Twenty years ago, most Americans pictured the Japanese factory as a sweatshop, teeming with legions of low-paid, low-skilled workers trying to imitate by hand, with great effort and infrequent success, what skilled American and European workers were doing with sophisticated equipment and procedures. Today, shocked and awed by the worldwide success of Japanese products, Americans tend to rationalize Japan’s industrial prowess by imagining gleaming factories peopled by skillful robots—both human and otherwise—all under the benevolent sponsorship of “Japan, Inc.”

My research (see my note on this page for a detailed description) suggests that this new stereotype is probably as incorrect as the old one. The modern Japanese factory is not, as many Americans believe, a prototype of the factory of the future. If it were, it might be, curiously, far less of a threat. We in the United States, with our technical ability and resources, ought then to be able to duplicate it. Instead, it is something much more difficult for us to copy; it is the factory of today running as it should.

The Japanese have achieved their current level of manufacturing excellence mostly by doing simple things but doing them very well and slowly improving them all the time. “The nail that sticks up is hammered down,” says the Japanese proverb. In the factories I visited, all the nails appeared to have been hammered down.

In describing some of the ways in which this “hammering” has been done, I shall not discuss the effect of Japanese cultural or social norms on management behavior, the distinctive aspects of Japanese management systems, or the virtues of Japanese industrial policy. They are all important topics, but all have been the subject of innumerable books and articles. (See the sidebar for a list of related reading.) Instead, I will focus simply on how the Japanese manage their manufacturing functions.

Related Reading Articles Peter F. Drucker, “What We Can Learn From Japanese Management,” HBR March–April 1971, p. 110. Peter F. Drucker, “Japan Gets Ready for Tougher Times,” Fortune, November 3, 1980, p. 108. Peter F. Drucker, “The Price of Success: Japan Revisited,” Foreign Affairs, August 1978, p. 28. Byron K. Marshall, “Japanese Business Ideology and Labor Policy,” Columbia Journal of World Business, Spring 1977, p. 22. Richard Tanner Pascale, “Zen and the Art of Management,” HBR March–April 1978, p. 153. Howard F. Van Zandt, “How to Negotiate in Japan,” HBR November–December 1970, p. 45. Ezra F. Vogel, “Guided Free Enterprise In Japan,” HBR May–June 1978, p. 161. Books Robert Cole, Japanese Blue Collar: The Changing Tradition (Berkeley, Calif.: University of California Press, 1971). Chie Nakane, Japanese Society (Berkeley, Calif.: University of California Press, 1970). Ezra F. Vogel, Japan as Number One: Lessons for America (New York: Harper & Row, 1979).

What I Did Not See

For the most part, Japanese factories are not the modern structures filled with highly sophisticated equipment that I (and others in the group) expected them to be. The few “intelligent” robots I encountered were largely still experimental; the general level of technological sophistication that I observed was not superior to (and was usually lower than) that found in comparable U.S. plants.

Automation consisted mainly of simple materials-handling equipment used in conjunction with standard processing equipment—just as it is here. Nor do the Japanese run this equipment at higher rates or for longer hours than U.S. factories do. Because of government regulations against women working after 10 p.m., very few Japanese facilities operate more than two shifts a day.

Similarly, the famed “quality circles” did not appear as influential as I expected. They were not widely adopted until several years after the Japanese Union of Scientists and Engineers had given them its official support in the mid-1960s. Most of the plants I visited had in fact experienced problems with QCs for three to four years after their introduction. Moreover, most of the companies I talked to already had enviable reputations for high-quality products by the time they adopted QCs.

One company treated quality circles as secondary, peripheral activities; another had eliminated them altogether (“temporarily,” it said). But the quality levels at these plants were just as high as at others where QCs were active.

