Reckoning

by David Halberstam

  The pressure on the industrialists was particularly intense. Abegglen felt for Nissan’s president, Katsuji Kawamata, in the early sixties. Everyone would be coming to him and demanding money—money for plants, for steel, for shipping facilities, expenditures that anticipated the battle still to come—and Kawamata would have to make a decision on every request. Even if he made them right, there was still a long period before any return would be visible; if he made the wrong ones he would be dead. There was what the consultant groups liked to call a learning curve in an industry. In its most elemental phrasing it went like this: The more cars you manufactured, the better you became; your engineers got better and your processes got better. Thus as you produced more and better cars, the cost of each car not only went down but went down sharply. In a way this was what had happened to the Ford Motor Company in its early years, when Henry Ford had systematically upgraded his assembly line without really changing his car. Now this was happening in Japan, with one major difference: Again and again Henry Ford had had to wait for technology to catch up with his dreams, but the Japanese were going through their growing period when the technology, often foreign-developed, was already available and was fifty years more advanced than in Ford’s day. That meant the race was even faster and the speed of the learning curve was even quicker. The Boston Consulting Group, of which Abegglen was a founder, had figured out that in Japan, for each doubling in the learning curve, or in accumulated experience (the accumulated experience was the total number of cars manufactured), the cost in real terms dropped somewhere between 20 and 30 percent. Since in the days of explosive growth a company might go through a doubling every year, that meant that its costs were coming down at an astonishing rate. The stress in a period like this was immense, for the only way to win was to pour money back in, expand some plants, build others, and keep them running two or three shifts. Abegglen, who had watched Japan come into industry after industry, doubted that the American auto companies had any idea of what this might mean to them, and of how good the Japanese would quickly become. The Japanese might make an appalling number of mistakes in the beginning, but they would not make mistakes very long, and their quality would soon be very high.

  A decade later, a study done by two of Abegglen’s colleagues in the Boston Consulting Group, Thomas Hout and William Rapp, showed how right he had been. The study compared the prices of similar Japanese and American cars. In 1952 the American car had cost $1500, the Japanese car $2950; by 1959 the gap had begun to close, roughly $1900 for the American car, $2100 for the Japanese. By 1961 the Japanese car was slightly cheaper, $1750, as opposed to $1850 for the American. By 1964 the economies of scale had had a clear effect; a Japanese car cost $1400, an American $1900. By 1970 the difference was dramatic, $1210 for the Japanese, $2215 for the American.

  The stress of those years, as Nissan went from a crude, weak company to a major auto maker was enormous. At every level of the operation but particularly for the engineers, it was a revolution rather than an evolution. For the company that Minoru Tanaka, the engineer, had joined in 1956 struck him as primitive, compared to the Niigata Ironworks. The ironworks was not a particularly rich company, even by Japanese standards, but it had an electric calculator for line drawing, while the engineers at Nissan were forced to use a wooden one, hand wound and hand driven. Tanaka’s early meetings with the then engineering staff at Nissan shocked him. Tanaka had just emerged from a world where there was great emphasis on structural analysis and where plans were done scientifically, with numbers always containing the truth. Nissan did not do any structural analysis. Its engineers simply took four wheels and put a box on them and fastened the box to the wheels. Soon there was a major split between the old guard and the new breed, men like himself, who wanted to apply the mathematical skills they had learned for aircraft construction. One thing Tanaka realized early on was that Nissan was becoming the beneficiary of the prohibition against an airplane industry. He saw that an exceptional number of highly sophisticated young engineers were now entering the company.

  Very quickly the engineers were divided over what was the best way of building a body. The old-timers wanted to build simple, heavy frames and put the rest of the auto assembly upon them. The new men, with their aircraft construction training, favored the unitary, or monocoque, construction used in aircraft—no heavy metal frame on which everything sat but the weight distributed over a light network of connected supports. Almost as soon as Tanaka went to Nissan, he went to work on the A49X, a unitary version of the Volkswagen Beetle. Tanaka and his fellow engineers were crushed when Kawamata finally vetoed it. The 210 had just won the Australian rally and had thus achieved instant fame. The top officials were afraid the A49X would siphon sales from the 210. As far as Tanaka was concerned, an excellent car had been killed in favor of an ordinary car.

  In 1963, a rising star in the engineering section, Tanaka was asked to design the Nissan President, which was to be the company’s prestige car. In the beginning it was a lonely task. The only person working with him was a young secretary. After the first day she failed to show up. Tanaka had to go to her house to find her; she had not showed up because she was a modest Japanese girl and afraid to be alone with just one man. There was a delicacy to the unitary design, Tanaka thought, which was more demanding than the frame design. In the frame design there was always room for adjustment; the frame itself was the support system and the pieces fit together somewhat naturally. But with the unitary design, each component had to fit in perfectly. Tanaka was designing the car so that the engine would be slipped into the car from underneath. He had a recurring nightmare: The car was finished, production had started, the engines were placed in the bodies, and then all the engines fell out.

