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Optimization Techniques and New Management Tools
2-1 2-2 2-3 2-4 2-5 Methods of Expressing Economic Relationships Total, Average, and Marginal Relationships • Total, Average, and Marginal Cost • Geometric Derivation of the Average- and Marginal-Cost Curves
Optimization Analysis • Profit Maximization by the Total-Revenue and Total-Cost Approach
• Optimization by Marginal Analysis • Case Study 2-1: Optimal Pollution Control
Constrained Optimization • Case Study 2-2: Pursuing Multiple Objectives under Constraints by Global Corporations New Management Tools for Optimization • Benchmarking • Total Quality Management • Case Study 2- 3: Benchmarking atXerox, Ford, and Mobil • Reengineering • Case Study 2-4: Total Quality Management in the Real World • Case Study 2-5: Reengineering at GE • The Learning Organization • Case Study 2-6: Applying Learning-Organization Principles at Ford
and Southwest Airlines
Other Management Tools for Optimization New Management Tools and Functional Specialization • Case Study 2-7: The Indian Business Model • Case Study 2-8: Enron Fallout in India-Governance Rules Fail
Summary • Problems Supplementary Readings • Internet Site Addresses
Marginal cost Marginal revenue Marginal analysis Constrained optimization Benchmarking Total quality management (TQM)
(in the order of their appearance)
Reengineering Learning organization Broadbanding Direct business model Networking Performance management
Pricing power Process management Small-world model Strategic development Virtual integration Virtual management
nChapter 1, we defined managerial economics as the application of economic theory and the tools of decision science to examine how an organization can achieve its aims and objectives most efficiently. In the case of a business firm, the objective is usually to maximize profits or the value of the firm or to minimize costs, subject to some constraints. Accordingly, in this chapter we present optimization techniques, or methods for maximizing or minimizing the objective function of a firm or other organization. These techniques are very important and will be used frequently in the rest of the text. In this chapter we also describe many of the new management tools that have been introduced during the past two decades and examine how they are revolutionizing the way firms are managed. The first step in presenting optimization techniques is to examine ways to express economic relationships. This is done in Section 2-1. In Section 2-2, we examine the relationship between total, average, and marginal concepts and measures, such as revenue, product, cost, or profit. Section 2-3 examines the process of unconstrained optimization and Section 2-4 the process of constrained optimization by the firm. Section 2-5 then discusses many of the new management tools that are revolutionizing the way firms are managed, Section 2-6 presents some other management tools or ideas for optimization, while Section 2-7 examines their relationship to the traditional functional areas of managerial economics. In the text, more advanced material utilizing calculus is presented only in footnotes and appendices. At the end of the chapter, there is an extensive integrating real-world case study, which illustrates, integrates, and shows the relationship among the various concepts presented in this chapter and in Chapter 1.
METHODS OF EXPRESSING ECONOMIC RELATIONSHIPS
Economic relationships can be expressed in the form of equations, tables, or graphs. When the relationship is simple, a table and/or graph may be sufficient. When the relationship is complex, however, expressing the relationship in equational form may be necessary.
Optimization Techniques and New Management Tools
The Total-Revenue Schedule of the Firm 100Q - 10Q2 100(0) - 10(0)2 100(1) - 10(1)2 100(2) - 10(2)2 100(3) - 10(3i 100(4) - 10(4]2 100(5) - 10(5)2 100(6) - 10(6)2 TR $ 0
160 210 240 250 240
2 3 4 5 6
For example, suppose that the relationship between the total revenue (TR) of a firm and the quantity (Q) of the good or service that the firm sells over a given period of time, say, one year, is given by
TR = lOOQ - lOQ2
By substituting into Equation 2-1 various hypothetical values for the quantity sold, we generate the total-revenue schedule of the firm, shown in Table 2-1. Plotting the TR schedule of Table 2-1, we get the TR curve in Figure 2-1. Note that the TR curve in Figure 2-1 rises up to Q = 5 and declines thereafter. Thus, we see that the relationship between the total revenue of the firm and its sales volume can be expressed in equational, tabular, or graphical form.
TR ($) E 250 240 210 TR
1 2 3 4 5 6 Q FIGURE 2-1 The Total Revenue Curve of a Firm The total-revenue curve shows the total revenue (TR) of the firm at each quantity sold (Q). It is obtained by plotting the total-revenue schedule ofTable 2-1. Note that TR rises to Q = 5 and declines thereafter.
and marginal concepts and measures is crucial in optimization analysis. which are given and fixed whether the firm produces or not. For example. That is. AC = Tc/2 = $160/2 = $80. average. average. MC (in the last column of the table) is obtained by subtracting successive values of TC shown in the second column of the table. 2 The reason that the total cost is positive when output is zero is that the firm incurs some costs in the short run. average. . and then we show how average. Marginal cost (Me).Q. Note that. This.Tc/t:. cost. we are interested only in the relationship between total. MC = $120. from which the average. Note that AC first falls and then rises.? Average cost (Ae) equals total cost divided by output. as exemplified by the relationship between total. TC increases from $140 to $160.and marginal-cost curves are derived geometrically from the total-cost curve. AND MARGINAL RELATIONSHIPS The relationship between total. product. as for the case of AC. At this point. or profit.44 PART ONE Introduction 2-2 TOTAL. and profit will be examined in Problems I to 6 at the end of the chapter. we examine the relationship between total. Average. The theory of cost will be examined in detail in Chapter 7. That is. At Q = 2. Thus. and marginal costs." Since output increases by 1 unit at a time in column 1 of Table 2-2. and marginal cost. product.(delta) refers to "a change in. at Q = 1. MC also falls first and then rises. Total. In what follows. together with the revenue concepts examined in the previous section. on the other hand. and marginal concepts and measures in general. TC increases from $20 to $140 when the firm produces the first unit of output.and marginal-cost schedules are derived (columns 3 and 4 of the table). average. and marginal revenue. will be utilized in the next section to show how a firm maximizes profits (a most important example of optimizing behavior on the part of the firm). Total. Note that the total cost (Te) of the firm is $20 when output (Q) is zero and rises as the output increases. average cost. such as rent on buildings during the life of the contract. and so on (see the third column of Table 2-2). AC = TCIl = $14011 = $140. For an increase in output from 1 to 2 units. and Marginal Q Costs of a Firm TC $ 20 140 160 180 240 480 AC MC 0 I $140 80 60 60 96 $120 20 20 60 240 2 3 4 5 I The relationship between total. where the symbol t:. and Marginal Cost The first two columns of Table 2-2 present a hypothetical total-cost schedule of a firm. Average. and so on. MC = t:. I In the following section. equals the change in total cost per unit change in output. so that MC = $20. and marginal cost. we examine the relationship between total cost. average. AVERAGE. AC = TCIQ. This relationship is basically the same whether we deal with revenue. Thus.
When MC is less than AC.CHAPTER2 Optimization Techniques and New Management Tools 45 Plotting the total-. . when MC is larger than AC.5Q in the bottom panel of Figure 2-2. The shape of the TC curve (in the top panel) is explained in Chapter 7. AC falls. MC is given by the slope of the TC curve. Note that the MC curve is also U-shaped but reaches the TC ($) 240 I I I I iT TC (203) lS0 160 140 120 / / / I I. which results from increasing output from OQ to lQ in Table 2-2.. Since marginal cost is defined as the change in total cost per unit change in output. N I ~. and marginal-cost schedules of Table 2-2 gives the corresponding cost curves shown in Figure 2-2. AC rises. the MC of $120. Thus.5) and rises thereafter.5) 4 a so AC 5S!2. Thus. 1 2 3 (3. MC = AC at lowest AC. average-.. I ~ I I . I 60 I _ Ii } l/ I I I 20 o o AC.~ 40 20 15- I\ I ---. is plotted at 0. AC falls to point K (Q = 3. the MC of $20. MC falls to point B (the point of inflection at Q = 2) and then rises. MC ($) 140 120 I ". Average·. and so on.-r"'""= n T "4'rv I •••••• o o 1 2 3 (3.. and Marginal-Cost Curves and Their Relationship AC is given by the slope of a ray from the origin to the TC curve. is plotted at 1.5) 4 a FIGURE 2-2 Total-. which results from increasing output from 1Q to 2Q. Note that the AC curve (in the bottom panel) is V-shaped.5Q. Thus. the MC values of Table 2-2 are plotted (as an approximation) halfway between successive levels of output in the bottom panel of Figure 2-2.
