While many people see a bailout as the only solution to solve the liquidity crisis for the automotive Big 3, others believe the real problems rest deep within the white collar ranks, where a lack of visibility across
company operations has created enormous inefficiencies and risks. Phil Gilbert, president of business process management firm Lombardi Software, is known as an efficiency expert sought by CEOs, CFOs and CIOs to help cut fat, at companies including Ford, Honda, AFLAC and Hasbro. In this opinion piece, Gilbert argues that the real problem facing the automotive industry has more to do with the lack of visibility and process efficiencies across all parts of the company, and less to do with runaway salaries and lack of technology innovation.
Blue collar workers aren’t killing Detroit, white collar workers are.
And since the entire service economy is built on white collar work, what
happened in Detroit over the past thirty years and happened to banks in
the last 10, will happen to everything else in the next three.
In fact, everything in the American economy is driven by service economy
workers (“white collar workers”). But the model upon which this economy
is built is broken. It is based on the unscalable heroics of artisan
workers, who largely work outside the limelight. In the worst cases,
they work outside any light at all. To prevent another industry
meltdown, business leaders need a set of white-collar principles based
on the bedrock of visibility.
While Congress debated over a historic bailout of the Big 3 car
manufacturers everyone became an expert on what needs to change.
According to one opinion in the Wall Street Journal the problems start
with the big, bad unions and stop only if you
can “gut” them. According
to the Beltway folks, we’re in this mess because the car manufacturers
didn’t produce enough hybrids or, in the vernacular, they “didn’t build
the cars America wanted.”
Neither is right.
One of the three (Ford) is in demonstrably better shape than the other
two, and it’s no mystery why. Two years ago, when he took the reins of
Ford, Alan Mulally identified two things that needed to change: parts
costs have to go down, and engineering productivity must go up.
Get it? The white collar workers who design the cars have to move from
artisan to engineer, and they need to work together across all the
company’s platforms to use common parts.
While cutting healthcare benefits and union concessions might help
conserve another month or two of cash, neither would address the causal
differences between old school manufacturers and those from a new school
focused on white collar efficiency and cross-process visibility.
But this type of change doesn’t come on the cheap. It requires
imagination and determination. Imagination to re-think the details of
what we do and how it’s measured. Determination to take on the
entrenched interests inside our companies and drive change right down to
the desktop of every white collar worker. So far, these failures
haven’t only resulted in the Big 3 crisis and all the related
manufacturing meltdowns over the last 30 years, they’ve also caused the
mess on Wall Street.
In Michael Lewis’ terrific article in Portfolio.com, “The End Of Wall
Street’s Boom,” he highlights the two key drivers of the banking
meltdown. First was the huge, unseen risk of leverage in the new
financial products that were being developed. Second, in the article’s
money quote, John Gutfreund , the former Solomon CEO, reflected on the
role of CEOs across all of today’s megabanks. He said, “I didn’t
understand all the product lines, and they don’t either.” Lewis writes
“the Wall Street C.E.O. [has] no real ability to keep track of the
frantic innovation occurring inside his firm.”
CEOs and everyone below them must have a common understanding and
visibility into the processes needed to establish new efficiencies. As
an example, it’s rumored that Toyota’s engineers spend more than half
their time “doing engineering.” In Detroit, it’s half that. And as
Lewis points out, few people anywhere knew that a single mortgage was
leveraged up to 10x through the various CDOs and credit swaps.
In both of these seemingly diverse industries, decisions about parts,
risks and returns are made in the vacuum of virtually unchecked
darkness. In companies today there’s no direct linkage between the tasks
your people are doing and the goals of the organization.
This isn’t a lack of automation It’s a lack of visibility. Regardless
of industry, the world’s largest companies are houses of cards, built on
darkness and risk.
This should scare all of us.
Ironically, the off-shoring, which was the first response to the
symptoms of the artisan-economy-on-steroids, served to increase risk and
darkness even as it hid behind the allure of cost savings.
Because the growth in the service workforce was not easily scalable
(costs went up in a linear fashion as heads were added), CEOs found it
easier to fire local workers and hire distant ones who were paid a
fraction of their U.S. counterparts. These executives took the easy way
out, often-times they actually added headcount to an already-unwieldy
process and boasted about their “savings.”
So now our U.S. companies are in increased peril: white collar tasks
are more opaque than ever, while customer and product risks are on the
Today, leading edge companies across the manufacturing and services
spectrum are working on new ways to reduce risk, and increase
visibility. The technical bits are fairly easy, but the cultural change
needed inside the white collar parts of the organization is massive.
There needs to be a revolution in implementation of processes that bring
greater visibility and less risk to all aspects of our businesses. It is
no longer acceptable that senior management remain ignorant of the
goings-on at even the deepest depths of the organization.
Technology can play a key role in providing this linkage and visibility.
But before this can help, we need leadership at the top that doesn’t
fail to imagine and is determined to make their people work differently.
This isn’t about taking on the popular bogeymen of the past. It’s about
fundamentally changing our culture and our capabilities.
The old manufacturing and service economies can be saved, but they both
need to be rebuilt upon the bedrock of visibility.
We need a new service-enabled economy that lowers business risks, lowers
business costs and increases the number of local jobs.
But it requires imagination and determination from the very top of the
tree. It requires driving change throughout the upper, middle and
bottom of the white collar parts of your organization.
Phil Gilbert is president Lombardi Software in Austin, Texas.