It’s time to rethink what we mean when we talk about “operations.” Operations is not only about manufacturing. Operations is and has always been what gives an organization the power to act: to create value for its customers; to capture value for its shareholders; and to share value with its ecosystem. In the era of ubiquitous digital technologies, operations empowers an increasing variety of organizations, ever more modular, connected, and distributed, ever more centered on software and data.
The field of operations has gone through some major evolutions over its history. Growing out of the industrial revolution of the late 1800s, the field took off as the modern economy emerged from the new phenomenon of volume manufacturing. Innovators like Eli Whitney (he of the cotton gin) led the way with the popularization of manufacturing systems that transformed an artisan economy based on “filing and fitting” parts.
Newly popular notions of “interchangeable parts” were first applied to the design of muskets and enabled a new breed of industrialists to invent and hone a modular system of production, in which individual components could be manufactured independently and at scale. This gradually led to the concepts of logistics, supply chains, and assembly lines, and formed the foundations of the “American System of Manufacturing,” which grew during the first half of the 20th century and peaked during the 1950s and 60s. In the first half of the twentieth century, operations was focused only on manufacturing. (In fact, at one time Harvard Business School offered practical classroom demonstrations on the use of lathes and milling machines.)
In the 1960s, the field of operations research exploded, developing a broad variety of analytical methods to analyze and optimize the flow of goods and information in manufacturing systems. Use of these methods spread beyond manufacturing to a variety of service contexts, ranging from banks to electric utilities. This led to the establishment of service management and service operations as core subjects in the operations field. The evolution continued during the 1980s and 1990s, as new generations of digital technology began to revolutionize the fundamentals of operating excellence and extend the field to the management of companies delivering software-based products and services. Yes, Microsoft and Yahoo! needed operations too.
From its earliest days, digital technology has enabled operations. After all, the management of information has always been the key to operating excellence. Whether we optimize forecasts through operations research at Nike or order inventory through Toyota’s Kanban system, operating capabilities hinge on managing and optimizing digitized information. And from the days of the first commercial IBM mainframes in the late 1950s, computers have driven increasing efficiency in manufacturing and service institutions.
So, what is different now? The recent ubiquity of digital technology and its exploding range of applications in web services, mobile, and now the internet of things means that the development and delivery of software services is starting to transform the very fabric of our business and operating environments. If the essence of operations is providing economic agents with “the power to act,” digital technology is transforming the nature by which that power is defined and delivered. Increasingly, the design and delivery of software services is the entirety of a firm’s operating environment. Whether we design the new Ford Mustang, a new financial investment product, or the next version of Snapchat, the bulk of the organization’s operating capabilities are software-based. As such, the design, management, and deployment of software has become central to a firm’s operating model.
Digital technology is also enabling completely new operating models that are increasingly open, distributed, and shared across thousands of organizations and individual contributors. These new models have enabled close to 9 million independent developers to contribute apps to the iOS and Android mobile platforms. They’ve enabled Uber’s 2,000 internal employees to manage the complex logistics of 200,000 drivers. And they’ve enabled WhatsApp to grow to over 450,000 users with fewer than 30 employees. As such, the design of development tools, operating system APIs, or the user onboarding process for a mobile application have become as crucial to operating excellence as production planning or inventory theory.
And yet, as operating models rely increasingly on digital networks connecting people and organizations to enable their “power to act,” traditional notions of operations strategy and supply chain management are more crucial than ever. In a huge ecosystem of organizations, for example, supply chain management becomes increasingly critical to the buildup of data center infrastructure. Moreover, digital technology is becoming increasingly ubiquitous as the traditional analog and digital worlds merge. Not only do old firms need to understand relatively new digital technology, but relatively new firms (see Microsoft, Google, and Amazon) need to understand and master traditional operating concepts.
So let’s not equate the field of operations with the American system of manufacturing. Silicon Valley also needs the power to act.
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