For example. AC is minimum at point K on the TC curve and is given by the slope of ray OK. and D* in the bottom panel. Geometric Derivation of the Average. The AC for both points C and D on the TC curve is given by the slope of ray OCD. The bottom panel of Figure 2-2 shows an important relationship between the AC and MC curves. From the TC curve we can also derive geometrically the MC curve. C'. The AC corresponding to any point on the TC curve is given by the slope of a ray from the origin to the point on the TC curve. respectively. at point K is equal to the slope of the ray from the origin to point K on the TC curve. C*. it goes through) the lowest point of the AC curve. Note also that the slope of the TC curve. B*.5] and is plotted as point H* in the bottom panel.. B'. C. K'. or $140/1 = $140 (point H' in the bottom panel). K'. The MC curve corresponding to any point on the TC curve is given by the slope of the tangent HN to the TC curve at that point. For example. or MC. When AC is neither falling nor rising (i. By joining points H'. or $160/2 = $80 (point B' in the bottom panel). the AC corresponding to point H on the TC curve in the top panel is given by the slope of ray OH. or $180/3 = $240/4 = $60 (points C' and D'. is $15. With a lower grade on the next test. the MC curve in the bottom panel falls to point B* (at Q = 2) and then rises. and is plotted as points B*.46 PARTONE Introduction lowest point at a smaller level of output than the AC curve. Thus. In the next section. and $120.and Marginal-Cost Curves The AC and MC curves in the bottom panel of Figure 2-2 can be derived geometrically from the TC curve in the top panel. Note that the slope of a ray from the origin to the TC curve in the top panel falls to point K and then rises. respectively. K'. or AC Since this is the lowest AC. For example.5) and then rises. That is.5 = $58 (point K' in the bottom panel). Thus.e. K. we will show how the concept of the margin is crucial in determining the optimal behavior of the firm. Note that the slope of the TC curve in the top panel declines to point B (the inflection point) and rises thereafter.140)/0. $58. the AC curve in the bottom panel falls to point K' (at Q = 3. If the grade on the next test equals the previous average. The slope of the tangent (not shown) to the TC curve at points B. and when the MC curve is above the AC curve. MC = AC at the lowest point on the AC curve (see Figure 2-2). the MC curve intersects the AC curve from below. the AC curve rises. or MC. we generate the MC curve corresponding to the TC curve in the top panel. we generate the AC curve corresponding to the TC curve in the top panel. is $80 [from ($180 . the student's average will fall. Marginal revenue and marginal profit are similarly defined (as the change in total revenue and total profit. for a student to increase his or her cumulative average test score. . or MC. the slope of the tangent to the TC curve at point H in the top panel. By joining points H*. This is always the case (for the reason explained next). and AC = MC This makes sense. $40. per unit change in sales or output) and are equally important. and it intercepts (i. or $203/3. the AC curve falls. in the bottom panel). These correspond to the AC values shown in Table 2-2. respectively. as long as the MC curve is below the AC curve. In this section we have dealt only with marginal cost. and D. The AC corresponding to point B on the TC curve is given by the slope of ray OB. and D* in the bottom panel.e. and D' in the bottom panel.. he or she must receive a grade on the next (marginal) test that exceeds his or her average. the average will remain unchanged. C*. at the point where the AC is at its minimum).
a H" FIGURE 2-3 Profit Maximization as an Example of Optimization The firm maximizes total profit at Q = 3. Total profit (n) is the difference between total revenue and total cost. . 1. and the it function is at its highest point. the TR curve is that of Figure 2-1 and the TC curve is that of Figure 2-2. with which we are primarily concerned. Profit Maximization by the Total-Revenue and Total-Cost Approach In the top panel of Figure 2-3. where the positive difference between TR and TC is greatest. That is. MR = MC. ($) 250 240 TC E TR 210 180 160 140 120 90 80 60 50 20 15 0 3. I 1 1 I 41 I 1 MR a n ($~ 30 0 -20 -50 I Ie' 1 I 10" 3 . We will start by using the total-revenue and total-cost curves of the previous sections in order to set the stage for the subsequent marginal analysis.CHAPTER 2 Optimization Techniques and New Management Tools 47 ~ OPTIMIZATION ANALYSIS Optimization analysis can best be explained by examining the process by which a firm determines the output level at which it maximizes total profits.
Thus. but TC = $20. cost minimization. the slope of the TR curve or MR equals the slope of the TC curve or MC. 1t = $90 . Therefore. marginal analysis is one of the most important concepts in managerial economics in general and in optimization analysis in particular. TR = 0. and total profits would be less.48 PARTONE Introduction 1t = TR . Although the example discussed here involves profit maximization. In Figure 2-3. Total profit is greatest at Q = 3. Indeed. Marginal cost (MC) was defined earlier as the change in total cost per unit change in output and is given by the slope of the TC curve. between Q = 3 and Q = 4. so that MR = O.Tt: The top panel of Figure 2-3 shows that at Q = 0. The firm would be adding more to its total revenue than to its total costs. and the firm earns a profit. At Q = 3. At points C and D. Therefore. it is more useful to use marginal analysis. Therefore. The same is true at Q = 4. as long as the slope of the TR curve or MR exceeds the slope of the TC curve or MC. the TR curve is highest or has zero slope. 1t = $30 (point C" in the bottom panel). 1t = 0 . MR = MC (point C* in the top panel of Figure 2-3) and 1t is at a maximum (point C' in the bottom panel). the slope of the TR curve or MR is smaller than the slope of the TC curve or MC. the slope of the TR curve or MR is $40 and $20. According to marginal analysis. Optimization by Marginal Analysis While the process by which the firm maximized total profit was determined in the preceding by looking at the total-revenue and total-cost curves. this is true between Q = 1 and Q = 3. Marginal revenue (MR) is similarly defined as the change in total revenue per unit change in output or sales and is given by the slope of the TR curve. so that the firm would be adding less to its total revenue than to its total cost. TR = $90 and TC = $140. Two additional points must be noted with regard to Figure 2-3. respectively. at which the positive difference between TR and TC is greatest. it pays for the organization (firm) to increase the activity (expand output). according to marginal analysis. At Q = 2. The total net benefit (profit) is maximized when the marginal benefit (revenue) equals the marginal cost. the slope of the TR curve or MR is $80 (point H* on the MR curve in the top panel of Figure 2-3). and so on. This means that the firm incurs a loss of $20 at zero output. the MC curve (also in the top panel of Figure 2-3) falls up to point B* (at Q = 2) and then rises (as in Figure 2-2). the slope of the TR curve or MR = $60. At Q = 1. At point E. so that the TR and TC curves are parallel and the vertical distance between them (rt) is greatest. it pays for the firm to expand output and sales. According to marginal analysis. as long as the marginal benefit of an activity (such as expanding output or sales) exceeds the marginal cost. given by point H" in the bottom panel). The first is that the slope of the TR curve or MR equals the slope ofthe TC curve or MC (see point H*) at Q = 1 . at point A. TR declines and MR is negative. TR exceeds TC. At Q = 3. At point B. On the other hand. and so its total profit would increase. The slope of the TC curve in the top panel of Figure 2-3 falls up to point B (the point of inflection) and rises thereafter. That is. the firm maximizes profits when marginal revenue equals marginal cost.$140 = -$50 (the largest loss. marginal analysis can also be applied to decisions involving maximization of utility. For example. Between Q = 2 and Q = 4. and the firm breaks even. 1t = 0 (point B" in the bottom panel). At Q = 3. Past point E. TR = TC = $160. Case Study 2-1 applies marginal analysis to optimal pollution control. at which TR = TC = $240 and 1t = 0 (point D" in the bottom panel).$20 = -$20 (point G" on the 1t function in the bottom panel). This is an extremely important concept and is of general applicability.
48-57. where the MB curve intersects the MC curve. Sets Rules to Cut Pollution. at which the MB and MC curves intersect and MB = MC Source: M. While the optimal solution is clearcut. it does not make much economic sense to try to reduce pollution to zero. dumping will take place at point A. sec.CHAPTER 2 Optimization Techniques and New Management Tools 4~ CASE STUDY 2-1 Optimal Pollution Control To a stout environmentalist. and pollution would be excessive. 1996)." Fed. 2002). Oates. P.2005). The optimal level of pollution is the one at which the marginal benefit of pollution (in the form of avoiding more costly methods of waste disposal) equals the marginal cost of pollution (in terms of higher cleaning bills. MB.P. and "E. p." Journal of Economic Literature (June 1992). 1-21. 3. A. D. I." The New York Times (March 21. the marginal cost (Me) increases while the marginal benefit (MB) declines. the optimal level of pollution is Q* given by point E." The New York Times (March 11. "Environmental Economics: A Survey. "Clean Air: Adding It Up. 32. Note that with increasing levels of pollution. and so on)." The Economist (February 17. "How Clean Can You Get." The New York Times (December I. Bank of Minneapolis Review (December 2001). From society's point of view. Cropper and W. it is often difficult to estimate MB and MC in the real world. E. Benefit: Clearing the Air. L. p. 675-740. Without controls. the optimal level of pollution is probably zero. on Clean Air. where MB = O. "Files Detail Debate in E. and MB = Me. as long as pollution is a byproduct of the production and consumption of commodities that we want. This is shown in Figure 2-4. 2. firms and individuals would dump wastes until the benefit of pollution equals zero (point A in the figure). where the horizontal axis measures levels of pollution per year and the vertical axis measures the marginal cost and benefit of pollution to society. Res. p. 37. In the absence of any pollution control. However. p. . MC ($) MB =MC o o Q* Pollution levels FIGURE 2-4 The Optimal level of Pollution The MC curve shows the rising marginal cost or loss to society from increasing levels of pollution. The MB curve shows the declining marginal benefit to the polluter (and to society) by being able to freely dump increasing amounts of waste. pp. more respiratory illnesses. The optimal level of c!umping is Q*. pp. 1996). "Cost v. Clement.A.
