Beyond Productivity – Competitiveness or Innovation? 245.0

In a telephone conversation, a dear friend gave a reaction to the series of posts that SYNTHESiST had on productivity – on Frederick Taylor, Six Sigma, Paul Krugman on competitiveness and McKinsey and design thinking.

She mentions that they have moved beyond productivity to competitiveness as the higher goal.

This post integrates my views on productivity, innovation and competitiveness and supports my choice for innovation going towards productivity rather than competitiveness.

A broader productivity definition. The first and major difference is in our assumptions on the definition of productivity.

She took the classic view of productivity in terms of efficiency and cost improvement.

My view of productivity is broader based on my actual experiences as a young industrial engineering manager in implementing JIT and TQC in TMX Cebu in 1983 – 1986. From then, this view has evolved to include even productivity in product development…

From the 1980s when the world learned about Japanese Manufacturing Techniques, productivity has evolved to become more multi-faceted focus more on value-created than cost reduction or improvement.

The Just-in-Time/Total Quality Control (JIT/TQC) aspects of Japanese Manufacturing Techniques opened new paths. From the systems diagram below, Richard Schonberger showed efficiency and cost as second order effects of improvements in cycle time and quality.

To get started in understanding the ecosystem, start with the “Lot Size Reduction” at the left part of the diagram. Note the thunderbolt at top right that initiates the continuous improvement. (Note: The rule is to define and implement improvements that can support each further removal of a sliver of buffer stocks.)

Please note how the good Professor relates productivity with cycle time, inventory, and quality improvements with productivity including faster market response, better forecasting and lesser administration – the bedrock of the new time-based competition.

Source: Japanese Manufacturing Techniques, Richard Schonberger, 1982 Free Press

Just-in-Time become time-based competition battlefield. JIT focused on cycle time based process improvement that led to new battles in customer response times.

At the onset, this battles were first fought in manufacturing. When that vein approached exhaustion (with diminishing returns to effort with current technology) and manufacturing became a smaller proportion to as low as 35% of total cost, the efforts moved to business process re-engineering. When business process improvement likewise became an area of diminishing returns, the efforts moved on to product development with concurrent engineering and now design thinking (IDEO).

Total Quality Control to Six Sigma. TQC was a normal complement to JIT in the ecosystem of Japanese Manufacturing Techniques.  It had many aspects that became popular on their own like Quality Circles and tools like the Ishikawa Diagram, Pareto cumulative frequency charts, and statistical process controls.

There was the emphasis of documenting processes and managing change that required that “the burden of proof in making change lies with the change proponent.” And only documented change is really implemented.

Japanese TQC morphed into Total Quality Management in America. Later on, from Motorola and inputs from business process re-engineering, GE formalized the process into Six Sigma.

Thus, with a broader definition of productivity in higher order effects, better competitiveness in Paul Krugman’s competitiveness as productivity thesis is attained.

Competitiveness is reactive; Innovation is proactive. A second difference: from a marketing strategy perspective, focusing on competitiveness is reactive. Looking at the competition too much can limit initiatives to what the competitors are doing. There is even the real danger of being defined by competition.

I do not mean that one must disregard competition – it is a context of business. It is better to push forward on one’s own business product and revenue models and innovate to outwit the competition.

Pushing forward with innovation, including those of the first order that improves value, one creates a strong fortress for which to sally forth and grab market share.

Competitiveness as an ideology used by many monopolists. Finally, competitiveness has been used by established businesses, and especially those threatened by more innovative ones, as a basis for asking subsidies or broad-brush support like weaker a weaker currency to provide transfer payments with the unintended consequence of killing off the innovators at the fringe.

For example, progressive economies, like the New Zealand and its dairy industry, avoid such broad brush public policies granted in the guise of improving competitiveness. Any industry support is given directly, in dairy industry case, a dedicated research and development institute managed by the industry.

(Note: On second look, a subsidy to the dairy industry instead of enforcing innovation, would have impoverished the whole country given the small size of the economy.)

Final words. Focusing on innovation and productivity rather than competitiveness, therefore, is a more direct approach. Though, as cautionary tale, we must learn from Apple and Steven Jobs, Microsoft and Bill Gates and, possibly, Sony in early days that it is important to program the introduction of innovation to capture the most value and build from platforms over time.