Correction, Clarification and Continual Learning

model-t-chassisI wrote a post some months back (July 2016) titled ‘The River Rouge – A divergent legacy’. If you haven’t read it, then it is necessary context for this post.

I received an interesting comment at the end of the post (from a contributor called Andrew) as follows:

You’re perpetuating an inaccurate myth about the Model T and production at Highland Park. The Model T was produced with tremendous variation – far more than a modern car. There were at any given time at least six different body styles of Model T, representing a lot more complexity than a simple color change. http://www.curbsideclassic.com/wp-content/uploads/2011/02/Ford-Model-T-line-up-1911ad-lg.jpg

As to color, the Model T was available in several colors – but not black – in its early days when the production rates were low. Black was introduced, not to minimize variation, but because black paint dried quicker and enabled faster, higher production rates. By 1926, paint science matured to the point that six additional colors were introduced to go along with black (and better compete with Chevrolet).”

I replied to Andrew’s comment and promised that I would add an addendum1…and then, as is usual, life carried on and time flew by. It is now, in this quieter Christmas/ New Year period that I realise that I have a hole to plug.

So here goes…

Correction

My original post, whilst (in my view) highly positive of what Henry Ford achieved, used the enduring “you can have any colour you like, as long as its black” line. I used this as the strap line to observe that “[Ford’s] manufacturing process was not designed to handle variety”, as explained in separate books by H. Thomas Johnson and Mike Rother.

My post then went on to contrast two very different approaches to handling the variety conundrum.

Andrew’s comment pointed out that the Model T was available:

  • in more than one colour; and
  • with different body styles.

He went on to suggest that “The Model T was produced with tremendous variety – far more than a modern car”.

coloursColours: Yes, I can see a number of sources that refer to different colours. However, I would suggest splitting the colour story into three parts (each of which Andrew’s comment eludes to):

The early years (1908 – 1914): From cross-checking a number of Ford related websites, it would appear that the Model T was available in a small variety of colours during its early low-level production years (grey, green, blue and red).


The volume years (1914 – 1926): This period corresponds to breakthrough improvements in producing at scale (and reducing the price)….and the only colour available was black.

In his 1922 ‘My Life and Works’ autobiography Ford refers to his salesmen wanting to cater for their customers’ every whim, rather than explaining that the product already satisfies their requirements…and it was this exchange that caused his “so long as its black” idiom:

“Therefore in 1909 I announced one morning, without any previous warning, that in the future we were going to build only one model, that the model was going to be “Model T”, and that the chassis would be exactly the same for all cars, and I remarked: “Any customer can have a car painted any color that he wants so long as it is black.”

Reference is made across a number of sources that black paint was used because its fast-drying properties aided speedy production. Other reasons suggested are the cheap cost of black paint, its durability and ease of reapplication (e.g. when repairing).


The end (1926 – 27): Colour choices were reintroduced…but this can be seen as an attempt to prop sales up and fight off the inevitable death of the Model T:

“Alfred Sloan [General Motors] began to offer inexpensive Chevrolets with amenities that the Model T lacked…..the market began to shift…styling and excitement suddenly counted to the customer.

 But Henry Ford refused even to consider replacing his beloved Model T…only one person persisted in warning him of the impending crisis: his son, Edsel…it was the first of many arguments that Edsel would lose.

 The Chevrolet continued to take sales from the dour Model T. By 1926, T sales had plummeted, and the realities of the market place finally convinced Henry that the end was at hand. On May 25th 1927, Ford abruptly announced the end of production for the Model T.” (Forbes Greatest Business Stories of All Time)

Body styles: Andrew’s comment usefully provides a link to an image showing a number of different Model T body styles, though I note that the title refers to 1911 which sits within the ‘early years’ pre-mass production period.

Breaking the body styles comment into a few parts:


The chassis: The Model T Ford was made up of the chassis (see title picture of this post) and then a body connected on to it.

From what I have read (including Ford’s words), the key point about the Model T Ford was that the chassis ‘moving down the line’ were all the same. Sure, they would differ over time as the design was (regularly) improved, but not ‘in the line’.

I find the picture below quite interesting – it shows2 a long line of Model T chassis waiting for a body (of differing styles) to be lowered on to it from a side process. Note the overhead rail coming in from the right.

model-t-production-line


Factory Bodies: Yes, I can see that different bodies were available – as can be made out from examining the above picture – but there was a limited range of standard designs (e.g. the Tourer, Roadster, Coupe and Sedan3).

You might ask “but what about all those other body styles out there?”


Aftermarket ‘engineering’: You can come across all sorts of weird and wacky looking vehicles all around the world that have been built on a Model T chassis. This is unsurprising given the sheer volume (and market share) of Model T’s that were out there.

A fair bit of ‘reconfiguring’ occurred, with owners hacking the car apart and customising it for their own needs. Many specialist aftermarket companies sprang up to perform conversions, even maturing to selling prefabricated kits for specific purposes, such as tractors. If you want a laugh at the sorts of conversions carried out then have a look at some of the images here (including a tank, a camper van…and a church!).

So, yes, I do need to correct my previous post’s implication that you could only ever buy a black Model T, and that one Model T was exactly the same as any other.

There was some variety, but does that mean Henry Ford had built a manufacturing process specifically aimed at handling this? And so I move on to….

 Clarification

clarificationGetting back to the point within my original ‘River Rouge’ post – that of handling variety in the line:

Andrew’s comment of The Model T was produced with tremendous variety…” might imply that Ford had indeed solved the variety riddle. I don’t think that this is the case and I’ll use a couple of passages from Ford’s own 1926 ‘Today and Tomorrow’ book to illuminate why I believe this:

“Whenever one can line up machinery for the making of exactly one thing and study everything to the end of making only that thing, then the savings which come about are startling.” (Chapter 5)

“The strongest objection to large numbers of styles and designs is that they are incompatible with economical production by any one concern. But when concerns specialize, each on its own design, economy and variety are both attainable. And both are necessary…

…we believe that no factory is large enough to make two kinds of products. Our organisation is not large enough to make two kinds of motor cars under the same roof.” (Chapter 7)

An underlying philosophy of Ford’s tremendous production success was a standard product (i.e. the opposite of variety)…which nearly became his undoing and set his organisation onto a path of catch-up with General Motors from the late 1920s onwards.

…none of this takes away from what Ford achieved and what then happened in American manufacturing and, in contrast, across the world in Japan. To summarise:

  • Henry Ford made amazing advances in respect of manufacturing, but the Model T’s homogeneity became its Achilles heel (a fact that he eventually conceded to his son Edsel and to his competitors);
  • In general, American manufacturing from the 1950s onwards went in the direction of scale and ‘unlearned’ much of what Ford had shown them; whilst
  • Toyota (learning from Ford) carried on in the direction of flow and worked out methods of handling variety in the line…thus achieving great things.

