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Christoph Loch

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Papers by Christoph Loch

Product selling versus pay-per-use service: a strategic analysis of competing business models

We present a model that suggests possible explanations for the observed proliferation of "pa... more We present a model that suggests possible explanations for the observed proliferation of "pay-per-use" (PPU) business models over the last two decades. Delivering "fractions" of a product as a service offers a cost advantage to customers with lower usage but requires extra delivery costs. Previous research focused on information goods (with negligible production costs) and predicted that PPU, when arising as a differentiation to selling in equilibrium, fundamentally achieves lower profits than selling. We extend the theory by covering goods with any production cost, in duopolistic competition. We show that PPU business models can be more profitable than selling (especially at mid-range production costs), as long as their delivery costs are not too high, a requirement that is more easily fulfilled as new technologies reduce these costs. Moreover, if firms are imperfectly informed about their customers' usage profiles, PPU's effective pricing of customers&#...

A Process Framework for Behavioral Issues in MOT

Behavioral Operations Management explicitly considers the effects of human behavior in process pe... more Behavioral Operations Management explicitly considers the effects of human behavior in process performance, influenced by cognitive biases, social preferences, and cultural norms. This broadening of Operations is even more critical in the context of the Management of Technology (MOT) than in the operations of established ongoing processes, because in innovation, people do not know well which tasks they will have to perform, they are exposed to risks, and they are subject to emergent interdependencies, all of which push psychological biases and social preferences to the fore. This article gives an overview of important behavioral challenges in MOT, setting them in the context of the phases of the stage gate process on the one hand, and the three levels of individual biases, group member interactions, and large group interactions (e.g., culture) on the other hand. The review suggests that previous work has not addressed a number of important questions in empirical effects and theoreti...

Has Megaproject Management Lost Its Way?

Oxford Handbooks Online, 2017

This chapter illustrates the management of uncertainty, of stakeholders, and of contractors, and ... more This chapter illustrates the management of uncertainty, of stakeholders, and of contractors, and then draws on history—the Manhattan Project to develop the atomic bomb, and Cold War-era space and defense projects such as Polaris and Apollo—to show that knowledge of how to overcome these issues has long existed and could be used effectively in some megaprojects today. For example, Manhattan Project manager General Groves realized that big unforeseeable uncertainties in designing atomic weapons required discrete project management skills including flexibility, but these techniques have since been pushed aside in a managerial push for control that became the phased-planning or “stage-gate” process philosophy. While some successes in the 1940s and 1950s may not be repeated today with the same managerial methods, because stakeholder complexity was lower at a time when huge projects served “national priorities,” it is argued that some mid-twentieth-century managerial techniques would help...

Implementing Operations Strategy: How Vertical and Horizontal Coordination Interact

Production and Operations Management, 2016

We study the implementation of operations strategy at six German manufacturers in mature business... more We study the implementation of operations strategy at six German manufacturers in mature businesses. Search theory argues that vertical coordination (i.e., unilateral top-down adjustment of lower-level search actions) balances stability against the improvement potential enabled by frontline search and also that horizontal coordination (i.e., bilateral adjustment among lower-level search actions) is required to ensure compatibility among the initiatives generated in various organizational subunits. Much less is known about how vertical and horizontal coordination interact in operations strategy implementation-that is the focus of this paper. We first study how horizontal and vertical coordination affect the compatibility and creativity of distributed search, triangulating our cross-level interviews with data on the manufacturers' productivity gains and their strategic projects. We then examine whether and how vertical and horizontal coordination interact. Our case comparisons suggest that leaving either one of them "loose" and keeping the other one "tight" results in a useful balance between compatibility and creativity; in contrast, tightening both types of coordination suppresses creativity and loosening both types risks incompatibility of initiatives across units. These results lead to a theoretical framework that identifies vertical and horizontal coordination as partial substitutes for operations strategy implementation.

Behavioral Operations Management

Foundations and Trends® in Technology, Information and Operations Management, 2005

Behavioral Operations Management investigates new developments around behavioral components-"peop... more Behavioral Operations Management investigates new developments around behavioral components-"people issues"-in operations management (OM). While these "people issues" are not new, OM has not dealt with them in a serious or consistent manner until the last 10 years or so. What is new is the emergence of a set of methods and structured areas of study that allow researchers to study these issues within the OM paradigm. The authors provide a definition of Behavioral OM and survey a number of relevant behavioral issues and their applications to the existing OM research. Finally, the authors propose that culture studies in OM may represent a promising direction of future behavioral OM research.

