In his most recent book, Hot, Flat and Crowded, Thomas Friedman quotes Michael Mandelbaum on page 108: “People don’t change when we tell them they should. They change when they tell themselves they must”.
I was reminded of this watching and listening to the top executives of the major automobile producers speaking before the House Financial Services Committee members. Did you sense a bit of frustration on the part of the committee members? I sure did! But what really frustrated me was the lack of questions and or suggestions on the part of both the congressmen and the auto executives on innovative and creative ways to solve the many problems facing the auto industry today. As the author of Panasonic, Francis McInerney has been saying for years, it is “cash wait states” because of “out dated distribution channels” in the context of today's Information Age and businesses' operating at "warp speed".
When McInerney says cash wait states, payable, he means how long does a business or enterprise wait for payment for their product or service once the product leaves the production facility or factory or the service is provided. Because of the velocity at which all businesses' operate today, velocity of cash and capital is crucial to remain competitive and achieve scalability. In the auto industry, when the unit leaves the assembly line, shipped to the dealer, placed in inventory, sold by the sales person-who does not work for the auto maker-financed and then money sent to the auto maker, it could be 130-145 days. Even longer today if the vehicle is a “gas guzzler”. You might say “so what’s new”? Apple!
Apple’s payables are at worst two days. In a world where speed-velocity-is crucial, there are many lesson the auto industry could learn from Apple. One is how important controlling the point-of-sale is in today’s business environment for building brand superiority. Apple owns the retail store and is opening more stores while other retailers are suffering-even before the economic tsunami of two months ago. The enthusiastic, well-informed people at the Apple Stores work for Apple-they help build brand superiority for Apple. The car salesperson works for the dealer(franchise) in the particular state and town where they live. Their loyalty, if any, is mainly to the dealership that hired him or her and pays their salary and not the auto maker. Any feedback about the quality or performance of any particular vehicle may take months or years to filter upwards to the automaker, provided the customer feedback is welcomed and seriously considered by the OEM-the auto maker-for future innovation and/or product development. This distribution model needs immediate overhaul.
How long did it take for the message to stop making SUV’s take and did the automakers’ listen? Are they listening now? How willing and more importantly, how open are the folks who run the auto industry to adapting to change.
Don’t get me wrong, the automakers need the local dealers for service and parts. And I do admit I am not in the auto industry, so I am sure there are many more qualified and experience people looking at these issues, at least I hope so.
What I am is a concerned auto enthusiast. I feel terrible about the circumstances in which the auto industry has put itself-mainly from the auto executives and their struggle with outdated distribution channels. Donald Keough former executive at Coca Cola mentions in his recent book The 10 Commandments for Business Failure that one of the commandments for failure is for executives of large established companies to isolate themselves from their customers and markets will insure business failure. Surely, in a business environment where the consumers are not only in charge but where they figuratively have been handed the keys to the factory in most business sectors because of the Internet, the last thing executives and their decision makers want is to be isolated from their customers.
We should all be asking for answers, after all the taxpayers of the United States are now shareholders and we seem to be buying more and more into companies who do not suggest any changes for improvement and congressmen or the media who do not ask enough questions as to how change will happen given the circumstances of today’s business environment. As Nicola Machiavelli said and Don Keough quoted in his book: “For this is a tragedy of man, circumstances change but he doesn’t”
Thursday, January 8, 2009
Open Letter to President-elect Obama
I agree with President-elect Obama that we all have to work together and that it is time to act. This is why I feel compelled to write this open letter. What I am about to write is not found in economic textbooks even though it has been more than fifty years since Robert Solow introduced the idea of "Incresing Returns" and almost twenty years since Paul Romer expanded on Solow's ideas and introduced us to a "New Growth Theory" (for a non-economist explanation of Increasing Returns read: Knowledge and the Wealth of Nations by David Warsh). My suggestions are an outgrowth of both Solow's and Romer's ideas, placed in todays' contexts. I believe in our President-elect's ability to explain new and innovative approches to solving our nations economic ills with confidence, to a country ready for something new and creative.
Other than infrastructure upgrades, I would like to hear about innovation that results in sustained productivity not only in the short term but also in the future, rather than just spending money on traditional industrial age, legacy solutions. Someone within this incoming administration needs to talk about, plan and implement strategies for the re-intermediation of workers who, for what ever reason, have lost their jobs-disintermediated-in the production sector.
