Since the late 1970’s, in the face of a
severe loss of market share in dozens of industries, manufacturers in the United
States have been trying to improve productivity and therefore enhance their
international competitiveness through costcutting programs. (Cost-cutting here
is definding the amount of labor constant.) However, from 1978 through 1982,
productivity-- the value of goods manufactured divided by the amount of labor
input-- did not improve; and while the results were better in the business
upturn of the three years following, they ran 25 percent lower than productivity
improvements during earlier, post-1945 upturns. At the same, it became clear
that the harder manufactures worked to implement costcutting, the more they lost
their competitive edge. With this paradox in mind, I recently visited 25
companies; it became dear to me that the costcutting approach to increasing
productivity is fundamentally flawed. Manufacturing regularly observes a" 40,
40,20" rule, roughly 40 percent of any manufacturing-based competitive advantage
derives from long-term changes in manufacturing structure (decisions about the
number, size, location, and capacity of facilities) and in approaches to
materials. Another 40 percent comes from major changes in equipment and process
technology. The final 20 percent rests on implementing conventional costcutting.
This rule does not be tried. The well-known tools of this approach-- including
simplifying jobs and retraining employees to work smarter, not harder--do
produce results. But the tools quickly reach the limits of what they can
contribute. Another problem is that the cost-cutting approach hinders innovation
and discourages creative people. As Abernathy’s study of automobile
manufacturers has shown, an industry can easily become prisoner of its own
investments in costcutting techniques, reducing its ability to develop new
products. And managers under pressure to maximize cost-cutting will resist
innovation because they know that more fundamental changes in processes or
systems will wreak havoc with the results on which they are measured, production
managers have always seen their job as one of minimizing costs and maximizing
output. This dimension of performance has until recently sufficed as a basis of
evaluation, but it has created a penny pinching, mechanistic culture in most
factories that has kept away creative managers.
Every company I
know that has freed itself from the paradox has done so, in part, by developing
and implementing
a manufacturing strategy. Such a strategy
facturing and implementing a manufacturing strategy. Such a strategy focuses on
the manufacturing structure and on equipment and process technology. In one
company a manufacturing strategy that allowed different areas of the factory to
specialize in different markets replaced the conventional cost-cutting approach,
within three years the company regained its competitive advantage. Together with
such strategies, successful companies are also encouraging managers to focus on
a wider set of objectives besides cutting costs. There is hope for
manufacturing, but it clearly rests on a different way of
managing. |
