Dynamic Manufacturing: Creating the Learning Organization, Robert H. Hayes, Steven C. Wheelwright, and Kim B. Clark (New York: Free Press, 1988) 429 pages, $24.95.

American Business: A Two-Minute Warning, C. Jackson Grayson, Jr. and Carla O’Dell (New York: Free Press, 1988) 368 pages, $24.95.

In the fall of 1911, Frederick Winslow Taylor rushed into print his Principles of Scientific Management, a thin book that had been gestating since the early 1890s. Taylor was notable in mechanical engineering circles for his codiscovery in 1899 of high-speed steel and for his brilliant paper in 1906, “The Art of Cutting Metals,” which reported on over 30,000 experiments he had conducted at the Midvale Steel Company during the 1880s. By applying scientific techniques—like varying the speed and feed of cutting tools or varying their shapes—he had found the “one best way” to do any metal-cutting task. On the basis of these experiments, he believed he could optimize the performance of the entire machine shop, including the performance of its workers.

With evangelical fervor, Taylor vowed to root out all “systematic soldiering” (i.e., workers doing less than an “honest day’s work”). Doing so, he insisted, required a complete mental revolution in U.S. industry. Taylor tried consulting and worked hard to convince several manufacturing executives to yield control of their production operations to him and his associates. As managers had eclipsed owners, he taught, efficiency experts would eclipse managers.

Taylor advocated pushing responsibility onto people who, like him, had studied the dynamics of production. In return he promised not only productivity increases but also peace between capital and labor.

Unfortunately, Taylor had little initial success; in more than one instance, he and his associates were fired by companies that had retained their services. His reputation as a production expert would probably have remained obscure had it not been for the attorney and future Supreme Court justice, Louis Brandeis, who had been hired in 1910 by an association of companies opposed to proposed rate hikes by the eastern railroads. Brandeis latched onto Taylor’s theoretical work, labeled it “scientific management,” and put one of Taylor’s disciples on the witness stand to tell the Interstate Commerce Commission how the railroads could save a million dollars a day. Headlines throughout the United States proclaimed Taylor’s gospel. An efficiency craze ensued; factories, schools, homes, and even churches were soon Taylorized—hence Principles of Scientific Management.

Taylor’s new book used parables to get his teachings across. His favorite was the story of “Schmidt,” a stocky Pennsylvania German who was a pig-iron loader at Bethlehem Steel. Schmidt loaded about 12 tons of the 92-pound iron pigs each day (and then ran home to work on his little dream house). Using Taylor’s principles, “scientific managers” raised Schmidt’s output to 48 tons per day, and raised his daily wages from $1.15 to $1.85.

Schmidt achieved this remarkable gain, Taylor continued, not only because of science but by being “a high-priced man.” “A high-priced man,” Taylor recounted telling Schmidt, “does just what he’s told to do and no back talk.” Taylor then put things on the line with Schmidt: “When this man [i.e., the manager] tells you to walk, you walk; when he tells you to sit down, you sit down… Now you come here tomorrow morning and I’ll know before night whether you are really a high-priced man or not.” This was “rather rough talk,” Taylor conceded, but with a man of “the mentally sluggish type as Schmidt,” it was “appropriate and not unkind.”

Fifteen years later, in 1926, Henry Ford published an article, “Mass Production,” in the thirteenth edition of the Encyclopedia Britannica. In it he described revolutionary developments at the Ford Motor Company—the highly specialized machinery, the assembly line, and the $5 day. Interestingly enough, Ford alluded to Taylor’s Schmidt to make clear how his approach differed from Taylorism. Why, Ford asked, should pig iron be loaded by hand? Why not do it with machinery or, better yet, why not eliminate the need for pig iron by casting iron straight from the blast furnace?

In retrospect, however, Ford had actually hit on many of Taylor’s assumptions about work without acknowledging the symmetries. Taylor had not really envisioned Ford’s mechanized work processes. He sought revisions in labor regimens without looking for innovations in production hardware—while Ford and his engineers had mechanized work processes and found workers to feed and tend their machines.

