Broad-ranging innovative changes in U.S. manufacturing will require the same kind of farsighted risk-taking leadership that earlier made U.S. industry the envy of the world. Without such vision all the national policy shifts and opportunity potentials imaginable will come to naught.
—James Brian Quinn, NAE 18th Annual Meeting, 1982.
The complexity of the manufacturing enterprise has been noted repeatedly —the processes, the interactions among elements inside and outside the enterprise, and the impact that the environment and the customer have on the manufacturing system. The sometimes disparate and conflicting interests represented by these many elements can be both perplexing and frustrating to the management of the enterprise. Badore (in this volume, pp. 85–86) describes these circumstances well:
The customer was not recognized as having the determining influence on product attributes or performance; tensions existed among various units and between various levels of the enterprise; no mechanism existed for setting priorities among the many desirable corporate objectives; suppliers were treated as a necessary evil to be tolerated but not trusted; and management and labor were confrontational in attitudes and objectives.
How is management to balance the constraints of capital investments against the various demands for faster response to the marketplace with new or improved products? How are they to react to demands by employees for
a greater voice in operations while at the same time responding to the desires of middle management for stronger control over the system? How do they set their goals and objectives in a rapidly changing environment, and how do they know whether they are progressing rapidly enough to meet them?
There are no simple or unique answers to these or the myriad other equally critical questions that confront management daily. There are, however, some foundations that have been tested and found to be important guides to management in searching for the proper answers.
GOALS AND OBJECTIVES
Few manufacturers have the luxury of serving a market that is free from competition. Whether that competitor is local, national, or international is frequently of little significance. If a competitor is capable of producing a product that has greater appeal to the customer at a price that is attractive, the chances are good that a means will be found to enter the market and to compete with you for your share of that market. Similarly, if one manufacturer wishes to enter another manufacturer's market, it is possible to do so only with a competitive product.
What then should be a manufacturer's goal if it is to guard against this possible encroachment on the marketplace? This goal is often referred to as being a “world-class ” manufacturer, a term used to convey the sense of excelling. The Japanese describe it as striving to be the best-of-the-best. As Hanson observes (in this volume, p. 164), “World-class manufacturers will be recognized by the leadership they provide in attacking and resolving complex customer problems.” World-class manufacturers will be in a position to offer their customers some combination—or all—of a set of product attributes equal to or better than those of any other manufacturer in the world at a price that is attractive to those customers. Excelling in any single area, such as cost, is never sufficient to guarantee world-class status. A manufacturer must be prepared to excel simultaneously in many ways, including the following:
Greatest dependability and flexibility
Fastest response to customer demands
To be competitive in the world marketplace, a manufacturer must first quantify the levels of performance, defined here in broad terms, that determine “world class.” A company does this by benchmarking itself against
its current competitors and estimating, to the extent possible, the capability of potential new competitors (Compton, in this volume). Various metrics must be evaluated to obtain a thorough appraisal of a company's performance versus that of its competition. A variety of detailed metrics are possible in the following categories:
Product performance metrics
Unit operation metrics
System operation metrics
Aggregated measures of performance
To ensure the ability to remain competitive for the long term, it is also necessary that a manufacturer determine its ability to make use of technology and the ability of its employees to respond to a changing environment. This latter characteristic is denoted by the term employee capability. The task of benchmarking is time consuming and often complex. It is not something that can be done once and then set aside. A company must expend a continuous effort to know the capabilities of its competitors.
Understanding a competitor's capability is but the first step in becoming competitive. Incorporating this information into the long-term goals of the organization—establishing a vision for the enterprise—is critical in achieving improved performance. Hanson (in this volume, p. 161) believes that when people understand this vision and have the appropriate information, resources, and responsibility, they will “do the right thing.” Doing the right thing is based on the appropriate frame of reference and a clear understanding of the task and its scope (see also Nonaka, 1988).
For this reason, management must view goals and objectives in both the long term and the short term (see Haas, 1987). The long-term goals focus on the customer and the markets a company is prepared to enter. Short-term goals often involve operational objectives that are best established with appropriate input from knowledgeable employees. Not only must these goals be clearly and regularly communicated to all employees, but management must put in place the means by which the performance of the organization can be continuously measured against these goals. This demands that the appropriate metrics be developed and that an assessment of progress against these metrics be continuously undertaken (Dixon et al., 1990, and Johnson and Kaplan, 1987).
