and discipline required by TQM and lean production than it was to persuade their own older experienced workers to adopt these same techniques. Again and again, visitors to factories in China, Mexico, and Southeast Asia expressed astonishment at the speed with which their workers were able to master the most advanced approaches to production management.  In the early 1990s for example, the Cummins Engine Company’s factory in San Luis Potosi, Mexico was judged to be the most successful adopter – in a worldwide network of more than fifty plants of the new  production system that the company had encouraged all its plants to utilize. Similarly one of the top rated factories in HP Compaq’s worldwide network was in Penang, Malaysia.

In addition to the problems they faced in traditional products and services managers increasingly struggled to introduce and manage new, information intensive products. As the New World Economy expanded its reach they discovered that many of the principles and methodologies that had proven successful in traditional industries no longer seemed effective in this new context. Partly, this was due   to the new opportunities and challenges associated with doing business in new environments. More importantly, though it was due to the very different assumptions and characteristics of information intensive operations. Although some familiar operations management concepts and techniques continued to be applicable to such operations, many were not. In fact, in some important areas those traditional approaches appeared to be almost 180 degrees of course. There are important differences between the old and new economies and their implications for operations management teaching and research.

The bulk of these differences arise out of fact that many of the basic assumptions that managers and academics tend to make when thinking about managing operations are inappropriate for information intensive operations.  Unfortunately these assumptions are so deeply embedded in traditional thought processes that the people involved in operations seldom are even aware of how fundamentally they influence the way they look at the world (it is said that the last thing a fish discovers is water) and define their domain. By domain we refer to the kinds of problems that interest them and the tools they feel need to be mastered in order to address those problems.

The organizational unit of analysis is an operating unit (e.g. a factory, a company or a division / business unit within a company) Most introductory OM courses emphasize problems that occur within relatively small organizational units. The rationale is that within such a bounded organization a manager can exercise control that is, make decisions and directly oversee their implementation. As one result of this instinctive desire to control operations, almost invariably the default mode is a decision to do something yourself within the organizational unit rather than involve organizations and people outside your control.

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