Dynamic Manufacturing: Creating the Learning Organization

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9780029142110: Dynamic Manufacturing: Creating the Learning Organization

It is management, and particularly managers' willingness to learn and change -- not unfair competition or unsupportive economic policies -- that is at the heart of America's manufacturing crisis, contend Robert Hayes, Steven Wheelwright, and Kim Clark. These world-renowned authorities on manufacturing and technology base their conclusion on studies of hundreds of American and foreign firms.

Writing for general managers in this long-awaited successor to their award-winning Restoring Our Competitive Edge, the authors go beyond the structural decisions -- the "bricks and mortar" of facilities and equipment -- to the infrastructure of a manufacturing company: the management policies, systems, and practices that must be at the core of a world-class organization. Most importantly, they address the difficulty of creating that infrastructure, emphasizing the management leadership and vision that are required.

This thorough and comprehensive volume points out the weaknesses of traditional management practices, which are built into authoritarian, hierarchical organizations. The authors show dramatically how many companies today are breaking out of this "command and control" mentality and creating a whole new set of relationships involving workers and managers, engineering, marketing and manufacturing, and suppliers and customers, which is giving them a competitive advantage in the international marketplace.

Comparing the companies that are winning with those that are losing market position, Hayes, Wheelwright, and Clark conclude that the key differences are that the winners focus on creating value for customers, continual improvement, quick adaptability to change, and extracting the full potential of their human resources. They constantly strive to be better, placing great emphasis on experimentation, integration, training, and the building of critical organizational capabilities. They are, in short, "learning" organizations.

Dynamic Manufacturing explores in depth such key infrastructure issues as capital budgeting, performance measurement, organizational structure, and human resource management, demonstrating how they interact to foster productivity growth, new product development, and competitive advantage. The book shows today's managers how to implement the changes that must be made if they want to create a truly superior manufacturing company. Taking concerned, committed managers step-by-step on the path toward better products, lower costs, and increased profits, this seminal work provides a road map for manufacturing firms seeking to build a competitive advantage through manufacturing excellence.

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About the Author:

Robert H. Hayes is William Barclay Harding Professor of Management of Technology at the Harvard Business School.

Excerpt. Reprinted by permission. All rights reserved.:

Chapter 1: Rebuilding a Manufacturing Advantage

Introduction: The Decline of American Industry's Competitiveness

The storm that flickered on the horizon for American industry during the 1970s came ashore with a rush in the 1980s. Torrents of imported products flooded our markets and eroded the profitability of domestic suppliers. The U.S. balance of trade in manufactured products went negative for the first time this century in 1971, recovered briefly in the late 1970s, and then plunged into increasing deficits after 1981. In 1986 America's imports of manufactured goods exceeded exports by almost $140 billion. The trade deficit for nonmanufactured goods, such as agricultural and petroleum-based products, pushed the total deficit to $170 billion, or 3 percent of GNP. West Germany displaced the United States as the world's mightiest exporting nation.

In 1985, as a result, a country that had been the world's largest creditor nation (its international investment position had peaked at about $150 billion in 1982) became the world's largest debtor nation -- with a deficit greater than the next two largest debtors combined. By late 1987, the United States net international investment position was approaching $400 billion in the red.

A deterioration in corporate profits reduced the real (adjusted for inflation) pretax rate of return on manufacturing assets in the United States below the prime interest rate, discouraging investment in the new equipment and products required to improve competitiveness. Over the same period, and partly as a result, the U.S. standard of living sagged. By 1986 both the hourly earnings of the average worker and the weekly earnings of the average family -- adjusted for inflation and taxes -- had fallen at least 5 percent from their peaks in the mid-1970s and were about where they had been in the mid-1960s. The GDP (gross domestic product) per employee in the United States was no longer the highest of the developed countries, and most of America's major competitor nations were expected to surpass it by 1990 if current trends continued. Reflecting this decline in relative wealth, only one of the world's ten largest banks (and none of the five largest) in terms of deposits was American. Six, on the other hand, were in Japan -- the home of more than half the top twenty-five banks versus America's two.

