3 Things We Can Learn From Henry Ford
December 1, 2017
“The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”
— Henry Ford
FROM AGRICULTURE TO AUTOMOBILES
There is no shortage of focus on digital transformation and the tech economy these days. Nevertheless, it’s sometimes valuable to step back and realize that there are lessons from history that can provide fascinating and valuable insights for innovators. One such event took place exactly 104 years ago today: Henry Ford’s moving assembly line started, well, moving.
At that time, the US was transforming from an agricultural-based to an industrial-based economy, just as today we’re rapidly moving from an industrial to a digital economy. There was an enormous amount of excitement and learning taking place with great fortunes being made in a wide range of industries. From railroads to oil to steel, entrepreneurs and financiers had been busy creating an enormous industrial infrastructure. By 1913, it was time for the automobile and Henry Ford was just the man to do it.
DECEMBER 1, 1913
Prior to Ford’s moving assembly line, building an automobile was a complex and costly affair. Through decades of learning via trial, experimentation and research he developed a deep knowledge of automobiles (product), a manufacturing system that was a significant improvement over existing systems (process) and a vision of bringing transportation to the masses (business system). He gathered knowledge wherever he could: observing the assembly line concept in slaughterhouses in the Midwest and the conveyor belt system that was common in many grain warehouses.
The changes brought about by the introduction of the moving assembly line are legendary: reduction in time to build a Model T from 728 minutes to 93 minutes, price reduction from $825 to $260 and, ultimately more than doubling the salaries of his employees to $5.00 per day. The moving assembly line re-positioned automobiles from an expensive luxury item to a mass consumption item and, in so doing, opened a new phase in manufacturing businesses around the world. And his learning didn’t end in 1913: by 1924 continued innovations led to a Model T assembly time of 24 seconds!
This was an innovation trifecta: simultaneous product, process and business model revolution. Ford learned how to build not just an automobile or even an automobile assembly process but the beginnings of a industrial business system.
There are valuable lessons here for modern digital business builders.
INNOVATION HIDING IN PLAIN SIGHT
In Henry Ford’s day, even prior to his introduction of the moving assembly line, the broad contours of the automobile industry were no secret. They consisted of:
- breaking jobs down into smaller tasks and assigning people to repeat each task indefinitely, i.e. Taylorism
- bringing the car to the worker via an assembly line to reduce assembly time and increase repeatability
- using interchangeable parts to reduce cost, complexity and assembly time
Ford’s genius was to bring together these ideas, and others, into a cohesive system while constantly improving the product, the process and the business model through continuous learning and experimentation.
In many ways, this learning parallels what’s happening now. The broad contours of digital business are also not a secret. They consist of notions such as:
- collaborating in agile, cross-functional teams to maximize quality and minimize time-to-market
- increasing automation and deploying modular architectures to improve velocity, quality and repeatability
- gathering customer feedback constantly in order to continually refine and improve offerings
As in Ford’s day, as we learn how to better integrate these ideas and others into cohesive business systems, large gains will be uncovered. In other words, the lesson of “Fordism” applied to today is not just about improving products and services through experimentation but also processes and business systems. We hear so much about customer discovery and minimum viable products (early-stage product innovations) that it’s easy to forget that the big wins result from the ‘10x’ operational improvements that come about when all three areas — product, process and business system — are transformed.
How can we apply Ford’s learning approach to today’s digital businesses? In our experience, three ideas can help:
1) How we work is as important as what we create
Ford had always been a tinkerer and loved disassembling and assembling mechanical devices so it should be no surprise that early in his career he became deeply interested in steam and gasoline powered engines. As a key component of the automobile he certainly could have continued to focus on that aspect. To reach his breakthrough in manufacturing, however, he went well beyond the study of engines into processes, assembly lines and operational efficiency studies. He viewed a factory as a system, and applied what we today call “systems thinking”. The entire landscape of automobile creation became his laboratory — a system to optimize.
