Design Constraints for a New American Economy: Why Boeing and every other company has no choice but to change

January 13, 2011 by  

If you follow me on this blog or on twitter, you know that I worry about jobs and the U.S. middle class. That’s why it may seem contradictory to take the position I did in my recent post on Boeing.

Boeing is in the midst of a grand experiment with its 787. It has “outsourced” a greater degree of design on a scale that is unprecedented. What they have essentially done is create a connected community where suppliers of parts and subcomponents of the jet can collaborate. The individual suppliers are empowered to come up with the best designs they can. Boeing’s job is as a convener and catalyst for the network. The approach reflects their belief that their core competency is in design coordination, assembly and marketing of planes. The belief is that each supplier is more expert in their field than Boeing and, therefore, better equipped to optimize and innovate its piece of the overall product.

But the experiment is not going too well. It hasn’t failed but it has had a lot of delays and problems. So there are lots of people critiquing the whole project. Of special note are the critics who fear that Boeing is letting loose the knowledge of how to build big airplanes and that they (and by extension the U.S.) will never get back. This is not that different than so many other U.S. industries that have outsourced and moved more and more of their production off shore.

Here’s my position. I agree that U.S. industry has been short-sighted and let go of a lot of knowledge. The real risk in letting loose knowledge, you lose the ability to create more knowledge in the future. But what was this knowledge that is being shared? Some of it is knowledge that we are better off losing. What do I mean?

Let’s look at China. They have succeeded by beating us at our industrial-era game. Through re-creating the top-down, cost-centric, polluting, unsustainable business model that that we perfected, they have fueled incredible growth in their society. This growth (just as it became for the West) is not sustainable. But it was the only way they saw to quickly build an economy and position their country for a new role on the global stage.

We in the western world can no longer compete based on that industrial model. –But when most people hear this statement, they think it means that we cannot compete in industry (manufacturing). That’s where I think they are wrong. And the folks that think that preserving the old industrial model is going to save Boeing or any other industry in the U.S. are terribly off base.

What we need is a new economic model that includes a full economy: manufacturing and services. But this new economy must be built on completely new principles. It must be built on innovation.

The Design Constraints for American Innovation

Most experts in innovation will tell you that, paradoxically, creativity actually benefits from constraints. In thinking about the future constraints that will fuel innovation (and prosperity) in the U.S. going forward, I would like to offer the following:

1-Maximizing knowledge – The goal of business in the industrial era was to keep as much knowledge as possible under wraps, to prevent others from imitating your success. There are still times when specific knowledge should be protected today but more often than not, sharing knowledge and using it in collaboration with others will create a better outcome. Those involved in the collaboration will create competitive advantage that a single player could not replicate. A simple example would be the iPod. The technology behind the product was not particularly unique. What is unique is the ecosystem that Apple built around the product through relationships with content providers. (In the long run, the fact that this is a closed system will limit Apple’s growth and leave even more growth to open systems but you get the idea). The design constraint: find the way to maximize the value of your knowledge and don’t limit your thinking to the inside of your own organization.

2-Leveraging local talent –. Most companies are built from the top down: I have an idea and I look for people to help me make it happen. But what if we thought a different way? I have a pool of talent, how can I use it for the best results? Here I would ask you to put the average Chinese worker and the average American worker side by side. The Chinese worker would win on the main metric that we seem to use today to evaluate workers: cost. But the U.S. worker has decades of education and an ability to think independently that may not exist as widely in China. The design question is: how can we put these unique talents to work?

3-Creating local jobs – The goal of business in the industrial era was to use technology to gain efficiencies. Technology replaced labor. That’s why most of the productivity gains of the past thirty years have gone to the owners of the technology and/or companies—workers could be eliminated in the process. Taken to its logical extreme, this would mean the continued elimination of workers. But what happens if a company changes this constraint and asks, not how to eliminate jobs but, rather, how to create them. Wouldn’t they be able to tap into an incredible amount of goodwill with both the workers and the community? The design question is: how can our company benefit by creating local jobs?

4-Minimizing energy use – This is where it gets really interesting. We know that fossil fuels are going to be increasingly expensive, create environmental problems and cause expensive wars. So smarter companies are beginning to think about how they can move toward new, more sustainable (and, ultimately, more cost-effective) forms of energy. This is not just about initial production but also about all the transportation in a supply chain too. The design question is: how can we minimize our use of fossil fuels?

5-Minimizing/eliminating waste – Ultimately, the concepts of sustainability will move companies and people toward thinking about the easiest way of conserving: avoiding waste. This kind of thinking requires a cradle-to-grave philosophy and suggests a whole new ecosystem that supports a zero-waste economy. The design question is: how can we minimize waste?

6-Maximizing health and wellness – What if all the companies that were so good at getting us to do things that aren’t good for us changed their goal to helping us do things that are good for us? Think of all the talent that exists to influence our consumption and behavior. What would happen to a company’s reputation if they found a way to make healthy living sexy? The design question is: how can be help our customers increase health and wellness?

So there they are:

  1. Maximizing knowledge
  2. Leveraging local talent
  3. Creating local jobs
  4. Minimizing energy use
  5. Minimizing/eliminating waste
  6. Maximizing health and wellness

We talk about these opportunities in our book. I always thought we were a little way out on them but was heartened to hear Michael Porter, guru of competitive and value chain strategy, talking about these same concepts in a discussion on the future of capitalism. He calls the overall concept “shared value.” Whatever you call them, these are the new constraints of our economy.

What’s an example of this kind of thinking? The local food movement.  Think of the jobs, the growth, the energy savings and the health benefits of a population that eats fresh food grown locally (even if it is on a roof in Brooklyn).

The Future of Innovation and Intangible Capital

Why am I writing about this? What does it have to do with intangible capital?

Most of the design constraints above require an organization to re-think their resources, productive capacity and operations–because these new design constraints require an unprecedented amount of knowledge and innovation. That means organizations need new tools to see, measure, manage and monetize IC. IC is the group of knowledge assets that exist in unique combination inside every organization. IC always includes human, relationship and structural/organizational capital.

To think in a fresh, innovative way, every organization in the U.S. should sit down and think about what they have to over. How could they re-create themselves within these new design constraints? How could they build an organization that manages its operations and husbands its (intangible and tangible) resources in a new way.

To rebuild our economy in knowledge-economy form will require every bit of our corporate and national IC. Let’s not leave our IC languishing. Let’s step up to the opportunity to maximize our IC by recognizing the rich resources lying inside our companies and by applying these resources in innovative new ways using a new set of design constraints.

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