It’s worth reflecting that Taiichi Ohno credits Henry Ford with Toyota’s foundations:

“Taiichi Ohno…always spoke glowingly of Ford’s achievements…In 1982, Philip Caldwell, then head of Ford Motor Company, visited Japan. When Caldwell asked Eiji Toyoda, head of Toyota Motors, where Toyota had learned the production methods they employed so successfully in the 1970’s, Toyoda replied, ‘there’s no secret to how we learned to do what we do, Mr Caldwell. We learned it at the Rouge.’” (Johnson, quoting from David Halberstam’s ‘The Reckoning’)

Continual Learning

continual-learning-treeAndrew’s comment on my original post provided me with the impetus to learn some more.

  • I entered into a useful dialogue with Tom Johnson and Mike Rother;
  • I bought and read Ford’s book ‘Today and Tomorrow’;
  • I read around (and cross-checked) a fair bit of internet content; and
  • …I pondered what all of that lot meant.

I reflect on a wonderful Ackoff quote:

Although being taught is an obstruction to learning, teaching is a marvellous way to learn!”

i.e. it is in the act of attempting to explain something to others (e.g. via a post) that we can truly learn.

(I believe that) I now know more…but I’m even more certain that there’s much more to learn. A never-ending journey 🙂

Footnotes

1. Writing an Addendum: I am mindful that a number of you may have read my original post but not seen Andrew’s comment or my reply. So, rather than allowing this to remain somewhat hidden, I thought it only right (and respectful of Andrew’s fair and useful comment) to elevate my response* to a further post.

(* I am not a fan of the ‘gutter press’ splashing scandalous statements across their front pages, only to publish a unapologetic, one-line ‘retraction’ in tiny text somewhere buried on page 13)

2. Using photos: I am mindful that Ford’s production processes changed all the time and I have been warned to be careful when using a black and white picture of Model T production methods – such a picture shows how it worked at a point in time…and could easily have changed radically very soon afterwards!

3. Body Styles information taken from http://www.fordmodelt.net/model-t-ford.htm. It shows that each of the main body styles evolved over time e.g. the Touring car went from 2 doors from 1909, to 3 doors from 1912 and then 4 doors from 1926.

…and I just have to add a picture of (what I understand to be) a Model T chassis with a body style of a house – definitely ‘after market’:

model-t-motor-home

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Chapter 3: Can executives change the ‘shareholder value’ machine?

So Chapter 1 explained Henry Ford’s philosophy, only for Chapter 2 to give modern ‘large corporations’ (including their executives and short-term shareholders) a bit of a slap around. You might reasonably ask whether executives can actually do anything about this, for the good of the organisation. That’s the subject of this chapter:

shareholder-value-machineSo let’s say that you are an executive of a shareholder-owned corporation. Who are you legally answerable to, and therefore in whose interests must you act?

This is the subject of another superb book, ‘The Corporation’ (2005) written by Joel Bakan. Here’s what he has to say about this:

“Corporations are created by law and imbued with purpose by law. Law dictates what their directors and managers can do, what they cannot do and what they must do. And, at least in…industrialised countries, as created by law…it compels executives to prioritise the interests of their companies and shareholders above all others and forbids them from being socially responsible – at least genuinely so.”

Bakan cites company law as establishing the principle that directors have a legal duty to put shareholders interests above all others1.

Now the last line of the Bakan quote might seem strange because ‘don’t all those companies provide us with corporate social and environmental responsibility statements?’ (i.e. on their websites and in a prominent position within their annual reports)

Bakan goes on to explain the apparent conflict:

“There is, however, one instance when corporate social responsibility can be tolerated – when it is insincere. The executive who treats social and environmental values as means to maximise shareholder wealth – not as an ends in themselves – commits no wrong.”

Now, this is pretty disturbing stuff! You might come back at me and say “but other laws and regulations will stop ‘em!” Mmm, it would be nice if that were so:

“For a company, compliance with law, like everything else, is a matter of [weighing up the] costs and benefits.”

Simply having laws and regulations isn’t going to protect the public. If the costs of meeting the ‘rules’ becomes exorbitant, the company will consider the legal and reputational costs of breaking (or ‘manipulating’) them as against the benefits to be derived….a small oil spill here, a dodgy tax deal there, with a sprinkling of marketing propaganda to cover up or divert attentions elsewhere.

[Quick side note: I recently watched the 1st Trump: Clinton debate and ‘the Donald’ referred to such logic as ‘smart business’…and why America needs him. Nice…not!]

Further, Bakan defines the concept of corporate externalisation:

“The corporation…is deliberately programmed, indeed legally compelled, to externalise costs without regard for the harm it may cause to people, communities and the natural environment. Every cost it can unload onto someone else is a benefit to itself, a direct route to profit.”

This illuminates the gulf between Dead Money power and the public good.

plastic-birdTake the really simple example of packaging for food and other consumables. Sure, the supermarket pays for the costs of the plastic…but they happily externalise the cost of dealing with this packaging once the item has been bought. “What do you mean it got into the sea and is killing stuff? Not our problem anymore!”

Are the big supermarkets bothered about this? Not really…but they become so if, and only when, we make it in their interests to be bothered…and you can be sure that, if they then make any improvements, their Public Relations (PR) machine will crow long and hard about how they are ‘making our world a better place’.

This is looking for good news out of what you are being forced to do, rather than doing the right things in the first place.

And beware of that supposed ‘good news’. The wonderful stuff (that they say) they are now doing, might not be so wonderful. I’ve just watched another episode of ‘Hugh’s war on waste’ and am appalled at big coffee’s2 attitude to coffee cups – they are perfectly comfortable with us all thinking that they are recyclable when they know that they aren’t. Nothing to see here – move along!

Now, I think that you and I know that we could dig up literally hundreds, if not thousands, of case studies over the years showing the harm caused to organisations and society by Dead Money…but let’s keep it real simple and just look at one that’s been in the media recently3:

Example: Mylan and the Epipen

epipenLet’s have a look at the drug company Mylan and their 2007 purchase of Epipen (an auto-injector of adrenaline, to counter an anaphylaxis reaction). The product had been around for many years and was making modest revenues of US$200m.

So here’s what Mylan came up with:

  • let’s strongly market it to concerned parents (so they feel morally compelled to buy more pens – for home, for school, for camp….);
  • let’s get laws passed that increase demand;
  • let’s get labelling rules changed that allow it to be marketed more widely;
  • let’s work hard on hindering competitors from bringing their substitute products to market
  • …let’s do whatever to push and protect this product.

And so, between 2008 – 2015: Mylan increased prices 400% (to US$600 for a twin-pack), sales rose to US$1 billion and the product margin went from 9% to 55%.