Spiraling out of Control: Problem-Solving Dynamics in Complex Distributed Engineering Projects

Understanding Complex Systems

Top-down, bottom-up, or both? Toward an integrative perspective on operations strategy formation

Journal of Operations Management, 2014

Operations strategy is formed via complex processes that transpire in multiple directions at mult... more Operations strategy is formed via complex processes that transpire in multiple directions at multiple organizational levels. While most previous studies focus on the "macro-level" process of strategy formation from the dominant top-down perspective, this study investigates the "micro-level" process of strategy formation that governs interactions among competitive priorities, objectives, and action plans within operations. Using 111 (59 top-down and 52 bottom-up) action plans collected from six German manufacturing plants, we build on Kim and Arnold's (1996) framework and propose an integrated process model of operations strategy formation that encompasses both top-down planning and bottom-up learning. We also identify a contingency factor that affects their balance: centralized versus decentralized organizational structure. Finally, based on analysis of their respective strategic content, we provide evidence concerning the complementary roles of top-down and bottom-up action plans in operations strategy.

Supervising Projects You Don't Understand - Do Your Major Projects Receive the Leadership They Need?

SSRN Electronic Journal, 2011

This study addresses the dilemmas and challenges facing senior executives who serve on steering c... more This study addresses the dilemmas and challenges facing senior executives who serve on steering committees or other supervising bodies of large and strategically important initiatives. They ultimately bear responsibility, but they are not in a position that allows them to understand all the details of what is going on. They do not have the time, they are distant from the actual work processes, and, after all, executives cannot be experts on everything. These initiatives are often cross-functional, involve breaking new ground, and bring together areas outside of executives' normal expertise. Furthermore, since this these initiatives are temporary, normally in the form of a project, executives cannot rely on learning over time or draw upon established corporate practices. In this situation, how can executives provide the guidance and supervision these initiatives need? How can they avoid abdicating responsibility and becoming spectators to a project run by experts? The management profession has a solid understanding of what project managers and their teams should do. But we do not well understand the challenge for the steering committee that supervises the project managers. The added difficulty comes from organizational distance: hidden information, multiple areas of expertise, non-aligned interests, and other changing circumstances. Some projects fail not because of project management itself, but because of failure of the supervisors to provide the necessary senior leadership and governance to the project. Thus, project supervision has a very important effect on project success. But supervising a temporary, one-off strategic initiative that enters new territory is very different from managing an ongoing business. When the setting is temporary, and separate from your regular executive role, how deeply should you delve into the project? How do you set targets, evaluate progress, align the initiative with the organization, and evaluate the people? Based on interviews with 17 senior managers in three countries (Sweden, Germany and France), plus five investor-board members of start-ups in Shanghai, we make recommendations to senior managers on the composition of a good steering committee and how it should conduct itself. We find that the two dominant challenges of large projects are uncertainty as well as goal agreement among stakeholders. We discover strategies for shaping the steering committee, understanding the project, setting targets and measuring progress, getting the right information from the project, responding to surprises (which always happen in large projects), and for motivating and evaluating the people.

Product Development and Concurrent Engineering

SpringerReference

Concurrent engineering facilities (CEFs) are successfully used in the aeropsace sector to design ... more Concurrent engineering facilities (CEFs) are successfully used in the aeropsace sector to design systems and services that that fulfill the requirements. Model-based systems engineering (MBSE) enables the effective (i.e., unambiguous) communication in the collaborative activities within concurrent engineering and service systems engineering facilities. The advantages obtained by the MBSE approach can be further scaled up by an innovative approach that take into explicit account the representation of the inter-systems aspects, i.e., those aspects, namely interfaces, that stay in between the system, its subsystems and external entities (other systems and organizations). Such an approach, briefly denoted as a Model-based Interface Engineering (MBIE), brings several benefits to the CEF activities. This paper illustrates the integration of the Interface Communication Modelling Language (ICML) into the existing MBSE methods for the CEF software framework VirSat, by identifying the business needs driving the use of MBIE approaches and showing example application scenarios. concept/design that fulfills the system requirements, in a timeframe that ususally spans over two or three weeks. In such a context, the advantages obtained by the MBSE approach, in terms of enhanced communications, reduced development risks, improved quality, increased productivity and enhanced knowledge transfer, can be further scaled up by innovative approaches that take into explicit account the representation of the inter-systems aspects, i.e., those aspects, namely interfaces, that stay in between the

