Newsletter July 2000A

POWER SHIFTS: The Game of Business

Currently there is a commercial on TV by the former Spencer for Hire, Deep Space Nine captain, Avery Brooks talking about the game of chess as an analogy to the game of business. The premise is, what would happen if the rules of the game were continually changing as the game was played. What if you had 10 rooks? What would it be like if you had 3 queens? What would happen if the rules we play by today were changed everyday? How would you function? How would you survive?

For anyone not paying attention, the rules of the game are changing. In fact, the standards of business practice are moving so fast that experts from Tom Peters to Alan Greenspan are finding it tough to keep pace. In just one year, we have seen the government assault on Microsoft, a suit pending for Napsters mp3 internet site from the recording industry, the oil producing nations lowering production volume to increased prices, and the largest international merger trend in history.

In each case, we are dealing with a changes that affect how we must navigate the game board. Microsoft has for years played the monopolistic policy game and won Ignoring the US governments threats to curtail its tactics. It's peer, Intel, has played the same game but has been kind to bureaucrats and seems to be unscathed by the assault.

Napster has modified the entire music industry by allowing shared access among individuals to exchange music titles from their own hard drives to an abundance of other users for free. The recording industries suit has merit in that someone must pay for the product. However,  we all must accept that technology is reshaping the way we share information, music or other data. New profit models must be created.

The oil industry, Saudi Arabia in the lead, has mentioned that it will raise the production of oil to ease the rate hikes that we have witness due to the "controlled" distribution of crude oil needed for gasoline. The real reason for the shift in Saudi Arabia's tactics is more an issue of "product substitution" more than of kindness. The oil controlling nations realize that if the price of oil becomes too prohibitive, alternative energy sources will be more likely to enter the markets. Once consumers shift their buying patterns, the oil controllers may no longer have a market.

Lastly, we have gone global for a variety of reasons. One reason in particular is that companies around the world are forming alliances at rapid pace to meet the needs of the geographic regions as well as to be first to market. America, South America, Europe and other industrialized nations cannot ignore the fact that Asia has the potential to be the the largest market ever to be created. Who will supply billions of Asians when they need televisions, computers and cell phones. Whose franchise or technology will be adapted as an emerging economic powerhouse begins to explode.

In each case we are looking at shifts in the game: a shift in power from Microsoft to industry, a shift in recording labels control to the people, a shift in oil producers power to countries and a shift in alliance tactics to take advantage of  new markets. These dynamic changes are not absolute or defined. They just "are." Take a look at your market leaders, consider the realities of a changing world where products bypass traditional supply chains and go directly to customers. Ask yourself how you are preparing your firm.

***************************************************

ORGANIZATIONAL DESIGN: Hollywood Model

While interviewing an owner of a California-based manufacturing firm, I realized that he too has the same fear of smallness that many leaders hold. Not long ago the prestige in owning a firm or managing an operation was the size of the company: how many employees and how many offices.

The reality is that companies should not be measured by head count but by productivity, innovativeness, reaction time and profitability, to just to name a few. REMco (Rock Engineered Machinery Co. Inc.) is one such company. It's is small, 30 people, and it's rocking the foundation of the stone industry. They make what's called a crusher that is used to pulverize large "boulders" into little pieces used for building projects such as roads and buildings. REMco has one product, and according to industry experts, is cutting edge. In addition, REMco out-sources all of the manufacturing enabling it to concentrate on what it does best: design and sell.

On the other hand, REMco is also cutting edge when it comes to organizational design. Without knowing it, they are using the Hollywood Model of doing business. Think about it. How big are the companies that make the movies we see? (Even the pre-credits seem to make the companies seem extremely large.) Paramount, Sony, Tristar, Columbia Pictures, MGM present an Alan Parker Film, A Centropolis Film in assoc.............. 5 minutes of associations. The reality is that no longer do large firms create films but a network of companies create a film. Lighting, design, camera crews, sound effects, costumes, staging firms all coexist for the purpose of putting together a film. Less than 10 people may own and operate a company, hire the staff involved for a 6 month project, give it a budget and complete the movie. The group disbands only to be reincarnated on the next project with a different network of people and companies. Kevin Kelly states that "in fact, out of the 250,000 people in the industry, almost 85% of firms employ 10 or fewer people." Only 10 firms employ over 1000 people. Watch the Emmy's and note who gets the awards: smaller companies that worked on the project.

As the technology impact is felt, firms organizational structures may shift from large organizations to network firms that more and more are streamlined to fit their particular niche. That's not to say the larger firm will disintegrate, but the use of the Hollywood Model will be cheaper and allow the company much more flexibility to adapt and to change