A financial downturn and the resulting turmoil in industrial investment can decimate some businesses. These severe crises also provide a bed of new growth opportunities for others.
What is most surprising is the difference between these two extremes. The bold add higher hurdles to their product expectations. Instead of going "faster and cheaper," they go for "more lasting and smarter". This brings compounding benefits to society and their firms. We call these innovators -- "social response capitalists."
Those that get the dynamics of the new frontier are laughing their way to market dominance and further innovation.
Beyond the Quality Revolution in Industrial Thinking
Last century the great quality thinkers Deming and Juran only got it half right. All firms compete on price and quality. But in this overpopulated and extremely consumptive new world, globalization means we must readjust our industrial thinking for a smaller world.
In such a globalized 21st century, the best firms now compete on price, quality and social needs. I see new success to those now competing on declining supplies of oil, escalating costs to energy, avian and swine flu, and "global poverty," as early examples.
In this article, I focus on the lessons I learned in facilitating a key Toyota hybrid power-train council. These six recurrent benefits from auto-making relate to this new century industrial thinking overall. At Toyota, we met from 1999 to 2002 in Manhattan, Kentucky, and California, joining multiple skills. In retrospect, we caused a kind of quiet revolution.
While more than a million of these vehicles are now bought (and my confidentiality requirements honored), we debated and refined the principles of "social response product development" before the council (by 2003, we even got to pause to consider if Leonardo DiCaprio or Gwyneth Paltrow should be the first celebrity to sit in the Prius). Once Toyota locked in at the new century, they were as aligned as the Air Force Strategic Command. (This tale is still evolving, as we watch American auto-makers like GM and Chrysler rapidly decline based on missing this social need. But the cat is out of the bag).
The recurrent benefits to Toyota -- and the world-involve many other models of high efficiency cars. Bold Toyota executives brought the new hybrid power-trains to product families known before as gas guzzlers (the Highlander series) and luxury cars (the Lexus line.) Other models and product families are on the blocks for timed release in different regions and different buying segments thru mid-century.
Six Recurrent Benefits of Social Response Product Development
When you teach your engineers and your brand experts to compete on price, quality and social needs, a tidal wave of positive innovation occurs. The real compounding benefits are more hidden. These benefits are closely held numbers. Here are the six key new century benefits:
- Margin improvement -- seeking cost savings at every stage of the product life cycle through more efficient use of labor, energy and material resources. Toyota is world famous for such lean manufacturing. The hybrid power-train systems are sold with even greater margins of quality and profit than the ever discounted GM peer models because they fixed lean onto green.
- Rapid cycle time -- reducing the time it takes to get a product to market by considering environmental issues as part of the concurrent engineering process. Improvements in cycle time are painfully relevant to home builders, appliance and electronics makers, and this new handheld generation. Competing on sustainability through more rapid product cycle time is the state of the game in all regions of the world. We now need to bring this to renewable energy companies soon.
- Global market access -- developing global products that are environmentally preferable and meet international eco-labeling standards in Europe, Japan, Brazil, China and India. In 2006, a Goldman Sachs report itemized structural market access constraints in oil and gas, underlining why this strategic factor "of doing more with less" was now critical to all global manufacturers. Toyota was already at this point by 1999, a good 7 years ahead of the pack. They made the decade theirs.
- Product differentiation -- introducing distinctive sustainability benefits such as energy efficiency or ease of disassembly to your products sway a purchase decision. If the car feels that it can "serve the new century", then you have a winner. This "brand for the near future" is a tangible benefit and design concept. Like all the great hit songs of this world, you know it when you see it. "Today, Tomorrow, Toyota" is more than an idle chant. It is the way to differentiate in a smaller world.
- Social bundling of value in products -- positioning a company's product line in a fashion whereby it becomes clear to consumers and investors. Products are social expressions of commitment and responsibility. HP is the most explicit example of this social bundling. They are active in over 140 countries and see their next billion customers needing compression of electronic services. Therefore they will mix computing, phone, and faxing services in one machine. In addition, they believe that competing for sustainability is one good way to overcome the digital divide.
- The sixth and last benefit of Social Response product development involves reducing the risk premium of the firm. By selecting products with "sustainable value," the overall risk profile of the firm is reduced. Toyota can attract new capital to its growth, like Suncor Energy can now in the mining and oil sector, because they have benefited long enough to "go to the bank." GM and Ford went to the White House, and got smashed by Congressional hearings instead.
Why Better Leaders Bring Better Products
From 1999 to 2006, Toyota's world market share increased from 7.2% to over 13%.
Each percentage increase allowing them nearly 18,000 new workers in support of their social vision.
From 2006 to the election of President Obama, the numbers became even clearer. Something serious had to be done to American cars.
By 2009, GM needed the federal bailout to escape bankruptcy. A hundred year old industry was changed in less than a decade.
I believe the next ten years will make "social response capitalism" even more important. I believe this revolution in product competition has already occurred. We are simply reassembling the survivors.
Toyota's assets now total more than 200 billion. They are worth far more than GM and Ford combined. What I like most about being a social historian is that once you undercover how the higher facts of success are measured, those facts are better known and more universally celebrated. Expect the same in other sectors soon from computing, aerospace, and eventually defense contracting. This is social history applied to industrial thinking and the behavior in corporate mansions.
Bruce Piasecki is the President and Founder of the AHC Group Inc. Since 1981, his firm has worked for many small, mid, and large size firms on competing on sustainability. His new book, THE SURPRISING SOLUTION: Creating Possibility in a Swift and Severe World has just been released. www.ahcgroup.com