Koren Y. The Global Manufacturing Revolution: Product-Process-Business Integration and Reconfigurable Systems
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optimal while avoiding obstacles. (The FR product was reviewed by Consumer
Reports in the late 1990s. Photo—the author tests the FR robot.)
The Strategy
The company’s strategy was to develop an automatic lawn mower machine and then
sell it to a large U.S., or European company, which would do the marketing and
delivery. Ventu re capital funds invested in FR grew to $30 million. The estimated
market for the product is 110 million households in the Western world. The product
cost was initially $1000 and dropped later to $600 (as sales declined).
In 2000, FR announced that it signed an agreement with Toro, the largest lawn
mower producer in the United States. According to the press, Toro was committed to
purchase 100,000 FR mowers within 5 years. The expectations were skyrocketing. FR
built large warehouses in the United States, which was a big investment for the
company, and it took a loan of $5.5 million from the International Bank. The bank did
not hesitate—the contract with Toro was convincing. Nobody paid attention to a small
detail in the contract: “The only sanction that Toro will suffer, if it does not fulfill its
commitment to purchase and sell 100,000 machines, it would lose its status as a sole
distributor.”
Toro tried to sell the product through Home Depot, and other store chains, but
failed to sell a reasonable number of products. Cindy Love, the U.S. FR president was
proud of the fact that FR had been exposed over 70 times on U.S. television—from
Figure 11.10 The FriendlyRobotics lawn mower robot.
PROBLEMS 311
morning shows to science news. She was confident that the product was “sexy”
enough to put on the shelves and that people would buy it. However, that did not
happen.
The Drawbacks
The FR mower was more technologically advanced than most consumer products.
Its operation was not simple and required considerable knowledge and explanation.
The sales clerks of Home Depot were not trained properly and did not have the
knowledge or the motivation to learn how to operate this relatively complex
product.
In addition, the expectation that pressing a button and the machine will do the work
for you was not realistic. The user had to encircle the lawn area with a buried electric
cable, which was inserted into the ground to define the lawn’s boundaries for the robot.
Furthermore, if the robot stopped for some reason, the user had to manually move the
70 lb machine by hand. In addition, the machine’s battery had to be charged year-
round, even when the robot was not in use. Finally, the robot worked only on flat
surfaces and could not negotiate stairs or uneven ground.
Assignment: Analyze the Reasons for the Failure of FriendlyRobotics
In your analysis elaborate on the following points:
.
Was this product viable?
.
Was its price reasonable?
.
Is having a “sexy” product enough to enhance its sales?
.
Was the marketing/advertisement method through television shows adequate?
.
How would you suggest educating the consumer about this product?
.
Was the investment in large storehouses and inventory timely and justified?
.
What were the strategic resources of FR?
.
If you were the CEO of the company, what would your first steps be in selling this
product?
CASE STUDY II—HE BET ON BOTOX AND WON
Based on a story in Business Week (October 13, 2003, pp. 127/128)
David Pyott, Allergan Inc., CEO, has a nearly smooth face and really does not need an
injection of his company’s wrinkle-erasing drug, Botox. Nevertheless, Pyott under-
went a Botox treatment in 2002 to demonstrate that he had no fear of applying it. (Note
that Botox is derived from the same paralyzing toxin that causes botulism poisoning.)
Allergan originally purchased Botox in 1991 from an ophthalmologist who was
developing it to treat rare muscular disorders such as uncontrollable eye-blinking.
Doctors who prescribed Botox had reported its surprising power to erase wrinkles.
312 BUSINESS MODELS FOR GLOBAL MANUFACTURING ENTERPRISES
However, Allergan was spending virtually nothing to develop the drug for cosmet ic
use, and Botox was actually ignored by Pyott’s predecessor. Before he took the CEO
position in 1998, Pyott knew very little about Botox. However, it was Pyott,
nonetheless, who decided to put money behind Botox to see what it could do. So
in 1999, he boosted spending on research and development 38%, to $135 million—
much of it devoted to developing Botox.