It is often argued, however, that the goals and objectives that are established by the enterprise are adversely affected by outside influences, in particular by the short-term influence that is exercised by the financial and investment communities. While Fisher (in this volume, p. 138) agrees that such short-term influences exist, he notes that “for management to give any
more attention than necessary to short-range buyers makes about as much sense as it would for a construction company to use blocks of ice to build a bridge across a river in the tropics.” Although this book focuses largely on long-range objectives and goals, a company must not lose sight of the importance of short-term objectives.
FOUNDATION: World-class manufacturers have established as an operating goal that they will be world class. They assess their performance by benchmarking themselves against their competition and against other world-class operational functions, even in other industries. They use this information to establish organizational goals and objectives, which they communicate to all members of the enterprise, and they continuously measure and assess the performance of the system against these objectives and regularly assess the appropriateness of the objectives to attaining world-class status.
A manufacturing organization serves a variety of customers. In addition to the customers who expect to purchase high-quality products and services, the owners or stockholders may also be thought of as customers in that they expect a reasonable return on the investment that they have made in the company. The employees are customers in that they expect an employer to recognize their contribution to the success of the company and to provide them with a reasonable reward for their efforts. These are the stakeholders in the organization in that each has made a personal commitment to its success. The stakeholders have special expectations and needs that must be met (Peters, 1987).
These needs cannot be met, however, unless the organization recognizes that it and its various subelements exist to provide a product or service that someone wants and is willing to pay for. As Hanson points out (in this volume, p. 160):
Customers do not buy manufacturing, engineering, or sales; they buy solutions that fill needs. The successful manufacturer will focus the organization on customer needs, not on the functional capabilities of the organization. In this way the entire enterprise is optimized around meeting the customers' needs, using the skills of each discipline, focusing on the real task, and ultimately solving the real problems.
There are, of course, customers both inside and outside the organization. Outside are those who purchase the product or service. Inside are
customers who use the products or services of other groups as they work to provide the product or service to the outside customers. Identifying the customer and ensuring that the organization is properly focused on the “true” customer is critical.
As Edmondson points out (in this volume), identifying the customer and then identifying the true wants and needs of that customer may be difficult. He argues forcefully that unless this task is carried out carefully and objectively, the enterprise may find itself providing a product or service that no one wants or needs. Edmondson suggests that one useful way to approach the task of identifying customers and their needs is to adopt the objective of helping customers meet their goals rather than providing for customers' wants. He argues that this approach will not only require a manufacturer to search to fulfill the wants and needs of the customer but will also create a frame of mind that leads to providing much more imaginative products and services for customers (further discussion about linking product characteristics and customer requirements is found in Hauser and Clausing, 1988).
Management has a special responsibility to lead and encourage the organization; in turn, all the members of the organization have the responsibility to focus on the customer. Focusing on the customer is so important that it must be treated as a foundation of good management. One cannot assume that the obvious nature of this foundation ensures that everyone in the organization understands or accepts it or that everyone shares a common focus. Manufacturers need only remind themselves of the shock that many firms have experienced when their customers chose a competitor's higher-quality products even though the price was higher.
FOUNDATION: World-class manufacturers instill and constantly reinforce within the organization the principle that the system and everyone in it must know their customers and must seek to satisfy the needs and wants of customers and other stakeholders.
The complexity of the manufacturing system arises from many directions: the interdependence of the elements of the system, the influence of external forces on it, the impact that it can have on its environment, and the lack of predictability in the consequences of actions. The complexity and the difficulty in assessing the directions that should be followed can create a sense of frustration and futility for the management.
