Big 3: They just don’t get it

We are all familiar with the sad tale of GM, Chrysler, and to a lesser extent, Ford and their crying and complaining about how they need money (now up to $34 Billion) to remain viable and to save 13 million jobs.  So they come back to Washington (after only three weeks) with a “plan” to show Washington how they are going to be competitive and turn the company around.  What did they come up with?  Nothing innovative that’s for sure.  Lawmakers have been pretty forceful in their requests for more information on how the automakers are going to survive and repay these government “loans”.  I’m going to address an extremely sore point first and then I’ll get to the total lack of vision these companies have.

So the UAW (United Auto Workers) union has said that they will make some concessions by giving up an interest payment to the UAW-run trust fund for retirees medical care and to suspend the jobs banks for laid-off workers.  The jobs banks is a total crock of you know what.  Here is where you can get laid off from a job at either automaker and sit on your fat, lazy ass and get 95% of your pay.  What?  Isn’t that what we all pay unemployment insurance for?  The UAW is taking this position like “this should be interpreted as a meaningful and a painful sacrifice”.  Give me a fu%(&^ing break would ya?  You haven’t sacrificied a damn thing.  Ok, enough of my rant about that.  Let’s cover how there is no vision in this “plan” the CEOs have brought to Washington this time.

So the CEOs have said that they will layoff 21K to 30K people and close 11 of 40+ plants.  I feel for those people that will get laid off, but I see it as they are going to be getting 95% of their pay anyway.  They will reduce their dealerships.  Tell me how this is the start on rearchitecting their antiquated business model?  You are just shutting down your over-capacity and not addressing the key underlying issues, your companies aren’t innovating.

One way (and it’s a real tough one to swallow) to get competitive would be to let the companies declare bankruptcy, break the union contracts (and hopfully the back of the UAW) and get to a point where they can deploy workers where needed.  By using the “labor arbitrage” strategy they can get rid of the wasted time that electricians and mechanics sit idle.  Something that happens a lot when you have workers only doing a very narrow task.

Another way is to further streamline your manufacturing processes.  It takes GM 32.4 hours to build a car (that is down from 46), but Toyota builds it in 29.9.  One example that I heard of around streamlining manufacturing was that when the economy started turning south, Hyundai made the decision to make more of their fuel-efficient Sonata sedans rather than their Santa Fe model.  That move right there saved making some serious production cuts.  Now if GM, Ford, or Chrysler tried to do that it would take weeks to do.

The Big 3 are not agile nor flexible.  They are still in the “business as usual” mindset (obviously if they took their private jets to Washington three weeks ago..idiots).  They are completely oblivious to the change that is happening all around them.  It is all about operating successfully in a dynamic state where change is the norm, not the exception.

The company that can respond  rapidly to new opportunities and threats, that can introduce goods and services at a pace that a changing market demands, that can move nimbly into new markets and geographies will outperform the enterprise that cannot adapt as quickly.  We see this with Toyota, Honda, BMW, etc vs. GM, Ford, and Chrysler.  We are seeing that the companies that cannot adapt quickly (GM, Ford, and Chrysler) face significant penalties.

To thrive in a world where business as usual is all about change requires a new kind of enterprise, one designed to evolve quickly and easily, to respond to or, indeed, to foster change.  Big 3 this is you.  You need to evolve and adapt, or you to will go the way of the other extinct species in the business world.

VMware’s “Accelerating the business of innovation” ad

I was reading the Wall Street Journal this morning and came across an interesting half-page ad in the Personal Journal section.  It stated simply, “Accelerating the business of innovation.”  They had a big head shot of John Hill CTO of Siemens IT Solutions and Services where he provided the quote around better return on capital investments, faster responsiveness to their customers, etc etc.  The one statement that Mr Hill made that resonated with me was, “freedom to focus on business innovation, not rudimentary IT plumbing.”  Perfectly stated Mr. Hill and I couldn’t agree more.

