This is a paper I wrote last year for my "Creating and Managing an Enterprise" class. It's really good I think, but it only includes some aspects of all the things we learned up to that point in the semester. The focus is on Porter's Five Forces which are well represented though. The book that this is based on though is very very interesting I think. Lot's of business related content and lots of cool history. Did you know that sometimes it could take a century or more to build a cathedral?
Ross King’s Brunelleschi’s Dome paints a picture of Renaissance Italy, in a time when technology and knowledge were developing rapidly, the world was changing, and many scientific and artistic minds were coming to prominence. It specifically focuses on the life story of Renaissance Man Filippo Brunelleschi - scientist, artist, architect, and inventor - and on the construction of the Dome of Santa Maria Del Fiore, in which he had such a dramatic influence. We can find in these stories many common situations, challenges, and principles which are just as relevant to our current realities of business, innovation, and accomplishment, as they were when Brunelleschi’s dome was rising over the busy streets of Florence. Throughout the stories, we see dramatic cases of jealous competition, spectacular successes and failures, creative utilization of resources, innovative solutions to business and technical problems, and carefully crafted strategic maneuvers designed to at once outpace the competition, and prove one’s principles true. In this paper, these aspects will be considered through the lens of competition and rivalry, and explored with modern management concepts in order to both show the drama and complexity of business, and to reflect upon how timeless and universal these situations, challenges, and principles may be.
Communication and Competition
Differences in communication and personality, together with similar interests and skills often lead to competition and rivalry. This can be readily observed from early in the book as the rivalry between Brunelleschi and Lorenzo Ghiberti began to take shape. When discussing the contest for the Baptistery doors, the book notes that they both went about preparing their entries differently – Lorenzo choosing a very social method, soliciting feedback from potential judges, while Filippo proceeded in solitude and secrecy. This difference in approach and personality likely came between them, causing mutual disrespect for each other’s methods and products. One may note that they were asked to collaborate on what would have been the first big commission for both of them. It’s realistic to consider that, rival or not, it might be worthwhile to get this big commission in any case. Faced with that prospect, however, Fillipo instead opted to move away to Rome. This could suggest on one hand a self-confident and stubborn personality, unwilling to cooperate, though on the other he may have simply deemed the extrinsic rewards not worthy of the intrinsic costs.
Some years later after Brunelleschi returned from Rome, both he and Ghiberti were again competing, this time for the design of the dome of Santa Maria Del Fiore, when they were presented with the same crucial decision by the sponsoring body. On this occasion, however, Brunelleschi chose differently and accepted collaboration with Ghiberti. While we may concede that he has grown older and wiser, his personality doesn’t seem to have changed much, and if anything, the rivalry has only grown greater.
Understanding the Context: Porter’s 5 Forces
To get a better sense of what might have driven his decision to accept the commission this time, we can use Porter’s 5 Forces to consider the competitive environment he faced, and perhaps see why pursuing this particular opportunity might now be worthwhile.
Force: Suppliers
First, we can consider the power of the buyers. In this case, it is the Opera Del Duomo, the body in charge of constructing the cathedral that represents the buyers. Their power is very high, suggesting initially that one might not want to pursue an opportunity subject to such tight regulation and close scrutiny. Over time, however, Brunelleschi managed to win them over with his innovative plan for the dome. It is likely that his confident personality expected this from the very beginning. This confidence in one’s own technology is common among entrepreneurs today, and an important driver of entrance into the market, sometimes with dramatic success or failure. The same successes and failures can be seen in many of Brunelleschi’s projects throughout the book. In his most prominent project, the design and construction of the dome itself (as with many projects in the modern day) this struggle to introduce and gain acceptance for a new technology was long and arduous. Despite the initial skepticism of the buyers however, the benefits that his design could provide won its acceptance.
Force: Rivals
Next, we can examine the power of rivals. There was limited expertise in the area of dome building on this scale, so Brunelleschi had only a small number of direct and indirect competitors in the contest. Direct competition again came from Ghiberti, who himself had little architecture experience. Though the strength of each of their characters to the Opera was essentially equal in this contest, it is certain that Brunelleschi regarded Ghiberti as inferior in skill. Paradoxically, it is for this reason that Filippo would be willing to share the commission, since he was confident that he would be able to outpace his rival, and in fact he did so early on. This time instead of walking away from his rival, he took a look at his resources, and decided to face him head on.
The choice of the Opera, like the choice of many venture capital firms today, was not based solely, nor perhaps even primarily on the technology or design itself, as much as on the people involved in the project. Ghiberti was seen to be more established, but Brunelleschi seemed to be more innovative, thus the Opera split the commission between them.
Force: Substitutes
After considering rivals, we examine the power of substitutes. In this case, substitutes might be considered a change in design, for example, eliminating the dome altogether. Alternatively, different dome building techniques could be considered substitutes. A change in design was not a strong possibility, since the Opera Del Duomo pledged their allegiance to the original model on New Year’s Day each year. Firm in this understanding Brunelleschi could feel comfortable that the problem could only be solved through the construction of a dome. The other substitute possibility, a different construction method for the dome, was a very real one, but in Brunelleschi’s eyes, not as viable as his own. Since design and construction using existing methods had so far proved exceedingly difficult, his design looked to address those challenges in an innovative way that was not being utilized at the time. If his design could work, as Brunelleschi must have believed it would, it would have a distinct advantage over all the substitutes presented. This again is a similar assessment that many new companies make when looking to solve a certain problem, and a risk they take when they assess their offering to be superior to any of the substitutes.
Force: Suppliers
After this, we consider the power of suppliers. This was not an issue that played into Brunelleschi’s own decision strongly since it was clear that his success was not primarily dependent on suppliers – he only needed standard materials, and most of the responsibilities for acquiring those were borne by the Opera itself. Interestingly enough, it may have been the power of suppliers that gave Brunelleschi’s design for the dome such an advantage. Traditional dome and arch building called for the creation of wooden support frameworks known as centering. The availability of lumber in the enormous sizes and quantities needed was very limited, so there were problems designing a centering system that could realistically be built given the resources. Since Brunelleschi’s design did not require centering it sidestepped this challenge and solved a problem that was holding back the construction of the dome. Often, a radical innovation, as presented here, will arise from a situation of necessity.
Force: Potential Entrants
Finally, we examine the power of other potential entrants. Since this was a competition, the possibility of potential entrants after the fact was low and once the project began, the cost of getting involved became higher and higher. Of course there was always the possibility for others to get involved, and sometimes they did, especially as new problems needed to be solved, and new contests were released by the Opera. Take the case of Giovanni, whose designs were not chosen, but maintained a role in the process by constantly criticizing and submitting designs. He did not secure too much influence in the process, but in other situations it is conceivable to think that new challenges may arise. For example, if an unknown competitor were to come up with a design that was even more innovative than Brunelleschi’s, the new design could take over. This possibility was certainly a concern for Brunelleschi, and despite his confidence, likely was cause for his strategy of obfuscating tactics, and secrecy.
