The world changed. Have you?
Three questions are the basis for most of our conundrums about change. What changed? How do I recognize what changed? What must I do to compete? Here’s a real-life example of how two competing agricultural equipment manufacturers, we’ll call them companies A and B, confronted change.
Throughout the 1970s the ag equipment market was great. America was the predominant producer of food and the world’s major exporter. This drove billions in spending for agricultural equipment. In the boom year of 1979, the total North American demand for one specific product was about 36,000 units annually. Then, to stop the cash outflow for basic food, many countries began producing their own food. In the 1980s, demand for ag equipment gradually decreased. By the late ’80s, annual demand for that major product was down to 12,000 units.
Through the ’70s, company A was the larger manufacturer of that specific product, and company B was close behind. By the late ’80s, with annual demand down to 12,000 units, companies A had B each had an installed asset base sufficient to satisfy the entire North American market. Company A, however, was first to recognize that it had to confront its overcapacity. And company A has since become the market leader in that major product.
Company A achieved this success by being the first to recognize that demand for its product had changed permanently. As other countries became more self-sufficient, crop productionand demand for ag equipmentdropped in the United States. Company A correctly diagnosed this world shift in the production of crops, but most importantly, it was first among the entire industry to respond. Company A seized the advantage by recognizing that the world had changed and why.
Knowing that it needed to reduce its asset base, and change its manufacturing structure, company A launched a massive program to completely change its manufacturing methods. The focus of change was to create a lot of cells, strategically placed in relation to the assembly lines, and empower the people who operated the cells. The approach that company A used to restructure its manufacturing operations was not rocket science; it was just uncommon sense. The firm reduced its breakeven, saved millions from inventory reductions, and held standard cost increases to single-digit percentages for nearly 5 years. As a result, it has been very successful at capturing market share from company B as well as from smaller competitors.
Meanwhile, as company B lost market share, and company A became more successful at satisfying its customers, company B also launched a massive program to completely change its manufactured methodsby duplicating the approach of company A! But there was only one problem that B could never overcome. Company A had a 4-year head start and it was also committed to continuous improvement. Thus no matter how well Company B executed its restructuring, it would never be able to catch the leader.
As Don Ewaldz remarked on this page in February 2003, benchmarking only gets you as good as the competition, and what good is that? The lesson to be learned here is that once you have the lead, the only way a competitor can catch youor pass youis if you stand still. So get in front! Stay there!
What's your opinion? Whether you agree or disagree, George Ballantyne will welcome your comments. You can contact him via the Bourton Group’s Web site. Just point your browser to www.bourtongroup.com and click on Contact Us.