The Man Who Turned Efficiency up to Eleven and Lost
When was the last time you thought about efficiency? Probably more recently than you think. You might not realise it but we optimise all the time. Whether it is putting on a jumper, putting your phone in power save mode, taking that shortcut on the way home from work or trying to meet that deadline. We just can’t help ourselves and with very good reason. For we live in a world of scarce resource – such as space, time or money – and because of that scarcity there is often competition. It can be quite literally survival of the fittest.
So what would happen if you took this natural instinct, lived it obsessively and applied it at an extraordinary scale? One such man was Henry Ford.
The original Lean thinker
Henry Ford believed in providing utility to the customer with a quality product at a fair price. He practiced recycling of materials and believed products should be made to last. He detested bureaucracy and opposed the fixation with finance within business. For him everyone should be razor focused on the product.
“The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seems to me to be reversing the natural process which is that the money should come as the result of work and not before the work.”
Over a 19 year period, he was able to continually reduce the price of his Model T car whilst doubling the wages of his employees. He made a car that was affordable to the mass market selling over 16 million.
Aside from keeping everyone product focused, he leveraged every last ounce of efficiency from every method of the age.
By focusing on one car, this allowed him to master standardisation and optimise the economies of scale of mass production.
Division of labour had been one of the defining factors of the Industrial Revolution and Ford took it to new levels. The Model T was a complex product with about 5000 parts but he managed to break down its production to such a degree that many workers role was as simple as screwing on a nut.
Interchangeable parts in the US grew out of the rifle industry in the 1850s. The original motivation was replacement of parts in the field but it opened the door to all the benefits of modularisation. It involved the creation of machine tool processes such as casting and stamping which ensured the precision of parts was consistent enough to be exchanged. This saved a lot of fitting time but also completely decoupled manufacturing from assembly allowing mass production of parts.
Probably his most famous achievement was the assembly line. He recognised the wasteful motions of workers and vowed:
“to take the work to the men instead of the men to the work. We now have two general principles in all operations – that a man shall never have to take more than one step, if possibly it can be avoided, and that no man need ever stoop over.”
Sequencing, gravity slides and conveyor belts brought this efficiency of reduced motion but also established a smooth flow by speeding up slower workers and slowing down faster workers.
In many ways he was the original Lean thinker. Taiichi Ohno the mastermind of the Toyota production system was “in awe of Ford’s greatness”.
But he was not without his critics. In 1932 Aldous Huxley released a book about a dystopian future, set in the year 632 AF (after Ford). Society was built on the principles of the assembly line where everyone is engineered through indoctrination and drugs to display perfect conformity and homogeneity, a world without emotion or creativity.
Huxley needn’t have worried. By the time of his book’s release Ford had already been eclipsed. But who could possibly topple such a man? And what was beyond eleven on the efficiency dial?
Variety is the spice of life
Ford’s opposite was Alfred Sloan and General Motors. Whilst Ford was an instinctive engineer, Sloan was an objective and data driven businessman.
Sloan believed in aesthetics and set up an arts and colours section which would later become a styling section. This was a far cry from Ford who famously said:
“Any customer can have a car painted any colour that he wants, so long as it is black.”
Ford’s obsession with uniformity provided one of the main differentiators between the businesses with General Motors pursuing a “variety of cars for a variety of tastes and economic levels in the market.”
The idea that variety may be a winning strategy seems self evident in today’s world of abundant consumer choice. After all we are all uniquely different and we strive for our own identity.
But back when Ford started off, the motor car was a niche market and cars were very expensive. Uniformity helped to bring that price down dramatically and make cars available to a much wider market.
But over time as the market grew and matured, not only did the car become a commodity but as Adam Smith pointed out with extent of the market, the variety that a market could support increases. This and the industry trend to interchangeable parts supporting modularisation made variety a viable business model alternative.
The only constant is change
Another key difference was in their view of product change. Ford said:
“The automobile trade was following the old bicycle trade, in which every manufacturer thought it necessary to bring out a new model each year and to make it so unlike all previous models that those who had bought the former models would want to get rid of the old and buy the new. That was supposed to be good business. It is the same idea that women submit to in their clothing and hats.”