  Tanaka’s orders had been simple. He was to bring home a luxurious car that the chairman’s friends would want to be driven in. Price was not the issue. He was pleased with his prototype, which he thought was proof than the unitary construction worked with big cars as well. But he had come in 440 pounds over the projected weight. Desperate, he went around Tokyo demanding that the suppliers take weight out of the component parts. Even then the President came in some 220 pounds heavier than it was supposed to. No one above him seemed to mind. It cost three times what a car in Japan normally cost, but the high price seemed to add to its prestige. From then on, Tanaka was the head of the Nissan design center, and the debate over unitary versus frame bodies was over.

  If adequate production and engineering were important problems for Nissan, then quality of product was another. Above all the Japanese knew they had to gain a reputation for quality. Autos, more than any other item, would test whether the Japanese could overcome their prewar reputation for shoddy goods. For most Americans in the early sixties, that reputation still existed; the Japanese had already excelled in areas like steel and shipping, but those were products that the average American consumer did not encounter, and so they were unaware of the change. Even the men in Detroit were still joking about Japanese quality—that you had to close the doors gently in order not to bend them. Meanwhile, hundreds of Japanese productivity teams were landing in America, endlessly touring American factories. They came in groups, and to the Americans watching them they often seemed comical little men. They were all the same height, and they wore the same blue suit, and they carried the same camera. They measured, they photographed, they sketched, and they tape-recorded everything they could. Their questions were precise. They were surprised how open the Americans were—open as they might not have been for, say, English or West German visitors. The truth was, there was a certain condescension in all this; the Americans were open because they never took these odd little Asians seriously. They were both prejudiced and generous.

  The Japanese exploited this prejudice skillfully, playing the role to the hilt. It was, said Masami Muramatsu, an interpreter who accompanied many of these teams, almost embarrassing the way they poor-mouthed, becoming ever more humble as they dealt with Americans. We are the poor li
ttle Japanese, they would say, we have been devastated, you are very rich and generous, and we have come to learn everything we can. The Americans, he suspected, had obviously liked their complementary role of bountiful benefactor. Their lectures were a commercial extension of the American missionary spirit. In the beginning the Japanese were staggered by America, the ease, indeed eagerness, with which Americans talked to strangers, about professional matters but also about personal things. Why, the travelers would tell their friends upon their return, the Americans wanted to show visiting Japanese not just their houses, but their bedrooms!

  The Americans were proud and confident in those days, and somehow innocent. Their own world was so complete that they did not really need to think of any world outside it. The American market was quite sufficient for most American managers. The visiting Japanese productivity teams were potential customers as well as students, but the major American companies never seemed very interested in talking to them about exporting—neither about selling them a main product line nor about customizing a particular product to make it suitable for Japan. There was an unusual pride to the Americans then, Muramatsu thought, a pride that was attractive in its generosity of spirit but flawed by self-satisfaction. The Americans were powerful, they were rich, they were helping their former adversaries; but they did not need to look beyond their own coasts, and they did not need to learn. There was one incident that seemed trivial at the time but that stayed with Muramatsu for long afterward. A Japanese team had been at Cincinnati Milacron, and they were about to leave on their chartered bus, and everyone was either bowing or shaking hands, when one of the company’s PR men, who had been in Japan at the end of the war and who fancied that he spoke some Japanese, told them, “Anata mata sugu kitene.” He thought he was merely inviting them to return, a friendly parting remark. But to the Japanese it was offensive, for it was bar talk: “Honey, come back soon.” The Japanese all laughed in a muffled, uncomfortable way, and got on the bus. It had been wounding, more than any of them wanted to admit. A quarter century later Muramatsu pondered why it had seemed so significant to him. In the end he decided that it was the unconscious arrogance: Americans did not need to know the languages of others; they could always do business on their terms.

  There was one other thing that bothered the Japanese visitors: Americans’ shameful ignorance of W. Edwards Deming. Deming was an American expert on quality control, and by the late fifties he had become something of a god in Japan. With the possible exception of Douglas MacArthur he was the most famous and most revered American in Japan during the postwar years. Beginning in 1951, the Japanese annually awarded a medal named in his honor to those companies that attained the highest level of quality. (Fittingly enough and typical of Deming, he himself supplied the prize money, from the royalties on his books, which, virtually unknown in the United States, were best-sellers in Japan.) Only an award from the Emperor was more prestigious. But when Japanese productivity teams visiting America mentioned Deming to their hosts, the Americans rarely knew his name. The few who did seemed to regard him as some kind of crank. To the Japanese that was particularly puzzling, for when a Japanese team came to America and made the rounds, city after city, factory after factory, the one American all its members wanted to see was Edwards Deming. It was like a pilgrimage. When they did come to see him at his home in Washington, Deming knew many of them by name, because he had visited them in Japan, and he was always able to ask about their colleagues back home. As was their custom, the Japanese always came with presents, small ones lest Deming be embarrassed, and Muramatsu, the interpreter, who made countless visits to Deming’s home, once decided that Dr. Deming must have more small Japanese dolls than any other person in the world.

