Category Archives: Technology

Innovation in the Auto Industry – Part 1

D. ColeDr. David Cole is the Chairman of AutoHarvest (autoharvest.org), a web based tool to accelerate innovation in the auto industry. Dr. Cole is Chairman Emeritus of the Center for Automotive Research and a former Professor of Engineering at the University of Michigan where he taught courses related to the automotive field for over 25 years. He is a fellow of the Society of Automotive Engineers, Engineering Society of Detroit and Society of Manufacturing Engineers and was recently elected to the Automotive Hall of Fame.

To say we live in a world of exploding knowledge is a profound understatement. With the amazing set of research and discovery tools available today there is growing competency to provide innovative solutions to problems across the world. With this knowledge explosion and a rapidly expanding interest in entrepreneurship, we are witnessing the positive “perfect storm” foundation for significantly accelerated innovation.  This is happening across all sectors of knowledge from the physical sciences to the life sciences and is certainly applicable to manufactured goods and the processes used to create them. Many understand the application to product areas but the truth is that process areas are of equal importance.

In a very schematic way we can illustrate the innovation environment we are in today. As shown in Figure 1, the creation of new knowledge is increasing at an exponential rate while the application of this knowledge is expanding at a slower rate.

Innovation-Auto Industry pic 1Therefore the gap between what we know and our ability to apply it is growing rapidly creating a dramatic increase in the opportunity for innovation which is the application of this knowledge to our products and processes. Clearly in the auto industry as with other parts of our economy, the potential to gain competitive advantage or lose competitive advantage is increasing.

The recent trauma of the auto industry in America and to a major extent in the rest of the world has led to a rethinking of the business model with regard to innovation. In the middle years of the last century, innovation in the domestic auto industry was largely driven by the so-called original equipment auto manufactures typically referred to as the OEM’s. In fact less than 10% of the product technology used by the industry was attributable to auto suppliers. This was at a time when the domestic auto manufacturers had extremely large internal component supply operations. Today, for example, Chrysler, Ford and GM have spun off their captive supplier divisions and created independent supplier companies including Delphi, Visteon and American Axle. With the current domestic auto companies, often referred to now at the D3, nearly half or more of product innovation is attributable to external suppliers and this fraction is growing. This is also true for most of the world’s auto manufacturers. As part of this structural shift, GM and Ford have largely phased out their more basic research activities that were conducted under the auspices of the GM Research Laboratories and the Ford Scientific Laboratory. Advanced efforts today are now focused on the support of their various car and truck divisions. They have shifted from internal efforts to collaboration with government laboratories, universities and suppliers both within and outside of the auto industry.

Partnering and collaboration are becoming the norm. For example a few years ago, arch market place rivals GM and Ford, worked together to develop a six-speed automatic transmission. They saved 10’s of millions of dollars and nearly a year of time. This collaboration is continuing with a new series of advanced transmissions.

In general the pressures to conduct business differently and collaboratively are growing. We, indeed, are moving rapidly to a new business model. All organizations are faced with a combination of tough issues related to the development of new products and processes. There are insufficient time, talent, capital and natural resources for them to do everything themselves. For example the talent issues is a worldwide issue that is exacerbated by the exit of many “Baby Boomers” from the work force even as the auto companies are beginning to re-grow after the collapse of the market and numerous bankruptcies of a few years back. This issue, in fact, is a critical national issue facing all segments of our economy and other major economies in the world as well. Here In the United States we will be short 10 million skilled workers in 5 years and 30 million in 15 years due to the smaller follow-on generations to the Boomers. For example here in Michigan there are currently openings for nearly 3,000 CNC (computer and numerically controlled) machine operators and nationally there are openings for about 3.6 million skill based jobs that lack appropriately educated and skilled applicants. Even a job on the auto assembly line today requires someone with a 2 year Community College degree. At a recent Economic Summit hosted by Michigan’s Governor, Rick Snyder, the primary topic was talent for Michigan companies, or more appropriately the lack of talent. In fact the top area of need was for skilled trades and technicians followed by engineers with electro-mechanical skills.

As noted earlier the domestic automotive industry has gone through a phase of extreme distress, where they have been forced to cut research budgets and halt many long term innovation programs. This adds to the risk of losing valuable ground in a continually advancing global technology environment.  Many organizations have critical technology needs and long term research goals for which they lack both internal resources and expertise.   The automotive sector, from academic researchers to carmakers, has historically practiced research in silos, it has not created a network or method to robustly identify, assess and manage globally located opportunities for collaboration. All the while, this industry, both foreign and domestic, houses a vast quantity of intellectual property (IP) with applications in adjacent industries, all of which requires significant investment to develop and which now, in many cases, is being under-utilized. Industry leaders have realized they need to change tactics to remain competitive as well as to solve today’s needs for clean energy and safer, greener and connected vehicles

Consequently we are facing a very tough task. It is a time of opportunity but also of severe challenge. On all fronts across our economy we are being pressed to do More, Better and Faster. These challenges have led to the creation of a method to increase the effectiveness and efficiency of innovation through the use of a web-based tool that we call AutoHarvest. It is really a kind of Facebook or Linkedin for technology. Its purpose is to bring buyers, sellers, collaborators, inventors, researchers and investors together in a highly secure environment quickly at very low cost around given intellectual properties.

In the next section of this essay we will introduce AutoHarvest, the innovation accelerating tool we are developing.