Finally, I did not observe the use of uniform compensation systems. I had been led to expect wage systems based strictly on seniority, bonuses based on corporate profitability, no incentives based on individual performance, and no time clocks. Yet at one plant I found wages based on level of skill and commuting distance as well as on seniority. At another, by agreement with the union, bonuses equaled a certain number of months of regular salary independent of recent corporate profitability. At a third, the general manager wanted to tie compensation more directly to individual performance measurement—almost on a piecework basis. And I did see a few time clocks in operation. In short, there appeared to be few general rules covering employee compensation.

What I Did See

Although I found no exotic, strikingly different Japanese way of doing things, I did notice several areas to which the Japanese had directed special attention.

Creating a Clean, Orderly Workplace

The factories I visited were exceptionally quiet and orderly, regardless of the type of industry, the age of a company, its location, or whether it was a U.S. subsidiary. Clearly, this orderliness was not accidental. The meticulousness of the Japanese worker was not, in my opinion, the major reason for the pervasive sense of order that I observed but seemed instead to result from the attitudes, practices, and systems that plant managers had carefully put into place over a long period.

The workers’ uniforms (provided, of course, by the company) were clean, their machines were clean, and so were the floors around their machines. Sources of litter and grime were carefully controlled: boxes placed to catch metal shavings, plastic tubs and pipes positioned to catch and direct oil away from the workplace, spare parts and raw materials carefully stored in specified areas. The rest areas were centrally located, tastefully decorated (often with plants and flowers), and immaculate. As one American manager observed, “If you clean up the factory floor, you tend to clean up the thought processes of the people on it too.”

Keeping their workplaces and machines in good order was a responsibility assigned to the workers themselves, along with maintaining output and quality and helping fellow workers. Moreover, each worker was trained to correct the minor problems that often arose in the course of the day, to conduct regular preventive maintenance, to monitor and adjust equipment, and to search continually for ways to eliminate potential disruptions and improve efficiency. The object was simple: to avoid any breakdown of equipment during working hours.

Eliminating ‘The Root of All Evil.’

In the factories I saw, the sense of order also resulted from an almost total absence of inventory on the plant floor. Raw materials were doled out in small batches only as needed. In many cases, vendors maintained stores of materials and purchased parts that the company “called off” periodically. Suppliers often made three or four deliveries a day to avoid excess stock in the plant. Finished goods were removed immediately from the floor and either transferred to a separate warehouse or shipped directly to customers or distributors. The little inventory I did observe was carefully piled in boxes in specified places around the plant—marked, as were the aisles, with painted stripes.

Even work-in-process inventory was minimal. Material moved along steadily, assisted by materials handlers, by automated equipment, and by the workers themselves. Buffer inventories of partially completed work at various stations were unnecessary, for stoppages caused by breakdowns at earlier process stages almost never occurred. Because the incidence of rejects was very low, rejects did not pile up in baskets or on the floor (I discuss this at length in the next section). In short, most of the plants I saw appeared to have instituted materials movement systems similar to Toyota’s famous “just in time” system: inventory is minimized if every part arrives precisely when needed or when a machine is available.

Why do U.S. companies have such large work-in-process inventories? One major reason is their emphasis on producing “economic batches,” which seek to balance inventory costs against the setup costs created by changing from one item to another. In contrast, the Japanese believe that inventory is by definition bad, and they therefore seek to avoid the rationale for large-batch production by directing their attention and ingenuity to reducing setup costs. Toyota, for example, estimated that one U S. auto company took six hours to change the presses in its hood- and fender-stamping department. Volvo and a German competitor took four hours. Toyota’s changeover time was 12 minutes.

As one senior manager phrased it, “We feel that inventory is the root of all evil. You would be surprised how much you simplify problems and reduce costs when there are no inventories. For example, you don’t need any inventory managers or sophisticated inventory control systems. Nor do you need expediters, because you can’t expedite. And, finally, when something goes wrong, the system stops. Immediately the whole organization becomes aware of the problem and works quickly to resolve it. If you have buffer inventories, these potential problems stay hidden and may never get corrected.”

