Products versus Processes

by BILL WADDELL

 Every product has its life cycle, most of them not too terribly long.  It seems to be a human reality that not too many people are good at taking a clean sheet of paper – a completely empty space – and conjuring up something entirely new; but once someone has done that, it is easy for others to see what has been conjured up and improve on it.  So Chrysler creates the concept of the mini van and has a few years in the sun, but soon enough every other car maker takes the initial idea and makes mini vans that are better or cheaper.  On the other hand, processes to continuously improve existing products, and processes to produce them have no practical limits.  They also are much harder for competitors to discern and imitate.  The whole world knows what product is being sold, but who knows what is happening in the bowels of the factories and engineering offices to make them?

For years - decades, in fact - this basic reality was Toyota's key to success.  I can't recall a single time when the auto world or the consumers were wowed by one of Toyota's new products.  Their products were never bad, of course.  They were stylish enough and had enough new features so as to be competitive, but there were never screaming headlines from the car shows marveling at the breakthrough in car styling from Toyota.  What they did was made a steady stream of cars that were 6's or 7's on the design scale and ran them through processes that were virtually 10's on the cost, quality and delivery scale.  A Toyota may not have turned many heads when it passed by, but the price was right, and the quality and reliability were off the charts.

The business press and the politicians don't understand this because they don't don't know much about the processes it takes to make things.  They know companies primarily as a set of products.  The one with the coolest, most exciting products seems to them to be the best company.  Wall Street probably doesn't understand either, but more important, it doesn't care.  A fantastic new product can have a bottle rocket effect on profits even if it is produced via lousy processes, and Wall Street loves bottle rockets.  During Chrysler's brief mini van run, profits soared and stock prices rose dramatically.  The profits and stock prices soon returned to their dismal levels once the innovative product run was over because profits are a function of processes in the long haul – but no one on Wall Street cares about the long haul.

The pharmaceutical companies are another great example.  They are all about innovative new drugs, and use patent protection to shield them from the consequences of lousy manufacturing processes.  As a result, they lose the long term value from their products to generic manufacturers who thrive on good processes, and the big pharmas live and die (more often dying lately) with their product innovation.

This basic principle is at the heart of my criticism of Apple a few weeks back that generated the first out pouring of genuine hate mail I have received since I began writing on Evolving Excellence over six years ago. They were written by people who were passionate fans of Apple products, but not too well tuned into the so-so (at best) manufacturing and supply chain processes Apple has in place to deliver them. The Apple business model has been all about innovative products, but mediocre processes and, as a result is a business model that has been a series of spectacular bottle rockets but is not sustainable.  It comes a no big surprise to me that Samsung just passed Apple in smart phone sales. Before long someone will surpass them in pad sales – it is inevitable. It is also why I give such short shrift to the economists and politicians who are all in on the innovation band wagon.  By and large, they mean innovative products, not innovative processes, so they are urging an unsustainable business and economic model.

Of course, the best of all worlds is to do both – great products and great processes – but if a company is going to focus on one, making a line up of good products through great, innovative processes is the way to go, rather than to keep searching for the great product while paying little attention to processes.  It is very much a 'tortoise and the hare' deal – slow and steady wins the race every time - even though there are times during the race when the hare might look fantastic.