By applying the tools of probability, smart businesses can serve the right customers in the right ways.
The internet enables companies to serve customers faster than ever, but it has also made people more impatient, often expecting an instant response. With services representing an important sector of the U.S. and other Western economies, managing those demands and enhancing quality and efficiency will be an increasingly critical component to how businesses compete. But sometimes, the best way to handle ever-higher customer expectations is to under-deliver in some areas or to certain segments so you can be right on target where it matters most. That’s what Amy R. Ward, the Rothman Family Professor of Operations Management at the University of Chicago’s Booth School of Business, has found in her research on operational efficiency.
As a graduate student, Ward became intrigued by queueing — the methods companies use to manage customer wait time — and she went on to explore the topic in her doctoral thesis. Her interest in service systems has led her to examine how customer and employee characteristics can play into decisions about staffing and capacity. Although giving customers what they want — and as rapidly as possible — is certainly a worthy goal for service organizations, Ward notes that businesses can’t always afford to do this. She argues that companies can use probability to understand how best to align resources with customer demand.
MIT Sloan Management Review contributing correspondent Frieda Klotz recently spoke with Ward about her work. What follows is an edited and condensed version of their conversation.
MIT Sloan Management Review: How did you become interested in applied probability as a tool for managers?
Ward: As an undergraduate, I was influenced by two professors. One was using probability and statistics to do consulting work for Lockheed Martin, the aerospace defense company, on missiles. The other did work for pharmaceutical companies, assessing the shelf life of active ingredients in drugs in clinical trials. I was fascinated by how each of them relied on similar mathematical methodology to solve very different, real problems.
Every company has customers and relies on inputs, either raw materials or something closer to a finished good. Operations focuses on how to manage processes efficiently in terms of employees, cost, and quality.