In focusing on the systems that create, assemble, test, and service products, it is necessary to recognize that individual manufacturing operations
Japanese Management and Technology
The one great economic power to emerge in this century—Japan—has not been a technological pioneer in any area. Its ascendancy rests squarely on leadership in management. The Japanese understood the lessons of America's managerial achievement during World War II more clearly than we did ourselves—especially with respect to managing people as a resource rather than as a cost. As a result, they adapted the West's new “social technology”—management—to make it fit their own values and traditions. They adopted (and adapted) organization theory to become the most thorough practitioners of decentralization in the world. (Pre-World War II Japan had been completely centralized.) And they began to practice marketing when most American companies were still only preaching it.
Japan also understood sooner than other countries that management and technology together had changed the economic landscape. The mechanical model of organization and technology, which came into being at the end of the seventeenth century when an obscure French physicist, Denis Papin, designed a prototypical steam engine, came to an end in 1945, when the first atomic bomb exploded and the first computer went on line. Since then, the model for both technology and organizations has been a biological one—interdependent, knowledge intensive, and organized by the flow of information.
SOURCE: Drucker (1988b).
differ and depend on each other in ways that may not be completely understood. Attempts to describe the system in all of its complexity have resulted in a variety of approaches. Some descriptions concentrate on either the equilibrium state or the dynamics of the system, some treat the system as an assemblage of independent “black-box entities, ” and others emphasize the relationships among the various elements.
A proper coupling among the diverse units demands that each have an awareness and understanding of the objectives and capabilities of the other. This has not always been achieved. As Lardner observes (in this volume, p. 177),
The general lack of satisfactory data and information management systems has encouraged the fractionalization of manufacturing. A manufacturing organization must react continually to changes in product requirements, product mix, product design, process design, material specifications, competitive pressures, and on and on with only brief periods of relative stabil-
ity. Because of inadequate overall data and information management systems, functional groups have developed local systems in an attempt to maintain control over their limited areas of responsibility. Since objectives and values vary from group to group, and there is little or no understanding of how the actions of one group will affect all the other groups, individual group response to the changes in the manufacturing environment varies greatly. It is almost by accident that group actions are directed toward optimization of the whole manufacturing effort.
Hanson (in this volume, p. 158) argues that all of the internal and external organizations “must be integrated into a cohesive ‘enterprise' working toward shared objectives. It is this Integrated Enterprise that allows both the manufacturer and the customer to be successful. ” Hanson identifies the following issues that must be addressed in order to achieve the integrated enterprise:
Both management and employees must view themselves from the perspective of the tasks that must be accomplished, rather than from the perspective of the organization of which they are members.
The enterprise must develop approaches that will lead to successful team orientations.
The enterprise must be organized to focus on the needs of the customer rather than on functional structure.
A clear set of values for the organization must be articulated.
Cook (in this volume) proposes that organizational structure has a profound impact on the capability of the enterprise to provide cost-effective high-quality products that meet the expectations and needs of the customer. He points out that the cultural order—the informal organization arising from personal relationships and shared values—in most functional organizations tends to support a sequential approach to product realization. Recognizing that the emerging paradigm for product realization is simultaneous or concurrent engineering representing full consideration of the design, engineering, manufacturing, procurement and service requirements for a new product as it evolves from initial concept to production, Cook examines alternative organizations that will support the new paradigm. He concludes that a more appropriate organization for achieving these objectives is a system/subsystem organization, in which the system unit has “the chief responsibility . . . to understand the customer's changing needs and translate them into a set of specifications for each individual subsystem.”
Cook states that in this organization, in contrast to the functional organization, authority and responsibility are coterminous, coequal, and clearly defined. As is discussed by Badore, Hanson, and Welliver (in this volume),
this placing of responsibility and authority with the individual—the empowerment of the individual employee—is critical to accomplishing the objective of continuous improvement.
As Mize notes (this volume, p. 197), “Increasingly, managers will have to visualize their businesses and organizations at a point in the future, interpolate their way backward into the current reality, and then aggressively
manage the implementation of the transition path from here to there. But the future vision is a moving target, and the backward interpolation process must be ongoing and dynamic.” Mize points out that the enterprise and the organization that is established to support it are dynamic and must be constantly subject to review and, when appropriate, to change. It is only by this means that they will remain capable of meeting the current challenge and prepared for the future challenge, in short, that they will have the means and the desire to renew themselves continuously in view of the changing events in the world marketplace.