And yet Ford had—perhaps inadvertently—applied Taylorist ideas, such as time-and-motion studies, to lay out machining and assembly processes. At Ford, ultimately, the special-purpose machines and the assembly lines set the pace of work. Taylor was known for his studied disregard for the worker. Ford, for his part, was devoted to the hierarchical production organization demanded by the machines, or to the elimination through automation of skilled jobs on the line.

Taylor and Ford came to mind as I was reading Dynamic Manufacturing, by Robert H. Hayes, Steven C. Wheelwright, and Kim B. Clark of the Harvard Business School, and American Business: A Two-Minute Warning, by C. Jackson Grayson, Jr. and Carla O’Dell of the American Productivity and Quality Center. Since Ford’s assembly-line revolution in 1913, the books justly imply, companies in the United States—indeed, companies throughout most of the world until quite recently—have pursued manufacturing along Taylorist (and Fordist) lines. They have defined jobs and work processes with great precision and saw business organizations as hierarchies, out of a continuing belief that workers “systematically soldier.” They’ve shared, at least in part, Taylor’s manifest contempt for the worker.

Rather than seeing workers as assets to be nurtured and developed, manufacturing companies have often viewed them as objects to be manipulated or as burdens to be borne. And the science of manufacturing has taken its toll. Where workers were not deskilled through extreme divisions of labor, they were often displaced by machinery. For many companies, the ideal factory has been—and continues to be—a totally automated, workerless facility.

Now in the wake of the eroding competitive position of U.S. manufacturing companies, is it time for an end to Taylor’s management tradition? The books answer in the affirmative, calling for the institution of a less mechanistic, less authoritarian, less functionally divided approach to manufacturing. Dynamic Manufacturing focuses explicitly on repudiating Taylorism, which it takes to be a system of “command and control.” American Business: A Two-Minute Warning is written in a more popular vein, but characterizes U.S. manufacturing methods and the underlying mind-set of manufacturing managers in unmistakably similar ways. Taylorism is the villain and the anachronism.

Predictably, both books arrive at their diagnoses and prescriptions through their respective evaluations of the “Japanese miracle.” Whereas U.S. manufacturing is rigid and hierarchical, Japanese manufacturing is flexible, agile, organic, and holistic. In the new competitive environment—which favors the company that can continually generate new, high-quality products—the Japanese are more responsive. They will continue to dominate until U.S. manufacturers develop manufacturing units that are, in Hayes, Wheelwright, and Clark’s words, “dynamic learning organizations.” Their book is intended as a primer.

“In contrast to the assumptions of Taylorism,” they argue, “world-class manufacturing organizations do not divide people into those who think and those who act. Learning and applying knowledge must be high on everyone’s agenda, at every level in the organization.”

Grayson and O’Dell’s book is also aimed at corporate managers who are chasing the past, but it goes beyond Dynamic Manufacturing in calling for sweeping reforms in the institutions of American capitalism, from public policy to the educational system.

To be sure, Grayson (the onetime price-control czar in the Nixon administration) and O’Dell swear off state intervention in the economy. They argue for no further protection in international trade, and they oppose the establishment of an “industrial policy” by the federal government—even though Japan has built its current economic strength on the basis of what must rightfully be called an industrial policy. They oppose currency devaluation as a competitiveness strategy because it results in direct foreign investment and the selling off of national assets. They warn that government should not overemphasize capital investment or invest more funds for research and development.

They do, however, call for a redistribution of R&D spending away from defense. More strikingly, they put forth an eight-point government program for victory in the competitiveness war. They are very specific about how to achieve better education: much higher pay for teachers, longer school days, a greatly expanded school year, and larger average class sizes—which is, perhaps, a too slavish desire to emulate the Japanese educational system. The authors’ agenda also includes greater privatization of government services, the reform of U.S. antitrust laws, and improvement of commercial and industrial statistics-gathering to reflect the shift in the economy toward services. They call for raising productivity in government and for cutting the federal budget deficit.

