Welcome to the battle for global supremacy.
I'm Hedrick Smith.
With the Cold War over, history is no longer
driven by East-West confrontation,
but by the economic battle for global supremacy
among former Cold War allies.
The stakes are enormous.
Everywhere, people's lives are affected
by the globalization of the world economy.
Capital, technology, jobs all move across frontiers freely.
To understand the strengths and weaknesses of the world's
most powerful economies, we need to reach
beyond trade disputes and currency speculation
to understand their structural differences.
There are lessons here for every nation.
For decades, America enjoyed global economic hegemony.
But in the 1980s, American industry
was jolted by a powerful challenge
from the Pacific Rim, especially Japan,
and from Europe, led by Germany, and finds itself now
in the 1990s scrambling to regain competitive momentum.
Our four-part series examines what economic and cultural
strengths enable Japan and Germany
to meet American industrial giants head to head.
In this first program, our journey
begins examining why old ways don't work in the new game.
My concern is twofold, the value of the stock
and the value of the compensation to these stiffs on the board.
It went from $150 a share in October of 1987
to $48.25 today.
That's not good.
And these people still get their stock options
and their bonuses and their compensation
and their golden parachutes.
It's ridiculous.
IBM is a metaphor for America.
For half a century, it seemed impregnable,
the most successful high-tech company in the world,
always at the leading edge of our lives.
But reeling from losses in the 1990s,
IBM frantically turned to an outsider, Lou
Gerstner, to rescue the company.
This is my first opportunity to address
the meeting of IBM stockholders.
I won't buy any more shares today.
I expected to hear him say things that were
going to be fundamental changes, but I
didn't hear him say anything that was really
going to be different.
IBM had the best and the brightest.
Now 190,000 employees are gone or going.
They lost $13 billion in the last two years.
What happened to this symbol of American supremacy?
The story begins here.
For three decades, IBM made huge profits
from mainframe computers like this one,
massive enough to occupy entire floors of corporations
and handled millions of computations a second.
But then came a revolution from below,
quantum leaps in the power of a single tiny computer chip.
Suddenly, small personal computers
became the hottest part of the business,
and hundreds of new companies wanted a piece of the action.
We used to think we had a half a dozen or a dozen competitors,
and we thought we knew who they were.
We were at war with them.
We won that war.
But in the meantime, we have 50,000 or 100,000
new competitors, and they're the people we have to deal with.
Has the whole nature of the game changed, and how?
The whole game has changed, driven fundamentally
by progress in technology, which drives cost and availability,
and where the soul of the machine lies.
The soul of the machine today lies in the microprocessor
itself.
IBM woke up late to the exploding power
of microprocessors in personal computers.
But with wealth and brains, it shot
into the lead in the early 80s, only
to see cheaper clones steal away this booming business.
When IBM came into the PC business,
they came in late, but they quickly
became the king of the hill.
How did they lose that?
There's no nice way to describe what IBM did
to its personal computer business.
A number of IBM executives, very senior executives,
through a combination of arrogance
and technical ignorance and inattention
made a series of just completely disastrous mistakes,
inexcusably disastrous mistakes, that
resulted in IBM's share of the personal computer market going
from 50% to less than 10% in a decade.
Originally, a former IBM CEO had been
smart enough to incubate the PC business here
in Boca Raton, Florida, outside the main company.
But when it achieved success, this division
was brought inside, and it was crushed
by the mainframe mentality of the corporate hierarchy, which
saw a threat to IBM's traditional business.
So IBM, blinded by past success, refused to change.
Another chronic problem, its research
kept producing breakthroughs, but the top brass
let them slip away to competitors.
Many people inside IBM during this period, during the 1980s,
understood that IBM was in the process
of making serious mistakes.
And many, many times, technologists and engineers
and managers would go to IBM senior management
and complain that things were not being done right
and that if this continued, the end result
would be a very serious erosion of IBM's position.
And what happened was that they were listened to politely
and they were ignored.
Ignored and they quit.
For example, one of IBM's technology stars, Glenn Henry.
The people down in the trenches were very, in general,
very frustrated, certainly in the PC and the workstation
business, which is I was in.
They were very frustrated because they saw that we
weren't doing the right things.
But the people that were making the decisions
were up in New York, had never seen a PC, never used it.
Near the end, my manager, who was in New York,
I don't think had ever used a PC.
