The new rules
Have you ever wondered why companies that were doing well suddenly collapsed when market change? Why workers who used to be happy have become unhappy and leave the company? Why do customers switch to competitors without a warning sign? Of course you can blame your competitors, your local market, or globalization but the main cause is often the way companies are managed by the traditional management when the world is already changing to a different way of doing business.
In the past, traditional management was invented to direct unskilled workers by coordinate the works according to certain rules and procedures to allow standardized products be produced in large quantities. It is effective in manufacturing industry where most workers work in assembly lines where efficiency and quality are important. To organize this system, companies need a top down hierarchical structure with clearly distinguish roles for managers and workers. The key measurement is productivity because the more they make the higher profit they get.
Today the rules for management have changed with skilled workers. These highly educated people do not need to be told what to do since they are trained to do their work efficiently and effectively. Innovation work is not standardized but specialized to meet customer’s needs. In technology industry, management role is no longer supervising but motivating. Instead of telling workers what to do, managers have to take a new role by nurturing an environment where workers can contribute and excel. To organize this system, companies need a flat structure that allows workers to have some degree of autonomy. The key measurement is no longer productivity but customers’ satisfaction. The more happy the customers, the higher price they are willing to pay.
In the age of innovation and creativity, skilled workers do not just want a job, they want a meaningful job. They want to be valued by customers and the company. If not, they leave the company for another that values their contribution. In the old way of doing business, bureaucratic segregation of functions forces workers to perform tasks that have no visibility to the customers. For example, workers build car but customers do not know what workers do, they only see the car. However in new way of doing business, technology works requires workers to have good relationships with customers so they can get feedback quickly and modify their product to meet customers’ needs. In the old way of doing business, the key measure is how many products workers produce (Productivity measurement) because the more the better (Quantitive = profits). In the new way of doing business, the key measure is how satisfy is the customers (Customer satisfaction) because the better quality the higher price (quality = profits).
For example, Apple products have similar functions as other products but its better design gives them significant advantage as it can command higher prices than competitors. Even with higher prices, Apple has more customers and the number is still growing every years. Today iPod is the most popular MP3 players in the world with 78% of market share. IPhone is the most desirable smart phone with 65% of market share and iPads has 82% of market share. These products helped Apple became the largest company in the world. In the 2012 survey of college students, 92% of technology students list Apple as the company that they want to work for. The telecommunication industry also found that 85% of customers would switch Phone Company just to use the iPhone. (In the U.S each phone company offer special phones. If you want iPhone you must signed with AT&T Company).
To survive in the competitive market, business owners must change the thinking and the way they manage their companies. Since the size of local market is limited, local companies often compete with each others for better position. Local market is dictated by rivalry force. (Same type of company compete with each other) One company gains advantage, the other loses. The common way to compete is to lower price so most local companies have low profits, smaller capital and cannot grow bigger. On the contrary, global companies are doing in business in a much bigger market and still growing. These companies are powerful with better products, better services, larger capital and better management. They continue to expand their market and quickly move to new market by flush the entire local market with lower prices to eliminate local competitors than control the market. When they dominate the market, the price will go up. In this battle, most small local companies cannot compete and go out of business.
This situation is happening all over the world since 1990s with the rise of globalization and super global companies. Even well established local companies could not compete with these new entrants who are bigger, more powerful and better managed. From 1984 to 2010 over 78% of local companies were gone as they were not aware of the new entrant’s forces and did not know how to compete. The competition is now happening among global companies in every market. For example, few years ago brand names like Sony or Panasonic dominated the electronic market but today both of them are struggled to survive. Nokia used to be the largest mobile phone company but today the question is how long it can last. You may wonder why these powerful companies could even fail. The answer is they have not changed when the market already shift to another direction.
Twelve years ago, Apple was on the verge of bankruptcy so investors asked Steve Jobs to come back. In just few years, he completely changed the direction of the company and the way it was managed. He transformed a poorly managed company into the largest, most powerful, and highly profitable company in the world. Steve Jobs’ direction is simple: “Managers’ job is to create an environment where creativity and innovation are encouraged. Workers’ job is to create the best products that every customer want to have.” His slogan: “Stay hungry, stay foolish.” excited workers and allowed them to create the best products over competitors. From the business, Steve Jobs new directions are: “Get customers, Keep them, and grow them.” To “Get” them, Apple must have new products (iPod, iPhone, iPad). To “Keep” them Apple must have additional thing that keep them buying (iTunes and mobile apps). And to “Grow” them, Apple must continue to innovate with new products every year and “Each must be better than the previous ones.”
What Steve Jobs did at Apple is now the new formula for global companies. He advocated new thinking, new way of managing, new organization structure, and new way to manage workers. In the past, most companies follow the rules of higher productivity and lower price but today it is customer satisfaction because if customers are not happy, they switch to competitors. In the past, business goal is short term profit but today the business goal is long term growing. To grow means to get customers, keep them, and grow more customers to control market share. This requires a fundamental change in the way business rules are taught in Business schools too. Profit is no longer immediate goal but market share is the goal because when you have total market share, you can dictate whatever profit you can get since you control the market.
The new rule of technology industry is “Workers make things, not money. Things are real. Money is an end result.” Rather than focus on money, companies are now compete in products and do it fast as technology change quick. “Speed” is the new rule as “The fast will beat the slow” and that is why technology workers need quick feedback from customers and companies need to be agile and flexible to change in a short notice. All of these changes require a fundamental change in the way schools are teaching, business owners are operating and the way leaders are directing.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
