Tag Archives: Hollywood

What recession?

The global financial crisis hit nearly four years ago in 2008 but America and Europe appear to still be stuck in the mud. Even the Asian market has softened. But is this a recession? Or are we seeing a reconfiguration of the economy as the technological seeds laid over the last few generations finally germinated and bear fruit? Prices for made goods are collapsing as the cost of manufacturing has plummeted, while the cost of sourcing and distribution has crashed, caught between globalisation and the Internet. Even innovation, the source of all those sexy new products, has been democratised with the investment required to development new products taking a nosedive. Our existing business models were not designed to thrive, or even survive, this this environment. While the current market is a challenge to navigate, a lot of the problems we're seeing could be result of a collapse of antiquated business models rather than the collapse in demand that these businesses are intended to service.

Continue reading What recession?

Problems and the people who solve them

Note: This is the sixth and final part of a longer series on how social media is affecting management. You can find the earlier posts – The future of (knowledge) work, Knowledge Workers in the British Raj, The north-south divide, Working in Hollywood and World of Warcraft in the workplace – elsewhere on this blog.

What impact will Social Media have on your business? Is it evolution, revolution, or a non-event? It’s hard to deny that Social Media is changing how we understand the role of government, and how we interact on the social commons. But what is its impact on the private sphere: the gated communities which are our businesses and organizations? Some folk claim that we’ll see a similar shift in the private sphere as we’re seeing in the public one. A revolution in the workplace as the workers realize that they really do control production, downing tools in search of a better deal and conditions.

This point of view ignores two key facts. First, that private spaces are, by their nature, more flexible than public as we are free to define who can inhabit them. Revolution is unlikely. Business owners still need someone to hold accountable for the performance and behavior of their businesses, just as regulators and governments want to ensure that someone in the organisation is on the hook for meeting their demands. Management will continue to manage, and to be held accountable, no matter how empowered the workforce becomes{{1}}. Second, that the technologies we’re deploying don’t just change how we carry out the tasks our businesses needs, as they also change what tasks we need to carry out. There is no reason for tomorrow’s organizations to operate within the same framework that yesterday’s ones did.

[[1]]The future of (knowledge) work @ PEG[[1]]

The nature of work is changing, and the shift in work practices looks like it will be comparable to the shift we saw during the Industrial Revolution – between the 18th and 19th centuries – when almost every aspect of daily life was influenced in some way. Before the Industrial Revolution people worked from their homes, farming or blacksmithing as the need arose, and the concept of work-life balance hadn’t found its way into the dictionary. After the revolution most people worked in vast bureaucracies, leaving home every morning to travel to work (or, early on, living in vast company owned dormitories next to their work) and fit themselves to into the tasks demanded of them.

The Industrial Revolution gave us Taylorism, a view of business which equates the organization to a vast programmable machine. Businesses were inward looking, intent on improving their internal operations. Optimizing business was the challenge of defining the perfect sequence of tasks, each carefully sculpted to deliver maximum value at minimum cost, and then selecting and shaping employees to fit the tasks.

The environment business operates in today has changed dramatically since Frederick Taylor created scientific management. The world used to be fairly stable; you wore the same clothing styles (more or less) as your parents before you, as would your children following after. Today, however, the environment changes significantly every year, if not every month or week. Nowhere is this more evident than with the creation of fast fashion, with Zara flipping the company’s supply chain on it head to optimise time from runway to shelf rather than cost, swapping the seasonal fashion collection for a constant stream of new products and driving new customer behaviours in the process.

The stability business used to rely on has given way to a more uncertain environment; the predictable progression of the business seasons in a temperate climate exchanged for the unexpected and often unpredictable storms and hurricanes of a more tropical clime{{2}}. Our success used to rely on the quality of our toolkits – the business processes and assets at the heart of our business – as it is these toolkits that enabled us to survive the steady progression of the seasons. Today our success relies on our skill – our ability to leverage the on-demand services and capabilities we find around us – as it is our ability to adapt these tools we find around us to the unexpected threat or opportunity, that now determines our success.

