Upper Mismanagement | The New Republic

The new managerial class tended to neglect process innovation because it was hard to justify in a quarterly earnings report, where metrics like “return on investment” reigned supreme. “In an era of management by the numbers, many American managers … are reluctant to invest heavily in the development of new manufacturing processes,” Hayes and Abernathy wrote. “Many of them have effectively forsworn long-term technological superiority as a competitive weapon.” By contrast, European and Japanese manufacturers, who lived and died on the strength of their exports, innovated relentlessly. One of Toyota’s most revolutionary production techniques is to locate suppliers inside its own factories. The New York Times’ Jon Gertner recently visited a Toyota plant and reported that the company doesn’t actually order a seat for a new truck until the chassis hits the assembly line, at which point the seat is promptly built on-site and installed. “If the front seat had not been ordered 85 minutes earlier, it would not exist,” Gertner observed. Alas, these aren’t the kinds of money-saving breakthroughs the GM brain trust has ever excelled at.

The country’s business schools tended to reflect and reinforce these trends. By the late 1970s, top business schools began admitting much higher-caliber students than they had in previous decades. This might seem like a good thing. The problem is that these students tended to be overachiever types motivated primarily by salary rather than some lifelong ambition to run a steel mill. And there was a lot more money to be made in finance than manufacturing. A recent paper by economists Thomas Philippon and Ariell Reshef shows that compensation in the finance sector began a sharp, upward trajectory around 1980.

… it’s hard to believe that American manufacturing has a chance of recovering unless business schools start producing people who can run industrial companies, not just buy and sell their assets. And we’re pretty far away from that point today.

via Upper Mismanagement | The New Republic.

Good article on one of my primary complaints as an engineer and process improvement manager….