The mass consumption, centralized machine model is dying. Why? Because it shrinks choice and voice. Its relationship with employees and with customers is primarily adversarial. Just as Ford changed everything 100 years ago for all business - so a new model is emerging now that will overwhelm the Ford model.
eBay, Amazon, Starbucks, Southwest, Wal*Mart and Dell are all redefining their sectors or have invented an entirely new way of doing business. I will be teaching a course at UPEI on this revolution starting in January about this. If you are interested, the continuation will show you the outline.
The Customer Revolution - The Relationship Based Business Model - Turning Our World Inside Out
We are so encultured by the traditional model for organization that we no longer think about it. It is just how things are. When anyone becomes unconsciously captured by an idea, they are vulnerable to a new and better one. The Ford production model was invented a 100 years ago this year. It has been so successful that it has taken over every aspect of how we organize to do work – not only in business but in government, education and healthcare.
But, in the last 5 years, many leading firms that use this model are being threatened with extinction. The discounters have overwhelmed the full service airlines. In retailing, Kmart is bankrupt and many of the past retail leaders such as Home Depot and the Gap are really struggling. In bookselling, Amazon has shaken the industry to the core. In PC’s there is only HP left to confront Dell. In food, McDonalds seems mortally wounded and cannot appear to help itself.
We are also seeing the public sector struggle. Our K/12 education system is not delivering. Drop out rates are close to 30%. Boys are seriously underachieving. Our healthcare system is becoming too expensive and risks being overwhelmed by the advent of the seniors’ demographic bulge. Those that try and improve things by applying the old model harder and faster seem to get even further behind. So what is going on? This course will help shed light on this turning point.
A new model for organizing for work both in business and in the public sector has arrived.
When applied well, it destroys those that still use the traditional model. It has enough practioners now that we can see how it works and we can extract the lessons so that we can apply it ourselves. Understanding both the old and the new model will become a survival issue. This course will look below the surface of the Ford Model and reveal how it really works. Why? Because we have taken it for granted and we no longer question it or even see its rules and how they work. We will put the traditional organization into the MRI and see why using the Ford model is a fatal condition. .
We will look at eBay, at Amazon, at Dell, at the Discount Airlines, at Wal*Mart and we will discern from their activities, a new model emerging that has a radical approach to costs and a radical approach to value. We will see that at its heart the new model has a radically different set of assumptions about power and about relationships. We will see what it means to make the shift from a transaction economy to a relationship economy. We will see how these firms have revolutionized costs. We will see how they have found value in emphasizing community. We will see why in most cases it is much more personally rewarding to work in this type of organization.
We will look at the demographic and cultural forces that underpin this new model and we will look at some of the new Social Software that is transforming the customer and workplace interface.
We will speculate what this new model means for business and all institutions in Atlantic Canada. We will explore the “Hick” effect – many of the new leading organizations have been born in small town cultures. We will also explore what this model means for education and healthcare delivery. Finally we will explore what this means for your personal choices and for your work life.
Context for the Course – The Core ideas
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. 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. 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 – only a model which has had a life of about 100 years. Today, we have reached the design limits of this model. More efficiency cannot be squeezed out of it and the business, social and technology environments are now changing so fast that such a model cannot react fast enough.
A new model is emerging. It is the reverse of the production model. In this new model, which we can see in the actions of new adopters such as Wal*Mart, Amazon or Dell, the flow is reversed. The customer sets the product agenda. It is the customer who decides what they want and who drives the production process back into, not simply one organization, but into a network of suppliers organized by the host company. The new model works deliberately to eliminate, or significantly reduce, inventory, such as eBay, Dell or Southwest, or to carry 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, profiles are held in aggregate, where community profiles are maintained such as at Wal*Mart.
This is not simply a re-engineering of the process but a shift in culture. It involves the giving up of the idea that the market 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. It is fun to fly Southwest as well as being inexpensive. 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.
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 you speak to a real person who then tracks your order all the way to set up. At eBay the buyers and sellers deal direct.
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. 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.
This is what competing by using culture really means. It means that an old model restaurant chain has to give up its identity to compete. McDonalds cannot stop itself from being a production based culture that drives from the centre out. It is so invested in the old model that it cannot change. This is what makes it and many like it so vulnerable to a new model competitor who competes by culture.
All new models supplant their predecessors. Henry Ford destroyed the idea of the automobile as a luxury item and invented a model that could be applied to any organization. This is the story of McDonalds and why it was successful and will now fail. For Ray Kroc was the “Henry Ford of Food”. He introduced a new production model to the diner. In the early years, if you were a family diner and were faced with a Production Model competitor, you inevitably failed. This is even the story for government services and for education and health care. They have become production line organizations.
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.
Course Objectives
• To use a series of case studies on eBay, Amazon, Dell, Wal*Mart and Southwest & Ryan Air to develop an explicit understanding of the key features of the new model
• To understand the origin and the application of the Ford model in all sectors of organization
• To explore the new Darwinian process of how the small and the nimble destroy the large and the powerful
• To understand the cultural aspects of this shift and how they connect to a major cultural shift in society
• To speculate on how this model can be applied to business in Atlantic Canada
• To understand how the new model may be applied to parts of the public sector such as education and health
• To explore what this model means for each of us as individuals
