Thursday, June 22, 2006

Inverting the Pyramid

If you take a hard look at the way our businesses are changing, due to global competition and outsourcing, you can see a number of factors working against the old command and control organizational structure. One factor that is working against it is the need for speed. Since we want to be faster in everything we do, the old game of each successive layer of management informing the next level down is rapidly falling away. What we need are flatter organizations. This is also true since more and more people are doing thinking work rather than manual work. Smarter workers need fewer managers and fewer levels between themselves and the "boss".

What's also true is that over time the entire pyramid will be inverted. What I mean by that was originally a few workers at the "top" did most of the "creative" stuff and the majority of the workers actually built the products or delivered the services that the few creative types dreamed up. I think over time many businesses in the US will become innovation and product design engines and will have an inverted pyramid, where most of the people at the top are very creative, and there's very few people underneath them that make the products, since most of the manufacturing will be provided by outsourced firms, either here or overseas.

This phenomenon can already be viewed here in the Research Triangle Park, NC in the biotech and pharmaceutical industries. There are a significant number of firms here that are what I call "one hit wonders" investigational companies working on medicines or molecules to attack a specific condition or disease. Most of these firms have no intention of manufacturing anything - they are interested in discovery. Their goal is to identify potential drug candidates and have them manufactured by another firm, or possibly sell the candidates to other, larger firms who wouldn't take the discovery risk. Most of these firms represent an inverted pyramid, with a significant amount of R&D and innovation and no service or manufacturing capability whatsoever.

As more and more manufacturing comes online in China and India and Viet Nam and ... well, you get the point. There will always be a lower cost manufacturing location than the US for many products. I think we'll see firms begin to recognize that the competitive differentiations we have in this country are:

- Access to the world's largest and most vibrant market. We are it, we live in it, we should be able to assess that market and understand its needs better than anyone

- Access to some of the most original thinkers with a sense of entrepreneurialism. The US far exceeds other countries in new company creation due to its liberal incorporation laws.

- A strong history of innovation. The US traditionally has fostered innovation, from the federal government, universities, the private sector and organizations that bring these three groups together.

- Capital markets. Traditionally, we've had the most fluid and transparent capital markets, with a large amount of private equity and intermediaries who help identify and place the money.

All of these facets lead me to believe we have the core capabilities to remain an innovation engine, and the underlying factors of outsourcing and low cost manufacturing indicate that more and more, our businesses will be ones that seek to understand and predict new products and services, design them and market them, while outsourcing manufacturing, service and support. The confluence of our capabilities and global business realities will lead to an inverting of the traditional management pyramid in many cases.

Innovation does not cause that, but will be an influencer for many firms to add creative, innovative people in order to grow and survive.
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posted by Jeffrey Phillips at 5:23 AM

7 Comments:

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