Management and Quality
In 1986 Ford emerged as the darling of the American auto industry. Earnings, for the first time since the 1920s, exceeded those of General Motors, and in fact exceeded GM's and Chrysler's combined. Ford's market share continued to increase at the expense of its two American rivals. Its new Taurus/Sable car line was an unqualified success, commercially and in the eyes of Detroit's critics. Consumer Reports magazine, not usually a fan of American automobiles, called the new cars the best American cars it had ever tested and used the Taurus as the standard by which to judge other domestic models. In its press releases and advertisements, however, Ford did not stress sales or marketing but quality. For the sixth year in a row Ford automobiles were rated highest in quality of all the domestic manufacturers.
Subsequent years confirmed that Ford's success was not a fluke as earnings continued to exceed GM's and Chrysler's. Ford announced profit sharing for its hourly employees of over $2,000 per worker in 1987 and $3,700 in 1988. Some estimates of Ford's cost advantage over GM ran as high as $600 per car.
Not bad for a company that in 1980 had seemed on the brink of disaster and which prior to 1980 hadn't enjoyed a reputation for quality, particularly when compared to the Japanese automakers.
Back in 1980, while Chrysler was grabbing headlines with its brush with bankruptcy and the controversy surrounding the federal loan guarantee that kept its doors open, Ford was quietly suffering, hardly in better shape.
But in 1983 a quiet revolution began at Ford. The quality of American cars was the biggest complaint at the time. Ford management knew something had to be done. In 1983 Ford asked the foremost American expert on quality, the world-renowned Dr. W. Edwards Deming, for help. To management's surprise, however, Deming talked not about quality but about management. All of Ford's top management attended Deming's seminars, and the company has not been the same since. Among those who attended was Donald Petersen, who later became chairman and proclaimed Ford's intent to implement Deming's philosophy throughout the company.
In a letter to Autoweek, Petersen stated, "We are moving toward building a quality culture at Ford and the many changes that have been taking place here have their roots directly in Dr. Deming's teachings."
While other old-line domestic manufacturers have begun implementing quality cultures, few have gone as far as Ford in revamping their way of doing business. A limited or partial application of the Deming philosophy doesn't have the dramatic results that a full application has. An August 18, 1986, article in Fortune stated, "By spreading Deming's philosophy throughout the company, Ford, in the view of consultants and market researchers who have made comparisons, has probably taken greater strides in improving quality than any other U.S. auto manufacturer....A company that decides to take its quality consultant seriously can take off on a road that will transform the whole corporate culture. As Ford found out, following the Deming path leads to a lot more than tinkering with the assembly line."
Deming is no newcomer to American management or quality control. One of the founders of the field, he was actively involved in American quality control efforts during World War II, teaching engineers and academicians who in turn taught thousands of others. Many feel this program was integral to the success of the United States during the war.
After the war, however, many companies that had initiated quality control programs began to lose their incentive and conviction. The primary goal for most American enterprises was to produce enough to satisfy the seemingly endless demand for goods of all kinds. One of the main reasons for the failure of quality consciousness to take hold in this country was that management had never been taught its responsibility. The direct relationship between quality and sales, quality and productivity, quality and profit, quality and competitive position, had never been understood by most managers. The quality control courses taught by Deming and others under the auspices of the Department of War were directed primarily at engineers, inspectors, and industrial people who needed to be fully versed in specific methods and techniques. Once the critical push for high quality, low failure rates, and low cost was relaxed, management stopped the vigorous pursuit of quality.
Although Deming is probably the most respected statistician in America, if not the world, his letterhead modestly introduces him as a "Consultant in Statistical Studies." Despite the fact that he has won every major statistical award, is a professor emeritus at New York University, has an American award for quality named in his honor, has written more than 170 scientific papers and several books, and is a management and quality control consultant to major companies throughout the world, he does not distribute a brochure listing his accomplishments. Among those companies which have attended his seminars in great numbers are the most successful and quality-conscious American companies, a veritable Who's Who of American Business, such as IBM, AT&T, Hewlett-Packard, Scott Paper, DuPont, and Procter & Gamble, but he steadfastly refuses to promote himself.
Deming is a remarkable man with remarkable credentials, but one must ask how his advice compares with the practices of Japanese companies. After all, Toyota is widely recognized as having the highest quality cars in the world (those who disagree place Nissan or Honda at the top -- Honda's customer satisfaction exceeds that of Mercedes-Benz). Perhaps Ford should hire Toyota's quality consultant.