Keeping Murphy Out of the Plant

The inventory control system I describe requires iron discipline, not just on the plant floor but, more important, throughout the plant’s managerial infrastructure: vendor relations, production planning, industrial engineering, manufacturing/process engineering, and quality assurance. Everywhere I saw evidence of Japanese managers’ determination to prevent Murphy’s law (“If something can go wrong, it will go wrong”) from taking effect and to make sure that problems which do arise are resolved before they get to the plant floor.

“Before you can increase productivity or improve quality, you must have stability and continuity in your manufacturing process,” argued one manager. “How can you have stability when crises are occurring? Our job is to keep crises from developing on the production floor so that our production workers can focus their attention on quality and productivity.”

Preventing machine overload

Tools, dies, and production equipment were not overloaded. In fact, machines often operated at slower rates than they were designed for—and at less than the usual rate in U.S. factories. This practice reduced the possibility of jams and breakdowns as well as the wear on machine parts and dies.

Along with regular preventive maintenance and constant cleaning and adjustment, machines last longer with reduced rates of use. I expected to be impressed by the newness of Japanese machine tools compared with those used in the same industries in the United States. (The average age of machine tools in U.S. industry is about 20 years; in Japan, 10 to 12.) But the machines were not really that much newer; they just looked newer. And they ran newer.

One American manager who has studied closely the Japanese companies in his industry estimated that, even though they used equipment similar to that found in the United States, it lasted two to three times longer. Another summarized the difference as follows: “They use their machines; we abuse ours.”

Monitoring systems

Most factories I saw used comprehensive equipment monitoring and early warning systems. These devices checked the process flow, signaled when jams occurred, measured dimensions and other characteristics of finished parts, indicated when these characteristics approached tolerance limits, and kept track of rates of use (number of strokes, shots, or impressions) of tools and dies and indicated when to adjust or regrind them.

These monitoring systems, together with the widespread use of simple materials-handling equipment, allowed Japanese workers to oversee the operation of more machines than their U.S. counterparts. American managers, when walking around the floor of a Japanese factory, are often struck by the sense of being in a virtually untended forest of machines. Sometimes they are untended. The Japanese have such trust in the error-free functioning of their equipment that they often load up a machine with work at the end of the last shift and let it run through the night.

No-crisis atmosphere

Production schedules were based on capacity measures derived from actual performance data (not, as one often sees in the United States, from theoretical or obsolete standards). They were established at least a day in advance—generally several days. And unlike U.S. companies, where manufacturing is expected—with good grace and a can-do attitude—to react to last-minute changes imposed by marketing personnel, these schedules were ironclad. (How can you change a production schedule when the inventory required to produce something different is not available?)

No expediting and no overloading were allowed. Work was meted out to the plant in careful doses instead of being, as one U.S. manager put it, “dumped on the floor so the foreman can figure out what to do with it.” In short, I never detected an atmosphere of crisis in any of the plants I visited or anything like the “end-of-the-month push” and the “Friday afternoon crisis” so familiar to many American factories.

One plant I visited, which produced electronic instruments in low volume, had a different approach. Production schedules were made up two weeks in advance, and at the beginning of each two-week period all the materials required to meet that schedule were distributed along the production line. At the end of the period, the inventory was used up and a new batch brought in. Workers therefore had the satisfaction of cleaning up the plant floor every two weeks and were exposed to continual, controlled pressure to meet production quotas.

Another company with a very broad product line imposed a simple constraint on production schedulers to reduce the frequency of equipment changeovers: it allowed no more than eight product changes a day. Salespeople might complain and schedulers might be pushed to the limits of their ingenuity, but the rule was firm. If it became impossible to operate within the constraints of this rule, the company reduced its product line or increased the minimum size of customer orders—but the factory did not become burdened with confusion over additional product changes.

