The Seduction Technology
Does technology provide a competitive advantage?In the past, U.S. executives said “yes.” Recent horror stories have made some lose their faith in its sublime. But others use it judiciously as part of a multidimensional competitive arsenal.
January 1 1989 by Fred G. Steingraber
Robotics and sensors. Cellular manufacturing. The factory of the future. Computer-integrated manufacturing expert systems. (Computers that have the capability to simulate expert reasoning). Each of these expert systems represents a major capital investment and a vision of manufacturing superiority that rarely becomes reality.
This may be oversimplifying the complex question of competitiveness. However, far too many manufacturers have made the decision to invest in automation; they’ve done so with a limited vision of how the investment relates to their business strategy, how it will help beat the competition, and how it should be implemented -or, even what the alternatives might be.
NEITHER SAVIOR NOR SATAN
Is technology the silver bullet? Or the loaded chamber in a game of Russian roulette? Realistically, technology is neither savior nor Satan; its significance has been overemphasized. It is just one of the many tools that can help improve competitiveness. Some companies can even succeed without it.
Our obsession with technology is not new. Americans have always been easily charmed by new gizmos and better mousetraps. Furthermore, the massive changes wrought in our business and personal lives in the last century by the automobile, the telephone, television, xerography, and facsimile are enough to make one believe in magic. We sometimes have a naive faith in technology as a change agent-in the ability of “something new” to improve our lives. The sight of an electronic product in a mail-order catalog gives us a twinge of Christmas-morning excitement. And so does the potential of a robot that could save 30 percent of direct labor costs.
“Americans tend to believe you can replace people with capital and therefore become more productive,” says a retired colleague who has helped clients implement automation. “The Japanese know that when you decide to make a technology in vestment, you need trained and motivated people to make it pay off,” he says.
THE SETTING FOR SEDUCTION
The damage inflicted by foreign competitors in domestic and global markets has made executives seek quick answers. Countless competitors, disappearing market share, and reduced profits scared manufacturers into attempting revolution on the plant floor.
During the last 20 years, worldwide market share for U.S. manufacturers has dropped by two-thirds in electronics, by half in auto production and by one-third in steel. Two-thirds of the 100 largest public corporations now have foreign ownership. Senior management in most U.S. corporations neglected the factory as an opportunity to secure a competitive advantage.
Since the early 1980s, when U.S. manufacturers became aware that they were no longer kings of the industrial hill, they have tried one solution after another frequently involving investment in automation. U.S. manufacturers have spent billions on automation: 1987 and 1988 investments in computers and process-control equipment alone total about $38 billion. Yet, U.S. durable goods producers still lag far behind Japan in several important measures of competitiveness: work-in-process, inventory lead times, quality defects, equipment age and annual automation investment per worker. According to the Department of Defense, the U.S. is behind Japan in private investment in plant and equipment as a percent of GNP-10.2 percent vs. 17 percent for Japan.
TECHNOLOGY AS A COMPETITIVE MILLSTONE
A.T. Kearney Technology studied more than 100 cases of corporate technology shortfalls that occurred during the last decade. In more than two-thirds of these situations, one or more of 10 fundamental errors lay at the heart of the technology problem. Not one of the ten errors was a technology problem; all were management problems.
So much has been written about the dangers of the wrong technology investment that many executives have become skittish about making any commitment. The business press has been full of horror stories about the failures of technology. Business Week’s June 1988 cover story dealt with “The Productivity Paradox: Why the payoff from automation is so elusive-and what corporate America can do about it.” Tom Peters’ syndicated column warned, “Robots and automation aren’t the real cure for ailing industry.” Boardroom Reports offered us “Lessons for all to learn from GM and its problems.” Harvard Business Review published Timothy Warner’s article on “Information Technology as a Competitive Burden.” The Chicago Tribune explored the problem in a series entitled “Technology in America.” The article quotes a Purdue University professor and manufacturing expert: “I think there has been a great turning away from technology in manufacturing. A lot of people invested in robots and machines… and felt that they got burned. They tried to buy a fix.”
Publicity of this sort and industry gossip among suppliers, competitors, and customers have made many executives feel insecure. Results have been disappointing for many companies, but some spectacular and well-publicized horror stories-such as the GM and John Deere experiences-probably were the most damaging. Observers have said that GM’s investment of $40 billion over an eight-year period was made without adequate preparation of employees or systems. They continued to lose market share and profits. John Deere’s investment in flexible automation for a farm tractor plant was made just before the bottom dropped out of farm prices. Farmers no longer could buy new equipment every two or three years, so Deere was forced to scale back capacity.
