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Title: Profit Beyond Measure
Author(s):H. Thomas Johnson & Anders Bröms. Publisher: Simon & Schuster, 2000, 230 pages. Manageris 94a. Stock market pressure has encouraged many companies to adopt management by financial results, particularly since setting stretch objectives pushes employees to perform. Yet, Profit Beyond Measure reveals that this approach often generates hidden costs and can be demoralizing. The authors instead recommend management by means, an approach used by Toyota and Scania. They show how focusing on operational improvement produces better long-term results. They also offer the keys to the successful implementation of this management method. Main subject [Mobilizing
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The authors of this book advocate a management philosophy that is more harmonious than the brutal “management by results” practiced by many large companies. They begin by pointing out the advantages of “management by means,” aimed at optimizing company operations. They then develop implementation examples.
Chapter 2 summarizes the essential learnings of the book. A comparison of the principles of management by results (MBR) with management by means (MBM) is used to demonstrate the latter’s superiority over the long term.
Chapter 1 presents a striking illustration of how production processes have evolved in the automotive industry. The authors show that from the single-variant Model-T Ford, auto makers derived two different work organization concepts to produce a variety of different models at low cost. On the one hand, General Motors, Ford, and Chrysler developed a discontinuous production system and worked to optimize each individual process. Toyota, on the other hand, developed a continuous production system and worked to improve the performance of the whole.
Toyota's continuous-flow production system is described in detail in chapter 3, one of the book’s most interesting. The authors show how working at a regular pace and optimizing model changeovers gets the best out of production.
The way Scania organizes product development is described in chapter 4. Readers will find precise details concerning Scania’s systematic efforts to utilize components and modules common to different models.
Chapter 5 indicates how order-line profitability analysis can be used to improve company operations. Although no serious thought is given to the delicate question of indirect cost allocation, the approach taken is nonetheless interesting.
Finally, the last two chapters draw a parallel between management by means and organic life systems. This comparison serves as a reminder that continuous flow is more natural than discontinuity, and that nature manages to produce an infinite variety of living species from a small number of basic elements. Although these chapters provide no concrete advice, they stimulate thinking on the need for companies to operate in harmony with the ecosystem.
Critical commentary…
by Alvin P. Lehnerd,
Professor at Wharton and Northeastern University School of Business.
In the early 70’s a prestigious American consulting firm made claims that General Motors would never have less than 50% share of the North American automobile market. Their claim was that GM was so far ahead of its domestic and foreign competitors in the cost of automobile manufacture that loss of market share was not possible. Now General Motors struggles to hold their North American automobile from dropping below 28%. In the 70’s foreign automobile producers had a small, 3% share of the North American automobile market. They now enjoy about 30% of the market. What happened?
Profit Beyond Measure suggests that that “management by results” (MBR) is the source of this under-performance. The slavish pursuit of financial results frequently sets the course of long-term decline in performance and eventual demise of the enterprise. The authors present their concepts of “management by means” (MBM); suggesting that MBM is by far the more effective management philosophy.In chapters one and two, the MBR and MBM philosophies are outlined and compared. This analysis is presented in a simple manner that makes it easy for readers to grasp the differences between the two concepts. In support of their thesis, the authors cite two major manufacturers, Toyota and Scania, that have outperformed their competitors consistently for decades. Rather than focusing on financial targets, these two companies are driven by systemic learning techniques.
Chapter 3 opens with these statements, “For at least twenty years, Toyota Motor Corporation has produced the highest quality product and service in its industry, at the lowest cost. For nearly forty years Toyota has had an unbroken record of annual profits, without layoffs. Moreover, Toyota designs and markets new varieties of product faster, and at less cost, than any of its competitors. Regularly it tops the industry in productivity.” The authors proceed to present the methodologies of Toyota in a most informative and convincing manner, citing 38 supporting references.
Chapter 4 provides a rich analysis of Scania, which has been profitable in every year since 1934. This Swedish manufacturer of heavy trucks, buses, and diesel engines has embraced for many decades the principle of Modular Product Design. Modular design principles involve dividing system architecture into standardized elements and interchangeable modules.
With these two outstanding examples, the authors very neatly explore the diverse Toyota and Scania approaches. They then apply their analogies to demonstrate the folly of fanatical adherence to “management by results” (MBR) and the convincing benefits of embracing “management by means” (MBM).
The readers of Profit Beyond Measure will benefit by serious considering MBM for their own companies. However, as the authors forewarn, the journey is tough, as it requires a significant shift in the company’s “thought architecture.” Such profound changes take years of determined dedication to the principles presented.
Further readings…
- The Power of Product Platform
Marc H. Meyer, Alvin P. Lehnerd – The Free Press. (Book and Manageris Synopsis 51a) - Relevance Regained
Thomas Johnson – The Free Press. (Book and Manageris Synopsis 9b) - Lean Thinking
Banish Waste and Create Wealth in Your Corporation– James P. Womack - Daniel T. Jones – Simon & Schuster. (Book and Manageris Synopsis 49a)
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