In a previous post, I suggested public sentiment that government does too much but not enough is not contradictory. It reflects a recognition that government does too little of what it should do, too much of what it shouldn’t. Today’s news that retails sales were dragged down by a drop in auto purchases, a deflation after the ‘cash for clunkers’ program ended supports that point (”Retail Sales Drop on Fall in Autos” Wall Street Journal, Jeff Bater, October 14, 2009).
There is a wealth of evidence and theory that markets work best in directing resources to their most productive use. The general consensus is that government’s role is appropriate to counteract market failure–unavailability of reliable information for markets to work, absence of decision rights to act on information even if it were reliable, or decisions that have consequences external to the decision maker.
Our financial market meltdown was triggered particularly by the first and third forms of market failure: Regulators allowed less and less transparency about transactions and credit risk and people were able to make transactions where they enjoyed the upside but dumped catastrophic costs on the rest of us.
The right response then is to fix the markets.
Pretty well accepted is that government is lousy, absolutely lousy at intervening in markets to pick winners and losers. If government does so, it is a likely as as not to pick wrong, diverting resources from better to worse purposes.
The cash for clunkers was a case study in such wrong headed policy. It pulled forward purchases that would have been made anyway, so net sales were likely flat, were an exceptionally expensive way to protect a relatively few number of jobs (albeit in politically influential districts), and probably was bad for the environment in the end, given the enormous energy required to make a new car relative to the energy required to propel an existing one
Twenty years after the term “lean production” was introduced there have been countless books, immeasurable benchmarking studies, and innumerable lean implementations. The problem? No second Toyota.
For comparison? Toyota first one attention for affordable, reliable, fuel efficient small cars. It added mid sized and large autos, cars, trucks, and SUVs, the luxury brand–Lexus, and the entry brand–Scion, globalized its design and production capacity, and ran well ahead with the hybrid drive.
Certainly, in the auto industry, no one has leaned to dominate its rivals through speed, agility, quality, and cost. Any examples in another industry?
If so, who?
If not, why not?
What do you see in your rearview mirror? Next time you look, I trust you’ll see more than the reflection of the road behind you. You’ll see an example of how a company can succeed in the most trying circumstances if it unlocks incredible rates of unmatchable innovation.
Read the headlines, and you would think USA manufacturing is dead. USA auto parts suppliers are coming apart at the seams. The only way to compete, some think, is to pursue low labor and material costs in one developing economy after another, moving on to yet a more distant, more impoverished place when everyone else drives up the prices of land, labor, and materials that were once cheap and are now dear.
Gentex, a Michigan based maker of rearview mirrors, defies that conventional wisdom. How? They relentlessly innovate, keeping ahead of their rivals by the shear force of their creative energy.
Rearview mirrors, you might say, sound boring. Well, these aren’t your dad’s rearview mirrors, silver backed glass, fixtured in a metal frame and glued to the windshield. No, sandwiched inside these Gentex mirrors is a high-tech gel that darkens depending on how much current is run through it. Gentex had to invent that gel. How much current runs through the rigid gel depends on a whole host of signals—light-sensors in the mirror measuring light from front and back and processors inside the mirror determining what the sensors are saying: Is that glare from the sun, the high beams of a tractor trailer on an otherwise dark road? Depending on the calculation, the mirror darkens appropriately to maximize your vision. Gentex has to invent the algorithms to do those calculations.
It goes beyond that. Once you’ve started miniaturizing electronics and incorporating functionality in the mirror, there is no end to what else you can do. Add heating coils to the exterior mirrors so they don’t fog or ice up. Put sensors in the rear fenders, so if someone is in your blind spot, the mirror will flash a warning to look over your left shoulder or right. Add a camera to the back of the car and run an image inset into interior rear view mirror so you can see things far behind your vehicle and close up to. Sure, that used to be in the navigation system, but that meant taking your eyes away from looking out the rear and down at the console. Bad human factors design. No more.