[[2]]The North-South divide @ PEG[[2]]

The old, highly specialized and highly entailed experts we used to rely on are rapidly becoming a liability, and we’re incrementally replacing specialized skills with solutions, frameworks and on-demand services. From IBM’s first election toting machines built with repurposed punchcard readers from knitting mills, through early departmental computers (such a L.E.O., the Lyon’s Electronic Office) to the birth of enterprise IT (and client-server along with it) and more recent web technologies, the history of technology in business has been a story of slowly reifying layers of expertise in tools, enabling this expertise to be distributed and leveraged. Social Media is just the latest step in this evolution, the key difference being that it automates and streamlines the communication and collaboration between individuals, rather than tasks that these individuals work on.

Our companies are being hollowed out, their middle layers of management replaced by software and solutions. Rather than empowering middle management, Enterprise 2.0 and Social Business Design is eliminating them. Social Media is empowering the team at the front line and the executive to connect directly with each other, bypassing the many layers of middle management most organizations contain. They’re externally focused – the front line intent on tending our customers and delivering product, the executive focused on understanding the waves in the market and charting the business’s path forward – where middle management was internally focused, concerned with keeping the bureaucracy functioning, a bureaucracy that many organizations are in the process of dismantling. Similar to the rural Indian civil service in the British Raj{{3}}, we’re moving to flat, or even super-flat, organizational structures which swap the command-and-control of the past for clear objectives and the devolution of responsibility for decisions to the front line.

[[3]]Knowledge workers in the British Raj @ PEG[[3]]

Tomorrow’s business, after it has adopted Social Media, will not just be a new command-and control paradigm (bottom-up rather than top-down, distributed rather than centralized) retrofitted to our existing bureaucracies. Tomorrow’s business will be something different, smaller and much leaner, built from dynamically forming coalitions focused on achieving a common goal. The highly skilled specialists concerned with building the complex toolkits will become a thing of the past.

The transformation from large bureaucratic organizations to more fluid coalitions will result in a similar shift in work practices as we saw during the Industrial Revolution. We can already this the beginnings of this with companies starting to understand that their knowledge workers prefer to supply their own tools (such as mobile phones and laptops), as well as the current trend for organisations to restructure their contracts with suppliers, focusing on the outcome they want delivered rather than quality and cost. Smaller workforces holding more general skills will integrate themselves with a community of partners, suppliers and high value free agents, with the company functioning in a similar way to the studios in modern Hollywood{{4}}. The company sets the agenda by determining what problems it wants to focus on, while providing its staff and the broader community swirling around them with a platform to dynamically form teams around specific challenges and goals, World of Warcraft style{{5}}. Rather than defining the perfect task and then fitting the employee to the task, we need to define our goal and then assemble the perfect team to achieve that goal.

[[4]]Working in Hollywood @ PEG[[4]]
[[5]]World of Warcraft in the workplace @ PEG[[5]]

The most significant shift for our businesses is the transition from being knowledge using organizations, to knowledge creating organizations. While the world might be flat (as Thomas Friedman showed us{{6}}), with globalization and the Internet providing on-demand access to low cost products and services from around the globe, the world is also spikey (as Richard Florida claims{{7}}) as the need for localized and personalised services drive demand for unique and creative solutions which fit into a local context. The winners in this race will be the businesses that can marry the two.

[[6]]Thomas L. Friedman (2005), The World if Flat, Farrar, Straus & Giroux [[6]]
[[7]]Richard Florida (2005), The World is Spikey, The Atlantic [PDF][[7]]

Which brings us back to the impact of social media on your organization. It’s not a revolution that will remove the need for the C-level; someone still needs to sign the books and be held accountable to shareholders. Social media might tip the balance a little toward a more collective form of management, but it will not rewrite the rules overnight. Nor is it little more than better and more efficient groupware. Creating a social business is not simply rearranging the people (and power dynamics) or your existing business; it demands smaller, more dynamic teams with more potent and focused team members who might not be on your payroll full time.

