Repenning, Nelson, "Modeling the Failure of Productivity Improvement Programs", 1996

Modeling the Failure of Productivity Improvement Programs
Nelson P. Repenning
Assistant Professor
MIT Sloan School of Management
50 Memorial Drive
Cambridge MA 02142
nelsonr@mit.edu
for additional information, see also http://web.mit.edu/jsterman/www/
This paper is also available on the virtual proceedings of the 1996 System Dynamics
Conference, at http://web.mit.edu/jsterman/www/SD96/home.html

This paper develops a simple model of a manufacturing firm in which a successful
productivity improvement program is implemented. The model is used to show how a
successful improvement program can fail to significantly improve a firm's financial
performance. It is argued that the potential rates of improvement in the firm’s capabilities
can differ substantially based on the intrinsic complexity of those processes. The spread of
improvement skills and commitment to the effort is modeled as a diffusion process among
employees in a given area. The allocation of resources to support that commitment is
represented as a dynamic adjustment process. The formulation, with the assumption of
locally rational decision rules, results in differential rates of improvement in the capacity
and demand generating areas of the firm. If excess capacity results, interactions with
traditional accounting, pricing, and human resource policies can create unanticipated side

effects that result in sub-standard performance or failure of the program. Policies for

mitigating these problems are discussed and analyzed.

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Related Work:

The Improvement Paradox: Three Essays on Process Improvement
Initiatives

Ph.D. Dissertation
MIT Sloan School of Management
May 1996

Abstract

The dissertation includes the paper described above, and two additional essays:

Agency Problems in Process Improvement Efforts

In this paper I study the problem faced by a firm that tries to induce its workforce to reveal
information leading to productivity improvements when those improvements may lead to
lay-offs or ‘downsizing’. The analysis begins with a discussion of the conditions under
which productivity improvements are likely to lead to lay-offs. I then develop a model in
which the firm attempts to extract productivity improving information from its workforce
by providing monetary incentives for such revelations. The impact of different contractual
and institutional assumptions on the firm’s ability to implement such programs is __
investigated. There are two main results of the analysis. First, the employees’ ability to
collude or participate in binding side agreements — to write contracts with each other or to
join a union — is a critical determinant of the firm’s cost of implementing new programs.
Second, the program’s perceived impact on the firm’s survival strongly influences the
firm’s cost and the ability of employees to profitably collude. These results allow me to
explain the differing experiences of firms that use such programs, and to generate some
insight into the effect that a firm’s financial health has on its ability to implement programs
like TQM.

A Tale of Two Improvement Efforts: Towards a Theory of Process
Improvement and Redesign

The purpose of this paper is to lay the foundation for a theory of process improvement and
redesign that accounts for both the physical and the behavioral components of the
environment in which improvement is taking place. The main tools for theory development
are intensive case study research, the development of stock/flow and feedback diagrams,
and the analysis of existing literature. The results from two intensive case analyses of
process improvement efforts with a major US manufacturing company are reported. The
main thrust of the argument is that, contrary to the popular conception. TQM and re-
engineering are complementary activities, and a more general improvement and redesign
methodology can be developed using precepts from each theory. TQM offers an
organizational structure and decision making methodology, and re-engineering provides a
tool for challenging the dominant mental models that guide the organization.

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