Sloan alternatively commented:
“We believed that with rising incomes and the expectation of a continuance of that rise, it was reasonable to assume that consumers would lift the sights to higher levels of quality.”
Ford’s instinct led him to believe that the Model T offered consumers all they could ever want. He therefore focused overwhelmingly on production efficiencies to drive down costs.
Sloan alternatively pursued a raft of measures to encourage consumers to continually upgrade.
He instituted a regularity around model changes to create consumer fashion that would lead to the convention of the annual model change.
He had inherited a variety of cars from General Motors founder William Durand. Sloan’s brilliance was to organise these cars into a pricing ladder so that customers could upgrade from car to car. The customer who previously bought a Chevrolet could upgrade to a Pontiac. Or from a Buick to a Cadillac. Five different brands of increasing quality and price.
The pricing ladder was carefully calculated so that each model didn’t impact on each other’s market share. Meanwhile the growing number of used cars were starting to impact Ford’s share of the market at the lower price end.
General Motors further encouraged upgrading by pioneering finance on buying cars and the car trade-in.
The final change in the market which sealed the fate of the Model T was the move towards closed body cars – its light chassis was not strong enough. In 1927 production stopped.
The lesson from Ford’s experience is to take care when you rely on instinct or assume a status quo.
As Sloan stated:
“The big work behind business judgement is in finding and acknowledging the facts and circumstances concerning technology, the market, and the like in there continuously changing form. The rapidity of modern technological change makes the search for facts a permanently necessary feature of the industry.”
Ford had continuously experimented with his production process but had failed to anticipate or recognise the changes in the marketplace such as consumer aspiration to upgrade, desire for aesthetics, impact of the used car market, and finally the closed body.
In this sense Ford had been merely production focused and Sloan more holistically customer focused.
Also the definition of efficiency is not a constant. It is ever changing to your current environment. The environment of 1909 when the Model T went on sale and the car was a rare oddity seen on a dirt back road; versus the environment of 1927 where cars streamed down asphalt roads full of drivers normalised to a world of car ownership, trade-ins, features and advertisement.
As Taiichi Ohio, great admirer of Ford would later say:
“Efficiency is never a function of quantity and speed. (Instead it is) producing in response to the needs of the marketplace”
Sloan summed it up:
“The old master had failed to master change”
A cautionary tale
Once Ford accepted that he needed to change there was one more issue. He had been moving over Model T production to the massive Rouge factory which was custom designed to take production to the next level of efficiency – complete vertical integration so he could turn raw materials into finished products and control every aspect of the process. But changing to a completely new car model didn’t turn out to be easy. All the specialised Model T machine tools had to be scrapped. It would take 6 months and cost up to $250 million (probably nearer $4 billion in today’s money) before production started on its successor, the Model A.
Herein lies the danger with an over focus on efficiency. The more specialised something is, the less likely it will be useful in a different circumstance. For it locks you in to a time and place, a specific context. Change becomes altogether more difficult.
The same thing happens for many other methods of efficiency. Specialisation of people also limits flexibility in dealing with new situations. Fully utilising people leaves no slack for unexpected change. Larger batches tie you into a longer run without change. Centralisation can lead to slower decision making in response to emerging change.
It is important to recognise that efficiency and adaptation are a tradeoff.
Summary
So understand efficiency as Sloan did. In the context of the ravenous but capricious beast that is the marketplace, and the need to continually reorient yourself to satisfy its whims.
Also if you want to stay efficient then as paradoxical as it might sound, never turn all the efficiency dials up to the max. You will soon find yourself in a paralysis. The contemptuous market looking for satisfaction elsewhere leaving your definition of efficiency meaningless.
References
My Life and Work – An Autobiography of Henry Ford – Henry Ford
My Years with General Motors – Alfred P Sloan
Toyota Production System: Beyond Large-Scale Production – Taiichi Ohno
A Brave New World – Aldous Huxley