Five Forces Assessment
In the end we can see that since Brunelleschi ultimately accepted the commission to work together with his chief rival, and since it is doubtful that he wanted to share the responsibilities and limelight, he must have felt it possible to overtake Ghiberti in the process of designing and constructing the dome. Admittedly, Brunelleschi probably relied more on his gut instincts, and his own self-confidence in his designs and strategies, than any type of formal analysis, though it is certain that in his own ways he took these factors into consideration.
The Five Forces are a convenient way to organize and assess his competitive environment though. We can see how given his talents and ideas, it was a good opportunity for him to pursue. In the areas of buyers, rivals, and potential entrants, his position was neutral. While he did not hold a distinct advantage in these areas, he was not at a disadvantage since he could, to some extent at least, charm the buyers in the opera; outdesign, outplan, and outposition himself in relation to his competition of Ghiberti and the others; and since the process itself kept the threat of new entrants low. At the same time, however, there were two distinct areas in which he held a competitive advantage: the area of substitutes, and the area of suppliers. Mostly due to his innovative design, and the way it solved the important problem of centering, the substitute designs were rendered inferior, and oppressive downward force of wood supply was removed from his equation.
Based on this analysis (and admittedly with somewhat of a hindsight bias) we come to the conclusion that it was a worthwhile opportunity to pursue, since he would have a strong chance of his design being realized, and of reaping the intrinsic and extrinsic rewards associated. In fact, in the end he did manage to overtake Ghiberti and assume primary control of the project based on his innovative design, together with some delicate strategy, together with the influential position in the eyes of the Opera that he succeeded in earning through this innovation and strategy.
Conclusions
Looking at the stories surrounding the construction of Brunelleschi’s Dome through the lens of competition, and utilizing modern business concepts and tools, we have seen numerous examples of how the same issues of rivalry, technological change, and strategy have played out for years, and continue to play out today. Further, we have gained a conception of these common situations outside of our normal understanding of business, allowing us to draw conclusions that might not be evident if we were trying to pull them from the pages of the Wall Street Journal or elsewhere. It is through this synthesis of history together with modern concepts and knowledge that we can continue to advance our own learning, and the study of business.
Sunday, October 26, 2008
Wednesday, October 22, 2008
What Is Innovation?
This is a word that constantly get's used, especially at my biz school, since it's all about technology. Don't know how good of a job I did here but it's an interesting excercise.
To a management and business student, Innovation can have many meanings, depending on the industry or area of study you are considering. This paper will look at innovation in general, and then apply the concept in more depth by considering innovation in the discipline of architecture.
Over the past year, excessive innovation may have caused some trouble in one area. Innovation in the financial markets, which often may be good, has recently resulted in dire consequences for the global investment community, and very possibly the US economy. In many cases, innovation can bring risks, such as we see with the financial markets, but more often, it allows companies to remain competitive, and the world to progress. In fact, innovation is progress. Regardless of field or situation, it always involves a new way of meeting a need or solving a problem. This is how it can be distinguished from invention in the strict sense – invention is all about making something new, innovation is about the use of something new or old to achieve some sort of benefit in a new way. Every field has its own problems and people are constantly innovating to help solve them.
Consider architecture for example, where there is an interesting mix of problems, some functional, and some aesthetic. Functional problems, such as making a space useful to the largest number of people, or improving the acoustics of a room, are important concerns for users of the space. Similarly, as architecture is often regarded as a work of art, not just a functional object, architects regularly face the problem of how to keep their structures from looking outmoded or derivative. While a simple solution to these problems might be the easiest choice, simple solutions often are not available or appropriate. This is where innovation becomes necessary. The functional problems could be met with innovative functional solutions, such as chairs that fold into the floors, or a new type of sound dampening wall panel. The aesthetic problems may be less straightforward but can still be tackled through the artistic methods of aesthetic innovation, perhaps by creating a design carefully balanced between reference and originality. Interestingly, some of the best solutions might come from applying an aesthetic solution to a functional problem, or as was the case in the development of Modern architecture, a functional solution to an aesthetic problem.
Again, Innovation means the application of ingenuity to meet a need or solve a problem. It is a word that is used often these days in business and in the world. Such use may cause the word to become clichéd, though the frequent use but reflects the great importance it has for the future of our nation and for mankind. To continue to adapt, to change, to grow, it is in our human nature, no matter what the word; innovation is what we as people will do.
To a management and business student, Innovation can have many meanings, depending on the industry or area of study you are considering. This paper will look at innovation in general, and then apply the concept in more depth by considering innovation in the discipline of architecture.
Over the past year, excessive innovation may have caused some trouble in one area. Innovation in the financial markets, which often may be good, has recently resulted in dire consequences for the global investment community, and very possibly the US economy. In many cases, innovation can bring risks, such as we see with the financial markets, but more often, it allows companies to remain competitive, and the world to progress. In fact, innovation is progress. Regardless of field or situation, it always involves a new way of meeting a need or solving a problem. This is how it can be distinguished from invention in the strict sense – invention is all about making something new, innovation is about the use of something new or old to achieve some sort of benefit in a new way. Every field has its own problems and people are constantly innovating to help solve them.
Consider architecture for example, where there is an interesting mix of problems, some functional, and some aesthetic. Functional problems, such as making a space useful to the largest number of people, or improving the acoustics of a room, are important concerns for users of the space. Similarly, as architecture is often regarded as a work of art, not just a functional object, architects regularly face the problem of how to keep their structures from looking outmoded or derivative. While a simple solution to these problems might be the easiest choice, simple solutions often are not available or appropriate. This is where innovation becomes necessary. The functional problems could be met with innovative functional solutions, such as chairs that fold into the floors, or a new type of sound dampening wall panel. The aesthetic problems may be less straightforward but can still be tackled through the artistic methods of aesthetic innovation, perhaps by creating a design carefully balanced between reference and originality. Interestingly, some of the best solutions might come from applying an aesthetic solution to a functional problem, or as was the case in the development of Modern architecture, a functional solution to an aesthetic problem.
Again, Innovation means the application of ingenuity to meet a need or solve a problem. It is a word that is used often these days in business and in the world. Such use may cause the word to become clichéd, though the frequent use but reflects the great importance it has for the future of our nation and for mankind. To continue to adapt, to change, to grow, it is in our human nature, no matter what the word; innovation is what we as people will do.
