Information Technology is slipping….

These are serious times. It may well be crunch time for the planet, and it is certainly crunch time for the economy. Serious times merit serious discussions. (reposted from May 2010 from my once and past posterous blog)

While in New York to make a presentation at the Fancy Food Show, I had dinner with Russ Ruggiero. Russ and I vote different parties, but unlike the stereotype of America as blue and red, we agree on the economy,

Washington’s seeming inability to come to terms with reality, and big businesses suicidal addiction to short-term profit. Is there anyone left outside of Wall Street who thinks market speculation has served us well?

Russ knows what he is talking about. More than a year before the mortgage collapse, Russ warned me it was coming. Those paid talking heads on television were still droning on about the boom that would never end up until the bitter end.

Rex Brooks of Berkeley and Russ wrote a report recently that is circulating among policy makers called “The Slow Demise of American Information Technology” that ties the decline in our economy with the decline in US innovation in information technology.

Lack of innovation and doing business as usual; off-shoring rather than transforming; importing expertise rather than cultivating training and education; and tricking us into bailing them out rather than letting us use our tax dollars to build a bridge to a more sustainable economy. I am talking profits here, not plants.

If the bailout saves Wall Street, what will it have learned? That no matter how high the price, we will pay it? As if we haven’t suffered enough, Russ warns that the commercial real estate market could collapse soon as well. Do we bail them out as well?

To survive what may yet be coming, we need a strategic plan and a unifying vision. It is better to enter a difficult future prepared, than stand like lemmings, staring in the headlights.

Short term profit and CYA is neither a vision nor a strategy, it is economic suicide. If the future turns out better, having a vision and strategy will only help us more. What we cannot do is business as usual. We have to give up pretending we know what we are doing, and start learning.

The manufacturing industry uses a 19th century model of manufacturing. Artisan and craft workders labor under an older, more traditional, preindustrial system, one that serves them well enough as long as they don’t expect a salary, until they need to enter a wider marketplace, and run up against a distribution system entirely dependent on trucks, oil, and crumbling highways. (We stopped maintaining the railways when we built the highways, under pressure from special interests, and then stopped maintaining the highways. Remember?)

Over the last 40 years industry has shown little curiosity to face the truth.. After all, business as usual served the US well enough from the end of the second world war until the 1990s. It became an excuse to stop having to learn, develop, and grow.

Ask who Deming, Juran, Ishikawa, Taguchi, and Shewhart are, and the answer might be… players on a World Cup team? State of the art information technology of today, never mind the innovations Russ and Rex would like to see us making tomorrow, are not understood.

Mention a System of Profound Knowledge, and the industry thinks you are talking religion, not a system of management. (Google it.) Talk of statistical thinking, systems thinking, kanban, continuous improvement, lean manufacturing, TPS, CQI, Goldratt’s theory of constraints, and gemba and eyelids roll, in spite of the very real and remarkable success of other, more modern industries over the last 40 years.

I have seen with my own eyes 200-800 percent increases in bottom line profit after clients learn the “stuff” mentioned above. There is an entire association dedicated to it, called the American Society for Quality. Alan Mullaly, the president of Ford, gave the keynote speech at its conference this year. It was attended by a couple thousand people, from 40 countries. Trying to stay static in a world changing at the speed of light is not advisable either, the modern equivalent of lemmings.

We could be telling a different story. A story about an industry that joined together in the grip of difficulties to craft a vision for the future based on lifelong learning, pride of workmanship, and enlightened self-interest through cooperation rather than competition; an industry that built a mission and objectives, then defined the tasks that transformed it into an industry embracing big and small, with small providing innovation, and big providing access to markets. An industry that joined with other industries, government and private citizens to invest rather than bail, and awoke to a life filled with the satisfaction of continuous improvement. A balanced industry, in a balanced country filled with people living balanced lives between work and family. Imagine that! Just like the American Dream.

Business follows a natural cycle up and down. Short-term thinking tries to extend the upswing as long as it can. In statistics it is called tampering. The problem with tampering is what goes up must come down. Variation is a part of nature. The quality discipline, based on systems and statistical thinking, has proven the only effective goal is to reduce variation, not increase it.

The milk pricing system, for instance, is bad enough, the way farmers react to it makes it worse. When prices are high, they increase their herds to take advantage: more cows; more milk; glut on market; price collapse; farmers lose money on every cow; cows get killed. To mitigate the risk, they hedge on the futures market.

Can’t we find a better way to manage resources to reduce variation between the highs and lows and allow farmers a chance to make a predictable living than boom and bust and gambling on milk futures? We can.

Whether the contrivance is milk futures and overproduction, risky loans, bad banking practices, junk bonds and derivatives, as in the savings and loan and the current crisis; or natural gas pricing schemes, as was done during the Enron era, tampering makes things worse in the long run. Like a pyramid scheme, only a handful at the top benefit: everyone else loses.

