|
Journey Back in Time |
| All
are familiar with the Industrial Revolution of the 18th
Century, marked by the introduction of power-driven machinery
and changes in the prevailing types and uses of such machinery.
However, many are unfamiliar with what could be categorized
as the Industry Evolution of the 19th Century,
which has spilled over throughout the 20th Century. This
critical and unique change process introduced a number
of new organizational mantras that focused more on how
industry (or a business) was to be run across time - through
management structures, practices and science - instead
of on what was to be operated today from a purely technical
perspective (1). |
|
Organization and Structure: |
| In
the late 1800s, Andrew Carnegie (1835-1919) recognized
the need for a centralized organization structure for
the US steel industry. Nearly congruently, Henri Fayol
(1841-1925) in France advanced a similar structural concept
for Europe's then highly fragmented coal industry. Carnegie
and Fayol's visionary organization structure changes were
the critical ingredients for turning around those two
major and capital intensive but floundering industry sectors.
Elihu Root (1845-1937), Teddy Roosevelt's Secretary of
War and Carnegies's legal advisor, embarked on a similar
major centralized organizational change process in 1901
for the highly fragmented US Army, without which the Army's
effectiveness in WW1 would have been greatly in doubt. |
|
Scientific Management: |
| Also
around the turn of the century, Frederick Winslow Taylor
(1836-1915) began advancing his revolutionary theories
on scientific management at he Mayo Clinic and the US
Army's Watertown Arsenal. Winslow's approach to running
a business focused on activities-based efficiencies of
management, wherein the (dominant) owners and their (lowly)
helpers, without organizational structure, introduced
with great positive effect the first wave of what we now
call optimization improvement work process. Flowing from
these early evolution changes, Herbert Hoover, then US
Secretary of Commerce, and Thomas Masaryk, founder of
the New Czech Republic, convened the First Global Management
Conference in Prague in 1922. This unique global platform's
innovative focus was on centralizing the structures of
organizations and advancing Winslow's theories of scientific
management. |
|
Decentralization and Functional Management: |
| About
the same time, Pierre S. du Pont (1870-1954) in the US
chemical industry and Alfred Sloan (1875-1966) at General
Motors began to recognize the need for decentralized/functional
organizational structures to accommodate for the weakness
of the pure centralized concepts of Carnegie and Fayol
and Taylor's focus on work processes efficiencies. Together
they were leaders in the next industry evolution step,
which led to what we know today as the classical decentralized,
functional manufacturing enterprise structure that was
extremely effective at its first introduction. |
|
Production Line Efficiency: |
| Not
to be overlooked in this evolution process is Henry Ford
(1836-1947), who fully embraced the centralized concepts
of Carnegie and Fayol plus the efficiencies concepts and
the owners and their helpers context of Taylor. Within
the purity of Ford's construct, he literally autocratically
willed his company to focus on top down driven operating
efficiencies to produce a very narrow and defined product
line, wherein Ford sold what Ford made so well, but not
necessarily what the customer wanted. As an important
side-note to history here, although Ford was initially
highly successful in this centralized efficiency drive,
his absolute autocratic adherence to it nearly bankrupt
his company in the late 1930s and early 1940s. |
|
"Keiretsu I": |
| A
further significant major industry evolution step emerged
in the 1920s and 1930s from the efforts of William S.
Durant (1861-1947) and, yet again, Alfred Sloan at GM
with their introduction of what we could call Keiretsu
I, the first true producer-supplier alliance joint venture
structure. The Durant-Sloan initiative became the foundation
of what we know today as the Japanese-based Keiretsu enterprises.
This alliance endeavor, with a focus on joint planning,
product development, and cost control-all meshed into
a separate but linked production whole-created decisive
advantages in customer responsiveness, speed, and cost,
a 30% edge over everyone else, including Ford. However,
this highly-effective organizational mantra at its inception
turned into an albatross for GM in the late 1930s with
the emergence of the United Auto Workers (UAW) union movement
into GM's alliance-based supplier chain. The lessons here
for GM was that just like for Carnegie, Fayol, Taylor,
Ford, and others, what worked well at the time it was
needed did not represent the unchanged way for the future.