 

 

We still need, very much, that factory floor

JP-pic 2Dr. John Psarouthakis, Executive Editor of www.BusinessThinker.com, Distinguished Visiting Fellow at the Institute of Advanced Studies in the Humanities, University of Edinburgh, Scotland, publisher of www.GavdosPress.com and Founder and former CEO, JP Industries, Inc., a Fortune 500 industrial corporation

After I launched JP Industries in the 1980s and was growing it into a major auto components firm, new acquaintances usually asked me how big the company was.  If I told them it was a half-a-billion-dollar company, they were likely to say:  “No, I mean how many people do you employ?”  That question no longer defines a company, and no one asks it anymore.  For sure no one asks that question about General Motors, except in wonderment at how America has changed since the 1950s. But neither does anyone use workforce size to define new non-manufacturing icons such as Amazon or Facebook.  Sales and profits determine the size of a company today.  Some politicians and pundits have a quick, cynical, simplistic explanation for that new dynamic: corporate greed.  They are wrong—wrong enough and populist enough to lead the gullible over the cliff we discussed earlier.

The nation’s formerly largest corporation, for example, did not have a history of pushing workers out the door to maximize profits.  The overly generous remuneration of the General Motors workforce, on the job and in retirement, was in fact one major cause of GM’s financial catastrophe.  Big government and big manufacturing both spent the last half of the 20th Century laying land mines beneath their own feet.  How can one quarrel with that description of entities that wind up with retiree costs dwarfing current payrolls?  It is complicated.  Demographics of an aging population, efficiencies that require fewer and fewer employees to accomplish the same work, global competition driving down profit margins, that same competition leading to better products that last longer . . . it is an intricate picture.  But unless one’s mind is mired in a utopian, socialist fantasy, the bottom line is quite simple:  compete or die.  You can’t make a bad product and sell it into a market of good products.  And you can’t sell a good product that costs twice as much as someone else’s equally good product.  This dynamic—a few outlier examples excepted, as in every endeavor under the sun—is not about greed.  It is about centuries-old market truths, which are becoming even truer.

An eerie parallel to the GM saga can be found at the bottom of the government and taxation food chain, where numerous municipalities around the country have been lining up to declare bankruptcy or de facto bankruptcy.  The only competition in the local government arena is with state and federal governments for tax dollars.  At this most labor-intensive level of government, however, “legacy issues” are the same in a bankrupt city as in the old smokestack industries.  Overly generous retirement and health-care benefits, padded payrolls, and slipshod fiscal management have left some cities struggling to pay retired workers even while current workers—including police officers—are being laid off.  As a footnote to that fact, here—and in numerous other paragraphs of this book—I could easily add an exclamation point that asks: “Why did a thousand headlines proclaim that ‘America Is Not Greece’?”  Are you kidding?  Show me a bankrupt American city and I will show you Greece without the Mediterranean.

In 1914, only 17 years before Brave New World was published, Henry Ford’s assembly line workers were rejecting oppressive, mind-numbing production work in astounding numbers.  Ford needed to hire and train more than three men if he wanted to find one who remained on the job at year’s end.  To solve this costly and counter-productive problem, Ford stunned the world by doubling workers’ wages to five dollars.  Ford’s new pay scale famously increased number of consumers able to afford a car, but this was a mere footnote to his strategy.  Ford’s motive was to solve a productivity problem while keeping his product competitive.  From a worker’s vantage point it was all about a 100 percent pay increase (plus the bonus of an eight-hour workday instead of nine).  From a business vantage point it was all about productivity (the eight-hour day meant Ford could operate three shifts a day, instead of two), getting those Model T’s out onto Woodward Avenue, not wasting time spent hiring and training workers, and solving an acute labor shortage.

The automakers applied that template far past its rightful expiration date, into an era when labor costs were allowed to exceed common sense and management muffed a latter 20th Century challenge from foreign manufacturers.  Almost 100 years passed from the $5 day until competition and technological realities and failure to live within their means brought the automotive American Three (formerly the Big Three) to their knees.  In the real world, the sun rises and sets, death and taxes are certainties, and any business that doesn’t compete will sooner or later—usually sooner—go bust.

During the manufacturing segment’s American Century zenith, the platitude said that when Detroit sneezes, America catches a cold.  That assertion might have been overused, but it was entirely true.  Detroit was America’s largest employer.  Its indirect economic impact defied calculation.  The steel industry, parts manufacturers, electronics and glass companies, road builders, garage mechanics, salesmen—even a huge part of the advertising and newspaper and broadcasting businesses—stayed healthy only if Detroit stayed healthy.   That was not just a sneeze you heard at the dawn of the 21st Century.  The bigger they are, the harder they fall.

Detroit’s car companies, made vulnerable by complacency and after staggering for several decades, nearly went down for the count.  Those humiliating few weeks on the brink might be the place to mark the true beginning of the 21st Century.  Historians could find few bookends more aptly symbolic than the $5 Day on one end and The Bailout on the other.  All four 21st Century Benchmarks factored into the nearest bookend—global competition, technological advances (the first widespread, heavy-duty, real-world use of the word “robot” occurred in the car industry), the need for education reform (no Henry Ford waits at today’s factory door to hire and train, at double pay, workers straight off the farm or straight off the boat), and a synergistic need for new thinking in our manufacturing segment (for direct job creation, of course; but equally important as a nearby laboratory to continue our status as an exporter of innovation).  It all added up to that very 21st Century matter of Vector One companies becoming a source of unemployment rather than a source of new jobs.

Perhaps no image so perfectly signaled the futility of resistance to the coming new century as did those photos of angry American autoworkers taking sledgehammers to Japanese-made cars, even as the Japanese were moving to build cars in America (competitive cost and productivity realities, you know).  The days of bludgeoned Toyotas are past, but more sophisticated (and more dangerous) resistance to the new era remains.  We need to do more than merely accept that the calendar has turned; in a single grasp, we need to confront the new century and embrace it.

One can forgive the politicians and the pundits and the unemployed themselves for chanting “Jobs, jobs, jobs!”  That is after all a noble and very American chant, quite different than “Handouts, handouts, handouts!”  The trick will be to move the dialogue (and the chants) away from instant (and obsolete) jobs, while avoiding surrender to the handout mentality.  Instead, we need to chant for a new job-creating environment and a new paradigm for producing qualified job candidates.  There was a time when it might have been valid in a recession to expect jobs could materialize from a tweaked tax rate here, a money-supply adjustment there, or—mostly, like a fresh breeze inevitably closes out a heat wave—an “uptick in the business cycle.”  That always happened sooner or later after Detroit caught a cold.  Today’s challenge is not cyclical.  It is fundamental and technological.  No one would have accomplished much by standing in a 1912 cornfield chanting: “Farm jobs, farm jobs, farm jobs!”

