A brief history of American Industry with emphasis on the auto industry

1. A brief history of American Industry with emphasis on the auto industry

3. Historic Objectives: Efficiency – Economies of Scale Productivity Freedom from Suppliers This was the model of business for many decades. What went wrong?

4. 1531 1841 1776

5. Four Functions of Any Organization • Management: Ensure long term survival • Operations: Improve productivity • Marketing: Maximize market share • Finance: Maximize shareholder wealth

6. 1945 - 1955 U. S. Industries

7. 1945 - 1955 U. S. Industries

8. 1945 - 1955 U. S. Industries

9. 1945 - 1955 U. S. Industries

10. 1945 - 1955 U. S. Industries

11. 1945 - 1955 U. S. Industries

12. Brief History of Auto Industry • Factors of production must be used efficiently, or they will be lost. A fragmented industry, by definition, is inefficient. • Competition always drives returns to the point where marginal costs equals marginal revenue. This is because someone sees that by establishing efficiencies it is possible to make more money on volume than on separate items. • These rules of economics have not changed, and are not likely to change

13. Brief History of Auto Industry 1769 Nicolas Cugnot fitted a wagon with a steam engine, fired it up and ran it across a field in France, thereby becoming, as far as we know, the first person to make and operate a powered vehicle. Cugnot's machine did not handle well and he ran it into a wall, the world's first auto accident. Legend has it he was arrested for his trouble and so might also be credited with the world's first moving violation.

14. Brief History of Auto Industry 1876 invention of the four stroke, internal combustion engine by Nikolous Otto of Germany. 1885 saw the first motorized, three wheel vehicle made by Karl Benz, also of Mannheim, Germany. It was not the first time a vehicle had propelled itself. What was new was that Benz perfected his machine, put it into production and people bought it. His vehicle (and all subsequent vehicles until the 1920s) was called a ‘motorcycle’

15. Brief History of Auto Industry Shifting now to the U.S., the development of the automobile was a Mid-West phenomenon. The Mid-West was the bread basket for the country.

16. Brief History of Auto Industry Early pioneers of the industry (at the turn of the 20th century) were: Ransome Olds – Oldsmobile and Reo Henry Leland – Lincoln and Cadillac Walter Chrysler – Chrysler David Buick – Buick James Packard – Packard Frank Duryea – Duryea John Dodge – Dodge John Maxwell – Maxwell, which later became part of Chrysler Louis Chevrolet – Chevrolet Roy Chapin – Hudson (remember Hudson Hornet from the movie “Cars”?) Thomas Jeffery – Rambler There were hundreds of auto makers

17. Brief History of Auto Industry 1908: Durant creates GM with Olds & Buick lines Hupmobile was introduced. Durant’s contribution was the start of consolidation of a very fragmented industry. He was borrowing from ideas created by Carnegie and others who brought economies of scale to their industries.

18. Brief History of Auto Industry Olds: First mass produced auto in U.S. Ford: Achieved economies of scale to product a car for ‘every man’ (Low Cost)

19. Brief History of Auto Industry Proof of that economic theory: 1908: Ford’s 1st model T produced. Price $850 ($16,800 today) Construction of Rouge River Plant begins. 1923: Model T sold for $265 ($2,930 today)

20. Brief History of Auto Industry Ford Rouge plant, 1927 Largest industrial complex in the world with 93 structures, 90 miles of railroad tracks, 27 miles of conveyors, 53,000 machine tools and 75,000 employees. Motivation: Economies, & freedom from suppliers. Mission: An automobile for every person (Low Cost)

21. Brief History of Auto Industry 1923 Alfred P. Sloan, Jr. organized GM management along the lines of the German Army under Bismarck, using the line - staff concept. Created Cost Accounting. 1924 The mission was a vehicle for every purse and purpose. (Differentiation)

22. General Motors’ market segmentation circa 1925 Their mission: An automobile for every purse and every purpose Cadillac Oldsmobile Buick Pontiac Chevrolet

23. Imperial__ Chrysler__ ___De Soto__ ____Dodge__ Plymouth__

24. Relevance of Auto Industry 1996: Depending on whose figures you accept, one in six or one in seven working Americans is (was) engaged in the building, selling or maintenance of motor vehicles.