Industry Evolution is constantly required, no matter how
well a key change step works at the time of it innovation
and introduction. |
|
Technology, Product-Development Innovation: |
|
Another
unique twist to the industry evolution of the 20th Century
has been the change process brought about by the roles
of technology, product development, and innovation.
A clear relationship of business success via this aspect
of changes has emerged with a rush, especially since
the 1950s. Here we have some clear winners and obvious
losers. ATT's Bell Labs, with an impeccable history
rich in technology-based, innovative product development,
created the transistor but saw no use for it in its
core industry - telecommunications. Consequently, the
technology was sold at $25,000 per user to such enterprises
(or their forerunners) as Sony, Intel, and Compaq. ATT's
myopia in failing to change and see new horizons for
its own technology across industries instead of just
within its own, fed huge successes for others. Other
clear examples abound, such as the fax machine, television,
and portable calculators, all US inventions for which
the Japanese adopted the initiatives to develop them
commercially, because these products' values in changing
market places or business approaches were not envisioned
by their original developers. Conversely, an endless
array of examples can be cited where whole industry
structures were changed by innovations from outside
the industry. Illustrative here are such massive change
devices as fiber optics, which did not come from the
telecommunications industry, and high-tech microprocessor
chips, which did not come from the original computer
industry sector. The message related to technology,
product development and innovation are many:
|
 |
Change
via technology, product development and innovation is
all around us, from within and from without. Failure to
understand this reality can be deadly. |
|
Looking
backwards at the "lost" industries - the US
Steel industry, the Northeast US textile industry, and
the once mighty US coal industry - they are all a shadow
of their former selves. Why? These industries had their
own unique technologies, but they failed to pay attention
to others industries' technologies that broke down the
walls for such things as competing materials, e.g. rayon,
plastics, aluminum, and petrochemicals. |
|
A
company should reinvent its product line regularly. Customers'
need change constantly, and so should their suppliers.
Innovate, innovate, and innovate some more; this is the
key to differentiation. "Organize systematic innovation
to create a different tomorrow, that to a large extent,
replaces even the most successful products of today." |
|
Don't
forget with whom you are competing against today. "Where
once companies competed 'within' an industry, today, companies
compete 'with' other industries." |
|
Technologies
likely to impact your business the most are technologies
from outside your filed - as such, a company culture founded
on knowledge seeking and sharing is essential for adaptation
and long term survival and success. |
|
If
I have a penny and you have a penny and we exchange pennies,
we still each have a penny. But, if I have and idea, and
we exchange ideas, now we both have two ideas. |
|
The Role of Marketing |
| Marketing,
as a term, was coined some 50 years ago to emphasize that
he essential purpose and results of a business entity
lie entirely outside the business (1). As such, effective
marketing requires an understanding of the "outside"
- society, economics, demographics, and the customer -
so that this knowledge can be brought "inside."
Yet, in today's business world, marketing rarely performs
this grand task. Instead, it is now most often a tool
used to support selling. The question should not be, "What
do we want to sell?" Rather, it should be, "Who
is the customer, and what does he want to buy and why?"
In this regard, the following are some important views
on marketing that are clearly associated with effective
change: |
|
|
Good
marketing is aimed at the notion that we need to stop
selling things we want to make (remember the fax and the
transistor), and begin to make things the customer wants
to buy. Consequently in effective marketing, you do not
begin with the question, "What do we want?"
but with, "What does the other party want?" |
|
|
The
customer rarely buys what the supplier sells. The "want"
is what is unique, not the "means." |
|
Understanding
markets begins with understanding how consumers distribute
their disposable income, not how we want them to distribute
it. |
|
An
enterprise without innovation toward its markets and understanding
of its consumers will not engage in entrepreneurship and
will not survive. |
| The
Elements and Issues of Change |
| Change
is an absolute necessity for sustained personal or organizational
success. Albert Einstein had a particularly interesting
view here, defining insanity as "doing the same thing
over and over again and expecting different results."
