2.3 The Fundamental Business Model
Going back to the quote, with these changes, tremendous responsibilities will be shifted to the workers and their peers for planning, and scheduling, and organizing, and directing, and controlling their own work processes. And in the 2008 letter to the shareholders of General Electric, Jack Welch said, during 2008, we're going to spend considerable resources to make sure that all six of our global business units, finance and trains and engines, are going to be aligned with the new model. And the big three automakers in the United States, General Motors, and Chrysler, and Ford, said, you know what, the economy is so bad, we need money to reorganize our entire business in order to compete.
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So we have these five functions of management. We have the nine skills. So I’d like to introduce another concept, and that is how does business conduct business. Well, over the last 25 years, things have changed. Think about the kind of business, the kind of environment that your grandfather or your great-grandfather worked in. What about where you might work today, or your siblings? What is the environment, the operating philosophy, of the organization that they work for? So over the last hundred years, there has been a shift. We operated in what was called an old traditional functional model. Old economy values, grandfather, great-grandfather. Then we shifted to a new model, simply, new model. Somebody could of created a fancier name, but you can Google organizational new model, and you will see management styles. But to get from old functional to new model, there was a significant period of change, of transition, which was kind of ugly. So, let’s look at each of these three different philosophies: old, transitional and new. So, in the old model, your grandfather, your father, for frame of reference. So, the model really was based upon very little competition, very hierarchical, lots of levels. Management didn’t need to interact with people or customers, so it was stodgy. And it was pretty much individualistic one person, one manager, focused on I. I do my job. Management, arrogant, command and control. Employees, while they were pretty much limited, they were pretty much pitted against each other. They had boring jobs. Their role hardly ever changed. Product was designed by the organization. Think about Kevin Costner in the movie Field of Dreams. We will build it, and they will come. That was pretty much the model of the day. We will design, we don’t need customer input on, we know as engineers what customers will want. So it was an engineering out model. Good was good enough. Very little focused on quality. Processes were old, they were inefficient, they were designed to build inventory big lots. What about the customers? Wow. They had a lot of money coming out of the second World War, coming out of the Korean war. They wanted products. However, there was little competition so they had very little choice. They were frustrated and they had no voice. In fact, the motto of the day was caveat emptor. Buyer beware. You bought something in the 60s or early 70s, and you were on your own unless you wanted to prepare for a huge fight and often disappointment, because you were stuck with that product. So old model. Wow. How would you like to work in this old, traditional, functional model? So, we’re into the mid 80s, and things are starting to change. And we don’t really know, the industry and the academics, really don’t know what was the one single catalyst that caused or drove this change? But, during the change, organizations became big and inefficient. They were doing whatever they could to try to survive. And many of them thought big was better. They became so big in many cases they became inflexible. And, because they were buying and buying and amassing this huge model, they were laden with debt. Hostile raiders came in, and various parts of the organization were sold off and carved up. And that was problematic. Management was very confused. They were disappearing. Levels were being cut. Companies could not afford a lot of managers, employees, the same time, the early 80s, leaning on 81 through 84. Huge amounts of disruptions in the economy, in jobs. Unemployment was at a very high level. So people were afraid, employees were afraid to say anything for fear that they too would lose their job. Products still very little quality. Lots of product and dying on the shelves, but now we were starting to see Japanese cars, Japanese electronics, Japanese radios and televisions, and you know what? They were starting to be bought. So processes, now, all of a sudden organizations are saying, woah, what’s happening? We need to figure out why our processes aren’t working, and industrial engineering became the rage of the day. That was the hot field to get into. Organizations, huge debt, build it cheap, let’s outsource it, try to figure out how to cut every dime out of that product. Customers will buy and they didn’t wanna buy junk. They wanted more choices. They started to buy foreign, and that was disconcerting. And at the same time, now we have champions of the consumers starting to emerge, Ralph Nader and consumer reports. We’re starting to see this evolution of now there is a way to voice your opinion. And then, as we move into the late 80s, early 90s, we start to see a new model emerging. And this new model is really based upon short term transparency, and the objectives are really focused on what is really critical to our success. As I indicated before, there were lots of people laid off from jobs, managers and employees. So we see this huge rise in self-employment, in small businesses now becoming part of mainstream. Management, a lot less levels, a lot more to do with a lot of stress, and managers were being relegated to being desktop managers. Lots of change in management roles also. Employees started to move away from that traditional, individualistic model to now a we, self-directed, self-empowered, involved, motivated and graying. Product, short model life. Just look at the news. How long is your new and latest and greatest iPhone or Samsung cell phone? How long will it be before a new one replaces what you had to have? Short product life. Okay? Lots of brands, lots of competition, processes, continuous improvement, iSO, Six Sigma, Green. Customers, now they’re demanding