Lesson 4: Managers and Owners

The “employee owners and owner managers” concept is the one that solves several problems associated with ownership, management, succession, etc. in the American special machine tool industry. It also satisfies the insightful observations of the venture capital executive who put employee passion and executives’ specific expertise at the top of his “must have” list. The problems regarding outside executives as managers following an entrepreneur passing without effective succession plans are eliminated as well. Most of all, the culture of Yankee ingenuity has the best chance to flourish: preservation of the small, isolated populations effect!

The Buyer/User’s Role

By now, the value of the American special machine tool industry to us, the final consumer, is apparent. Its role in continually improving consumer product value and innovation is a key to progress. It would seem reasonable, then, that the buyers/users of the special machine tool products who manufacture the consumer products must also recognize that value. Their shrewdness in capitalizing on the competitive, creative resources of the industry can pay large dividends. It must be done in a fair and professional way with as few rules as possible. This by itself would give them a key role in restoring the industry to its former level of efficiency and respect, from which they will be the greatest beneficiaries.

The decline of the industry, the benefits lost to date, and the prospect of further loss in these capabilities is difficult to quantify. Further loss is possible, as the two large remaining American special machine tool companies seem to be vulnerable. They each have characteristics that also played a part in the difficulties experienced by those companies that have not survived. In addition, there are numerous small but effective closely-held companies who will ultimately face the same problems that hurt the companies discussed. These are the larger companies of tomorrow which will be the basis for a resurgent American industry.

This should not be interpreted as a plea for mercy or for treatment other than fair, professional, arm’s length relationships with favors to none or all, whether, foreign, or domestically owned.

The return to a true sealed competitive bid process is essential. To be truly effective, it must be done with the highest integrity and mutual trust possible. The objectives must be for the buying organization to get the best dynamic value time after time and for the suppliers to have a reasonable opportunity for success. It is free but fair competition that drives technological advance. The bidder’s price and concept offered must be held in confidence. The offerings should be compared based on true value over the life cycle of the products to be produced, typically requiring a buyer and a manufacturing engineer to work together closely.

Progressive Payments

An old problem for the industry and for many of its customers from the opposite side of the same problem is “progressive payments.” It’s apparent after discussion in earlier chapters that the capital-intense nature of the industry presents it with several problems. The shame is that the working capital part of the equation has little to do with any company’s real capability to innovate and supply very large and sophisticated quality machine tools and manufacturing systems.

The main problem is that the company’s financial resources will establish a line above which business cannot be accepted. It will not be able to finance multiple large projects over an extended period of time. This is regardless of all of its other resources and capabilities. In other words, the best-qualified company, having won an order in all other respects against large and difficult competition, with an exemplary imaginative offering, cannot be given the order. It results from the fact that its financial resources, relative to working capital, limit it.

Selecting that supplier can be a distinct advantage to the buyer, except for the hassle that is required within his company to arrange progressive payments. This situation is a major barrier to further progress for the offering company, as it will precipitate a less deserving competitor’s gain. The offering of the next best competitor will be a less desirable one. That means, in effect, that both the buying and selling companies are negatively affected.

There is something wrong with this picture. We all know that it is possible to provide progressive payments as many companies and industries do it all the time. The real problem is that the policies and systems in place, when designed, did not recognize this prospective need and as a result, the process is extremely complicated and a major burden to those involved. You will remember that formerly single process steps typically were purchased as opposed to the entire systems that are common today.

These policies and systems now need to be redesigned since they hurt the buying company as much as the seller. The buyer’s choices become more limited in a leveraged opportunity to save cost and advance his technology level. The cost for the use of the money in a progress payment arrangement is typically returned to the buyer, as a discount based on current interest rates.

Without progress payments, the entry barrier to prospective spin-offs or other new prospective businesses, the small, isolated populations, is much higher. The number of significant new companies entering the business, during the years of history discussed, can be counted on one hand. There are other factors, especially the human element, but finance is the big one.

Standardization

The multi-location, multi-national manufacturers made a mistake trying to standardize processes and methods worldwide, losing opportunities to innovate locally, energizing and motivating their local team members while respecting their cultural differences. It’s also the opportunity to incorporate emerging technological advance locally without betting the whole farm and to make updating to subsequent technology generations a huge task.

“This is the way that we in Detroit have decided you should do it” mentality wipes out the free thought, the “no rules environment,” and the local feeling of ownership.

The reason to utilize advancing technology is to provide capability to manufacture components either previously impossible or impractical, or at a newly-specified higher rate or quality level or lower cost. A current example: the machining of wing spars and similar parts from solid billets of aluminum versus fabrication with fasteners was not practical until developments by one of the American special machine tool companies made it so.

The objective for the buying company is to be better able to compete in the global marketplace against ingenious and very aggressive competition and to stay on or exceed the progress curve. To freeze a manufacturing process to the extent that change becomes difficult, time- consuming, and expensive, even if it’s ahead of the progress curve at the time, will surely be a handicap against aggressive, fast on their feet competitors. It’s especially true with the technology curve as near vertical as it is.

Technology on the Production Floor

Higher technology levels imply easier operation and maintenance to some. Hence, no higher skill levels are required for its use or maintenance. This is simply not the case!

The 1950s automobile provided the basic functional transportation capability and would function as well today as then. Many of us could do fairly large and essential diagnostics and repairs on those cars in our own driveways or at the local corner gas station and consumers were required to do so on a fairly regular basis.

Of course, there are many enhancements for comfort, efficiency, safety, and emissions on the current model cars. The frequency of these kinds of repairs on today’s sophisticated cars is far less. However, it takes educated and trained technicians with sophisticated computer diagnostic tools to accomplish what could be done in our driveways in the old days.

There are some modern devices that are available to us today in our cars and our homes that require some thought and patience to understand and operate. The use of PCs and related devices are proliferating, and even getting full use out of a VCR requires following fairly complex guidelines. Doing things wrong can damage equipment and erase valuable, essential data or programs. Life in general, as well as in the workplace, has become more complex, but most of us can learn to do things differently and correctly with desire, attention and concentration.

This all has to do with the operation and maintenance of the more and more advanced equipment once it is installed in the buyer’s facilities. By virtue of the technological advances now incorporated and the even more advanced ones on the horizon, the operator and maintenance skill, education and training level requirements, and organized labor work rules are a serious problem.

For the advanced systems to live up to their true capability, leveling the playing field against low labor cost countries, the people operating and maintaining must be highly trained, skilled, multi- disciplined and, above all, they need to be motivated and to be “owners” (take responsibility).

If the production floor mentality normal to many American auto plants persists, the new capability will not be realized. In fact, the effect will be to become less effective than in the past due to the increased complexity to operate and maintain devices by untrained and unmotivated people. Specifiers of equipment understand the problem and may buy less sophistication, since in the short term they will be more effective. In the long term, they will surely lose.

The alternative is a current trend in the automotive industry. It is to establish long-term relationships with large parts suppliers, rather than to fight the battle of changing their local culture. Some of those suppliers push to acquire the most advanced systems practical and have the desire and capability to operate them at their maximum efficiency levels. They will make significant gains and will be the winners, while the others, the losers, include employees.

These part-supplying companies are consolidating, creating much larger companies with much greater capability. They expect to supply complete assemblies of parts from vehicle seating and bodies to entire braking systems and potentially transmissions and even engines. While this approach creates other potentially less effective operations from an agility and innovation point of view, it seriously challenges the typical automotive manufacturing environment in productivity and product cost.