Saturday, October 18, 2008
The Essence of Edison: Inventor and Innovator
Here is a paper I wrote for a class entitled Invention, Innovation, and Entrepreneurship. This class is all about creativity, managing creativity, and the entrepreneurial mind. This paper is a little more "book report" than the stuff we normally do, still it was great to take some time to learn about a legend like Thomas Edison. I've always thought he was an interesting character. If you have a chance, take a look at the old Harper's magazine article from 1932 about Edison. It's really great and surprisingly, an easy read.
What distinguishes those people in our population who rise from obscurity to the lofty heights of achievement, fame, and fortune, ultimately to have a large impact on our world? This is a persistent question of interest to our human race, which has been asked and answered many times before, yielding a variety of answers. We examine the question in this report through the lens of creativity, choosing the inventor Thomas Edison as an exemplar, and looking to understand who he was and what made him the great inventor and innovator of his day. We seek to understand his background, his thought processes, his methods, his inner motivations and the outward expressions of that energy which inspired him to build the new things which changed the world and propelled him into the great renown for which he is now known.
Biography
To understand the man, we must first understand his history. Thomas Edison was born in a small Midwestern city in the middle of the 19th century. As a young boy, he began home schooling after the headmaster at the one-room school he had been attending found Thomas to be too distracted and “addled”. From then on he was taught by his mother, a respected teacher herself. Before long though, his father’s investments failed and the family fell into poverty. At age 12, he was forced to take a job with the railroad to help keep the family afloat. Here he engaged his interest in science by setting up a chemistry set in one of the baggage compartments. He also embarked on some of his first entrepreneurial ventures, selling fruit to the passengers, and printing a newspaper with railroad updates, which included any up-to-the-minute news of the civil war he could to gather from the telegraph operators at each train station. This job ended abruptly, however, when his chemistry set caught fire, and he was forced to take a job in the local train station instead. Working there, he managed to rescue a young child from getting hit by a runaway train, and as a reward was taught the telegrapher’s trade by the boy’s father. (Wachhorst, 1981)
Riding the rails and working the telegraph, he found and was fired from many jobs throughout the Midwest and Northeast. During this time, he toyed with improvements and additions to the telegraph, including one that allowed him to sleep on the job. (Wachhorst, 1981) Eventually he landed in Boston where the idea that he could make money from his inventions really got into his head. Not long after that, he landed in New York, where he had his first big break. While walking on the street, he came across a man who was very distressed that his stock ticker was not working. Edison fixed the machine, and as a show of gratitude was given an ongoing job making sure that things stayed in good repair. This put him in a position to develop an improved stock ticker, and later the quadriplex telegraph, which allowed one to transmit four telegraph messages over one line at the same time. An important addition to urban telegraphy, this latter invention proved to be a strong commercial success as well. He reinvested the proceeds from this into another innovative venture, his New Jersey lab, which many consider to be the world’s first industrial research laboratory, set up to systematically transform ideas into innovations.
This was the beginning of Thomas Edison’s well know career as inventor, innovator, and industrialist. Ultimately, this New Jersey lab was also the beginning of General Electric, a company that is today, over 100 years later, one of the largest companies in the world. (Fortune Magazine, 2008). After the development of this lab, and through the work of his many assistants and employees, he went on to create many things, including the world’s first commercially viable light bulb, the phonograph, a system for electricity distribution, important improvements to the early motion picture industry, and numerous home appliances. By the end of his life he had received 1,093 patents, both through his own work and the assistance of his laboratory staff. His record has only recently been broken, and hardly with the same far reaching cultural effect. (Maney, 2005)
Methods and Inspiration
Early in his life Edison became disenchanted with theoretical matters. After reading Isaac Newton’s Principa Mathematica “He was so disillusioned by how Newton's sensational theories were written in classical aristocratic terms -which he felt were unnecessarily confusing to the average person -he overreacted and developed a hearty dislike for all such ‘high-tone’ language and mathematics.” (Beals, 1997) Despite this, he was enormously fascinated by science from the beginning, and drawn to its application. His direction in the scientific community, led by his curiosity about the world, became clear.
Ever the entrepreneur, Edison realized early in his adulthood that “… becoming an inventor in a world of corporations required more than perseverance or creative genius. Financing, marketing, and manufacturing were essential additions to invention, and often demanded as much imagination as the creative process itself. ” (Melosi, 2008) This implies that much of his creativity was applied not just to his inventions but to the effective means of bringing them to the market. An example of this can be seen in the partnership he set up with prominent financier JP Morgan and other industrial leaders to build the first electric generation and transmission infrastructure in downtown Manhattan. Additionally, both the idea of an industrial laboratory itself, as well as his effective use of public relations methods represent substantially creative business practices.
Thomas Edison’s approach to creation involved extensive experimentation, iteration, trial and error. One of his most famous quotes, printed in Harper’s Monthly towards the end of his life was "Genius is one percent inspiration, ninety-nine percent perspiration." (Rosanoff, 1932) This makes his opinion clear: creation is hard work! From this we can infer that in his mind, genius (one can easily assume he relates this to both his genius in product development and business) is not without thought, and in fact is not possible without it, though the vast majority of this creative process is just hard work. As applied to the inventions themselves, he tended to shun highly theoretical approaches to problems in favor of more applied, concrete solutions. In this, he was known for his resilience, even in working through a losing investment to separate iron ore that cost him three million dollars. (Melosi, 2008)
This approach caused him to often be at odds with scientific theorists, and even others in the applied sciences. Nikola Tesla, an inventor and early employee in the New Jersey labs later became one of Edison’s biggest intellectual rivals, stating, Edison’s development process was “inefficient in the extreme, for an immense ground had to be covered to get anything at all unless blind chance intervened and, at first, I was almost a sorry witness of his doings, knowing that just a little theory and calculation would have saved him 90 percent of the labour. But he had a veritable contempt for book learning and mathematical knowledge, trusting himself entirely to his inventor's instinct and practical American sense." (Wikipedia, 2008). Tesla’s adversarial attitude came about because of differences in scientific approach, but also because of Edison’s personality and his haughty attitude towards Tesla. While Edison may have been regarded as a creative genius whose persona was developing into something larger than life, as a man he had his own failings of ego and perspective typical of a celebrity and business leader. It does not seem that Edison was a man primarily motivated by money or power, though through his creations, both came to him, having a drastic impact on his character for both good and ill. While Edison was known to have a sarcastic and even manipulative side, he was also known for his friendliness and informality. In the 1932 Harper’s article, the author tells being hired nearly on the spot, and mentions how Edison had a habit of interacting with all of his researchers directly. (Rosanoff, 1932)
The Wizard
After development of the Phonograph, Edison became known as “The Wizard of Menlo Park” and gained a reputation for the ability to build almost anything. An April Fool’s Day headline in the New York Daily Graphic newspaper claimed “’Edison Invents a Machine that will Feed the Human Race – Manufacturing Biscuits, Meat, Vegetables and Wine out of Air, Water, and Earth.” (Wachhorst, 1981) Additionally, he actually received a patent on a device for communicating with the dead.