(Note: those price increases are the exact opposite of Ford’s success4)

But what of the customer (the public)? Well, as is often the case, the really needy people are the ones that suffer. Many parents of allergic children can no longer afford the best product (or the rising health insurance premiums). They have no choice but to take alternative actions, like:

  • carrying expired Epipens and hoping the drug still works; or
  • reverting to the old fashioned method of regular syringes, by paying a doctor to fill them with the drug…costing about $20… and hoping that it is administered correctly when the time comes.

Even officials in many states are training their medical technicians to use the old ‘regular syringes’ method so as to save hundreds of thousands of $ from their budgets.

…and, finally the dam burst: the story got out, with mainstream and social media waging war on Mylan’s CEO, Heather Bresch.

So, did Bresch do anything wrong? Who says? The shareholders had been ecstatic with her actions…at least until ‘we’ found out.

Has Bresch taken some steps to address the mess? Hell yes!…but only to defuse, protect and then, no doubt rebuild. Nothing has fundamentally changed. She might be ‘shamed’ into resigning (not looking likely)…but I hazard a guess that if this occurred:

  • her salary cheque (and share options) will likely comfort her;
  • there will be many job offers from other companies wanting to benefit from her ‘corporate acumen’; and
  • Mylan will look for, and easily find, a replacement CEO in her image.

So, where’s that much vaunted ‘purpose’ in all this? If you want to have a read about Mylan, their Mission and their Values then have a look here. The following words from Mylan’s website give me a lump in my throat, and tears in my eyes:

Doing what’s right is sacred to us. We behave responsibly, even when nobody’s looking.”

It reminds me of a rather nice Jon Stewart quote:

“If you don’t stick to your values when they’re being tested, they’re not values; they’re hobbies.”

If you were wondering about the insincerity part of Bakan’s quote above then I hope the Epipen example assists. Mylan’s demonstrable purpose is money, not its customers (the public).

It’s worth noting that Mylan’s short-termism has laid itself bare to disruption by those who (are seen to) champion the customer. I expect competing products to do well from this media saga, and new products to emerge.

We shall see how this affects Mylan…but they have clearly lost a great deal of trust from the public.

As an important side note: How many of Mylan’s employees do you think now love working for them vs. how many are embarrassed to say so? And what effect might this have?

The unholy alliance:

unholy-allianceThere is of course a further (and huge) problem implied within the above: Those short-term thinking shareholders have formed an unholy alliance with those they employ as their agents – the directors and executives. By which I am referring to share option incentives.

This isn’t new stuff – and I often reflect that not much in human history is!

Here’s what Henry Ford had to say about the stock [share] market nearly 100 years ago:

“The most common error of confusing money and business comes about through the operation of the stock market. And especially through regarding the prices on the exchange as the ‘barometer of business’. People are led to conclude that business is good if there is lively gambling upwards in stocks, and bad if the gamblers happen to be forcing stock prices down.

The stock market as such has nothing to do with business. It has nothing to do with the quality of the article…nothing to do with the output…it does not even increase or decrease the amount of capital used in the business. It is just a little show on the side.”

…and, to the highly problematic part:

“The state of the stock market may make a deal of difference to the officers and directors of a company if they are dabbling in the stocks and trying to make money out of the securities of the company instead of out of its service.

It’s interesting that Henry saw this point clearly so long ago. I wonder what he’d say to the size and nature of the modern share option incentive packages! This has become a modern ‘large corporate’ virus5, attacking at the heart of the (supposed) customer purpose.

To close:

So, we have:

  • A problem of dead money usurping purpose;
  • An ownership model that favours short-termism over doing the right things for the long term success of the business; and to cap it all…
  • Directors and Executives ‘bought’ by those short-term shareholders to keep it this way.

Many an executive could throw their hands up in the air and cry “I know…but what can I do?!”

In Chapter 4, I’ll put forward some alternative thinking – for ways to alter the ownership model and thus change the foundation for the good of all (including the shareholders).

Update: Link forwards to Chapter 4

Footnotes:

1. Shareholders as King: If you want to really delve into: the detail on the ‘shareholder primacy’ issue; recent attempts to move to an ‘enlightened shareholder value’ concept; and the conclusion that little has really changed then here’s an in-depth paper that does that.

2. ‘Big Coffee’: Hugh investigated the (misleading) words and (contradictory) actions of Starbucks, Costa Coffee and Cafe Nero in the UK.

3. Wells Fargo: I had already written Mylan as the case study when I saw the Wells Fargo fraud come out in the media…I could have added this case, but I expect that you’ve got the point – lots and lots of big corporations focused on dead money power, not service power for the public.

If you don’t know about, but would like to read up on the Wells Fargo case, then here’s a link.

4. Price: Henry Ford constantly sought ways to reduce his costs and pass these savings onto his customers (the public) by reducing the price of his cars. The price of a Model T ford dropped from $850 when it was introduced, to $260. (Source for price info.)

5. That ‘Unholy Alliance’: Just in case you were wondering (and this note is mainly for the benefit of shareholders), studies have examined the link between the introduction of executive incentive (i.e. share) packages and shareholder value – and it hasn’t exactly worked out well for the shareholders! A book to read here would be ‘Fixing the game’ by Roger Martin.

A recent study of 1,500 large corporations by Raghavendru Rau (Finance Professor at Judge Business School) found that:

“shares in firms that paid their CEOs in the top 10% of incentive pay [i.e. with high executive ‘incentive’ packages] typically saw their share price decline – and they fared considerably worse than the shares of companies in the bottom 10% [ i.e. with no or little executive incentive packages]”

Chapter 1: A long time ago in a land far, far away…

henry-ford…well, about 100 years ago in America…there was a visionary man who led society through a monumental technological disruption – his name was Henry Ford – and he and his organisation changed the world through his desire to ‘democratise the automobile’.

His success in putting the internal combustion engine on wheels devastated the ‘technology’ it replaced – the horse – and its many related industries (stables, horse feed and bedding, saddleries and tack shops, blacksmiths and farriers,….) although, on the plus side, it dissolved the huge problem of ever increasing amounts of horse manure pilling up on city streets!

We talk about modern technological disruptions, like the mobile phone or internet, happening quickly (in years) but we should reflect that profound technological shifts can occur pretty swiftly, whatever the age.

I imagine that once one ape invented the spear, then the rest changed ‘technology’ quicker than you can say “I wonder what those long pointy things are that I can see hurtling through the air towards us?”

The change from the horse to the car was pretty dramatic too:

horses-and-cars

Okay, so Henry Ford was on the right side of a technological disruption…but, whilst this was necessary, it was much more than luck that made the Ford Motor Co. such a success2.

