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| A Tale of Two Futures - Part 1 |
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Henry Ford had a dream; he invested everything he had, he had some luck, and he hit it big. Whether he was greater than others who strived no less - and didn't have luck - is a dinner topic with consistently-different outcomes. Henry Ford was rewarded with great success. Mr. Ford was an innovator by most accounts and he paid his workers well - by the standards of the times. It was the expendable income in the workers' hands that made the Ford Motor company what it is today. His workers could afford to buy his cars - and they did - and that made a successful business model. 90 years later - managers, and not owners, run the shop - and accountants ensure things run profitably. The first priority of these folks' work day is to keep their jobs. Maybe that's fair with the state of health care in the US, God help their families if they can't - because no-one else will. The second priority, is to maintain corporate profit. Feel free to argue this with me ... but how or why would you. "Profit", and occassionally "Growth", have been the mission of most CEOs since the industrial age began. "Profit" was given higher priority after the .com and Nortel/Enron crashes of 1999 and 2000 and we have been stuck there for the first half of the 2000s. Forgive me if this sounds obvious - but lets take a closer look at "profit" . Profit is achieved by lowering operating costs and/or increasing revenue. Now lets look at profit as it has related to the automotive industry: To "lower operating costs" in the auto industry, there are a few tried-and-true remedies that have been applied repeatedly over the past 40 years:
In North America, savings were redeployed disproportionately between senior managers and profit. I say "disproportionately" because as Japaneze and other asian car makers entrenched and expanded to a gain majority market share over local builders, management salaries rocketed in unpresedented fashion. North American managers were due big raises for surviving Jack Welch's dog-eat-dog "Vitality Curve" - apparently - and their buddies on the board ensured that multi-million dollar pay cheques continue. At the same time, offshore car makers preferred W. Edwards Deming's management model - Demings' was a big-picture approach that's made the Japanese auto industry the strongest in the world by embracing high-quality and value targets that occassionally cost them short-term profitability.Discussion of Increasing revenue is more interesting. Where you might have guessed that increasing volume and profit margin per vehicles sold would raise revenues; there are several other ways to light up the big profit board:
Would Mr. Ford have been impressed to hear that cars today cost 20% of what they are sold to dealers for and that more and more of the labour needed to build them for local market is performed in 3rd world countries? I don't know - and I'd be guessing if I said I did. If he were me, I would be rank-and-yanking (Jack Welsh-ism) my way through the management tier of my legacy in a furor. I think Henry - a steadfast Demings proficient - would have been furious. Perverse is a great word to describe the ardent pursuit of a goal that lacks tangible merit. Its also the word I’ll use it here to describe the Roadmap laid out by the automobile industry in North America 30 years ago – and its the same Roadmap that’s playing loud and clear today really. This is 2007 – I’m supposed to be driving a flying car. Did anyone doubt it after the incredible technological advances of the first 50 years of the 20th century? – followed closely by one of the longest, sustained periods – 35 years - of economic growth, peace and prosperity? We put a man on the moon in 1965 - by all reports. Instead, and in stark contrast to my flying car, I drive a new-ish SUV with a “Hemi” – you know the "Hemi" - its the big-block and carb combination that made such a hit in 1965. Gas was cheap and plentiful back then – so what did it matter that gas comsumption with these motors was terrible. But 1965 is almost exactly were the auto industry in North America stopped – it stopped innovating and improving – and settled in for 40 years of unsurpassed Corporate Profit. In the first half of the 20th century, humanity shone and in the last half, humanity drove “Hemis”. I’ll cash in my artistic-license chit and summarize the state of the auto industry in 2007 as “perverse” now. And worse, check out what’s slated to happen next. The Auto Industry Roadmap – check out this Part 2 in our 5 part series “A Tale of Two Futures” next month. Thanks for reading ...
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