His reputation as a wizard stems directly from what seemed to the world at large his unbridled creative mind, and his nearly limitless ability to turn his ideas into real creations. It is this perception that caused his character to develop into something larger than life. It may be noted that much of the biographical information presented shows Edison in an almost mythological light. That, in fact, is the way the information is itself presented in most of his biographies. This is an interesting point, since the myth of Edison plays such strong part in communicating not just who he was – his actual character and persona - but who he came to be in society’s mind - the prototypical American inventor, innovator, creator, and an embodiment of the American dream. As is the case for anyone who has had such a dramatic impact on history, over time it becomes increasingly difficult to separate the man from the myth.
The life and stories of Thomas Edison serve to expose much about the nature creativity to us. We see that habits of curiosity, resilience, and even informality can often lead to greatness in creative endeavors, though this greatness can come with its own costs. Edison can truly be regarded as a creative success, though in fact his greatest successes may not have been in the places we would normally consider: the light bulb, the phonograph, or an electric system. His true creative genius more likely lies in his merging of invention and innovation in such a way as to enable further creation. We remember that it was not just Edison, but to a large extent, his experimental research team that was responsible for the development of those wonders attributed to him. The enduring benefits of these methods can be seen in his early labs, then later at General Electric, and today in all those people and companies that have been inspired by his development methodology. They have systemized and stimulated developments greater than any man, or even any company could have achieved alone. Of those things that distinguish a person to greatness, we can see that habits are important, inspiration also important, hard work crucial, but creating and perpetuating a way of thinking may be most important of all. In this, Thomas Edison’s greatest achievement is still with us today.
Works Cited
Beals, G. (1997, February 1). Thomas Edison Biography. Retrieved 9 12, 2008, from Thomas Alva Edison, American Inventor 1847-1931: http://www.thomasedison.com/biography.html
Fortune Magazine. (2008). Fortune Magazine Global 500. Retrieved September 12, 2008, from CNN Money: http://money.cnn.com/magazines/fortune/global500/2008/
Maney, K. (2005, December 6). Search for the most prolific inventors is a patent struggle. Retrieved September 12, 2008, from USA Today - Money: http://www.usatoday.com/money/industries/technology/maney/2005-12-06-top-patent-hoders_x.htm
Melosi, M. V. (2008). Thomas A. Edison and the Modernization of America. New York: Pearson Longman.
Rosanoff, M. (1932, September). Edison In His Laboratory. Harper's Monthly , pp. 402-417.
Wachhorst, W. (1981). Thomas Alva Edison, An American Myth. Cambridge, MA: The MIT Press.
Wikipedia. (2008, September 12). Thomas Edison. Retrieved September 12, 2008, from Wikipedia, The Free Encyclopedia.: http://en.wikipedia.org/w/index.php?title=Thomas_Edison&oldid=237837762
What distinguishes those people in our population who rise from obscurity to the lofty heights of achievement, fame, and fortune, ultimately to have a large impact on our world? This is a persistent question of interest to our human race, which has been asked and answered many times before, yielding a variety of answers. We examine the question in this report through the lens of creativity, choosing the inventor Thomas Edison as an exemplar, and looking to understand who he was and what made him the great inventor and innovator of his day. We seek to understand his background, his thought processes, his methods, his inner motivations and the outward expressions of that energy which inspired him to build the new things which changed the world and propelled him into the great renown for which he is now known.
Biography
To understand the man, we must first understand his history. Thomas Edison was born in a small Midwestern city in the middle of the 19th century. As a young boy, he began home schooling after the headmaster at the one-room school he had been attending found Thomas to be too distracted and “addled”. From then on he was taught by his mother, a respected teacher herself. Before long though, his father’s investments failed and the family fell into poverty. At age 12, he was forced to take a job with the railroad to help keep the family afloat. Here he engaged his interest in science by setting up a chemistry set in one of the baggage compartments. He also embarked on some of his first entrepreneurial ventures, selling fruit to the passengers, and printing a newspaper with railroad updates, which included any up-to-the-minute news of the civil war he could to gather from the telegraph operators at each train station. This job ended abruptly, however, when his chemistry set caught fire, and he was forced to take a job in the local train station instead. Working there, he managed to rescue a young child from getting hit by a runaway train, and as a reward was taught the telegrapher’s trade by the boy’s father. (Wachhorst, 1981)
Riding the rails and working the telegraph, he found and was fired from many jobs throughout the Midwest and Northeast. During this time, he toyed with improvements and additions to the telegraph, including one that allowed him to sleep on the job. (Wachhorst, 1981) Eventually he landed in Boston where the idea that he could make money from his inventions really got into his head. Not long after that, he landed in New York, where he had his first big break. While walking on the street, he came across a man who was very distressed that his stock ticker was not working. Edison fixed the machine, and as a show of gratitude was given an ongoing job making sure that things stayed in good repair. This put him in a position to develop an improved stock ticker, and later the quadriplex telegraph, which allowed one to transmit four telegraph messages over one line at the same time. An important addition to urban telegraphy, this latter invention proved to be a strong commercial success as well. He reinvested the proceeds from this into another innovative venture, his New Jersey lab, which many consider to be the world’s first industrial research laboratory, set up to systematically transform ideas into innovations.
This was the beginning of Thomas Edison’s well know career as inventor, innovator, and industrialist. Ultimately, this New Jersey lab was also the beginning of General Electric, a company that is today, over 100 years later, one of the largest companies in the world. (Fortune Magazine, 2008). After the development of this lab, and through the work of his many assistants and employees, he went on to create many things, including the world’s first commercially viable light bulb, the phonograph, a system for electricity distribution, important improvements to the early motion picture industry, and numerous home appliances. By the end of his life he had received 1,093 patents, both through his own work and the assistance of his laboratory staff. His record has only recently been broken, and hardly with the same far reaching cultural effect. (Maney, 2005)
Methods and Inspiration
Early in his life Edison became disenchanted with theoretical matters. After reading Isaac Newton’s Principa Mathematica “He was so disillusioned by how Newton's sensational theories were written in classical aristocratic terms -which he felt were unnecessarily confusing to the average person -he overreacted and developed a hearty dislike for all such ‘high-tone’ language and mathematics.” (Beals, 1997) Despite this, he was enormously fascinated by science from the beginning, and drawn to its application. His direction in the scientific community, led by his curiosity about the world, became clear.
