Manufacturers: dealing with the unknown

As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don't know
We don't know.

Donald Rumsfeld

The poem, penned by the former defence secretary for George Bush, sums up the problem with imponderables. More than half of what happens in the business world often seems to be outside the control of management. If anything, the greater connections in the global economy make things worse.

The subprime mortgage crisis that bubbled up in the United States from August 2007 is a case in point. It destroyed markets and shareholder wealth in ways that few had anticipated. Organisations as apparently unconnected as French and Chinese banks, Australian hospitals, US schools and other education institutes, local governments and bond insurers around the world were caught off-guard and places like Iceland and Dubai were brought to their knees by events that no one expected.

Imponderables emerge from contradictions, confusions, ambiguities and paradoxes. What do managers know in relation to imponderables? They know that the unexpected will happen but they do not know what it will be. The disciplines that they adopt need to be based on this reality.

Imponderables present a challenge for advanced manufacturers: how do you manage perpetual growth and innovation? How do you maintain growth no matter how the market changes?

Traditionally, management was all about re-engineering, continuous improvement. offshoring, outsourcing and cost cutting to make the business faster, and more efficient. Now the focus has shifted to management innovation, of staying ahead of the trends and catching the next wave. But that means manufacturers need to reshape their management practices.

But that is the real challenge. As the oft-quoted management guru Gary Hamel writes in his book The Future of Management (Harvard Business School Press, 2007), expecting most organisations to be strategically nimble, restlessly innovative and highly engaging places is like expecting a dog to tango. It simply isn’t in their DNA. He says organisations need to escape the “efficiency-centric, bureaucracy based managerial paradigm … most of us are still thinking like dogs.”

A number of forces are now creating imponderables.

Industry and product convergence

These are two related forms of convergence changing the industrial landscape. Traditionally, industries were defined by sectors and product lines but now, barriers are blending. For example, Apple, a computer company, has moved into telephony and music with the iPhone, iPod and iTunes; the search engine Google has entered the telecommunications market with Google Voice and the Google Android platform. This means that new competitive threats are emerging out of nowhere.

China and India

While the rest of the world has been gripped by economic, financial disaster and zero growth, India has been growing at 5 per cent and China at about 7 per cent. Analysts say China is becoming a centrifugal force by pulling investment in and positioning itself as the world’s workshop. India on the other hand is a centripetal force, pushing itself into knowledge intensive industries such as IT and contact centres and turning itself into the world’s back office. All this will transform industries, such as the automotive sector, investment patterns and the shape of the global economy.

End of low inflation

Prices are going up and we seem to be headed for a period of hyper-inflation, reminiscent of the 1920s in Germany when you could paper the walls with money. German finance minister Peer Steinbrueck has warned governments around the world that they will need to have policies to stop hyper inflation when the financial crisis has passed. Because the US and British governments will struggle to manage their massive public debt, there will be a flight from those currencies and that could generate worldwide inflation.

Plummeting communications and technology costs