The crisis prevention programs like those I have just described generally extended to a company’s suppliers as well. A company often informed a supplier several months in advance of its schedule of deliveries to a plant. Any change in the plant’s production schedule was translated automatically into a revised delivery schedule for its supplier. The fact that Japanese companies tend to favor nearby suppliers reinforced this tight linkage.

As one American manager put it, “Doesn’t Murphy’s law work here?” Perhaps one reason Murphy lives in America is that American managers actually enjoy crises; they often get their greatest personal satisfaction, the most recognition, and their biggest rewards from solving crises. Crises are part of what makes work fun. To Japanese managers, however, a crisis is evidence of failure. Their objective is disruption-free, error-free operation—operation that doesn’t require dramatic fixes.

Management & Manufacturing

It became clear to me that what sets Japanese factories apart is not so much what managers do but, rather, how well they do the things they have decided to do—that is, how they view their roles and responsibilities.

‘Pursuing the Last Grain of Rice.’

Japanese products have a worldwide reputation for precision, reliability, and durability. Many Americans still find this reputation somewhat incongruous because “Made in Japan” used to mean cheap and shoddy products. The important point, however, is not that the Japanese have made a remarkable transition but that it took 25 years of hard work to do it.

“Pursuing the last grain of rice in the corner of the lunchbox” is a Japanese saying that describes, somewhat disparagingly, a person’s tendency to be over-scrupulous. But it conveys volumes about the Japanese character. As managers and as workers, the Japanese are smart and industrious—and never satisfied. They regard all problems as important.

Their concept of “zero defects” is a good case in point. As one Japanese scholar phrased it, “If you do an economic analysis, you will usually find that it is advantageous to reduce your defect rate from 10% to 5%. If you repeat that analysis, it may or may not make sense to reduce it further to 1%. The Japanese, however, will reduce it. Having accomplished this, they will attempt to reduce it to 0.1%. And then 0.01%. You might claim that this obsession is costly, that it makes no economic sense. They are heedless. They will not be satisfied with less than perfection.”

Indeed, in most of the Japanese factories I visited, the quality charts on the walls measured the defect rate not in percentages but in parts per million: 1,000 ppm represents a 0.1% defect rate. These companies’ current defect rate was 300 to 500 ppm, and their “near-term goal” was 100 to 200 ppm. And the long term? “Zero, of course.”

“It’s not just that we are idealistic,” one Japanese manager stated, “but we realize that your willingness to stop at 95%, coupled with our unwillingness to accept 95%, is what makes us able competitors.” Another, with perfect sincerity, informed me that “a defect is a treasure.” So few of them turned up in his company that each could be studied individually and mined for the information it contained about the remaining bugs in his production process.

It is important to add that a Japanese manager who talks about a quality problem in an operation is as likely to be talking about a design problem or a productivity problem or an inventory problem or a delivery problem or an absenteeism problem as about defective products. Quality, to the Japanese, means error-free operation. Any defect in any part of the manufacturing operation, therefore, becomes a quality problem in management’s view—another “grain of rice” to be pursued and eliminated.

High quality, after all, is not achieved by a few random management decisions but by a complex, all-encompassing, interactive management system that has the uncompromising long-term support of top management. The basis of this system is not simply an appropriate arrangement of people and machines. It is a way of thinking.

‘Thinking quality in:’

Japanese managers have taken the familiar American slogan, “You don’t inspect quality into a product, you have to build it in,” one step further: “Before you build it in, you must think it in.”

Planning:

Managers think it in, first, by careful planning in the product design stage. Interminable discussions among engineering, production, quality assurance, and sales personnel take place before the design is made final. Right from the start, manufacturing and industrial engineers help in developing machine specifications, methods, and standards. Product design is viewed as part of a total product-process system.

Training:

Once production begins, managers concentrate on holding to these standards. Therefore, they think quality in by training workers to deliver consistently high-quality products while developing in them expectations of producing high quality.

