Appunti esame Management Organization in the digital economy, prof Tunisini

Management and organization in the digital economy

Annalisina Tunisini and Ivana Pais.

• The course is still mandatory for students of management.
• 2 separate modules.
• The first one is the digitalization from the managerial perspective. How does the company face the present environment? We are going to use some historical starting point.
• The second part will start in middle October. How is economy in our society? Important: the platform economy. No books for the second part, just papers uploaded on Blackboard.
• Not attendant students cannot make the middle exam (after 4 weeks of course).
• Attendant students can integrate the mark with a personal work from home, or with another students. Free to decide to attend or not.

An evolutionary perspective

Mass production is linked to economies of scale. Mass production is a starting point for us. Lean production is flexible, is capable to adapt and to be effective, not only efficient. Get economies of scope, not only economies of scale. This is all in order to be a digital factory, a 2.0 factory.

IOT, Internet of Things. Devices can talk each other. Social media are used to study the consumer behavior. They are studying us in a very detailed way. Big data needs to be interpreted well. They are creating something new.

Industry 4.0

Digital transformation is transforming the structure of a company. (3 people together, working about a seminar, to discuss with the professor, to get 2 points more on the exam.)

The program

• First part: mass production and the large business enterprise. Fordism and its maturity.
• Second part: works on the present. Most of the companies now are in this part (flexible automation, years 1990-2000s). Modularity, servitization, network.
• Third part: digital transformation interconnected to products.

11 files on Blackboard that should be studied. (The first one is a brief summary, and a guideline.)

• 5 October: Ing. Cassani.
• 7 October: Ing. Brioschi. (IBM)
• 12 October: Dr. Cristina Farioli.

With these three seminars we cover manufacturing, purchasing and digitalisation. The 3 could be used by who wants to do the project. The project should be discussed on the 14 of October.

Fordism

1913, second industrialisation. You can reduce the cost if you produce a lot.

Ford produces cars with highly mechanized cycles, with an assembly line. Pieces of product move from one workstation to the next.

Fordism is the name used to refer to the technological and social paradigm that emerges from the widespread use of the organizational and social forms consistent with the requirements of mass production. The answer is the fragmentation of the mechanical work. These things reduced the costs, and made possible for many people to get access to products they couldn’t buy before. A Ford competitor is General Motors or Chrysler. The philosophy behind General Motors (Sloan) is pretty different from the philosophy of Ford.

General Motors is thinking about some people that are able to pay more for cars. The philosophy is ‘a car for every purse and purpose’. The key is to produce what can be sold, obviously reducing the standardization of the products.

The second industrialization has a different approach to people. Standardization is the key. Besides the cost advantage, the company could win with the generalization of the products. Business strategy could be divided into cost advantages (Ford) and differentiation (Alfred P. Sloan). Sloan introduced some small components according to the customer view.

Sloan’s approach

This approach seemed to resolve the conflict between the need for standardization and the model diversity required by consumers. The goal of this system was:

• Standardizing many mechanical items.
• Annually altering the external appearance of each car, to introduce an endless series of “hang-on” features such as automatic transmission, air conditioning and radios which could be installed in existing body design to sustain consumer interest.

The USA car companies dominated the world automotive industry and the US market accounted for bulk of the world’s auto sales. Ford, GM and Chrysler.

By 1955 these three firms were losing their competitive advantage. In Europe the diffusion of mass production technology had taken place somewhat slowly. In Europe the problem was the attachment to the craft-production traditions. Just 30 years after Ford, his technology becomes fully diffused.

What is changing the technology, is the environment. Nowadays it is still important the technology. 6 years ago the Ford model was the winner. Mass products for the mass affordable consumers. The future was wonderful, because some people could buy something that they couldn’t buy before. (rec)

Reducing prices makes people want things and buy them. The right product and the right organization are important.

To face mass consumer you must be big. The large corporation wins, is the model more common. Vertical, hierarchical structure wins. Ford controls the market and any technology inside the company because it is built to be efficient. The power is this: to be big and to face all the functions inside of the company (just few suppliers).

Everything new is developed in the R&D department.

From the top to the bottom, to be efficient, it must be linked with a clear division of levels, rigid routines, efficient processes. Everyone has to follow rules. When the mass starts to have fridges, TV, cars, we start to have problems. The problem is to be on time, to have new models of things that come out. The problem of the company is to replace things on the market, to think about the commercial side. Company have to convince people to re-buy things that basically are standardized. This is the false differentiation, with small adaptation, and small things changed from before.

Customers think that the company is proposing a false differentiation. So the company needs to find the way to show a real differentiation.

The product services. Services means basic services (e.g. insurance to the car). The large corporation starts to support such services.

The large corporation should support customers. The innovation model is still controlled by Ford, purchasing function is not only facing logistics but also new departments. So new companies are born to do things instead of the main company.

The innovation is totally controlled by Ford and big companies like this.

The third industrialization is in 1954 (electronic automation). In the 70s, things are more critical. The critical changes were so strong and rapid that broke the rules that were in the market before (and those rules were winning before). This creates new opportunities but also creates a different situation for who was in the market before.

We have to pay attention to economic crisis. The economic crisis, the high prices, deflation, inflation. It’s also about a decline of the mass production. That instability arises from a concentration of many destabilizing factors linked to each other but which can be divided and summarized in cyclical and structural factors.

• Cyclical: exchange rates, oil prices, raw materials prices.
• Structural factors: penetration and diffusion of innovations components, IT.

In the 70s IBM started to produce computers smaller and more useful. First of all the automation of the process, you can combine cost advantage with a real differentiation. It is an important change. These advances in technology introduce a lot of new things, the automation of the process was possible. This makes possible a real differentiation. Now, companies that are winning are no longer like Ford. Actually these companies have to be more flexible.

The creation of a network between the company and the suppliers, research centers, customers is needed. As a consequence of innovation, processes are not totally controlled by the single company but also by other companies that perform the outsourced activities.

Flexible business models

In this time period flexibility is represented by Toyota. Toyotism is a new philosophy: Lean Production. It started with Japanese people. They drive the world economy with this philosophy. Still now some companies look at this benchmark to imitate it.

As we need a flexible company, the model of the small enterprise is fine.

Small companies were born from this process of downsizing.

It’s difficult to be flexible if you are organized in the old way which was used by Ford.

Small is beautiful at that time. Clusters is the correct name to define them. A business cluster is a geographic concentration of interconnected businesses (districts), suppliers, and associated institutions in a particular field. E.g. Luxottica, that was capable to grow more than others.

SMEs: the small business, defined by Porter as “geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions in particular field that compete but also cooperate”. In SMEs face-to-face interactions reduces transaction costs. SMEs in district are highly specialized, many of them were born as consequence of the deverticalization and outsourcing process started by the large corporation.

Craft production and mass production are contained by lean manufacturing. In particular, it is a management philosophy derived mostly from the Toyota production. Craft production: highly skilled workers and simple but flexible tools. This is to make exactly what the consumer asked for. Products produced by craft production cost too much for people, for this reason mass production was a good alternative.

Craft basically is:

• Highly skilled in design, machine operations, and fitting.
• Organizations decentralized.
• Long production volume.

Henry Ford understood the drawbacks of craft