Australian manufacturing may be facing a resurgence, but it must learn from the past to face the challenges of the future. In the first of a two-part series, Jack Parr looks at the history and evolution of manufacturing leadership.
In 1990, manufacturing companies drove the world economy, yet in just three decades, service companies have come to dominate – companies with well-defined leadership principles. In this time Australian manufacturing has gone from 14% to 6% of GDP. Technological change, globalisation and political inaction were driving Australian manufacturing to near extinction.
The COVID-19 pandemic has created an opportunity for resurgence, but we cannot repeat history. Manufacturing must now be a sector that can manage the economic, environmental and social challenges of the next 30 years. Manufacturing must evolve again through new leadership, new management and new principles. It is said one must learn from the past to prepare for the future.
The Industrial Revolution of the 18th century created the mechanised manufacturing company and initiated an economic and technological transformation. It saw the rise of the owner-manager, who exploited workers of all ages in the drive for production and profit. It took over a century for Frederick Winslow Taylor to establish a new relationship between workers and management. His 1911 book ‘The Principles of Scientific Management’ has been declared one of the most influential books of the 20th century, laying out scientific methods to improve the efficiency of labour. Taylor stated: “In future it will be appreciated that our leaders must be trained right as well as born right”.
In 1916, a French mine manager, Henri Fayol, complemented Taylor’s work through his concise ‘14 Principles of Management’. The subsequent decades saw the study of worker motivation, the ‘Psychology of Work’, become the focus for productivity improvement. Elton Mayo’s famous ‘Hawthorne Experiments’ of the 1920s, demonstrated how increased attention to the worker and their environment could have a positive effect on productivity. The work of socio-psychologists like Hertzberg, McGregor, and Maslow with his famous Hierarchy of Needs, all contributed to understanding employees’ motivation to improve business performance.
The late 1960s and early 1970s saw the rise of computerisation, which increased the efficiencies of both the shop floor and office. A new generation of managers implemented ‘Modern Management’ techniques through the writings of Peter Drucker, lifting management thinking to the strategic level. Regarded as the founder of modern management, Drucker encouraged managers to think about the purpose of an organisation and define it through the Mission Statement.
Strategic Management now analysed the business in terms of goals, processes and objectives. George Doran proposed that these objectives needed to be ‘SMART’ – Specific, Measurable, Achievable, Relevant and Timely. Business was competitive and business schools recommended ancient texts like Sun Tzu’s ‘Art of War’ and Machiavelli’s ‘The Prince’ to endorse this competitiveness. In 1976, Hewlett Packard implemented the Japanese strategic tool ‘Hoshin Kanri’, prompting other organisations to implement such tools. Organisations started to focus their goals and objectives into a set of strategic principles – unique propositions covering products, people and customers.
In the 1980s, two international organisations – one Japanese, one American – built their enduring success on two unique but different sets of business principles. In Japan, over the course of 20 years, Taiichi Ohno, the pioneer of the Toyota Production System and the inspiration behind Lean Manufacturing, changed the manufacturing process from ‘scientific’ to ‘systematic’ – with standardisation and continuous improvement at its core. While this was Toyota’s specific strategy, they were surprisingly willing to share it with the world. Their reasoning lay in the core principle of continuous improvement: “By the time others get to understand and apply it, we will have moved further forward.”
Jack Welch became CEO of General Electric in 1981, having joined the company straight from university in 1960. One of his main principles was “Don’t manage – lead change before you have to!”, demonstrated by the fact that over the next 20 years, he transformed GE from a US$25bn appliance manufacturing company into a US$130bn conglomerate offering products and services. Welch also had strong principles on strategic positioning, with “If you don’t have a competitive advantage – don’t compete”. If GE were not one of the top two companies in a product sector, he pulled out.
Welch’s principles on people, however, were controversial. He believed the bottom 10% of employees each year were non-performing and should be publicly identified and fired. Welch explained that “Public hangings are teaching moments … worth a thousand CEO speeches.”
‘In Search of Excellence’ became the seminal book on leadership in the 1980s. Written by Tom Peters and Robert Waterman, it was based on distilling the performance of 43 successful US companies down to eight high-performance principles. Peters’ message was that leaders should focus on action, customers and people. He said “Management is about arranging and telling – leadership is about nurturing and enhancing”, and “Allow people to make mistakes, learn and grow”. Leadership was also based on communication “The best leaders … almost without exception and at every level are master users of stories and symbols!”
In the 1990s Rosabeth Moss Kanter prophetically questioned “Could giants learn to dance?” The answer would certainly appear to be ‘No’ if the previous giants of Australian manufacturing are to be the guide. This is not the article to debate the reasons for the decline of our manufacturing sector, but it is fair to say that a focus on minerals rather than manufacturing, a lack of government foresight, and archaic industrial relations all played a part.
The pandemic has created a new opportunity for Australian manufacturing. The industry can build a new citadel, a new light on the economic hill. But it must be founded on a new set of business principles, not repeating the past but now based on innovation, agility and co-operation. The challenge going forward is for all in manufacturing to develop, advocate and implement these principles!
Jack Parr is the Coordinator for the Vernier Foundation, a charity aimed at funding and supporting, STEM education in schools. The Foundation is the charitable arm of the Vernier Society, an organisation that for nearly 80 years has worked to support Victorian Manufacturing.