Technology is one of those areas where price competition is at its toughest, and companies across the planet are producing equipment that is effectively the same – from diggers to supertankers. Oh, and computers of course. The result of producing all but identical equipment means there’s little choice you can make between them all, except of course, if you’re an expert. Which means most people buy either out of habit – or failing this, on price.
It was with price in their minds that an American computer company – its name is irrelevant as it could be any one of them – outsourced the production of small circuit boards to a company in Taiwan.
Because American workers are expensive and they demand rights way beyond those of a Taiwanese worker – or at least, did. It all meant that the American worker was too expensive in the mind of their bosses. In the world of Purchase Money, all outgoings are seen as an expense and workers fall into this category too.
The logic follows that lowering costs is what shareholders want. What is more, economics professors are no exception to this line of thinking. So the boss – and the professors – have the authority to tell people they are right and you can begin to see where the problems become established in the habitual thinking of a culture.
Because Taiwan – and today’s China – are playing the same game. What with mass production having achieved the vast scale that it has means that the division of labour has been taken to its extreme: each worker does one thing and one thing only. With this, the level of skill needed is effectively zero and the person is a person no more in the eyes of their employer. They are merely operatives. That is to say, in terms of the business, the operative has had any individual quality stripped away to become a commodity that is as easily interchangeable as the wheel on your motorcar.
The great thing is that you don’t have to be cleverer to be cheaper. All you need are people who need less money to do the same mind-numbing work.
How To Give America EXACTLY What It Wants.
It was with this in mind that the Taiwanese company’s representatives arrived in the manager’s office in America. The Taiwanese company stated that they had been doing a good job on making the circuit boards, and at 20% less cost to the American business.
As a reminder to the American of the facts, the Taiwanese gentleman added that this wasn’t the core competency of the American business, and so it makes a lot of sense to let them make the more complex motherboards too.
This message chimed in with the American’s training and cultural makeup. What’s more, any consultant worth his salt would tell the American manager that this was the way to go! After all, the result over the next few years was that the company improved its economic figures across the board. Profits were substantially increased, which meant some very pleased shareholders. Oh, and the manager wasn’t in charge of making motherboards any longer.
In other words, the Taiwanese did everything everybody wanted.
The Bottom Line Means Bottoming Out.
Well, that is the challenge, isn’t it? To look at the reality of your business rather than just the bottom line. But that’s not the kind of thing consultants do, if for the only reason that the managers aren’t interested in that kind of detail…
As I say, that is the challenge.
The challenge always lies in the very things you want to do – and that goes for me as it does for the lowly Chinese worker putting a component on a board; or for that matter, an American manager. The only difference is the nature of the challenge.
So the Taiwanese got their business by offering the Americans precisely what they wanted! For the American, the excuse was that the competition is red-hot and they simply had no alternative.
When the Taiwanese company returned a few years later, they stated that they had been doing a good job on making the mother boards, and at 20% less cost to the American business.
As a reminder to the American of the facts, the Taiwanese gentleman added that this wasn’t the core competency of the American business, so it made a lot of sense to let them assemble the computer too.
This message chimed in with the American’s training and cultural makeup. What’s more, any consultant worth his salt would tell the American manager that this was the way to go! After all, the result over the last few years was that the company improved its economic figures across the board. Profits were substantially increased, which meant some very pleased shareholders. Oh, and the manager wasn’t in charge of the assembly of the motherboards any longer, so he wasn’t too worried about the loss of that position.
I could tell the same story almost word for word when the Taiwanese company returned to offer their services for the management of the supply chain and eventually, the design of the computer itself. At every step, American managers and American workers lost their jobs but the numbers on the account sheets of the American business improved continually.
In each case the American bosses accepted the proposal because from a perspective of making money, it simply made sense: the American company’s revenues were unaffected and its profits were improved significantly as a result. Everybody was happy. After all, everybody else was doing it, and it was the only way to compete in such a fiercely competitive market.
Well they were happy until a few years later.
Pigeons Coming Home To Compete.
Because the next time the Taiwanese visited America, they didn’t come to speak with the computer company.
They came to speak with US retailers. The retailers selling the American equipment in a fiercely competitive market.
The Taiwanese were offering their own computer; either with the Taiwanese brand name, or one of the retailer’s own choice. What’s more, it was shown to be as good as anything available from the US competition – and here are the magic words – the computer was 20% cheaper. American citizens, like their bosses, will choose to spend less money. After all, if the commodity is the same, why pay more for it?
It was the challenge to the American citizen, this time.
The problem now for the US company was that it was able to sell these computers, if but fewer of them because of the now stiffer competition in the marketplace. Only they had little by way of influence over what was produced because it was all outsourced. Not only that, but the Taiwanese had made steps to improve the technologies in ways that the US company no longer had the capacity to compete with.
If you reflect on this, almost every corner of US industry has been hollowed out in this way. This tale could be repeated almost word for word for a hundred other industrial companies that produced something or other. Companies that provided real Americans with real jobs. About the only industries left in the US are the aerospace and military industries. And Coca-Cola. Today, the Japanese are working hard to make the more profitable parts of an aircraft – in this instance, the wings. Nobody else can make them now. Oh, and if you want military specification silicon wafers for your semiconductors, the only people who can produce them are the Japanese. Or, for that matter, high-quality touch screens, optical diodes for the new optical fibre communications networks, and a thousand other items. There is and can be no question about prices: for all the high profit margins, the prices the Japanese charge are reasonable. The fact remains that, quite literally, nobody else has the skills or the technology to make them, leave alone compete.
Please note that not all countries have behaved in the way the Americans have. Neither the Germans nor the Japanese have allowed their hugely profitable industries to be undermined in this way. Only one that has won the unseen economic war against the US.
And there’s literally nothing the US can do about it now.
As Rudolf Steiner said in his lectures on economics, materialistic thinking undermines itself, and this is as true for materialistic thinking when applied to economics as it is anywhere else. The above is an example of the process of contraction – to the activities of one business in the US.
What Can We Do About This?
The answers are there, and have been for a century and more. The problem is that most highly paid consultants are trained to pander to the shortcomings of a company, rather than address their problems and challenge them. After all, consultants have to make a living too, you know, and they are in a fiercely comeptitive market too because they’re all pandering in the same way. The reasons why America – or China, Japan and Germany for that matter – cannot now listen is part of the problems, another of the challenges we face today. The reasons are buried in their respective subconscious, be it cultural or individual.
Without an understanding of this, one cannot hope to truly harness innovation in the manner described by Clayton Christensen in his book The Innovator’s Dilemma where the above example was taken from. Because innovation in the respect of the emotional realm always comes in the form of a challenge to the individual’s comfort zone.