The good folks at McKinsey have put out a massive report called “Manufacturing the Future: The Next Era of Global Growth and Innovation“. The pdf version runs to 184 pages and everyone serious about manufacturing should read it. The trick is to absorb and consider the data and ignore their interpretations of that data. You have to think for yourself – draw your own conclusions.
The problem with the report is that McKinsey sees themselves as big thinkers of big ideas that are useful to big companies, and their business model is to do big projects for those big companies and send them big bills for their services. They are hardly alone in this slant. If you read most of what comes from academia they have the same big bias, as do the politicians -typically experts at little other than their own re-election and enrichment, let alone manufacturing. So the report does a good job of describing the world and it’s implications for manufacturing; but all of its recommendations revolve around what the mega-multi-nationals ought to do about it.
For instance, the report says, “In recent years, some companies have started to embrace a ‘granularity of growth’ approach [“granularity”, by the way is big in the report – must be the cool buzzword these days] to markets. This involves looking for niches and underserved sources of demand that can be more profitable than broader markets where more competitors are present. However, few companies have mastered the crossfunctional routines to consistently translate granular market understanding into granular operations strategies. In the next era of manufacturing, getting to this micro view of manufacturing strategy will be a key difference.”
The idea that markets are comprised of niches – there is no ‘mass’ and the mass marketers underserve those niches – is fundamental to lean thinking. In fact, lots of companies have “mastered the crossfunctional routines” to serve them – they have done so in the form of organizational structures made up of customer facing value streams. It is just the big guys who haven’t mastered value streams. Financially obsessed control freaks who dominate big company headquarters are constitutionally incapable for empowering local value streams to serve unique niches. By nature they will always pull the organization into a one-size-fits-all mode. (Everyone in the company is fully empowered to do whatever best serves the customers …. provided they all meet the same short term functional financial goals and don’t violate any of the policies in the thousands of pages of company policy manuals governing every aspect of the job).
The McKinsey folks cite a study in which they have identified 22 unique markets within China; a one-size-fits-all-Chinese-people approach won’t work. So how to design a strategy that works for each of the 22 niches? Big Data according to McKinsey.
Big data is basically gathering enormous amounts of information from point of sale, Facebook, or wherever you can find it, then get your hands on a mega-computer and develop staggeringly complex algorithms to sort through all of that data and figure out what the folks in each of those 22 Chinese niches wants. A good example is Walmart, which uses big data-type applications to figure out what its customers want. The alternative, of course, would be for each store to decide what its customers want. A store manager doesn’t need big data and big computers. He or she just has to talk to the customers. In fact, he or she already talks to customers and already knows. But Walmart is fundamentally incapable of letting those folks call the shots to any significant degree – what would there be for all of the intellectual horsepower in Bentonville to do if the people closest to the customers were empowered? Big data is the crutch for those who cannot or will not empower people.
Too many leaders of too many small and medium companies become star struck with this big cmopany nonsense. Right now there are 22 small Chinese companies fully capable of providing exactly what is needed in their local market … or a handful of medium sized companies that can organize into a handful of value streams that can be empowered to serve those markets very well. They don’t need to follow any of the McKinsey strategies to succeed.
The economy of scale die-hards would argue that those small firms can’t leverage a central product development effort – a high powered team that can develop core products and customize them for each market. The cost of development will have to be spread among too few customers. True enough … but those smaller companies won’t have to pay for a monolithic headquarters and millions of dollars worth of big data hardware and software – and they will come up with better solutions for customers by personal interaction with them than anyone sifting through big data ever will.
The moral of the McKinsey report story is that globalization is leading to market fragmentation – niches of one – and the big challenge for big manufacturers is to figure out how to operate like a collection of small manufacturers. The last thing small manufacturers should do is to use McKinsey type recommendations to figure out how to behave like big manufacturers.