IBM gave Henry its highest honor.
It made him an IBM fellow with a guaranteed salary for life.
But after 20 years, he got so fed up that in 1988,
he went to work for rival Dell Computers.
I did it because I love computers.
And I want to work on computers.
I want to work in the heart of the industry.
I want to work where things are really happening.
And I just got so frustrated.
I couldn't deal with the overhead, the bureaucracy,
the slowness.
No one has to tell you that doing business today
is more challenging than ever.
Eventually, in 1991, IBM's top management
realized it was too rigid and muscle-bound.
To gain flexibility, it started breaking up the computer giant
into 14 leaner companies, one to focus just
on personal computers and laptops.
In January 1993, I had a chance to test
IBM's promise of flexibility and rapid customer response.
How you doing?
I needed a laptop in a hurry.
And I'd heard good things about IBM's new notebook computer,
the ThinkPad 700.
Ordinary computer stores didn't have any,
so I tracked down business distributors.
We do not have the black and white in stock, ironically.
You don't have the black and white?
No, black and white.
Well, I don't get it.
I mean, I have been calling around Washington, Baltimore,
Gaithersburg, Tyson's Corner, Virginia.
They have underestimated their expected sales of these.
Here I am, an individual customer.
And IBM has told me they're really
trying for my business.
They got these darn 700s advertised in the newspapers.
They got billboards out.
No, I agree.
I agree.
I feel a frustration too, only from a sales perspective,
because I have customers that are like knocking on my door
and they want to buy it.
Well, you got like a cell T, but I don't have it.
Can you wait?
They're like, no, I can't wait.
And then they start looking at other machines.
And so did I. I couldn't wait for IBM.
But what about the big picture?
I went to Las Vegas for the annual electronic show,
where manufacturers showcase their best stuff to retailers
from all over the world.
I explained my predicament to Anthony Santelli,
a vice president of IBM's new PC company.
And I hate to tell you what's happening.
I'm buying a rival product, because I've
got to have a product now.
And there's got to be a lot of people like me.
What does IBM do for us?
We are right now putting a full-port press
on building as many of these machines as we can.
That's what IBM's doing.
It's a blowout product.
I asked Santelli, what's IBM's main problem?
The thing that's evil in the IBM corporation
that we're going to eliminate is the bureaucratic claw.
If you look at the pain we used to put ourselves through,
any time a basic pricing decision had to be made,
we'd have to go through meetings upon meetings upon meetings
to have people who were only superficially involved
with the product and the market, but had
a position of some kind of power.
I don't know where it came from, some mythical power
that they had to vote.
If you didn't get that vote, you couldn't move.
That's gone.
So the market moved, and IBM didn't move with it.
The market moved.
We studied it.
We looked at it.
And basically, we missed the market.
Up to date, they haven't moved as fast enough for us.
What does that mean specifically?
Well, what's happened, what we've seen with the line,
they're good folks, and they come out with wonderful technology.
And in the last couple introductions,
they've hit the price points they had to.
But the problem is it's not a stationary target.
It's a moving target.
As soon as they hit a price point,
everybody else reacts to it.
And you've got to react quick, or else you're still overpriced.
Do others move faster?
Absolutely.
Compaq, in their whole new revamp, has moved much faster.
How would you compare Compaq and IBM
in terms of what we're talking about?
Specifically, for my store, Compaq
has outsold IBM 10 to 1.
We're humble, but we're mad.
But we've been humbled.
But we're really looking forward to the game,
because now we're playing unshackled.
That's exciting.
Excitement, fine.
But even if IBM's new laptop is a home run,
it's only a small sliver of a massive corporation.
And what's more, the big profits in laptops nowadays
are in software and display panels, products
dominated by IBM's rivals.
So to spur its revival, IBM is banking on new technology,
like voice computers.
Blue, red, green, all colors, dictation window, window frame.
I would like to discuss with you the sales figures
for last month, period.
Dr. McGrady was not very happy.
Their strength is technology.
Technology is not enough, though.
They have to totally change the way they're doing business.
They've got way too many people taking way too much time.
They're not close enough to the customer.
I think bringing in an outsider to run the company
was prerequisite for success.
We'll have to see if it's sufficient or not.
But the people at the top of the IBM business today
aren't going to be able to make the changes,
and radical, drastic changes are necessary.