Project Selection Under Uncertainty

International Series in Operations Research & Management Science, 2004

Softcover reprint of the hardcover 1 st edition 2004 AII rights reserved. No part of this work ma... more Softcover reprint of the hardcover 1 st edition 2004 AII rights reserved. No part of this work may be reproduced, stored in a retrieval system, Of transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording, or otherwise, without the written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work.

Industrial Excellence

The winners communicate more measures to more recipients. .. 11.5d The best factories involve the... more

Rush and Be Wrong or Wait and Be Late? A Model of Information in Collaborative Processes

Production and Operations Management, 2009

Business processes have become more simultaneous and collaborative in the recent past. In simulta... more Business processes have become more simultaneous and collaborative in the recent past. In simultaneous processes, multiple parties must adapt to one another in real time as decisions evolve. For example, New Product Development (NPD) requires collaboration in the context of Concurrent Engineering, and Supply Chain Management (SCM) in the context of collaborative planning. In both cases, parties must modify decisions based on preliminary information about what the other parties are doing, information that is not fully precise or stable. This article develops a generalized model of real-time decision making based on preliminary information, which applies both to NPD and SCM. The model offers insights on when to commit to a course of action, and we derive seven principles that help dealing with preliminary information.

How Provider Selection and Management Contribute to Successful Innovation Outsourcing: An Empirical Study at Siemens

Production and Operations Management, 2011

It is becoming increasingly common to involve external technology providers in developing new tec... more It is becoming increasingly common to involve external technology providers in developing new technologies and new products. Two important phases involved in working with technology vendors are vendor selection and vendor management. Because for both steps theory development of key decision guidelines is still immature, we use detailed case studies of 31 innovation outsourcing projects at Siemens to develop grounded theory on provider selection criteria and on project management success drivers. A selection criterion often associated with successful outsourcing is the provider's “track record” or previous experience. Our cases suggest that there is no standard “track record” for success but that a “match” between the client firm's outsourcing motivation and the provider's strengths appears to be a necessary condition for a successful outsourcing collaboration. As to the second phase—managing the vendor—we identify a number of operational project success drivers. There se...

Exchanging Preliminary Information in Concurrent Engineering: Alternative Coordination Strategies

Organization Science, 2002

Successful application of concurrent development processes (concurrent engineering) requires tigh... more Successful application of concurrent development processes (concurrent engineering) requires tight coordination. To speed development, tasks often proceed in parallel by relying on preliminary information from other tasks, information that has not yet been finalized. This frequently causes substantial rework using as much as 50% of total engineering capacity. Previous studies have either described coordination as a complex social process, or have focused on the frequency, but not the content, of information exchanges. Through extensive fieldwork in a high-end German automotive manufacturer, we develop a framework of preliminary information that distinguishes information precision and information stability. Information precision refers to the accuracy of the information exchanged. Information stability defines the likelihood of changing a piece of information later in the process. This definition of preliminary information allows us to develop a time-dependent model for managing inte...

Managing Complexity and Unforeseeable Uncertainty in Startup Companies: An Empirical Study

Organization Science, 2009

Novel startup companies often face not only risk, but also unforeseeable uncertainty (the inabili... more Novel startup companies often face not only risk, but also unforeseeable uncertainty (the inability to recognize and articulate all relevant variables affecting performance). The literature recognizes that established risk planning methods are very powerful when the nature of risks is well understood, but that they are insufficient for managing unforeseeable uncertainty. For this case, two fundamental approaches have been identified: trial-and-error learning, or actively searching for information and repeatedly changing the goals and course of action as new information emerges, and selectionism, or pursuing several approaches in parallel to see ex post what works best. Based on a sample of 58 startups in Shanghai, we test predictions from prior literature on the circumstances under which selectionism or trial-and-error learning leads to higher performance. We find that the best approach depends on a combination of uncertainty and complexity of the startup: risk planning is sufficien...