The farm-to-factory social and technological upheaval, though massive, was a small reflection of where we stand today.  No one has constructed an oven the size of Kansas in which to bake a much, much larger Mom’s apple pie.  If we are smart, we’ll make manufacturing the core—and “core” is precisely the right, if surprising, word—of how we meet and mold the future.  We can make the American manufacturing sector our prime route toward “Jobs, jobs, jobs!” once again . . . not as directly as in the past, not in any 20th Century way, but nonetheless as a vital driver of prosperity for all.  Millions of lunch buckets won’t be carried into the factories of the future.  The livelihood of most Americans, however, will depend on the health of American manufacturing.

As we talk about bringing our manufacturing sector into a new era, we need to keep a couple things in mind about this powerhouse that drove the American Century.  More than 70 years have passed since FDR, a year before Pearl Harbor, dubbed our mills and factories “The Arsenal of Democracy.”  It has been a long time since you heard commonly expressed awe about our “industrial might.”  The numbers, however, remain mighty.

First, the service sector (and especially computer-related technology) has radiated all the workplace sex appeal for a generation or two, but guess what?  We remain the world’s largest manufacturer.  In 2011 we produced a fifth of the entire world’s manufacturing output.  If one must pick oneself up after being knocked down, that is the best possible floor to start from.

Second, it is true that manufacturing accounted for 31 percent of U.S. non-farm employment in 1950 and that 60 years later that percentage had dipped below 10 percent, but guess what?  Almost 12 million Americans work in today’s manufacturing sector, a number that posted modest gains in 2010 and again in 2011—the first years that had seen an increase since 1997.

Third, 12 million jobs is a lot of jobs, no matter what percentage they might be of our total workforce.  Despite its troubles, U.S. manufacturing obviously has not been driven into antique status by an inability to compete.  It is nowhere near extinction.  It has so many assets, in physical plant and productivity and business culture, that if we did everything wrong and stayed on the road to government-centric and dwindling world importance, we would still be making things.  Not enough things.  Not the right things.  Our people would suffer from all that dwindling.  But we would remain on the list of manufacturing countries.  Take just one-half of our current manufacturing might and set it down in any other leading developed country and you would be looking at the new global superpower.

In other words, American manufacturing has big challenges today, and faces bigger challenges tomorrow, but is nowhere near being a disaster zone.  Viewed as a single unit in a mind exercise, one could analyze the U.S. manufacturing sector as an underperforming company—one with an upside and a downside the likes of which have never been seen in world history.

The downside would be to allow a vibrant, highly productive, innovative conglomerate atrophy quickly into mediocrity with dangerous consequences for all Americans.  The upside would be to refocus the world’s largest, most important “company” in midstride, nip its foreseeable problems in the bud, retool (as all manufacturers do), and soar to new heights as the winner and still champion of a larger, well . . . global pie.  The bad news is that American manufacturing has reached a decisive crossroads.  The good news is that the proper path to choose is obvious.  The further bad news is that American society (meaning all levels of government and the will of the people) must commit to the live-or-die effort (see “infrastructure,” see “education”).  The further good news is this manufacturing rebirth can be achieved, if we somehow summon that shared resolve—which seems to be the key to success when one looks at these 21st Century survival issues from any direction.

No one could estimate with acceptable accuracy how many Americans would be willing (or fiscally able) to report to work at the wage rates foreign suppliers pay offshore workers to produce countless low-value products.  My best guess is almost none would sign up.  Americans already turn their back on jobs paying wages that, although low by our standards, are much higher than millions of manufacturing jobs around the world.  If someone in Asia produces wood screws that could be made here by workers earning half the U.S. minimum wage—is that a question worth asking?  Should we even bother bemoaning the loss of such jobs?  Of course not.

Nor could anyone could estimate with acceptable accuracy the number of American manufacturing jobs that have been lost as a direct result of companies moving overseas, or as a direct result of imported goods taking market share from domestic product, or as a direct result of domestic regulatory and taxation issues, or as a direct result of new efficiencies.  Technological advances would have eliminated a certain number of jobs from the factory floor even if no factory existed anywhere in the world except the lower 48 states.  That fact is among the reasons it’s impossible to sort out reasons jobs are exported, let alone to add up accurate numbers.

Let’s imagine a hypothetical small-town Midwest plant where 2,000 employees manufacture dishwashers.  Let’s say that one sad morning the entire operation disappears to Mexico, where workers are paid a small fraction of Midwestern wages.  The reason for the exodus appears cut-and-dried: pay rates.  But there are also regulatory issues, including some that do not involve worker safety or sensible stewardship of natural resources.  There are tax issues (the dishwasher company has been marginally profitable, at best, for 15 years, but in each of those years it has paid 30 percent of the town’s school system budget, bought all its police cars, and paid a far larger share of water and sewage costs than pro rata accounting would demand).  The plant’s union has accepted a pay freeze in several contract negotiations—but refuses to budge on antiquated work rules (antiquated, of course, by new technology), and actively nurtures workforce resentment against management.  While the plant’s profitability slouched toward ancient history, two of its major suppliers outsourced key parts to . . . Mexico.  For these and other reasons—bottom line being compete or die—there is no way this plant could stay in the Midwestern town where it had been an icon for many, many years.

Keeping in mind that technological advances are irreversible, and that a light breeze of new technology can produce gale-force change in a given market, “tech” clearly is shorthand for both the problems and the solutions we are discussing.  Technology’s long-term impact upon the job market, in fact, dwarfs all the headline-grabbing events that first created a new meaning for an adjective (offshore), then a brand-new verb: “to offshore, as in ‘Ajax offshored its parts department.”