I suggest alternative, creative solutions, albeit little known, to move away from limited-resource markets-based on the old enterprise logic of Production Management-from the industrial economy. As Romer said in an interview with Reason Magazine: "New Growth Theory shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress". Instead, train people as knowledge workers in areas of information markets like communications, entertainment, EDUCATION, publishing, computers, robotics, biotechnology and other sectors we have not even created. Information is an unlimited resource; in fact information is virtually “free”. The tools for this policy implementation are ubiquitous and it could happen smoothly and quickly. The “tools”-computerized products and other appliances with which we connect to the Internet-are also available and affordable. (No shovel in the ground or asphalt needed here!) We would be training and familiarizing knowledge workers for the here and now while also preparing them for the future. The future of value creation is in establishing and maintaining networks among and between knowledge workers allowing for the collaboration needed in all phases of business organizations or enterprises for innovation, growth and sustainability. This takes advantage of digitization and all the new and exciting business ideas that are transforming business models-a la Chris Anderson and The Long Tail. The key for innovation is “mass collaboration” or taking advantage of the Architecture of Participation-read Wikinomics.
Redirect away from just thinking of IT as the world of "techies" or technology engineers and toward technology enabled resources. This will take a huge intellectual and psychological leap or transformation. The means and the experts that can make this happen already exist. It is time to act!
Other than infrastructure upgrades, I would like to hear about innovation that results in sustained productivity not only in the short term but also in the future, rather than just spending money on traditional industrial age, legacy solutions. Someone within this incoming administration needs to talk about, plan and implement strategies for the re-intermediation of workers who, for what ever reason, have lost their jobs-disintermediated-in the production sector.
I suggest alternative, creative solutions, albeit little known, to move away from limited-resource markets-based on the old enterprise logic of Production Management-from the industrial economy. As Romer said in an interview with Reason Magazine: "New Growth Theory shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress". Instead, train people as knowledge workers in areas of information markets like communications, entertainment, EDUCATION, publishing, computers, robotics, biotechnology and other sectors we have not even created. Information is an unlimited resource; in fact information is virtually “free”. The tools for this policy implementation are ubiquitous and it could happen smoothly and quickly. The “tools”-computerized products and other appliances with which we connect to the Internet-are also available and affordable. (No shovel in the ground or asphalt needed here!) We would be training and familiarizing knowledge workers for the here and now while also preparing them for the future. The future of value creation is in establishing and maintaining networks among and between knowledge workers allowing for the collaboration needed in all phases of business organizations or enterprises for innovation, growth and sustainability. This takes advantage of digitization and all the new and exciting business ideas that are transforming business models-a la Chris Anderson and The Long Tail. The key for innovation is “mass collaboration” or taking advantage of the Architecture of Participation-read Wikinomics.
Redirect away from just thinking of IT as the world of "techies" or technology engineers and toward technology enabled resources. This will take a huge intellectual and psychological leap or transformation. The means and the experts that can make this happen already exist. It is time to act!
The Transition and the Transformation
There are two critical aspects of today’s market system business leaders must know about and understand in order for their business sector, company or enterprises to not only survive but also to be productive and profitable.
First of all, a vivid and clear understanding of the transition that is occurring from an industrial economy, based on production management, to a new knowledge economy accelerated by the information age and rooted in customer empowerment. Secondly, the transition in business is part of a greater, larger cultural transformation unlike anything we have seen since Gutenberg’s printing press.
This and subsequent blog postings will feature explanations, observations and elaborations on this most critical juncture.
Until and unless, both the transition and more importantly the transformation are recognized and understood in the context of the technological changes and their impact on our society, system of government, global financial and economic system, we will all be at a loss as to what changes have to be made and implemented to improve and sustain our way of life.
First of all, a vivid and clear understanding of the transition that is occurring from an industrial economy, based on production management, to a new knowledge economy accelerated by the information age and rooted in customer empowerment. Secondly, the transition in business is part of a greater, larger cultural transformation unlike anything we have seen since Gutenberg’s printing press.
This and subsequent blog postings will feature explanations, observations and elaborations on this most critical juncture.
Until and unless, both the transition and more importantly the transformation are recognized and understood in the context of the technological changes and their impact on our society, system of government, global financial and economic system, we will all be at a loss as to what changes have to be made and implemented to improve and sustain our way of life.
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