So what were Henry’s core philosophies, and what ‘gems’ might we learn from him in this modern time of technological disruptions? These were his foundations:

  • ‘Service power’;
  • The ‘Wage motive’; and
  • ‘Money power’.

Service Power:

gandhi-quoteHenry was fanatically clear that a business is only there because of the people that buy its products and services. Without them it wouldn’t exist and, as such, the customer (the public, society) is the point. Full Stop!

“Since the public makes a business, the primary obligation of business is to the public.”

(He nicely clarified that “Those who work for and with the business are part of this public.”)

This is so much more than the trendy “customer centric” mantra, in which we are usually shown a lovely circle with the customer conveniently arranged in the middle BUT, and this is the problem, all the other ‘conventional thinking’ management orthodoxy is retained around the outside3.

And to make it absolutely concrete in your mind as to what Ford really meant, he explained as follows:

“The true course of business is to follow the fortunes and pursue the service of those who had faith in it from the beginning – the public.

  • If there is any saving in manufacturing cost, let it go to the public;
  • If there is any increase in profits, let it be shared with the public in lowered prices;
  • If there is any improvement [in the quality of the service] let it be made without question, for whatever the capital cost, it was first the public that supplied the capital.

That is the true course for good business to steer, and it is good business, for there is no better partnership a business can enter than a partnership of service with the people.

It is far safer, far more durable and more profitable than partnership with a money power.”

Everything Ford did was with the customer at heart i.e could he provide the public with a cheaper car and yet also make it better than the ones he made yesterday? If he could do this, he knew that customer demand would continue to rise and profitability would be the least of his worries. ‘Customer, customer, customer’ provides growth and profitability – THAT WAY AROUND.

To make it cheaper and better for the customer, Henry was obsessed with constantly studying, experimenting and improving the process – through fanatical cleanliness and maintenance, ever deeper removal of waste (transportation, movement, scrap…), re-use of anything and everything, in-sourcing wherever possible, constant technological breakthroughs, decentralisation to where the work should be…and so on4.

And Henry didn’t just think about his automobile customers, he thought about the whole system (society) because he realised that it was all really one and the same thing. This led him into all sorts of interesting ventures that supported, and enabled, the core purpose.

In short: THE foundational ‘thing’ that made the Ford Motor Co. such a huge success was that Henry truly believed that his master was the public.

The Wage Motive:

your-greed-is-hurting-the-economyAnd so we move from customers to employees (the worker).

The ‘wage motive’ was Henry’s phrase for his philosophy that “one’s own employees ought to be one’s own best customers.” If the workers truly prosper then they will love, buy and advocate for the products (e.g. cars) they make…which will create an ever-improving product, a superb reputation and expanding customer demand…which enables the workers to prosper – and off we go round the circle.

He goes on to write that “If an employer does not share prosperity with those who make him prosperous, then pretty soon there will be no prosperity to share.”

Now, Henry was no Saint – he was a man of his times – but he wanted to do the right thing. Significantly, he learned from his early worker experiences and saw that the best, and only logical approach, was for his system to work with, and for, the worker, not against them.

He paid them high wages (far higher than they could receive elsewhere), provided regular employment (replacing the uncertainty of casual labour with steady work), reduced the standard working week to 8 hours for 5 days, insisted that Sunday was a day off for all, and provided them with excellent working and living conditions. Any worker that wanted more than manual repetitive work was given the chance to better themselves through training and increased responsibilities.

And finally, given that Turkeys don’t vote for Christmas, he was very clear that improvement was about bettering people and not about getting rid of people:

“Nobody with us ever thinks about improvement lessening the number of jobs, for we all know that exactly the contrary happens. We know that these improvements will lessen costs and therefore widen markets and make more jobs at higher wages.”

In fact, Henry got rid of (incentive driven) piece-work and created a profit sharing arrangement in the form of share ownership (more on this in Chapter 4)

Money Power:

And last, but nodead-moneyt least, to money. Over to Henry:

“There’s nothing to be said against the financier – the man who really understands the management of money and its place in life….but it is very different with the professional financier, who finances for the sake of financing and what he can get out of it in money, without a thought of the welfare of the people…

[Moneys] proper place [is] as one of the cogs in the wheel, not the wheel itself…

This is not to say that money and profits are not necessary in business. Business must be run at a profit, else it will die. But when anyone attempts to run a business solely for profit…then also the business must die, for it no longer has a reason for existence….

A business cannot serve both the public and the money power.

Money put into business as a lien on its assets is Dead money, its main purpose becomes the production of payments for the owners of that money. The service of the public [will] be secondary. If quality of goods jeopardizes these payments, then the quality is cut down. If full service cuts into the payments, then service is cut down. This kind of money does not serve business. It seeks to make business serve it.

Live money goes into the business to work and to share with the business. It is there to be used. It shares whatever losses there may be. It is asset to the last penny and never a liability.

Live money in a business is usually accompanied by the active labour of the man or men who put it there. Dead money is a sucker-plant….

Business that exists to feed profits to people who are not engaged, and never will be engaged in it, stands on a false basis.…Profits of business are due:

  • first, to the business itself as a serviceable instrument of humanity [i.e. to constantly improve the service to its customers], and then
  • to the people whose labour and contributions of energy make the business a going concern [i.e. its employees]…

The true course of business is to follow the fortunes and pursue the service of those who had faith in it from the beginning – the public…

The best defence any people can have against their control by mere money is a business system that is strong and healthy through rendering wholesome service to the community.


…and so I (and Henry) have set the scene as to what this ‘story’ is all about – customers, employees and money…and in particular, how do large floating (i.e. short-term thinking) shareholder owned organisations ‘fit’…and most importantly, (how) can their structure be altered to provide a foundation for a long term win/win/win for all?.

Update: Link backwards to Introduction and forwards to Chapter 2

Footnotes:

1. All of Henry Ford’s quotes above come from his 1926 book ‘Today and Tomorrow’.

2. Ford Success: Just in case you doubt this success (and accepting that money is a poor measure) Forbes estimates that, in today’s money, Henry Ford was worth around US$200 Billion….more than double anyone alive today.

3. Note to self: I’ve still got to write the post that slaughters the ‘Balanced Scorecard’ sacred cow! It’s been on my ‘to do’ list for far too long because other stuff keeps on popping up every day.

4. Toyota: If you’re a follower of Taiichi Ohno and, upon reading the above, think “Hang on, didn’t Toyota invent all that stuff?!”, here’s a rather nice quote to reflect upon:

“I met Taiichi Ohno on a Japanese study mission. When bombarded with questions from our group on what inspired his thinking, he just laughed and said he learned it all from Henry Ford’s book.” (Norman Bodek)

There’s no such thing as…

internal customerThis post is a bit ‘tongue in cheek’ (so if you don’t agree 100% then please don’t take it too much to heart 🙂 ) but it expresses what I’ve thought for years now.