Technological advances even played a major role in the loss of our mythical dishwasher factory to Mexico, though that might not be apparent.  Communications technology and transportation technology, for example, today allow a product to be assembled and shipped in containers from the farthest village on the planet.  A warehouse supervisor in Brooklyn (or anywhere else) can tell you in an instant the exact location of a particular unit still in its crate—the kind of tracking that not many years ago would have required time and effort even if that particular dishwasher were sitting in the warehouse 30 yards from the supervisor’s desk.  Inventory management, the parts pipeline, quality control—a very long list of chores have been simplified and improved by technology that already has begun to seem old, and which makes off-shoring a competitive solution in situations where it used to be impossible.

Meanwhile, dishwashers—and numerous other home appliances—arrived on the consumer scene to acclaim befitting futuristic technological marvels.  But one by one, as their technology became commonplace (as did their mass manufacture), these appliances morphed into mere manufactured commodities.  That is, unless they are built by a truly inept company, all models in the same price range are essentially the same in construction and quality no matter who builds them.  I would argue—and have so argued—that even today’s automobile, the mass-marketed models at least, have become manufactured commodities.  If one buys any major carmaker’s best-selling mid-sized sedan with similar amenities, one can expect to get a good product that will run well, last a long time—and carry the same number of people, at the same speed, in the same comfort, with approximately the same gas mileage and safety as any other best-selling mid-sized sedan.  You will of course quarrel with that assertion and defend your favorite brand, for various idiosyncratic reasons.  In some subjective ways you may be right . . . just a little bit.  But a well-constructed car of a particular class is a well-constructed car of a particular class.  Much like, say, dishwashers of a particular size and class.

Any of these durable goods products is infinitely more sophisticated and differentiated than a generic bushel of wheat or a silver ingot, for sure.  A side by side refrigerator is a manufactured commodity, not a raw product.  But the days when Frigidaire was synonymous with refrigerator (or Kodak synonymous with camera) are long gone.  The things that most endear a particular automotive nameplate to buyers these days are cost and service—two things that cannot be manufactured into a product.  The cost factor is decided in the engineering and design departments before manufacture begins.  Superlative service is something the customer receives after the product has been designed, manufactured, shipped, and sold.  Absolutely nothing about these two crucial factors has a thing to do with whether the product is made in Illinois or the other side of the world.

So it’s a wide range of manufacturing that has been, or threatens to be, shoved offshore by competitive forces.  Some products—many products—offer no reason whatsoever for trying to keep their manufacture in the U.S.  No one here wants to work making, say, Polynesian cocktail umbrellas at 25 cents an hour.  We lose no technological edge by letting someone else, somewhere else, do that work.  Goodbye, Mai Tai swizzle stick manufacturing sector.  Gone for good.  That’s easy (and intentionally simplistic).  But what about those dishwashing machines?  What about, say, the American furniture and textile industries, which have seen historic local economic bases pack up and leave northern locales, relocate in the southern U.S., then move yet again, this time offshore?  We’ll leave parts of those valid questions to be answered in later discussion of globalization.  Here, let’s stipulate three things—irreversible change is irreversible, free markets are not merely a good thing but the only way to grow that economic pie, and “compete or die” is an absolute.  If we honestly acknowledge those three things (and we have no other choice), then any forward-looking discussion about 21st Century manufacturing—painful as it may be for workers who made those dishwashers and textiles and furniture—is not at all difficult to outline.

First, the profit centers in manufacturing (and therefore the best and best-paying jobs) involve deploying the latest technology to produce value-added goods.  You can use dayglow paint and the best wood available in the Far East, but you simply are never going to add any value to those cocktail umbrellas.  They are what they are, toothpicks and paper, a very bottom-tier commodity.  Building a contemporary mid-sized automobile, on the other hand, is not a matter of dropping an engine on a chassis and adding some fenders, which more or less is what happened on the Model T’s horseless carriage assembly line.  Today’s car is a manufactured commodity, but it also is a mobile technology center of magnificent scope—loaded with on-board computers and high-precision mechanical components, engineered for safety and reliability that would stun those who designed any of America’s classic cars.  Making cars is one kind of manufacturing we want to keep in the United States.  Fundamental to understanding 21st Century manufacturing, however, remember that it takes fewer workers to assemble one of these modern marvels than it took to assemble a Model T.  No doubt it will take even fewer workers in the future than it does now—as I discussed in that old Grand Rapids speech.

Second, any manufacturing that uses high levels of new technology is the kind of manufacturing we want to keep on these shores.  That’s true even if its labor force is small, even if its direct contribution to GDP is so tiny as to not show up on economic radar.  Why do we care about such a company?  A tiny, technology-intensive company surely means nothing to the economy in the way a car manufacturer’s payroll does.  Absolutely true; a GM job roster is a precious thing to be treasured, even if it is but a shadow of its old self and even as it shrinks because of new efficiencies.  But it isn’t workforce size that makes the car companies—plus any companies that demand new technology but amount to mere blips in the economy, plus all other technology-consuming companies of any intermediary size—the core of our 21st Century economic paradigm.  Almost all these companies, just like 19th or 20th Century companies, will continue to demand varying degrees of raw materials and finished parts, require vendors of every type, and hire their share of accountants and sales reps, and plant maintenance people—every job description imaginable.  What makes these companies uniquely vital to the 21st Century, though, is not their direct labor forces, but all that technology consumption.  That’s because . . .

Third, technology—rather than the durable goods our manufacturers produce—could fairly be viewed our most important product in the 21st Century.  It’s a close-knit synergy.  For example:

 

  • Technology, as noted, fuels the most prosperous manufacturing industries, which are excellent creators of new wealth, the lifeblood of any vibrant, growing, free-market economy.

