The World that Changed the Machine

A new approach for automobile industry

Introduction for Eight GERPISA International Colloquium 8-10 juin 2000, Paris

Once again, and over a ten-year span, the worldwide automobile industry has changed. The expansion of Japanese carmakers, at the pinnacle of their success at the start of the 1990's decade, only seemed capable of being dethroned by American and European competitors if the latter rapidly adopted Japanese management methods. Both workers and suppliers had to submit to new production norms established in Japan, or else witness the ruin of their employer or command source.

Did the Machine Change the World?

This general thesis was the object of a book, The Machine that Changed the World , published by an MIT research group (Womack, Jones, Roos). Relying on a systematic comparative study, the authors attempted to demonstrate the decidedly superior productivity level of Japanese carmaker assembly plants no matter the country they had been implanted in. According to the authors, the Japanese production system was characterized by the systematic flushing out of waste and quality lacks by providing an automobile supply that closely followed evolutions in demand, directing production in function of commands, and through active participation by workers and suppliers in achieving performance improvement objectives. To better define this system, the term lean production was forged. In both professional and academic circles, the subject thus appeared to be finalized: a new productive model had been born. It was destined to replace the old "Taylorian-Fordian" model that had proven its incapacity to respond to new market and societal demands due to its organizational rigidity and social rejection.

And yet, a short decade later, this quasi-unanimous conviction seems to have lost its zest. How come the system that was going to change the world was not able to prevent the country that gave birth to it from plunging into a long period of economic crisis, a period not yet over? How come firms such as Nissan, Mazda, and Mitsubishi, considered up to now as representative of the Japanese production model as well as other firms, were required at the end of the 1990s to seek out capitalistic alliances or become totally absorbed in order to avoid bankruptcy? How can one account for Toyota and Honda's diminished expansion while simultaneously American and European firms are recovering to the point of leading the acquisitions-mergers-alliance dance throughout the world?

In efforts to be more pragmatic, managers readily admit today that they are seeking to adopt and apply the "best practices" of their competitors no matter what they are. Will this less dogmatic approach, correctly recognizing that nothing is acquired, allow firms to achieve long lasting competitiveness? Does it suffice to simply add up the best practices in order to achieve high performance levels?

No one, but three productive models

GERPISA believes that it can respond to all of these questions with new insight, one based on a more rigorous and practical foundation thanks to research works carried out by its members during the 1990s.

Two new industrial models, not one, were simultaneously being developed in the Japanese automobile industry: the "Toyotan model" privileging "permanent reduction of costs at constant volume", and the "Hondian model" implementing a totally different profit strategy called "innovation and flexibility". However, the remarkable performances of the firms incarnating these models (Toyota and Honda) did not chase the "Sloanian model" away, seeing that Volkswagen adopted it as of 1974, and was able to exploit it profitably in the context of a renewed market. These three firms were in fact the only ones to have a "break-even point" that was constantly and significantly under their value added (since twenty-five years), whereas all other carmakers had experienced periods of non-profitability.

It is not the intrinsic and non-temporal qualities of these models that achieved the performance levels of these three firms, rather the relevance of their "profit strategie" to their country's "national income growth and distribution mode", that the new international context favourized after 1974. Floating exchange rates and petrol crises, by cutting back on worldwide growth, in fact provoked confrontation between industrial economies. To be in a favorable position, one had to have a income growth that relied on exports and whose national income distribution was already a function of external competitiveness, such as was the case for Japan and West Germany. Firms that were particularly in harmony with this mode of national income growth and distribution were those that had a profit strategy based either on "permanent reduction of costs at constant volume" such as Toyota or on "innovation and flexibility" notably oriented for exportation, such as Honda, or yet again a profit strategy based on "volume and diversity" to internationalization, the commonalization of car models platforms and the buying of other carmakers such as Volkswagen.

Apart from fulfilling this first criterion for profitability, the aforementioned three firms had also fulfilled the second: an "enterprise government compromise" between the main protagonists of the firm concerning "product policy", "productive organization", and "employment relationships", allowing for implementation of the chosen strategy in a coherent manner. Japanese and German carmakers that did not fulfill one or the other of the two criteria began to experience difficulties, thus well before the turning point of the 1990s that fully revealed these difficulties.

The new representation of the industrial history of the automobile resulting from GERPISA researches does not offer the same simplicity as the MIT representation, itself based on three successive models that were easy to remember and apparently even easier to apply! Should this be regretted? Though it continues to prevail to this day, it presents the unfortunate inconvenience of simply being a fairy tale. Contrary to appearances, we believe that a more complex and long term vision of the history of the automobile sector allows one to highlight general and valid rules for all periods and areas. These consist in more operational rules from a practical and scientific standpoint than those affirming the existence of a single performant model for each important period accompanied by naïve encouragement of its general adoption.

The two conditions for profitability

We are convinced that the analysis of firms and transplants trajectories carried out by GERPISA allows us to confirm the existence of two essential conditions for profitability:
1. The pertinence of "profit strategy" in relationship to "national income growth and distribution modes" in those countries where the firm evolves,
2. The solidity of the "enterprise government compromise" that allows the firm's actors (shareholders, banks, managers, workers, unions, and suppliers) to find and implement means ("product policy", "productive organization", and "employment relationships") that are both coherent in light of the adopted "profit strategy" and acceptable by all, in other words, the invention or adoption of a "productive model".

Hence, productive models can be defined as "enterprise government compromises" that allow "profit strategies" to be implemented, and that are viable within the "national income growth and distribution mode" of the country wherein firms are active, through coherent means accepted by all.

Inversely, firms that have not succeeded in inventing or adopting a productive model, i.e. those who do not benefit from long lasting profitability, are firms that have not fulfilled at least one of the two conditions required for profitability. Either their profit strategy was not pertinent relative to the national income growth and distribution mode or else became non-viable following changes in growth modes, or a "enterprise government compromise" was never elaborated among the firm's actors or else was rejected by one or several protagonists.

Very briefly, that is an introduction to analysis approach we have elaborated from research works of GERPISA's members. The unique ambition is that it becomes a tool more pertinent than the others to continue the research and more useful for the action. The Eight GERPISA International Colloquium will be an opportunity to discuss about it.

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