This might seem a reasonable approach, especially since the U.S. trade deficit with Japan exceeded an unprecedented $50 billion in 1986 and, despite the yen's dramatic rise against the dollar since then, stubbornly refuses to shrink. Consumers cite higher quality as the main reason they continue to prefer Japanese goods to American goods. Certainly a comparison of the methods advocated by the United States' premier quality expert and Japanese methods would prove instructive.
A good place to start is Toyota's headquarters in Tokyo. The striking thing one first notices in the main lobby is larger than life pictures of three individuals. One is of Toyota's founder, another of the same size is of Toyota's current chairman, and a third, much larger picture, is of W. Edwards Deming.
Is there some mistake? Has Toyota gone mad? Are they paying homage to the competition? No! The picture is there out of respect for the man they acknowledge as having started it all. W. Edwards Deming is the man who taught Japan quality.
After World War II, Deming visited Japan and at the request of the Japanese Union of Scientists and Engineers (JUSE) gave a series of lectures on quality control to Japanese engineers and to top management on management's tasks and responsibilities. Deming predicted that within five years Japan would be economically competitive and that consumers worldwide would clamor for Japanese goods. While many were skeptical, the presence of an American expert was compelling. In order not to lose face they faithfully followed his instructions. Within eighteen months of the first lecture the Japanese saw tremendous improvements in the quality of their goods and in productivity. They beat Deming's five-year timetable with a year to spare.
Few Americans have to be told of the prowess of Japanese business, as it has come to dominate industry after industry, including consumer electronics, motorcycles, automobiles, watches, cameras, and semiconductors. But few Americans realize that Japanese industrial leaders credit Deming with having initiated that success and that the most prestigious award a Japanese company or industrialist can win is the Deming Prize.
What is also too little understood is the role that management has played. All too often American observers cite cultural differences as the reason for the disparity between American and Japanese business practices. But quality management was born in one of America's premier institutions, the Bell Telephone Laboratories of AT&T. Dr. Walter A. Shewhart, a physicist, worked on the problem of quality and uniformity for AT&T's manufacturing arm, Western Electric. His work was found to have great application not just in manufacturing but in the service end of the phone business. For years the American phone system was the envy of the world, providing a level and quality of service unmatched anywhere else.
Shewhart was Deming's friend and associate. Both men, trained in physics, were working in the new field of statistics. When Shewhart published his second book, Statistical Method from the Viewpoint of Quality Control, it was Deming who acted as editor and wrote the foreword.
When Deming joined the U.S. Census Bureau in 1939, he was already the acknowledged world expert in sampling. But the Census Bureau provided an environment in which quality control methods could be employed in a pure service field, with no manufacturing outlet. According to the theory expounded by Shewhart and Deming, as quality improves, costs go down and productivity increases. Quality and productivity can be continually improved. Could the Census Bureau, a government agency, be made ever more efficient and productive? The results were in decades ago. The Census Bureau provided then and provides today a bounty of information of unquestioned integrity at a price that cannot be matched by any other organization in the world, public or private.
Compare this with the Internal Revenue Service, which by its own account has an error rate of more than 25 percent for telephoned inquiries from taxpayers. Congress estimated the error rate at 43 percent. No matter which figure is more accurate, the cost to the IRS and to society is staggering. Are the management styles and methods of the two agencies different? Of course. According to Deming, management is the whole difference. The current predicament we find ourselves in is due to managerial decisions in the public and private sectors at all levels of management.
"Don't blame the Japanese," he says. "We did it to ourselves."
A Busy Schedule
Since 1946 Deming has been a private consultant. While Japan represents the most dramatic, large-scale implementation of his methods and teachings, and Ford is an old-line company transforming itself with startling results, Deming has been helping companies worldwide for decades. Quality has only recently been popularly acknowledged as one of the most pressing issues in business.
In 1980, NBC televised a program called "If Japan Can, Why Can't We?" Deming was prominently featured and his role in Japan was explained. Since that program aired, the demands on his time have greatly increased and his schedule is now booked up to three years in advance.
He gives roughly twenty four-day seminars a year to corporate managers in the United States. Attendance at these seminars ranges from 600 to 4,000. Another dozen or so Deming-trained consultants are reforming the management practices of companies that engage their services.
Before going to Japan in August for the annual presentation of the Deming Prize, Deming visits Australia and New Zealand, where, at the request of government and business groups, he lectures, consults, and encourages change in the practices of those two nations.