Ever the entrepreneur, Edison realized early in his adulthood that “… becoming an inventor in a world of corporations required more than perseverance or creative genius. Financing, marketing, and manufacturing were essential additions to invention, and often demanded as much imagination as the creative process itself. ” (Melosi, 2008) This implies that much of his creativity was applied not just to his inventions but to the effective means of bringing them to the market. An example of this can be seen in the partnership he set up with prominent financier JP Morgan and other industrial leaders to build the first electric generation and transmission infrastructure in downtown Manhattan. Additionally, both the idea of an industrial laboratory itself, as well as his effective use of public relations methods represent substantially creative business practices.
Thomas Edison’s approach to creation involved extensive experimentation, iteration, trial and error. One of his most famous quotes, printed in Harper’s Monthly towards the end of his life was "Genius is one percent inspiration, ninety-nine percent perspiration." (Rosanoff, 1932) This makes his opinion clear: creation is hard work! From this we can infer that in his mind, genius (one can easily assume he relates this to both his genius in product development and business) is not without thought, and in fact is not possible without it, though the vast majority of this creative process is just hard work. As applied to the inventions themselves, he tended to shun highly theoretical approaches to problems in favor of more applied, concrete solutions. In this, he was known for his resilience, even in working through a losing investment to separate iron ore that cost him three million dollars. (Melosi, 2008)
This approach caused him to often be at odds with scientific theorists, and even others in the applied sciences. Nikola Tesla, an inventor and early employee in the New Jersey labs later became one of Edison’s biggest intellectual rivals, stating, Edison’s development process was “inefficient in the extreme, for an immense ground had to be covered to get anything at all unless blind chance intervened and, at first, I was almost a sorry witness of his doings, knowing that just a little theory and calculation would have saved him 90 percent of the labour. But he had a veritable contempt for book learning and mathematical knowledge, trusting himself entirely to his inventor's instinct and practical American sense." (Wikipedia, 2008). Tesla’s adversarial attitude came about because of differences in scientific approach, but also because of Edison’s personality and his haughty attitude towards Tesla. While Edison may have been regarded as a creative genius whose persona was developing into something larger than life, as a man he had his own failings of ego and perspective typical of a celebrity and business leader. It does not seem that Edison was a man primarily motivated by money or power, though through his creations, both came to him, having a drastic impact on his character for both good and ill. While Edison was known to have a sarcastic and even manipulative side, he was also known for his friendliness and informality. In the 1932 Harper’s article, the author tells being hired nearly on the spot, and mentions how Edison had a habit of interacting with all of his researchers directly. (Rosanoff, 1932)
The Wizard
After development of the Phonograph, Edison became known as “The Wizard of Menlo Park” and gained a reputation for the ability to build almost anything. An April Fool’s Day headline in the New York Daily Graphic newspaper claimed “’Edison Invents a Machine that will Feed the Human Race – Manufacturing Biscuits, Meat, Vegetables and Wine out of Air, Water, and Earth.” (Wachhorst, 1981) Additionally, he actually received a patent on a device for communicating with the dead.
His reputation as a wizard stems directly from what seemed to the world at large his unbridled creative mind, and his nearly limitless ability to turn his ideas into real creations. It is this perception that caused his character to develop into something larger than life. It may be noted that much of the biographical information presented shows Edison in an almost mythological light. That, in fact, is the way the information is itself presented in most of his biographies. This is an interesting point, since the myth of Edison plays such strong part in communicating not just who he was – his actual character and persona - but who he came to be in society’s mind - the prototypical American inventor, innovator, creator, and an embodiment of the American dream. As is the case for anyone who has had such a dramatic impact on history, over time it becomes increasingly difficult to separate the man from the myth.
The life and stories of Thomas Edison serve to expose much about the nature creativity to us. We see that habits of curiosity, resilience, and even informality can often lead to greatness in creative endeavors, though this greatness can come with its own costs. Edison can truly be regarded as a creative success, though in fact his greatest successes may not have been in the places we would normally consider: the light bulb, the phonograph, or an electric system. His true creative genius more likely lies in his merging of invention and innovation in such a way as to enable further creation. We remember that it was not just Edison, but to a large extent, his experimental research team that was responsible for the development of those wonders attributed to him. The enduring benefits of these methods can be seen in his early labs, then later at General Electric, and today in all those people and companies that have been inspired by his development methodology. They have systemized and stimulated developments greater than any man, or even any company could have achieved alone. Of those things that distinguish a person to greatness, we can see that habits are important, inspiration also important, hard work crucial, but creating and perpetuating a way of thinking may be most important of all. In this, Thomas Edison’s greatest achievement is still with us today.
Works Cited
Beals, G. (1997, February 1). Thomas Edison Biography. Retrieved 9 12, 2008, from Thomas Alva Edison, American Inventor 1847-1931: http://www.thomasedison.com/biography.html
Fortune Magazine. (2008). Fortune Magazine Global 500. Retrieved September 12, 2008, from CNN Money: http://money.cnn.com/magazines/fortune/global500/2008/
Maney, K. (2005, December 6). Search for the most prolific inventors is a patent struggle. Retrieved September 12, 2008, from USA Today - Money: http://www.usatoday.com/money/industries/technology/maney/2005-12-06-top-patent-hoders_x.htm
Melosi, M. V. (2008). Thomas A. Edison and the Modernization of America. New York: Pearson Longman.
Rosanoff, M. (1932, September). Edison In His Laboratory. Harper's Monthly , pp. 402-417.
Wachhorst, W. (1981). Thomas Alva Edison, An American Myth. Cambridge, MA: The MIT Press.
Wikipedia. (2008, September 12). Thomas Edison. Retrieved September 12, 2008, from Wikipedia, The Free Encyclopedia.: http://en.wikipedia.org/w/index.php?title=Thomas_Edison&oldid=237837762
Wednesday, October 15, 2008
Mini-Report on General Electric and Jack Welch
This was written during our Rensselaer orientation class - "Heros, Leaders, and Innovators." As part of the class activity, and through readings, we were presented a profile of the highly acclaimed CEO Jack Welch, together with the history of General Electric while under his management. I would have like to have gotten into a General Electric innovator that I admire, like Thomas Edison, but I just got a chance to do that recently so that worked out. I'll post that paper shortly.
Jack Welch as a Leader and a Person
From the information discussed, Jack Welch seems to lead through strength, and with his own powerful personality. He looked for change in a situation that seemed to not need any, and in doing so greatly changed the perception and future of his company, General Electric.
