January 2007

On Dell: The American Company Able to Emulate TPS...and Beyond?

January 24, 2007

Michael Dell founded his company in 1984, after following a natural path that started with an innocuous practice of upgrading and enhancing his own computer and - more often - his friends' computers. Soon after that techno-social activity, and almost without noticing it, he was receiving requests from friends-of-their-friends. Even more interesting, he was pricing his upgrading services with good margins, and subcontracting other hackers to deliver his services. Thousands of guys like him were doing the same thing in high schools and university campuses all over America. Many had the intuition that scaling the business was worthwhile. But only Dell built Dell.

I. The Relevance of Spotting Emerging Practices

In the middle of dealing with the practicality of satisfying his customers, Michael Dell conceived of an original Business Model for his industry, and persevered in designing and adjusting the Operating Model to make it increasingly valuable: Building Products to Order, Selling Directly to Customers, and Enhancing Customer Experience. Almost 14 years later, he had a $12 billion company. Today, he has a $50 billion revenue company, valued in $100 billion.

At the time he was starting, in 1984, the PCs were in the market for more than ten years. The Internet was thriving - although circumscribed to a few universities - out of the talent and vigor of governmental and academic communities. The core of the Information Technology centered around connectivity, LANs, proprietary systems, and communication. California was plagued with Toyota cars, and many companies were asking “just-in-what?”. The “Reengineering Process” business fashion, announced by Hammer & Champy's book, “Reengineering the Corporation: A Manifesto for Business Revolution” was not even imagined; it was preceded by Dell's practices by at least a decade.

II. Conceiving the Space for Design

Dell was familiarized enough with the historical inadequacies of his overly vertically integrated industry - and maybe with the Toyota Production System (TPS) - to be intolerant of coordination waste or inventories. He was also aware enough with IT -networks to be opened to add layers of intermediaries in his supply chain. Consequently, he conceived of his Virtual Integration business model.

Michael Dell's articulation was powerful and simple. It was something like this: "I am thriving in a young industry in which early generation of companies - IBM, DEC, Compaq - were obliged to produce a wide variety of the components of their own products. That is not the case any more. Today, there are dozens of innovative and efficient suppliers of any component required to build a high quality/high value-to-customer PC. What should I do? Compete with them? Or work with them?" The answer to these questions came later in a HBR interview: “We concluded that we are better off leveraging the investments others have made and focusing on delivering solutions and systems to customers.” Beyond that, he spotted a debilitating inertia in his early-generation competitors. He called them “engineering-centric” companies, leaning heavily toward the “we-have-to-develop-every-thing” culture/mentality.

Human beings - as experienced industrial designers claim- relate with artifacts in four ways: they conceive, design, produce, and use objects. The Virtual Integration business model of Dell is powerfully anchored to each phase of this product life cycle.

The structural relation between Supplier-Manufacturer-Customer is supported by a robust architecture of Data Linkages that increases coordination speed, monitors critical value measures, and allows early warnings in quality issues or market opportunities. Virtual Integration produces less variability, less inventory, lower cost, and lower risks. In terms of scalability and growth, the model is appealingly more efficient than the traditional vertically integrated competitors.

III. Design Principles

Kevin Rollins, Dell's CEO, has played a key role in furthering the company's developments and implementing a solid Operating Model. In a certain way, he has been the guy thinking and articulating what Michael Dell is about, and transforming the sensitivities of an individual into sensitivities embodied in a vast and rich network of business practices. He credits Dell's achievements in years of obsessive care for impeccable execution in delivering value to customers, plus some strategic and management principles. Among them are:

  • Do not invest in Defensive R&D.

  • Do not set standards in patent offices, but in the marketplace.

  • Not delivering promised value to customer is bad; Not saying that you are failing and not asking help is very bad; Hiding your problems is unforgivable.

  • Use technology to leverage collaboration and allow people to work together.

  • Build as few partnerships as you can, and keep them as long as they are leading their markets.

  • Focus only on what delivers real value to customer experience.