What Social Media is doing is driving organizations to complete the shift started in the last few decades, moving from manufacturing centric enterprises to knowledge creating organisations.

The basic economic resource – ”the means of production,” to use the economist’s term – is no longer capital, nor natural resources (the economist’s “land”), nor “labor.” It is and will be knowledge. The central wealth-creating activities will be neither the allocation of capital to productive uses, nor “labor” – the two poles of nineteenth- and twentieth-century economic theory, whether classical, Marxist, Keynesian, or neo-classical. Value is now created by “productivity” and “innovation,” both applications of knowledge to work.

— Peter Drucker, The Post-Capitalist Society{{8}}

[[8]]Peter Drucker (1993), The Post-Capitalist Society, HarperCollins[[8]]

Historically companies have provided a locus to gather the capital, resources and skills required to provide the scale needed to manufacture products cheaply and efficiently. Today problems, the problems of our clients and customers, are increasingly becoming the focus of our organizations, as capital, resources and skills are commoditized, caught between globalization and the Internet. The strongest determinant of success in business today is the ability to solve problems that other people (and organizations) care about. Companies are transitioning from an internal focus to an external focus, intent on gathering the skilled craftsmen required to deliver the projects needed to solve the problems that the company concerns itself with. Companies are becoming the focal point for a network for skilled craftsmen and service providers who are required to solve the problems that the organisation is interested in.

Business is increasingly becoming a question of forming the right team, at the right time, in the right place, with the right tools to provide the best possible outcome. We’re also trying to achieve this in an environment where it is no longer feasible to own all the resources and people we need. Consequentially, success now depends on our ability to mobilize the resources and skills we need from across a broader network that includes not only our (few) employees, but our contractors, partners and even customers. Social media and social business are the tools that allow us to tweak our operating models to do this.

So the impact of social media on our businesses is to strip them back to their cores and (re)focus their energies on what really matters in a rapidly changing and unpredictable environment: problems and the people who solve them.

Working in Hollywood

Note: This is the fourth part of a longer series on how social media is affecting management. You can find the earlier posts – The future of (knowledge) work, Knowledge Workers in the British Raj and The north-south divide – and subsequent issues – World of Warcraft in the workplace and Problems and the people who solve them – elsewhere on this blog.

Whom do you work for? For many people it’s not the company who’s logo is on their uniform, nor is it the organization who’s brand adorns the building they work in. You might be a gate attendant, hired by a local contractor as the airline doesn’t have the time or resources to maintain a payroll in every port in which it operates. You might be a consultant working full time on an organization’s change program, destined to leave once the engagement if finished. Or you might be a free agent, working across multiple businesses at once (as I do), bringing a distinct and valuable skill set to the executives you work with as they solve some of the knottiest problems confronting their business. For many people, the organization they work for is no longer the same one which cuts their a paycheck.

Companies find themselves caught between the conflicting needs of working smarter while keeping costs down. Creating a competitive edge means finding the high-value skills required to out think the competition, and they’re willing to pay a premium for the privilege. At the same time, an increasingly competitive market is pushing revenues down, creating a financial void that will most likely consume the margins and mid level management of many organizations. The best solution to this problem, and possibly the only solution, is to set aside the goal of exclusively owning every skill the business needs, and instead focus on fractional or collective ownership pulled from a broader community of partners.

Deconstructing the studios after the golden age

During the golden years of Hollywood, from the late 1920s through to the 1950s, the film studios built huge, vertically integrated empires that controlled every facet of production. Everything from actors, sound stages and camera operators through marketing, distribution and the cinemas themselves were under the same tent. However, this high degree of control didn’t ensure success, and the years after then second world war saw increased competition from foreign films, the decline of cinema audiences, and attacks on the studio structure by government agencies, all which contributed to dropping revenues. By the early 1960s the studios were half what they had been during the glory days, thousands of formerly flourishing theaters had closed forever, and the industry was forced to find a new industry model.