The fundamental weakness of the U.S. economy, they believe, is related to the federal deficit but goes well beyond it. The problem lies in the low savings rate. In fact, A Two-Minute Warning seems to be as much meant for credit-card-wielding U.S. consumers as for U.S. businesspeople.

If the parallels between these two books are striking, so are the differences. Each draws heavily from industrial history to ground its own analysis of America’s productivity problems. But the books do not see quite the same history. Hayes, Wheelwright, and Clark include a chapter called “America’s Manufacturing Heritage” that reflects their vision of the golden age of manufacturing in the United States, circa 1950. Their homily—it really isn’t a history—tells us that the United States became a manufacturing giant when it combined old-world skills, which valued quality, with modern scientific knowledge, which valued new ideas and efficiency—and kept this combination carefully in balance.

Then three related things happened; those familiar with Professor Hayes’s work will appreciate the drift of the argument. First, the financial guys took charge and traded long-term growth for short-term profits. Rates of productivity growth fell off. At the same time, U.S. corporate complacency in world markets choked the basic-research binge indulged in by technologically oriented corporations after World War II. The management of industrial R&D laboratories passed from those who had emphasized steady improvement of products and processes to those who valued big science and bet on great leaps forward—while military hardware became the main objectives of R&D spending.

Finally, and perhaps most important, managers allowed Taylor’s principles of scientific management and Ford’s notions about hard automation to get out of hand. It was now that manufacturing organizations became rigidly hierarchical and authoritarian—anything but “learning” organizations. The results, the three authors maintain, have been disastrous.

Grayson and O’Dell construct their history to sound the alarm, not to harken back to the good old days. The United States is following in the footsteps of Great Britain, they write, which did not respond to turn-of-the-century warnings about America’s—and Germany’s—rapidly rising economic power. As a consequence, Great Britain—once the workshop of the world—became a second-rate manufacturing nation, losing both economic and political power in the process. Again, it is our management tradition that is the real culprit.

Curiously, both historical arguments, illuminating as they are, oversimplify U.S. industrial achievements because they underestimate Taylor, overestimate pre-Taylor U.S. managers, or both. Is it true, for example, that the British were warned of impending economic demise just as contemporary U.S. businesses have been warned? Yes and no.

In the 1850s, John Anderson and other British military officers successfully pressed Parliament to fund an American-style small-firearms manufacturing plant, which opened at Enfield in 1857. The Enfield Armory was stocked with American-made machine tools and managed by U.S. manufacturing experts. It turned out a standardized rifle containing uniformly produced parts, a gun far different from the handmade rifles and muskets produced by the arms makers of Birmingham.

After the Enfield Armory opened, Anderson hoped it would become a model for British manufacturers of all kinds of consumer durables. He counseled that if his fellow citizens were “wise in their generation,” they would “not despise this system of manufacture but, on the contrary, will adopt it, for it will secure for them a high vantage ground in competing with other parts of the world.” If the British did not adopt American methods, Anderson warned, “it is to be feared that American manufacturers will before long become exporters…to England.” And yet the British did not adopt U.S. manufacturing methods for another 50 years.

Why the slowness of the British response? British manufacturers viewed most U.S. goods coming in before 1900 as being of poorer quality than British products. Not only were U.S. goods all the same but also they were made with lesser quality materials, were poorly fitted together, and were not finished as perfectly as their British counterparts. British consumers, the manufacturers believed, expected less standardized, higher quality goods.

Actually, a small number of advanced U.S. companies, such as the Singer Manufacturing Company, established factories in Britain during the late nineteenth century using the same production techniques as their sister factories in the United States. They did well in the British and European markets; in fact, Singer’s British factory produced goods at much lower cost than the United States did. (Analogies to Japanese auto companies operating in the United States are unavoidable.)