Botox, of course, has become a sensation—especially in Hollywood. The word
“Botox” was recently added to the Oxford English Dictionary. Pyott’s lack of
pharmaceutical experience made him an odd choice for Allergan, but his take-charge
style captivated the board. Pyott believes Botox can do more than just take a few years
off your face. Allergan is testing Botox as a remedy for a host of dise ases, including
glaucoma, psoriasis, migraines, overactive bladder, chronic back pain, and excessive
sweating. Many physicians agree that the ability of Botox to block nerve activity in the
areas where it is injected could someday make it a cure-all.
However, the federal government is already concerned that Allergan may be
pushing Botox a bit too hard. On June 23, 2003, the FDAwarned Allergan that its print
ads made overly broad claims about the drug’s ability to reduce wrinkles and
downplayed potential side effects, which include droopy eyelids, nausea, and
respiratory infections.
Assignment: Discuss the Following Issues:
1. In 1999, David Pyott shed off slow-growing products such as a contact-lens
solution, and boosted spending on research and development of Botox by 38%.
.
What did he risk by investing all his R&D in a new product rather than in a
stable product?
.
Is it a good business strategy to concentrate the R&D efforts of a firm on a
single product while reducing the investment in the other firm’s products?
2. What are the reasons for the success of the product?
3. Is David Pyott a good a strategic thinker?
REFERENCES
1. G. Hamel. Leading the Revolution. Harvard Business School Press, 2000.
2. M. Porter. Competitive Advantage. New York Free Press, 1985.
3. A. A. Thomson and A.J. Strickland III. Strategic Management. McGraw Hill, 2003, p. 164.
4. W. Skinner. Manufacturing—missing link in corporate strategy. Harvard Business Review,
May–June 1969.
5. L. Chappell. Nissan’s solution: modules. Automotive News, March 5, 2001.
6. F.W. Harris. How many parts to make at once. Factory, The Magazine of Management,
1913, Vol. 10, No. 2, pp. 135–136, 152.
REFERENCES 313
7. R. H. Wilson. A scientific routine for stock control. Harvard Business Review, 1934, Vol.
13, pp. 116–128.
8. H. L. Lee, V. Padmanabhan, and S. Whang. The bullwhip effect in supply chains. MIT Sloan
Management Review. Reprint 3837, Spring 1997, Vol. 38, No. 3, pp. 93–102.
9. European Union Integrated Pollution Prevention and Control (IPPC), EU, December 2001.
10. European Automobile Manufacturers Association (http://www.acea.be).
11. A. Franke and G. Seliger. A new paradigm of manufacturing: selling services instead of
products. Proceedings of 2002 Japan Symposium on Flexible Automation, Hiroshima,
Japan, 2002.
12. M. Shpitalni. Impact of life cycle approach and selling of services on product design.
Proceedings of the Manufacturing 2004 Conference, Poznan, Poland, 2004.
314
BUSINESS MODELS FOR GLOBAL MANUFACTURING ENTERPRISES
Chapter 12
IT-Based Enterprise
Organizational Structure
It is no wonder that industry, especially manufacturing industry, and the military have
quite similar organizational structures. Both of these enterprises represent a consid-
erable investment of money, material, and human resources. Like the military,
manufacturing enterprises involve com plex webs of organization, including opera-
tions, logistics, development, and leadership. For both, leadership is the glue that
cements the organization together and makes it effective, or not. In this chapter, we
will explore how military command and industrial organization have informed and
inspired each other, and how their roles and approaches have evolved to suit changing
needs and opportunities both on the battlefield and in the marketplace.
During the 12 years between the First Gulf War in 1991 and the subsequent war in
Iraq in 2003, the modern military went through dramatic changes. In both wars the
Army’s central command developed war plans that were explained to the division
commanders. Each division commander gave the instructions to their brigades. From
the brigades, instructions were sent down to the battalions, then to the companies
within the battalions, and finally to the troops and equipment in the field.