Organizations large and small, in manufacturing and in service fields, in the private and public sectors, are slowly changing. In each case, while the actual practices differ, the message is the same. Management is the key difference.
The Source of Profit
Deming's philosophy calls for organizations to produce products and services that help people live better. Providing those goods and services is the raison d'être of an organization. By providing ever-improving services and products, an organization develops loyal customers.
In Deming's philosophy, real profits are generated by loyal customers -- not just satisfied customers. Satisfied customers may try a new product from a competitor or switch to an existing product if the price is right. But loyal customers brag about the goods or services they are receiving. They buy the company's new products with little sales effort, and often bring a friend. Profit from the sale to a loyal customer is six to eight times the profit from other customers. Is this the wishful thinking of an idealist? No! This is the conclusion of the most renowned expert on sampling, who has been called on by virtually all the major consumer research organizations to plan surveys on consumer behavior. It is a well-known fact among those who have studied consumer buying that profits from loyal customers are not only of better quality but many times higher than from the average customer. The company that develops loyal customers has much higher earnings than the company that just pushes the product out the door.
Yet in the purely financial approach a sale is a sale, just a number. The level of customer satisfaction isn't believed to impact on profit.
Driving by Looking Out the Rearview Mirror
From a Deming perspective most managers' view of profit is backward. To Deming, a company continually improving the quality of its goods or services improves its productivity and produces loyal customers. Loyal customers are, in turn, the engine producing increased market share, higher profit margins, higher profits, higher stock price, a secure and satisfied work force, and more jobs.
Too many managers, concerned with keeping the stock price up, increase their profit margins by cutting costs and cutting quality. The inevitable results are a loss of customer confidence and decreased market share and profitability. Large amounts must then be spent trying to regain or increase sales. This, of course, results in decreased profitability.
In the Deming view, increasing the quality of goods and services leads to higher productivity and profitability. The converse, however, of artificially increasing profits, does not lead to better quality or productivity or, ironically, profitability. Instead it leads to the decline of the company. If such a company is competing with a Deming-style company, the decline can be quite dramatic.
A Hypothetical Example, Within a Company
A manager who has had no exposure to Deming theory and has been taught to manage by the visible numbers only will define profit as the difference between revenues and expenses. In examining the income statements and the balance sheet, such a manager sees many items that don't seem to have a direct effect on today's profit. When the pressure is on because of a slowdown in sales, such items as training programs, research and development, aftersales service, and engineering staff become candidates for elimination. In order to meet profit goals, which are set in some arbitrary manner, such as 110 percent of last year's profit, it is mandated that costs be cut by some arbitrary amount. The workers find themselves waiting around for supplies or using lower quality supplies.
Invariably, quality suffers and profit declines. When this happens, managers who manage only by visible numbers start clutching at anything. Restructuring becomes a key word. Automation and gadgets, redeployment of assets, streamlining and cost-cutting abound. Much of what is called cost-cutting today is really just disinvestment. These managers don't understand the relationship between quality and profits.
Consider a company with two distinct subsidiaries selling in mutually exclusive geographic areas. One subsidiary's manager is interested in improving the quality of the company's products. The other subsidiary is run by a visible numbers only (VNO) manager. The VNO manager decides he wants to raise profits by 10 percent a year. To accomplish this he cuts training programs the first year. The second year he cuts all spending for development, curtails advertising, and revalues some of his plant and equipment. The next year he cuts dealer support and some of the engineering staff. Earnings, as measured by accountants, have increased by 10 percent per year. Meanwhile, the manager of the other subsidiary has done everything right. He's running a healthy subsidiary, introducing new products, and improving delivery time and customer support. His people are becoming more and more competent. Nothing has been cut; in fact, training programs have been improved and supplemented, and his engineering department has the latest hardware to cut product development time. But earnings as measured by accountants may have increased only 8 percent per year.
Suppose that after three years the president of the firm decides to retire and has to choose a successor between the heads of the two subsidiaries. The VNO manager argues that his division's earnings were up 10 percent whereas his rival's were up only 8 percent. No one on the board suspects how bad things really are at the VNO subsidiary and therefore no additional investigations are done. It's possible that the VNO manager may get the position and even be lauded for the wonderful job he's doing. He goes on to destroy the rest of the company.