 

  • It logically follows—and experience usually supports the logic—that high-tech manufacturing wants its best sources of new technology to be located nearby.  A sophisticated manufacturing facility that winds up thousands of miles from its laboratory will, if possible, tend to move the lab near its manufacturing facilities.  Similarly, an industry that has its labs and all the best related outside intellectual support based in the United States has, obviously, a good reason to “stay home.”

 

  • New technology derives from both private and public research, sometimes jointly and sometimes singly, but in either case demanding a world-class university system.

 

  • The United States currently boasts the foremost graduate schools on the planet, as evidenced by the world sending so many of its best and brightest here for an American education.  One could compile a long manifest of reasons we should sustain this technological/educational leadership.  For reasons apparent within this book’s context, we must maintain that leadership.

 

  • The concept of technology as a “product” is not really a figurative thing.  Technology is intellectual property.  It makes things work.  Once a product’s ingredients advance beyond raw materials and sweat and toil, it is technology that adds value to that product.  The right technology in the right application is a profitable thing.  Companies buy and sell technology every day.  Occasionally a nefarious company (more often a nation) will steal technology, or will produce a quasi-legal clone of a technological process.  Technology is real, as solid as the chair you are sitting in.

 

  • A new piece of technology—in its pure conceptual form, or as a plan for application in manufacturing, or as a completed high-tech manufactured product . . . or in the nascent form of a new Ph.D.’s brainpower—will be our greatest 21st Century export.  Again, it must be thus, or this is most definitely not going to be a great century for the U.S.

 

That is the “smart manufacturing” component of our four Benchmarks.  We must manufacture value-added products that consume new technology.  To do that we must create the new technology our manufacturing sector needs.  Then we need to train, endlessly, a manufacturing workforce that can get the job done.  And along the way we need to make smart choices about plugging this new “manufacturing might” into global markets.  It’s a spectacular synergy.  But I think you can see why even though it’s “all about technology,” it’s also all about a new 21st Century manufacturing sector.

“Jobs, jobs, jobs!”?  Yes indeed.  But not in any 20th Century form.  Before too long, in fact, millions of jobs will exist that none of us today can describe, anymore than Columbus could describe, accurately, where his little ships were headed.  That same unpredictability could be said of entire as-yet unborn industries.  Who can predict the precise layout of a high-tech manufacturing matrix derived from new technology several generations into our future, when we don’t yet have a handle on new technology’s impact this afternoon?  This is not a time for planning instant obsolescence with short-sighted, laborious, bureaucratic, faux precision.  The proper path is obvious, but is not marked by GPS coordinates.  It is indeed, as those old guys said on the shop floor decades ago, “all about the United States continuing to make things.”  Our universities and those free-market manufacturers who perform best can get us to our destination, but only if the politicians—and a lack of public will—don’t mess things up.

See also the Book “The Technology Imperative: What Jobs! Jobs! Jobs! Really Means in the 21st Century”, Gavdos Press, 2012. (www.gavdospress.com)

 

 

It’s All About Education

JP-pic 2Dr. John Psarouthakis is the Executive Editor of www.BusinessThinker.com Internet Magazine, Distinguished Visiting Fellow / Professor at the Institute of Advanced Studies in the Humanities, University of Edinburgh, Scotland, Publisher of www.GavdosPress.com and Founder and former CEO, JPIndustries, Inc., a Fortune 500 industrial corporation

The world is a better place because of great novelists and poets and painters and musicians and sculptors and actors.  We could include great chefs on a short list of specialists who add value to our cultural lives.  Even such a basic need as food, after all, can be lifted above the ordinary and into the realm of art.  As a voracious consumer of the arts (and occasional patron of the arts), and as someone who enjoys a wonderfully prepared meal, I obviously believe esthetic good things enrich us all.  I also believe everyone’s education should include a well-guided tour of the literary, visual, and musical arts.  But only a relative handful of citizens can pay the rent by knowing the difference between a sonata and a fugue, or by sharing their opinion of Moby Dick—or, for that matter, by knowing how to play a fugue or write a novel or choose the best fresh ingredients and bring them to table well enough to rent a building and start printing menus.  The world doesn’t work that way.  The overwhelming majority of us always have needed to make a living in the mundane realm of commerce and industry (or, via subsidy by the private sector, government).  Education’s role in that familiar dynamic must be fundamentally recast, however, for the 21st Century.

At a glance, educating young people for the 20th Century workforce didn’t look much different than what education must accomplish in the new age.  For example, all young people preparing for today’s job market know the lately fashionable acronym “STEM,” meaning “science, technology, engineering, and math.”  Pointing toward a STEM career means, according to a 2011 Bureau of Labor Statistics essay, preparing for a job that will . . .

“ . . . play an instrumental role in expanding scientific frontiers, developing new products, and generating technological progress. These occupations are concentrated in cutting-edge industries such as computer systems design,           scientific research and development, and high-tech manufacturing industries.  Although educational requirements vary, most of these occupations require a bachelor’s degree or higher. Accordingly, STEM occupations are high-paying occupations, with most having mean wages significantly above the U.S. average.”

That BLS quote is entirely true this afternoon, and was entirely true decades ago (many decades ago, if you eliminate reference to computers).  College graduates now in their 70s and older understood, back in their own school days, a marketplace distinction between a degree in “hard science” and a degree in “soft studies.”  If you possessed the inclination and grit and aptitude to follow the former path, toward being not a poet but a lab rat, you were more likely to be rewarded with “job security” and a larger paycheck.  So that part of the new acronym isn’t really news.  In 1940 parents would rather foresee their sons (and now, increasingly, daughters) as engineers or scientists or medical doctors than as shoe salespersons or postal workers or even “schoolteachers.”  That is not to demean the other occupations.  Parental preference for a hard-science education over an arts or literature degree, and certainly over jobs requiring only a high-school degree, did not derive from a love of calculus or biology.  It came straight from the near-universal desire to see one’s offspring thrive and lead a prosperous life.  The hard sciences were never a poor path to that result, especially in a parent’s mind’s-eye.  An engineer or a researcher or an M.D. with a bent for the arts could always, after all, afford a grand piano and season tickets to the opera.