There are two dangers in considering the use of technology. One is the possibility of acting precipitously and doing it wrong. The other is the danger of being paralyzed by fear of failure and not acting at all.
Joseph E. Izzo, head of A.T. Kearney’s information technology practice, discusses technology strategy in his book, The Embattled Fortress. Izzo points out that the enemy is not the technology , nor its user, nor its manufacturer. “The enemy is the status quo -continuing to accept yesterday’s solutions to support tomorrow’s organization.” The worst damage that could be inflicted by the technology millstone would be to make U.S. manufacturers accept the status quo.
Technology has failed to fulfill its promise for several reasons:
The technology bypass. The technology bypass often seems like a shorter route than paying attention to the improvements that should be made instead of, before, or beyond technology. Technology is one of many improvement tools; it is not a panacea for corporate ills. Indeed, some companies have brought about change successfully with little or no technology.
The manufacturer of a well-known gas grill used the less-is-more approach to customer product assembly. Declining sales were at least partly explained by frequent complaints from dealers and consumers about complicated and time-consuming product assembly. The company used value analysis to determine the need to minimize the number of parts and develop interchangeable parts; they also designed a snap-on rather than bolt-on assembly, and rewrote and redesigned an unintelligible instruction manual. These improvements reduced field assembly time to less than 30 minutes, reduced cost of goods by one-third, improved product quality, and doubled sales. Within one year from the date the redesigned product line was introduced, operating profits increased by 300 percent.
In contrast to the GM experience, Ford and Chrysler made modest technology investments but put emphasis on “soft technology” -people involvement, quality improvement, competitive benchmarking, and making better use of existing equipment. Ford’s “Quality Is Job One” program was not only effective in achieving manufacturing improvement, but an important marketing advantage as well. Certainly Ford and Chrysler will have to make major technology investments in time to keep up with their U.S. and foreign competition. When they do, they will have created a better environment for the introduction of technology.
Toyota’s No.9 Kamigo engine plant was made famous in Richard J. Schonberger’s book, World Class Manufacturing. It became known as the most efficient engine plant in the world, not by investing billions in new technology, but by taking advantage of equipment already owned. Kamigo’s 20year-old equipment has been retrofitted with improvements such as automatic loaders and checkers. Machines can be set up quickly, eliminating the need to run large batches. There are no large storage areas or storage and handling equipment, so machinery can be laid out in a small space. One operator can handle several machines at once. Engines are made and delivered hourly to the nearby assembly plant.
When Kamigo’s output is compared with Chrysler and Ford’s engine plants, the differences are startling. The American plants are more than three times larger with inventories measured in days (2.5 to 5 days for Chrysler, 9.3 for Ford), whereas Kamigo’s inventory is 4 to 5 hours. Kamigo’s labor per engine is less than 1 hour, versus 5.5 hours for the Chrysler and Ford plants. The final surprise: This is Toyota’s oldest plant.
Strategic advantage. Too many U.S. manufacturers seem unable to evaluate technology’s contribution to strategic advantage -how it can enhance efforts to improve quality, customer value, responsiveness, and cycle time or increase product offerings. U.S. executives are good at evaluating capital investment in terms of productivity, ROI, direct labor and other cost-reduction implications and creative applications.
Waterloo Industries, a manufacturer of professional tool cabinets, is a good example of technology used for strategic advantage. The company found its high-end market threatened by competitors from the Far East who brought the price down to 40 percent below the current market. The company knew incremental cost-cutting would no longer protect its share of the high-end industrial market and meet the competition head-on in the consumer market. Moreover, offshore relocation or outsourcing were not appropriate answers to closing the major cost differential.
After thoroughly studying the direct labor portion of the value-added cost chain, the company made design changes to improve manufacturability, and proposed plans to adopt computer-assisted design and manufacturing. This resulted in lowering direct labor costs by 90 percent. But more importantly, management explored options for making greater use of the larger capacity that the changes would provide. They concluded that they could successfully enter new markets with new products by supplying components to manufacturers of office and hospital storage cabinets. The introduction of technology protected their current product and provided them with a competitive cost advantage for new markets.
Honda Motors provides yet another example of business strategy successfully driving manufacturing strategy. Honda North America is known for flexible manufacturing systems that can easily switch from Civic to Accord production. In fact, Honda threatens to replace Chrysler as No. 3 among U.S. auto manufacturers. When the Honda Civic was first introduced in the U.S. market, Japanese manufacturing technology enabled Honda to lure American consumers to their unknown car with a price tag of $2,000. Honda’s technology delivered the low unit cost, quality and value that accomplished Honda’s strategy of endearing the car to American drivers. Now Honda could diversify models and move into higher value-added products. Their strategy was aided by their ability to switch from one product and feature to another.