FOUNDATION: A world-class manufacturer integrates all elements of the manufacturing system to satisfy the needs and wants of its customers in a timely and effective manner. It eliminates organizational barriers to permit improved communication and to provide high-quality products and services.
Accomplishing the objective of creating a world-class manufacturing organization must begin with recognition that the most important asset of an enterprise is its employees. When properly challenged, informed, integrated, and empowered, the employees can be a powerful force in achieving the goals and objectives of the organization. People are key to achieving a world-class competitive status; they are absolutely essential for success, although they alone cannot ensure success (see also, Prahalad and Hamel, 1990, and Senge, 1990).
Creation of the environment in which employees can participate in the activities of the organization demands a change in the thinking of many people. It is not just the supervisors, managers, vice presidents, the president, and the chairman that must be willing to participate, but also the employees on the plant floor. Employee involvement, as Badore notes (in this volume), means including employees in the operation of the firm. This involvement has two objectives:
Creating and sharing of the vision of goals and objectives—for the overall enterprise as well as for each organizational unit —by all employees.
Seeking and sharing the knowledge possessed by the individual employees to identify and solve problems.
The rationale for employee involvement is predicated on the assumption that individual employees have the best opportunity to understand and appreciate the problems that are unique to their positions. They know their jobs and they know what limits their performance.
The employee involvement strategy is directed at letting employees decide the best way to do their jobs. Marsing (in this volume, p. 190) observes that “For senior managers to sit in their offices and assume that they have all the knowledge and experience needed to make critical risk decisions is a prescription for failure. To make the best decisions with the most knowledge, managers have to use the combined intelligence of the entire work force.” Hanson (in this volume) emphasizes this as one of the key principles in achieving an integrated enterprise. Welliver (in this volume) refers to the process of going to where the information resides—in the employees —as “going to the gemba.”
Badore (in this volume, p. 87) emphasizes the importance of employee involvement.
[It] is, in a sense, the means by which a large organization attempts to achieve many of the benefits that are generic to the small organization. Although certain organizational structures and systems are required in larger organizations, the effort to accomplish meaningful employee involvement . . . is directed at preventing the organizational structure and systems from providing barriers to finding the best solutions to problems. Furthermore, the involvement process provides a means of humanizing the organization and maintaining participation by individuals at all levels—a process that is intended to lift the organization to new heights of performance through the best use of the skills and interests of the individual. It is the means by which continuous improvement can be made an operating goal for all levels of an organization.
Wilson (in this volume, pp. 239–240) uses the experience of the jazz musician as an example of interactions that are important for group success.
In small group improvisation (fewer that eight players), the players must share a commitment to excellence demonstrated through the creativity and imagination of their improvisations. The group conditions must free the players to establish the group cohesion and interdependence of their own contributions. To achieve group excellence, each of the players must be highly skilled. . . . Communication among the players is essential during performance. . . . They intimately share instant information about their performance, have the power to determine and modify its direction, share full knowledge of the performance technology, and immediately share the rewards of the audience response. . . .
Thus, the concept of group creativity in a jazz performance may provoke some new ideas for organizing production work. For example, the moments of creative opportunity for a jazz musician are a small but highly motivating fraction of his total professional life. Hours of uncompensated practice are required to achieve those creative moments. Would most employees be similarly motivated by the opportunity for occasional breaks from routine work to engage in a creative job experience? ”
Employee involvement does not, by itself, provide the mechanism by which employees can use their knowledge and experience to benefit the enterprise. Badore notes that “If proper advantage is to be taken of the knowledge that the employee possesses, it is necessary to empower the employee to implement the solutions that they know to be available. By so doing, the enterprise is making the employee an integral part of the solution process.” Hanson argues that creating the integrated enterprise requires “empowerment of the individual ” and that this leads to “distributed decision making [because] information freely shared with empowered people who are motivated to make decisions will naturally distribute the decision-making process throughout the entire organization. ”
Fisher brings the perspective of the financial community to this matter of continuous improvement. He says (in this volume, p. 142), “For my own investments and those I handle for others, I am interested only in companies that recognize that competition is steadily improving, so that it is incumbent on these companies continuously to improve their own efficiency and never to be satisfied even with the quite magnificent strides that some of them have made in recent years. ”
FOUNDATION: Employee involvement and empowerment are recognized by world-class manufacturers as critical to achieving continuous improvement in all elements of the manufacturing system. Management's opportunity to ensure the continuity of organizational development and renewal comes primarily through the involvement of the employee.
