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BEST STRATEGIES FOR EACH SCENARIO

The following section of the report describes the four scenarios and the best strategies manufacturing firms should use in each scenario.

Silicon Valley is not just a place; it is a state of mind, a way of doing business. It is the predominant model of the future economy currently led by the high tech industry. (See figure 3.) Here, in this Silicon Valley world, the economy is like an evolving ecosystem, populated by many highly specialized organizations joined by a complex web of competi­tive and cooperative relationships. The potential gains from recombina­tion in such a highly connected environment can result in an explosion of new companies defining new markets and creating new niches. This business environment is characterized by high levels of connectivity within and between firms, and low levels of industry concentration. It is where the high tech industry is today, as exemplified by Silicon Valley itself as well as the World Wide Web it helped spawn.

In this fast-changing, highly competitive world of small, agile, con­nected businesses with decentralized operations and rapidly shifting al­liances, the main competitor for manufacturers will be the business life cycle itself while key enablers will be evolving technologies. Moreover, because the manufacturing firm is here transformed from a system of

production to a system of exchange, the ability to manage connected assets, including relations with broad webs of customers and suppliers, as well as employees, will be a leading source of competitive success. Rapid new product development, fully leveraging connected assets, will be essential in this entrepreneurial economy. The best strategies for this scenario are

      increased investment in technology to connect customers for real­
time customization

      increased integration of suppliers in manufacturing and new prod­
uct development

      outsourcing to suppliers of 75 percent of components of final
products

 

      substantial growth in new product development

      increased bundling of services with products, or greater service content in goods.

The Keiretsu was born in postwar Japan, and refers to a horizon­tally and vertically linked industrial structure. (See figure 4.) It is char­acterized by high connectivity within and among firms and, overall, high concentration and high connectivity throughout the economy. Com­mon characteristics include cross-holding of company shares, intra-group financing, joint investment, mutual appointment of directors, and other joint business activities. Although this system per se has not fared well in recent years, particularly in Japan and Korea, it is used here as a metaphor for a highly connected and highly concentrated world. The merger between Chrysler and Daimler Benz, together with general consolidation of firms in the aerospace, automotive, and fi­nance industries are examples of a Keiretsu-like world.

 

Given the size of firms in this scenario and the anticipated trend toward increased globalization, the coordination costs of linking dis­persed groups within a firm are expected to be the main barrier to suc­cess. Strategies and technologies that reduce coordination costs and leverage connected assets will be critical in this Keiretsu world. In this highly connected, highly concentrated world with a few powerful firms offering standardized products for global markets, the top strategies identified below reflect this challenge:

 

      increased investments in new processes to reduce the coordination costs involved in linking dispersed groups within a large organization

      increased bundling of services with products

      mergers and acquisitions to increase global presence

      increased integration of suppliers in manufacturing operations and
new product development

      substantial growth in new product development.

One particularly vivid image that comes to mind with the term Trench Warfare is a battlefield from World War I. (See figure 5.) Par­allel trenches just hundreds of yards apart, bullets whizzing back and forth the only link in an otherwise unconnected, highly concentrated, intensely conflictual world. This is the kind of world where, despite some cooperative arrangements for specific purposes, particularly in research and development, our panel placed the automotive, aerospace, and process industries—all but the high tech industry—today. In aero­space, for example, Boeing might be said to occupy one trench, while Airbus occupies another—both highly concentrated and unconnected to each other.

Trench Warfare is a world of large and powerful corporations that are unconnected both internally and externally, divided by trade barri­ers, closed technological standards, or other such forces. In this world, manufacturers provide standardized products with long life cycles to primarily local markets. Firms with global brand names and global presence are most likely to thrive in this world. Given high levels of government intervention, low levels of competition, and, correspond­ingly low levels of innovation, the key strategies for manufacturers to deploy are

      mergers and acquisitions to create a global presence

      steps to protect intellectual property rights

      growth in marketing investment to create or strengthen brand name

      investments in new processes to reduce coordination costs

      setting up subsidiaries to achieve global presence.

"Move over Bud" is the slogan for Pete's Wicked Ale, America's fastest growing microbrewery in the U.S. Launched in a bathtub in 1987, Pete's is illustrative of the rise of homegrown companies offering viable alternatives to longstanding industry leaders. (See figure 6.) This trend

decentralized operations and heavy reliance on market forces, the key strategies for manufacturers in this scenario are

     increased investment in technology to connect customers for real­
time customization

     substantial growth in marketing investment to create or strengthen
brand name

     increased bundling of services with products

     market segmentation to achieve price discrimination

     increased integration of suppliers in manufacturing and new prod­
uct development

     overall growth in new product development.

PIVOTAL EVENTS OR TRENDS LEADING TO EACH SCENARIO

What pivotal events or trends should manufacturers watch for as signs that the world is heading toward one or another of the four quadrants? As shown in figure 7, the trends to watch for as indications that the business environment is heading towards each of the four scenarios are presented.

Overall, as discussed above, while the possibility of a business en­vironment described by the unconnected scenarios of either Trench Warfare or Microbreweries in 2008 is not ruled out, the connected worlds of Keiretsu and Silicon Valley are highly favored. Taken to­gether, the figures demonstrate a clear directional trend toward increased connectivity as well as increased dispersion, led by the high tech in­dustry. 

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 12


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