A modest investment in computer-integrated manufacturing made it possible for Allen Bradley, a manufacturer of electric motor starters, to increase its responsiveness to customers. The technology allowed AB to operate as if its factory were many minifactories. A total investment of $15 million enabled the company to cut costs by almost 40 percent and gain flexibility. Their new operation could quickly switch production from one product to another in lots as small as one unit-with 125 variations on motor starters. The AB plant blended product design, manufacturing systems and computer controls with strategic management.
Frito-Lay, the Dallas based snack-food company, has many products and a manufacturing and store-delivery system that must quickly move materials from farm to grocery shelf. The operation consists of 100 products in 240 package size variations, produced in 38 plants and sent to 1,650 distribution centers. That totals thousands of possible order configurations.
The growth in new products, spurred by the need to remain competitive in the snack-food industry, meant that route sales staff were buried in paper and the company was printing new order forms on a weekly basis. Frito-Lay spent four years evaluating strategy before deciding to equip its 10,000- person route sales force with handheld computers. The company estimates they save each salesperson about an hour in paperwork per day and provide better cash control. Most of all, the equipment helps the salesperson respond to customer needs and demands. By providing superior service, Frito-Lay justifies its share of shelf space in grocers’ snack-food sections.
Preparatory work. Unrealistic expectations about the preparation necessary to introduce technology may doom the project. Management often feels the hard work is done in the boardroom where capital expenditures are rigorously reviewed and approved. While anticipating that a class or self-teaching manual will be needed to prepare workers for a revolution in work practices, the preparation effort is often underestimated by a factor of at least three to five times. A substantial amount of time and funds is needed for retraining, development of new skills, and sufficient practice in using them before the changeover to new technology can be successful.
Xerox Corporation did its preparatory work right. Xerox wrote one of the most successful product innovation stories in history with its first plain paper copier in the 1960s. Although in the late ’70s, half its market share disappeared. Xerox ignored emerging competition from home and abroad for a long time. But after studying Japanese manufacturing techniques, they made major changes, driven by business strategy. Xerox concentrated on enabling their people to succeed in the new environment. They trained design engineers as generalists so they could design for cost, manufacturability, and serviceability. They initiated a “teamwork day,” where employees demonstrate business improvement ideas. In 1982, there were 500 entries; in 1986, some 6,000 Xerox employees demonstrated ways to improve quality.
Xerox also radically changed the way they worked with suppliers. Suppliers were consulted much earlier in the cycle, so they could contribute to the design and manufacturing process. The number of vendors was cut from 5,000 to 300. Quality and reliability became priorities; quality problems were cut by two-thirds in two years. Computer-aided design systems shortened development time and reduced development costs. Xerox reduced the labor content of its products, as well as the number of parts. It cut new product introduction time in half. The results were stunning: Sales and profits both increased, despite falling prices in the marketplace.
Measurement systems. As technology helps move plants, offices, and warehouses to a less labor-intensive environment, new measures are needed of employee performance and pay, including cost per unit produced, quality or rework, and capacity utilization. Management needs new methods to make decisions and evaluate the success of technology investments.
Traditional methods contribute to the “measuring-the-wrong-thing” problem. Most current cost-accounting systems were developed when direct labor was a major component of manufacturing costs. Today, direct labor is typically a small component of the value-added chain. In addition, actual costs per product may be difficult to obtain since costs are usually allocated horizontally across plant or division, rather than vertically by product. Also, management needs to continually adjust to more ambitious targets to improve productivity, net quality, and customer responsiveness.
In the case of a Fortune 100 durable goods manufacturer, missing and misplaced measurements were resulting in costly state-of-the-art technology operating at one-quarter to one-third the uptime levels of competition. Functional units produced optimal results within their traditional measures of accountability. Maintenance, for instance, continued to minimize spare parts inventory to the detriment of uptime. Production supervisors maximized direct labor efficiency, but didn’t staff the transfer lines to avoid downtime. On top of this, key integrating measures, such as cost per unit and uptime, were missing altogether. Then management began to measure machine uptime, find sources of downtime, and change its organization and measurement methods. Uptime on the plant’s transfer lines increased an average of 52 percent and cost per unit declined about 21 percent. Longterm results are expected to be even better.