26. the slope of the total profit (1t) function in the bottom panel of Figure 2-3 is zero both at point H" (where the total loss of the firm is greatest) and at point C" (where the fum maximizes total profit). at Q = 1. Constrained optimization problems can best be solved expediently by differential calculus. For example. a firm may face a limitation on its production capacity or on the availability of skilled personnel and crucial raw materials. from being negative to the left of point H". while it faces down (so that its slope declines) in the neighborhood of point C'. 2-4 CONSTRAINED OPTIMIZATION Until now in this chapter we have examined unconstrained optimization. Most of the time. That is. The existence of such constraints reduces the freedom of action of the firm and usually prevents attainment of its unconstrained optimum. to zero at point H". They range from customer service. we have a constrained optimization problem (i. and the firm incurs a loss. ranked in that order) all the way down to mergers and acquisitions. and product quality (the first three. and political lobbying (the last three). It may also face legal and environmental constraints. But the 1t function faces up (so that its slope increases. product development. it is still a very important objective-it is the 16th most important objective among the 65 issues.. for the fum to maximize its total profits. to positive to the right of point H") where the losses are maximum. with a rating of 5. CASE STUDY 2-2 Pursuing Multiple Objectives under Constraints by Global Corporations Table 2-3 shows the ranking (from 1 to 16) and the rating (from 0 to 10) of the 16 most important objectives that global corporations believe they will face. however. Since each of the 16 most important objectives costs money to pursue and firms' resources . Indeed. where the firm maximizes its total profit. or the maximization or minimization of an objective function subject to no constraints. However. MR must not only be equal to MC but the MC curve must also intersect the MR curve from below. TC exceeds TR. see point H" and the 1t curve in the bottom panel of Figure 2-3). the maximizing or minimizing of an objective function subject to some constraints). at Q = 1. the loss is greatest (at $50.800 responses to a questionnaire listing 65 issues that the American Management Association (AMA) sent to managers of global corporations in 36 countries in 1998.e. managers face constraints in their optimization decisions.50 PART ONE Introduction also. reliance on consulting services. This difference between the intersections at Q = 3 and Q = 1 distinguishes between the profit-maximizing and the loss-maximizing levels of output and leads to our second point. These 16 objectives and their ranking were distilled from the nearly 1. Note that even though political lobbying ranks lowest among the 16 most important objectives. Case Study 2-2 deals with the multiple objectives pursued by global corporations under constraints. which occurs in Figure 2-3 only at Q = 3. Thus. In such cases.
While the firm may not have sufficient data to apply this rule precisely at any point in time.68 8.50 5. 2005). The most important of these tools are benchmarking. . (New York: American Management Association. 2002)." The Wall Street Journal (June 7. and "Global Strategy Faces Local Constraints. Rating the 16 Most Important Believe They Will Face Rank I Objectives That Global Corporations Objective Customer service R&D/new product development Quality control and assurance Acquiring new technologies Innovation Environmentally sound practices Team-based approach Manpower planning Business partnerships and alliances Study and use of best practices Outsourcing and contracting Reengineering business processes Foreign language training Mergers and acquisitions Reliance on consulting services Political lobbying Average Rating 9.47 7. pp. subject to the constraints under which it operates. A2. the question faced by top management is how much of a company's resources to devote to each. security against terrorism would surely be among the most important objectives of global corporations. the concept and the rule themselves are very clear.CHAPTER 2 Optimization Techniques and New Management Tools 51 are limited. in the meantime.75 7. 11 May Be More Costly. The optimal solution is for the firm to pursue each activity until the marginal net benefit from the activity is zero. In an updated study. so as to be able to get even closer to the optimal solution in the future.26 Source: AMA Global Survey on Key Business Issues.86 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 6. "Long-Term Effects of Sept.71 7. p.64 8.66 6. as well as some more recent management tools or ideas and examine how they are related to the traditional functional areas of managerial economics." in Mastering Corporate Governance. Financial Times (May 27.96 6. In this section we discuss each of these. 1998). and the learning organization.96 7. total quality management.76 7. ~ NEW MANAGEMENT TOOLS FOR OPTIMIZATION During the past two decades many new management tools have revolutionized the way firms are managed. collect more and better data on the costs and benefits of pursuing each activity under the constraints it faces. 4-5. The firm should strive to come as close as possible to the optimal solution and.92 7.03 6.55 8. reengineering.06 8.
Harley-Davidson. Benchmarking can result in dramatic cost reductions. By improving quality and reducing costs in all these areas. through benchmarking. Benchmarking has now become a standard tool to increase productivity and minimize costs at many U. Rather than seeking across-the-board operational improvements. The TQM program must clearly show how it benefits customers and creates value for the firm. Hewlett-Packard achieved spectacular results. TQM applies quality-improvement methods to all the firm's processes from production to customer service. or better?" It involves worker teams and benchmarking. 2. benchmarking allowed Ford to reduce the number of employees handling accounts payable from 500 to less than 200 in a few months. Benchmarking is usually accomplished by field trips to other firms. The explosion in interest in benchmarking has led to the formation of many benchmarking associations. the firm looks for "useful analogies" from other companies that may help solve specific problems that the firm faces (see Case Study 2-3). For example.S. IOC. 3. that is. and consultants. Benchmarking requires (1) picking a specific process that your firm seeks to improve and identifying a few firms that do a better job and (2) sending on the benchmarking mission the people who will actually have to make the changes. benchmarking has evolved from a rather lengthy and cumbersome set of procedures to a fast and flexible tool that is less elaborate and more tactical. faster. "What is the firm trying to accomplish?" . Through benchmarking. councils. data. corporations in the 1980s involved maximizing quality and minimizing costs through total quality management (TQM). This refers to constantly improving the quality of products and the firm's processes so as to consistently deliver increasing value to customers. Motorola. Five rules determine the success of a TQM program: 1. Similarly. General Electric. Marriott. Xerox was able to cut the cost of processing each order from $95 to $35 and as a result saved tens of billions of dollars. Du Pont. in an open and aboveboard way. ONGC. TQM constantly asks. it must ask. In recent years. programs (such as the International Benchmarking Clearinghouse). and Xerox. and foreign firms. including IBM.52 PART ONE Introduction Benchmarking Benchmarking refers to the finding out. the Mellon Bank cut complaints by 60 percent and was able to resolve them on the average in 25 days instead of 45 days. it has come to be called fast-cycle or rapid benchmarking. and Ford.S. how other firms may be doing something better (cheaper) so that your firm can copy and possibly improve on its technique. The corporate executive officer (CEO) must strongly and visibly support it with words and actions. Ford. courses. "How can we do this cheaper. and even finance. In its broader form. as well as conferences. sales and marketing. and SBI. Total Quality Management One movement that swept U. AT&T. The technique has now become a standard tool for improving productivity and quality at a large number of American and some Indian firms. Other companies that have successfully used TQM are Xerox. The TQM program must have a few clear strategic goals.
When the Mobil Corporation (now ExxonMobil) wanted to reduce time at the gas pump in remaking its 8. Source: "How to Steal the Best Ideas Around. car buyers considered most important. Responding to the challenge eventually led Xerox to imitate Japanese producers. only about a third of American corporations polled indicated that their TQM programs significantly increased the quality of their products. then it identified the competitive cars (mostly Japanese) that embodied those features.000 service stations. based on a new round of benchmarking. Mobil's wave-at-the-pump credit system that minimized customers' time at the gas pump and increased their loyalty. 5. and. 1-5. thus recapturing some of its lost market. These useful analogies led to creative thinking that resulted in the introduction of Speed Pass. Ford. pp. "Fast-Cycle Benchmarking. 4. when it realized that the Japanese were selling copiers for less than Xerox's production costs. 1-4. 1992). Motorola was able to cut $700 million in manufacturing costs over five years). But a benchmarking mission to Japan led Xerox to the shocking realization that Japanese production costs were. The highly successful Ford Taurus introduced in the early 1980s was also the result of benchmarking. and increased their competitiveness. and Mobil The first benchmarking mission by a U. Despite some glaring successes from using TQM programs (e.S. . At first Xerox management thought the Japanese were dumping (i. pp. selling copiers in the United States at prices below their production costs) in order to establish a foothold in the American market. finally. the halogen headlamps and tilt wheel against the Honda Accord. Xerox has successfully used benchmarking ever since. Other reasons for failure were that TQM programs often were not strongly linked to the overall business strategy of the firm or aimed at delivering increasing value to customers. The TQM program must provide quick financial returns and compensationpeople need to see early and concrete results to continue to support the program. it built a car (the Taurus) incorporating those features at competitive costs by copying the production methods of its competitors. The TQM program should be tailored to a particular firm." Fortune (October 19. 102-106. much lower than Xerox's. and "Is Your Benchmarking Doing the Right Work?" Harvard Management Update (September 2003)." Harvard Management Update (April 1999). The redesigned 1992 Taurus was. firm was undertaken by Xerox in 1979.. reduced costs. Ford first set out to identify about 400 features that U.g. pp. Ford benchmarked door handles and fuel economy against the Chevy Lumina.. in fact. once again.e. The most frequent reason for lack of success in TQM programs is the failure of upper management to show a strong personal involvement and commitment to the program. that is. and the remote radio controls against the Pontiac Grand Prix.S.CHAPTER 2 Optimization Techniques and New Management Tools 53 CASE STUDY 2-3 Benchmarking at Xerox. the easy-to-change taillight bulbs and express window control against Nissan's Maxima. one firm cannot simply copy another firm's TQM program. it employed fastcycle or rapid benchmarking by studying Home Depot to determine why the retail chain's customers were so loyal and examining how the Team Penske auto-racing crew minimized time in the pit.
