There has been considerable discussion recently about Detroit’s “broken business model,” with little explanation of what that really means. We see it as a complex burden of culture and history that Chrysler Group, Ford Motor Co. and General Motors Corp. have struggled with for the past 25 years to overcome. Although “culture” and “history” are soft terms, the problems they posed were concrete. The way of doing business at virtually every step in the concept-to-customer process that once worked extremely well is no longer competitive against the new business models in a rapidly changing world.
The automotive manufacturing landscape has changed, driven by constant and continuous improvement at Honda, Nissan and Toyota, as well as at the major European and Korean manufacturers. In addition to a continuous stream of new products, the Japanese continue to aggressively find ways of driving down product costs. They are currently winning the competitive battle because of many historical and development advantages. The most notable advantages include the use of common body architecture, assembly bills of process and flexible assembly plants, more efficient deployment of labor and more productive supplier relationships.
Still, design and engineering make up just one of the major areas where culture, history and structural barriers stand in the way of full competitiveness. The new business model breeds a culture of collaboration. Now is the time for the Detroit Three and their suppliers to embrace revolutionary change on many fronts.
Many people ask, “Can the industry make it?” The answer is unequivocally YES! Nobody likes to deal with the soft-side issues, but the reality is these are the issues that separate the best companies from those that are struggling today to be competitive. When studying the best companies, one finds a consistent focus on a long-term strategic plan with discipline to this plan. This means that when a crisis occurs, management does not change the strategy to meet the needs of the industry or financial community, but, instead, stays focused and steadfast to the plan. This doesn’t mean they aren’t flexible and move with the times to make improvements. It simply means they respond to the fires with the same consistency and vision, adapting as necessary.
Companies that struggle in today’s environment are just the opposite. They tend to be short-term, financially focused and work daily to ensure that Wall Street keeps their stock prices at the right level. This focus tends to drive the wrong behavior and forces decisions that do not optimize the long-term future of the companies. People in these organizations tend to be rewarded based on short-term goals, but in the long term, the damage is done.
The best example is seen in new product development. When a new product is developed at best-in-class companies, the cross-functional teams have the same common goals and objectives. If one team member in purchasing misses their goals, the whole team is responsible to fix the problem. At other companies, the reward system allows for each functional area to optimize their department at the expense of other departments on the team, meaning some get bonuses and others don’t. This culture is short-term financially focused and until struggling companies change their reward system from the top down, this will prevail throughout companies and continue to drive a major gap in competitiveness.
Time is running out. Detroit has begun to restructure in response to the new realities, but doesn’t have another 25 years to complete this process. In an industry as complex as the automotive industry, nothing short of highly focused, consistent and continual process improvements can make the kind of gains Detroit needs, not only in North America, but in worldwide manufacturing and engineering.