THE SUPPLIER OR VENDOR
Figure 1 explicitly recognizes the importance of the role of suppliers and vendors to the integrated manufacturing system, a role that has long been recognized by Japanese manufacturers as critical to their success. The close relationship between supplier and purchaser in Japan has created a situation that “represents a form of vertical integration without the actual legal or direct financial commitment that would be required of ‘true' integration” (National Academy of Engineering, 1991, pp. 101–102). A similar type of long-term relationship between supplier and purchaser is being created in this country, in recognition of the fact that the system of manufacturing encompasses these elements as well. As Hanson notes (in this volume), “A supplier unfamiliar with marketing plans and product strategies cannot fully provide the resources and intelligence to help reduce time to market.”
It is essential that the barriers that have existed between supplier and
purchaser be attacked as actively as are the barriers between the elements in the manufacturing organization, for example, product design and process design. The sharing of goals, the exchange of information, the interchange of people, and the making of long-term commitments are some of the ways in which these barriers are being overcome (further discussion of supplier relationships can be found in Womack et al., 1990).
Essentially everything that has been said in this report—both above and in much of what follows—is as applicable to the supplier as it is to the manufacturer. The successful manufacturing system will create an environment that encourages, recognizes, and rewards the integrated involvement of all elements of the system.
FOUNDATION: A world-class manufacturer encourages and motivates its suppliers and vendors to become coequals with the other elements of the manufacturing system. This demands a commitment and an expenditure of effort by all elements of the system to ensure their proper integration.
THE MANAGEMENT TASK
Effective management is critical if an enterprise is to compete in the world marketplace. The committee has identified five foundations that relate to management practice—establishing the goal of being world class, attending to the needs and wants of the customer, creating an effective organization, creating an environment that encourages and rewards employee involvement and fosters employee empowerment, and integrating the suppliers and vendors into the system.
Attention to any one of these will be useful to an organization, but achieving world-class status will require that all five be simultaneously pursued. The challenge to management is to understand the importance of the task, to commit to accomplishing it, and to devote the enormous effort that is required to complete it.
Welliver (in this volume, p. 237) describes the task as follows:
Our biggest challenge is to instill this philosophy and approach throughout the company. Managers are accustomed to having more control over the processes, but they do not realize they will have much more control over the quality of their products or services if they let go of some of the decision making. . . . We are also learning that managers must look for problems with vigilance, gaining an understanding of the real issues and problems by poring over facts and data. . . . But once the hidden problems are revealed, managers start to realize that the appearance of a smoothly operating organization can be deceptive.
Malcolm Baldrige National Quality Award
The Malcolm Baldrige National Quality Award is an annual Award to recognize U.S. companies that excel in quality achievement and quality management. Fundamental to the success of the Award in improving quality in the United States is building an active partnership between the private sector and government.
Companies participating in the Award process submit applications that provide sufficient information and data on their quality processes and quality improvement to demonstrate that the applicant's approaches could be replicated or adapted by other companies.
Key Concepts in the Award Examination Criteria
Although reliable evaluation relative to the Examination criteria requires considerable experience with quality systems, the Examination may also be used for self-assessment and other purposes. Thousands of organizations—businesses, government, health care, and education —whether or not they are currently eligible or plan to apply for Awards, are using the Examination for training, self-assessment, quality system development, quality improvement, and strategic planning.
SOURCE: National Institute of Standards and Technology (1991).
Hanson (in this volume, p. 164) elaborates on that theme:
The successful manager of the 1990s will have the skills to define complex dilemmas and resolve them, not ignore them. This management skill, which can be defined as ‘dilemma management,' is a critical component of the Integrated Enterprise. The characteristics of the dilemma manager include the ability to tolerate ambiguity, to manage and, indeed, thrive on the tension that is caused by apparently conflicting demands. The apparent conflict will be valued as a stimulator for change.