He is visionary, transformative, and dedicated, which together drove this change in what is one of the oldest companies in the United States. At the time GE had a wide range of business units and no cohesive plan for the company. One of his first steps upon becoming CEO was to develop a strategic vision to better manage the business units together. This vision required change, and as a leader, he was certainly willing to embrace change, consolidating many of these business units, and laying off numerous people. Because he was so focused on his vision throughout his tenure as CEO, he has been described as somewhat Machiavellian, making sacrifices to achieve the desired ends. Despite this, he had great confidence and took great pride in his employees, especially those perceived to be the highest performing. Rather than becoming an expert (or even a serious adept) in all of the business’ diverse areas, he chose to focus more on the management and leadership aspects of the company. He was confident enough to delegate tasks, and rely on the market expertise of those responsible for running their individual divisions, while encouraging coaching and process improvement. This first part can be seen in the fact that he allowed division managers to pursue many acquisitions without his detailed oversight. At the same time, his creation of the six sigma system, and the Crotonville coaching center helped drive business and employee performance without infringing on a manager’s discretion.
To describe him to a friend, I would first mention that he is a very driven person, and passionate about what he does, and the company he leads. Because of that, he can appear to be tough, cold, or nasty. This is not far from the truth, but it doesn’t tell the whole story. He comes across this way because he is so concerned with the performance of the company, that he is willing to make certain sacrifices and be painfully honest to accomplish the goals he feels will bring success. His work seems to play a strong part in his life, and at work, he has a distinct vision, along with specific missions, and goals designed to achieve those missions. It certainly is true that he fired a large number of employees in various corporate realignments, and set up a structure where annually, the bottom 10% of employees were fired, though his tactics were not without results. Over the course of his tenure, the company’s market value increased 20.4%. He saw this not as being cold, but as doing the right thing for the larger number of people – the top performing employees, and the shareholders. He is very opinionated too though, and many good people left the company because their vision did not fit exactly with his. He called these people non-believers, and while accepting them early on, eventually he forced them out.
Would I like to work for Jack Welch?
Choosing to work for Jack Welch would be a tough decision, because there are so many positives and negatives that influence the choice. On the one hand, he has a vision, and an idea of how to make that vision come to life, though on the other hand, if at any point I begin to disagree with his mission, or if my ideas don’t fit within his framework, it is likely that I would be out of a job. Perhaps that would not be such a bad thing though, given the powerful nature of his vision and execution, since I would be able to draw from all the experience I gained while we worked together. I really like the fact that he supported an objective meritocracy, and came up with ways to understand, drive and reward performance. I think it’s very important that, when looking to accomplish a goal, one be objective about the tools and methods used. In doing this too, I appreciate that he both used hard indicators, such as profit performance, and intuitive indicators, such as his insistence to interview every manager quite a ways down the chain. Overall, since he is willing to change things, and because if nothing else it would provide great experience and exposure, I would probably like to work for him, even if it would tire me out significantly.
Jack Welch as a Leader and a Person
From the information discussed, Jack Welch seems to lead through strength, and with his own powerful personality. He looked for change in a situation that seemed to not need any, and in doing so greatly changed the perception and future of his company, General Electric.
He is visionary, transformative, and dedicated, which together drove this change in what is one of the oldest companies in the United States. At the time GE had a wide range of business units and no cohesive plan for the company. One of his first steps upon becoming CEO was to develop a strategic vision to better manage the business units together. This vision required change, and as a leader, he was certainly willing to embrace change, consolidating many of these business units, and laying off numerous people. Because he was so focused on his vision throughout his tenure as CEO, he has been described as somewhat Machiavellian, making sacrifices to achieve the desired ends. Despite this, he had great confidence and took great pride in his employees, especially those perceived to be the highest performing. Rather than becoming an expert (or even a serious adept) in all of the business’ diverse areas, he chose to focus more on the management and leadership aspects of the company. He was confident enough to delegate tasks, and rely on the market expertise of those responsible for running their individual divisions, while encouraging coaching and process improvement. This first part can be seen in the fact that he allowed division managers to pursue many acquisitions without his detailed oversight. At the same time, his creation of the six sigma system, and the Crotonville coaching center helped drive business and employee performance without infringing on a manager’s discretion.
To describe him to a friend, I would first mention that he is a very driven person, and passionate about what he does, and the company he leads. Because of that, he can appear to be tough, cold, or nasty. This is not far from the truth, but it doesn’t tell the whole story. He comes across this way because he is so concerned with the performance of the company, that he is willing to make certain sacrifices and be painfully honest to accomplish the goals he feels will bring success. His work seems to play a strong part in his life, and at work, he has a distinct vision, along with specific missions, and goals designed to achieve those missions. It certainly is true that he fired a large number of employees in various corporate realignments, and set up a structure where annually, the bottom 10% of employees were fired, though his tactics were not without results. Over the course of his tenure, the company’s market value increased 20.4%. He saw this not as being cold, but as doing the right thing for the larger number of people – the top performing employees, and the shareholders. He is very opinionated too though, and many good people left the company because their vision did not fit exactly with his. He called these people non-believers, and while accepting them early on, eventually he forced them out.
Would I like to work for Jack Welch?
Choosing to work for Jack Welch would be a tough decision, because there are so many positives and negatives that influence the choice. On the one hand, he has a vision, and an idea of how to make that vision come to life, though on the other hand, if at any point I begin to disagree with his mission, or if my ideas don’t fit within his framework, it is likely that I would be out of a job. Perhaps that would not be such a bad thing though, given the powerful nature of his vision and execution, since I would be able to draw from all the experience I gained while we worked together. I really like the fact that he supported an objective meritocracy, and came up with ways to understand, drive and reward performance. I think it’s very important that, when looking to accomplish a goal, one be objective about the tools and methods used. In doing this too, I appreciate that he both used hard indicators, such as profit performance, and intuitive indicators, such as his insistence to interview every manager quite a ways down the chain. Overall, since he is willing to change things, and because if nothing else it would provide great experience and exposure, I would probably like to work for him, even if it would tire me out significantly.
Best Buy Customer Centricity Analysis - Harvard Business School Case 506055
This was, I think, one of my better case responses - prepared for corporate strategy class.
Best Buy’s customer centricity campaign was an experiment in adapting their tried-and-true business processes to better meet the needs of their customers. In the case, this change brought with it some success, but came up short in many other important areas. Nonetheless, while there may have been some troubles with tactics and implementation, this strategy and general customer focused approach is quite important for Best Buy’s continued success.