But there was a big difference between 1991 and 2003. In 1991 all the instructions
went top-down as commands. In 2003 only the strategic-level instructions describing
the overall goals went top-down, and the soldiers in the field were given the authority
to make real-time tactical decisions in the battle, as it proceeded. During this 12-year
period tanks were equipped with modern technology to fit new battleground condi-
tions. For instance, each tank was equipped with new sensors, such as a global
positioning system (GPS), and a digital map of the area on which the exact position of
The Global Manufacturing Revolution: Product-Process-Business Integration and Reconfigurable Systems
By Yoram Koren
Copyright Ó 2010 John Wiley & Sons, Inc.
315
each tank or vehicle in the area was clearly marked, even as they moved during battle.
Based on this information, tank commanders had as good or better battlefield
information than the brigade headquarters, and more importantly, they were em-
powered to make instantaneous decisions.
The tank commander’s decisions were sent to his counterpart tanks and to other
units in the area, as well as to the battalion commander, who filtered and organized the
essential information and sent it up to the brigade commander. The brigade com-
mander accumulated the information sent from the battalions, processed it, and sent it
up to the division headquarters. As a result of this bottom -up information transfer the
division commander got a much more accurate picture of the battlefield and could
coordinate the overall operations and make intelligent strategic decisions.
The sensor-based knowledge of the battlefield has a twofold advantage:
1. Based on this information, the tank commander knows the exact location of the
other tanks in the company and the battalion and can make better tactical
decisions during the battle.
2. The brigade and division commanders at headquarters know the exact position
of each tank and vehicle in the entire theater of operations, its condition, and
ammunition, and theref ore can respond rapidly to dynamic situations. The
commanders can change the strategic commands as the battle proceeds, channel
additional resources, or redirect movements as the situation develops.
Replacing the rigid top-down structure of 1991, the Army implemented a bottom-up
approach enabled by advanced information technology. This model is much more
responsive to the constantly changing conditions that one experiences in real-time
activities. We believe that this new Army approach, based on bottom-up information
transfer and information-based empowerment of the workforce, should be the organi-
zational model for manufacturing and industrial enterprises in the twenty-first century.
12.1 TWENTIETH-CENTURY ORGANIZATIONAL STRUCTURE
The main organizing principles of traditional industrial enterprises are multiple levels
of hierarchy, and centralization of decision making and control functions. These
principles were initially introduced at the end of the nineteenth century, and became
standard practice during the first half of the twentieth century. Enterprise organiza-
tions during these times were arranged hierarchically, with only limited authority
delegated to any one person, who had to report to a superior.
Frederick Taylor, a nineteenth-century mechanical engineer, was the most influ-
ential individual on this hierarchical and centralized style of industrial organization.
According to Taylor, the organization should be arranged so that each person was
responsible to a superior and responsible for subordinates. Taylor created a system
that intentionally separated thought and action, and centralized all decision making.
In this model, all decisi ons should be taken as centrally as possible, leaving the rest of
the organization to wait for instructions and policy decisions.
316 IT-BASED ENTERPRISE ORGANIZATIONAL STRUCTURE
According to Taylor, people at the lower levels should not have to think. Employ-
ees were not expected to question decisions or to contribute their experience to the
decision-making process. Taylor believed that all workers should be told exactly what
to do, and in that way their work could be standardized.
1
The term “Taylorism”
emerged to describe the rigid top-down hierarchical structure adopted by industry at
that time.
The structure of these traditional industrial organizations was modeled along the
lines of a military organization of the same era, illustrated in Figure 12.1. At the very
top, like the army’s division commanders, traditional corporate management has its
policy-making vice-presidents. Underneath them are the general managers and
directors in industry, the army’s equivalent to Major Generals, Colonels, and
Lieutenant Colonels (battalion commanders). Then below are the o perational man-
agers and supervisors in corporations, as the army’s company and platoon comman-
ders in various leadership roles. In traditional organizations, each lower level gets its
detailed instructions from the next rank above.