Japanese production workers automatically check the parts they receive to make sure that they are defect-free. They work meticulously, knowing that any defects arising from their operation will be spotted and ultimately—and embarrassingly—tracked to them. When the system works well, making high-quality products becomes a source of pride, and management attitudes and actions constantly reinforce this feeling.

Feedback:

Managers encourage production workers and quality inspectors to identify and correct any quality problems that arise (even when they are so minor that the product still passes final inspection). Everybody works together to ascertain the causes of problems and to eliminate them.

By contrast, in many U.S. companies a “we against them” attitude prevails between production workers and quality inspectors. As a result, workers keep potential problems hidden and shunt off defects to be reworked, and the pressure to meet delivery deadlines makes quality inspectors reluctant to delay delivery because of minor quality problems.

In Japanese companies “we” is everybody, and “them” are defects. Feedback from production workers, quality inspectors, salesmen, vendors, and customers is encouraged. Field service organizations often report directly to the manufacturing manager rather than, as in most U.S. companies, to the sales manager.

Materials:

Managers also think quality in by recognizing that even the most carefully designed and stable production process cannot maintain high quality if the materials that enter the process are defective. Japanese companies therefore devote intensive effort to screening incoming parts and materials and to feeding the results back to suppliers. One hundred percent inspection is often the rule until a supplier proves its reliability.

The pressure put on suppliers to improve the quality of their own materials is incredible to an American, but Japanese manufacturers do not think that simple pressure is sufficient. Instead, they work with suppliers to ascertain why problems arise and to help solve them. They even conduct seminars for employees of supplier companies. The message: “If you follow these steps, you will learn to meet our requirements.” Given the long-term relationships between suppliers and customers in Japan, suppliers cannot refuse or take lightly such assistance and advice.

Benefits of the system

Driving this quality consciousness—long before Japan’s determined assault on export markets—are the realities of the Japanese domestic market. As one senior government official put it, “A 1% defect rate means that if you sell 100,000 units of a product, 1,000 of them will be defective. In a country as small geographically and as crowded as ours is, it is simply unacceptable to have that many dissatisfied customers ‘unselling’ your product to their friends.” Moreover, the practice in some U.S. companies of shipping off-spec products to remote or less favored customers is unthinkable.

The Japanese have learned how to exploit the inevitable. They have come to realize that the same conditions which promote defect-free manufacturing operations also increase productivity. The apparent relationship between productivity and quality is supported by one American expert—Robert Lynas, group vice president at TRW—who notes that “a 2% reduction in defects is usually accompanied by a 10% increase in productivity.”

This finding may simply be due to the fact that fewer defects mean more output without a corresponding increase in costs. As one Japanese manager pointed out, “If you eliminate the production of defective items, things become much simpler and less costly to manage. You don’t need as many inspectors as before. You don’t need to have production workers doing rework, or systems that manage the detection and flow of rework through the process. Waste goes down. Inventory goes down. But morale goes up. Everybody feels very proud when you produce only perfect products.”

Time Consciousness

In my tour, I was confronted time and again with concrete evidence of Japanese managers’ emphasis on long-term commitments. The managers of U.S. companies jealously guard their “flexibility” and “reaction time” and therefore think in terms of “sales,” “hourly workers,” “vendors,” and “stockholders.” Japanese managers, on the other hand, are likely to think in terms of “everlasting customers,” “lifetime employees,” “supplier-partners,” and “owners.” This difference has enormous implications for both action and attitude.

Partnership

One simply does not develop a relationship with an everlasting customer in the same way that one makes a one-time sale—the two require completely different expectations and approaches. Nor does one disappoint an everlasting customer by delivering defective products or by failing to meet delivery schedules. One does not disappoint a supplier-partner by not buying from him if his prices are somewhat out of line, although one certainly works with him to help him get prices back in line with those of competitors. The objective, as in all partnerships, is a mutually beneficial long-term relationship—what many Japanese companies refer to as “codestiny.”