Suppose, however, that another company in a different part of the country (or in another country) has been properly run and decides to enter the regional market presently dominated by the VNO company. VNO counters by invading that Deming company's territory. But the VNO's customers are willing, maybe even eager, to try a different source. The Deming company quickly eats into the VNO's customer base. The Deming company's customers can barely be induced to try the other company's products. If customers do try, they quickly switch back, even more loyal than before.
It's possible for a VNO manager to win out over a Deming manager in the numbers-oriented world of corporate politics. But when the two managerial styles clash in the marketplace, the results are always the same. Customers aren't fooled by accounting numbers.
The management lessons of Deming are in direct opposition to what is currently taught in most business schools and advocated by management consultants and business writers. Even some who call themselves consultants in quality are pushing methods that will only make things worse. Some of the differences are glaring.
Peter Drucket, the well-known business writer and consultant, aggressively advocates a merit system that he calls management by objectives. Other writers, whose excellent company these have collapsed in the real world, also push for management by objectives (MBO). The idea is so neat and pleasing that it is almost a given among American managers that a merit system is necessary to make people work better or harder and therefore improve productivity and profit. But Deming states unequivocally that merit reviews, by whatever name, including management by objectives, are the single most destructive force in American management today.
The system of management by objectives is appealing because of our own formative experiences. Most of us have had some experience of being coaxed to do better by teachers or coaches or friends. We may have found that we could do forty or fifty push-ups during football practice or after boot camp, whereas before we could do but ten. We may have had a wonderful teacher who demanded that we read a book every ten days, and we did. Although our intent was to continue the pace when the course was over, we found ourselves slipping back into the old pattern of reading at a much more leisurely pace. Some of our teachers may have talked about giving 110 percent, and this seemed to inspire us. Therefore, when a merit system is proposed whereby we are constantly setting ever higher goals for ourselves, it seems to make sense, and we welcome it. It seems to make sense that everybody's individual improvement in performance is the key to the company's improvement in performance. Everybody doing his or her best is the way out of the crisis, right? Wrong!
What happens when everyone is already giving 110 percent? Management working under an MBO system looks at the goals for the next year and then lowers the costs a little more and increases the goals a little more. But it is not physically possible for humans or machines operating in the same system to produce more with less. In Deming's seminars, the participants are asked to list managerial impediments to doing their best. One item that consistently ranks near the top is being asked to accomplish something without sufficient resources. But determined people can be very persistent and may move mountains to accomplish their objectives, even at the expense of the long-term health of the company. Bank of America had one of the most aggressive merit systems in banking, rewarding "top performers" with up to 50 percent more pay than "average" and "below average performers." They got what they deserved and what they asked for -- massive loan problems. Hundreds of millions of dollars of loans had to be written off. Who can best judge the quality of a loan, the loan officer who has intimate contact with the customer or the committee judging employees' worth on the basis of such visible figures as loans generated?
Judging individuals' performance without consideration of such invisible figures as loan quality, risk, or customer loyalty is madness. But asking everyone to work at 110 percent and then 10 percent harder again, each and every year, is even greater madness. The problems with merit systems are deep and fundamental and I will discuss them extensively in later chapters.
Merit Systems in Society
One more example, however, is worth mentioning because it aptly illustrates the damage done by merit systems, not just in the business world but in our society at large. A couple of years ago it came to light that several officers of the New York City Transit Police who reported to the same commander had, over a period of years, systematically made false and illegal arrests. Each police officer's "performance" was evaluated by this commander on the number and types of arrests made. Those with the most arrests, particularly felony and sexual abuse cases, were rewarded with the best assignments and promotions. Four of this unit's officers during one twelve-month period were responsible for 10 percent of the attempted grand larceny arrests and 18 percent of the sexual abuse arrests of the entire transit police force. These same four were the ones who made the false arrests and were rated highest by their commander.
The commander wanted arrests and he got them. To him, the number of arrests was a measure of the performance of an officer and he rated each by that criterion. But the cost to society and to the transit police is immeasurable. Every arrest by the offending officers is now suspect, and indeed every arrest by every officer reporting to this commander must now be questioned. Most of the false arrests were of black and Hispanic men, innocent men charged with serious crimes. What is the cost to everyone of such blatant injustice?
The Price of Quality
Another area about which most individuals in and out of business have an inadequate understanding is the meaning and cost of quality. Most of us believe that quality products cost more to create than defective or inferior products. But that is not true. In fact, quality management produces fewer defects and lower costs. A personal example may help illustrate this point. A number of years ago, before I had studied under Deming, I owned some apartments. To keep costs down, I did some of the work in the building myself. An apartment had just been vacated and I had to clean, repair, and paint it in order to rent it. Since any money saved flowed directly into my own pocket, I went out and bought a large five-gallon container of inexpensive paint that cost about $5.00 a gallon. Normally I used paint that cost almost twice as much.