It is, of course, no accident that the organization of manufacturing enterprises
mirrors that of the army organization. At the time when the first large industrial
organizations were taking shape in the nineteenth century, the army provided the on ly
fully developed model of organization known to work reasonably well, and it was
particularly suited to the communications technology of the time.
1
Taylorism also assumed that people were only motivated by financial reward, and
that they were just little more than machines performing predictable operations. These
assumptions resulted in a top-heavy management hierarchy. This strictly hierarchical
management in which top-down commands are given with minimal bottom-up
feedback are adequate for static, non-competitive markets. As operations became
more complex, the number of people involved in supervision and planning increased,
which made the enterprises even clumsier to respond to changing market conditions.
Figure 12.1 The Army and an industrial enterprise organizational structure.
TWENTIETH-CENTURY ORGANIZATIONAL STRUCTURE 317
The Taylorism approach of removing initiatives from the people at the bottom of
the organizational pyramid, and assuming that they should not be encouraged to think,
has been completely abandoned with the implementation of Lean Production
methodologies in the last twenty years of the twentieth century. Lean Production
empowers even the workers at the lowest level. Now, any assembly line worker
can stop the entire line and bring production to a complete halt, when they observe a
quality or throughput issue.
12.2 TWENTY-FIRST CENTURY IT-BASED ORGANIZATIONAL STRUCTURE
The constantly changing markets at the dawn of the twenty-first century require a
change in the traditional industrial structure. The new market dynamic of shorter
windows of opportunity for new products, large fluctuations in product demand, and
multiple competitors spread all over the globe requires unprecedented levels of
responsiveness by industry. The Taylor Model is no longe r relevant, as it works best in
environments that are static and stable.
Taylor’s top-down model should be replaced by an organization like the Army’s
new command and control principles described above. To reach the requisite levels of
responsiveness called for by the global market, manufacturing enterprises should
follow the Army’s approach by embedding advanced sensing and information
technologies into the organization’s decision-making procedures. Remember that
by 2003, only the Army’s strategic-level instructions were conveyed top-down, and
the commanders at the company level were given the authority to make their own real-
time tactical decisions. This merger of strategic and tactical decisions was successful
because of an IT-based hierarchical organization of advanced sensing and information
technology that the Army blended into its organization. The main sensing device for
the soldiers was the GPS tracker that each vehicle was equipped with, and enabled its
exact location to be traced at all times. Each tank also had a digital map of the area, on
which their exact position and every other vehicle in the area was clearly marked and
constantly updated. Other sensors monitored and transmitted the vehicle’s status:
engine condition, ammunition, fuel, etc.
This sensor-based situational awareness has a twofold advantage:
1. The tank commander is aware of the exact condition of other tanks in the close
war zone and can make better tactical decisions in real time.
2. The officers at headquarters have data on each vehicle, and can rapidly respond
to dynamic situations. The commanders can coordinate tactical and strategic
resources or redirect activities as the situation develops.
The combination of these two advantages, which is supported by real-time
information system, creates an organization that is much more responsive to the
continuously changing imperatives being subjected by external forces. Can these
principles transform clumsy enterprise organizations and make them more responsive
to changing imperatives being subjected by external market forces?
318 IT-BASED ENTERPRISE ORGANIZATIONAL STRUCTURE
12.2.1 The Army and the Industry Enterpris e
There are many similarities between the operations and logistics of military assets and
industrial equipment. An army division is designed around the tank as the primary
mission system. Of 8000 or so vehicles in a division, several hundreds may be tanks
and the rest are various armored and support vehicles. Manufacturing enterprises may
likewise contain some 8000 pieces of equipment (such as AGVs, buffers, etc.)
designed primarily around a few hundreds manufacturing machines that perform
the main operational tasks (such as machine tools, welding robots, assembly
machines, etc.). Similarities between the Army and the manufacturing industry are
shown in the table below.
