Thursday, December 21, 2006

Sunset for Detroit?

A smaller, more humble Detroit might just be the best thing for the U.S. auto industry.

It won’t be much longer now. We’ve known for some time that the Big Three’s reign would one day come to an end. Refusing to learn from their mistakes, General Motors Corp., Chrysler and Ford Motor Co. continued to churn out gas-guzzling clunkers that consumers just didn’t want. The first of the Big Three to fall was Chrysler, absorbed in a laughable “merger of equals” with Daimler-Benz in 1998. That left the Big Two: Ford and GM.

Despite a legacy dating back to the “inventor” of the automobile, Ford is practically melting away. Its “Way Forward” campaign aims to reduce its work force by 30,000 employees and shutter 14 manufacturing plants. Chairman Bill Ford’s actions have made it clear that the family’s goal is to preserve its wealth over preserving the company.

That leaves GM, currently the world’s largest automaker. Like Ford, GM has been hemorrhaging jobs, market share, plants and cash. GM recently refused to consider a proposed global alliance with Carlos Ghosn’s Renault-Nissan, preferring to go it alone.

The Big Three’s losses have been the Japanese and Korean automakers’ gains. Toyota will soon replace GM as the world’s No. 1 automaker. But, as GM and Ford (and DaimlerChrysler, too) discovered, bigger doesn’t necessarily mean better. Toyota’s ascendancy to the No. 1 spot may be exactly what Detroit needs to revitalize: By being smaller, more nimble and more driven (pardon the pun), U.S. automakers may be able to compete more effectively against their larger Japanese rivals.

Already Toyota is worried about being too big and too slow to react to the market. A recent Wall Street Journal article discusses Toyota CEO Katsuaki Watanabe’s fears. Forget kaizen, the relentless focus on incremental improvement. According to The Wall Street Journal, Watanabe wants kakushin—revolutionary change in how Toyota designs cars and factories. “His ultimate aim: Cut at least a trillion yen ($8.68 billion) in vehicle costs in the next three to four years—the equivalent of about $1,000 a vehicle—and keep slashing costs at similar rates thereafter,” says Norihiko Shirouzu, writing in the Dec. 9, 2006, issue of the Wall Street Journal. “That is on top of one trillion yen Toyota squeezed out of its parts purchasing from 2000 through 2004, an effort led by Mr. Watanabe in an earlier role.” Does this sound like a man content to let Toyota rest on its laurels?

GM and Ford have seen disastrous results in product design and innovation from their narrow focus on cost cutting. Let’s hope that Toyota doesn’t forget about the customer in its drive to slash costs.

So far Toyota’s growth in market share has been matched by growth in profitability. But remember how profitable Ford and GM were in the 1980s and 1990s? Toyota has also seen an increase in the number of vehicle recalls and quality problems. Some chinks in Toyota’s armor are beginning to appear. “In the U.S., the number of Toyota recalls hit 2.38 million vehicles last year, more than the 2.26 million vehicles the automaker sold the same year,” writes Shirouzu in the Dec. 11, 2006, issue of the Wall Street Journal.

Back in the days when quality was supposedly “job one” at Ford, lean and mean Toyota and Honda pecked away at the Big Three’s market share by focusing their resources on building exactly what the consumer wanted and relentlessly improving existing models. Honda introduced the Civic in 1972, and has refined and improved it ever since. U.S. automakers can’t stand to keep a model in production for more than a few years before killing it off in favor of something new. Remember the Taurus? Once America’s best-selling car, it slipped quietly away and recently ceased production.

The new leaner and meaner Detroit might have a chance to beat the Japanese, Koreans and, quite probably, the Chinese at their own game. If they can use their smaller work force, flattened bureaucracy, and (hopefully) a newfound humbleness to regain a focus on improving quality and giving consumers what they want, they can compete. If not, don’t be surprised if one day you’re checking out a new Toyota Mustang or Hyundai Corvette. Think it can’t happen? Not many people thought they would be driving a Daimler-made Chrysler, a Ford-made Volvo or a GM-made Saab.

There is hope for Detroit. As Shirouzu wrote in his Dec. 9, Wall Street Journal article, “Toyota is finding that there are limits to its efficiency drive, with each incremental improvement increasingly hard to win. In 1998, it took the Japanese company 21.6 hours to assemble one car in North America, more than 10 hours faster than GM. By last year, Toyota had improved only marginally, to 21.3, while GM had almost caught up.” It’s easy to see why Toyota’s Watanabe is worried.

