Retrofitting GM, the Quintessential Industrial Economy Enterprise

Retrofitting GM, the Quintessential Industrial Economy Enterprise reflects Knowledge Economy disruption as production-focused enterprises languish as customers continue to forsake them.

As readers of these pages know well, I estimate that one of the most poignant changes that faces Industrial Economy enterprises is shifting their primary focus from production and operations to the customer. The Industrial Economy mechanized work and production, and by any measure it created unprecedented wealth by drastically lowering per-unit costs of any kind of product you can name, bringing more products within the means of more people. This worked extremely well while demand exceeded supply: customers were excited to have their first car/house/television, and they were happy with what producers brought to market.

However, Industrial Economy CSFs (critical success factors) look extremely stale in the Knowledge Economy (also see Transformation: From Self-contained Company to Networked Global Organization). The e-business revolution has vastly enhanced communications, decreased cycle times and moved the mass customization model closer to reality.

Big Dealer to Detroit: Fix How You Make Cars (The Wall Street Journal, 9 February 2007) spells out the problem extremely well:

“One of the toughest problems facing the ailing U.S. car industry stems from Detroit’s century-old business model, which dates to Henry Ford’s mass production of millions of largely identical Model T’s. Rather than build cars to suit customer tastes, U.S. auto makers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers.”

Large organizations have huge infrastructure costs which can produce fantastic efficiency through economies of scale—as long as production and demand remain high. Short product life cycles are the bête noire of the large scale enterprise and, unfortunately, the rule of the emerging Knowledge Economy, in which customers collectively discover and expose differentiating information about any product or service in existence. Hyper-available information about products and services shortens product life cycles and drives commoditization. Another quote from the article:

“The Big Three are trying to be more market-driven, but it isn’t easy. Because they have big and rising costs for union health care and pensions, they need to maintain revenue, which means they often keep plants open and build more cars than the market demands.”

There is no simple solution to the transformation of the large-scale enterprise, but enlisting customers to help with product ideas would be a step in the right direction. Web 2.0-enabled customers are increasingly accessible and eager to collaborate when companies know how to engage them (for more, see the review of Outside Innovation). As it is, focus groups are so artificial that they often fail to produce real insight: too often the context is that the company is asking the customer to respond to certain scenarios; they rarely ask openly what the customer wants, and customer-to-customer interaction is virtually always very limited.

Customer-to-customer interaction in social network sites and blogs does not impose the limitations of the enterprise, and enterprises can gain true insight into the customer experience by participating in them. Until then, Detroit will have this result:

“Detroit often misses when it tries guessing the market. Chrysler thought buyers of its redesigned Jeep Wrangler would want two doors and a canvas roof. Dealers say the four-door model with a hard top is a big seller.”