In 1925 Warner Brothers, then a second-tier studio working out of Hollywood’s poverty row, acquired Vitagraph (including the backlot shown above), a leading production company from the silent era which had fallen victim to the rise of the monopolistic studio system. Another gamble in 1927, this time on sound in the Jazz Singer, catapulted Warner Brothers into the first-tier.
In 1925 Warner Brothers, then a second-tier studio working out of Hollywood’s poverty row, acquired Vitagraph (including the backlot shown above), a leading production company from the silent era which had fallen victim to the rise of the monopolistic studio system. Another gamble in 1927, this time on sound in the Jazz Singer, catapulted Warner Brothers into the first-tier.

The first blow came in 1948 after a long antitrust investigation when, in what became known as the Paramount decision, the U.S. court ruled for the divorce of production and exhibition, and the elimination of unfair booking practices. In a single stroke the studios were forced to divest themselves of roughly 1,400 cinemas and split their companies in two; one division handling production and distribution, the other grappling with the declining theatre business.

The antitrust investigation, however, was not the only problem the studios faced. Patronage had begun to decrease in the years after the second world war, a trend that was soon accelerating as suburbanization saw people cashing in their war bonds and buying homes in the suburbs. This changed the pattern of film demand, draining audiences from the first-run houses in town centers which showed high margin prestige pictures, as they were now too far from home for many people to bother with. Hollywood fought back, trying to tempt viewers first with color pictures, and later 3D and CinemaScope (though both of these proved too expensive to deploy at scale), until the industry finally settled on Panavision’s anamorphic color image as their tool of choice, but it was only in the late sixties when suburban malls and multi-screen multiplexes became common that the studios recovered some of their former audiences.

Throughout this transition period the studios had refused to sell their back catalogue to the television stations. The first feature film shown on U.S. television came from abroad, as U.K. studios such as Ealing and Rank, unable to break into the domestic U.S. theatrical exhibition market released their product to television stations desperate for longer format productions. It was only in 1954, when eccentric billionaire Howard Hughes sold RKO’s library to television, that film studios’ resolve buckled as the millions of dollars were made on the deal impressed even the most cynical boss. By 1955 the studios had plunged head long into producing films specifically for television.

Moving into television, however, was not enough to prop up the studios’ sagging finances. Their response was to shed their in-house production departments: the talent that had been kept on the books during the golden era had proved to be too expensive, and the studios began contracting independent producers as required to make features. Suddenly the grand marques of the golden age, such as MGM and Warner Brothers, found themselves competing on an equal footing with the smaller, theater-less studios, like Columbia or Universal.

The television age proved to be an era of transition; the old studio system was supplanted by a more flexible model build around independent production. The grand marques struggled to attract hit films from independent producers, their losses pushing balance sheets deeply into the red. The lack of a large, rigid, vertically integrated studio structure which had been disadvantageous to the smaller, theater-less studios such as Columbia in the 1930s, proved to be the way to make millions in the new Hollywood system. The more fluid business environment which emerged with the television age favored a more fluid style of business. The successful studios focused on their core business – finding successful stories – knitting together special purpose vehicles from a community of partners to support production and distribution as needed, and then populating these vehicles from a network of free agents and specialist service providers to carry out the real work of creating and delivering the film. This approach was confirmed by Universal, which had been only marginally profitable during the golden age of the, however the company’s success after it was sold in 1952 to Decca Records resulted in it being bought by MCA talent agency and becoming a Hollywood powerhouse of television production.

Responsible, Accountable, Consulted, Informed

Work has changed dramatically in the last few decades. Much like the studios in Hollywood, pressure on margins and timeframes is forcing companies to reevaluate which work they do themselves, and which they farm out to a growing ecosystem of suppliers and partners. Although it won’t be called outsourcing, companies in industries as diverse as automotive, banking, retail, and real estate are responding to the new recession mentality by focusing on their core competencies and value-add, driving them to consolidate, rationalize and externalize supporting functions to save money or free up management time, allowing them to focus on more pressing issues.