We have all seen, for many years now, that IT is working hard enough to just keep the lights on and not enough time on helping the business innovate, increase competitive advantage, etc.  The business depends on IT more than ever before and business executives do see the strategic importance of technology as core to their product and service strategy and central to their differentiation and competitive advantage.  But the rub here is that executives I’ve talked to are concerned about the ability of their IT organizations to support it.  Now that isn’t to say that some IT executives aren’t working hard to fulfill the business’ needs using all the tools and processes at their disposal, but……..

Here is where the ad got me to thinking.  This is where IT can get out of the vicious cycle that it finds itself in when it comes to the old standard, design-build-operate model that has plagued IT for years.  By using virtualization technologies like VMware and XenServer along with a solid application and desktop delivery infrastructure, and combine that with a new strategy of business technology, IT can make the transfomation to business enabler.

The technology of virtualization and application delivery speak for themselves and I’m not going to do a deep dive here, but these technologies need to be a key component of an IT Portfolio and IT needs to take steps to transform itself from Information Technology to Business Technology.  I’ll address how in another article.  Suffice it to say that IT executives cannot afford to maintain status quo.  They must replace standalone, product-oriented support functions through business-oriented services and focus the remaining IT organization on a proactive governance model of the company’s ecosystem.  Business-Technology-as-as-Service (BTaaS) is what needs to happen.  With the virtualization and application delivery infrastructures as the base of the BTaaS formula, IT can be that enabler.

Business Model Innovation

There has been a lot of talk lately about companies needing to revamp or create a existing or new business model.  From the Big 3 automakers need to rearchitect their 50-year old business model to Procter & Gamble.  But this is easier said than done.  Reinventing a business model is a very time-consuming and complex endeavor.  With that said, it can be done and should be done to maintain and/or increase your company’s competitive advantage.

An interesting statistic I read recently was that “fully 11 of the 27 companies born in the last quarter century that grew their way into the Fortune 500 in the past ten years did so through business model innovation.”  That is an impressive fact.  So why aren’t more executives taking a harder look at their companies ability to maintain competitive advantage?  The fact is that most are.  A 2005 survey by the Economist Intelligence Unit found that over 50% of executives believe that “business model innovation will become even more important for success than product or service innovation.”

The big question I’ve been asking myself in the past few months has been “what is GM/Ford/Chrysler doing to rearchitect their antiquated business model?”  The more I think about it, the more I can understand that I think these companies are so big that they will have to be very creative in the way they build this new business model for the 21st century and beyond.  That is a completely different conversation that I’ll work on for a later post.

For everyone else in the world, why is it so difficult to rebuild or create a new business model?  Some of the reasons that it’s often very difficult to pull off a new business model is that there really isn’t a sense of the processes into business model creation.  Nobody has really sat down and done a true study into what it really takes or has defined it.  Secondly, is that most companies don’t have a good understanding of what their existing business model is.

There are three tenets that, I think, must be followed to create a new business model:

1. Your customer value proposition.  Every successful company creates value for customers.  They provide a way for their customers to get a “job” done.
2. Your profit formula:  the core of why people are in business.  This formula is how the company creates value for itself, while creating value for the customer.  The formula consists of models like, the revenue model, cost structures, margin models, and resource velocity.
3. Your key resources and key processes.  Key resources would be your people, technology, products, etc.  The key resources are the ones that would create value for the customer, not the generic resources.  Key processes are those managerial and operational processes that allow you to deliver value in ways that are repeatable and scalable, like training, planning, sales, etc.

With these elements you have the building blocks for any business.  Your customer value proposition and the profit formula will define the value for your customer and the company.  Key resources and key processess will describe how that value will be delivered to both the customer and the company.

This is a simple framework, but the real power lies in its complex interdependencies of all the parts.  Any successful business will devise a more or less stable system in which these elements bond to one another in consistent and complementary ways.