Army Mfg. Industry
Tank Machine
Support vehicles Gantry, buffer
company Cell
Tank battalion Mfg. system
50–80 tanks 50–80 machines
Brigade Factory
200 tanks 200 machines
Division Enterprise
1000
þ
tanks 1000
þ
machines
For industry to model, the Army’s high level of responsiveness by mimicking its IT
infrastructure-based organization, it has to think of its own operational machinery as
equivalent to a tank. Similar to monitoring the tank’s operational status, each machine
then needs to be able to sense its conditions (e.g., cutting tool wear, machine tempera-
ture, etc.) and the quality of parts that it makes and report the essential information to
the next level—the cell level. The latter is made up of several machines and supporting
equipment and controls.
Like a tank battalion, multiple cells are organized into a manufacturing system that
produces parts or assembles products. A factory may contain several manufacturing
systems(for machining, for assembly, etc.),and an enterprise often has several factories.
Building an industrial organization that can respond quickly and intelligently to
dynamic imperatives require s combinin g top-down strategic direction with bot-
tom-up tactical decisions done by floor supervisors and managers. This can be
accomplished efficiently with information technology that is embedded into all
levels of the enterprise controllers, from the machine controller, through the
manufacturing cell controller, to the factory supervisory computer.
With this level of information factory managers could make more intelligent
decisions when responding to dynamic situations (e.g., market changes, a customer
TWENTY-FIRST CENTURY IT-BASED ORGANIZATIONAL STRUCTURE 319
order changes, machine breakdowns, quality issues, and other common incidents that
interrupt production). Supplying the right information to a highly skilled workforce
and empowering them to make critical decisions in response to unpredictable
situations is another way to increase factory productivity.
Contrary to the accepted premise that too many hierarchic levels impede industry
responsiveness, we believe that it is not the number of levels that should be reduced. It
is rather the size of the functional departments supporting each level in the hierarchy
that should be reduced. It is the complexity of these departments that should be
simplified by adding information-based tools to allow intelligent decisions at the
subordinate levels.
By applying the Army’s method of bottom-up information propagation and
ample authority delegation to lower levels in the hierarchy, the time to make decisions
in the industrial enterprise could be shortened, making it much more responsive to
market changes. Furthermore, if industry uses a structure similar to that used by the
Army, there would not be a need for as large a number of support personnel at each
level of the hierarchy. Reduced personnel combined with rapid decision making will
enhance productivity and help the manufacturer remain competitive.
The revolution of the factor y and the organization of the enterprise will
benefit by
.
The sensor revolution, which will add artificial intelligence to the factory
.
Real-time information, which will be utilized to empower people at all levels
.
Technology, which will affect the workflow and business intelligence.
Our proposed sensor revolution raises several subsequent challenges:
1. Hierarchical Sensing: Which sensors should be included in the equipment at
what level of the factory hierarchy? On the machine itself one may sense broken
or worn tools, machine temperature, coolant level, limit-switch status, etc. At
the cell level one may monitor the inventory in the buffer, the gantry movement
speed, etc. At the system level it is possible to trace the workpieces flow through
the system and monitor the level of information traffic throughout the system
control network. And, at the factory level—all of these inputs can be rendered
into throughput and maintenance data that can provide profiles of the entire
plant’s operational status.
2. Management (Top-down) versus Emp owerment (Bottom-up): How can
one reconcile the cont radiction between a hierarchical management structure
and the empowerment of employees?
3. Bottom-up Data Filtering: How can data accumulated at each level be
converted into information to be transferred to the next upper level, and
eventually to the enterprise itself? This should enable the enterpris e command-
er-in-chief to make intelligent business decisions.
320 IT-BASED ENTERPRISE ORGANIZATIONAL STRUCTURE