Fifteen Years of Major Structural Changes in Manufacturing

PEHR GYLLENHAMMAR

THE MANUFACTURING INDUSTRY is still under great pressure worldwide, having gone through a difficult time in the 1970s. In the late 1960s the attitudes toward the industry were negative, particularly among young people. These attitudes continued into the early 1970s, at which time the industry experienced the oil price increase, several recessions, and hardly any corresponding boom in the economy. In addition, the Japanese offensive which began in the 1970s has presented difficulties for many companies in Western Europe and the United States.

As a result, many industries were ailing. Some were subsidized, some were dying, some were restructured, and some succeeded. It has been widely supposed that in the 1980s the manufacturing-based society would give way to a service society, a postindustrial society, and possibly a society for high-tech industry. However, the postindustrial society has not arrived. The service society is here, perhaps, but will not solve our problems, and high-tech society still has to be defined.

NEW PRODUCTS, NEW MANAGEMENT, COMMITTED PEOPLE: MEANS FOR SUCCESS

Today the manufacturing industry is facing a new environment that is a result of the difficulties of the 1970s and the pressures of today. To survive in this new environment, the industry has to be good at almost everything. Today industry has to excel at both product development and production. It has to be in command of the development of distribution systems, that is, logistics. It must be able to identify target groups in the market extremely well. This means an industry must be precise in its message, offer good



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Globalization of Technology: International Perspectives Fifteen Years of Major Structural Changes in Manufacturing PEHR GYLLENHAMMAR THE MANUFACTURING INDUSTRY is still under great pressure worldwide, having gone through a difficult time in the 1970s. In the late 1960s the attitudes toward the industry were negative, particularly among young people. These attitudes continued into the early 1970s, at which time the industry experienced the oil price increase, several recessions, and hardly any corresponding boom in the economy. In addition, the Japanese offensive which began in the 1970s has presented difficulties for many companies in Western Europe and the United States. As a result, many industries were ailing. Some were subsidized, some were dying, some were restructured, and some succeeded. It has been widely supposed that in the 1980s the manufacturing-based society would give way to a service society, a postindustrial society, and possibly a society for high-tech industry. However, the postindustrial society has not arrived. The service society is here, perhaps, but will not solve our problems, and high-tech society still has to be defined. NEW PRODUCTS, NEW MANAGEMENT, COMMITTED PEOPLE: MEANS FOR SUCCESS Today the manufacturing industry is facing a new environment that is a result of the difficulties of the 1970s and the pressures of today. To survive in this new environment, the industry has to be good at almost everything. Today industry has to excel at both product development and production. It has to be in command of the development of distribution systems, that is, logistics. It must be able to identify target groups in the market extremely well. This means an industry must be precise in its message, offer good

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Globalization of Technology: International Perspectives service, and look upon its total operations as one system. It was not long ago that a manufacturer could boast about a product that invaded the market simply because it was newer or better. A manufacturer could also specialize in marketing and do reasonably well with products that were not exceptional in any way. In today’s tough environment, new technologies have, to a large extent, changed the product. The automotive industry is the largest industry buying and applying a wide range of new technologies. We use new engineering materials such as plastics, aluminum, and alloys and depend heavily on electronics. Sensors are used extensively throughout the products, and we have taken a systems approach to product development. We see the car as a system more than a piece of hardware or an assembly of hardware. The automotive industry also has new tools for product development. Computer-aided design has led to, if not a revolution, much higher efficiency. Volvo recently has designed an engine without using the drawing board at all. So, engineers are supported in their development work by artificial intelligence, simulation, and sophisticated testing equipment. NEW DEMANDS FROM EMPLOYEES AND CUSTOMERS The manufacturing industry experiences other, new demands besides competition and the pressures of recession and tough economic conditions. There are new demands from two kinds of people—the employees and the customers. The employees’ demands, of course, are for better education and more information. Employees want more meaningful jobs and a bigger say in the development of the corporation. They want to see evidence that they can experience personal development through the job. Employees look at what might be described as the invisible contract. They give something to the corporation. They do not always feel that their contribution is reciprocated, and they want to see evidence that this invisible contract is maturing into something that is good for them. They are looking not only for monetary remuneration but also for an interesting job and the possibility of receiving training and trying new career opportunities in the company. Customers, too, are much more sophisticated today than they were in the past. They ask not only for value for their money but also for care. They ask for service and they too want a kind of invisible contract with the supplier. Consequently, people are the key resource in industry, whether they be customers or employees. NEW TECHNOLOGY MEANS GREAT CHANGES AND OPPORTUNITIES In the automotive industry, the standard scenario in the late 1960s and the early 1970s was that large-scale production would survive and smaller-scale