And so the American system of manufactures, as practiced at companies like Singer, attained its ultimate logic in Taylorism and Fordism. It is true, as Hayes, Wheelwright, and Clark recall, that pre-Taylor America was a place of greater skill among production workers. But the genius of American manufacturing back then was really put to the production of goods that were “good enough.” Our system of manufactures was built on the idea of controlling for defects rather than pursuing—as an artist or skilled craftsperson might—perfection. Nineteenth and early twentieth century manufacturers in the United States understood perfectly well that the quality of their goods was determined by how far it deviated from an ideal form at a given price.

By 1900, the British could not touch the quality of U.S. goods—at least not at the U.S. price—and, correspondingly, British consumers began to make compromises. It is with standardized production that U.S. goods conquered world markets. Eventually, as Dynamic Manufacturing bemoans, extreme forms of Taylorism, which made American workers feel that their products were alien to them, led to a palpable decline in the quality of U.S. products.

Hayes, Wheelwright, and Clark argue much more strongly the immediate and practical claim that the United States has recently lost its leadership in three bases of competition: relative cost, relative quality, and relative innovativeness. This is where Dynamic Manufacturing takes hold of the imagination.

Although many will contend that an overvalued dollar has played an important role in the rapid loss of U.S. cost advantages, the authors demonstrate cogently that cost problems had emerged well before the dollar took off in the late 1970s. Like Grayson and O’Dell, they cite figures demonstrating that U.S. productivity grew at half the rate of Japan’s during the 1980s, and that this problem was exacerbated by a relative decline in business investment.

Quality has posed even greater problems. U.S. manufacturers quickly lost market share because consumers perceived their goods as lower quality than Japanese goods. This is why the United States has yielded leadership to the Japanese and the Germans in many high-tech industries. Again, there has also been a decline in R&D expenditures as a percentage of the GNP; only 1% of the federal government’s R&D budget went to promoting industrial growth. Indeed, the United States now has a significant “balance of patents” problem.

Hayes, Wheelwright, and Clark provide ten useful chapters to guide U.S. managers in creating the “learning” organization—manufacturing companies that are world class. And what better way to begin than to review the prevailing capital-investment process in the United States? As with a growing number of business scholars, Hayes and his associates believe that the modern capital-budgeting regime, with its emphasis on discounted present value, has not served U.S. manufacturing well. Discounted present-value methods fail to comprehend the strategic implications of capital-budgeting decisions, especially the ways investment gives employees opportunities to learn and grow.

Companies that refuse to invest, they argue, fail to take into account the impact of new technology on the organization’s capabilities; they should bank on their organization’s ability to achieve synergies that would be impossible without investment. The key to a wise investment process revolves around the achievement of a broadly “shared understanding of the investment’s purpose and requirements…and the development of a holistic understanding of how the investment relates to their competitive mission.”

Once a sensible capital-budgeting process is developed, Dynamic Manufacturing teaches, it is important that companies value the manufacturing function. U.S. manufacturing companies characteristically have created staff-heavy manufacturing organizations in which commanding executives have too much control. Manufacturing staff should be a “support group, not the aristocracy of the manufacturing organization.”

Let us be clear, however. All of the failings of the old manufacturing organization are symptoms. The disease, according to Hayes and his associates, pertains to human factors, “specifically, management factors—at least as much as it is due to unfair competition or an unsupportive economic climate.” We are experiencing industrial decline essentially because U.S. manufacturing companies still operate within the paradigm of Taylor and Ford. It is in this light that we encounter managers obsessed with short-term profitability.

In a distinctive chapter, “The High-Performance Factory,” the authors give wonderful glimpses of prevailing practices at new and excellent manufacturing operations. They caution that new investment imposes very high short-term costs on a factory, quite apart from the costs of the newly invested capital, and they conclude that new investment is not a viable solution for a company that is in a “do or die” situation. They consider here and elsewhere how the benefits of new investment come not in the short term but over the long term. They consider product and process development (their strongest suit), design for manufacturability, the elimination of waste, and the reduction of work in process.

