Saturday, July 30, 2005

Awesome stuff from Rob

When Henry Ford introduced mass production at the beginning of the 20th century, he not only changed how things were made, he changed the culture of the workplace. Taylor codified this approach. In this production culture, head office was the organization’s brain and it decided everything. Products were conceived, designed, produced and then marketed and sold. The enterprise pushed out from the centre. All work was routinized and essentially deskilled. The process became inviolate and no thinking or attacks on the process could be tolerated from its participants. Only a few at the top could make changes.

This model has taken over all aspects of organized life today. At its heart is a need to control the core process. Everything and everyone had to be “managed”. It was successful during a long period of relative stability. We are so imbued with this model that we mainly fail to see it for what it is – a model. Today, we have reached the design limits of this model. More efficiency cannot be squeezed out of it. The business, social and technology environments are now changing so fast that such a model cannot react fast enough. Trying to squeeze more out the old model only adds to the friction and to the stress.

A new model has arrived. It is the reverse of the production model. Just as Dreadnought represented a shift in the relationship in warfare from close intimacy to a distant machine perspective, so the new organizational model shifts organization from a distant and machine relationship to a close and human relationship.

In the old model, value is captured is in the transaction. This is a zero sum game where the frontline linkage to the customer is adversarial. Customer choice and needs are relentlessly squeezed. Witness the Airline or Healthcare interface right now where frontline staff and passengers/patients are both miserable. Ever larger scale has enabled the distributor to limit choice and to increase “efficiency”. Until now, we all had to keep going to the hegemonic supplier. But no longer. New technology is enabling suppliers to disintermediate the hegemonic mega-scale suppliers who have built a cost structure based on their scale. With a dramatic shift in cost and choice, the customer is also experiencing a warm and not adversarial relationship

In this new model, which we can see in the actions of new adopters such as eBay, Amazon or Dell, the flow of energy is reversed and the full participation by not only the staff but the customer is desired. In this new model, the customer not the CEO sets the product agenda. It is the customer who decides what they want and who drives the production process back into, not simply into one organization, but into a network of suppliers organized by the host company. The new model works deliberately to eliminate, or significantly reduce, inventory or it carries inventory in a distributed form in the supporting federated system such as Wal*Mart and its suppliers. With very low or no inventory, they have a compelling cost advantage.

All have remarkably sensitive customer interfaces where, at best, individual customer profiles, preferences and accrued activity and trust are maintained in real time such as by Amazon, eBay and Dell. Or where community profiles are held in aggregate such as at Wal*Mart.

The New Rules
This is not simply a re-engineering of the process but a shift in culture. If an organization wishes to adopt this revolution in deployment and process, it involves working to radically change how everyone “sees” themselves and the organization. It demands a revolution in the very nature of relationships from an oligarchy to a democracy. No small change!

It involves the giving up of the idea that the market and the world can be controlled by head office. Head office in these organizations does not pretend to be able to predict customer behaviour, instead it works to have the best sensory system possible. It uses this acutely sensitive information system to track trends and to react immediately. As a result, the customer experience has been transformed from an outward push to an inward acceptance. Consequently the customer interface has become a good place to be for both the customer and for the staff. It is fun to fly Southwest as well as being inexpensive. Why/ Because the staff have a lot of control. Amazon provides a community of book reviewers that pulls the customer into the primary sales position in the firm. Wal*Mart greats each customer and so on. The customer gets what they want rather than only what the firm will give them.

Why has this shift occurred? In a world where most of have all that we need, in terms of things, this putting the customer into the driver’s seat give them the potential for the experience of control and participation that the old system prohibits. This is the key to understanding the new model. Its value is in the experience of control and participation given to the customer. For the first time, the customer is in control and not the corporation. Once customers have experienced this, they do not go back! Conversely, in the new organization, to give the customer control and participation, head office has had to give the front line control, and participation as well. Once employees have had a taste of this they too do not want to go back.

To pull this off, these organizations have pushed a remarkable amount of decision making power out to the front line. Floor clerks in Wal*Mart can move material around the store and each store has a computer assisted re-order model that enables the store to track orders to the unique preferences of its own community. At Dell your PC and you have a unique identifier enabling you to have the machine serviced throughout its life. At Amazon you have a personal webpage that reflects what you do and what you look at. You are a market of one. At eBay the buyers and sellers deal direct. The best practioners of the new model deliberately support the creation of customer communities. So at eBay the golfers run their part of the enterprise. At Amazon, the unpaid reviewers provide the marketing.

The result of this giving up of conventional control is a radical reduction of costs. The direct costs that are reduced are in inventory and in HR such as employee health, turnover and absenteeism costs. The indirect costs are in speed and effectiveness in making the right decisions and in reacting to changes in the environment. None of these structural advantages are available to the traditional organization. To reduce costs, they have to cut people and cut service delivery or be bought or buy another to increase scale even more. The outcome? A more unhappy workforce, a more cynical customer and more friction and drag. Thus making their service more vulnerable to those who can offer the new alternative.

If you are a competitor of one of these new model firms and you are still using the old model, you will fail. You cannot deliver the costs and you cannot deliver the customer experience. So we see the icons of the old model struggling or even moving into bankruptcy. United Airlines, AMR Air Canada; Kmart, Home Depot; and most small booksellers and Indigo and Chapters. eBay is on track to dominate the second hand car market. Dell can take on any competition and is moving into other sectors beyond PC’s.

In the old model, you could compete by applying a simple concept – more money. By gaining access to more resources, you could use increased scale to push prices and costs down and use your increased hegemony to have power over the consumer and over your staff. This is why the trend in the old model is for more scale. But now scale will not help United Airlines or Home Depot. The new model demands that you kill off your old culture, the culture that made you successful and which you know so well.

Just as all the benefits in the 20th century accrued to those organizations that adopted the Ford model well and early, so in our time, the advantages will accrue to those that understand and apply the new relationship model.

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