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Once upon a time in America... After World War II, a tremendous boom economy descended upon us. American manufacturers were poised and ready to answer the call, having the infrastructure, management, and methods to deliver; to fill the need. From five years of devoting our industrial might to the war effort, consumer goods were in short supply. Everybody needed everything--and there was no competition. Europe and Japan were in shambles, and the rest of the world was a century behind. What a set-up! I have always maintained that it is our human condition to exploit and corrupt any situation though often we do so unwittingly and/or with good intentions. The late W. Edwards Deming always preached that it is the responsibility of business to create jobs and more jobs. With that in mind, our post-war industries noted that if they fed consumerism and even goosed it a little by creating more need, it would lead to business expansion and the creation of more jobs. A byproduct of this strategy was that it also led to an elite "ruling class". But that's okay as long as the system is benevolent, efficient, and minimized. BUT...our human condition prevents this (sigh). Just look at the runaway size of federal and state governments, that even though bankrupt, can't stop expanding to fill their avarice. Or how about the ENNRON executives who bailed out with their employees' retirement funds. I mean, okay, take a couple million, but did you each need thirty million? Come on, bleed a little! Anyway, in American industry this led to a strategy called planned obsolescence, the idea being to design and produce goods with short life so the consumer would be required to purchase more frequently. The strategy worked fine as long as there was no competition, that is, the American consumers had no choice. American industry was like an undefeated football team that won every game by forfeit. But over time what the strategy ultimately accomplished was consumer revolt. People were fed up. The first major consumer market where the revolt was clearly obvious was automobiles. The Europeans (mainly Germany) and Japan struggled to increase sales into the US marketplace until they received help from two sources: 1) higher gasoline prices, and 2) Detroit arrogance. The imports were reliable, if not aesthetically attractive, and economical, not requiring frequent trips to the service (what a name) garage for breakdown maintenance. Detroit sniffed and called them "bugs" and "stupid little foreign cars". Coincidentally, Japan had two American teachers: Deming and Joseph M. Juran, both of whom later won that country's highest honor, the Emperor's Medal, for contributions to Japanese industry. The two were referred to (in Japan) as the architects of the Third Industrial Revolution. Meanwhile back at the ranch, Peters and Waterman wrote a runaway best seller entitled, "In Search of Excellence", which was published in the early 1980s. It had a huge affect on American companies now reeling from competition and still designing and producing CRAP! The book gave examples of US companies not following the "norm"; that is, mainly working according to strategies that were "customer friendly". This caused a windfall of opportunity for Deming, Juran (both then returned from Japan) and their disciples. From then through most of the 1990s, American industry produced products that were clearly improved and mostly world-class. Unfortunately, with the downsizing trend that wiped-out many of the managers and executives that "learned the lesson", their replacement by young eagles who were unprepared (but would work for less money and take more responsibility); and the digression of American firms into a post WWII accounting mentality...well, we're back where we started. "Oh, no," the new executives claim, "that was then; this is now." I call it failure to learn from the past and/or the psychological process of denial. The aspect of a successful sales strategy that has been lost? QUALITY! Deming taught the Japanese to "listen" to the design and production processes by applying statistics and not relying on massive inspection as was done in the US. Deming said, "Inspection is too late! By then you've already made the product, and now all you're doing is sorting good from bad. Worse, the process is unchanged and making more failures!" Indeed, it was typical of American manufacturers to either scrap or rework 25 percent of everything they made. This figure is from a Juran Institute study of over 2,000 western firms. Typically, businesses did not keep track stating it was simply the cost of doing business, and besides it was too tough to design a proper accounting system. Juran argued that it was an economic model, not an accounting system. Juran put it this way: "It doesn't matter if the amount of scrap and rework costs are five million or seven million. Both are too much! The action you decide to take is exactly the same!" Nevertheless, many upper managers considered it a fate, not a problem to be solved. Many companies went out of business without really knowing why. They'd throw out reasons like competitors have cheaper labor, or they have robots, or some other like kind of rubbish. I can tell you from personal experience that Deming's advice worked. I ran a forge plant that purchased massive