  Among the many things the Japanese liked about Deming was that he lived so modestly. The productivity teams had visited many American cities, and they were often entertained at the rather grand homes of American businessmen. Yet here was, to them, the most important man in America living in an ordinary house. The furniture was simple and the rooms were rather poorly lit, with a certain mustiness to them. That impressed them all the more. Deming’s passion was for making better products, or more accurately for creating a system that could make better products. It was not for making money. He clearly had little interest in material things. He was the kind of American they had always heard about, a spiritual man, not a materialistic one. The Japanese who trekked to see him were aware that he could have profited immensely in those days, selling himself and his services to Japanese companies. The subject just never seemed to come up. There was another way in which he differed from the other Americans they were visiting. The others would lecture them, and the lectures were, however unconsciously, an exercise in power. Deming listened as much as he talked.

  If Edwards Deming was gentle and courteous with the Japanese, understanding the extreme touchiness resulting from their postwar poverty, then he was often brusque with his fellow countrymen and scornful of them. He hated waste, and he felt that America had become a wasteful country, not only of its abundant natural resources but also of its human talents. It was a nation, he believed, about to squander its exceptional blessings. He mocked American management, finding it responsible for most of the nation’s woes, and he liked to tell audiences that the one thing this country must never do is export its managerial class—at least to friendly nations. He had little tolerance for fools (and he thought most American managers fools), especially those who pretended to care about his principles but had no intention of changing their ways. He was for most of his career virtually unknown in America, a prophet without honor in his own land, but he was one of the most important figures of the second industrial revolution, that is, the challenge of East Asia to the West. As much as any man he gave the Japanese the system that allowed them to maximize their greatest natural strength, their manpower. His system for quality control provided them with a series of industrial disciplines mathematically defined, and with a manner of group participation that fitted well with the traditions of their culture. It was in essence a mathematical means of controlling the level of quality on an industrial line by seeking ever finer manufacturing tolerances.

  What Deming and the other leading American authority on quality control, Joseph Juran, were telling the Japanese was that quality was not some minor function that could be accomplished by having some of the workers at the lowest levels attend a class or two, or by appointing a certain number of inspectors to keep an eye on things. True quality demanded a totality of commitment that began at the very top; if top management was committed to the idea of quality and if executive promotions were tied to quality, then the priority would seep down into the middle and lower levels of management, and thus inevitably to the workers. It could not, as so many American companies seemed to expect, be imposed at the bottom. American companies could not appoint some medium-level executive, usually one whom no division of the company particularly wanted, and, for lack of something better to do with him, put him in charge of something called quality. The first thing that an executive like that would do, Deming said, and quite possibly the only thing, was to come up with slogans and display them on banners. If the company treated quality as a gimmick or an afterthought, then true quality would never result. Above all, he was saying, quality had to be central to the purpose of a company.

  The America of the fifties and sixties had scorned Deming and his teaching and in effect driven him abroad to find his students. America in those years was rich and unchallenged, the customers seemed satisfied, and in most important fields there were few competing foreign products against which a buyer might judge the quality of an American product and find it wanting. The theory of management then asserting itself in American business was a new one: Managers should no longer be of the plant. They should come from the managerial class, as it arrived from the best colleges and business schools, and they should view management as a modern science. Their experience should not be practical, as it had been in previou
s generations, but abstract. Practical experience was, if anything, a handicap. They were not men who knew the factory floor, nor did the people on their boards of directors know it either. Later, after Japan became immensely successful, too much was made, Deming thought, of the fact that an ordinary Japanese worker had a lifetime contract with his company; too little was made of the fact that the Japanese manager had a comparable contract—he would stay the course, remain absolutely loyal to the company and thus to the product, and his restraint on his ambition might be its own reward. Too little was also made, Deming believed, of that fact that the Japanese manager’s roots were typically in science and engineering, as were those of the men on the board of directors that judged him, while the American manager came from a business or law school, as did the board that judged him.

  Nothing appalled Deming more than the idea of the interchangeable manager. “What is the motivation and purpose of men like this?” he would say with contempt. “Do they even know what they do anymore? What do they produce?” All they knew about was numbers, not product. All they thought about was maximum profit, not excellence of product. The numbers, of course, he added, always lied. “They know all the visible numbers, but the visible numbers tell them so little. They know nothing of the invisible numbers. Who can put a price on a satisfied customer, and who can figure out the cost of a dissatisfied customer?” One of Deming’s American disciples, Ron Moen, said it was as if Deming saw work as a kind of zen experience. “What he is really asking,” Moen pointed out, “is ‘What is the purpose of life, and what is the purpose of work? Why are you doing this? Who truly benefits from what you do other than yourself?’ Those are not questions that many people in American business want to answer anymore.”