They're not going to be able to throw away the culture.
Glenn Henry's prescription is a message for all America.
IBM, he says, must transform its corporate culture,
cast off old products, old habits, even old successes,
open up to new thinking, change or die.
IBM's new leaders hear that message.
So do other famous companies like Kodak, Xerox, Texas
Instruments.
Foreign competition is so fierce,
they must all scramble to survive.
Those companies flexible enough to match new technology
to markets create new jobs.
Other companies stay competitive by downsizing.
So the companies survive, but hundreds of thousands of people
get laid off, even in high tech industry.
Here in Silicon Valley, seedbed of innovation,
I found an army of white collar professionals out of work.
A great waste of talent and experience for America.
Companies are really working people,
let's say, 50, 60 hour weeks, right up to the day
where, sorry guys, this is Friday, we don't need you.
Pack up your stuff, you're out the door right now.
And all of the things that you hear about outplacement
and golden parachutes, hey, that's
about 3% of the people, most of us get nothing.
You're out the door and that's it.
Here in Sunnyvale, California, I met
laid off scientists, engineers, middle managers, computer
and marketing specialists gathering
at ProMatch, a state finance self-help group.
ProMatch helps them cope with the jolt of unemployment.
I would appreciate your leaving a message on my machine.
Thank you.
John Graham in the office.
My number is 408-225-6812.
I could drop by and just talk to you for a minute.
Charles Rogers is a former university professor
who became a systems engineer for high tech companies
like TRW.
He thought job loss was a problem for blue collar
workers, not PhDs.
Yeah, boy, it really did stun me.
And I spent literally about six years
out of the middle of my career going back to graduate school
so that I would have credentials that I would not
ever be in that problem.
Now, hey, I'm right in there in the lifeboat with those guys.
Three months after we videotaped this scene,
Dr. Rogers finally got a job.
But he had been two years without steady work.
And many qualified, highly educated people
are still hurting.
In the past three years, nearly 2,000 unemployed professionals
have gotten help here, and about one fourth
have found steady jobs.
Hayward Cook, a procurement manager for high tech firms,
was always ready to go wherever work took him, Vietnam,
Saudi Arabia, all over the US.
He's devoted to his three children, one in college.
His son, Jonathan, is an honors student in high school.
One of the hardest things was just
being able to have to confront my family and tell them,
well, the things that we have planned,
the things that we'd wanted to do
are not going to be able at this time because
of the fact of the lack of income and unemployment.
Jonathan, how has your dad's situation affected you?
It makes me think about it more, more often.
Like when I'm doing my schoolwork,
I'll start thinking about, is he going to get a job soon?
Or what's going to happen in the future
if he doesn't get a job?
You and your dad are real close.
It must hurt a lot to see a guy who matters that much to you
in this kind of shape.
Yeah, it does.
Makes me feel bad inside for him and for the family, too.
Because I might need something, and I
don't want to ask him for it because it costs money.
And he might not have it, and it makes me feel bad.
It took Hayward Cook a year to land even a short term job.
Like many parents, he worries about the next generation.
Mr. Cook, do you see your boys and your daughter
living as well as you and your wife have?
Well, I initially had the thoughts and the hopes
that they would be living better than I.
But as things are going now, it's
hard to really say, will they really get this opportunity?
It's going to be very tough for them, very, very tough.
There's going to be a few that get through,
but I think there's going to be a lot more that
are going to suffer much harder and fall by the wayside.
And I think it's a shame.
It's really a shame.
The future for Jonathan Cook's generation
depends as so often in the past on America's genius
at creativity and innovation.
Jobs spring from ideas, from breakthrough inventions
in research labs at places like Bell Telephone, Xerox Park,
RCA.
But as I was to learn, ideas alone
aren't enough if we fail to commercialize them.
This is Tokyo's Akihabara district,
a favorite haunt of Japanese discount shoppers
and a lucrative chunk of the world's $50 billion
consumer electronics market.
These products were all invented in the United States,
TVs, VCRs, on video cameras.
But the manufacturers have names like Sony, Panasonic,
and Sharp.
I wondered how American industry
lost all this.
Here at the Consumer Electronics Show in Las Vegas,
the latest electronic marvels are on display.
And look what's happening.
The problem is the rest of the world
sees you invent a new product.
They copy it very fast.
And microseconds later, they're building it.
