i disagree with everything you just said.

Thursday, June 16, 2005

some better business thinking.

hugely insightful anecdote from philip evans about the real long-term value of collaboration (and by extension, collaboration technologies) as a way of doing business:

When you compare Toyota with the Big Three automakers in the U.S. there's a fundamental difference in the way they deal with their suppliers. The Big Three basically negotiate to the last penny. In particular, if a supplier succeeds in a process improvement that lowers costs, he knows darn well in one negotiation round that General Motors will come back and demand a price concession taking away that benefit. That gives that supplier a very powerful incentive not to share with anybody, least of all General Motors, what that process improvement was.

Toyota has a different philosophy. The company allows its suppliers to keep the benefits of their innovation, but it insists that that process improvement in technology is shared not just with Toyota but also with all the other component suppliers. As a result, you see among that population of 60 or 70 companies a rate of sharing ideas beyond what you see in the U.S. It has a cumulative effect over time of driving up productivity in the whole Toyota supply chain. Over a 30-year period, its productivity has gone up six times as much as in the U.S. system. I think that's entirely because of the difference in philosophies. At a time when 50% of the cost of a car comes from outside components, and your suppliers are 600% more productive, that buys you one hell of an advantage — even if you give some of it back to them in price concessions.

take a minute to read the whole interview (which also includes my business partner and ap ceo janice talking about this whole new internet thing.) good stuff.


Blogger Gen Kanai said...

Lane, while I can see why these comments might be impressive, I would caution you not to take away too much from the words of a consultant- especially one who does not specialize in the auto industry.

As a Toyota employee for over 4 years, I know first-hand how Toyota controls it's suppliers. They rule with an iron fist, much as GM used to do before they lost their way. Yes, Toyota is interested in a healthy ecosystem for their suppliers, but for many suppliers, Toyota is their only client- so it isn't a balanced relationship by any stretch of the imagination.

You may remember the bubble in Japan in the 1980s. At the time, all kinds of pundits, consultants, reporters extolled the "Japanese way" of doing business. Japanese companies bought American movie studios, prominent real estate all over the world, even Rockefeller Center in NYC. Then the bubble popped and for the next few years the global media explained why the "Japanese Way" was flawed.

This is a huge oversimplification of the reality, but suffice it to say, there's not too much anyone outside of Toyota and their suppliers can learn from that ecosystem.
European auto manufacturers have to deal with a whole diiferent set of cultural demands and can't organize in the same way that Toyota has.
US manufactuers have a myriad of problems and they are fundamentally set up differently than the Japanese manufactuers, so there's little that they can learn from them.

This is a long way of saying that culture is very important when you look overseas and that is either overlooked or oversimplified as it is not easily explained or controlled for.

6/16/2005 7:04 PM


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