Capabilities close to the heart of business are increasingly being moved into the hands of external providers. A growing ecosystem of partners is delivering everything from go-to-market strategies through product development to manufacturing and fulfillment. WalMart, for example, recently handed responsibility for all of its in-store marketing programs to a third-party specialist. The monolithic businesses we previously worked for are starting to fragment, converting themselves into swarms of cooperating entities.

Companies have always relied, to some extent, on others to do some of their work for them: Phoenician merchants bought their ships from Phoenician shipbuilders, the railroad robber-barons of the 1800s bought their steel from Bethlehem (among others), and even Henry Ford, who was so intent on vertical integration that he tried to found a self governing city (Fordlândia) to grow his own rubber, paid other firms to construct the buildings required to house his company’s factories. What is different today is that companies have moved from buying goods and services from others, to passing responsibility for core business activities to external organizations. Marketing, sales, manufacturing, even the management and operation of a company’s end-to-end business processes are now up for grabs.

But what are the limits of this drive to externalize? It can be educational to sit for a moment, and consider which day-to-day roles your business really needs to own, the people who must be on the payroll, rather than those folk you would like to have on the payroll. These are the roles where the person filling them needs to be held to account, and potentially end up in jail if they don’t meet their responsibilities, responsibilities which you cannot pass to an external party.

Take the CFO for example (or the finance director, or equivalent in your geography). A CFO is the one those interesting roles that most public companies cannot do without. There’s a range of government and market regulations – regulations with quite strict penalties – which typically fall under the responsibility of the CFO. Recent legislation in passed response to the Enron disaster and global financial crisis, such as the Sarbanes–Oxley Act{{1}} in the U.S.A., has dramatically increased the scope of these regulations, along with the penalties. A company executive needs to attest that the company has met these regulations, and there might be a term in jail if they are later found out to have been less than completely honest.

[[1]]Sarbanes-Oxley Art described at Wikipedia.[[1]]

It’s hard to see how a part time or outsourced CFO could be made to work for a mid to large sized company. Government and market regulation often (if not always) requires that a natural person provide the attestation. There’s a simple reason behind this: they want to be able to seriously punish whomever provides the attestation if they try to mislead the government. Fines don’t work, as they’ll simply be factored into the price on the contact. (Some enterprising organization might even manage to ensure against such a fine, given half a chance.) What does work is throwing someone – the individual who signed on the dotted line – into jail. From the point of view of the individual, even if the regulation did allow for a part time employee or someone from outside the business to attest, it would be a brave person indeed who signed without balancing the associated risk with the trust and intimate knowledge that you can only get from working from inside as a full time employee.

Companies require a CFO (or equivalent) as they need someone who can be held accountable. A common piece of consultantware used to sort out organizational problems is a RACI matrix{{2}}: standing for Responsible, Accountable, Consulted and Informed. While many people many be responsible for carrying out the work required (or want to be consulted or informed on what will be done), in a smoothly running business or project there will only be one person held accountable for each deliverable or task required. If more than one person is held accountable then we open the door to finger pointing and excuses. The government understands this, which is why they require an individual, a natural person, to sign-off, and go to jail if they get it wrong.

[[2]]We could use of the many variants of the approach, such as RASCI, RACI-VS, CAIRO, or DACI, but RACI will suffice in this instance.[[2]]

A RACI matrix mapping the business roles in a process to the four RACI categories. While the outsourcers might be responsible for delivering some of the components, they don’t have a stake in the successful delivery of the finished aircraft.
A RACI matrix mapping the business roles in a process to the four RACI categories. While the outsourcers might be responsible for delivering some of the components, they don’t have a stake in the successful delivery of the finished aircraft.