And if you're not the cheapest builder of that product,
then it doesn't do you any good.
And of course, the best example is the video camera
and the video recorder, which were invented in America
but produced in Japan.
And that's where all the income is.
That's where all the jobs are.
That's where all the management is.
These Korean engineers seem fascinated
by a futuristic IBM telephone.
And how many engineers will it take you
to design your copy of this system?
Copy?
No, no, not copy.
Independent development.
How long will it take?
Maybe two years.
So this is very interesting for you to see, to study.
You come here to study.
But copying or reverse engineering
and efficient manufacturing abroad
are just part of the story.
It's not just that foreigners have copied our ideas.
We haven't been farsighted enough to exploit
our own brilliant inventions.
That's what happened to the key technology of this television
set made by the Japanese firm Sharp.
It's a flat panel only two inches thick, far smaller
than the conventional TV tube.
The images are projected through a substance
called liquid crystal, invented here
at RCA's David Sarnoff Research Center in Princeton, New
Jersey in 1963.
George Heilmeier headed RCA's team of brilliant but eccentric
young scientists and technicians.
We were all fairly young in those days.
We were just out of the universities with fresh PhDs.
And the interesting thing was that we not only
worked together, we played together.
Our technicians ordered their lab coats, pastel lab coats,
double breasted, of course, out of Playboy magazine.
I think part of the reason why it
was such a creative environment was that we weren't afraid
to look stupid to one another.
RCA's discovery was revolutionary because it
showed that liquid crystal would conduct light
when an electrical charge was applied through microcircuitry.
This made it possible to produce images
on a small portable flat panel using very little power.
And in the process, we built the kinds of displays
that you see on calculators today.
We built watch displays.
We even did an experiment in which
we demonstrated that you could indeed put a TV
picture on a liquid crystal display.
Did you know what you had then in terms of its potential?
Yeah, we did.
And I'm not just saying that.
We knew how important this discovery was.
And there was a virtual explosion of press coverage.
I mean explosion.
It was picked up all over the world.
New York's RCA headquarters.
NHK, Japanese public television, sent a crew to the United
States and made this film back in 1968.
We recognize the importance of the marriage
of microelectronics and the liquid crystal display.
But so did the Japanese.
This research is expected to have various applications
in the future.
And making the flat panel television
with a liquid crystal would be quite an achievement.
Thus, the Japanese manufacturers are paying close attention
to this.
I went to Sharp headquarters and found the Japanese scientists
who saw this broadcast 25 years ago
and immediately sprang into action.
Dr. Wada, the first time you saw this back in 1969,
what was your reaction?
I was quite excited because I saw something very new.
This is not a conventional display,
but it's a new type of display that would
be used into the next generation.
Yes, I was quite excited about it.
When we adapted this technology, it
led to the electronic calculator.
Because liquid crystal made the flat panel display possible,
we then could reduce the overall size.
Inside RCA, Heilmeier's liquid crystal flat panel display
ran into the same brick wall as the personal computer at IBM.
Established divisions didn't like
the threat of a new technology.
The liquid crystal display work was turned over
to an RCA product division for productization.
That product division happened to be the semiconductor division.
They were interested in manufacturing semiconductors.
For them, this was a distraction.
Wasn't their baby.
So RCA gave up on flat panels and spent its billions
diversifying into frozen foods and carpets and rental cars.
But Sharp knew a good bet when they saw it.
Sharp bought a license to make flat panels
and became a major player in the global electronics market.
Was this a big gamble?
There was a great risk.
And I think that it was a gamble at the time.
It took guts and long term commitment.
Eventually, Sharp spent several billion dollars
on this technology.
But what we did was a step by step investment.
We started with the electronic calculator.
And we saw that it was successful.
Then we turned to the electronic notebook.
We always checked carefully at each stage
whether this investment was worthwhile.
But in the end, it totaled a few billion dollars.
The patient Japanese approach, building up manufacturing
know how gradually.
Instead of going for an immediate home run,
has paid off.
The Japanese now produce 98% of the flat panels used worldwide
with a $20 billion market beckoning.
The new Sharp Viewcam, an absolute original.
What's worse, I learned, the invention that got away
may become the lab that got away.
Some of America's great industrial research labs
have drastically cut back on staff and research.
So Japanese industry now outspends the US in civilian
research.