In the context of today’s business, while we may have a deep focus on Internet of Things, artificial intelligence, augmented reality or some other emerging technology, we should not neglect to expand our focus to areas such as continuous software delivery, deployment and, ultimately, business system design. Great innovations flow when the focus of innovation includes the way that work gets done.
2) Learning across the entire growth spectrum is vital
Early-stage learning in the form of customer discovery and minimum viable products (MVPs) is well documented. But, as mentioned, there is much more to creating an innovative digital business than just the product or service.
We have found that the stages of growth in the S-curve of innovation provides a handy roadmap for the different types of experimentation and learning required.
The first stage is mainly product-centric and requires planting “strong roots in good soil”. This area is generally focused on customer discovery, minimum viable products and customer validation, with a focus on early adopters or loyal customers. The next stage requires rapid acceleration from a baseline product to expanded capabilities to ensure the product meets the full spectrum of intended market needs. This consists mainly of process-driven learning requiring the ability to rapidly deploy new service capabilities and use the subsequent feedback to refine the offerings. This is less about validation and more about achieving broader user adoption — beyond the loyal customers and early adopters. The final stage is mainly focused on business system learning and experimentation with pricing, partnering and platform strategies that are related to the broader business system.
Interestingly, these three stages map well to the types of innovation practiced by Henry Ford: the first thing he did was optimize the product starting with the Model A and improving new models until he introduced the Model T in 1908. The Model T, in its day, was a reliable, easy-to-use, easy-to-repair vehicle. After he had achieved market validation, he then focused on optimizing the process — with a range of innovations including and around the moving assembly line. It was at the point that production rate increased greatly allowing him to leverage volume/unit cost advantages. Finally, the third area he innovated around was the business system. He did this by radically lowering product cost, raising worker wages and repositioning the offering as a mass market product.
Learning, which takes place across this entire growth spectrum, holds the potential to create not only new products and services but new businesses and even new industries.
3) What we’re willing to unlearn can determine success
Today, entrepreneurs, corporate managers and executives are learning how to operate post-industrial, digital-economy businesses in the same way that Henry Ford and his cohort learned how to operate post-agricultural, manufacturing businesses.
But some of the biggest impediments to innovation are ingrained beliefs about ‘best-practices’ in areas such as IT, financial management and corporate governance — best-practices which were all established in the 20th century industrial economy.
Take capability planning for example. This is an activity typically focused on a portfolio of projects identified in an annual cycle with budget allocated accordingly. Software and digital service innovation, however, viewed from the lens of experimentation in process and business model, may require a different approach with staged allocations that are modified, expanded or even eliminated as outcomes are realized.
Understanding this places demands on managers and executives alike to ‘unlearn’ some of the operational best-practices they learned on their way up the ladder. Some popular candidate ideas to unlearn are
“software is a commodity so cost reduction is the most important IT goal”
“a good user experience is a ‘nice-to-have’ but not really necessary”
“long-term planning is ‘smart’ and the best way to avoid risk”
In our experience, ingrained ‘best-practices’ are usually the single largest inhibitor to digital innovation.
SUMMARY
There are no big problems, there are just a lot of little problems.
- Henry Ford
Henry Ford was an innovator with a big vision. Through continuous learning and experimentation he was able to make an important contribution to the transformation of the American economy from primarily agricultural to primarily industrial. The key: he used continuous learning as a tool across the spectrum of product, process and business systems. Ironically, while he was good at unlearning commonly held assumptions about the automobile industry, in his later years, he seemed to jump off the rails a bit because he was unable to unlearn some of his own lessons that had ceased to be effective (but that’s perhaps a subject of another article).
Today, learning through research and experimentation is also the currency of the digital realm. We’re each called upon to approach our work with a continual innovation mindset and be prepared to experiment. Failure is to be expected. It’s part of the process and a source of great feedback and insight.
104 years ago cutting-edge knowledge involved moving assembly lines and time-and-motion studies. Today, it’s about design thinking and network effects but, in a sense, those are details. The lesson is clear: when we transition from one basic economic environment to another, success favors those who maximize learning across products, processes and business systems.