Yahoo Finance defines Best Buy’s industry as simply “Electronics Stores.” It could also be accurately described as “Consumer Electronics Retailing.” Success in this industry has traditionally been dependent on a few key success factors. Most important among these has been scale – companies need to maintaining a large enough size to offer a wide variety of products, have a strong negotiating position with suppliers, and control the territory through a significant number of well placed retail locations. Constantly trying to open more stores than one’s competitors however, brings market saturation and represents a limit to growth. Understanding this, Best Buy’s management decided to pursue the Centricity project so that they could intensify through customer focus rather than extensify through store openings, and thus continue their growth. In implementation, however, they wound up losing some important benefits of scale. Negotiating power was lost when merchandise decisions became less centralized, and because each store became focused on certain segments, it became more difficult to meet all of their customer’s needs in a given geographic area.
Other success factors involve effectively training and managing the large number of employees required for the large scale operations, adequately explaining the features and benefits of new technologies, and capitalizing on cross-selling opportunities. With the Centricity project, Best Buy took on a difficult managerial challenge. Where they had previously managed their reasonably homogenous 120,000 employee base through a flexible but consistent set of “Standard Operating Procedures,” they now had a more diverse workforce consisting of personal shoppers, technicians, and other experts, and their standard processes needed to be customized for each segment. This increased expertise helped the company better present the technology, give valuable recommendations, and cross sell, resulting in larger margins. At the same time though, it made managing their teams more difficult, meaning higher SG&A expenses and increased labor costs. In total, “Expenses increased 21.7% in the third quarter of 2005 as compared with 19.5% in the prior year.” (p13) In a tight margin business like electronics, small percentage differences like this can make a big difference.
Tangible resources are important to Best Buy, for example, having the right number of stores, each with up-to-date furnishings. Intangible resources however are substantially more important to them. As an example, their strong brand presence has developed through their knowledgeable staff, which in turn developed from the lively and rewarding corporate culture they established. Through these intangible resources, it has been possible for Best Buy to develop some difficult-to-imitate capabilities strongly rooted in the firm’s human capital. These are consciously cultivated to form a competitive advantage. To quote from the “About Best Buy” page on their website “We’re about people. People just like you. And, yeah, we know every company says they’re about people, but we really mean it. Really!” The case also notes that CEO Brad Anderson believed “Best Buy’s key competitive advantage was ‘owning the last 10 feet to the customer.’”(p4) Further, Anderson believed that ”Best Buy had always been ‘a merchant driven company.’” (p10) Their three most important capabilities - opening new stores, choosing the right merchandise and closing sales well - are all tied to knowledge and understanding that has been built up and passed along from employee to employee. These capabilities could be considered core competencies, and were based on many resources the company developed involving training, product education, motivation, and corporate culture, with other factors, such as store layout also factoring in.
With the Centricity campaign, they tried to build up their core competencies, but in fact their implementation efforts fell short because their activities did not properly utilize the ones they already had. Centricity did address the issue that they could no longer continue to grow simply by opening new stores, a core competency that may have been eroding, but did not look to take advantage of those skills extensively during the transition phase. The new methods also stepped over the merchandise managers, whose developed knowledge and methods lead to the strong product mix Best Buy was known for. Their expertise was not properly leveraged, but instead combined with new segment managers. Finally, with the increased knowledge demands of the segments, employee training and motivation became more difficult. This impacted the ability of their salespeople to be as dynamic as they had been in the past. Instead of just knowing the products, the floor employees had to know the people as well. Exhibit 7 shows the extent to which employees were expected to get in the heads of their customers. As noted above, these changes did make them more effective, but at a greater cost. Still, the strategy being sound, these are some problems that can be addressed over time. New core competencies must be developed as others erode, but Best Buy simply could have done better in utilizing their existing capabilities. Despite any criticism, the final proof may be in the failure of Best Buy’s direct competitor Circuit City, whose stock Yahoo Finance has recently quoted at 1.70 per share, down from $30 two years earlier. One would like to think this has something to do with Centricity.
Case response for Mid-Misouri Energy - Harvard Business School case
This is my own personal analysis. Not my best case analysis but still good all the same. - C
Mid-Missouri Energy is considering the expansion of their ethanol plant. Based on an analysis of external factors, specifically considering the general, industry, and competitor environment, it is my recommendation to double the capacity of the ethanol plant.
General Environment Factors
Most of the general environmental factors point towards expansion. As the world continues to develop, and the population continues to grow, competition for the worlds limited supplies of oil will continue to increase. This is a primary cause of the rising cost of gasoline that can be seen in exhibit 13 of the case. Considering the fact that so much of the built environment in the US is only accessible by car, and also that people love to drive and are reluctant to give up their large vehicles, a drastic reduction in fuel consumption seems unlikely. As ethanol refining technology develops, and governments begin to mandate the use of gasoline blended with ethanol, it becomes a more viable and widespread technology. Since ethanol is most efficiently derived from sugarcane, which does not grow well in most of the US, it would be difficult to use it as an export with sustainable competitive advantage. Because ethanol can alternatively be produced using mostly domestic inputs however, the US as a whole may be less subject to global competition for oil imports. Together with a long American history of corn based agriculture, it is likely that the governments will further incentivize the use of ethanol. All this suggests that the general environment is right for expansion.
Industry Environment Factors
The Ethanol industry is difficult to compete in primarily due to the impact of suppliers. Corn growers dictate how much corn they will sell for ethanol, and this is based on the going price for corn at the time, which is affected by the weather, and the productivity of other nations. The fact that corn prices may be high or low means that corn supply for ethanol can be inconsistent. The strength of competitors is also an important consideration. This is a commodity business with many organizations competing for the lowest price, and it is hard for one competitor to differentiate from another, further each vying for not just the same buyers, but the same suppliers. Summing this up, as an MME manager mentions “The competition in this business is not in selling ethanol, but in buying corn. It doesn’t matter if you have an agreement with an elevator; if there is no supply you don’t get the corn.” (p15).
Being in the industry now, though MME has two distinct advantages: the cost of new construction, and their solid supply of corn commitments from growers. The building of processing capacity represents a significant investment, and represents a large barrier to entry. Original construction cost was $50 million, and to expand the plant at current construction pricing will cost $75 million. While some other barriers to entry may be low, these are not easy investments for a new company to make. In regards to corn commitments from MME members, these provide a steady supply of feedstock for the plant and are directly tied to the production of the investing farms. This represents an advantage over even the largest players in the ethanol industry, like Archer Daniels Midland, who are forced to buy all their stock or make other individual commitments. Looking at another force, the power of gasoline as a substitute may be waning as demand increases and costs rise. Exhibit 5 shows a rapidly growing industry. Because they are well placed in this industry they should take advantage and expand. Further, based on the I/O model of strategy, being in a desirable industry brings success. Since this industry is still growing fast, making it desirable, it would make sense under the same logic to expand further and reap the benefits of scale.