While Sharp prospers, RCA has gone out of business.
Heilmeyer's old lab is a fraction of its former size.
And nearby, Nippon Electric Corporation
has built a plush new lab with 40 top flight
American scientists, symbol of a new challenge to US research
supremacy.
For decades, we Americans have assumed not only
that our inventions were the best,
but that we made them better and cheaper than anyone else.
Yes, Pontiac for 1949 has the greatest supporting cast.
Ah, yes.
Remember those days?
We came out of World War II riding high.
The top was down, and we were flying.
Oh, I want a Pontiac too.
OK, we'll have the usual two car garage.
In cars, GM set the pace and the styles.
And the money rolled in.
It's easy to see myself taking the wheel.
No one could challenge us.
Germany and Japan were flat on their backs.
And with easy successes, our industrial leaders
became cocky and careless.
Oh, what a dreamy road.
That was then.
This is now.
Outside Kansas City, the GM leads
plant, which used to employ 4,200 workers, making
Buick's, Oldsmobile's, and Cadillac's,
was shut down forever in 1988.
I met Dixie Courtney, who worked on the assembly line
here for 12 years.
What are the roughest things you remember, people going through?
I can remember people coming into the Union Hall
when we had the let off workers council,
and not having any money for food.
Their husband has beat them up.
The alcohol, the increase in alcoholism, the suicides.
People just gave up on living.
And they were mostly older people.
It took their self-worth away from them from not having a job.
Courtney and her coworkers were cushioned by unemployment
insurance and union benefits.
Some got jobs at other GM plants.
But over time, many were uprooted and cast adrift
by a bad corporate strategy.
The GM had been trumpeting as the formula
for beating the Japanese.
We knew we couldn't build the cars and trucks of the 1990s
in the plants of the 1940s.
Automotive manufacturing technology
was changing and changing fast.
That's why in the 1980s, we spent $77 billion
worldwide to re-industrialize your company.
A massive investment in new plants,
brimming with robots, automation, high technology
that once again would make GM invincible.
GM chairman Roger Smith, architect of this strategy,
triumphantly toured his new plants.
But by the early 90s, it was clear that Smith's strategy
had been a disaster.
In America, the auto giant had lost a huge chunk
of its market share, suffered an $8 billion loss in one year,
and since the Mededis had slashed its workforce
by nearly 200,000 jobs.
Our attempted application of technology was rather misguided.
We had this view of the world that we could literally leapfrog
the competition by taking technology and literally
replacing people overnight.
We went on a great buying spree with respect to robotics,
and we loaded up plants with robotics.
We didn't pay much attention to flexibility.
We built plants that built one car, one model,
highly automated.
And the theory was you could dramatically
reduce the labor content in the vehicle
and literally assemble and produce your vehicles largely
through robotics.
If you look at some of the Japanese techniques
that have been used extremely effectively at Honda and Toyota,
they're not all that high tech.
We didn't see them developing lean manufacturing techniques
that ultimately were going to render us non-competitive.
It's not just clever techniques that
powered Japan's success, I learned,
but different cultural values that
placed less emphasis on robots and more on workers
and teamwork to generate a high performance workplace.
One big Toyota innovation was giving any Toyota worker
the power to stop the assembly line for the sake of quality.
For decades at GM, stopping the line
was an almost absolute no-no.
Ah, mix the light, the music, and anybody can pull this.
Any worker.
For example, you can pull this rope and stop the assembly
line like this.
When you do so, your team leader comes over and helps you out.
That's how we do it.
Human beings don't always necessarily
do things in the same manner every time.
Sometimes you are out of tune if you are not feeling well.
You're likely to work slower.
If you're supposed to do something in a minute
and you think you'll be a few seconds longer,
then you pull the rope and your team leader
will come over and ask what's wrong.
He will see what the problem is.
That's how we back people up.
It's just like in baseball.
When the third baseman drops a ball, the catcher backs him up.
One way Toyota motivates workers is
by encouraging them to invent ways to improve their own jobs.
That's called Kaizen, continuous improvement.
I saw simple worker inventions all over the plant,
like this gliding work chair, Raku-Raku.
Manager Tomomatsu suggests the inspiration.
Squid in the sea.
The squid in the sea?
In the sea.
Floating.
Very floating and very freely moving.
So team member can move the chairs and other tools
freely like squid in the sea.