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Globalization of Technology: International Perspectives production would die. This view was partly tied to the technology that was available at that time. The automotive industry was using transfer lines, capital-intensive automation, and mainframe computers. This expensive large-scale technology led to the concept of the world car, which was talked about throughout the 1970s. Manufacturers chose their manufacturing base wherever costs of production seemed to be lowest and where availability of labor was ample. Then they applied this capital-intensive technology to production. Today we can see that those industries that have survived were not necessarily the large ones and that small industries can also be successful. In part because of the new technology, there is a mixture of both small and large industries. Automated manufacturing technology provides an opportunity for smaller-scale production to become profitable. Robots coupled with new types of numerically controlled machines provide flexibility. Robot gates are replacing transfer lines. Microcomputers assist or replace mainframe computers on many jobs. Light tools are replacing heavy tools. Trucks used in materials handling are superseded by self-propelled electric carriers. Modern information systems allow for delegation and dissemination of information at low cost. This also means that decision making can occur in many different parts of the production system, whereas previously it had to be centralized, both because of the equipment and because of the lack of proper information technology. Together with light and flexible equipment, computer-aided manufacturing makes it easier to work with different layouts. A manufacturer can easily change the layout of a production system that was previously too expensive or difficult to move because of the heavy and capital-intensive equipment. Because it is easier to manage a small group of people than a large mass of people, small-scale manufacturing has also become economical. It is now possible for a manufacturer to go from a 5,000-employee plant to a 500-employee plant. Years ago there were suspicions that the 500-employee plant would not be able to compete. Today we have evidence that such a plant can compete and in many ways is more efficient. As a result of these various technological developments, the automotive industry, which in the 1970s was labeled a mature industry, meaning that it was on its way out, is now called high tech. It is very technology intensive. AUTOMOTIVE INDUSTRY—BIG CONSUMER AS WELL AS PRODUCER OF NEW TECHNOLOGY The automotive industry is the largest manufacturing enterprise in the world. The tip of the auto industry iceberg—25 corporations making and selling cars and trucks—is a $500-billion-a-year business at 1987 prices. The rest of the iceberg—supply of materials and services, auto fuels, and the aftermarket, such as sales of used vehicles—is six to seven times larger.

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Globalization of Technology: International Perspectives This means that the automotive industry, broadly defined on a worldwide scale, is larger than the entire U.S. economy. In the 1960s and early 1970s, it was fashionable to demonstrate the automotive industry’s importance by citing the consumption of the industry’s staple materials diet—steel, glass, plastics, and rubber. These figures demonstrated that the 25 million jobs at the tip of the auto industry iceberg support another 6 million jobs directly in manufacturing alone. A new dimension to the traditional importance of the automotive industry is now becoming apparent. The industry is a major consumer and producer of new technology hardware and software. It is the biggest manufacturing meeting place or crossroads for innovation and application of design, development, process, product, and distribution technologies: Half of the world’s robot population works for the automotive industry. Auto companies (General Motors, Fiat, Volkswagen, Volvo) are among the major producers of automated production hardware and software. Worldwide, the tip-of-the-iceberg auto companies also carry out about 10 percent of the world’s aircraft business. The auto industry claims a 50 percent share of all of today’s installed flexible manufacturing systems. General Motors, Ford, and Chrysler are IBM’s major U.S. customers after the U.S. Department of Defense. In Western Europe, the auto industry is the dominant customer for new materials (special steels, superplastics, and composites). In Japan, the annual combined research and development budget of the automotive industry comfortably exceeds the European Economic Community’s funding of collaborative research plus the budget of the European Space Agency. Cars and trucks lead all other manufacturing industries in cost and product utility per pound of weight. This lead is threatened only by the computer business, whose products are—as yet—remote from widespread consumer ownership and use. However, the potential for further technological advance in the automotive industry is vast. ORGANIZE THE PRODUCTION SO IT DEVELOPS THE EMPLOYEES Workers were exploited during 50 years of manufacturing development, from Henry Ford’s assembly line up to similar assembly lines that have not yet been deserted. Today assembly operations can be carried out differently by eliminating heavy and monotonous tasks.