A business fashion started back in, oooh, probably the 1980s – talking about ‘internal customers’ within organisations. The idea being that you are the customer for the person upstream from you – they are producing for you – and, in turn, the person downstream from you is your customer…and on and on…in a long chain from the start to the finish of a value stream. Lots of lovely internal customers.

But here’s the thing: They aren’t your customer – they are a part of (i.e. colleagues within) your system!

Yes, yes, I know that you are reliant on them and then the next lot are in turn reliant on you…but that’s just because of the design of the (current) method.

And, yes, yes, I know that it would be jolly nice if you all worked together in really efficient and effective ways – but that doesn’t make for a customer relationship. Further, it can be harmful to think in this way.

What is a customer?

I’ll draw on a set of related quotes to assist me here:

“The purpose of a business is to create a customer.”1 (Peter Drucker)

“It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages.” (Henry Ford)

“There is only one boss. The customer. And he can fire everybody in the company from the chairman down simply by spending his money somewhere else.” (Sam Walton)

The point being that a customer is, by definition, external to the system. Everyone and everything within the system is (or should be) there for them.

Without the (true) customer, there is nothing.

Why does this ‘internal customer’ label bother me so?

Such ‘internal customer’ logic causes us to think that we must do what they ask, and not question them too much, along the lines of the ‘customer is always right’ and ‘give the customer what they want’ mantras.

It presents a suboptimal ‘them’ and ‘us’ situation rather than a collaborative horizontal (across the system) ‘we’.

Once you think in terms of internal customers, it’s only a short and painful step towards the dreaded ‘Service Level Agreement’ (SLA) game show. Grrrr.

A massive risk within the ‘internal customer’ logic is the creation of a static system, one in which the method (and targets) becomes defined in quick drying cement.

  • If I think of you as my customer, then there’s unlikely to be much challenge from me as to whether your role should change, or even exist…and you sure as hell aren’t going to appreciate any such line of reasoning from me – who the hell am I to suggest this – you are my customer, I am merely your supplier!
  • Further, as my customer, you may consider that you know best, that your wish should be my command and that I should be grateful to be of service to you. Indeed, you may even score me on how well I treat you. Ouch!

How many of you reading this post have been asked to do something by your ‘internal customer’ and thought that what they were asking for was nuts…and how many of you didn’t get the chance to meaningfully discuss this with them, and had to carry it out anyway?

Even worse, how many of you have switched off from even thinking about whether your internal customer’s request makes sense and have merely become ‘order takers’.

What a load of nonsense. Let’s just throw the ‘internal customer‘ language in the bin.

“But what about treating all our colleagues with respect?!”

I can almost hear some HR departments chiding my thinking as being disrespectful to my fellow employees. No, it’s not!

In fact, it’s the opposite. I think it’s disingenuous for me to pretend that my work colleagues are my customer. They are far far more than that – we are reliant on each other, to keep our jobs, to grow ourselves, to stimulate each other, to want to come to work…to spend our working lives delivering something meaningful to this world. This is soooo much more than being merely thought of as ‘internal customers’.

As colleagues, we need a robust relationship, not one of diffidence and servitude. We need to respectfully challenge each other, work hard to listen to and understand each other’s worldviews…and become better, closer and wiser for this.

We are not ‘internal customers’, we are colleagues.

Addendum:

I always pick a trusted colleague (from an ever widening group of ‘pioneers’) to have a read of my posts before I press publish. I was particularly nervous about this one as I felt that it could just be me ranting about an ‘issue I have with the world’ (again 🙂 ).

…but I got a great response back, with the following gem (thanks A):

“Are the All Blacks ‘customers’ to one another, or are they a team with a shared purpose? By using the term ‘customer’ where it doesn’t belong… it distracts us from understanding who our real customers are.”

This made me giggle. Turning to the wonderful game of rugby, I had visions of the ‘backs’ telling the ‘forwards’ that they are their customers…I don’t think that this would go down too well.

rugby positionsHow about the following, even dafter rugby situations:

  • the jumper in the line-out considering themselves as the customer of the hooker throwing the ball in;
  • the winger considering themselves as the customer of the no. 10, who is kicking the ball through for them to get on the end of; or, at its simplest
  • the potential receiver considering themselves as the customer of the possible passer of the ball.

What a load of guff! They’re a team that have to work together, as equals; that have to understand, and swiftly react, to what’s around them; that have to make the selfless pass or tackle; and that have to pick each other up and genuinely offer words of support when perhaps it doesn’t go quite as desired.

They are not ‘internal customers’, they are team mates.

And so, to complete the title of this post: There’s no such thing as ‘internal customers’

Footnote:

1. I’m not a massive fan of this particular Peter Drucker quote, but it fits for this post.

Why so? Unfortunately, businesses have become far too adept at creating customers and, as a result, we have rampant consumerism.

I reflect on Professor Tim Jackson (author of ‘Prosperity without Growth’) clearly calling out THE problem for humanity, and what we* might do about it (* requiring brilliant political leadership).

His take-away quote “The story about us – people being persuaded to spend money we don’t have on things we don’t need to create impressions that won’t last on people we don’t care about.” Prof. Tim Jackson TED talk.

The River Rouge – a divergent legacy

ford-model-t-1925-6I expect that you’ve heard of the industrialist Henry Ford (1863 – 1947), but what about his massive ‘River Rouge’ car plant?

If you had gone for a ‘factory visit’ in the late 1920s, what would you have noticed?

The Model T Production line1

Ford wanted to provide a car that the masses could afford to buy – to ‘democratise the automobile’. Enter the Ford Model T – a car designed to be easy to drive and easy to repair, with standard interchangeable parts.

…but it wasn’t just about the car’s design. It was about the design of how the car was made.

In 1906, Ford’s engineers did something different – they experimented with the physical layout of their manufacturing system. They arranged their manufacturing tools in the sequence of processing steps rather than the normal practise of by machine type. This seems ridiculously obvious now (hindsight is a wonderful thing!), and the result was considerably higher productivity. This innovation created a flow in the order of the work but, at this stage of the Ford story, each work step was still done on stationary tables and stands.

In 1913, they took the next breakthrough step: they experimented with the moving assembly line for a small section of the process and, after some fine-tuning, this increased productivity fourfold…..and so the engineers got to work spreading this method throughout the manufacturing value stream.

Ford was constantly reducing his costs, not by ‘cost-cutting’ but through a fanatical focus on creating flow. This was achieved by a combination of continuous (incremental) and breakthrough (step change) improvements…which enabled Ford to pass on these savings by consistently lowering the price of the Model T…which increased demand…which outstripped supply…which meant that ever further production innovations were required to keep up!