This faltering competitive position would not have been so disturbing if it had been restricted largely to a few nonessential industries. It was possible to rationalize the loss of the U.S. domestic shoe industry as the natural working of David Ricardo's famous law of comparative advantage: that such an ancient and labor-intensive item should rightly be produced in countries whose workers had simple manual skills and low wage rates, while the United States should concentrate its attention on newer, higher technology and capital-intensive products like airplanes and electronics. The same logic softened the loss of much of the textile and apparel industries (despite the fact that they were major employers) but became troubling when applied to such "strategic" industries as machine tools, shipbuilding, and steel. Most Americans comforted themselves, however, with the thought that despite the temporary inconvenience and dislocations associated with the decline of a few industries, the laws of economics were working properly as long as the overall U.S. trade deficit in the older, declining, low-technology products was offset by a surplus in the newer, growing, high-technology products.

Indeed, these two groups were in rough balance until about 1980, at which point a high-tech surplus of almost $30 billion largely offset the low-tech deficit of almost $50 billion. But then a deluge of both kinds of imports pushed the low-tech deficit to over $130 billion in 1986, and the surplus in high-tech products went negative for the first time. Of the ten major industry classifications (out of twenty-six in total) that were classified by the Department of Commerce as high tech -- on the basis that they spent at least 3 percent of their sales revenues on R & D -- seven lost world market share between 1965 and 1986. By 1983 America's trade deficit with Japan in electronics products was $15 billion, bigger than its bilateral deficit in autos.

By the mid-1980s imports had taken about 25 percent of the U.S. domestic market in autos, steel, and textiles -- and would probably have taken considerably more were it not for a variety of bilateral and multilateral protectionist barriers engineered by the U.S. government: "voluntary" restrictions on Japanese imports in the case of autos and steel, and the "multifiber arrangement" (whose roots were planted as early as 1957) in textiles. The world's largest auto company, G.M., flirted with unprofitability even in an expanding market, as did the U.S. steel industry. LTV, the steel industry's second largest company, declared bankruptcy in 1986, while rumors of a similar action swirled around Bethlehem Steel, the third largest. U.S. Steel, once the symbol for American industrial might, having lost its position as the largest steel company in the world in the early 1970s, found steel production increasingly less attractive than opportunities in oil and chemicals. By 1985 steel production accounted for less than half its revenues, and it even removed the word "Steel" from its new name: USX.

The situation was just as bad in semiconductors, one of America's flagship high-tech industries. Even though Americans had invented the semiconductor and the integrated circuit (IC) -- as well as almost every one of its major derivative products, such as random access memories and microprocessors -- and almost totally dominated world production through the mid-1970s, by 1984 foreign producers had taken almost 25 percent of the American domestic market. The major U.S. merchant houses were hemorrhaging cash and seeking assistance. In mid-1986 the U.S. government, under strong pressure from its semiconductor industry, was forced to negotiate a trade agreement with Japan that resulted in sharply higher prices for imported ICs.

A similar situation prevailed in the machine tool industry -- perhaps less glamorous than semiconductors, but almost as critical in its impact on American industry's long-term ability to compete. Although U.S. producers had been in the forefront of developing computer-controlled machine tools and multipurpose machining centers, between 1977 and 1986 imports rose from less than 10 percent to over 50 percent of domestic consumption. The prospect of irreversible damage to America's industrial and military infrastructure forced its government to negotiate trade pacts with both Japan and Taiwan in late 1986, restricting their exports (and, by inference, those of several European companies) to the United States to the levels prevailing in 1981.

There was no clause in the law of comparative advantage that suggested that the United States should want to import such products as high-performance autos, sophisticated videotape recorders and electronic cameras, state-of-the-art integrated circuits and fiber optics, or computerized robots and machine tools. Even the American food products industry, long dominated by U.S. producers because of their size and market power as well as their closeness to low cost sources of materials, experienced a growing trade deficit (beginning in 1984) and increasing competition from the U.S. plants owned by foreign producers. Either the laws of economics were no longer working as we had thought they worked, or America had lost its comparative advantage almost everywhere.

The Underlying Causes: Cost, Quality, and Innovativeness

Every industry is different, and a careful explanation of its success or failure in the world marketplace must be tailored to the specifics of each situation. But the kind of broad-based competi

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