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Globalization of Technology: International Perspectives Some of these less desirable tasks, for example, have been taken over by robots. Volvo, for example, installed its first robot in 1971. That decision had to be made by the chief executive officer because there were no rules to delegate authority for something that was not profitable, and there was no way to calculate a return on the first robot. Today a new production organization can be designed in such a way that, to a much greater extent than in the past, it corresponds to the way people wish to organize themselves. Earlier, the heavy, capital-intensive technology had to dominate people, who were really the servants of that system and of that technology. With a new, light, flexible technology, a manufacturer can organize people so that they are in command of the technology—a very dramatic change. Volvo has used this change in programs to develop and promote employees. We have sought to give them training not only in new technologies, such as the lighter, more flexible, and also more complicated equipment, but also in a new responsibility to accept a much greater mandate in minding their own workstations. Volvo has used this approach to extend work cycles from 90 seconds up to 1 or 2 hours, to let the employees organize themselves the way they find appropriate and to do things right and exercise their own quality control. The most common work organization today is a team of 3–12 people who are responsible for a well-defined part of the production. Normally, this includes quality inspection, handling of incoming materials, maintenance, planning, and problem solving. New technologies also provide opportunities to create more flexible work environments. For example, one of the main problems in large-scale manufacturing or any area of manufacturing that involves large numbers of components—such as the automotive industry—is that of materials handling. Here the available technologies include the self-propelled, computer-guided carriers that help to keep the floor clear of equipment because all equipment is mobile. This technology also makes it possible to change the layout of equipment to fit particular work organizations. What manufacturers see, therefore, based on the new technology, is a freedom they have not had before. They can either use this freedom to contribute to development of their employees or they can continue to organize their plants in a conservative fashion. Manufacturers will find, however, that the new competitive tool is to organize production so that they can develop their workers. The necessity of employee development represents a major task and a new role for management. Not only does it entail a new kind of technical training but it also includes leadership training that was not even considered a possibility for blue-collar workers 10 years ago. To implement a new management philosophy, Volvo started pioneering plant projects in the early 1970s. The best known of these has been the Kalmar plant. These projects became real and visible symbols for people to learn from and have been the source of experience and productive ideas that have been diffused to other parts of the organization.

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Globalization of Technology: International Perspectives LACK OF PATIENT CAPITAL LEADS TO INADEQUATE EVALUATION OF POSSIBILITIES Manufacturers face many problems related to the fact that the manufacturing industry may not have been successful enough, and the availability of new technologies creates a chance to achieve improved growth. It seems obvious in many parts of Western Europe that the financial returns from manufacturing are too small. It seems clear that this is also the case in the United States. Manufacturers have competition from the service sector, where returns often are more handsome, and from the financial services, where the returns of the last 2 or 3 years have been phenomenal, not only for shareholders but also for employees. The manufacturing industry that enjoyed more positive attitudes after the bad years of the 1970s is again losing its glamour. The risk is that the industry is subjected to short-term evaluations of its possibilities. Training people to use the technology at their disposal requires time. Industry also needs patient capital. Even if product development cycles are shortened and even if products can be introduced into production faster today than they could 10 years ago, it is still a matter of 5- to 10-year perspectives. It may well be 10 years before a manufacturer is certain of a fair return on a new product development that has been introduced into production and then into the market. Serious investors understand that technology and product development takes time and requires research and development by competent people. Short-term speculations are detrimental to the manufacturing industry. I would predict that the capital market will understand this very soon. The manufacturing industry is running out of patient capital, which is hardly available anymore. Not only does industry need to apply the new technological means at its disposal, it also needs support to get more glamour, to get more real development. At present the acquisition of industries is often more profitable than adding value through patient and good work. NO SERVICE SECTOR WITHOUT A VIABLE MANUFACTURING INDUSTRY It is often said that the service sector is growing faster than the industrial sector, and of course, that is true. But there is a link between services and industry. A great part of the new service- and knowledge-based industry is directly or indirectly a result of the manufacturing industry. For instance, manufacturing companies need more technical support and systems development. Many companies prefer to buy these services rather than build up their own in-house resources. If we take industry or industrial growth away, eventually part of the service sector will collapse. Although the manufacturing industry cannot solve the problems of unemployment and slow growth, even with the new technology now available, it is absolutely certain that those problems cannot be solved without a viable manufacturing industry.