Highland ParkA great deal of the experimentation explained above was carried out at the purpose built Highland Park factory. It was six-stories high, with a railroad track running down a central atrium (pictured) and cranes lifting materials from the rail carriages up to balconies that opened to the appropriate floors on either side.

The basic pieces of the Model T started at the top floor and, through the use of chutes, conveyors and tubes between floors and the force of gravity, they made their way down through the various sub-assembly processes until they reached the ground floor final assembly conveyor….and then the completed car could ‘drive off the line’.

River RougeWhilst Highland Park was an amazing feat of engineering, it had its limitations – such as the central crane-way that was probably a huge bottleneck! Henry Ford went for one more innovative jump – he created an enormous horizontal factory complex called the River Rouge2. The site started with raw iron ore and materials and finished with completed automobiles. It had its own ship docks, power generation plant, blast furnaces and rolling mills – all arranged to achieve flow (I’ve added the basic flow over an aerial picture).

“The River Rouge Plant in 1925 produced about one vehicle per minute in a total lead time of about three days and nine hours from steel making to finished vehicle.” (Source: Henry Ford’s book ‘Today and Tomorrow’)

“…as long as it’s black”

You are probably familiar with the famous Henry Ford quote that ‘you can have any colour you like, as long as it’s black’. Today this sounds quaint, even humorous but there’s a seriously important point within: the manufacturing process was not designed to handle variety.

This hadn’t been a problem – people just wanted to be able to afford a car! – but rising standards of living and the birth of modern marketing gave rise to the ‘sophisticated consumer’. The new problem became offering ever wider variety (e.g. different colours, engine choices, trim levels, add-ons….) whilst retaining low-prices (and therefore mass-production costs).

And so to the crux of this post: Lots of organisations from all around America and the world went to the River Rouge to learn…but what did they see…and, therefore, what did they go away to do?

American Manufacturers post World War II.

So American organisations saw scale at the River Rouge.

Unfortunately, achieving the product variety now demanded by customers meant regularly stopping the production line to change tooling to be able to produce the different variants. Delivering variety was seriously hindering speed.

What to do? Here’s what they came up with:

  • Let’s interrupt the flow and decouple the stages within the production line, allowing the different processes to operate independently, and create buffer stocks between each process;
  • Let’s build each process to the largest scale feasible, and then run large batches per product variant through at the fastest rate possible and thus keep the number of changeovers required down to a minimum.
  • Let’s build warehouses to store all the resultant inventory (Work-in-process and finished goods)

This fundamentally changed production from workers producing for the next process step to workers merely producing for inventory. It became a case of ‘make lots and inspect later’. It was virtually a crime to stop the line3 – a disaster for quality!

Of course, once the main process steps were decoupled, their co-location didn’t matter so much. So rather than having a number of end-to-end manufacturing sites across America, the ‘logic’ could extend to…

  • Let’s centralise process steps into ‘centres of excellence’ so that we can increase scale even further! We might end up with, say, a massive steel works in one city, huge sub-assemblies in another city and a mega final assembly yet somewhere else.

…and the above ‘solution’ to variety introduced massive wastes in the forms of transportation across sites; inventory and its motion as it is constantly transferred in and out of the warehouse; over-production and obsolescence; defects through poor quality and rework…and on and on and on.

You could conclude that they ‘unlearned’ (even destroyed) what Henry Ford had achieved before variety had been introduced.

The above led American manufacturers to the hell of:

  • centralised planning, culminating in mega algorithms calculated by Manufacturing Resource Planning (MRP ii) computer applications, producing theoretical answers far from reality; and
  • ‘management by results’ using managerial accounting data (unit costs, rates of return, targets, budgets,…) to command and control the work.

This approach, even though it was hugely wasteful, proved profitable until the 1970s…until domestic demand became satiated and globalisation opened up the market to other manufacturers. Things suddenly became rather competitive….

Over in Japan

The Japanese, and Toyota in particular, saw flow at the River Rouge.

Taiichi Ohno (Toyota) realised that flow was the important bit: “ [they] observed that Ford’s plant conserved resources, by having processes linked in a continuous chain and by running slowly enough so that people could stop and fix errors when they occurred.”  (Johnson4)

Japan, unlike America, did not have the luxury of abundant resources after World War II. They couldn’t afford to create huge factories or tie up money in inventory…so they had to find a different way – to do a lot with a little.

Taiichi Ohno came to the conclusion that variety and flow had to go together i.e. “a system where material and work flowed continuously, one order at a time” (Johnson).

This created some clear challenges to work on:

  • rather than simply accepting that machine changeovers took time, Ohno set his workers the challenge of continuously reducing set up and change-over times; and
  • rather than running high-volume batches per variant, Ohno empowered each worker to design and control the steps they performed so that they could perform different steps on each unit that passed through them

In short, he set his people a huge visionary challenge, of working together as a system to think about the incremental, and sometimes giant, steps they could take to handle variety ‘in the line’.

Rather than centralised planning with standardised work dictated to them, the workers were empowered, and encouraged, to think for themselves, to deal with what was in front of them, to experiment and to innovate….and to share what they had learned.

And, wow, they came up with some fabulous techniques such as ‘Single-Minute Exchange of Dies’ (SMED), ‘pull’ using kanban, product supermarkets, ‘stop the line’ using andon cords, visual management, machine ‘right sizing’…and on and on.

I could write about each of these…but I’m not going to (at least not now). The point is not the brilliant innovations themselves. It is the clear and permanent challenges that were set and the constant progress towards them.

You may copy ALL of Toyota’s techniques but they (and other like-minded organisations) will still leave you far behind. Why? Because, whilst you are attempting to copy them they are racing yet further ahead. Indeed, what you copy (even if you ‘get’ the why) may be an out-dated technique before you go live! (This is to compare a static vs. dynamic environment)

What about service?

The Western (?) ‘solution’ for service organisations has, sadly, been virtually the same – scale: to standardise, specialise, centralise and ‘crank up the volume’.

Yet the challenge of handling customer variety is so much bigger: variety for service organisations is virtually infinite – it’s different per customer and, even for a given customer, it differs as their circumstances change.

So should we just pick up the ‘Toyota tool kit’ and get implementing? No. The techniques to meet the challenge will differ. Service is NOT manufacturing.

But can we learn from Toyota? Most certainly – but this must be at the deepest ‘beliefs and behaviours’ level.

The core message from the above is that service organisations should design their system such that the front line are allowed, and enabled, to absorb variety in customer demand.

