[MUSIC] In this segment, we're going to talk about the need for management innovation. The need to fundamentally rethink understanding about why management works the way it does and what it could do differently. And this is important, as I said in the previous segment, but the demands on the business world are changing faster than our traditional kind of capacity to change. And what we need to do to, to overcome that is to actually broaden our own concept of what innovation means. So we want to move from a thought that innovation is about new products and services. Towards the thought that if you like innovations about new ways of working, and if you think about it, that's just a, an extension of the classical way of thinking about innovation. Innovation is the exploitation of new ideas, it can be a new idea for a, for a widget. It can be a new idea for an iPhone. Or it can be a new idea for a budgeting system. There's nothing, real reason why we can't innovate the budgeting system in the way that we can also products and services that we sell. So this segment's going to give you a few thoughts on what management innovation looks like in practice. The first way of doing this and I'm going to give you a historical example, and them I'm going to move to the, to the present day. The historical example is the car industry. Think back over the last hundred years of the evolution of the, of the car industry. And we can see, roughly speaking, three generations of leaders. The first generation of leadership was really Ford Motor Company. I mean they weren't the pioneers of the motor, motor, motor car. I think that was Mercedes Daimler Benz. But Ford was the company that first popularized the car, how do they do that? They created a Model-T Ford, a car that people could afford. How do they make a car that people could afford. They did it by essentially innovating the assembly line. And if you think about it, really Ford's biggest innovation was not the Model T itself. It was the assembly line that dramatically reduced the costs of manufacturing cars, so that everyday people could afford to buy them. It really democratized the car. Where did Henry Ford come up with the idea for the assembly line well there's an interesting side story there which I'm not going to go into any detail. Suffice it to say he got the idea from the, the slaughterhouse. The abattoir. The dis, disassembly line if you like where, where they were actually you know, killing animals and chopping them up for human consumption. He got the idea from there. He turned it into a process innovation. A way for dram, dramatically reducing the cost of manufacturing cars. And that put Ford into a prominent place. In the 1930s, the big change was that General Motors took over the leadership of the car industry thanks to a gentleman pictured here, Alfred P. Sloan. He was the chief executive behind General Motors. And, really, from that period in the 30s all the way to the 1970s and the 1980s, General Motors was the biggest car company in the world. What was Alfred Sloan's innovation? Well, again, it wasn't a specific car. What it was was an innovation in the organizational structure of the company in the academic world. We call this the m-form, the multidivisional form. You, most of you will know it, as this, as this idea that companies have strategic business units. They have specific units, each of which focuses on one particular market. Now that's commonplace today, pretty much every company has a multidivisional structure. But of course that idea had to come from somewhere. And it basically came from, not just Sloan, but Sloan and a couple of other companies in that period in the 30s. And what Sloan realized was that by creating five separate divisions for General Motors. You know, Buick, Oldsmobile, Cadillac, Chevrolet and so forth. He would be able to create a company which tapped into many more different segments of the market than Ford who had a much more narrow focus. And of course, he kept central control. He kept control of the money, but he decentralized decision making on individual business areas to his various lieutenants around the company. So, Ford's innovation was the assembly line. General Motors' innovation was the multi divisional structure. Move the clock forward to the, the present day, or really, I guess, the 1980s is when this started Toyota became the leader of the car industry in the 1980s. What was Toyota's innovation? It was essentially, and we all know the terminology here, it was essentially the creation of what we nowadays call lean production or just in time manufacturing, sometimes even called the Toyota production system. And the idea of that at its heart was they were trying to build quality into the products that they were selling. And they realized that, to do that, you didn't want a separate department off to one side. What you needed was to get the workers on the line, to take responsibility for quality. So they didn't just treat their workers on the line as automatons. They treated them as human beings, with the ability and the judgement to stop the line, to identify problems, and then to use their training in statistical process control in order to help to figure out how to improve things. You know, so one way of saying it is that Toyota reckoned that they could get a return on investing in the problem solving skills of their employees. And that was a very different principle than the principle that General Motors and Ford and Volkswagen had used up to that point. So their innovation was in quality management, which was about changing the basis of relationship between the line workers and the managers. So there you have it, one industry, three era's. In each era leadership comes down to innovations in the management principles and practices of the company rather than any particular product or service. So the argument is really that it is possible for a company to invest in management innovation and develop sustainable competitive advantage as a result of that.