What has changed about that dynamic, and continues to change at an increasing pace, is basically threefold and could be summarized as “it’s more truer than ever.”  First, more and more jobs—not merely those in the “STEM career” path—require a certain level of math and science literacy, and almost any career requires or is at least enhanced by advanced computer literacy.  Second, as countless studies and simple observation reveal, a larger and larger percentage of available jobs will require bachelor’s and advanced degrees in math and science and engineering.  Third, whether you are a Ph.D. doing pure research, or a community college night student making car components by day in a Midwest factory, your job will require appropriate continuing education as surely as do surgeons and psychologists.  Keeping one’s skills in sync with evolving technology means shooting at not just a moving target but an accelerating target.  Profound changes in the workplace will become more profound.  The need for parallel changes in how we prepare workers to be employable is obvious.

The workplace is market-driven.  Competition creates profound change without new government policies, without any prompting from outsiders.  Any new manufacturing technology or more efficient process becomes a prerequisite for survival.  Large workplaces that don’t heed free-market cues to change will go under—or send their CEOs to Washington, hat in hand, to seek rescue via unorthodox, taxpayer-funded bankruptcy.  Industries that can infect an entire economy just by sneezing might find relief that way (though their secured creditors will not).  But even in the case of GM and Chrysler’s bailout, the result was massive change.  GM, in fact, became almost unrecognizable.  No such change is yet visible across an educational system that needs three new R’s: reform, refocusing, and response.

I am not here to suggest how our K-12 schools can best be reformed to produce students who are better readers, better at math, more devoted to scientific method, and more literate in those cultural enrichments mentioned at the outset of this chapter . . . to say nothing of making a better impression at job interviews.  The experts will need to find answers within a daunting environment that includes new family dynamics, social change, instant and omnipresent communications media, and budget constraints.  Such answers, however, must be found.  We are the world’s greatest nation and yet we have communities in which most kids do not graduate from high school, and many of those who do graduate lack credible readiness for further education.  Schools in almost every district have become engaged in a running battle with a standardized testing system that may or may not be adding value to the educational process.  The American public school system, including its urban schools, once could claim a gold medal for democratic excellence.  Today, among parents, some of the loudest educational buzz is about “charter” schools as a means to avoiding these same public schools.  Too many schools are failing both as educational institutions and as centers of socialization and security.  It will take some of the best minds of this generation, fully dedicated to the problem, to find solutions and instill public confidence. 

Meanwhile, every graduation day, for better or worse, millions of our offspring take one more step—we hope—toward entering a fundamentally changed, and changing, workforce.  In that regard I am here to suggest that our schools, however they attack their demons from the bottom up, must pay more attention to the workplace.  It’s true that schools are tasked with preparing students for a life, not just a work life.  I remain fervently in favor of providing that guided tour of the arts for everyone, and I do not believe eighth-graders need to be or should be deciding whether they will become surgeons or teachers or ironworkers.  But precious few students will find life rewarding without ability to compete—first for a job and then within a workplace culture, or as an entrepreneur.  Jobs that require only a high-school education while offering new employees a career that will support a family are virtually extinct.  A good salesperson can always make a good living, of course—sometimes a very good living.  But any young person with that in mind should interview a few sales managers and find out how many newbies must be hired and fired before a single success story is written.  There is no avoiding the fact that every 21st Century K-12 student needs to be exposed to all the “STEM” courses he or she is capable of completing successfully.    

Exceptions to the STEM advantage tend to be entrepreneurial, unless you are that 1-in-20 salesman or that 1-in-20,000 athlete.  Some exceptions are, of course, as enormous as it can get.  Bill Gates is often, and accurately, described as the world’s richest college dropout.  Gates is not the only entrepreneur who became wealthy without a college degree.  Almost every town in America includes high-school dropouts on its roster of serious entrepreneurial success stories.  Behind every statistic, including the BLS numbers regarding the workforce outlook for those trained in science and technology, lurks someone who has shattered that statistic’s expectations.  Unfortunately, the someone who did the shattering did it on his or her behalf alone, not for others in the statistical group.  Outliers—positive or negative, admirable or to be scorned or mourned—are mere blips in the statistics.  Many people live to defy the life insurance industry’s actuarial tables, but the tables nonetheless are bankable.  Do not quarrel with numbers that say the more science and technology you have in your educational resumè, the better off you will be in the job market.  The numbers are indisputable even if you know someone with a Ph.D. in physics who is living in his parents’ basement and working as a night-shift manager in the fast-food sector.

There you have a few words about the first two 21st Century “R’s” in our education dilemma, one bearishly difficult and one incredibly obvious.  The first, a bearishly difficult question about reform (which of course I leave to the experts to answer), is:  What must our educational establishment do to confront an era in which external social factors have helped diminish the quality of our K-12 output, even as career paths are demanding better-prepared high-school graduates?  The second, incredibly obvious puzzle piece is this refocus:  No offense to the “soft” or liberal-arts faculty and curriculum, but what today’s students will most need as adults is every successful hour of science and technological education they and the system can handle.  With a little will to act, this second element is simple (in concept, a least), nothing more than a bit of a shift in emphasis, and an intense effort to make science and technology education absolutely as inclusive as possible.  Through his or her K-12 studies, no capable student should be allowed to make a soft landing away from fundamental science studies.  It’s as obvious as the statistics about STEM graduates.  It becomes much more obvious if one simply looks around to see a citizenry that is literally plugged into technology most of their waking hours.