Two sigma would mean that 95 percent of the products or procedures are non-defective. and not all firms are capable of reengineering or need to reengineer. It asks. While total quality management (TQM) seeks how to do something faster. bureaucracy. knowledge. Profits are likely to be maximized at dramatically higher levels in the long run if the reengineering is successful. and waste and providing cheaper and bet. Reengineering seeks to completely reorganize the firm.54 PART ONE Introduction In recent years. The name itself means that nondefective products or procedures fall or are encompassed within six standard deviations from the mean. quality. reengineering asks first whether something should be done at all.99966 percent are nondefective. to the production. service. which hands it to the production department). more than two-thirds of the firms that tried it achieved only mediocre or no results. And now a new extension called Six Sigma has been added to the TQM vocabulary.4 defects per million widgets or procedures. eliminating layers of management. or 3. such as financial and telecommunications firms after deregulation. Reengineering involves the radical redesign of all of the firm's processes to achieve major gains in speed. For example. (Actually. there will always be a need for experts in production. or ways of doing business that might destroy your firm or (2) greed. What . and the. finance. Reengineering Reengineering was the hottest trend in management in the mid-1990s. That is. Although reengineering makes a great deal of sense on paper and is easy to understand in principle. "If this were an entirely new firm. in a successfully reengineered horizontal firm a team of key people will handle all aspects of product development. it is extremely difficult to carry out. from the idea. this was developed at Motorola more than a decade ago. Indeed.management of partnerships in order to make it more relevant in today's rapidly globalizing world of business. a growing number of no-nonsense companies from Allied Signal to Motorola and General Electric swear by it (see Case Study 2-4). how would you organize it?" or. but only recently is it catching on and receiving wider acceptance. marketing. to the marketing of the product. human resource development. Six sigma means that 99. There are two major reasons to reengineer: (1) fear that competitors may come up with new products. how would you do it?" Then it requires restructuring the firm to conform to that vision. "If you were able to start all over again. services. The best candidates for reengineering are firms that face major shifts in the nature of competition. the TQM model was extended to include innovation. and so on. if you believe that by reengineering. and profitability. cheaper. ter products to customers. your company can obliterate the competition.) Six Sigma refers to the situation in which everything-from product design to manufacturing to billing-proceeds practically flawlessly. Reengineering involves reorganizing the firm horizontally around cross-functional core processes managed by teams that seek to maximize customers' satisfaction. with fewer than 3.4 defectives per millionpractically perfection! And Six Sigma is not a managerial fad. Even companies that have been successful have not completely eliminated functional specializations. instead of product development being handled by different departments as in traditional firms (where the marketing department comes up with an idea for a product and hands it to the engineering department. or better. and so it is more likely than TQM to come up with novel solutions.
When it comes to Six Sigma. reduced the time required by Johnson & Johnson to prepare customized retail displays for chain drugstores and supermarkets from 120 days to 30 days." Financial Times (April 21. By 2001.CHAPTER 2 Optimization Techniques and New Management Tools 55 CASE STUDY 2-4 Total Quality Management in the Real World Johnson & Johnson's TQM program identified three quantifiable goals: increasing customer satisfaction. the time it takes to get a job done). For example." The Wall Street Journal (September 19. "Six Sigma: A Hollywood Studio Learns the G. B3. Ford was again in trouble with losses of $5. Welch stated that Six Sigma galvanized GE with an intensity he had never seen in his 40 years with the company. costly recalls of several models. pp. Past success in achieving the first goal led the company to set a goal of about three defects per million operations by 2000 (the Six Sigma TQM program).2001).25 million superfast diagnostic scanner called the Lightspeed. however. 1998). and this has led to a 50 percent saving in external auditors' cost. reducing the time it takes to introduce products. Welch stated: "Six Sigma lets you approach problems with the assumption that there is a data-oriented fix at the end .2004). p. pp." Management Review (January 1994).4 percent to 16.. Motorola's TQM program has had two basic aims: defect prevention and cycle-time reduction (i. 72-73. GE used 200 people for nearly three years to run 250 separate Six Sigma analyses at a cost of $50 million in developing its $1. One type of total quality initiative. 1999). "Report Card on TQM. . The second goal has led to a reduction in the time required to close the books each month from eleven days five years ago to two days now. CI." The Ford Motor Company used TQM to turn the company around after the invasion of Japanese automobiles threatened the existence of the entire U. which can do a full-body scan in only 20 seconds instead of the three minutes it took before. 66-72." The New York Times (December 7. and this contributed to an increase in sales from $25 million to $90 million in one year." The New York Times (September 27. This was crucial because the patient must remain perfectly still during the scan. and cutting costs. and delays on the introduction of others. . external failures (which resulted in a flood of warranty claims).5 billion as a result of the controversy over deadly roll overs of its Explorers. 2002)." The New York Times (June 13.E.e. p.S.6 percent. and that is a radical culture change. Part 2: Ford Embraces Six Sigma. pp." Business Week (July 22. that he spent more than three years and $1 billion to convert all its divisions to the Six Sigma faith. automotive industry at the beginning of the 1980s. p. Ford embraced TQM and its Six Sigma extension in 2001. 28. And again. The TQM program at Tenneco was based on sharply cutting internal failures (such as unscheduled downtime). C5. Source: "TQM-More Than a Dying Fad?" Fortune (October 18. p. Ford was able to turn huge losses to high profits that made Ford the most profitable of the American automakers by 1986 with the introduction of its highly successful Taurus. 2005). p. prevention of defects (project planning). 22-25. and appraisal (testing and inspection). and "Rethinking the Quality Improvement Program. 1993). By successfully applying TQM. which he credited with raising the company's operating profit margins from 14. . "Making Continuous Improvements Better. Way. "Quality Isn't Just for Widgets. Cl. "Quality Revival. so firm a believer was John Welch (who retired as General Electric president in 2001). "Six Sigma Enlightenment. by encouraging the sharing of responsibility rather than resistance to it.
2(02). only a small number of firms that tried it actually succeeded (one of these is GE-see Case Study 2-5). "Six Sigma Enlightenment." Business Week (December 20. it involved envisioning a boundary less firm based on cross-functional teamwork capable of constantly reinventing itself. Most are likely to be hybrids. and made training and development a continuous process. General Electric had a strong balance sheet but modest earnings and technology. But reengineering . The strategy was for GE to aim for high-growth businesses.56 PART ONE Introduction CASE STUDY 2-5 Reengineering at GE be number I or number 2 in each segment of the market." Fortune (August 23. pp. dynamic. CI. Actual reengineering at GE involved adopting a new strategy. Few firms. During the 1990s. pp. "IBM ew Boss. otherwise it had to fix. it is slowly fading-some people would even say that it is dead. Welch forced GE to constantly reinvent or reengineer itself (see Case Study 2-4). and "Look First at Failures. In human resource management. Welch had to overcome tremendous resistance from traditional vested interests all down the chain of command. global. 76-81. from where it was developed to where it was needed. or less vertically organized than in the past. however. a program that turned GE into one of the most efficient. By 1990. sell. "Reengineering 10 I. And by adopting the Six Sigma TQM program in all of its divisions. 66-72. 114-118: "Reengineering: The Hot New Management Tool. or close the business. pp. But he was able to carry out one of the most far-reaching programs of innovation in business history. revolutionizing its organizational structure. "Reinventing Intel. Finally. 1993). dynamic. pp. and admired companies in the world. it required the actual redesign of the firm into one capable of continual change and one in which information flowed freely across functional and business boundaries. 1999)." Fortune (December 13. 82-88. When Jack Welch became corporate executive officer in 1981. and it was almost an entirely nonglobal business. The organizational structure was reorganized into 13 businesses that shared the best practices and reported to a central CEO team. did employee apprai al from below as well a from above. reengineering does is make them work together in teams." Forbes (May 13. and profitable organization. Today." Business Week (February 11. Second is the bad press that it got as a result of the large layoffs and workers' resistance that accompanied the downsizing that took place in the name of reengineering. and Boeing. Second. pp. There are two reasons for this. 1998). IBM. 2(02). Welch had entirely redesigned (read reengineered) GE into a much more efficient. pp. 41-48.18-20. reengineering went from a management fad to a $51 billion consulting industry practically overnight. are likely to ever become entirely horizontal or boundaryless. Other companies that successfully reengineered during the past decade are Intel. p. "The Horizontal Corporation. GE made rewards very flexible. This meant that GE had to Source: "Revolutionize Your Company." The New York Times (December 7. 154-159. pp. 1993).1993). First." Harvard Business Review (October 2004)." Forbes (May 3. The reengineering involved first brutally awakening GE to the need to change for survival in the dramatically tran formed competitive situation of the 1980s. and entirely changing its human resource management.