Selectionism and Learning in Projects with Complexity and Unforeseeable Uncertainty

Management Science, 2004

Companies innovating in dynamic environments face the combined challenge of unforeseeable uncerta... more Companies innovating in dynamic environments face the combined challenge of unforeseeable uncertainty (the inability to recognize the relevant influence variables and their functional relationships; thus, events and actions cannot be planned ahead of time) and high complexity (large number of variables and interactions; this leads to difficulty in assessing optimal actions beforehand). There are two fundamental strategies to manage innovation with unforeseeable uncertainty and complexity: trial and error learning and selectionism. Trial and error learning involves a flexible (unplanned) adjustment of the considered actions and targets to new information about the relevant environment as it emerges. Selectionism involves pursuing several approaches independently of one another and picking the best one ex post. Neither strategy nor project management literatures have compared the relative advantages of the two approaches in the presence of unforeseeable uncertainty and complexity. We ...

Problem–Solving Oscillations in Complex Engineering Projects

Management Science, 2003

Coordination among many interdependent actors in complex product development projects is recogniz... more Coordination among many interdependent actors in complex product development projects is recognized as a key activity in organizational theory. It is well known that this coordination becomes progressively more difficult with project size, but we do not yet sufficiently understand whether this effect can be controlled with frequent and rich communication among project members, or whether it is inevitable. Recent work in complexity theory suggests that a project might form a “rugged landscape,” for which performance deterioration with system size is inevitable. This paper builds a mathematical model of a complex design project that is divided into components (subproblems) and integrated back to the system. The model explicitly represents local component decisions, as well as component interactions in determining system performance. The model shows, first, how a rugged performance landscape arises even from simple components with simple performance functions, if the components are int...

Dynamic Portfolio Selection of NPD Programs Using Marginal Returns

Management Science, 2002

Selecting program portfolios within a budget constraint is an important challenge in the manageme... more Selecting program portfolios within a budget constraint is an important challenge in the management of new product development (NPD). Optimal portfolios are difficult to define because of the combinatorial complexity of project combinations. However, at the aggregate level of the strategic allocation of resources across product lines, investment in a program is not an all-or-nothing decision, but can be adjusted, resulting in a higher or lower program benefit (e.g., higher or lower quality). In some cases, resources can be adjusted even for individual projects. With this insight, one can use marginal analysis to optimally allocate the scarce budget. This article develops a dynamic model of resource allocation, taking into account multiple interacting factors, such as independent or correlated, uncertain market payoffs that change over time, increasing or decreasing returns from the NPD investment, carry-over of the investment benefit over multiple periods, and interactions across ma...

Project Management Under Risk: Using the Real Options Approach to Evaluate Flexibility in R…D

Management Science, 2001

Managerial flexibility has value in the context of uncertain R…D projects, as management can repe... more Managerial flexibility has value in the context of uncertain R…D projects, as management can repeatedly gather information about uncertain project and market characteristics and, based on this information, change its course of action. This value is now well accepted and referred to as “real option value.” We introduce, in addition to the familiar real option of abandonment, the option of corrective action that management can take during the project. The intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility. However, R…D managers face uncertainty not only in payoffs, but also from many other sources. We identify five example types of R…D uncertainty, in market payoffs, project budgets, product performance, market requirements, and project schedules. How do they influence the value from managerial flexibility? We find that if uncertainty is resolved or costs/revenues occur after all decisi...

On Uncertainty, Ambiguity, and Complexity in Project Management

Management Science, 2002

This article develops a model of a project as a payoff function that depends on the state of the ... more This article develops a model of a project as a payoff function that depends on the state of the world and the choice of a sequence of actions. A causal mapping, which may be incompletely known by the project team, represents the impact of possible actions on the states of the world. An underlying probability space represents available information about the state of the world. Interactions among actions and states of the world determine the complexity of the payoff function. Activities are endogenous, in that they are the result of a policy that maximizes the expected project payoff. A key concept is the adequacy of the available information about states of the world and action effects. We express uncertainty, ambiguity, and complexity in terms of information adequacy. We identify three fundamental project management strategies: instructionism, learning, and selectionism. We show that classic project management methods emphasize adequate information and instructionism, and demonstra...