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KILN CONNECTION: A Sinking Ship?

February 1, 2003
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This morning, another colleague called me to let me know that he had been laid off. This marks the 10th such call I have received in the past 12 months. Our economy is going through a rough patch, and the ceramic sector seems to be suffering more than other industries. Many plants—indeed whole ceramic sectors—seem destined to disappear from the U.S. completely. Wherever you look—tile, industrial ceramics, various whitewares, magnetic materials—there seems to be an exodus from our shores to the Far East.

Is the reason for plant closures as simple as the fact that the lower labor costs and minimal environmental compliance that some of our overseas competitors enjoy provides them with an insurmountable cost advantage? Or are we just plain losing our abilities to overcome challenges? Whatever happened to improving productivity through innovation?

Layoff Crisis

Jason Jennings, author of Less is More: How Great Companies Use Productivity as Competitive Tool in Business,1 has studied hundreds of successful firms in all sectors, including manufacturing. His observations are rooted in research, and his book should be required reading for anyone in business. According to Jennings, the most productive companies employ a lot of practices that are contrary to conventional wisdom. For example, some of the most productive companies in the U.S. today actually have a policy of not using layoffs in times of economic downturn! A few of his observations address the damaging ramifications of layoffs:

• “When workers see layoffs happening around them, they become preoccupied with their own personal finances and security.” Why would an employee “care about delivering exemplary performance when his or her head might be the next one lopped off?”

• “As workers are laid off, institutional memory becomes lost forever.”

• “Because they’re afraid they might be the next in line, valuable workers begin seeking more stable environments and flee uncertain or insecure workplaces, leaving the business staffed with ... misfits unable to find better or more secure jobs elsewhere.”

Or, as Henry Singleton put it back in 1968, “People are motivated by emotional drives of various sorts. When you tamper with those emotions, you’re tampering with what makes a company successful.”2

Public company A, losing profitability, announces deep layoffs. The next day, the stock climbs by 10%. Is this because everyone is happy that the company is losing a portion of its most important asset? Is it because there is celebration about the company shrinkage and the probability of even worse times ahead? Or is it because they haven’t looked beyond the next quarter to even consider the cost of rehiring people, training them and regaining productivity? Can we really be that shortsighted?

No Frills Manufacturing?

I travel approximately 45 weeks a year. If my retirement fund were as large as my frequent flyer account, I would be writing this column from my own private island. Flying home last week on a “no frills” airline—a profitable one—I was trying to figure out what a “no frills” airline actually is. Does it mean that you don’t get a meal during your flight? No, it can’t be that. I haven’t had a meal on any flight of less than four hours’ duration on any U.S. airline. Could it mean that the airline has a poor on-time record? Nope. The airline I was traveling normally has a better on-time record than the majors. What about the condition of the planes? No, it’s not that either. The cheap seats actually seem better, cleaner and newer than the big airlines. Safety? No again. The airline I was flying has the best safety record in the business.

In fact, the only thing that I could come up with is that the “no frills” airlines seem to do a better job than the major airlines, with more attractive airplanes, well trained and courteous employees, and attractive pricing that seems to make sense. They don’t pay their employees high incomes, but the employees are earning money through stock appreciation as a part of their compensation.

Winding your way through the fare schedules of the large airlines tends to make you wonder if they are trying to pull the wool over your eyes. Alternatively, if you go to the websites of Southwest, Air Tran or Jet Blue, all of the flights, fares and rules are as plain as day. What a concept! No wonder the airline industry is collectively hemorrhaging—they treat their customers like servants, use bait and switch advertising and pricing, and do all of these things with a surly attitude.

The “no frills” airlines are successful because they offer economical transportation at reasonable prices. The major airlines are selling the illusion of a high-quality travel experience (which is also no frills), using sleight of hand pricing. Our industry can learn from the airlines. Know what you are selling. If you make a commodity product, price it right, and make the customer experience delightful.

In my visits to a wide variety of clients, I have observed a universal truth: Factories that look like they are doing well are, in fact, doing well. The plants are clean, equipment is up to date, and employees are customer oriented and work hard. These plants are prospering—despite 9/11, despite corporate fraud and despite a flagging economy.

On the other hand, factories that are run down, with tons of work in process and old equipment, are just struggling to hold on. Their employees are fearful of layoffs, and innovative thinking is sound asleep. On the kiln side, I have visited at least a dozen companies in the last year where the kilns are older than I am, fuel consumption is double the norm and losses are high. They will surely go out of business soon—and clearly, they should. They have not taken care of their physical assets—equipment—and they do not take care of their collective people assets either.

Come on, Management! What made this country great was our can-do attitude, innovative genius and plain hard work. Today, these are the exception rather than the rule, and without some drastic changes, our ability to generate wealth is going to disappear.

References:

1. Jennings, Jason, Less is More: How Great Companies Use Productivity as a Competitive Tool in Business, Portfolio, New York, N.Y., 2002.

2. Singleton, Henry, 1968, from Forbes 85th Anniversary Issue, December 2002.

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