These days if an outsourcing arrangement goes wrong, you will be held accountable by the business owners, regulators or the market itself, as it’s not just a bad batch of bottle tops that can be rejected, but one of your core business activities or assets will be missing in action, quite possibly bringing the entire enterprise to a halt. Boeing’s 787 Dreamliner, for example, is billions of dollars over budget and is already roughly three years late, with failed outsourcing arrangements taking much of the blame. Boeing was even forced during late 2009 to step in and take over the underperforming fuselage manufacturing plant of Vought Aircraft Industries, spending approximately one billion in cash and credit, after the plant and contributed to years of delays.

Boeing scurries to deliver the 787 on time after a number of delays, some of which were attributed to outsourcing production of nearly thirty percent of the 787‘s components.
Boeing scurries to deliver the 787 on time after a number of delays, some of which were attributed to outsourcing production of nearly thirty percent of the 787‘s components.

We can’t just pass off responsibility for a core business capability without some mechanism for holding suppliers accountable. Without the ability to throw an individual in jail, we’re reduced to crafting incentives and penalties (which is why Microsoft’s board cut Steve Ballmer’s bonus in half in 2010{{3}}, in response to his inability to improve Microsoft’s position in the mobile phone industry), and this means aligning their incentives (and penalties) with our own, treating the hand-off as a delegation of authority rather than the procurement of a good or service.

[[3]]Don Reisinger, (2010), Mobile woes slice Ballmer’s bonus in half, CNET[[3]]

Focusing externally

The shift from buying materials to delegating capabilities has opened up new possibilities for the organizations, the early adopters, who are willing to experiment with it. They’re reconfiguring their departments, much like the film studios, focusing on knitting together the capabilities, services and materials their business needs, ensuring clear lines of accountability from their own organization’s business drivers down into the incentives (and disincentives) reified in each supplier’s contract.

Rather than having a large team focused internally, intent on optimizing internal assets and processes, this new breed of company has flatter and smaller departments (sometimes with tiny teams, well down into the single digits) who are focused externally. They’re identifying the suppliers required and lining up accountabilities to suit, or they’re working directly with customers to solve their problems. The executives accountable for the organization’s performance look up and out, plotting where the next step should be, providing the team at the frontline with guidance, but otherwise leaving the team to their own devices when solving the problems confronting them. While around these new, leaner organizations a new community of suppliers is also evolving.

If we want to successfully delegate a capability to a supplier, then we need to ensure that are responsible and accountable for the performance of the capability
If we want to successfully delegate a capability to a supplier, then we need to ensure that are responsible and accountable for the performance of the capability

The old consultancies and outsourcers, organizations more concerned with operational flex and selling doomed transformation programs, are being forced to align their offerings with their customers’ business models{{4}}, taking responsibility and accountability for one or more of the customer’s cost-driven business activities. This might range from in-store marketing (as with the WalMart example) or staffing the gates at an airport, through category management to supporting the business’s end-to-end business process. The capabilities they provide will, in turn, be organized in a similar fashion to their clients, with small, flat teams containing an executive holding accountability for delivery, while also leading a team focused on the work at the coal face.

[[4]]Consulting doesn’t work. We need to reinvent it. @ PEG[[4]]

And in the middle of this we find the free agents, the skilled knowledge workers, that neither the clients nor the suppliers can afford to have on staff full time{{5}}. Much like the more experienced and valuable staff in the movie industry – the independent producers, writers, directors and actors who create the blockbusters – they’ll migrate between engagements, often working with multiple clients at once, having grown out of a specific technical discipline to adopt a more general perspective on the industry, becoming sun-shaped people{{6}}. Their unique world view will draw together the threads of an engagement, taking it from the mundane and making it into something special.

[[5]]North-south divide @ PEG[[5]]
[[6]]The sun-shaped individual @ PEG[[6]]

This model creates lighter and more agile organizations, organizations which are not burdened by the huge payrolls or massive investments associated with vertically integrated organizations. The old bureaucracies will have been blown apart, their baroque structures replaced with a network of smaller and more dynamic units. Whom you work for will be less import that what you work on and how you approach this work, and your career will be in your own hands.

Continued in World of Warcraft in the workplace.