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Bruce Hamilton

Quality Insider

Guillotine

In the name of short-sighted efficiency, businesses separate the head from the body and ship the body to China

Published: Wednesday, June 29, 2011 - 05:00

One of the more dubious outcomes of the French Revolution was the standardization of guillotining as the sole (and oft-employed) manner of capital punishment. Prior to the revolution, only the nobility was entitled to such a humane demise. Commoners received their due by more excruciating means, such as drawing and quartering. Today, it seems that U.S. businesses suffer both fates.

For the last four decades, in the name of efficiency, business entities have been ripped into pieces for consolidation with like entities from other regions. These attempts to “economize” draw and quarter the cultures that have made the individual businesses creative and competitive. Employees, the most valuable resource, are driven to other occupations, their process knowledge lost forever. Only the “big brains” are offered a chance to relocate. Machines are moved, too, but the people who do the work are displaced. A manager responsible for these kinds of consolidations confided to me about a recent plant closing and consolidation. “Strategically, we lost far more in the good ideas, creativity, and improvement thinking from company A, than we gained through economies of scale from its closing,” he said. “But I couldn’t quantify the improvement part, so I had no choice.”

The sales proposition for consolidation is simple: 1 + 1 > 2. In the short term, this appears to be true. As redundant jobs are eliminated (i.e., heads chopped), the bottom line improves. A similar effect occurred at General Motors during the 1990s: Each time heads were chopped, the stock price increased—as did executive bonuses.

To be sure, there are times when consolidation of resources can provide a unique synergy by gathering the best process knowledge together. But more often, only short-term gains are realized. In the longer term 1 + 1 < 1.

Around 1990, another mode of corporate execution became the strategy of choice: outsourcing. This began in high tech but has since spread to virtually every industry, public and private. I belonged to a regional vice president of operations group during the '90s where 75 percent of the members managed virtual organizations. They had a small administrative staff working for them, but everything else was outsourced. I was Alice in Wonderland, still struggling to make products in the United States while most of the rest of the group preferred to discuss their stock options. Here was the rationale:

“Manufacturing is not a core competency. Our strength is innovation.”

“We live in a new age of commodification,” they said. “Outsourcing is the wave of the future.”

More like a tsunami. Guillotine! Separate the body from the head, leave the head here in the U.S., and ship the rest to the lowest-wage locale available. Let the philosopher kings in the United States create, innovate, and incubate. Ship the “low level” work somewhere else.

Once again, on paper the concept looked ingenious: 1 – .90 > 1. Short-term earnings soared. But in actuality, undervalued production technology and process improvement was lost, ceded to other regions, which today are the new proprietors. A manufacturer of leather handbags commented to me, “We initially shipped our ‘low cost’ products” to China, but now those products are of higher quality than the ones we make here.” A manufacturer of sporting goods noted, “There are portions of our product for which the technology has been completely lost. We couldn’t buy it in the U.S. if we wanted to.”

The emerging producers from far-off places are not headless bodies but whole entities that have assumed leadership in markets ranging from consumer electronics to automotive to health care. They can still go to the gemba to observe and improve, because they have one.

Some days the trend to export jobs rather than products seems inexorable. On the other hand, there are notable product and service providers in our region that have made a choice to build their futures in America by learning to compete in the global economy—and they are thriving.

This is the theme of our October 5–6 Northeast Shingo Prize Conference: Made Lean in America. A distinguished group of lean leaders will be with us then, as will two dozen lean practitioners from lean organizations large and small, sharing ideas in our “lean lounge.” I hope you’ll plan to be there with us also.

In the meantime, let me hear your thoughts. Can your company make it in America?

Discuss

About The Author

Bruce Hamilton’s picture

Bruce Hamilton

Bruce Hamilton, president of the Greater Boston Manufacturing Partnership (GBMP), brings hands-on experience as a manager, teacher, and change agent. Prior to GBMP, Hamilton led efforts to transform United Electric Controls Co.’s production from a traditional batch factory to a single-piece-flow environment that has become an international showcase. Hamilton has spoken internationally on lean manufacturing, employee involvement, continuous improvement, and implementing change; and he has contributed to numerous texts ranging from visual control to variety reduction. Hamilton’s blog, Old Lean Dude, is an on-going reflection on lean philosophy and practices with an emphasis on keeping good jobs close to home.

Comments

Yes we can survive and thrive

My company is proof that you can do business in America. Even manufacturing! But, it takes work. I know it is a dirty word at times. We have to engage our minds and think and be smart. In fact, we have to become much smarter in all areas of our business. When we engage our minds in all the business details, the rewards are there. Rather than look at the stark numbers and throw in the towel, we need to get back in the ring and engage ourselves in the battle that business has become. On the surface, throwing in the towel, (and thereby, spliting the workforce and knowledge base) and sorcing overseas is the easy thing to do. Looking deeper, underneath the surface, at the granular are the keys to making it in the USA.. the greatest and most productive society the world has ever seen. Everything we need is in our backyard. But we have to look wide as well as close-up and be engaged to find the solutions. We can make the label "Made in the U.S.A." mean something again!