CREATIVE INTELLIGENCE

Henry Ford is famously known for increasing the wages of his employees by asking his business critics who do you think buys Ford cars. Consumer demand is crucial to economic growth and that demand depends on people getting paid reasonable wages.

In one of my recent classes at Parsons, a student from Asia said “in America, you are able to sell McDonald’s hamburgers for $1 and cheap clothes at WalMart because you pay people such low wages they need government assistance to buy food or get medical care.” It was shocking and true. 

It is one thing for corporations to cut back on wages during times of recession but it is entirely another when they are making good profits.

http://www.businessinsider.com/walmart-employee-food-drive-2013-11

Companies ranging from WalMart to Boeing are focussing only on shareholders, not employees, in their business models. The consequence is a very weak recovery from our deep recession, with most people still behind even though we’ve had great profits for years now. 

http://seattletimes.com/html/opinion/2022269425_jeffjohnsonopedboeingunion18xml.html

It’s time to share the wealth being generated with stakeholders, not just shareholders. It is the only way to boost demand in the economy and get people to buy more. And it is the only right and moral thing to do. And yes, economics is about relationships, not simply markets.

Gas leaks, battery fires, faulty wiring, electrical service software errors–Boeing’s new 787 is experiencing a series of problems that is hurting the brand, slowing the roll-out and costing the company many millions of dollars. Any new jet comes with teething problems and one with entirely new composite materials can be expected to have more than its share. But the three-year delay in launch and cascading problems suggest that Boeing’s original strategy of outsourcing most of the design, engineering and manufacture of the Dreamliner is proving seriously costly.

For most of the past decade, globalization of innovation has been in vogue, with consultants promising huge cost savings and speedier results. As manufacturing went global, it appeared to make sense to outsource the creative aspects of making as well. In addition, nationalistic pressures by potential buyers of big-ticket items, especially commercial jet planes, demanded a piece of the action as a quid pro quo in purchasing them. Besides, Apple shifted all production of its high-tech iPhones, iPads and Macs to China and that’s worked, so the business logic went.

For Boeing, the logic hasn’t worked. The 787, like all commercial jets, is really a super-complex, hand-crafted product, composed of new materials, designed in new ways and assembled by new methods. The best innovation strategy for this kind of cutting edge innovation may well be internal, organic teams who have control over most, if not all, of the complex procedures. Agile, resilient teams of skilled people who trust each other to share information and learn quickly by doing are the best organization units for this kind of innovation. They make up “magic circles” of creativity who can craft original designs and then scale their efforts for production. Organic, networked circles of creativity and craft can be better managed and are often more efficient than totally outsourced design and manufacturing. The poor quality control experienced by Boeing over its suppliers in Europe and Asia might have been prevented had the company done more of its creativity and crafting in-house.

Boeing’s decision to outsource 30% to 40% of the 787 was made in the context of a contentious history with it’s engineering unions. In retrospect, the higher cost of keeping a creative, competent and in-house capability happy would probably have been a tiny fraction of what Boeing is paying today in penalties for delays, fixes to errors and brand erosion. Circles of highly creative, innovative teams are expensive but the scaling of their efforts may be more efficient and cost-effective in the long run for companies intent on playing at the edge. Apple never outsourced its design and engineering and demanded total control over the manufacture and assembly of its products. Apple’s handful of “magic circle” of design and engineering teams has worked on nearly all of its products over the decades. Boeing and business consultants should take note.