Within this perspective, note that: |
|
Only
one original Dow Jones company, General Electric, survived
to celebrate the Dow's 100th anniversary |
|
The
Fortune 500 annual attrition rate is 7%. |
|
The
list of 43 celebrated companies from In Search of Excellence
already has a "lost luster" rate of one-third. |
| Excellence
is a constantly moving target only retained by change.
Ford Motor Co. has been reinvented at least three times
since the days of Henry, and it is in its fourth round
today. General Electric has a constantly evolving structure
brought about by day-to-day change. The recent past CEOs
of Kodak, IBM, American Express, and GM could also provide
perspective on this topic. Charles Darwin provided a particularly
view on the necessity of the change process when he penned
that, "it is not the strongest of the species that
survives, nor the most intelligent; it is the one that
is the most adaptable to change." But change is hard
and not without pain. It can be categorized as: |
|
A
mixture of bold strokes and long marches with a goal of
coping with a new, constantly more challenging market
by changing how we conduct business while we simultaneously
continue to conduct business. |
|
Understanding
the difference between what should never change and what
should be immediately open for change; what is genuinely
sacred and what is not. Think of Ford, Sloan, IBM, Kodak,
G.E., the steel industry, etc. |
|
Gaining
management's understanding that its job is not to run
the company, but to concentrate on what is happening outside
the business, because the forces that most influence enterprises
come from the outside not from within. This is truly hard! |
|
Knowing
that the single greatest obstacle to effective change
is the current corporate culture, and changing this is
truly a major long march. Again, think of IBM, G.E., Chrysler,
and the steel industry. |
| Also
important is that change is not in and of itself the sole
answer to success. Change is not the ends. It is, however,
a critical means. For example, the change process must
be imbedded within a solid company vision regarding where
the firm is headed and what its guideposts to be followed
will be. For example, some companies have religiously
embraced a change process driven by what has been labeled
as "BHAG," or Big Hairy Audacious Goals (and
Core Values). Importantly, note that companies that have
adopted a truly driving BHAG have been 12 times more likely
to have lasting success since the 1920s. A BHAG is a simple,
to the point statement of the "great ambitious goal"
that will truly drive the organization, such as: |
|
Henry
Ford: "Democratize the automobile." |
|
NASA
(under John F. Kennedy): "Land a man on the moon
in the decade." |
|
Sony:
"Become the company most known for changing the worldwide
JAPANESE POOR QUALITY image." |
|
Wal-Mart:
"Become a $125 billion U.S. company by the year 2000." |
|
Nike:
"Crush Adidas." |
|
Nordstroms:
"Respond to ALL unreasonable customer requests."
|
| Note
that companies with effective BHAGs need not have as core
values some of those that have been held up as helping
generate great success, such as: |
|
"Know
your customer." Ford didn't. He made what he defined
as simple and efficient. |
|
"Be
low cost." NASA couldn't. The cost of error for low
cost was total mission failure. |
|
"Customer
Service." Sony doesn't. The aspect of the image of
quality takes precedent. |
|
"Maximize
returns." Nike doesn't. The returns will come as
Adidas is crushed. |
|
"Quality
first." Wal-Mart doesn't. Successful growth is the
driver. |
|
"Teamwork."