They like these little improvements,
but I was struck that the assembly was far less
automated than a modern GM plant.
And that actually helped Toyota make
38 different models on one line.
We are making many different kinds of vehicles here.
Domestic Camry and Corona and station wagon of Corona.
So it's easier for people to switch from one to the other
than it is for robots.
Exactly.
That flexibility helps Toyota respond
to shifting consumer demand.
If the Camry isn't selling one month, build more Coronas.
Trouble is Toyota may be losing that advantage.
They may be forced to automate more
because of some workers leaving and the difficulty
of recruiting replacements.
You have a problem with turnover?
Yes.
What's the problem?
Young people don't want to do this work?
Not only in Toyota, but also the whole industry in Japan
right now.
So many, especially young people, most of them
don't want to work at the manufacturing plant.
Why?
Because the work is hard?
Sometimes I think yes.
That may spell real trouble in the future,
but Toyota has tried to stay ahead of the problem.
One idea seems logical enough, even obvious.
Design a car that's easy to assemble
and is therefore cheaper and has fewer defects, something GM
was certainly not achieving.
So what is special about this bumper assembly process?
We can make each bumper design simpler.
So each bumper front and rear, each bumper
has only 19 small components.
And when they assemble the bumper, just only snap on.
So the whole point here is to design the car
so it's easier to put together, is that it?
Exactly.
Another smart Toyota concept, to speed up
new models, team engineers and designers together
at the start.
I wanted to see this system in action.
They wouldn't show me a new car, top secret.
Instead, they showed me what they did three years ago,
launching the Lexus.
One executive explains how their tight design network
differs from the old US system of engineering
a new car in separate stages, where people didn't even
talk to each other.
Our styling people who worked on the car in the beginning
looked at the car as if it were a final product,
as if it were a completed product.
And the manufacturing people who worked on it
also looked at it that way.
So we all have the sense that we were creating a whole car,
not just one component.
I think this is a principal characteristic of our way
of developing a car.
The real secret to Toyota's flexibility
is its supply system.
70% of all components in its cars
are farmed out to outside suppliers, roughly twice
as much as GM.
Components arrive at Toyota plants in the exact quantity
and at the exact time they're needed.
This is called just in time.
For Toyota, that means small inventories, low waste,
and top efficiency.
These are salesmen from some of the 10,000 companies
in the pyramid of suppliers which Toyota commands.
The Toyota company is the largest company in the world.
They're in the pyramid of suppliers which Toyota commands.
They're waiting to line up new orders.
And it's easy to understand why they may be nervous.
Being just in time is just one of Toyota's demands.
I asked a Toyota executive what it would be like as a supplier.
You have to incorporate our demands
into your particular product.
The second thing is the long term commitment.
Once you are our supplier, we want
you to supply this part for, say, five, 10 years or more.
Am I going to have to cut my costs every year,
every six months?
Every year, yes.
In terms of enhancing overall competitiveness.
But Toyota also helps its long term suppliers.
In tough times, it assures them business.
It sends experts into their plants
to improve their efficiency.
But it keeps the troops in line with a canny strategy,
multiple sourcing.
So on each of your important parts,
do you have more than one supplier?
Yes.
Why?
Well, you're one of our suppliers.
And how do you feel if you have competitor to you?
I feel pressure.
Yes.
That's why we are following so-called multiple sourcing.
That's why you have your competitor.
That's why you are doing hard.
That is our purpose.
So you put the heat on me to reduce costs?
Yes.
Reduce costs and at the same time improve your quality?
Does it work?
Yes, it does.
Very well.
Toyota's feudal system of suppliers
is arranged in layers.
The first layer fed by hundreds of tiny subcontractors.
Sango, in the top tier, makes mufflers and exhaust pipes.
You sell 95% of your output to Toyota or other suppliers.
They buy 60% of their mufflers and exhaust pipes from you.
Doesn't that give Toyota a lot more leverage
in this situation than Sango?
If you look at it that way, yes.
Toyota has a big advantage over us.
That pressure gets pushed down to the bottom of the pyramid,
where I found a four-person machine shop run
by the Taniura family.
They make tiny metal pieces for electrical components.
This is the base on which Japanese industry rests.
These little shops, father, mother, son, daughter-in-law.
Toyota says times are tough and they've got to cut costs.
