Archive for June 2008


The Evolution of Companies

June 27th, 2008 — 9:24am

This blog’s title, Guilds, Teams and Networks, pays homage to one of the best pieces of business research ever done: HBS Professor Ramchandran Jaikumar’s From Filing and Fitting to Flexible Manufacturing. Jai discussed how companies changed over the centuries because of six “epochal” transformations instigated by technology. The Spider’s Strategy builds on Jai’s work by adding my research and experiences as well as the research of others. In this post, I will explain the blog’s title and so provide a context for the book and for a broader discussion. (After Jai’s untimely death in 1998, Professor Roger Bohn masterfully edited and published the work, which is definitely worth reading as a stand-alone piece. It is available at www.nowpublishers.com)

In 1789, Henry Maudslay initiated the first epochal change, the “English System,” when he gave his workers direct access to two simple tools – a precise micrometer and a flat surface. These enabled them to accurately measure dimensions. Quality improved sharply and productivity rose 400%; companies that gave workers access to these tools outperformed those that did not. Work areas used to be organized by craftsmen’s guilds; Maudslay’s changes also had a critically important and unexpected effect: no longer did the guild master have to approve each work-product. So companies learned that they could directly hire and train young people with skills and knowledge they needed. Conversely, young men realized that no longer did they have to apprentice with guild masters for many years. Over time, the guild system collapsed.

In the mid-20th century, Statistical Process Control charts enabled a very sharp leap forward in quality and productivity – and changed the nature of work. In the 50 prior years, the third epoch, “Scientific Management,” had vested problem solving authority in foremen or managers. Now, SPC returned the responsibility for solving problems to workers, not as individuals, but as teams. “Good” workers did not just do accurate work, but as members of teams, could also diagnose and solve problems. This fact raised the level of education and training demanded even by basic jobs. Companies that made the appropriate changes, thrived; Japan, devastated by war and known hitherto for creating shoddy products, became the beacon for quality and the world’s second most powerful economy.

Starting in the late 1990’s, distributed computer networks, engendered by the Internet, began driving the sixth epochal change. (This description of the present epoch diverges somewhat from Jai’s.) Unlike prior ones, this epoch quickly moved beyond manufacturers into retail businesses. So, I call it the epoch of “Adaptive Businesses.” Companies used to be hierarchical entities linked together into linear supplier-customer chains. Now, increasingly diverse groups of people – spanning product development, manufacturing, engineering, marketing, sales, finance and logistics – began working together. Often they existed within a company, but increasingly frequently, they belonged to different organizations and were separated by time and space.

Their ubiquity and importance make networks of companies/people the defining organizational characteristic of our times. In every prior epoch, changes in organizational structure created new winners and losers among companies. So it is reasonable to believe that the effectiveness with which a company manages its network will affect its likelihood of success.

The network effect is being paralleled in the political world. Recently, I read Fareed Zakaria’s brilliant article in Newsweek The Rise of the Rest For now let me simply note that Mr. Zakaria makes a cogent case that the political world is becoming “multi-polar” and linked by economic flows. Just as the transition from a linear world to a networked world is challenging many companies, so is the transition from a world of two superpowers to a world of one superpower to a world of several rising power bases (EU, Brazil, India and China) challenging the US. The article provides an introduction to the thesis for Nr, Zakaria;s new book, which I hope to read in the near future. At that time, I will draw parallels and distinctions between the formation of corporate networks and the formation of political – country-level – networks.

This blog, I hope, will draw you into a multiway discussion on the future of “the company” and its relationship to the world at large. Bring to it your thoughts, criticisms, questions, opinions, profound disappointments, comments, and ecstatic elation at having seen the light! We will collaborate to create implementable insights. I’ll start by making one major post a week, but I will respond more often to your inputs. Before you depart today, leave some comments … What are good issues – that inspire or rile you – to discuss in the weeks ahead?

Welcome to this spider’s web.

 

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