A 50 percent reduction in cost was just too much of a savings to pass up. But as I started to paint, a curious thing began to happen. When the first coat dried, it appeared streaked, as if large sections hadn't been painted at all. Even after two coats, which was the most I had ever applied before, the job looked unfinished. I eventually went out and bought more paint to make it look satisfactory. I had used twice as much paint as I should have, eliminating any cost advantage, and, what's worse, spent twice as much time as I normally would have. But the problem didn't end there. The first time the walls were washed, some of the paint came off. That paint job never looked good. Years later, when the apartment came on the market again, I confirmed that using higher quality paint, with a careful application, cost much less in time and money and produced a much better result.
In a work environment where some functions are carried on repeatedly, the results of putting quality first are more dramatic. A plant that is producing 5 percent defective has an immediate increase in productivity of more than 5 percent when the process is improved to produce 0 percent defectives on the first try.
In most plants that are producing 5 percent defectives there is an inspection process that segregates the defectives. Those products judged to be unacceptable are then reworked off the assembly line, at a cost that is very high. Those defectives have already had as much capital, raw material, and labor put into them as the acceptable products. But now they are put aside, adding to the company's inventory, and later reworked, adding to their labor content and raw material costs. But no matter how much they are reworked, they rarely end up as good as those that were right from the start.
The costs continue to accelerate if a defective reaches the customer. No one knows the exact cost of a disgruntled former customer, but we know it's quite high. Market research done by Ford showed that a happy customer tells on average eight people the good news about the product, but a dissatisfied customer tells on average more than twenty people of the ordeal with the product.
Deming and other consultants have been extremely busy helping our companies over the last decade as the Japanese challenge turned into a rout. The quality of American goods has definitely improved, but perceptions die hard and slowly. Whether planned obsolescence was really planned by American manufacturers or just a term coined for what seemed to be happening, too many consumers remember the sinking feeling of having a three-year-old auto that seemed to fall apart all at once. I know people who told their children and their grandchildren never to purchase a Firestone tire because of the poor experience they had with Firestone radials and the subsequent behavior of that company.
A simple response from too many managers is to make workers responsible for quality -- if it's not right the first time, let them go. But management by edict doesn't work. It will only make things worse. The belief that the worker is responsible for the poor quality and low productivity of American firms is wrong. That many executives, journalists, and business consultants believe this to be the case doesn't make it so. But their belief leads to dangerous business practices that only make matters worse. Japanese firms that have set up operations in the United States, such as Honda, Toyota, Quasar, and Nissan, have brought the level of productivity in their U.S. plants up to that of their Japanese plants. Those old-line U.S. firms, such as Ford, Burlington Industries, and Scott Paper, that have adopted quality control techniques in their plants and changed their management style have seen enormous improvements in quality and productivity. Those firms that have always been quality conscious, such as AT&T and IBM, have high and improving levels of productivity and enjoy the respect of their customers and competitors.
The workers don't determine the layout of the plant, the room temperature, the amount invested in research, development, and training. They don't buy the equipment, tools, and raw materials or determine the design of the product. They don't develop the reward system or organizational structure. In short, they don't determine 90 percent of the things responsible for the quality of the product. Why then hold them responsible for all of the defects? Workers cannot change the system; only management can change the system. It is management's responsibility to change the system so that quality and productivity improve and workers can experience pride of workmanship. Once that happens, worker input becomes a continual part of the improvement process. Toyota workers on average make about thirty-three suggestions per worker per year, 90 percent of which are implemented within weeks of their submission.
One so-called quality expert tells his clients that all that needs to be done to improve quality is to have everyone meet specifications. All employees must sign statements promising not to make defects. Initially there may be some improvement, since everyone hopes changes will be made. But since management have not been instructed in their responsibility, the system isn't changed and the company finds itself in the same position as before.
It is easy to conclude when seeing a successful plant where workers are enthusiastic and making numerous suggestions that all that is necessary is for management to disappear and let the workers do their jobs. Alas, this conclusion is simplistic and incorrect. Managing the Deming way is much harder than managing by visible numbers only, the way taught by too many business schools. The Deming way requires profound knowledge.