With some engineering and manufacturing dexterity, you continue the technological magic. Microphones so your cell is hands free. (It is overkill to even mention the remote control garage door openers!). Since you already own the real estate dead center on the windshield glass, why not add a forward looking camera so you can get active control of your headlights, adjusting automatically and with great precision depending on whether you’re driving on a dark highway, following a car at close distance, or approaching a vehicle coming in the other direction. Can active cruise control be far off, so that car not only maintains a set speed, but slows to avoid tail gating when necessary?
Achieving this technological marvel is hardly easy. To pull it off, Gentex is hugely integrated for a company that also does the final assembly of its product, making on its own the rigid gel—a complex, patented mixture of electrochemical compounds, a solvent, and numerous additives, and even making what some of us would assume is a bulk purchase commodity—a complex epoxy sealant that keeps all the layers in place. Add to that circuit board design and fabrication–try to get so much electronic functionality into such little volume, you have to do the configuration yourself so its just right.
How does Gentex pull it off? It starts by realizing that what it is buying from people is not just their time–the prejudice of Tayloristic scientific management, but the creativity they can generate in the time you take from them. It scans colleges, universities, and technical schools for curious, intellectually energetic, well trained people and puts them to work to invent, innovate, and improve their way to product greatness and process greatness.
The result? Gentex has few if any challengers–providing these great devices to manufacturers all across the board–American, European, and Japanese makers in the mid market and luxury segments. Customers are so eager to have Gentex mirrors on board, that year to year, Gentex’s sales were flat when the industry as a whole was off by a third.
Consider instead the companies that don’t see innovation as the source of their competitive advantage and define their competitiveness and that of their suppliers based on the price for single transactions, not value delivered, and certainly not the potential to deliver ever more value. They don’t take a Gentex approach. Boy, it must look expensive to them. Instead, it is outsourcing and off shoring, always chasing ethereal advantages to reduce cost.
Not incorporated into those behaviors are certain considerations. What if, when you move overseas you’re not buying commodities? What if, instead, you need proximity to your customers to fine tune what you are providing to them and to your suppliers to fine tune how you deliver the products and services for which you are being rewarded? What if, by having materials generated and delivered in bulk oversea–and consequently hence over long times, you lose a significant degree of agility and responsiveness. What if? Well, we see the wreckage resulting from that thinking littering the industrial highway.
Would you buy a General Motors or Chrysler car? That was the question put to me by Pimm Fox during a Bloomberg Radio interview on Thursday, June 4th. My answer? Only if they combine quality, functionality, and cost that beats their competitors.
His next question, What’s the chance that they will? That depends on the company. The chatter on Chrysler is that their owners took a fairly cynical approach–managing the company for sale or merger, not for self sufficiency. So, the brand-name and sales channels were left intact, but new product development was reportedly gutted. From what I’ve heard, there is no product in the pipeline, so if you buy a Chrysler, you’ll be getting technology one, two, or more years out of date.
General Motors is a different story, a bloated but nevertheless self-reliant organization (functionally, if no financially). The big problem is there is tempo. A management system built for simple markets, products, and processes sixty years ago isn’t agile enough for today’s complex and dynamic situation.
The solution? Everyone at General Motors–Fritz Henderson on down–starting the day with the question: The work I do, why can’t I do it in half the time? and ending the day with some understanding of how to extract more time while creating more value. Faster to identify market need, faster to design market delighting products and services, and faster in their delivery. That is how ‘high velocity organizations’ get ahead and stay ahead of their rivals.
That the Big Three were too big for bankruptcy was the argument in late 2008. How they would otherwise rebalance their obligations to dealers, employees, retirees, and suppliers consistent with their ability to meet those obligations was never well explained. Low and behold. We have bankruptcy. Not well explained either was how the government could provide assistance and then unwind its position in a way that met the needs of taxpayers and shareholders without being compromised and corroded by the politic process.
As David Sanger describes in the NY Times (”Obama’s Test: Restoring GM With a Limited US Role,” June 1, 2009) that question is still unanswered. Now and going forward, the government’s role will constantly subject to priorities far afield from the central questions: How to protect the taxpayer investment by making the company competitive.
Missing too is the key to making it competiitive: Shedding a management system inappropriate for modern day fast moving markets because it does not foster the breadth and speed of innovation needed to stay competitive in markets with intense rivalry.