5 Ways to Find Your Company’s Real Value

Dr. Genichi Taguchi, an engineer and statistician dedicated to improving the quality of manufactured goods, wanted all Japanese businessmen to understand the value of defining and hitting the right target when it came to continuous improvement of their businesses. Taguchi theorized that if that target was too wide, even if it was acceptable to the customer, a certain amount of economic loss was occurring. If businesses could hit a smaller target, and do so more predictably, the customer would benefit, and so would stakeholders, employees and society as a whole.

But where should that precise target be? How focused is the pattern he proposed? And what would the benefits be to the Japanese citizenry as a whole?

How Ford followed in the path of Japanese success
In the early 1980s, Ford’s executive leadership team discovered answers to these questions and more. Their discoveries led to significant changes in how Ford went about improving future profitability.

In a joint venture, Ford hired Mazda to help build Ford transmissions. All transmissions were built to the same specifications, using the same processing steps. After cars were sold to dealers, many of the Ford manufactured vehicles were returned for warranty work on the transmissions. But Mazda vehicles were not being returned.

“Understanding what Taguchi taught can help today’s executives avoid aiming at the wrong targets for growing their businesses.”

After investigating, Ford discovered their manufacturing processes had utilized 72% of the acceptable tolerances, whereas Mazda had utilized just 27%.

Ford executives then realized the errors in the company’s previous 80 years of thinking, and began to study and learn why the Japanese were beginning to dominate the United States automobile industry.

Ford had been focused on using a much wider target than Mazda, and it had been costing the American job market thousands and thousands of jobs each year. The loss cost was not just the economic value of the re-work and brand impact, it went much deeper.

Today, Dr. Taguchi is still revered in the halls of Japanese leadership, and the mathematical equation he developed to prove his theory has been tested over and over to ensure its accuracy.

It is Taguchi’s work, which was first developed in the 1950s, that helped solidify the theory of continuous improvement. Understanding what Taguchi taught can help today’s executives avoid aiming at the wrong targets for growing their businesses.

Here are 5 simple steps to help understand what your target should be.

1. Understand how the work is done within your business. Are there bottlenecks where work stops flowing and sits for periods of time? If so, begin a deeper dive into why this happens and work to resolve these problems.

2. Visit the worksite more often, and take time to observe how work flows. After a few weeks of observation by yourself and your executive team, develop a plan as to what the new target should be, what the benefit would be of hitting that target, and how value-adding team members would be involved in improving the process.

3. Set dates for the implementation of the new workflow process. Gantt charts are useful for accomplishing just this type of objective.

4. Make certain that the scope of the project(s) is aligned with your strategic plan. Often times, focusing on the wrong targets can be more expensive than doing nothing. If your strategy for growth doesn’t include this part of your business, it’s possible you could be wasting valuable time and money.

5. Get value-adding team members involved early on in your assessment process. Once strategy has been developed and quantified, the improvement operation moves from strategy to tactics, where team members’ valuable insight and personal observations from doing the work themselves will improve the speed at which execution takes place and you are finally able to sustain the improvements.

Using these five steps will help you move away from the current target and establish a much tighter band where human output is greater. In addition, properly executed as part of a strategic plan, continuous improvements can help increase market dominance, just as they have for nearly 40 years within the American automobile industry.