That leaves a third “R”—response.  This element is all about change, and relates to education as FedEx and UPS relate to the Pony Express.     “Exponential change” has been a popular phrase for a generation or two.  In the scientific sense of the word, exponential change means change of a magnitude equal to a mathematical exponent, those superscript numbers in an equation.  In other words, a particular exponential change would upset the proverbial apple cart to the second or third or fourth or 50th power—or as is also popularly, and without specificity, used in daily conversation, “to the nth degree.”  Despite all the common usage of such phrases, and despite my talk about fundamental change, it is important here to note that for the most part I am not talking about the need for our educational system to deal with “exponential change.”  If the exponent were merely modestly large and quick, it would be an impossible task.  We haven’t reached that point, at least not yet.

Technology does advance with remarkable speed, sometimes with breathtaking speed, occasionally with stunning speed.  We have come to expect that technology will make fundamental changes in world within a single lifetime.  But we do not wake up on Monday and find the printing press invented, wake up on Tuesday to discovery of the microprocessor, arise on Wednesday to find the first personal computer being marketed, greet Thursday with our first peek at the internet, and end the week attending a dedication for the first advanced manufacturing plant that does not employ a single human being, not even a security guard.  Calculate an exponent spanning each of those morning surprises, if you wish.  But console yourself, as an education reform planner, in knowing that a 21st Century education system must move merely very, very fast . . . not impossibly fast.

It’s also important to note that despite my interest as a citizen in K-12 education, this little book is essentially about how, as the politicians always (meaning something that never changes, exponentially or otherwise) say, getting the country moving again.  That means growing the economy, in a free-market setting, so as to create a larger pie and thus benefit everyone who participates in the process.  And although better grade-school outcomes and better high-school outcomes absolutely will help in that effort, it is at the college and university levels where the fastest, most direct connection occurs.  That is the only connectivity level with which I have had direct experience as a technology manager and entrepreneur.  It is the only connectivity level where education can seek to move if not as rapidly as technology moves, then at least rapidly enough to nurture a competitive workforce and continue to produce a domestic “technology supply” that has fast become the world’s most valuable raw material.

In other words, when our colleges and universities offer curricula that turn on a dime to support the changing technological savvy required of world-class manufacturing employees, then our manufacturers will know their workforce can compete globally for the long term.  And if our colleges and universities continue to produce graduates who create world-class technology, either in academic research or in the private sector . . . then our great holistic economic engine, if allowed to run at full speed, will remain unchallenged as the world’s foremost sustainable generator of per-capita prosperity.  World-class research and scientific education have been our strong suit for a very long time, and remain ours to sustain or lose.  The quick-turnaround “continuing education” of the workforce, top to bottom, is the new, 21st Century imperative. 

Just-in-time manufacturing came on the scene as a managerial strategy that increased efficiency, reduced inventories, aided quality control, reduced costs, and enhanced profits.  It is tempting, and I think valid in a certain oxymoronic sense, to think here of “just-in-time technological education” for the manufacturing sector.  Similar to a new part being manufactured just in time to keep an assembly line moving efficiently, a college can create a new training class—whether an actual, semester-long course with hourly credits, or simply a seminar unique to a particular company—that will bring workers up to speed on a brand-new piece of technology.  Unlike just-in-time manufacturing, however, it’s not a matter of delaying the process until the last effective moment; “just-in-time education” is about providing knowledge at the first practical moment in the face of rapidly advancing technology.  In either case, something happens just in time.  With parts and inventory it’s a matter of being just in time, on the back side, for efficiency and profit.  In the educational arena it’s a matter of being just in time, on the front side, for survival.  A workforce that falls behind the educational curve is a workforce that might soon be without a workplace because others are moving quicker to integrate new technology.  It can happen not just to one plant, but to an entire market sector.

When I created JP Industries in 198X I walked straight into the world of acquiring manufacturing companies that could and should be doing better, improving their operations, and integrating each new unit as a synergistic piece of the larger corporate entity.  This is equity capitalism.  I did not invent the process, but I was an early student of the process and soon thereafter a practitioner.  Contrary to equity capital’s poor image in some quarters as a mere “bleeder” of companies that otherwise would have thrived, most such acquisitions—and every acquisition I was involved with—pursue the long-term best business plan and operational strategy for any acquired unit.  A hypothetical 200-employee company that survives and thrives for the foreseeable future as a 150-person company, for example, has emerged in a better position than an obsolescent 200-employee company that clunks along for a year or two or three, then goes out of business.  The numbers are different with every acquisition, and the possible parameters are infinite.  But that is the model I followed throughout my entrepreneurial career.

Some acquisitions are more successful than others.  Usually there is a near-instant reduction in payroll.  One could say “of course” that’s true, because in most cases the plant was for sale because it was bloated or otherwise inefficient.   Often the owner could not solve its problems and did not see a good future for it.  In some cases lost jobs eventually returned in part or in whole as efficiencies and new technology were implemented.  This entire era of American manufacturing, don’t forget, did not occur in the same environment as, say, the Eisenhower era.  In the middle of the 20th Century many undeveloped nations would have been hard-pressed to produce even those aforementioned cocktail-stirring umbrellas.  Most of Europe’s great factories had been bombed into rubble.  Japan was just beginning to reinvent its manufacturing base.  The cargo container had not been invented.  It was assumed that except for specialty items and products we did not wish to make, we owned the manufacturing trading lanes, and that most of what arrived here from the Orient was junk.  You know how that story turned out.

Within a few decades, manufactured goods and components of every stripe, from cars to TV sets, were flowing in this direction.  Small and medium-sized companies across the heartland could no longer coast along with marginal efficiency, barely caring about new technology, and sending the sales force out twice a year for a seasonal handshake.  Many, however, remained stuck in the old culture.  That was the operational environment in which equity capitalists came on the scene to triage underperforming companies, creating a healthy new life for many, almost always with a regimen that included dead-weight loss.  It is fair to say that my company and others were not always the most popular arrivals in town.  It is also fair to say that an underperforming and troubled company’s prospects are seldom a secret, so our arrival was welcomed, though rarely cheered, more often than you might think.  At any rate, JPI never overleveraged a deal, and never bought a company for no reason but to sell its component parts for a quick profit.  I selected underperforming companies which, if brought up to their potential for efficiency and quality, could contribute to our corporation and stay around for a long time.  That was not merely an honorable way of doing business; it was vital to the economy—and will remain so.