quality. They want it now, they want lots of choices, and we have lots of ways for people and customers to voice their opinion. VOC, the voice of the customer, The Internet, Yelp, Twitter. I’ve got a friend who is the owner of a fast food restaurant here in southern California, fast food chain in southern California. He has one person that monitors, her job is to monitor all of the different social mediums every single day to see what customers are saying about their chain. And how do you mitigate that? One person, a new role in organizations. New model. So, what does this look like? Well there was a book published in 1995 that was kind of a crystal ball look at workplace 2000. And Joseph Boyett and Henry Conn said, in their opening pages, they said Workplace 2000 will move away from managerial control to employee self-control. With these changes, employees will become self-directed, self-controlled, and traditional managers will disappear. They say that these managers will be replaced by facilitators who will help teams solve unusual problems, help with interpersonal resolution, to help to identify and create ways to solve very technical issues. Going back to the quote, with these changes, tremendous responsibilities will be shifted to the workers and their peers for planning, and scheduling, and organizing, and directing, and controlling their own work processes. Wow, didn’t we just say that those were part of the five functions of management? Well, now we’re saying that these functions are gonna be moved downwards into the organization. There are many consulting companies, including mine, that focus on how do we help companies move from old functional to turning power. Involvement over to employees. So let’s look at more. We know of Jack Welch. He spent 30 years at the head and key executive positions with General Electric. And in the 2008 letter to the shareholders of General Electric, Jack Welch said, during 2008, we’re going to spend considerable resources to make sure that all six of our global business units, finance and trains and engines, are going to be aligned with the new model. He said not only do we intend to set the standard, but you can look at us to see how we’re doing and copy it, because we are going to do it so well. Hm, not convinced yet? Well 2008, there was a financial crisis. It extended into the world. Started here in the United States, relative to finance and bonds and debt. And the big three automakers in the United States, General Motors, and Chrysler, and Ford, said, you know what, the economy is so bad, we need money to reorganize our entire business in order to compete. And they said hey, government, we need $14 billion, can you give us $14 billion so we can reorganize to keep all the workers working? On December 12th of 2008, Senator Chris Dodd, who was the Chairman of the Senate, United States Government, Senate Banking committee after the bailout plan failed in the Senate, he said the US auto manufacturers have had two decades to watch the Japanese car manufacturers change to a new model lean manufacturing organization. Detroit, the home of the automobile industry in the United States, Detroit doesn’t get it. We cannot ask the American taxpayer to bail out failure. Wow. There was huge divide. Part of the population said, you know, if they can’t compete, why should we give them money? Let them figure it out on their own, let them go broke. And another part, a huge part of the population said we can’t let the big three automakers go broke! I mean, there’s hundreds of thousands of people employed, not only with the big three, but the suppliers that supply the big three and levels and levels and levels, through the supply chain. Two of these big three needed the money, and received, got government sponsored loans in order to restructure. Which one do you think did not go to the well? Well, General Motors did. Chrysler did. That leaves Ford. Ford said, you know what? We can figure it out on our own. We can figure out how to compete. We’re close and, you know what? Ford is running rivals with Toyota, as worldwide brand leaders. They figured it out. They have changed. So, this new model. What does it look like? Who’s participating? Well, I think you’ll recognize some of these names, Boeing, Toyota. Not just in the United States. Toyota in Japan, SAS, Scandinavian Airlines, Samsung in Korea. Tencent in China. Nokia, in Finland. These are companies that have endorsed, embraced and are moving to a total platform of involvement, and turning the business over to self directed, self empowered teams. So, left side, you see characteristics of the old functional manager based model. Right side, you see the heading Manager/Leader, characteristics of the new model. So I’m not gonna read all of these, but let me point out a few. So, very top line, old model, manager uses an anacrotic style. Don’t need participation, I can do it on my own. Don’t need you. New model, the leader coaches and facilitates teams. Old model, organization is hierarchical, lots of levels. New model, flat. Old model, teams are formed when needed. New model, teams are part of the organizational structure. Old model, manager has power and control. New model, control and power is minimal and shared. Old model, manager establishes schedules and routines, and monitors that work. Now in the new model, teams do much of that and are now responsible for many of those functions. So if I were to ask you to pick one word, or a short phrase, that describes and labels old traditional model and one word that describes new model, what label would you put on each? The old model, as I said before, was pretty much based upon individualism. So, we like, in these body of knowledge, we like to say the old model is an I model, individualistic. The new model is based upon a WE model. So, today, we talked about three things. We looked at what are the nine essential success skills required for a new manager to be successful. Two, we looked at an overview of the five functions of management as you open your restaurant. And lastly, we talked about the transition from the old function business philosophy to that of where we are today of the new model, self-empowered, self-controlled, self-motivated. Which would you rather be part of? Thank you for participating and listening in module number two. I hope you come back. Thank you.
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