Most American manufacturers I have talked to around the country want to increase sales. This means finding new customers and market niches, and being able to shorten lead times. But, in discussing their needs, I have often found that they are not organized to find new customers or explore market opportunities, and their organizations are not designed to reduce lead times.
Everyone agrees that American manufacturing can survive through innovation, but this means face-to-face contact with customers and finding new opportunities in the marketplace for new products and services. Many manufacturers simply do not have an organization capable of finding these new opportunities. I would like to make a case how American manufacturers need to adopt a new type of organization — the Prospector Organization — to be able to grow in the future.
The Defender Model
The organizational model that describes most small and midsize manufacturing companies is the Defender Model (also known as a functional organization in business schools). The Defender Model worked for a long time, because the U.S. had long-term stability for decades. After World War II, market demand was fairly stable, there were few competitors and customers relied on a few loyal suppliers. A manufacturer didn’t have to monitor customers or be a good industrial marketer. The Defender Organization was the perfect organization to control internal operations.
The following describes the Defender organization:
- Reliance on a few customers. The primary disadvantage of the Defender Model is its reliance on one market or a few large customers, and that it requires steady demand. It makes money when its heavy investment in capital equipment and technologies are completely utilized. It has little or no defense for a stagnant or declining market (or the loss of large customers), and does not have the people or the systems to locate and exploit new markets.
- Not monitoring customers. Defender Organizations often do not have the ability to monitor customers, competitors and markets. Why? Because they haven’t had to in the past. Today, having a system to monitor customers and markets is essential because it is the only way to discover new opportunities emerging in the marketplace.
- Lack of outside or face-to-face sales. Perhaps the biggest weakness is that few Defenders have strong outside sales organizations, and in the case of many job shops, their organizations often use inside sales people.
- Functional organizations. Defenders tend to rely on functional organization structures, which have centralized departments to achieve economies of scale. Overhead departments are often physically separated from the sales and production departments, and there are built-in obstacles and barriers to communication that slow order processing.
- Centralized decision-making and communication. Customers want faster decisions from whoever answers the phone. “Defenders normally restrict information flows to vertical channels, where directives and instructions flow down the hierarchy, and progress reports and explanations flow up.” The reason that decision-making is slow is because decisions must travel up and down the hierarchy, and top managers are too far away to understand the real problems.
- Longer lead times. Customers and competition are constantly demanding shorter lead times, and faster responses to phone calls, quotations, service requests, parts sales, and every communication that has to do with products and services. Shorter lead times are difficult to achieve in the traditional functional manufacturing organization because the very structure of the Defender Organization slows down the production process.
The Defender’s fundamental emphasis is on operational efficiency, therefore most focus and time is devoted to internal issues, such as capacity, quality and process. This internal orientation prevents them from devoting much time to find out what is going on in the market.
The Prospector Model
It is my belief that succeeding in the new global economy will require an organization that is some variation of what professors Miles and Snow call a Prospector Organization. Miles and Snow’s definition of a Prospector Organization is that it “identifies a type of manufacturing organization that works well in a changing environment. Prospectors’ prime capability is finding and exploiting new product and market opportunities.” Prospectors, according to Miles and Snow, are very different than Defenders, and are described as follows:
- Multiple markets. “Unlike the Defender, whose success comes primarily from efficiently servicing a stable, primary market, the Prospector’s prime capability is that of finding and exploiting new market opportunities.”
- Market and competitor intelligence. “Prospectors maintain the capacity to monitor a wide range of customers, market conditions, trends and events. The Prospector, therefore, invests heavily in individuals and groups who can scan the environment for potential opportunities.” Prospectors have the ability to find new customers and markets on a continuous basis.
- Product organization. “The logical extension of the Prospector approach is the product organization in which all resources needed to research, develop, produce and market related groups of products are placed in single self-contained organizational subunits. The company is decentralized into many divisions and subunits.” This decentralized organizational structure is a flat organization with many units, cells and teams.
- Decentralized command and control. “Control is decentralized because the information needed to assess current performance and to take the appropriate corrective action is located in the operating units themselves, not in the upper echelons of management.”