American managers usually operate quite differently. One marketing vice president, for example, observed, “When I visit a U.S. customer, I am allowed to present my product and then out I go. When recently I visited [a Japanese customer], on the other hand, I was told we would meet with a group of 4 people—which turned into a group of 12. I was told we would probably be there for an hour, but we were there for four hours as they questioned and probed me for information on what was happening in other areas and with other manufacturers.

“All the time I was speaking they were making notes frantically; after I finished, they had a discussion in Japanese to ensure that they had all the necessary information. I was then asked to tour their factory and make suggestions and recommendations to improve their product. I think,” he concluded, “that the Japanese approach is more fruitful.”

When asked to comment on this difference in U.S. and Japanese companies’ treatment of vendors, American managers usually justified their short, directed meetings on the grounds that they were too busy to spend time in meetings like the one just described. But where do Japanese managers find time to be so thorough? Perhaps they do such a good job of creating error-free operations that their plants can run without their active supervision and intervention. Or perhaps they have a different notion of how important their suppliers are to the ultimate success of their businesses and therefore allocate time differently.

Lifetime employment

The Japanese custom of lifetime employment, which has attracted much attention in the West, dates in its current form only from the end of World War II and is still not the rule in all Japanese companies. Even today, less than a third of all Japanese workers are lifetime employees. Only the elite companies (that is, the biggest and most successful, whose products typically appear in international markets) usually practice it—and even they dilute it by using both subcontractors and large numbers of temporary workers hired on a monthly or yearly basis.

The impact of lifetime employment on these companies is enormous, for it both expresses and forces a certain kind of management thinking about workers. “I get the impression,” remarked one Japanese visitor to the United States, “that American managers spend more time worrying about the well-being and loyalty of their stockholders, whom they don’t know, than they do about their workers, whom they do know. This is very puzzling. The Japanese manager is always asking himself how he can share the company’s success with his workers.”

Lifetime employees are, in the Japanese view of things, “human capital”—and expensive capital at that. A Japanese worker will earn about 100 million yen ($500,000 in 1980 dollars) in salary and bonuses during his life employment and another 30 to 50 million yen ($200,000) in fringe benefits—not too much less than U.S. workers.

As a U.S. manufacturing manager pointed out, “U.S. managers analyze, rationalize, and agonize until their office walls are covered with paper before committing to a piece of equipment requiring an investment of $500,000—and therefore an annual depreciation charge of $50,000. Yet the process of evaluating and making recommendations regarding the training, compensation, and career path of a $50,000 a year (including benefits) engineer typically requires one-half of a piece of paper, reluctantly prepared in one-half hour once a year!” This difference in priorities is puzzling, particularly when one recognizes that a machine is simply the embodiment of an engineer’s skill.

As with all expensive capital investments, choosing lifetime employees requires considerable management planning and screening. Because a company limits the number of its lifetime employees, it must increase their value through training programs, skill-enriching job assignments, and the like. Then, whenever a problem arises, managers have an additional source of expert advice on which to rely: the workers. After all, insisted the managers we met, “They are the experts.” This is neither lip service nor false modesty, for management has seen to it that they are.

Such emphasis on continually developing the skills and, thus, the productivity of workers made an enormous impression on the American managers who confronted it. As one commented, “Our whole philosophy has been to ‘deskill’ our work force through automation, so we end up having relatively unskilled people overseeing highly sophisticated machines. The Japanese put highly skilled people together with highly sophisticated machines and end up with something better than either.”

Another observed, “U.S. industry has divided up the total work that has to be done and assigned various parts of it to specialists. This has resulted in production jobs that are repetitive and uninteresting, while the skilled jobs are centralized and moved away from the production floor where they are needed and where corrective action must be taken.”

It is important to remember that a company’s commitment to its lifetime employees also leads to a reciprocal commitment from employees to the company. Recognizing that a no-layoff policy requires a work force level that lags behind sales demand, Japanese workers in the companies I visited willingly worked up to 60 hours of overtime per month (3 hours per day) when demand was high.