If you run a service organisation and you have set up:

  • a front office ‘order taking’ function to categorise demand (which can only be based on the limited information available to them), and break it down into standard ‘work objects’ from an allowable catalogue of variants;
  • a ‘workforce management’ function to: prioritise and allocate (i.e. push) these work objects into ‘work queues’, usually by temporal batches (e.g. by day/ shift or weekly);
  • multiple specialised back office silos to churn through their allocated work, ‘motivated’ by activity targets (and incentives) regarding volumes of work performed; and, as a result
  • a complete confusion as to who is taking responsibility for resolving the customer need

…then you have seen scale, through commanding and controlling the work, as the ‘solution’.

If, however, you are on a journey towards:

  • equipping the people at the point of contact with the necessary expertise and freedom to respond to what most customers will predictably want (i.e. the bulk of demand); and
  • where more unusual demand hits the system, allowing and enabling these same ‘front of service’ people to ‘pull’ expertise to assist, yet retaining ownership of the service provision (thereby speeding up their rate of learning and widening their skills and knowledge)

…then you are on a similar track to Ohno: Pursuing flow for each unique customer demand, through revealing and harvesting the passion and pride within your workers.

Footnotes:

1. Sources: Much of the above comes from early chapters within three books:

  • ‘Relevance Regained’ by H. Thomas Johnson
  • ‘Profit Beyond Measure’ by H. Thomas Johnson
  • ‘Toyota Kata’ by Mike Rother

Other details (including pictures) come from searching around the ‘interweb’ thing.

…and of course the service ending is inspired by the work of John Seddon.

2. Historical point of detail: “The River Rouge was built to produce Model T Fords for decades to come, [but] by the time it was capable of full production later in the [1920s], a factory a tenth its size could have handled the demand for Model Ts.” (Wiley)

i.e. Henry Ford had built this huge production machine but his product had gone out of fashion because its competitor, General Motors, was providing the variety that customers now wanted, albeit using scale to do so. Ford was now in a dash to recover.

3. ‘Stop the line’ crime: Workers knew that managers wanted them to make as many as possible, with no ‘down time’. I understand that this is where the phrase to ‘throw a spanner in the works’ comes from…which refers to a disgruntled worker ‘accidentally’ dropping a tool into the assembly line mechanism so that the line stopped and they all got a break whilst the cause was found and rectified.

4. A fresh giant: Johnson is a giant for me, and I’ve been meaning to add his ‘giant bio’ to this blog for ages now…I have finally done so 🙂

Oh…so that’s why ‘Command and Control’ doesn’t work very well!

social systemWarning (or advert for some): Sometimes I write long(er) ‘foundational’ type posts – this is one of them 🙂

Russ Ackoff researched and wrote a great deal about systems.

It is within his writings1 that I find an excellent explanation about why many organisations adopted the command and control management model, why there is a major problem with this and, most importantly, why there is a better way.

First, A recap:

Before looking at types of systems, I should allow Ackoff to remind us what is meant by ‘a system’ and why this matters:


“A system is a network of inter-dependant components that work together to try to accomplish the aim of the system…

The two key pieces here are that:

  • there is an aim; and
  • it is made up of parts that need to work together (either directly or indirectly) to achieve that aim

If you have parts but no aim then you don’t have a system…you simply have a ‘collection’.

If you have a part that (truly) isn’t required to achieve the aim then it isn’t actually part of the system…which is why your ‘appendix’ body part got its name.


…If each part of a system, considered separately, is made to operate as efficiently as possible, the system as a whole will not operate as effectively as possible…

The heart and lungs are parts of the body but if they function according to what’s best ‘for themselves’ then they won’t function as required for the overall good of the whole. It’s no good if the brain is telling the heart and lungs to ‘work flat out’ to run like hell from a chasing pack of lions and these organs both respond with a “no thanks, this doesn’t suit  us!” The same is true for parts of (e.g. functions within) organisations.


…The performance of a system depends more on how its components interact than on how they act independently of each other…

You can buy a ‘light as a feather’ carbon frame, an awesome set of aero wheels and a precision engineered 11-speed group set but you can’t ride them as a bike if they don’t fit together. Further, someone with a basic ‘sit up and beg’ bike frame with cheap wheels and components that do fit will easily beat you in a bike race.


…When a system is taken apart it loses its essential properties.”

If you take apart an alarm clock, you will have all of the parts necessary for the system but the disassembled collection of parts isn’t sufficient to tell you the time.

The above has huge implications.

So, on to Ackoff’s system types:

Ackoff defined a number of types of systems2 and the problems that occur when an organisation adopts a management model that does not match the correct system type.

Here goes….

Type 1: Deterministic (e.g. mechanisms)

alarm clockA deterministic system is one which has no purpose and neither do its component parts. This might seem rather strange…”Erm, I thought you said a system had to have an aim?!” – the point is that a deterministic system normally serves a purpose of an entity external to it, such as its creator. Its function, and that of its parts, is simply to provide that service when required.

Mechanisms are the most obvious examples of deterministic systems: An alarm clock is such a system. Its purpose (to tell the time) has been provided to it by its creator (the clock maker)….and that is what it is for, nothing more and nothing less. It can’t decide to do something else!

Even a computer, whilst incredibly more complicated than an alarm clock, is such a system – it is reliant on the inputs and programs provided to it by its external sources.

Type 2: Animated (e.g. most organisms)

monkeyAn animated system is one which does have a purpose of its own but its parts don’t.

Animals (and therefore humans) are the most obvious example. They have a purpose of their own – where this might be argued as (at a minimum) survival, and (more optimistically) to enjoy doing so, in the manner of their own choosing.

The animal is made up of parts (e.g. organs) and whilst these parts have a necessary function for the good of the whole, they do not have a purpose of their own.

In this way we can compare a computer to a person and see that they are fundamentally different. The computer’s purpose is provided to it whilst the person provides their own.

Type 3: Social (e.g. organisations, societies)

flagsA social system is one which has a purpose of its own and so do its parts (the people within).

Indeed each social system is usually part of a larger social system (e.g. a family is part of a community, which is part of a nation, which is part of ….)

And even more complex, a person belongs to multiple social systems – which have different, sometimes conflicting, purposes3.

So, bringing these three types together, we have:

System Type4: The whole is: The Parts are:
Deterministic (e.g. a mechanism) Not purposeful Not purposeful
Animated (e.g. a human) Purposeful Not purposeful
Social (e.g. an organisation) Purposeful Purposeful

These three system types form a sort of hierarchy: The deterministic alarm clock is given purpose by the animated (clock making) person who also lives within their social group. The linkages don’t go the other way….or at least they shouldn’t…which leads on to…

Okay, interesting stuff but what’s the point?