One such acquisition was a small manufacturing operation in Grand Haven, Michigan, where about XXX employees made automotive camshafts.  That product was a good fit for JPI.  It came as no surprise to anyone when one of our first actions was to lay off perhaps 15 percent of the workforce, the first step toward bringing the operation into a reasonable state of competitive efficiency.  Soon thereafter we saw a way the plant could produce better, more competitive, more profitable camshafts by transferring newer technology to the operation.  The technology was already in use by a JPI unit in Germany.  Some of our German employees flew to the shores of Lake Michigan and led any necessary retraining of our Grand Haven technicians and machinists.  The new technology brought in more orders—meaning a workforce that previously had to be shrunk for efficiency’s sake was hiring new employees because of  technological efficiencies.

At another plant, in western Iowa, workers began feeling out the new ownership—us—to see what they could do to improve their own prosperity.  Some of their proposals, particularly on benefits that these days are called “legacy issues,” simply would not work within the plant’s bottom line.  Recent, and ongoing, debacles involving both government and private-sector legacy costs show what can happen when, at midday, you promise the moon. When JPI explained that to the Iowa workers, some of them raised the idea of profit-sharing.  I suggested that could be a fine idea, as long as productivity remained high and as long as there were profits to share.  We moved toward a plan that seemed like a win-win situation until we hit a surprise stumbling block.  It became clear that many employees, perhaps most, had no idea how to read a balance sheet.  Some could not differentiate revenue from profit.  What to do?  A call from JPI to the local community college resulted in creation of a brief “course,” just for us, on how to read financial statements.  Suddenly the workers had a profit-sharing program, understood it, knew how to communicate about it, and in most cases developed a heightened interest in creating a profit . . . for them and for JPI.

That is not an example of just-in-time technological training, but it certainly was just in time to rescue a win-win personnel situation that was going bad for no good reason.  The nature of JPI’s integrated auto-parts business plan meant that much technology-specific continuing education could be done in-house, the way our German unit worked with staff in Grand Haven.  Community colleges, however, offer excellent accessibility for manufacturers with plants scattered about the country, often in small cities and even semi-rural areas.  The junior colleges are not only geographically accessible, relatively affordable, with minimal bureaucracy and strong ties to . . . well, they aren’t called community colleges for nothing.

As competitors for tuition dollars, two-year schools generally are delighted to develop synergy with local employers.  As grassroots educators, most are willing to develop new programs specifically designed for a new business in town, or for an old business with new technology issues.  At JPI, though we took care of our own group training for new processes or machinery, we paid employees’ tuition for any college-based training that related to the workplace, be it in engineering or accounting or management.  And we paid any vocational training tuition for laid-off workers during their first year of a job search.

Community colleges are not America’s sexiest post-secondary educational institutions.  But they are vital, and they should become more vital.  I have been out of touch with that scene for two decades, but I know four-year institutions have begun to partner with two-year schools to build networks stressing preparation for the regional workplace—nursing, for example, where health-care is a major employer.  Small manufacturing operations looking for a new plant location put that kind of educational access on a short list of site priorities.  Response among the more nimble two-year schools is already happening.  We need more of that, with access to quickly custom-made science and technology curricula.  And we need the paradigm to trickle upward to four-year colleges and universities in every way that more advanced rapid response education to technological advances can be enhanced.  Not an original idea.   It is happening.  It needs to be intensified.  The public needs to be aware of this synergy, needs to know the stakes involved.  Good things happen when good ideas have broad support.

The above are simple examples of an American education system responding to specific job-training needs down at the retail level, where the “just-in-time” concept can work efficiently.   It’s a template that also can be viewed from within the philosophy of continuous change—which clearly is a fact as much as it is a way of thinking.  The institutions that fail and crumble sooner rather than later, whether taken in the broadest historical scope or within the much shorter timeline of an era, are the institutions that insist on static goals, insist on static ways of reaching goals, insist on fealty to “grandpa’s idea.”

Pretend for a moment that the greatest influence on contemporary life, technology, is a static thing.  Technology is the least unchanging thing imaginable, but try to imagine it anyway.  Even lacking new ways of designing things, making things, marketing things and using things, one hopes change in the form of “social progress” would occur.    We saw a great deal of that, for example, between the invention of the wheel and the invention of the steam engine.  I am one who raises both eyebrows at some “legislation” that emanates from our court system.  Yet it is also inarguably true that the only way our great Constitution has worked, and can continue to work, is via a certain amount of flexible interpretation.  Our national touchstone cannot be static.  Let us not forget that the founders themselves waited just two years before massively editing the Constitution with the Bill of Rights . . . but the Boston Red Sox won the World Series four times (and even the Chicago Cubs won it twice) before American women were allowed to vote.  The spirit of the founders’ Constitution, its grand sweep wrapping federalism and unprecedented individual rights into the same system of government, is indeed indelible.  It was the founders’ own genius that has prevented the document from falling into a landfill with other lifeless documents. 

Channeling continuous change toward positive and productive ends is an excellent definition of progress, one that good business managers understand and call “continuous improvement.”  I once adapted the idea to a little book for my own employees entitled Better Makes Us Best.  Research showed, by the way, that lower-level workers were most likely to have read the book.  For sure, any institution that seeks to thrive and grow must steer itself across the seas of change rather than try to build a dike and hide, unaffected by such a powerful force.  That includes our largest and greatest institutions of learning, which to my observation are doing quite a decent job of continuous improvement.

Reference: Book “The Technology Imperative: What Jobs! Jobs! Jobs! Really Means in the 21st Century”, www.GavdosPress.com, September 2012.