amounts of steel. Material from Nippon Steel was superior in all physical and chemical properties and it cost 10 to 20 percent less (than American produced steel). Oh, and by the way: This was before they had brand new equipment. See what I did there? I anticipated the comments of some of you who are still in denial and/or looking for a way to project the cause somewhere else! Nippon's material was made from cast off equipment they purchased from a failed steel company in Pennsylvania. What Deming taught Nippon (and others) was if they only had to scrap or rework, say, five percent, they picked up 20 percent on the bottom line without have to sell a single unit more! Are you accounting-mentality managers getting it yet??? Bottom line: America could not compete, and soon, the huge US steel industry downsized for good. Juran's advice was to consider sales through a mysterious, misunderstood, and ambiguous word: QUALITY! What Juran did was take the mystery and ambiguity away. He defined it in sales terms. According to Juran, quality has only two little constituent parts; two little pearls of wison that go like this: 1) PRODUCT FEATURES, and 2) FREEDOM FROM DEFICIENCIES. These two definitions juxtapose nicely with the ONLY two strategies companies have available to differentiate themselves from their competitors: 1) TECHNOLOGY LEADER, or 2) PRICE LEADER Let's take a look at how both sales strategies dovetail with the twin aspects of qulaity. Because 1970 circa American automobiles were synonymous with junk, Japan attacked the US marketplace with the second aspect of quality, FREEDOM FROM DEFICIENCIES; which they DID NOT accomplish with massive inspection. They did it by controlling their processes, which allowed them to manufacture at a much lower cost, sell at lower prices, and achieve larger margins. (NO, accounting managers, it was not by lower labor costs, although without the burden of labor unions they were MUCH more cost-effective. I have experience with unions in the US auto industry; watching them clock one another out at noon while one guy does two jobs...seeing them collect 95 percent of their salary while being laid off...visiting a well-stocked, well-used bar in the middle of a Chrysler factory. I once observed entitled workers etching "SCREW GM" into the tranmission housings on every new car rolling off the line...only they didn't use the work "screw"; they used the big one, the f-blank-blank-blank one. DO NOT try to tell me what unions are and are not!) Through understanding FREEDOM FROM DEFICIENCIES the Japanese auto industry became the PRICE LEADER. (By the way, the market identifies the price leader by when competitors follow when the "leader" raises, not lowers, prices. Think about it.) American auto producers eventually caught up, but it took ten years. Japan then cleverly, as they were taught, used the other aspect of quality, PRODUCT FEATURES, to gain control of the luxury car market. Recall that Cadillac used to be referred to as the "Standard of the World". Sadly, that has not been the case for decades. Mercedes-Benz filled that need, and attempts by Cadillac (even to this day) to play catch-up fall short. On the other hand, Toyota's and Nissan's introduction of Lexus and Infiniti started on par with the German automaker. One can only go so far with a strategy of being PRICE LEADER; that is, unless one remains the low cost producer. Usually, sooner or later the competition catches-on and catches-up. Those that don't go out of business in the meantime. The next step in a viable, forward-looking sales strategy is to offer better PRODUCT FEATURES through becoming the TECHNOLOGY LEADER. I define "product" to include goods, services, and information. Of course these product features must be desired by the marketplace, and have a public willing to pay for them. Product features with "market pull" are easy to recognize because everyone talks about how nice it would be to have such features. However, this requires one to listen to the customer instead of talking to him, which is a sticking point for some arrogant manufacturers who automatically "know" what the customer wants and needs. Late cartoonist Al Capp used to have a character called General Bullmoose (a dig at GM) who always proclaimed, "What's good for General Bullmoose is good for everybody!" Automative examples are: radio, automatic transmission, air-conditioning, etc. Features with "technology push" are more difficult because it requires crack market research and engineering staffs with accurate "seers". Examples: power brakes and steering, intermittent wipers, recorded music players, etc. There you have it. Process control and freedom from deficiencies leads to being price leader. Process control, freedom from deficiencies, and timely product features leads to being technology leader. All of this goes to a bottom line with terrific margins; except you have to keep doing it over-and-over again. It's not a "program", it's an on-going, never-ending "process". It nevers stops. Copyright by Gene Myers Author of "After Hours: Adventures of an International Businessman" web site: www.strategicpublishinggroup.com/title/AfterHours.html Also available from www.amazon.com and www.barnesandnoble.com and www.borders.com Look for "Songs from Lattys Grove" August 23, 2010.
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