Their willingness to do so was encouraged by their knowledge that management understood intimately the difficulties and pressures under which they operated and was working just as hard as they were. Workers know that potential managers typically begin their careers with a year or so in relatively low-level occupations—the shop floor or the trading desk—to learn about the day-to-day concerns of operating people. Over time they work their way up the ladder, but a sense of identification with the workers remains. In the plants I visited, everybody—from the most junior production worker to the plant manager—wore the same company uniform.

Equipment Independence

Another aspect of management thinking in Japan that surprised and, at first, perplexed me was the insistence on designing and fabricating production equipment in-house. Most of the companies I visited claimed that at least 50% of their production equipment was built by their own engineers and machinists and that most of the remainder was designed in-house as well. One Japanese magazine has estimated that roughly 40% of Japanese R&D goes for process or equipment improvement.

By contrast, the conventional management wisdom in the United States, where a much smaller percentage of process equipment is developed in-house, says that equipment manufacture is best left to experts. Equipment producers, so the reasoning goes, can afford the high fixed costs of using specialized engineers and can amortize these and other developmental expenses over long production runs, thus reducing the cost of their product.

The Japanese will have none of this. “Every machine represents a compromise among various users and, therefore, various uses,” one manager told us. “We prefer to design equipment that is directed toward our own needs. Not only do we get better equipment, but our costs are lower and our delivery times less.”

Why is this so? One reason is that machines designed in-house cost less because they do not need the safety margins and “design cushions” that equipment manufacturers build into their general-purpose machines. More to the point, the same manager informed us, “We always need machines when business conditions are good—which is when everybody else wants machines. The equipment manufacturing industry is notorious for its cyclical behavior. During these periods of high demand, they stretch out their lead times and they raise prices. If you are dependent on them, you soon regret it.”

But what about the slack times, when companies must carry underused manufacturing engineers and skilled machinists? Then Japanese managers use these skilled resources to upgrade the company’s existing equipment and perfect the new drive mechanisms, computerized controls, materials-handling equipment, and the equipment monitoring and warning devices mentioned earlier. Observed one manager, “The advantage of having highly skilled people (like manufacturing engineers) around is that they can always find something useful to do!”

Re-Solving ‘the Problem of Production’

During the past 15 to 20 years, a number of important U.S. manufacturing industries have acted as if they had entered into a tacit agreement to compete on grounds other than manufacturing ability. They appeared to think they had, as John Kenneth Galbraith phrased it, “solved the problem of production” and therefore directed attention and resources to mass distribution, packaging, advertising, and developing incremental new products (to round out product lines or attack specific market segments)—but neglected to upgrade continually their manufacturing capabilities.

As a result, U.S. plant and equipment have been allowed to age. Our technological advantage has eroded because of reduced expenditures on new-product R&D and on new process technologies. Our best managerial talent has been directed toward fast tracks that often do not include direct manufacturing experience. At the same time, promotions to top corporate positions have increasingly favored specialists in finance, marketing, accounting, and law.

This complacent attitude toward the problem of production did not impair the competitiveness of U.S. manufacturers for a number of years—until, that is, they began to encounter companies (like those in Japan) that did compete on such mundane grounds as reliable, low-cost, defect-free products and dependable delivery. Then U.S. businesses found themselves increasingly displaced in international markets and, more recently, in their home markets as well. This sudden weakness has come as a shock to many American managers who, in searching belatedly for causes and explanations, have often looked for dramatic, easily imitated or purchased solutions: quality circles, government assistance, and the use of intelligent robots.

The Japanese have never considered the production problem solved, never underestimated the challenge of building and improving the “factory of the present.” There are no magic formulas—just steady progress in small steps and focusing attention on manufacturing fundamentals. This is why their example will be so hard for American companies—and American managers—to emulate.