Simple and powerful. They “hammer” these principles into their peoples' heads. However, they don't take these questions lightly, they are already thinking about what “hammering” is about, and how it is connected with human phenomenon. In other words, how they can improve the speed at which they affect their vendors' and suppliers' mindsets, and how they can increase the speed at which they are affected by others.

Very cool company. In its 2005 fiscal report to the board, Michael Dell said, “We're proud of both what we're accomplishing and how it's being done.” Not only that, they are active in shaping what they call “global citizenship”. Very ambitious guys, putting themselves in the middle of historically crucial problems.

Value in Robinson's Article

January 22, 2007

Take a look at this article. It seems like a discussion on pricing in the biotech industry. But it is also putting our attention on how the old school collaborative networked economy interacts with the private market-oriented businesses, as Yochai Benkler articulated in his book The Wealth of Networks.

A New Perspective on Health Care Challenges

January 10, 2007

My experiences in the health care industry are limited. I helped a market research group for AstraZeneca to develop a strategy for a new cancer drug (I learned a lot about what happens in markets with sharp asymmetric information -between patients, patients' families, drug producers, physicians, health providers...-and with highly fragmented, conflicting, and largely denied role identity struggles in physicians' professional environment).

I also worked with AstraZeneca to deliver a proposal to develop a Multicultural Marketing Capability able to develop customized services and drugs for different ethnicities with distinctive patterns of health conditions. And there was a project to improve some product development practices at Genentech, alongside a few other projects with health providers.

Health care industry is a captivating place to spend professional energy. It produces simultaneously incredibly value and astonishing waste, visionary ethical leaders and opportunistic mercenaries, social recognition and social criticism. It is the space in which the discourses of science, medicine, engineering and business compete in leading to a better future. But as happens in any conversation, the wrong framing can produce bad consequences.

Many months (years?) ago, I read a HBR article by Michael Porter and Elizabeth Olmsted Teisberg, published as a book in 2006, “Redefining Health Care.” They made a magnificent contribution to understand the “framing” problem in thinking about the health industry. Simple and powerful. They made a thorough diagnosis of what they characterize as a wrong structure of competition in the industry (zero-sum competition) and they proposed a set of design principles that could shape a space in which new valuable service practices could thrive. I strongly recommend the book and will be happy to engage in conversations about it. The starting point of good service design is achieving a rich articulation of the underlying anomalies producing the mess, declaring a set of design principles to create the adequate orientation and language, and conceiving a new possible reality that unsettles current complacency. They did all of that.

Wealth of Networks

I highly recommend reading Yochai Benkler's book “Wealth of Networks.” It is a balanced articulation of what the Internet and Web 2.0 is enabling in the development of new forms of social collaboration that are not adequately recognized as such by both private/regulated market advocates and for welfare advocates.

One of the things that struck me most is Benkler's capacity to create a perspective in which he can show that these new forms of collectives are rooted in old practices that have existed forever. And he shows these practices can gain major significance if

  1. The neutrality of the web, access to the web, Open Source initiatives, and General Public Licensing type of legislation is improved, and

  2. The aggressive move toward Intellectual Property laws and regulations, and control by corporations, is counter-balanced.

Read his book and get involved in his wiki.

Conversations with Atina Chile

January 09, 2007

Below are two video clips of conversations I had with members of Atina Chile, coordinated by Gloria Letelier.

From Print to the Web to PFs

January 08, 2007

PFs: Personal Fabricators.

Neil Gershenfeld is conceiving a new capability to put together the world of software design and the world of machine design in his Center of Bits and Atoms (CBA) at MIT. The basic idea is that we can design in a computer (cadcam) and “print” three dimensional objects using a network of supersonic jets of water, powerful lasers, microscopic beams of atoms, and probably in the future some nanotech manufacturing. This new unity, based in the idea that the universe is literally a computer, is called PF, paraphrasing the PC. As he described it, what is emerging, is a new Renaissance, a new sort of mass literacy were the focal aspects are not anymore reading and witting, but “mastering available means of expression.” Some of consequences of these experimental practices are:

  1. Re-connecting the production experience in a unified practice of conceiving, designing, producing and using an artifact.

