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 market place 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 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.
Monitoring customers – Defender type manufacturing 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 an essential, because it is the only way they will discover new opportunities emerging in the market place.
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.
Lead time – Customers and competition are constantly demanding shorter lead times and faster response 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 of their focus and time is devoted to internal issues such as capacity, quality, and process issues. 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 Professor Miles and Snow call a Prospector organization. Miles and Snow’s definition of Prospectors “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 then 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 sub units.”2 The company is decentralized into many divisions and sub units.” 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 .”2
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 but rather its fed directly back to the unit for immediate corrections ”2 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 time is to change from a functional organization to a product based organization, and to adopt QRM (Quick Response Manufacturing) methods. QRM methodologies fit 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 (SMMs) 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 will 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 VP of the Midwest divisions. Joe 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 of the methods of Quick Response Manufacturing (QRM), 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 would take a different type of organization. Joe Kumpf has played a leading role in the reorganization and said “We have eliminated the functional organization and created focused divisions who 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. Their 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, 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 organization and organized the company into smaller business units. He tried to make a flatter organization where communication was easier between employees.
He also determined that functional organizations, by their very design, creates 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 their 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 who need to find new customers and market opportunities.
Mike Collins is the author of Saving American Manufacturing. His website is www.mpcmgt.com.