Well, now that we have an understanding of three different types of systems, we can see the consequences of the misunderstanding of an organisation as a system:

A ‘deterministic’ model applied to an organisation:

Adam Smith (often referred to as the father of economics and of capitalism) wrote a famous book called ‘The wealth of nations’ (1776). In it, he used the example of a pin factory to explain the concept of ‘the division of labour’. He explained that one person performing all the steps necessary to making a pin could perhaps make only 20 pins a day but if the pin-making process were broken up into a series of limited operations, with separate people performing them in a joined-up line, productivity could rise to thousands of pins per day per worker.

Now that sounds fantastic doesn’t it! But for who?

Smith’s thinking was taken on board by industrialists who went on to employ vast factories of ‘unskilled labour’ in the new concept of ‘manufacturing’ (and who likely still do in the sweat shops of 3rd world countries).

Standing back, we can see that this is using people as replaceable machine parts i.e. we have a defined mechanism (the manufacturing process) which is given its purpose externally by its creator (e.g. make pins)…and wow, this mechanism sure can make pins!

Henry Ford’s phenomenal success worked in the same way. He designed a mechanism to make Model T Fords (his mass production factory) and installed workers as the mechanism’s parts. He (and other ‘owners’ at this time) could use workers in this mechanistic way because:

  • unskilled workers, whilst poorly educated, were adequate for the simple tasks required of them;
  • such workers were willing to tolerate being treated as a machine part since there was high unemployment and virtually no social security safety net…giving them little option (i.e. work as required or starve);
  • there was a large pool of available labour – the human parts of the machine were easily replaceable; and
  • such business owners were subject to very little societal controls (such as governmental interventions and constraints) limiting their treatment of their worker ‘parts’4.

It’s worth noting that, even though worker conditions were massively in his favour, Ford’s ‘mechanism’ had an astounding 370% turnover of workers in 1913, with new hires staying an average of only 3 months. Many workers simply ‘walked off the job’ without notifying anyone…which is what happens if you ask humans to perform monotonous (demoralising) work without having to use their brains.

An ‘animated’ model applied to an organisation

So times moved on. We had two world wars that caused/ enabled major societal changes – a major shakeup of the class system, the birth and rise of the Labour movement and worker unions, massive improvements in education, social security and welfare, and great advances in technology.

The other significant change was the raising of capital (necessary for post war growth and development) from the public and the consequent birth/ rise of publically owned corporations. This separated the ownership and management of these new organisations.

A big difference from before was that:

  • the workers were now far more educated and empowered; and
  • the required work had become far more skilled (utilising new technologies).

Managers were no longer able to treat workers as merely replaceable cogs in a machine – it took time to train them, and they now had worker rights and choice.

Now, rather than seeing an organisation as a deterministic system with the all-powerful owner dictating its purpose (as the likes of Ford had done), they operated as an animated system would6: with a ‘brain’ (senior management) and a ‘body’ (the various operating functions performing the work).

Such a model works by senior management providing the instructions (the what: commands) and procedures (the how: controls) and then the operating units carrying them out accordingly.

“Command and control represents the division of labour between decision-making and doing the work.” (Seddon)

We all know that the ‘operator’ parts within the organisations ‘body’ are actually human beings but the ‘command and control’ management instruments don’t really recognise this fact:

  • the organisational ‘brain’ (often annually) decides the strategy and breaks this down into a set of objectives for the parts of the ‘body’ and locks these into a cascaded grand plan;
  • the organisational ‘brain’ provides incentives for the ‘body’ to act as it requires: thus assuming that it is simply a matter of extrinsically motivating each part to comply as required;
  • the organisational ‘brain’ considers the performance of each part of the ‘body’, scores it and delivers this judgement back: thus assuming that each part can and will accept such feedback for the good of the whole;
  • the organisational ‘brain’ performs (frequent) reorganisations on the ‘body’ parts, as if shifting pawns around a game board. The brain does this by dictating such redesigns to the body rather than asking the body if (and how) it could better rearrange itself;
  • The organisational ‘brain’ thinks that the answer to an increasingly complex environment is simply to increase the quantity and regularity of communication with the ‘body’ parts. This fails to realise that communication is not the underlying problem.

But the reality for every organisation is that they have purposeful parts – you and I – whether they like it or not…and so to treat these parts as merely having a function for the whole is to inevitably generate conflict.

A social model applied to an organisation

…and so we reach the point at which we conclude the obvious that:

  • the organisation (hopefully) has a purpose;

AND

  • the humans working within it have separate purposes.

…and therefore any management model that doesn’t understand and work within such a social system will be very limiting – causing loss of immeasurable value to the organisation AND to the people within.

Now you might say “okay, interesting stuff, but treating an organisation as an animated system and using command and control methods has worked fine so far…why do we need to change?”

The rate of change in our world has been massively accelerating. It used to be that change was seen as generational and this made it relatively easy for people to adapt but this no longer holds true.

Organisations are operating in more complex and less predictable environments with the result that:

“Over the last 50 years, the average lifespan of S&P 500 companies has shrunk from around 60 years to closer to 18 years.” (Source: The art of corporate endurance )

Here’s a classic Deming quote: “It is not necessary to change. Survival is not mandatory.”

But if survival is desired, then the best chance that an organisation has is to operate a management model that actually fits with the correct type of system! In so doing, it can get the best out of everyone within.

What might this model look like? Studying ‘Deming’s 14 points for Management’ would be a great start. A post to follow next.

Who’s been successfully operating a social model for decades? Two brilliant examples are Toyota and Handelsbanken.


Footnotes:

1. Credit: The core of this post comes from learnings derived from a classic Ackoff essay entitled ‘Reflections on systems and their models’ which can be found in the book ‘Ackoff’s Best: His classic writings on management’.

2. I’m aware that other system thinkers have created other, more sophisticated, classification schemes (e.g. Boulding, Beer). Ackoff’s system types nicely serve the purpose of this post.

3. This fact is probably relevant to the need for, and creation of ‘soft systems thinking’…which is where Peter Checkland’s work fits in (A ‘giant bio’ currently in draft)

4. For those ‘system’ geeks out there: Ackoff explained a 4th system type, that of an ecological system – where the parts are purposeful but the whole is not. Ecological systems contain interacting mechanistic, organismic and social systems, but do not have a purpose of their own. However, their function(s) serve the purpose of the systems that are their parts.

Example: the purposeful use of fluorocarbons as propellants by humans (a purposeful part of the ecological system) affects the ozone layer in a way that is determined, and not a matter of choice for our planet (the whole)…the planet cannot decide that it is harmful to it and decide to ‘do something about it’– the outcome (even though we may not understand it) is determined.

5. Henry Ford realised the problem and, in an attempt to compensate for their conditions, paid his workers well as compared to what they could earn elsewhere.

6. Stafford Beer wrote a famous book called ‘The brain of the firm’ (1972) that explored in detail the analogy of an organisation working as the human body does.