The high-performance manufacturing organization is one that can design a product correctly the first time—to reduce significantly, if not eliminate, engineering change orders that can cripple manufacturing productivity.

There is much more to Dynamic Manufacturing. This summary has been only a taste. The point is that Hayes, Wheelwright, and Clark believe knowledge to be the basis of a dynamically managed factory. Are they right to suppose they depart, therefore, from Taylor?

In fact, the authors often articulate their arguments in the manner of Taylor. They write that, to achieve a dynamic learning organization, “it is not simply a matter of changing a few things; almost everything must be changed and changed dramatically.” Taylor, remember, also stressed that the successful adoption of his system required a complete mental revolution. There is the same tone, the same kind of exhortation.

No doubt, we are talking about two revolutions here—the presumably holistic revolution of Hayes, Wheelwright, and Clark on the one hand and, on the other, Taylor’s command-and-control revolution. But in both cases, the key is knowledge-based manufacture, and the critical question is, who controls the knowledge? The general goal is to push authority for the system of manufacture into the hands of people in the organization most competent to devise that system—and to help those people learn more.

Nor is it true that Japanese factories are so very holistic. Think about Japanese quality circles. Hayes and his associates recommend QCs, but only after several preliminary steps have been taken: “improving a factory’s basic housekeeping, correcting its known short-comings, building its technological competence, establishing a philosophy of continual improvement, [and] getting workers’ inputs to process design issues.” Taylor believed that just such steps were critical before the scientific manager brought out the stopwatch, i.e., to calculate the one best way to do a given manufacturing task.

Moreover, Sony, Matsushita, and Sanyo have recently said that their U.S. factories are “not yet ready” for QCs—just as Taylor argued that a foundry at Watertown Arsenal in Massachusetts was not yet ready for the stopwatch. (It seems an overly zealous disciple began time-and-motion studies and then watched the foundry workers go on a wildcat strike, an action that resulted in the banning of the Taylor system from all government facilities.)

True, if the Japanese-run American factories are ever ready for QCs, one can envision the stopwatch in the hands of workers themselves—or at least some workers—not managers. But just because it is now line leaders and ambitious “associates” (Honda’s euphemism for workers) who design ways to make work more stringent, we can hardly conclude from this that factories have become opportunities for worker self-realization. Hierarchy is still a tragic fact of Japanese production, perhaps of all production.

Or consider Grayson and O’Dell turning their arguments on Japanese manufacturers who have made profound changes in productivity and quality at factories that were formerly run by U.S. manufacturing firms. The sample cited is not big: Sanyo in Arkansas and the Toyota-General Motors NUMMI plant in Fremont, California are most conspicuous. Is there not room for at least some skepticism here too?

Formerly, the GM Fremont plant had some 7,800 workers; now under Toyota management, the plant produces more cars than ever with only 2,500 workers. But if one looks carefully around the plant, the ghosts of both Taylor and Ford appear. The 2,500 workers who eventually reentered the Fremont plant did so only after management assessed their “fitness” for the new manufacturing regime, that is, their willingness to accept—and contribute to—rigorous new standards for timeliness and performance. Scientific selection of workers is Taylor’s first principle.

The Fremont plant under NUMMI is not identical to the Fremont plant under General Motors, moreover. The level of automation and computer control is far greater than before. The NUMMI plant, like plants in Japan, is hardly a picnic ground for workers, even if the floors are kept clean enough to eat off of. (Every visitor to Ford’s Highland Park, Michigan plant between 1913 and 1915 remarked how spotless the place was.) Indeed, the great, initial productivity gain was realized in the production of a single, standardized model of the Chevrolet “Nova”—which reminds one of Ford’s Highland Park plant in the era of the Model T. Workers are tightly coupled with machines, and they don’t set their own pace.

I like to think that the Japanese have not buried the paradigm of Taylor and Ford, but have at once brought it to a new level of refinement and wrapped it in a fresh mantle of respectability. The Japanese may have pushed greater responsibility for the strictures on operators down the line to the shop floor. Would that have made any difference to Schmidt?