A learning organization values continuing learning. Team learning-The organization must see how all the firm's employees can be made to work and learn together to realize the shared vision and carry out the strategy of the firm. . AT&T. a learning organization is based on five basic ingredients: 1. the latter is only part of the story. the Research Program in Social and Organizational Learning-at George Washington University. These leading corporations believed that by becoming learning organizations. however. they could dramatically increase their efficiency and dynamic competitiveness. Louis. the Organizational Learning and Instructional Technologies Program-at the University of New Mexico. or value engineering-to stress the fact that reengineering involves a culture change. New mental model-People must put aside old ways of thinking and be willing to change. none of these five concepts is new. and believes that competitive advantage derives from and requires continuous learning in our information age. what is original and promises to provide major benefits is how the concepts are linked to create a learning organization. and a strategy for rapid growth-been sufficient to reignite the type of interest that it enjoyed during the early 1990s. A number of organizations providing organizational learning have sprung up in recent years. although this may involve downsizing. This research center had 18 sponsors (among them Ford. organizational agility. among them the Society for Organizational Learning-a nonprofit organization located in Cambridge. the Program on Social and Organizational Learning-at George Mason University.000 per year and striving to create a pilot program for transforming their firm into a learning organization with the help of the center. Nor has reinterpreting it and renaming it business transformation. It is to make the learning organization more accessible to management that Senge formed the Center for Organizational Learning at the Massachusetts Institute of Technology (MIT) in 1990. To be sure. closed in 1997. however. rather than telling others what to do.CHAPTER 2 Optimization Techniques and New Management Tools 57 means reinventing the firm in dramatically more productive ways and. The center. 2. they are very difficult to carry out in practice. and Federal Express). Shared vision-All firm employees must share the same strategy. System thinking-Everyone in the organization must have an understanding of how the firm really works. the ability of a firm to respond to or anticipate rapid changes. The Learning Organization The learning organization may be the hot management tool of this decade. 5. 3. each paying $80. Massachusetts. According to Peter Senge. Although the five ingredients on which the learning organization is based may be clear in theory. its intellectual and spiritual champion. 4. both individual and collective. and the Center for Organizational Learning and Renewal-at the University of St. Motorola. Personal mastery-Firm employees must learn to be open with others and listen.
the headlights. It was able to change management philosophies and practices. "Real-Time Learning. l. 1999). they did not realize that the simultaneous operation of these car systems drained the car's battery. and to thereby more effectively solve systems problems. the Lincoln Continental engineers avoided blaming each other and finger pointing. Under Ford's traditional management system. the end result was a lot of hard feelings. to engage in systems thinking. The new openness allowed people working on the Continental project to cooperate more readily. as total quality management did in the 1980s and reengineering in the 1990s. Since the engineers working on that problem did not feel like losers but rather that they were working for the good of the car. however. By looking at the problem as a systems problem and addressing it by systems thinking. the engineers from the various departments would fight with one another to determine who had to make the adjustment to lower the power requirement." FinanciaL Times (January 25. Principles When the management shifted to using learningorganization principles.200 I). that the concept may storm corporate America during this decade. In addition to the time lost in controversy. "IT and the Challenge of Organizational Learning. Southwest learned sooner than others in the industry how to manage knowledge to find new ways of doing business in order to improve its efficiency on a continuing basis. I CASE STUDY 2-6 Applying learning-Organization at Ford and Southwest Airlines One of the earliest successful uses of learning-organization principles was in the launching of a revamped Lincoln Continental at Ford. pp. for the most part. It is possible. ''Turning Knowledge Into Business. when this problem came to light. they solved the problem much more quickly and in a spirit of cooperation and appreciation by all the other departments. a management vision of the future." Harvard Management Update (January 2005). They decided to raise the car's idle to increase the battery charge. and "A Powerful Idea Whose Time May Still to Come. 1994). The impasse would then have to be broken by a decision from the overall project manager. For example. 12-13. p. p. Southwest Airlines was the first to apply learningorganization principles in the airline industry. Source: "The Learning Organization. 8. The engineers in the department that had to give in would feel like losers. FinanciaL Times (AprilS. . 2006). This. which greatly increased production efficiency. the project manager found that because the engineers who designed the air-conditioning system.58 PART ONE Introduction For now. 9-11. the power seats." FinanciaL Times (January 1. thereby gaining a competitive edge over its competitors. and the CD player traditionally worked separately. as well as organizational culture and procedures." Fortune (October 17. pp. pp. required increasing fuel efficiency. For example. where problems were hidden as long as possible to avoid charges of incompetence. Southwest immediately began experimenting with electronic ticketing on some of its routes and then adopted it exclusively as soon as its advantages were proven. The first step was to induce people involved in the Lincoln project to come forward early on and admit that they had a problem that needed to be solved. Case Study 2-6 discusses the application of learning-organization principles at Ford and Southwest Airlines. the learning organization is." Mastering Information TechnoLogy Section. This went smack against Ford's culture. however. the engineers for the various car systems worked together and realized the power problem early on. 147-158. when one of its employees suggested doing away with tickets in order to reduce costs and loading times.
80-82. This is based on research that we are all connected to one another by 11 small chain of six people or less. Virtual integration-The blurring of the traditional boundaries and roles between the manufacturer and its suppliers. A I." The Wall Street Journal (December 12. as in the case of virtual integration (see below). 1999). These are": • • Broadbanding-The elimination of multiple salary grades to foster movement among jobs within the firm. pp. thus treating suppliers and customers as if they were part of the company. on the one hand. pp. Hammer. 3 . in the value chain. reengineering.) • • • • • • • • See. 54-55." Harvard Management Update (May 2(05). eliminating distributors." Harvard Management Update (September 2004). "It's a small world after all. on the other. thus eliminating the time and cost of third-party distribution (i.' Harvard Business Review (March-April 1998). 200 I). Revolution and the Ins and Outs of Business Vocabulary. "Performance Management that Drives Results. TQM. Performance management-The holding of executives and their subordinates ascountable for delivering the desired results and superior competitive performance." The Wall Street Journal (May 31.. Small-world model-The idea or theory that a corporate giant can be made to operate like a small firm by linking well-connected individuals from each level of the organization to one another. "Evolution. M. and Six Sigma. 1998). B I. such as benchmarking. thus increasing labor flexibility and lowering costs. Virtual management-The ability of a manager to simulate consumer behavior using computer models based on the emerging science or theory of complexity." Business Week (August 17. rather than a strategic plan. p. Strategic development-The idea that assessment and action should be under continuous review and provide a direction and an agenda or continuous strategic development. "The Power of Vinual Integration: An Interview with Michael Dell. 26-32. Process management-The coordination or integration under a single umbrella of all the firm's performance-improvement initiatives." Business Week (September 21. as in the song." MIT Sloan Management Review (Winter 2(02). Networking-The forming of temporary strategic alliances where each firm contributes its best competence.CHAPTER 2 Optimization Techniques and New Management Tools 59 ~ OTHER MANAGEMENT TOOLS FOR OPTIMIZATION In this section we examine other recent management tools or ideas for optimal decisions by the firm. "Cost Consciousness Beats Pricing Power. pp. and "Making Strategy Development Matter. (Virtual management will be examined in detail in Case Study 4-3. Direct business model-The situation where a firm deals directly with the consumer. pp. 4-6. Pricing power-The ability of a firm to raise prices faster than the rise in its costs or to lower its costs faster than the fall in the prices at which the firm sells-thus increasing its profits. pp. as for example in the selling of Dell PCs). 73-84. "Do the Math-It Is a Small World. p. "Process Management and the Future of Six Sigma. 1-4. 1998). This greatly reduces or eliminates the need for inventories and satisfies consumer demand expeditiously-again. so as to improve the flow of information and the operational efficiency of the firm. pp." The idea is to find the key or well-connected individuals at each level of the firm and establish links among them. "Virtual Management. as practiced by Dell.e. and the manufacturer and its customers.
and many others-and every year seems to bring an additional crop of new buzzwords or ideas. leading through the turmoil. 1999). Rigby. leading through the turmoil. sec. human resource development. pp.60 PARTONE Introduction The list. marketing. "Hopelessly Seeking Synergy. Fewer have tried reengineering. total quality management (TQM). networking. D." The Wall Street Journal (July 6." The New York Times (July 18. however. "Total Quality Is Termed Only Partial Success. but only about a third successfully adopted TQM programs. Most leading American firms now u e benchmarking. does not end here. but the Lessons Can Hurt. The results to date. process management. p. A I. Only to See Them Flop. under the pressure of global competitiveness. 2-7 NEW MANAGEMENT TOOLS AND FUNCTIONAL SPECIALIZATION Companies have introduced new management tools and trendy remedie to improve efficiency and productivity while maximizing profits subject to the constraints faced by the firm. (2) improving and simplifying development "Many Companies Try Management Fads. suppliers. For example. is not likely to eliminate functional specializations and the need for specific expertise in production." The new management tools and ideas have already changed drastically the way many firms are being managed. pp. and many more firms are likely to be forced to change their management ways in the future. evolutionary change. however. 139-160. Failure to receive major benefits by the firms that tried some of these new management tools often resulted from lack of conviction and effort. 4. Others are broadbanding. worker empowerment. 1994). capturing synergies (by a firm diversifying into related businesses). The labels abound and so do the promises of major benefits. direct business model. 53." Harvard Business Update (October 2003). strategic development. reengineering. They can sometimes lead to major benefits. Some of these new management tools are benchmarking. and the learning organization is for the most part still in its blueprint stage. virtual management. To be sure. Applied with more conviction. p. learning-organization principles are based on some brilliant ideas that some firms can implement and some cannot. of course. Some universal truths stemming from the new management tools and ideas that would consistently benefit any organization are (I) explaining the firm's corporate strategy to employees. have been mixed. and customers. "Competition Can Teach You a Lot. virtual integration. and so on. their success rate is likely to increase. finance. 1993). and sometimes cannot. however. capturing synergies. and the learning organization." The Economist (August 20. and "Why Most Management Tools Don't Work." California Management Review (Winter 2001)." The Wall Street Journal (October 10. p. pricing power. and evolutionary change. We also have skill-based pay. p. 3. firms will have to be constantly looking for new as well as traditional ways to increase their productivity and competitiveness. worker empowerment. B 1. The increasing use of these new management tools. One reason for this is that some of the new management tools and ideas do not provide a completely worked out and cohesive set of guidelines that most firms can easily understand and implement. 10-11. 1992). 4 . "Management Tools and Techniques. performance management. small-world model. as well as skill-based pay.