Jos. A. Bank Clothiers manufactures every item of clothing in its own plants and sells directly to the consumer in its 34 stores and by catalog. A privately held business, Bank utilizes some of the latest technology available in the clothing industry-yet still manufactures clothing by hand the way it was done when the company was founded early in the century. The new technology is found primarily in the distribution center, where computers and conveyor grids move the merchandise out.
Measurement systems were adapted to new equipment and procedures. Now the firm uses a flexible pay-for-performance plan for manufacturing and distribution workers, based on a definition of 100 percent performance for each job. When new equipment is introduced, the 100 percent rate is set after workers have used the equipment for a break-in period, not on the basis of theory or past practices. Jos. A. Bank’s management attributes its success to its ownership from 1981 to 1986 by the Quaker Oats Company, as well as by its careful management. Today, the 1,900-employee firm’s annual sales are more than 20 times what they were in the early 1970s.
KEYS TO SUCCESSFUL IMPLEMENTATION
Technology by itself is rigid. It offers no solutions, often creates more problems than it solves, and deludes management into thinking it has taken care of manufacturing problems by signing a purchase order. But there are ways for both high-tech and low-tech executives to sail around the tempting sirens of technology without crashing against the rocks:
Consider whether new technology is needed. Does the company have the culture, skills, and resources to absorb technology now? View automation as one of many tools to nurture productivity and improve competitiveness and, of course, profits. If existing technology hasn’t been managed well, new technology may be doomed before it arrives.
Understand overall competitive strategy. Before you invest in new manufacturing technology, you must consider your overall competitive strategy, including customer demand and market potential. How will the addition of new technology add value to your product? How can new technology improve customer responsiveness and make customers more dependent upon your product? Can new technology tie into your customer’s needs or even your customer’s systems so that your products and services are invaluable to the customer? Your new technology should enable you to invite your customer in to see the changes and perceive the benefits to his business. If your technology does not help the customer attain his goals, then it may not provide a strategic advantage for you.
Prepare comprehensively. Take a careful and thorough look at preparatory work necessary to introduce automation. Don’t underestimate the time required for full implementation at all levels. Be sure all the interfaces are in place before making any investments. Be aware of implications for maintenance, scheduling, and inventory practices. Review all measurement systems -especially performance and quality-because they may have to change. Check out training programs and packages to make sure they can be adapted to your needs.
Execute carefully. Encourage participation of the total organization during the implementation period to share successes and learn from unsuccessful experiences. Careful and thorough communication is necessary, especially the opportunity of two-way communication with line workers using the equipment.
While the goal is the immediate improvement of the competitive position, a critical by-product is technological literacy and enthusiasm for technology’s potential, in order to create an environment where technology is continually upgraded to help sustain competitive advantage.
Technology must be integrated throughout your organization. Get people in different functions and departments talking to each other. Use R&D or information technology staffs as resources on equipment recommendations and capabilities of different systems. But charge all managers with exploring whether and how technology can improve the productivity of their functions and the competitiveness of the business. The addition of technology then becomes not an event, but part of an ongoing process. The question is not “technology, yes or no?” but using different degrees and types of technology at different times.
BACK TO KAIZEN
The Japanese word kaizen expresses this approach to manufacturing competitiveness: constant improvement. No single management decision will bring about the ultimate improvement from which the company can continually reap benefits. No matter how major the change made today, it is just another step in a continuing process. Good is never good enough if a company is to gain and retain a competitive advantage.
Those who express reservations about technology are not modern-day Luddites. At the very least, we should all look at new technology with some hesitation. Far too many U.S. manufacturers have unused or misused technology. If we have not succeeded in managing what we have, how will more bells and whistles help? As the poster in a food-processing plant says: “Life is like a ten-speed bike. Most of us have gears we never use.” How many of us own ten-speeds, but never shift into more than three gears?
In the long run, companies in the high-cost industrial countries will have to seek competitive advantage through technology. Management has to ask the questions: not why or if, but when and how. How is the important question and the hardest one to answer.
Kaizen does not allow basking in yesterday’s successes. It does not require spectacular and meteoric improvement. Kaizen requires acting, rather than paralysis. If you seek kaizen, you will use technology as one method to alleviate a perpetual itch for change.
Fred G. Steingraber is chairman and CEO of A.T. Kearney, Inc. During his 24-year career with the firm, he has been instrumental in launching many of its foreign offices and has served in a variety of positions in the U.S. and Europe. He is an expert on strategy and competitive challenges, frequently speaking on the subject in print and broadcast forums and to audiences in the U.S. and abroad.