Yet it is not beyond our capabilities. Many of the attributes that characterize Japanese manufacturing management are valued in America too. Although we emphasize our “rugged individualism” (and criticize, in the same breath, the fact that “everybody is out for himself”), Americans love to work in smoothly functioning teams.

Nor is the Japanese concept of self-reliance—by which they refer to the importance of developing their own production equipment in-house and of modifying purchased equipment to meet their own specific needs—foreign to us. Americans are inveterate thinkers with a tradition of self-reliance that springs from frontier roots. Our dependence on “off-the-shelf” solutions developed by outside experts—whether these individuals be equipment producers, company-hopping executives, or consultants—is a recent phenomenon.

Nor is the concept of lifetime employment so strange. In most large U.S. companies, 30% to 40% of the work force has lifetime employment, in the sense that any production worker who has worked for more than 10 years is almost never laid off. Rather than making that fact explicit, however, and using it to increase workers’ sense of self-worth and their commitment to the company, we continue to refer to them as “hourly workers.” We thereby imply they are expendable—which they aren’t.

And we blind ourselves to the opportunities for increasing their skills (and thus their value to the company) that we routinely employ to upgrade the capabilities of expensive capital goods—which in a sense employees are. We complain about workers who have no commitment to their company and conveniently ignore the fact that most companies make no commitment to their workers.

The “we’re all in this together” attitude of Japanese companies is also reminiscent of the American management tradition of “let’s roll up our sleeves and get it done.” The lack of managerial elitism in the United States used to be a source of wonder to Europeans, whose managerial traditions reflected the deep divisions between social classes. With some shock, we recognize the emergence of elitism and lack of trust in the United States—managers who isolate themselves from workers, both physically and emotionally; who have no direct experience in the businesses they manage; who see their role as managing resource allocation and other organizational processes rather than as leadership by example.

Improving our manufacturing competitiveness does not lie with the “last-quarter touchdowns,” the “technological fixes,” or the “strategic coups” that we love so much. Instead, we must compete with the Japanese as they do with us: by always putting our best resources and talent to work doing the basic things a little better, every day, over a long period of time. It is that simple—and that difficult.

Innovation, Not Imitation …A U.S. company attempting to introduce an alien management style in an adverse cultural environment may be inviting rigid bureaucratization without realizing the benefits of higher productivity. It may be better off leaving the fundamentals of the organization and company culture alone and instead attempt to change the characteristics of the industry. A successful change will bring the industry in harmony with the strengths of the U.S. environment, and will force the Japanese to defend their weaknesses. For example, the U.S. company can invest in an industry, not in process improvements or in going down the learning curve, but to fundamentally change the nature of the product. This is what aircraft manufacturers have done. Such investments, if made boldly, can create enough uncertainty about the future of the industry that the community of Japanese decision makers is unable to tolerate the level of risk. Another option is to shift technological innovation away from the factory floor where Japanese work culture provides advantages and into the design room or laboratory. This may involve willingness to scrap reliable existing technologies, hire seemingly unproductive PhDs, acquire the tangible and intangible assets of entrepreneurial companies and sell the soundness of the strategy to the financial community. A third option is to set up global organizations that use local manufacturing and local marketing. The United States is a melting pot and its multinational corporations contain diverse nationalities and talents… With few exceptions Japanese strengths have come from manufacturing operations located in Japan. A truly multinationally staffed and operated global business will give non-Japanese competitors significant advantages of market access and responsiveness in numerous international markets. None of these options is without risks, but the ability to innovate and explore the uncharted is precisely what separates the leader from the industry follower. The Japanese system has shown great strengths in coming up from behind. But the kind of organizational skills that were needed for catching up are probably not appropriate for being at the cutting edge. In time, Japanese society and industrial organizations may transform themselves in order to fulfill these new tasks. Until then, non-Japanese competitors have real opportunities to hold their own by exploiting Japanese institutional rigidities.