CHAPTER 2 Optimization Techniques and New Management Tools 61 and production processes. whereas in the U. the CEOs are more resilient in the face of change. as in other parts of the world. Calcutta. The top 100 CEOs in the country were interviewed for the study. "Based on our experience with the U. The CEOs themselves believed that their approach was different from what they know about the management practices in the U.. Even though the fact that most Indian businesses are family-owned substitutes for professionalism.S. About 7. who give more importance to investors than employees. Indian CEOs too have a "sense of vision. and the Western corporations. 41 percent of the leaders give more time to reporting to the board of directors and to shareholders relations. brings out some interesting points pertaining to the management practices in India. .." Indian CEOs are more focused on organizational skills than on financial issues. we believe the response suggests that the Indian CEOs are much more focused on managing the inside of their businesses than are their counterparts elsewhere. which took more than a year for a partial compilation. CASE STUDY 2-7 I The Indian Business Model The Indian business model.S. Nearly 13 percent of the CEOs interviewed believed that high-performance culture was their competitive advantage. In India. A research study jointly conducted by Wharton and NHRDN. and (3) reducing cycle time (i. The CEOs spend less time in board meetings in India than their counterparts in the U. can serve as a model for the emerging economies in the next five to ten years.9 percent of the CEOs.jsp?docpath=llmoney/2007/dec/03cap .rediff.S. With a majority of the Indian businesses being family-controlled. the study points out. Human capital and intellectual capital is high in agenda for nearly 9 percent of the CEOs.. Cappelli concludes from the study that they are more concerned about their employees and the community as a whole than their American counterparts. director of Center for Human Resources. especially management practices. and have better entrepreneurial skills. These management ideas and others are part of the Indian business model that is increasingly being accepted throughout the world (see Case Study 2-7) despite its shortcomings like the Enron disaster in India (see Case Study 2-8).5 percent believed in execution capability and speed. while another 13 percent believed that customer focus was their core strength.htm." Source: http://in. more willing to take risks. Contrary to perceptions that the Indian CEOs are disproportionably rewarded.e. how long it takes to get any task done) by paying more attention to processes and teamwork than to functions and individualism. respectively. Leadership counts for 3. according to Peter Cappelli. 72 percent and 58 percent of leaders give more time reporting to the board of directors and to shareholders relations. The Wharton School.S. Low cost is believed to be the strength by 13 percent of the sample size. About 13 percent believed innovation and entrepreneurship to be the most important aspect of their business.comlcms/print.
Finally.S. First.S. where the SEC regulates auditors. For starters. proves that several complementary coordination. This has some inherent weaknesses. "Enron Fallout in India: Auditors Feel the Heat. the Indian structure has the DCA in charge of their supervision. with airy explanatory completely confused. Hopefully. The Department of Company Affairs (DCA) is in the process of putting together a comprehensive regulatory framework for auditors." The RediJJColumn (March 2002). ready drawing lapses. notes that Instead. disaster layers it faces less pressure attention is rather from inpatchy and since it is not directly connected with investors. litigation is meaningless because of the tortuously slow judicial system. The DCA needs to fix this problem by making it obligatory for auditors to report violations by companies to the authorities.62 PART ONE Introduction CASE STUDY 2-8 Enron Fallout in India-Governance Rules Fail The Enron burnout is expected to trigger statutory changes across the world on par with those that followed the great crash of 1929. the move to introduce systemic changes has already begun. . Investor groups are althe DCA's to auditors' DCA plans to force companies to present fair and un- of supervision and review had failed because of poor Based on: Sucheta Dalal. this will ensure that companies will not be allowed to gloss over the auditors' qualifications leave the investor ambiguou accounts. The Enron-Andersen in the U. Unlike the structure in the U. Tn fact. These are aimed at improving accountability and empowering auditors' vis-a-vis companies who pay their fees. courts have never handed out exemplary damages in economic offences that would make long litigations worthwhile. The DCA's second proposal is to make heavily qualified accounts unacceptable and initiate disciplinary action against companies that are brazenly fudging their books. it plans to set up a committee to overhaul accounting rules and make them binding on all audit firms.. in the Indian context. the DCA's record of supervision vestor protection. This too is changing. Second. But disclosures alone may not cover auditors who fail to qualify accounts in the first place. And it is only appropriate that India begins to focus on supervision of audit firms without waiting for a huge accounting scam to force change. the new regulations will work only if the regulator wants it to. Also.
cost. 5. Reengineering is the radical redesign of all of the firm's processes to achieve major gains in speed.CHAPTER 2 Optimization Techniques and New Management Tools 63 SUMMARY I. These reduce the freedom of action of the firm and usually prevent the attainment of its unconstrained optimum. 2. 4. Which one will be considered for profit maximization and why? 3. 8. process management. Firms often face constraints in their optimization decisions. small-world model. The relationship between total. The new management tools and ideas introduced during the past two decades have drastically changed the way many firms are being managed. networking. 3. performance management. or graphical form. Expressing an economic relationship in equational form allows the use of the powerful techniques of differential calculus to determine the optimal behavior of the firm. Total quality management (TQM) is the effort to constantly improve the quality of products and the firm's processes by benchmarking and teamwork. there are two points where both are equal. Define average and marginal (a) revenue. 4. and so on. What is the shape of the marginal-revenue curve if the total-revenue curve is a positively sloped straight line? 6. what are the shapes of the average-product and the marginal-product curves? 7. is maximum. What is the value of the marginal revenue when the total revenue increases. A learning organization is one that values continuing learning and believes that competitive advantage derives from and requires continuous learning in our information age. The firm maximizes its total profit at the output level. During the past two decades many new management tools have been introduced that are revolutionizing the way firms are managed. service. strategic development. human resource development. If the total-product curve first increases at an increasing rate and then increases at a decreasing rate. More generally. and profitability. and (d) profit. optimization occurs where the marginal benefit of an activity equals the marginal cost. Determine the relationship between a total-product curve that first increases at an increasing rate and I. Optimization analysis can best be explained by examining the process of profit maximization by the firm. Economic relationships can be expressed in equational. at which the positive difference between its total revenue and its total cost is greatest. or profit. 6. In the MR and Me graph. Determine the shape of the marginal-revenue curve if the total-revenue curve has a concave shape. The average value is equal to the total value divided by the quantity. virtual management. marketing. tabular. but they did not eliminate functional specialization and the need for specific expertise in production. The relationship is basically the same whether we deal with revenue. product. Profit will be maximum when marginal revenue equals marginal cost. Benchmarking refers to the finding out how other firms may be doing something better so as to copy and possibly improve on it. virtual integration. DISCUSSION QUESTIONS 5. direct business model. and marginal concepts and measures is crucial in optimization analysis. Other recent management tools or ideas are broadbanding. (c) cost. 2. according to marginal analysis. 7. quality. or decreases? . pricing power. finance. and its marginal revenue equals its marginal cost. Examine the relationship between average product and marginal product. (b) product. average. and others. The marginal value is equal to the change in the total value per unit change in the quantity.
and marginal-cost schedules of Problem 8. 9. on a separate set of axes. With reference to your figure in Problem 2b. What are the new managementtools introduced in the recent past? that have been 10. 16. How would you react to a sales managers's announcement that he or she has in place a marketing program to maximize sales? 11. * 10. (b) input use. 4. average-.and marginal-product schedules. explain the use of mathematical calculus in managerial economics. Sona Motors obtains a fixed input every production cycle in the form of lease rentals of long-term lease on its warehouse building.and marginal-cost Q TP 0 0 1 2 2 5 3 9 4 12 5 14 678 15 15 14 *9. (a) On the same set of axes. and marginal-profit curves in part (a). 7. Find the number of passengers per day that minimizes the average cost. (b) Explain the relationship among the total-. and marginal-cost curves in part (a). Derive the average. *8. plot the corresponding average. How should a firm ascertain the best level of (a) advertising. How is a firm's profit-maximizing determined? level of output 15. 3. average-. Given the following total-cost schedule: Q TC 0 1 1 12 2 14 3 15 4 20 schedules. (a) Plot the total-profit curve of Figure 2-3. Explain how public trust has been reestablished after governance failed to curb the rising inflation rate. A lot of uncertainty has emerged in the Indian financial market since the beginning of 2008. average-. average-. (b) Explain the relationship among the total-. (a) On the same set of axes. and marginal-revenue schedules of part (a). . plot the total-.2. 5.64 PART ONE Introduction then increases at a decreasing rate and the totalcost curve of Figure 2. 6. and (c) investment? 12.64P2 + 4p3 where P indicates the number of passengers per day. How does the value of a businessperson's time affect the decisions to fly or drive on a business trip? 13. average-. average-. and marginal-product curves in part (a)? TC = lOOP . average-. How much time should a consumer spend on shopping for lower prices? 14. Explain how the governance of companies like Enron India failed in the state of Maharashtra during the mid-90s. Given the following total-revenue function TR=9Q-Q2 (a) Derive the total-. average-. 19. explain the relationship among the total-. and below it. or shopping for lower prices? 17. For which type of goods would you expect consumers to spend more time on comparative shopping. and marginal-revenue curves. PROBLEMS * 1. *2. plot the total-.and marginal-profit schedules that you derived in Problem 6. and marginalrevenue schedules from Q = 0 to Q = 6 by l. and marginal-product schedules of Problem 3.and marginal-profit schedules for the total-profit curve in the bottom panel of Figure 2-3 in the text. Use the following data of variable costs incurred by the firm for four production cycles to compute the derive the average. The Delhi metro runs between Rajiv Chowk and Delhi University. Have the new management tools that have been introduced in the recent past eliminated the need for the functional areas of managerial economics? 18. (b) On the same set of axes. It has a cost function estimated by (b) What is the relationship between the total-. Given the following total-product schedule Derive the average. With the help of a relevant example. plot the total-.
