The Cluetrain Manifesto

Few living in the so-called civilized world today can envision commerce as ever having been anything different. But much of the change happened in the century just passed.

Economies of Scale: Mo' Bigga Mo' Betta

The Internet is often seen as a unique phenomenon that only recently burst into the economic mainstream. But looking at the Net in strictly technological terms obscures its relationship to broader economic trends that were already well underway.

By the end of the nineteenth century, the United States was poised to become the prototypical mass market. It had vast natural resources, a fast-growing population, and a contiguous geography generally unbounded by tariff restrictions.

Cheap iron coupled with a voracious appetite for industrial expansion enabled a railway system capable of cost-effectively delivering goods to nearly every part of a captive domestic market.

Given the high cost of entry into such enterprises, and without appreciable foreign competition, manufacturers cared little about product differentiation. Thus Henry Ford's attitude toward customer choice: "They can have any color they want as long as it's black." More than for his wit, Ford is remembered for designing the first high-volume automotive assembly lines.

The more cars Ford could make, the lower the unit cost and the greater the margin of profit. These economies of scale led to enormous profits because they enabled selling a far cheaper product to a far wider market.

Ford was strongly influenced by Frederick Taylor and his theory of "scientific management." Taylor's time-and-motion metrics sought to bring regularity and predictability to bear on the increasingly detailed division of labor.

Under such a regimen, previously holistic craft expertise rapidly degraded into the mindless execution of single repetitive tasks, with each worker performing only one operation in the overall process.

Because of its effect on workers' knowledge, de-skilling is a term strongly associated with mass production. And as skill disappeared, so did the unique voice of the craftsman.

The organization was elegantly simple, if not terribly humane. Atop the management hierarchy resided near-omniscient knowledge of products and manufacturing methods.

In the case of Ford, product design, process design, marketing strategy, and other critical functions were chiefly the province of one man, Henry. This knowledge was translated into work orders that were executed by an increasingly layered cadre of lieutenants who directed a large but largely unskilled workforce.

This style of command-and-control management worked best for single product-lines with few parts and simple processes. Economies of Scope: Would You Like Fries with That?

Mass production, mass marketing, and mass media have constituted the Holy Trinity of American business for at least a hundred years.

The payoffs were so huge that the mindset became an addiction, a drug blinding its users to changes that began to erode the old axioms attaching to economies of scale.

These changes were gradual at first. Even early on, "economies of scope" began to be perceived.

General Motors broke Ford's run on the Model-T — an impossibly long product cycle by today's standards — by offering cars that were not black, and even came in different styles to suit different tastes and pocketbooks.

Heinz discovered it could make not just, say, mustard, but

"57 Varieties" of condiments in the same factory. Consumers began to have a wider range of choice, and they warmed quickly to their new options.

But things got more complicated on the management side. As more products were launched, organizations became increasingly bureaucratic and business functions more isolated from each other.

This was de-skilling of a higher order: design, production, and marketing knowledge began to fractionate, and in some cases, to atrophy.

The real watershed came when offshore producers, finally recovered from the Second World War, began to penetrate U.S.

markets. With the oil embargo of the early 1970s, small, fuel-efficient cars began looking highly attractive to people stalled in long gas lines.

Companies like Honda, Toyota, and Volkswagen exploded into the North American market like a tsunami. The challenge to U.S.

manufacturers was not to offer just trivial feature alternatives, but whole new designs. In a classic reversal, what was suddenly good for America was anything but good for General Motors.

The auto industry didn't see these changes coming, and as a result lost enormous market share to offshore competitors.

Overnight, global competition turned mass markets into thousands of micro markets.

Nike now makes hundreds of different styles of shoes. The Wall Street Journal coined the term sneakerization to describe a phenomenon affecting nearly every industry.

Competition is healthy, we'd been told from birth, because it breeds greater choice. But now competition was out of control and old-guard notions of brand allegiance evaporated like mist in the rising-sun onslaught from Japan, Southeast Asia, and Europe.

Choice and quality ruled the day, and consumer enthusiasm for the resulting array of new product options forever undermined the foundations of yesterday's mass-market economy.

The relentless search for market niches drove a steep increase in new product introductions, which in turn required an exponential increase in design and process knowledge.

There were just two problems. First, mass-production-oriented business processes had been "stove-piped" into noncommunicating bureaucratic business functions.

Second, workers long told to "check your brain at the door," were ill-equipped for the dynamic changes about to wreak havoc on the corporation.

In short, command-and-control management didn't work so well anymore.

Necessary knowledge no longer resided at the top. It was as if the organizational core had melted down, and companies that couldn't adjust fast enough — or that were culturally unwilling to shift gears — went belly up as a result.

Who Knows?

This sudden need for more, better, and better distributed knowledge spawned various attempts at a solution. Three are especially noteworthy.

1. Concurrent engineering: What if separate functions — say design and manufacturing — talked to each other from the outset of a product cycle? This astoundingly obvious idea hadn't yet occurred to anyone because market hegemony and mass production had made it appear unnecessary.

If you made only one product, and it had a long life cycle, there was no problem. However, as products proliferated and life cycles accelerated, the need to manage widely distributed knowledge became intense.

While concurrent engineering was a step in the right direction, it assumed there was sufficient knowledge in top-down control functions to specify detailed commands to thousands of workers producing hundreds of different products.