Change is inevitable! Whether one thinks that change is good or bad, of course, is a matter of perspective. Most of us that occasionally long for the good old days would really not want to give up our computers, high-speed Internet connections, overnight deliveries, and (usually) reliable automobiles that last well beyond the 100,000-mile mark.

Our perception of change is often influenced by whether we are the originator or recipient of the action. Even as the recipient, we frequently enjoy the benefits (as mentioned above), but at other times we feel a loss of control. Long range plans and assumptions are suddenly threatened a future that once seemed secure is very much in doubt.

American business has a long history of creative and innovative change. From the Industrial Revolutions through most of the 20th century, America led the world in the areas of technology, manufacturing, distribution and business innovation. However, as transportation and communication systems steadily improved, both businesses and markets began to evolve toward a global economy. U.S. companies expanded to take advantage of that economy by building or buying facilities in other countries. Foreign companies bought U.S. companies or built plants in the U.S. With the increased global competition, there was great downward pressure on prices and increased demand for higher quality. Many well-known organizations did not survive (think AT&T) and most that have survived have undergone tremendous internal change.

The paradigm of business has changed. For most of the 20th century, business used the following formula:

Selling Price = Cost + Profit

Selling Price was determined by adding Profit to the Cost of the good or service. Although we worked to reduce the Cost component, because the competition was less, we were still able to increase the Profit and therefore the Selling Price. That paradigm has now changed! Although is looks the same from an algebraic perspective, the new equation is dramatically different. It is:

Profit = Selling Price – Cost

Selling Price is now determined, not by us, but by the global market. Profit becomes the dependent variable something that we cannot control directly. The only item that we can control is Cost. Initially, this was accomplished by reduction of manufacturing labor costs through automation and transfer of manufacturing to locations with significantly lower labor costs. It has extended to white-collar jobs as well, including hardware design, software development, and even professional services.

Reduced labor rates, however, are no longer sufficient to maintain competitive status. Inefficiencies, or waste such as scrap, rework, poor quality, unnecessary movement, variation, excess capacity, etc. to name a few must also be reduced or eliminated. Organizational culture, from the top to the bottom, also needed to change. We needed everyone’s ideas, support and participation in order to be successful.

Research has shown that most manufacturing operations have as much as 15-25% of their total sales that is wasted through the cost of poor quality (COPQ). Service businesses and the transactional aspects of manufacturing businesses are even worse. Unfortunately, our traditional accounting systems are not designed to identify these costs, but they are very real. Survival in the global economy demands that we reduce these costs through continuous improvement process methodologies.

As organizations began to seriously apply the principles of Lean (as developed by Dr. Taiichi Ohno of Toyoda), Six Sigma (as pioneered by Dr. W. Edwards Deming), advanced manufacturing concepts and modern leadership styles, they not only found success, but many also learned that American facilities could compete effectively with foreign ones. Examples of both success and failure exist across northeast Indiana, and across the United States.

Is there a type of business that is isolated from global competition? Perhaps, but even those that seemed to be safe from such competition a few years ago, are seeing the situation change. Outside a few niche areas, the prudent businessperson will pursue a balance of two approaches:

Using proven business improvement methodologies (such as those mentioned above), he/she will continuously improve the quality of the product or service, increase customer satisfaction and reduce cost. World class has to become more than a buzz-phrase; it has to become the way of life.

While striving to preserve domestic operations, he/she will also make informed decisions about expansion, consolidation and/or relocation of facilities to China, Mexico, Slovakia, India, etc. Sometimes it is important to follow a customer. In other situations, there is a market opportunity that cannot be effectively served with domestic operations.

Change, in and of itself, is neither good nor bad! Understanding the impact that the changing global economy has on our organizations is not only prudent for many, it may be a matter of survival!

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