Gould. no.000 1. 2001). Huselid. derive the totalprofit function and show how the firm determines the profit-maximizing level of output. Jarrell. Storey. 1994). 73-85..25-35. and R. pp. pp.500 14. and Richard N. Krishnan. 26-32. and J. SUPPLEMENTARY READINGS For reengineering.. DiBella. Human Resource Management: A Critical Text (London: Thomson Learning. The Dance of Change: The Challenge of Sustaining Momentum in a Learning Organization (New York: Double Currency. "The Effects of Total Quality Management on Corporate Performance: An Empirical Investigation.. pp." Sloan Management Review (Winter 1995). 13. pp. and use them to explain why the best level of output of the firm is 3 units. Easton. M. Identify the characteristics model." California Management Review (Winter 2001). J." MIT Sloan Management Review (Winter 2002). see: The utilization of popular management tools is discussed in: Rigby. Integrating Problem (a) Draw on the same set of axes the marginalrevenue curve derived in Problem 2 and the marginal-cost curve derived in Problem 8." NBER. Bogan.000 2. 1999). 1997). "Is Your Benchmarking Doing the Right Work?" Harvard Business Update (September 2003). Champy. A. pp. George S. P. R. The Fifth Discipline Fieldbook (New York: Doubleday. M. Nevis.500 2. 2 (1998). pp.. J.. Ulrich. R.. E. R.. 12. (b) Explain why your answer to part (a) is an example of marginal analysis and optimizing behavior in general. Beyond Reengineering: How the Process-Centered Organization Is Changing Our Work and Our Lives (New York: HarperCollins. Total quality management is examined in: Grant. "Management Tools and Techniques: A Survey. c. average variable cost.. Working Paper 7241 (July 1999). .. P. of the Indian business Q 1 2 3 4 Total variable cost $ 1. English. 139-160. 2001). 11. 1994).CHAPTER 2 Optimization Techniques and New Management Tools 65 average cost. Explain the advantages of the Indian business model over its alternatives. Benchmarking for Best Practices: Winning Through Innovative Adaptations (New York: McGraw-Hili. R. M. and Michael J. (a) Explain what is meant by "constrained optimization. "Understanding Organizations as Learning Systems. and J. Shani. Reengineering the Corporation: A Manifesto for Business Revolution (New York: HarperBusiness. Senge. M. 1993). 253-307. 15. The HR . Joshua G.." (b) Indicate the importance of this in managerial economics. "Characteristics of TQM: Evidence from the TITIUSA Today Quality Cup Competition. D. and D." Sloan Management Review (Winter 1994). With the total-revenue curve of Problem 2 and the total-cost curve of Problem 8. Scorecard: Linking People. 1-4. The learning organization is examined in: Becker. and marginal cost for the output rate given. Senge. Strategy and Performance (Boston: Harvard University Press. B." Journal of Business.. "Process Management and the Future of Six Sigma. Hammer.. M. Benchmarking is discussed in: Hammer. and Sherry L. et al. Christopher E. Hammer.. ''TQM's Challenge to Managerial Theory and Practice. Rosett. M. Rosett.
"Optimization as an Internet Resource." Interfaces (March-April 200 I).coca-cola.com Johnson & Johnson: http://www.com DuPont: http://www.att.com Enron: http://www.130-150. 3rd ed..jpmorgan. Silberberg.com Hewlett-Packard: hnp://www.. 1984).com IBM: http://www. 67-7l. mathematical appendix.mobil.: PrenticeHall.1977). Goux. Morgan: http://www. Edward T.com GE Information Services: bttp://www. For a review of differential calculus. Mathematicsfor York: McGraw-Hili. and J. 1990).xerox. now MC!: hnp://www. INTERNET SITE ADDRESSES Following are the Internet site addresses for more information and data on the companies discussed in this chapter: Adelphia Communications: http://www.com Compaq: http://www.com WorldCom.com Mobil: http://www.com AT&T: http://www. "Rethinking the Knowledge-Based Organization. 3rd ed. (New York: McGraw-Hili. (Englewood Cliffs.adelphia.. 2003).usa.com McDonald's: http://www. 2000).com Dell: http://www. William J. Mathematical and other optimization techniques are presented in: Baumol.compaq.citigroup.dupont.com .com Merrill Lynch: http://www.1.jj.com Microsoft: http://www.com Canon: http://www. Michael H. Dowling.66 PART ONE Introduction Zack. 4th ed.com Coca-Cola: http://www.. .com Citigroup: http://www. Alpha. P. Eugene.com Ford: http://www. pp.com J.com Xerox: http://www.dell.ford. Economists ( ew Fourer.ge. Fundamental Methods of Mathematical Economics.mci.ibm." Sloan Management Review (Summer 2003).ml.canon. see: Chiang. R.com Motorola: http://www.enron. Economic Theory and Operations Analysis.microoft. ( ew York: Oxford University Press. Salvatore. pp. Microeconomics: Theory and Applications.mcdonalds. The Structure of Economics: A Mathematical Analysis (New York: McGraw-Hili. P.mot.hp. Dominick.
such as printers and storage. Gateway has seen its business crash-its stock. His business model conquered the PC industry. Dell used its low-cost. At its mid-February (2005) earnings conference call." Fortune: "You're deluding yourself. Truly. Today. Dell announced that technology research firm IDC had determined that it had surpassed HP to become the worldwide leader in PC market share. as HP and IBM often did. Compaq wisely sold out to Hewlett-Packard. and thus it serves as an excellent integrating case study. the company that practically invented the desktop computer. We've moved into servers and 67 . that could ring hollow. The company turned 21 years old in May 2005.6 percent. now fetches $4 and change. with 17." says former GE CEO Jack Welch. Be it in desktops." Rollins: "I'll tell you why we think we're an underdog. and it is now one of the nation's most prominent and respected corporations. and that is. and service better than Dell. and in every instance the guy at the other end of the gun is Michael Dell. and why Dell is now aggressively pushing sales abroad and moving into other markets. Fortune: "You're not an underdog anymore." Dell has thrived as downward-spiraling prices and commodification washed over the PC industry. giving Dell-as one wag puts it-"a bigger butt to kick. with all the accolades and soaring market share. it shows why increased competition lowered profit margins for other U. I He dropped out of college to start his company. we think we are. which traded above $80 five years ago. direct-sales model to ride the wave. It clearly shows the nature and scope of managerial decisions in a current real-world situation-the industry for personal computers (PCs). or in profits.S.INTEGRATING CASE STUDY 1 The Education of Michael Dell ntroductory Comment: The following selection illustrates most of the concepts presented in this part of the text. quality. benefiting the company's customers and bashing its competitors. Success brings unexpected challenges. "No one has pulled the levers of cost. Dell is the leader. PC makers. notebooks. it illustrates the theory of the firm in actual operation and the importance and function of profits in providing the signal for the efficient allocation of society's resources. at age 40. Instead of battling the tide by attempting to erect proprietary systems. I company in the U.S. which unwisely doubled down in this market. and servers. by nearly every unit of measure in the computer hardware business Dell is irrefutably the No. In addition. we had been a PC company. has exited the business by selling out to the Chinese firm Lenovo. It also shows the firm's optimizing behavior as it attempts to minimize costs and maximize profits. And it isn't slowing down either." Rollins: "Well. Now. We've been migrating the last three or four years out of being a PC company. I suggest as much in an interview with Rollins. and margins. Let's quickly review the recent events of the PC industry: IBM. Dell takes his place among the nation's most respected executives. growth. "You have to just say he has done a hell of a job." And of course it was HP's bet on Compaq that ultimately cost Carly Fiorina her job. For years Michael Dell and company CEO Kevin Rollins-Dell remains chairman but turned over the CEO reins to his right-hand man last yearcultivated a chip-on-the-shoulder mentality at their company. But now. but not for Dell. Finally. this is an industry under assault. Michael Dell's company has run through the competition like some kind of sports team from Boston.
