A Conundrum

While modern communication and travel have untold benefits, they bring the world closer together in a way that can discourage the small, isolated population effect and competition - the conundrum.

There can be great temptation to do as others who are succeeding do and to standardize methods and processes across related divisions, companies, and even industries and countries. Consolidation of companies and industries also contributes to the equivalent of the single huge population. The modern natural selection process, progress due to free enterprise competition, is threatened by those trends. Nature’s natural selection process was overtaken by the “single huge population” and became ineffective in much the same way.

For example: A pattern has developed where some in the automobile industry are spinning off their captive component parts production operations. Some of those new enterprises, in turn, acquire or consolidate with others. The smaller parts companies are disappearing. The plan is to sell components to as many auto companies as possible on long term mutual commitments. That arrangement will drive their volumes up and spread costs, including product development costs, over those larger volumes, in turn, lowering individual part costs.

The problem is that the costs are being reduced based on volume and by productivity improvements, at least in theory. Those lower costs are not necessarily the result of innovative, competitively-inspired products, better processes, and better methods and may not be unique to each of their customer companies. Competition, and therefore innovation, is reduced if not eliminated at the component level based on the sheer size of the producers, common production processes for their competing customers, and their preferred status with those customers.

Innovation by the auto part suppliers, in this example, may no longer be as prolific, since it is not necessary to beat all the competition to imaginative new products and better ways to produce those products. The larger component suppliers are not inspired to be aggressive, fast on their feet competitors. Flexibility and quickness are not necessarily high on their agenda. Huge entry barriers are erected in front of prospective smaller entrepreneurial enterprises, the small, isolated populations, discouraging fresh competition.

The short-sighted objective is high volume and resulting lower part cost with higher or assured long term profit. The competitively-inspired, innovative processes and methods that also result in lower part costs, along with continuous fresh new products for each final product, are not in the equation.

The supplier, by supplying competing auto companies, also narrows product differentiation and standardizes costs for all at the component level, ultimately diluting the innovation and cost benefits of competition at the final product level.

Prior to the serious entry of foreign automobile companies into the North American market, it seemed as though the American “Big Three,” Ford, G..M., and Chrysler, had each other pretty well figured out. They knew what to expect from each other and generally accepted their respective market share position. In a way, it was a kind of large fraternity with few significant surprises model year after model year. Even their labor agreements mirrored each other and precluded any prospective labor relationship, cost, or flexibility advantage. From the inside, it would be hard to tell one company from another. If one began to slip in its position, it was likely because it fell asleep at the wheel, rather than being the result of an aggressive American competitor’s challenge.

The baggage of tradition and labor restrictions produced a kind of apathy. Truly spirited competition between those companies was suppressed, and the promises of modern natural selection, free enterprise competition, weren’t going to happen. The industry had become that single, huge population in the excerpt whose traditions, standard ways, and paradigms encouraged complacency.

The foreign entries, Toyota, Honda, and Nissan, were the small, isolated populations. They were unencumbered by the American auto company’s paradigms, traditions, and labor restrictions, and they came with a spirit to innovate, qualitatively, technically, and organizationally. They came to compete. Those characteristics and the initial products were developed in their isolated home environment. Lean production methods, customer conveniences, fuel economy, and quality concepts are examples. (A well- known irony is that the quality concepts utilized were devised by Americans but rejected earlier as overkill.)

They were spirited, flexible, and aggressive competitors who accepted the challenge of breaching the local entry barriers, surviving and prospering in a hostile environment. It worked! Is more of the same imminent? As difficult as it may seem to accept the lessons learned from these experiences, at least some of them were addressed before they became terminal and in the long term those lessons will benefit all concerned.

“Despite a flurry of interesting new products coming from Detroit-based auto makers, Asian and European brands are going to continue to steal market share from them for the next five years, a recent study finds. The reason is because the foreign vehicles are more exciting and appear to offer better value to consumers.”[8 ]

[8 ]Drew Winter, Study: Detroit to lose share for five years, (Wards Auto.com, January 10, 2002).

Sweet and Sour Grapes
Sweet & Sour Grapes: The Story of the Machine Tool Industry
ISBN: 1587620316
EAN: 2147483647
Year: 2003
Pages: 77
Authors: James Egbert

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