Getting Back to Basics

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I recently had a request from a Detroit newspaper to write a brief piece for the Motor Show on how American car companies can get turned in the right direction. In reading it over, I realized that my advice would be the same for any company in any industry in any country, so I thought I would pass it along. If you are not in automotive, just substitute your industry and product whenever you see "automotive", "cars", etc.

We're Back to Basics. So...What Are the Basics?

In every economic boom, American car companies forget what they really are and start to think they are something else, seemingly much more exciting. In recent booms, these dreams have included financial institutions (The Associates), data systems providers (EDS), airplane makers (Gulfstream), high-tech electronics outfits (Hughes), car dealers (Auto Collection), and "e"ntrepreneurs (

Then the boom ends and they discover that they are really companies. So, as we slug through the 2002 recession, everyone agrees that the American companies should get back to basics. But what are the basics? Here's my short list, based on the thought process of my ideal company. (You guessed right. It's Toyota.)

  • Focus on the product by installing a real chief engineer for every platform. Even when Toyota publicly advertises the role of their chief engineers - like Kosaku Yamada for the new Camry/ES300 - no one in Detroit seems to get it: Put someone permanently in charge of making money and growing share for each product, make sure that person knows a lot about cars, give that person lots of responsibility but little staff, and have the CEO tell all of the functions to get behind the chief engineers or else.
  • Rethink purchasing to focus on the actual process of engineering and making components, and look at the entire value stream of activities running from raw materials to complete vehicles. Then jointly remove the wasted steps and co-locate the remaining value creating steps to pursue big cost-downs (rather than margin shifting) and make-to-order vehicles.
  • Rethink assembly to make it much more flexible and ask why OEMs should even do assembly. Toyota has always outsourced up to half of its assembly in Japan, and its specialist assemblers are also experts in body and manufacturing engineering. As a result, the chief engineer often has a choice in who is best suited and most eager to assemble the product.
  • Rethink the links between the factory and the customer to find a constructive role for dealers. As we get serious about build-to-order, there shouldn't be any metal on car lots for dealers to move. What dealers should be doing instead is helping customers solve their mobility problems by delivering, maintaining, repairing, and recycling vehicles as needed, using brilliant processes. This can be a win-win-win for driver, dealer, and manufacturer.
  • Rethink the location of production and engineering for price-sensitive products to co-locate most steps in low-cost locations that are still close enough to customers to permit build-to-order. This means Mexico for North America, Eastern Europe for Western Europe, China for Japan.

Note that this list does not include firing all the deadwood at every company, eliminating the union, getting rid of fuel economy regulations, terminating the dealers, squeezing the suppliers, or convincing Wall Street to cut the car companies a break for a few quarters. It does include the central task of converting the value creating steps in product development, production, purchasing, and sales into a consistent, rigorous process.

And this is where Detroit falls down. In the most striking recent example, Jac Nasser expended his best energies on finding brilliant outsiders to manage broken processes at Ford, while average insiders got brilliant performance from bullet-proof processes at Toyota.

So, as the economy begins to turn the corner, let's unleash our chief engineers, focus on the key processes, and get creative about the fundamental value-creating relationships. And, for a change, let's stick with these basics through the next cycle and far beyond.

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