  2. Empowering people to control the technological environment in which their communal life thrives.

  3. A new type of just-in-time, on-demand teaching and coaching (in opposition to the current pushing-content, just-in-case form of education).

  4. Expanding the value of collaboration. He said about this new style of collaboration: “once a student masters a new capability, such a water-jet cutting, or micro-controller programing, they have a near-evangelical interest in showing others how to use it.”

Nothing about this is totally new, with the exception that is growing in the historical moment in which there is Internet, there is an Open Source economy, and there is the GNU GPL to give a legal framework to new ways of collaboration. Even more interesting, his labs are replicating around the world, especially in low-income, resourceless communities in Ghana, India, or Boston's Tent City...with results as astonishing as those of the highly educated MIT students.

Design Principles for the Renaissance 2.0

The subject matter of designing is about producing a new unity that expands value, by supporting emerging social practices. Competent designers claim that there are three ways in which we relate with those unities: we design them; we produce hem; and we use them. Neil Gershenfeld, in his book FAB, added a new dimension that precedes the design phase. He called it, “conceiving” the new unity. So, basically, in the process of bringing a new artifact or mechanism to fruition in our markets or communities, we go through four phases.

There is an old tradition – which is declining-in which those phases are understood as a lineal process, with a clear beginning and end, discrete gates -or funnels- in which specialized roles hand-off their tasks for the phase, and let the next role continue the process. This tradition has produced a common sense in which the central challenge is to produce a rigorous description of the conditions of completion of one phase, so the new phase can be carried out smoothly and autonomously by a team endowed with a new set of distinctive skills and capacities.

The “conceiver” is the role that is able to specify what is missing for a particular community of people, dealing with some particular historical concern. It is the role Pasteur played in opening up the space for microbiology and vaccines. It is the role George Bissel played in the visualization of the oil industry. It is the role of Edison in envisioning power networks and public electric light. It is the role Paul Baran played in the conception of the Internet. It is the role Jobs and Wozniak played in anticipating the world of the PC. The conceivers are the people that unsettle old paradigms, and articulate fundamental aspects of the design challenge: what is missing? what is possible?

The “designer” is the role that specifies the new unity so it can deliver the services it was conceived for. The designer defines the key components of the new unity, its assemblers, and interface. Let's say that this is the role played by Ford with his line of production-based manufacturing, or by Taichi Ohno with the Toyota Production System. It is the role played by Dave Walden, Bob Kahn, Frank Heart, and Severo Ornstein -among others- in specifying the first four location nodes of Internet in the late sixties.

The “producer” is the role that is able to interpret the specifications of the designer and to assemble, prototype, test, adjust, implement and make the new unity replicable, reliable, sustainable, and economically viable. Examples are: Standard Oil, Westinghouse, Toyota, Apache and Linux.

The “users” are the ones that transform their practices in order to experience, produce and distribute increased benefit and value. Basically: you, me, us, them. The traditions linearly organized around these phases, which deepened the division of labor. And the specialization of roles in each of these phases are producing significant waste in today's world -for instance, the Product Requirement Process in software development, or the IT documentations on “customer needs”, etc. As Time Magazine noticed in 2006 by naming “You” the person of the year, “user-generated” artifacts are occupying an increased portion of the value generation in our economies and communities.

Many of the wastes can be transformed into interesting possibilities of innovation if we change our understanding of phases as a lineal production line, and we think about them as observers, articulated in networks of conversations. Conceiving, designing, producing and using are an endless unfolding process. All the time, artifacts show up to us as part of our conceiving, designing, producing or using experience. A couple of years ago, Peter Schwartz mentioned to me when I was trying to articulate my notion of Service Design, that in his experience, designing was a lot less relevant than discovering from different perspectives. It took me a while, but here is what I now think he was pointing to: the emergence of the “user-generated” culture, which basically means a design culture that can have good, rich, authentic conversations about our experience with artifacts, social practices, and designing across the old-tradition silos.