Marsing (in this volume, p. 191) suggests that the role of senior management is to understand and remove obstacles that impede the progress of operational units. “Anything less will not build the foundation needed in the organization to deal with change and risk taking.”
The task facing management is indeed daunting. It is tempting to ask whether there is a single “right way” to go about addressing this task. The answer is probably not. The approaches depend on many circumstances, including such things as the personalities of the people involved, the size of the organization, the level of competition in the particular industry, and the rate of change that the industry is undergoing. Wilson (in this volume, p. 241), in his use of the jazz group as a metaphor for the manufacturing enterprise, notes that the nature of the leadership varies with size of the group.
As the number of musicians in a jazz ensemble increases, collective improvisation becomes increasing hard to execute. . . . [L]arger jazz ensembles use written arrangements. . . . The ‘big band,' comprising 12 or more players, removes much of the self-determination from the individual player, limiting his creative contribution. . . . Those ‘big bands' that survived through several eras were distinguished by a single leader . . . who established an identifiable sound for the group.
Effective leadership can be achieved in many ways. Again Wilson's observations concerning leadership of jazz groups seems equally applicable to the manufacturing enterprise.
In contrast to small jazz groups, the leader of a big band has a strong individual role in establishing the style and the expectations about the quality of performance. He relies on written communications (arrangements) to provide the structure of the performance relationships and to indicate where individuals can contribute their own creativity through solos. Nevertheless, the anecdotes suggest how widely the leadership styles of the band leaders may differ. Although the style and discipline of the band may therefore be a reflection of the leader 's personality, there seems to be no obvious correlation between leadership style and commercial success.
Leadership, Incentives, Rewards
Companies produce fine products largely because the people at the top care about the product per se, elevate product or innovative people to strategic levels, and commit resources behind them. Company managements that look at technology or manufacturing activities simply as money mills to be compared against the financial advantages or disadvantages of hoarding silver or owning banks are unlikely to create the internal pressures or atmosphere that keep their organizations strong, processes current, quality high, and technologies at the forefront. Financial measures rarely reflect these crucial aspects of performance until years after the most critical actions have been taken or ignored. Sony has been an innovative leader because Messrs. lbuka and Morita are talented and have long cherished innovation and quality products per se. Pilkington's float glass innovations occurred because Alastair Pilkington wanted to invent, and its top management had long time horizons, understood the need for innovation, and empathized with the chaos and risks involved. Japan has emerged largely because its leaders had vision, patience, and a high regard both for technological advance and for building the worth of their human resources.
Until boards appoint and reward top managers for being innovation oriented and interested in the company's future product and cost positions, U.S. manufacturing companies and industries will suffer. Fortunately, when plans are well conceived and communicated, the stock market does reward progressive companies with high P/E ratios, the basic method of allocating less expensive capital in the United States. To be effective, this longer-term focus must also be reflected in the full control and reward systems of the company. Properly developed, multiple goal “management-by-objectives” (MBO) systems, combined with carefully designed strategic portfolio plans and controls, provide available mechanisms for orienting lower-level decisions toward the future. Unfortunately, too few companies use these mechanisms to their full capability, relying mostly on short-term accounting and return on investment (ROI) controls instead. Smaller companies often have longer-term horizons because their owner-managers look to future stock market yields rather than to more current rewards. A greater use of measures and rewards that generously compensate large company executives for their units' total performance five years later might engender very useful effects.
SOURCE: Quinn (1982).
Imaginative, creative leadership at every level of an organization is critical if it is to be capable of building on these foundations. Management creates the culture within which the organization functions. Management must exhibit the concern for the health and well-being of the organization's human resources. Management must insist that the organization look beyond its borders to interact with its customers, its suppliers, and the educational systems that are training its present and future employees. It is a challenge to the organization to find the proper management for the circumstances in which it finds itself (see also Drucker, 1990, and Mintzberg, 1978).
FOUNDATION: Management is responsible for a manufacturing organization 's becoming world class and for creating a corporate culture committed to the customer, to employee involvement and empowerment, and to the objective of achieving continuous improvement. A personal commitment and involvement by management is critical to success.