What are your thoughts on the future of U.S. auto manufacturing? Will Ford and GM remain independent? Should they? Can they successfully compete against Japan, Korea, China and the Europeans?

Wednesday, December 06, 2006

Parenting a Business

It’s been more than a year since I left the august position of publisher of Quality Digest. In that year, my life has changed dramatically: I have two more children—a boy and a girl who are now eight months old, in addition to my five-year-old son—a business that is growing in ways I never imagined and a new perspective on growing a family and a business.

Growing your family is a never-ending job full of worry, excitement, laughter and anticipation. Growing a business is very similar: There are high expectations when it’s being developed, birthing pains when it’s launched, and the same mix of worry, excitement, laughter and anticipation while it’s growing.

Of course, while I was at Quality Digest, I was also running a business. I always treated my job at Quality Digest as if it were my own because I always believed that that’s the only way to work. Now that I’ve left, I realize my folly. Of course, it wasn’t my business, so no matter how much I acted that way, I couldn’t be fully invested. So while I worried and planned and hoped, I was always worrying, planning and hoping for someone else’s business. I realize now that it was kind of like babysitting. (And sometimes, it really felt like I was babysitting.)
Now that I have my own business to run full time, it’s like raising my own children. The parallels are remarkable:

  • You can’t be a part-time parent or part-time business owner. They are both 24-hour, seven-day-a-week jobs. If the baby cries at 3:00 a.m., you are there. If your alarm system goes off at your office at 1:00 a.m., you are there. Waking up in the middle of the night worrying about meeting payroll or worrying about paying for college results in the same lack of sleep.

  • You must constantly adapt. The skills I used to parent my five-year-old son Ian are very different from the skills I used when he was two. Not only have I learned from my mistakes but he has grown and developed and requires different parenting now. My business is very similar. Now that I have more employees, different products and services, and different income needs, I must run my business differently.

  • You must invest for the future. Right after each of my kids was born, I opened a college savings fund. I have a set amount automatically transferred from my checking account to their college funds. It’s not always easy to see that money being siphoned away, but I know it has to be done if I want my kids to have a shot at a decent college education one day. The same is true for my business. I am constantly investing in new technology, new product development and developing my skills.

  • You must clearly define your expectations. It’s silly for me to get angry with my child because he does something I don’t like if I haven’t clearly defined the expectation. Of course, the same is true for my. What aren’t sometimes so obvious are the expectations I need to set for myself. As a parent, I need to be clear about what I need to do to meet the goals and objectives I have for my family (e.g., I must save for my children’s education now.). As a business owner I also have expectations for myself (e.g., I must work toward my goals, not just to get by.)

  • You must make education a priority. Mornings at the Paton household are chaotic at best. It’s my job to get Ian to school while my wife, Heidi, looks after the twins. Every weekday I somehow manage to deliver a somewhat reluctant five-year-old to his kindergarten class complete with backpack, snack, sharing item, library book and whatever else he needs. After school, Heidi helps him with his homework even though he’d rather be playing soccer, watching TV or riding his scooter. At night we read stories before bed and practice our letters. It’s amazing to see his progress. Now, I don’t read stories to my employees, but I do my best to help them grow in their job skills. It’s not easy for a small business to send employees off to training seminars or have them attend a webinar or take online training, but it’s essential for employee development and the growth of your business. It’s also just as rewarding to see an employee grow from newfound skills.

  • You’ve got to have faith. As a parent I sometimes just have to let go and have faith that everything will be OK. When Ian goes off to his grandma’s house for the weekend. I have to hope that he will behave, be safe and have fun. The same is true for my business. Although my business never goes off for a weekend with grandma, it is run in large part by my employees. I have to have faith that I’ve hired the right people and trained them well.

  • You have to work hard, very hard. Face it, raising kids isn’t glamorous and sometimes isn’t very fun. The same is true with running a business. Sometimes you just want to quit. But if you’re fully invested in your business (as you have to be with your kids), you can’t quit. In fact, the thought can’t even enter your mind. You have to be in it for the long haul or you won’t have the level of commitment you need to succeed. The good news is that even though your business probably won’t give the same thrill as seeing your baby take his or her first step, it can be very fulfilling to see the results of your hard work come to fruition in a new product or the extraordinary work of an employee.

As I said these are just a few of the parallels. Post your thoughts on running a business or raising kids (I need all the help I can get).