Nordstroms doesn't. The customers' demands take precedence
over teamwork. |
| In
the end, as the 20th Century's industry evolution has
advanced, the need for consistent, change-driven evolution
for successful enterprises and industries has become self
evident. And, as we look out to the future evolutionary
needs of our industry and try to draw some lessons from
the past, we need to remember a few very basic points: |
|
We
need to focus on the issues that matter. For example,
listen to people in truly great companies talk about their
collective achievements and you will hear little about
earnings per share. |
|
Visionary
companies (such as those with BHAGs) are much more likely
to achieve sustained change and success. However, remember
that building a visionary company requires about 1% unique
vision and 99% alignment. Change does not mean chaos! |
|
Note
that is makes no sense to analyze whether an envisioned
future is the right one. The task is to create the future,
not predict it! |
| A
Pathway to Evolution |
| As
we seek ways of learning from others' experiences outside
of our industry and begin to apply these lessons effectively
going forward, we must first come to terms with what our
starting point is. Briefly, in this context, our industry's
character and focus could be summarized in part as: |
|
Primary
manufacturing, capital intensive, fragmented, technology
based, and traditionally monolithic and slow to adapt. |
|
Largely
focused on better doing what we do, instead of figuring
out what we should be doing in the first place. |
|
Highly
competitive, with key focuses on lower variable costs,
market share percent growth, higher marginal returns,
and retained independence. |
|
Very
open information flow across almost all competitor group;
unique core competencies not generally secured or protected. |
|
Highly
insular, with key focus on looking within instead of elsewhere. |
|
Largely
reactionary and parochial, instead of proactive, visionary,
and customer driven. |
|
Blessed
with a global community that has a tremendous array of
wants, which is the foundation of a solid product demand
structure for communications; packaging; product protection;
shelter; convenience; better quality of life; sustainable,
reusable resources; and environmental protection. |
|
Having
an inherent structure with tremendous capabilities - the
means - to meet these wants. |
| Flowing
from this abbreviated characterization of the industry
and seeking to learn from the industrial evolution lessons
of the past - both from within and from without the industry
- what then are the issues and questions we should begin
to pay more attention to for stimulating our own industry
revolution? Some of these include: |
|
Talk
and listen to our critiques. The list is virtually endless.
|
|
Seek
survival and growth of the industry, not just individual
companies. Think of the steel, coal, and textile industries. |
|
Learn
to know the "real" customers. Do we truly know
their wants, and do we fully understand that the means
to satisfy their wants are highly varied? |
|
Seek
the best means available to us to fulfill the wants we
are uniquely qualified to fulfill. |
|
Learn
to identify and know well our true competitors. Do we
look outside the industry? |
|
Understand
that marketing and selling are not synonymous |
|
Do
we focus too much on selling what we can make and on making
what we make better and at a lower cost? That will be
passed on to our price sensitive customers? |
|
Appreciate
that to reshape our industry - to begin our own evolution
- we need a totally new focus on reinvention, not on simply
improving what we do now. |
|
Grasp
the understanding that reinvention is not changing "what
is" but creating "what isn't." |
|
Seek
the courage and see the need to throw away the contexts
of our past, without losing sight of the need for and
the means to stay afloat in the meantime. |
|
In
other words, seek a new blend of bold strokes (evolutionary
pathways) all pointed in the same direction. |
| The
message here is that in spite of a vast array of critical
structural issues and a lack of effective focus on reaching
our industry's true potential, our opportunities to do
so are real and achievable. Other managers in other times
and other industries have faced more seemingly insurmountable
challenges and triumphed. Our industry has the means and
the opportunity to transform itself. The problem is that
there are no magical solutions. But there are solutions
- solutions for reshaping our industry and for generating
a true evolution. |
|
|
| A
fine contemporary example can be found in the remarkable
survival of the Lockheed Martin Corp., nearly a "dead
on arrival" casualty of the end of the Gulf War and
its associated huge defense industry contracts, which
wiped out nearly 50% of the industry's demand structure
almost overnight. Norman Augustine, former chairman and
CEO of Martin Marietta and Lockheed-Martin, has provided
an instructive and practical guide to such a successful
industrial makeover: |
 |
Read
the tea leaves. |
|
Have
a road map, even when there are no roads. |
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Move
expeditiously. |
|
Make
mega-changes. |
|
To
think outside the box - get outside the box. |
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Benefit
by benchmarking. |
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Don't
loose sight of day-to-day business. |
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Focus
on the customer (and his wants). |
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Be
decisive. |
|
Create
one culture for one company. |
|
Remember
that your real assets go home each night. |
|
Communicate,
communicate, communicate. |