Competitor Environment Factors
The actions of MME’s competitors, most notably the new entrant whose plant is being built 15 miles from their own, seems to make a strong case against expansion. Still, MME is in a strong competitive position, being established in the region, having existing supply commitments, and a plant built by one of the top contractors. While some collective owners are divided over whether to sell out, MME as a whole hopes to maintain their place in the ethanol industry, and keep the company functioning as both a money making enterprise, and a hedge against commodity prices for their farmers. They are pursuing a strategy of cost leadership through consistent production, building captive supply through an agricultural collective. Other firms in the industry also seem to be pursuing this collective strategy, though it seems many of the larger ethanol producers are privately help companies or public corporations. The new local competitor seems to be pursuing this strategy to some extent as well, though their predominant strategy appears to rely on good access to the grain storage infrastructure. As mentioned above however, just because the elevators have agreements doesn’t mean the supply is there – MME has a more consistent supply. Nonetheless, the competitor “would be buying corn from some of the same sources MME relied upon,” (p14) which would put a pressure on MME since they cannot get all their grain from their member-owners. This is particularly complicated by expansion, because as the feasibility study cited on p14 notes, “there was sufficient corn in the area to supply an expanded plant so long as corn demand in the area did not significantly increase from other buyers.” This does not factor for the purchasing of grain from outside the region though, which while costly, may be offset by the benefits that scale and plant quality can bring them in expansion. Further, a very important consideration is that for MME to remain competitive in the Ethanol market, they must continue to expand. If they cannot keep ahead of industry consolidation and improve their efficiencies at least as fast as their larger competition, they will be out of the market anyway.
Conclusion
While there is still much information missing as to whether plant expansion is truly the best idea, it is recommended to consider this possibility strongly since MME is in a good competitive position relative to the industry, the market is growing, the global and national needs are there, and the survival of the firm may well depend on keeping up with increases in scale and efficiency.
Mid-Missouri Energy is considering the expansion of their ethanol plant. Based on an analysis of external factors, specifically considering the general, industry, and competitor environment, it is my recommendation to double the capacity of the ethanol plant.
General Environment Factors
Most of the general environmental factors point towards expansion. As the world continues to develop, and the population continues to grow, competition for the worlds limited supplies of oil will continue to increase. This is a primary cause of the rising cost of gasoline that can be seen in exhibit 13 of the case. Considering the fact that so much of the built environment in the US is only accessible by car, and also that people love to drive and are reluctant to give up their large vehicles, a drastic reduction in fuel consumption seems unlikely. As ethanol refining technology develops, and governments begin to mandate the use of gasoline blended with ethanol, it becomes a more viable and widespread technology. Since ethanol is most efficiently derived from sugarcane, which does not grow well in most of the US, it would be difficult to use it as an export with sustainable competitive advantage. Because ethanol can alternatively be produced using mostly domestic inputs however, the US as a whole may be less subject to global competition for oil imports. Together with a long American history of corn based agriculture, it is likely that the governments will further incentivize the use of ethanol. All this suggests that the general environment is right for expansion.
Industry Environment Factors
The Ethanol industry is difficult to compete in primarily due to the impact of suppliers. Corn growers dictate how much corn they will sell for ethanol, and this is based on the going price for corn at the time, which is affected by the weather, and the productivity of other nations. The fact that corn prices may be high or low means that corn supply for ethanol can be inconsistent. The strength of competitors is also an important consideration. This is a commodity business with many organizations competing for the lowest price, and it is hard for one competitor to differentiate from another, further each vying for not just the same buyers, but the same suppliers. Summing this up, as an MME manager mentions “The competition in this business is not in selling ethanol, but in buying corn. It doesn’t matter if you have an agreement with an elevator; if there is no supply you don’t get the corn.” (p15).
Being in the industry now, though MME has two distinct advantages: the cost of new construction, and their solid supply of corn commitments from growers. The building of processing capacity represents a significant investment, and represents a large barrier to entry. Original construction cost was $50 million, and to expand the plant at current construction pricing will cost $75 million. While some other barriers to entry may be low, these are not easy investments for a new company to make. In regards to corn commitments from MME members, these provide a steady supply of feedstock for the plant and are directly tied to the production of the investing farms. This represents an advantage over even the largest players in the ethanol industry, like Archer Daniels Midland, who are forced to buy all their stock or make other individual commitments. Looking at another force, the power of gasoline as a substitute may be waning as demand increases and costs rise. Exhibit 5 shows a rapidly growing industry. Because they are well placed in this industry they should take advantage and expand. Further, based on the I/O model of strategy, being in a desirable industry brings success. Since this industry is still growing fast, making it desirable, it would make sense under the same logic to expand further and reap the benefits of scale.
Competitor Environment Factors
The actions of MME’s competitors, most notably the new entrant whose plant is being built 15 miles from their own, seems to make a strong case against expansion. Still, MME is in a strong competitive position, being established in the region, having existing supply commitments, and a plant built by one of the top contractors. While some collective owners are divided over whether to sell out, MME as a whole hopes to maintain their place in the ethanol industry, and keep the company functioning as both a money making enterprise, and a hedge against commodity prices for their farmers. They are pursuing a strategy of cost leadership through consistent production, building captive supply through an agricultural collective. Other firms in the industry also seem to be pursuing this collective strategy, though it seems many of the larger ethanol producers are privately help companies or public corporations. The new local competitor seems to be pursuing this strategy to some extent as well, though their predominant strategy appears to rely on good access to the grain storage infrastructure. As mentioned above however, just because the elevators have agreements doesn’t mean the supply is there – MME has a more consistent supply. Nonetheless, the competitor “would be buying corn from some of the same sources MME relied upon,” (p14) which would put a pressure on MME since they cannot get all their grain from their member-owners. This is particularly complicated by expansion, because as the feasibility study cited on p14 notes, “there was sufficient corn in the area to supply an expanded plant so long as corn demand in the area did not significantly increase from other buyers.” This does not factor for the purchasing of grain from outside the region though, which while costly, may be offset by the benefits that scale and plant quality can bring them in expansion. Further, a very important consideration is that for MME to remain competitive in the Ethanol market, they must continue to expand. If they cannot keep ahead of industry consolidation and improve their efficiencies at least as fast as their larger competition, they will be out of the market anyway.
Conclusion
While there is still much information missing as to whether plant expansion is truly the best idea, it is recommended to consider this possibility strongly since MME is in a good competitive position relative to the industry, the market is growing, the global and national needs are there, and the survival of the firm may well depend on keeping up with increases in scale and efficiency.
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