- Decentralized decision-making and communication. “Prospectors prefer short, horizontal feedback loops. Therefore, when a deviation in unit performance is detected, this information is not channeled to higher management for action, rather it’s fed directly back to the unit for immediate corrections.” This is truly an example of pushing responsibility and authority down to the people who do the work. This type of organization gives them the ability to quickly respond to customer demands.
- Quick-response manufacturing (QRM). Customers continue to demand short lead times, particularly when the company is after new customers. The best way to shorten lead times is to change from a functional organization to a product-based organization, and to adopt QRM methods. QRM methodology fits the Prospector model very well, because it is an enterprise-wide strategy that goes beyond the shop floor. QRM also provides executives with a strategic view of time (the power of time) and helps them rethink decisions on capacity (system dynamics).
Most small and midsize manufacturers need to change from being a traditional Defender to some kind of Prospector organization. This is a serious challenge because it means moving from an operations-oriented company to an organization that can find new customers and markets. The demand of finding new customers and markets requires flexibility, quick responses and a continuous effort to shorten lead times.
There is no universal model to use because all manufacturing organizations have different kinds of products, services, customers, markets, etc. The one common thread of all manufacturing organizations is that they all have to move away from a centralized organization and flatten the pyramid.
Minster Machine is headquartered in the West Central Ohio village of Minster at the same location where the company began more than 110 years ago in 1896. One of the designers of the new organization and processes is Joe Kumpf, who is the vice president of the Midwest divisions. Kumpf had been using Lean manufacturing techniques for quite a few years to reduce costs and waste, but Lean did not provide any practical way to shorten lead times for manufacturers of highly engineered and custom products. Minster Machine decided to try some QRM methods, a process totally devoted to lead time reduction invented by Rajan Suri.
Minster Machine had already chosen to find new markets and develop new products, and knew to succeed it would take a different type of organization. Kumpf has played a leading role in the reorganization and said, “We have eliminated the functional organization and created focused divisions that have clear commercial goals, understand their capabilities and become intimate with their customers.” Minster went from one large functional organization to seven different divisions with different, but coordinated missions.
“Changing from a functional organization, means keeping the divisions as flat as possible, to avoid building functional walls. It also means eliminating functional department management whenever possible. At Minster, people with various skills all report to a manager who has responsibility for serving the customer. The result is lots of interaction across disciplines (and work across disciplines, too).”
The second example is a product manufacturer called SEMCO. Its owner, Ricardo Semler, took many chances in developing a new type of organization that could respond better to customer/employee needs. Ricardo experimented with what would be considered “radical organizational concepts” that were featured in his book Maverick. The new manufacturing organization that he created pushes the very limits of organizational change.
The organizational pyramid is the basic structure of the functional organization. Communication and decisions must flow up and down these levels of the pyramid. This process is inherently inflexible and slow, and isolates the people at the bottom doing the work. Semler decided that it was going to be impossible to push authority down to the people who were doing the jobs as long as he had a functional organization. So, he scrapped the pyramid and organized the company into smaller business units. He tried to make a flatter organization in which communication was easier between employees.
He also determined that functional organizations, by their very design, create small “fiefdom departments” that tend to grow into self-serving entities playing by their own rules. In his war against functionalism, he closed down the entire information technology department when he found out it couldn’t even get an invoice out to the customers with all of its complex computer equipment.
Both companies developed organization models for manufacturing companies that will survive and prosper in the new century. Both scrapped the old functional or Defender Organization and accomplished the following objectives:
- They pushed decision-making down to the people who do the work and improved overall communications.
- They improved response time and shortened lead times.
- They improved marketing and sales, and their ability to find new customers and markets.
This article introduces a new type of organization — the Prospector Organization. It is an organization with the built-in capability to find new market opportunities, as well as a production organization that can reduce lead time based on the methods used in QRM. It is a lesson that should be taken seriously by all manufacturing companies that need to find new customers and market opportunities.
Michael P. Collins is the author of the book Saving American Manufacturing. You can find more related articles on his website via www.mpcmgt.com.