The idea may seem basic.6 percent stake he holds in his company is worth some $10 billion. Sure. gotta change. but that's not always easy for a founding CEO. PC sales in the U.S. In 1989 the company developed a family of high-end products code-named Olympic. we're a small guy again. Dell knew how to cobble together PCs on the cheap and sell them on the phone-hardly a threat to the technology orthodoxy. studied by old-school companies like GM and Lockheed Martin. Initially the man and his company were perceived as geek and gimmick. and-in a direct challenge to HP's golden goose-printers. Between 2000 and 2004. In other words. Dell was the optimal machine to purchase. He had no problem going outside the company to find talent. and a mere eight years later cracked the Fortune 500. services. . and that is the extent to which he is almost completely self-taught. "Michael never had an ego problem or a not-invented-here mentality. gotta struggle. mobility products. software peripheral categories. which customers rejected out of hand. Today the 9. at 27. and of course its mistakes have contributed mightily to Michael Dell's business education. we're not the biggest. Dell understood not just the guts of a computer but also what made IBM tick and-more to the point-how to skewer Compaq and why it's not wise to compete with Sony in consumer electronics. and printers. the youngest Fortune 500 CEO ever. was one of the first on Wall Street to recognize Dell's potential 13 years ago. for instance.S. and 3M's McNerney. though. Doubters said his company would never challenge the big boys. training center. gotta do things for the customer. and became a diversified IT company. making him one of the richest men in the world. If you look at those other categories. Michael Dell didn't do time at GE's famed Crotonville. and naturally the subject of case studies at the Harvard Business School. because Dell derives some 50 percent of its revenue from this market. which is why they have pushed into servers and storage. market. He didn't even stick around at the University of Texas long enough to collect his undergraduate degree. but remember that companies like IBM and DEC spent hundreds of millions of dollars developing alternative operating systems and hardware that didn't pan out. Obviously." Sure.. soaking up management acumen at the knee of Jack Welch. So as we've built out a diversified IT portfolio. Home Depot's Nardelli. He began his business tinkering with machines in his University of Texas dorm room. sales grew only 3. but Rollins is describing a fundamental shift at Dell.S. Dell never went to Wharton or the Harvard Business School either. that he couldn't sell servers-and he has proved them wrong every time. Michael Dell has surrounded himself with mentors and consultants when he needed to. Michael Dell's Rise By now you are probably familiar with Michael Dell's star-spangled bio. PC business is nevertheless critical. Dell can still make big market-share gains-unlike Microsoft and Intel-but the graying of the U.68 PART ONE Introduction storage. After early success. it was acknowledged that the man and the company had become players in -the PC industry. And today the man and the company have become global business paradigms. that his model wouldn't work overseas. particularly in the huge but mature U. it's pep-talk stuff. True. N. Unlike CEOs such as GE's Immelt. There is one key point in Michael Dell's story that is overlooked. and it keeps this notion of the underdog. we're not the leader. being the premier Wintel vendor has worked like a charm for Dell. Dell and Rollins understood that their company would need new growth drivers. Until recently the company's business model was to be the world's most efficient assembler and distributor of Wintel technology. if a customer wanted a PC with an Intel chip and Microsoft software. climbed on average 16 percent annually. Between 1996 and 1999. Dell killed the products hastily rather than allow engineers to convince him that they could be tweaked. a general partner with Azure Capital in Silicon Valley who. making him. Looking ahead.6 percent per year. as a former analyst at Sanford Bernstein. however." says Mike Kwatinetz. analyzed by management consultants.Y. The company's ride has not always been smooth. but lately growth in the PC business has been slowing down.
"If you're a manager and you're not addressing [employee] issues. with about $1. Dell wasn't on the radar screen.) Besides the U. "One has to measure effectiveness. But a funny thing happens on the way to the bottom line: Dell's net margin checks in at 6 percent." says Dell. Employees rate their bosses-including Michael and Kevin=-every six months in "Tell Dell" surveys. You sell the customer a razor. though interestingly IBM ranks higher than Dell on the industry list (perhaps because Dell's competitors didn't want to vote for a company that's eating their lunch). too. or less than 1 percent of sales. Dell is now the No. on America's Most Admired Companies list. One has to measure the value. both inkjet and lasers. Dell is just above 33 percent. of course.. but the real margins are in the blades or. (Atari and Kaypro were big back then. As for market share in the U. The folks at Dell beg to differ. As we order. "And if you consistently score in the bottom rungs of the surveys. Dell's Move into Printers The latest great battle in the PC business isn't in computers but in printers. who's been at Dell for 18 years.1 billion in PC sales. Dell's market-share gains would be impressive enough. I point out that Dell spends less than $500 million a year on R&D. while the others are close to 1 percent. Dell began selling printers. was the industry leader with a 27 percent U. and at his urging the company focused on the one notebook that worked best and scrapped the rest of the line. or in this case a printer. and the others. (At that point if you had asked the voters. two years ago. Now Dell." says Clarke. IBM was No. respectively.. a point that makes the folks at Dell a little prickly and defensive. and you now have a captive customer who will buy from you for years. "It means they're spending a lot more money than we are.4. Rollins. "Our goal this past year was to sell five million printers. market share. to fix the mess. selling.S. IBM. Recently I had dinner in Austin at a place called Kenichi with Jeff Clarke. . Michael Dell brought in John Medica. Its worldwide revenues are growing 19 percent now-that's seven percentage points higher than the rest of the industry-while profits are growing even faster. wooded valley. in that its gross margin of 18 percent is actually lower than IBM's and HP's. much like the famous Gillette razor-blade model. which produces some 70 percent of that company's operating profit..2. (Worldwide it's one in six." Clarke argues that Dell's R&D effort is focused solely on open-standards-based computing (read Wintel). and the rest of management are working hard on the fuzzy stuff. That's because Dell is generally selling lower-margin machines. and Michael says that so far the effort is corning along fine. while Commodore. a direct result of the cost-effectiveness of selling directly to customers rather than through a middleman. the cartridges. Dell also spends less on research and development than HP. and Apple and Tandy came in at No. Dell is now waging war on Hewlett-Packard's vaunted imaging and printing division.) As for PC market share. Dell's competitors say it is evidence that Dell doesn't innovate. secluded. 'Maybe this isn't the right job for you. while HP and IBM layout upward of 6 percent. remember?) Fast-forward to today (2005) and you'll notice that HP and IBM are no longer in the Most Admired's top ten.3. senior VP of products and head of R&D at Dell." he says. Why is that? Because Dell's operating expenses-i. the man behind Apple's PowerBook.3 and No. but the company also has the growth and profitability throttles open all the way. we're going to look at you and say. More recently Dell and Rollins discovered that their subordinates perceived them as cold technocrats. To destroy this business would be devastating to HP. which means that today one in three PCs shipped is a Dell. in the case of the printer. you're not going to get compensation. and administrative-are so low.e. Canada.INTEGRATING CASE STUDY 1 The Education of Michael Dell 69 Four years later poor quality derailed Dell's notebook line. Dell's margins are revealing.''' Just to give you an idea of how far Dell has come: 21 years ago (when the company was founded in 1984) IBM and HP were voted No. We tend to be a very efficient and a very effective spender of our dollars. you're not going to get promoted. Printing is what's known as an installed-base business.1 brand in Britain. while the competition spends much of its R&D resources on proprietary systems that often don't cut it in the marketplace.S. "What's a Dell?" they probably would have told you it was a small.1 and No. general.S. and we did that. and Ireland (all top-ten markets).
All this is reflected in one eye-catching statistic: In 1998. "With our business model." but he insists that his machine's lower price will erode HP's business. The others are producing machines to match a sales forecast." While the number of employees at the Winston-Salem plant is fairly modest. Winston-Salem? The notion of building a giant new computer-assembly plant in the U. seven years later. what is unassailable is that this company is a manufacturing marvel. That suggests to me that five or ten years from now this is going to be a very significant business for us in terms of revenues and profits. while IBM has 20 days and HP has 28. and notebooks. Dell admits that margins are "not as great as the other businesses. the company does $900. "We challenged our manufacturing guys to triple the throughput. is. For instance. Just click to reorder one of those high-margin cartridges! And of course there is no middleman to take a slice of the profit. The plants here are running flat out. I'm sure they were saying the same kind of thing. the big rig of the PC business. You would be correct." But Dell and Rollins saw that coming. . Told of this. The company urges its suppliers--everyone from drive makers to Intel-to warehouse inventory as close to its factories as possible. Any cost that can be "shared with" (read "transferred to") those suppliers. A fundamental difference between Dell and the competition is that at Dell. counters by saying that Dell succeeded in PCs because that business was commodifying. Dell produced $745. if you guessed that Dell's factories are running full-tilt boogie right now.?) Pay a visit to a Dell plant and you can watch workers unload a supplier's component almost right onto the assembly line.000 of sales per employee (HP comes in at $540. the state of North Carolina hopes the factory will attract dozens of other businesses to serve Dell and turn into something really large. while printers aren't. Source: Adapted and reprinted with permission from Andy Serwer. He also believes that Dell's partners (Dell outsources the making of printers) won't let it get big. Obviously.. The advantages that Dell derives from this model on the factory floor are tangible and enormous. head of printers and PC business at HP. mind you-is. All rights reserved. a Dell executive responded. and in late 2003 the company began searching for a site for a mas ive new plant. 2005). has arrived. 73-82. which I think is pretty remarkable. When Michael Dell first appeared on the business horizon a little more than a decade ago. Where was the most cost-effective location? Taipei? Mumbai? Kuala Lumpur? Would you believe. @ Time Inc. every single machine is made for a specific order. Might be a pretty good bet. You know it's going to take a while. but there's no question it's a big rig and no question it's coming. to put it mildly. industry sources say Dell now carries only four days of inventory. Dell has an ever-improving feature that will alert the customer when he's getting low on ink. Can Dell really make money manufacturing computers in North Carolina? "Our bu iness in North America continues to grow in increments of $6 billion to $7 billion a year-but where are you going to make all the stuff?" asks Dell. pp. (He maintains that a Dell color laser is roughly half the price of an HP and that the toner is 45 percent less. If there are still any questions. The value equation is better building close to the customer. Adds Dell: "We need capacity." Fortune (March 5. but Dell's engineers are digging into this business to make the machines work seamlessly with Dell PCs. it just does not make sense to go off-shore. and Kodak are manufacturing Dell's printers." Yes. it's true that Lexmark. then. Whether or not Dell is an innovator or will reign supreme in printers. let it be said that Dell. Ark." For now. seven days a week. counterintuitive.000).--east of the Mississippi.S. Dell's manufacturing prowess doesn't stop there.S.) Vyomesh Joshi. low inventory frees up mountains of cash for Dell that is otherwise tied up at IBM and HP. (Does that remind anyone of a certain large retailer headquartered in Bentonville. servers. Now. you could see the potential of his business in the same way you can see an 18-wheel truck coming at you ten miles across the Bonneville Salt Flats. "The Education of Michael Dell. "Go back and see what HP said about us in servers five years ago. and they did it. Fuji.000 of revenue per employee." says Rollins.70 PART ONE Introduction "We now have about 20 percent of the inkjet-printer market in the U.
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