They say that to their suppliers and they
say that to their suppliers and it comes down to you.
How do you cope with that?
And I think about preserving the long-term relationship
in the future with Toyota.
I know it is necessary that we listen
to what the parent company says.
In hard times like this, do your customers
insist that the prices go down?
And once they go down, do they ever let them go back up again?
Once the cost is reduced, it doesn't change again.
I've never once had them increase it
because the economy got better.
You just use the term mother company or parent company.
What does that mean?
We use that term a lot in Japan.
We call the originator of an order, like Toyota, the parent.
Then the first supplier is the child
and the third is the grandchild.
If Toyota is a parent, then we are the grandchildren.
I saw how unique Japanese values of loyalty and stoicism
sustained Tanigura-san as he cuts prices
to keep Toyota a world leader.
Halfway around the globe, the driving force
of German industry and prosperity
is an ancient tradition of craftsmanship and quality.
For years, that supreme bastion of German excellence,
Mercedes-Benz, confidently dominated the high end luxury
car market.
In America as well as Europe, German cars meant quality
and Mercedes was the ultimate.
Then along came the Lexus from Toyota
and Mercedes chairman Helmut Werner feels the heat.
If this car costs $160,000 and somebody can buy, say,
three or four Lexuses at that price,
will they continue to buy this car?
Lexus is quite a challenge and what the Japanese are doing
is very, very impressive.
Therefore, yes, we very much under pressure
as far as cost are concerned, as far as efficiency is concerned.
We are very much under pressure as far as quality is concerned.
The customer expects much more.
So we have to accept this new challenge
and we have to do better.
The Mercedes has long embodied the German love
affair with complicated engineering and precision
instruments.
I was bowled over by this machine.
The pursuit of perfection required
armies of inspectors scrutinizing every detail
at the end of the line and then painstakingly reworking
every solitary defect.
Now that elaborate undertaking is an albatross
for Dieter Zetje, Mercedes new development director.
One of the hearts of the old Mercedes system,
quality control, isn't that right?
That's right.
And the result was good, but it was much too costly.
That's a typical waste area.
There's no value added.
If you do it right the first time,
you can forget about all that.
One Mercedes strategy is to design a few smaller, less
pricey models.
But more fundamentally, how are they
going to achieve their vaunted quality more efficiently?
For generations, German industry,
whether machine tools, consumer goods, or cars,
built a global reputation for quality
on the medieval guild tradition of master craftsmen or meisters
who patiently delivered perfection.
But that took too long and cost too much.
So now to get the job done right the first time,
meisters like Horst Rebmann must take a new approach.
I am responsible for training the employees, that is,
to see that they learn their tasks correctly.
I do not examine each object, because each worker is
responsible for his own work.
The workers don't like to think that someone is always
checking up on them.
I have trust in my fellow workers.
I asked Rebmann if that meant his leadership now
had to be less heavy handed.
Simply put, you can produce trust
through a certain pressure on the worker.
But pressure in such a way that the worker doesn't notice it.
The pressure from the master craftsman
has to be incorporated with the idea of trust and teamwork.
Mercedes is trying Japanese style work teams,
but adding its own wrinkle.
In place of repetitive mindless little tasks
on an ever moving assembly line, the company
assigns each team a half hour sub assembly job
at a stationary site and puts the team in charge
of organizing their own work.
The advantage is that there are fewer mistakes
through better cooperation among the people.
If one person is finished with his work,
then you can help the next person.
The most important thing is to make fewer mistakes.
And when he did his work, he goes here and said,
I did a good job.
And he's saying, that's me, that's my signature,
I did a good job.
And we trust him, and we say that's OK.
He takes responsibility.
He takes responsibility for his own work.
Nobody has to control him.
As you know, it's my responsibility
that he avoids 80% of the mistakes he made in the past.
After seeing the German emphasis on excellence and skill,
teams, and the Japanese system of lean manufacturing
and worker empowerment, I wanted a closer look
at how Roger Smith's high tech strategy had played out
at General Motors.
During the 1980s, Ford and Chrysler
had been changing, learning lessons from abroad.
And I knew they were coming back.
So why was GM, biggest of them all, still slipping?
I chose one of GM's most modern plants in Fairfax, Kansas,
rebuilt in 1980.
It was rebuilt in 1987.
Brand new plant, about 1,800,000 square feet,
probably cost a billion dollars.