Another obvious difference between Deming and other management consultants is where they believe quality is created. Too many business school-trained managers are busy using visible numbers to justify their actions. That approach considers quality to be created by the worker, in the plant or at the desk. Therefore these managers may hire some quality control people to work in the plants, give them some goals, and then consider their responsibility finished. The quality control people may use control charts and statistical process control, two of Deming's trademarks, to reduce errors at the plant level. But they cannot eliminate errors coming in from suppliers. Company policy may call for the purchasing department to buy supplies based on lowest price. But the supplies that are the lowest priced when they arrive at the plant may be the highest priced when the finished product leaves the plant.
The quality control people are helpless to change this because the purchasing department is judged as a cost center. The lower its costs, the higher the bonuses and promotions. By minimizing their costs, they may be increasing the cost to the company. Only management can change the reward system, the structure of the organization, and the philosophy of doing business. If they do not, any progress toward quality will be limited. As Deming says, "Where is quality made? Quality is made in the boardroom."
Some of the important differences in belief between most conventional organizations and Deming organizations are listed below.
Quality is expensive.
Inspection is the key to quality.
Quality control experts and inspectors can assure quality.
Defects are caused by workers.
The manufacturing process can be optimized by outside experts. No change in system afterward. No input from workers.
Use of work standards, quotas, and goals can help productivity.
Fear and reward are proper ways to motivate.
People can be treated like commodities -- buying more when needed, laying off when needing less.
Rewarding the best performers and punishing the worst will lead to greater productivity and creativity.
Buy on lowest cost.
Play one supplier off against another. Switch suppliers frequently based on price only.
Profits are made by keeping revenue high and costs down.
Profit is the most important indicator of a company.
Quality leads to lower costs.
Inspection is too late. If workers can produce defect-free goods, eliminate inspections.
Quality is made in the boardroom.
Most defects are caused by the system.
Process never optimized; it can always be improved.
Elimination of all work standards and quotas is necessary.
Fear leads to disaster.
People should be made to feel secure in their jobs.
Most variation is caused by the system. Review systems that judge, punish, and reward above, or below-average performance destroy teamwork and the company.
Buy from vendors committed to quality.
Work with suppliers.
Invest time and knowledge to help suppliers improve quality and costs. Develop long-term relationships with suppliers.
Profits are generated by loyal customers.
Running a company by profit alone is like driving a car by looking in the rearview mirror. It tells you where you've been, not where you are going.
Improvement in quality and productivity is not limited to manufacturing operations. The greatest benefit the Deming style of management offers may be to the service industries. The U.S. Census Bureau, where Deming for many years applied his knowledge, is one of the unsung success stories in government service. Municipal agencies, insurance companies, banks, and trucking and freight companies have also successfully implemented Deming systems.
In recent years many of the winners of the Japanese Deming Prize have been service companies. Construction firms have won three Deming Prizes and experienced soaring levels of productivity after initiating transformations to total quality control. Japanese banks, insurance companies, and brokerage houses are quite large and very profitable. Each of the four largest Japanese brokerage houses is about twice as profitable as any American firm. In analyzing this situation, the financial press have sought easy answers, such as protected markets, government help, and so on. But as Japanese financial institutions begin making inroads in world markets, American firms are making news with layoffs and firings. Some of our most prestigious firms, anticipating expanding business, hired heavily in recent yeone of the unsung success stories in government service. Municipal agencies, insurance companies, banks, and trucking and freight companies have also successfully implemented Deming systems.
In recent years many of the winners of the Japanese Deming Prize have been service companies. Construction firms have won three Deming Prizes and experienced soaring levels of productivity after initiating transformations to total quality control. Japanese banks, insurance companies, and brokerage houses are quite large and very profitable. Each of the four largest Japanese brokerage houses is about twice as profitable as any American firm. In analyzing this situation, the financial press have sought easy answers, such as protected markets, government help, and so on. But as Japanese financial institutions begin making inroads in world markets, American firms are making news with layoffs and firings. Some of our most prestigious firms, anticipating expanding business, hired heavily in recent years. When their projections proved inaccurate, they retrenched and fired heavily.
In other words, the workers are paying for the errors of management. Some Japanese and some American firms, on the other hand, are taking a longer-term view of business. Which companies have the best long-term prospects? Those that treat their employees as commodities, hiring and firing based on short-term needs, or those who develop their people and their company with a long-term commitment to be in business? Which would you rather work for? Which would you rather own five years from now?
Copyright © 1990 by Rafael Aguayo