25. Culture – circa 1950s All of these factors led to the ‘American Dream’ being born – jobs for life became an expected norm. What was good for business was good for the country! Nothing exemplified this more than the ‘freedom’ provided by the automobile. Remember the material from the Global Economy work. Look at this video and notice carefully what they are selling http://www.youtube.com/watch?v=qhR8GZ_WWMM

26. Culture – change through the 1990s What I wanted you to see from the video was that they were not selling the car, but the freedom, and individuality from automobile ownership. Here is an updated version of the advertisement. Maybe they are learning the importance of selling the vehicle rather than the deal. (From the 2011 Super Bowl) http://www.youtube.com/watch?v=JD7EsyYlqlU&feature=related

27. Culture All of this would have been great, but the world changed and the dream didn’t. People began to feel ‘entitled’ and privileges became rights. Power of unions increased. Interest in ‘management’ waned. Very little thought for tomorrow, and even less concern. We were not blind-sided. We were blind. Outsourcing lead to demise of many industries. Among these: Ship building Aircraft manufacturing Steel Basic Research Electronics and now, Automobiles

28. Here is what went wrong at GM. Recall that a strategy is management’s THEORY about how a business works. Obviously, this theory requires some assumptions about how the world works. Assumptions made by GM: Markets are homogeneous. Values are stable. Income groups are stable.

29. Assumptions about how business works: The assumptions about environment define what an organization is paid for. The assumptions about mission define what an organization considers to be meaningful results; in other words, they point to how it envisions itself making a difference in the economy and in the society at large. 3. Finally, the assumptions about core competencies define where an organization must excel in order to maintain leadership

30. DEALING WITH CHANGE Defensive Ignore Patch There is a need for preventive care --that is, for building into the organization systematic monitoring and testing of its theory of the business . There is a need for early diagnosis. Finally, there is a need to rethink a theory that is stagnating and to take effective action in order to change policies and practices, bringing the organization's behavior in line with the new realities of its environment, with a new definition of its mission, and with new core competencies to be developed and acquired.

31. Without systematic and purposeful abandonment, an organization will be overtaken by events.

32. Culture The most advanced auto plant in world. Now try this video made more recently: http://info.detnews.com/video/index.cfm?id=1189

33. Not just the culture of the Auto Industry – the national culture “We will win and you will lose. The seeds of your failure are within you.” Akia Morita to Jack Welch (circa 1985)

34. Add to that the idiocy of the purpose of a business being to maximize shareholder wealth (an idea added in the 1970s), the arrogance of power and position, and you have a recipe for disaster. Nothing shows this better than the recent history of GM.

35. Last Board of General Motors

36. What Should We Be Doing? • Chandler’s Logic of Managerial Enterprise • Understand what the global economy means • Avoid making decisions based on numbers

37. Japan • In the 1950s was in serious trouble. We went in to help. • Toyota and unions

38. W. Edwards DemingThe 14 Points Or, the Real Business Policy • Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.

39. W. Edwards Deming • Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.

40. W. Edwards Deming Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place. Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.

41. W. Edwards Deming • Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force. • Eliminate work standards (quotas) on the factory floor. Substitute leadership. • Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

42. W. Edwards Deming • Institute a vigorous program of education and self-improvement. • Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job.

43. W. Edwards Deming • Learning is not compulsory…neither is survival.

44. Purpose of Business For those who are still skeptical about the ideas from this course, just one question: Where is the money!

45. Role of Government • Establish Infrastructure that will attract factors of production.

46. To Maximize shareholder wealth is to TRANSFER wealth. • To satisfy a need is to CREATE wealth.