It makes the Pontiac Grand Prix.
Jim Harbor is widely known for his tough-minded auto industry
analysis.
Well, what happened was in this billion dollar plant that
can make 1,000 cars a day, 240,000 a year,
nobody could sell the car.
It is a showplace of automation.
Probably has 250 different robots.
Yet the volume, they could never sell enough volume
to keep the plant loaded.
It is not flexible enough to make the Lumina or Cutlass
Supreme.
So it sits there and wallows in one shift instead of two,
making about 100,000 cars a year.
And I spent a billion to get 240,000.
So the Fairfax plant is a victim of GM's blind reliance
on mass production.
And arrogantly thinking it could decide
what cars customers would want year after year
instead of reacting to the market.
But what about the plant's operation?
I wanted to tour Fairfax and talk to its executives.
But management said no.
So I met with a group of workers in a body shop
to get their slant.
One of the ideas of lean production
is to design this car so it's easy to assemble.
All right, give the design engineers
a grade on this car, A, B, C, D, E, or F.
C.
C. LD?
B.
B. Bert?
Probably about a C.
All right.
About a C.
I say C.
Why do you say a C?
Well, there's many instances where
they could have designed the parts to go together
easier for the operator.
The man would have to bend over the left fender
with his left arm and get the brake booster on,
which weighs quite a bit.
And you have to screw it on like a jar lid.
And myself, I never could perform the job
on a steady basis.
It took a great deal of strength to do.
And it was a constant problem.
We shut down the line numerous times a day
because of that problem.
And you brought that kind of a problem up?
Yes, we had engineers in there numerous times
over the problem.
And what happened?
They've yet to fix it.
I asked whether GM management was using teamwork
and giving workers more responsibility at Fairfax.
Pulling the cord and stopping the line.
Do you do that very often?
Does that happen very often now?
Basically, we were told, yes, stop the line
if you have a problem.
And that worked for quite a while.
But eventually, it got to the point
where they were a little bit more interested in getting
the quantity out again.
They say stop it and do that.
But when push comes to shove, I think
management as a whole goes back to its old way.
Get them out.
We'll catch it later.
Is there enough trust between the workers and management
here at this plant to share power?
No.
There's not enough trust.
Everybody resorts back to the point the finger
at the other guy.
It's the other guy's fault. I don't ever see that trust coming.
GM's new leaders admit that in the past,
GM management walled itself off.
Not only did we isolate ourselves from our workforce,
salary and hourly, we isolated ourselves from our customers.
That isolation suggested to the world
that we were sort of an arrogant lot.
But I'll tell you, that arrogance is a real deficit
when you're on the brink and you're staring down
some of the toughest competition in the world.
To prevent the ultimate disaster,
GM's new management is desperately trying to change.
We've got to have highly flexible manufacturing
facilities.
We have to be able to build three, four different models
and platforms in a single plant because you can't predict
with complete accuracy the marketplace two, three,
four years down the road.
GM's changing.
GM's improving.
But is there enough time?
Is it too late for GM?
Oh, it's not too late at all.
And I don't want to understate the challenge
because the challenge is absolutely immense.
And I can assure you that we're running just a little bit
faster than Honda and Toyota because we're behind them
and we've got to catch them.
I just hope they don't look over their shoulder.
I heard an echo from former United Auto Workers local
president, LD Edwards.
We can certainly strike General Motors and take them under.
And they can, in fact, go bankrupt and take us under.
But I mean, nobody wins but the foreign competition.
If we don't build the best quality,
give the American customer the best product,
then we can't survive.
That's a telling point, especially for Americans.
No economy can succeed if its people are not working together.
Giants like GM and Daimler-Benz are battling furiously
to keep in the game.
With new technologies, US venture capitalists
hope to leapfrog the Japanese.
But attitudes are crucial.
These stories underscore the painful lessons
of arrogance and rigidity, the fatal danger of being
so blinded by past success that a company fails
to exploit its own research.
Finally, people, their skills and how
they're organized and motivated, people
are the key to long-term success.
That leads to the subject of our next program.
How well are these nations preparing their children
for the next century?
Thank you for being with us.
I'm Hendrick Smith.
Red, green, all colors, maximize, clear, red, green,
all colors, restore.
acles
This program was produced by Hedrick Smith Productions and WETA Washington, who are...