I am going to share four successful examples of responses that worked, two from Russ and two from me, and two more that failed:

1. The New Deal improved lives, even the lives of detractors who called it American socialism: Ironically, “socialist” programs like Social Security, the Civilian Conservation Corps, Rural Electrification, the TVA helped diminish the ill effects of a catastrophe brought about by their unregulated speculation on Wall Street, and helped build infrastructure for the economic miracle of the late 1950's, 60's. Regulatory agencies like the Securities Exchange Commission and the FDIC helped protect free market capitalism from its own excesses for more than 40 years, until their oversight authority was stripped in what Alan Greenspan himself has described as a mistaken faith in the market’s ability to exercise self-preservation.

2. If the Depression was a time and place where big government worked, the Great Society of the 1960s was an example when it didn’t. Taxpayer money was squandered on poorly managed programs earning Democrats their reputation as tax and spenders. The money rarely ended up where it was supposed to, diverted by bureaucracy and unbridled regulation into more bureaucracy, as happened again recently with Hurricane Katrina. (Have they gotten their money yet?)

What works is good, what doesn’t isn’t. Ideology is a luxury we can no longer afford. What is necessary regulation? Is there a better way to fund than through bureaucracies? We don’t know, because we’ve never collected the data, nor done the work to understand what it could tell us. We’re too busy telling each other we know what would happen before it happens.

3. A Republican, Eisenhower enacted the Federal-Aid Highway Act of 1956. “What this arguably liberal spending program actually accomplished was to set the stage for all of the sustained, long-term growth the United States enjoyed throughout the 1960s, 1970s and 1980s.” It was a decidedly big government initiative, from the states-rights small government Republican Party, and it worked.

4. Dan Carter, one of the visionaries in the cheese business, convinced Sen. Herb Kohl to earmark a couple of million federal dollars to create a non-profit center for innovation in dairy in Wisconsin for an industry that was deeply at risk. The best minds in cheese, nationwide, were brought in to help drive innovation, and it did. Remarkably well. Then earmarks became a political football, and the state hit a recession and had to shore up its bureaucracy.

5. The fourth successful big program, oddly enough, was the Marshall Plan. The aim was to build modern economies out of our enemies so they would be stable, and no longer a threat. In Japan, General MacArthur needed reliable radios as the country was bombed by us into the stone age. (Two A bombs and the fire bombing of Tokyo.) They rocketed out of their ashes in what is called the Japanese Miracle to become the second or third largest economy in the world, using the “stuff” I mentioned before, then got fat, corrupt and greedy, and lost their way, for now. Wait a minute, our government invests in building new economies for our former enemies, but not for us? That’s odd. Too busy rewarding failure, I guess.

6. The other thing that didn’t work: bailouts.
My point is this, I do think the way out of our situation is for the industry to rise up out of the 19th century, to gather together to create a unified vision, a mission and objectives which should include learning about systems, statistics, and process improvement; to develop the most educated workforce of any agricultural industry, anywhere.

Then working with others to wrest government funds out of the hands of bureaucracies to where they can do good, transforming into a 21st Century American industry, by leveraging all the best in new technology, all the best in what really works to motivate and manage people to be able to move forward dynamically into a future based on enlightened self-interest, real knowledge about our business, our people and what works, and cooperation as peers, not competition as enemies: to bridge the gap from short term to long term thinking, reduce variation in the business cycle, make our industry more predictable so we can know whether what we do is an improvement or just a change, and be able to sit back with pride and say, in our lifetime, like those in the “Greatest Generation,” we really did something worthwhile.

(Read Peter Scholtes “The Leaders Handbook,” and “The Team Handbook.” Follow this link to see a youtube on Daniel Pink’s brilliant and authoritative book “Drive.” At www.youtube.com/watch?v=u6XAPnuFjJc&feature=player_embedded

By all means, read Dr Deming’s “The New Economics” and Professor Jeff Liker’s “The Toyota Way” and “Toyota’s People.”\

About the Author

Dan Strongin works with medium to small companies, helping them master the art and science of managing.

  • Michael Bremer

    Dan, I am somewhat amazed by your post. I have also used the Marshall Plan, Ike’s highway investment and the new deal as stellar examples of success. I’m still not sure how/why Ike’s highway investment worked so well. They truly seemed to avoid contracting with political pol’s and the work that was done on the highways and the bridges was of remarkably high quality. I have not seen many people reference these examples, so quite impressed with your insights.

    I also share your concerns about our economy and the short term thinking in Washington and with the political leadership in most states. Both parties are a mess and seem to be out to lunch vs. spending time trying to address the real problems facing the economy. It feels like some portion of the bailouts might have been appropriate. But they way it was executed was amazingly inept. The mere fact that companies like Aon were permitted to use government money to make good on trades (where people were betting in high risk transactions that the government would back them up — where is the high risk???) was infuriating to say the least.

    You mention business leaders and outsourcing as an issue. I’m a tad surprised more issue has not been made about the American consumer’s relentless focus on low cost. At the expense of quality and longer term durability. I’m not anti-outsourcing. Sometimes it makes total sense. And Friedman’s point in the World is Flat makes sense about growing the global economy. But hallowing out the skills in American and European industries makes no sense. As companies outsource their true source of competitive advantage makes no sense, and many leaders were unaware. Each time a consumer buys products made in China. They support the entire outsourcing movement. Most people give this little to no thought.

    I will have to read more of your writing. Fortunately I stumbled across a linked posting today.