44 Long Range Planning, Vol. 23, No. 4, pp. 44 to 57, 1990 0024-6301/9O s3.00 + .

OO
Printed in Great Britain Pergamon Press plc

Manufacturing in the
1990s Productivity, Flexibility
and Innovation
l? T. Bolwijn and T. Kumpe

The article outlines the evolution of large multinationals as a Large companies often have little freedom of choice
result of the appearance of new market demands. Companies in determining their industrial strategy. Just as in the
having to meet specific market demands, are shown to possess
1980s they were forced to simultaneously fulfil
certain characteristics, related to the market demands con-
cerned. The analysis shows that innovativeness will, in all
performance criteria of efficiency, quality and
probability, be the new market demand in the 199Os, in flexibility, so in the 1990s these companies will have
addition to the already existing ones of efficiency, quality and to translate the prevailing market factors into the
flexibility. Descriptions of ideal types illustrate the evolution of performance criteria required.
companies as they move from the Efficient Firm to the Quality
Firm on to the Flexible Firm to, finally, the Innovative Firm. The
phase model also includes the symptoms of crisis, when
moving from one phase to another. Skipping phases appears to Research Method
be difficult, if not impossible. The same holds true for moving
to the next phase, while the organization has not finished with We visited several outstanding in Eur-
the preceding phase. ope, producing We discussed
their manufacturing
in their factories,
We analysed in
market demands faced these industries in the past
Industrial strategies for multinational producers as well as in their structure
have undergone profound changes over the past
10 years. The underlying causes are to be found in
new market factors, technological developments as contribution to
and intensified competition. Changed market fac- model
tors in particular served as a guideline in determin-
ing the direction of the new strategy, while new to be relevant
technologies and socio-technical renewal deter-
mined its contents.’

It is not likely that the 1990s will bring quieter times.

On the contrary, the impact of new technologies of Large-scale Industry
will become even greater, and there will be Increasing and Managing Mass
increasing competitive pressure through a truly
common European market by 1992 and the rise of of industrialization by the
so-called ‘fast industrializing countries’ as South- pursuit increased productivity. Aspects this
Korea, Taiwan, Mexico or, perhaps, Brazil and of labour, mechanization
India. Just as is the case today, the prevailing market
factors have a major influence in determining the
industrial strategy of the 1990s.
by the
P. T. Bolwijn is at Philips International, Eindhoven and University of
Twente, and T. Kumpe is at Philips International, the Catholic
pursuit quantitative growth. Demand
University of Brabant and Zuidema Consultants. be
 Manufacturing in the 1990s-Productivity, Flexibility and Innovation 45

sold. In short, the market showed all the character- 1970s the competitive struggle changed for the third
istics of a sellers’ market. And although price was an time. In the meantime the market had turned from a
important criterion for increasing turnover, price sellers’ market into a buyers’ market in which
pressure was not great, witness the profit margins in production capacity exceeded demand. This was
the 1950s and the 1960s. These days have long since also one of the reasons for the changing market
passed. factors: the intensified international competition led
many companies to look for new opportunities by
The Rise of International Competition widening the competitive battle in order to raise
Competing under price pressure. The industrial en- profitability. Japan, in particular, started to moder-
vironment quickly changed in the 196Os, partly as a nize its product lines more often e.g. new models of
result of the preceding era of growth. The increasing cars, engines and audio/video products were put
scale of production could only be sustained by a onto the market at ever shorter intervals. Cus-
corresponding growth in turnover. Companies, tomers, confronted with a broad, often bewilder-
therefore, had to spread their wings across the world ing, array of products, reacted by becoming even
in the pursuit of larger markets. International trade more fashion-conscious.
flourished, also due to international trade agree-
ments and the founding of the EEC. Brand loyalty for many products all but disappeared
and in addition to price and quality, choice from a
A side effect of this growth in international trade wide product line with up-to-date designs increas-
flows, however, was an intensified competition on ingly became essential factors for market success.
price as companies could produce in one country Internally this translated into increasing time pres-
and sell their products throughout the world. This sure: turning out new products at a faster pace
created a hitherto unknown pressure on prices, meant shortening development process time, as well
resulting in complete industries being moved to as the time needed for engineering and pilot
low-wage countries. production runs.

Price had become an important criterion for success Simultaneously competing on price, quality and assort-
in the market. Customers could (for the first time) ment ofproducts. This brings us to today’s situation, in
select on price, comparing products made in various which cost, quality and choice have all three become
parts of the world. This drastically changed the important factors for market success. As a result,
nature of the efficiency approach. Restructuring, companies are under pressure to improve efficiency,
closing factories, transfering production to low- quality and flexibility at the same time.-
wage countries, processes of decreasing vertical
integration, are completely different matters com-
pared to the pursuit of improved working methods,
increasing economies-of-scale and vertical integ-
The Phase Model
ration, and increasing mechanizations in growth Relationships Between the Market Requirements
situations with full employment. Competing under The organizational characteristics belonging to
conditions of increasing price pressure was new. efficiency, quality and flexibility in that order,
appear to be interlinked. Companies, able to meet
Competing under quality pressure. Competition high quality requirements can be shown to ‘natur-
changed again at the end of the 1960s. Increasingly ally’ develop from organizations, striving for
affluent customers started to react against the efficiency. Similarly, flexible organizations spring
nuisance of frequent breakdowns and costly, often forth from quality organizations.
time-consuming, repairs of the poor products
delivered by many a company. Customers started to Each new set of characteristics is an extension of the
select more critically and paid more attention to old one. The development of market requirements
product quality. This was enhanced by Japanese price, quality and assortment, corresponding to the
industry which made a clear-cut strategic choice to characteristics efficiency, quality and flexibility can
bring out high quality, but sharply priced products. therefore be seen as an evolution where each new
Quality now became an important factor for market requirement follows from its predecessor
market success, in addition to price: companies had and enhances it.
to compete on price and quality at the same time3
When the price of a product became all important as
The simultaneous use of price and quality as a a result of intensified international competition,
competitive weapon was something new. Quality companies logically had to become extremely
changed from a bottom-up, specialized approach efficient.
based on more discipline and on testing and
inspection, to a top-down approach directed at The subsequent market requirement of quality
quality of the company as a whole. We will return arises now under these circumstances as a result of
to this later. deliberate attempts by companies to widen the field
of competition so as to ease price pressure and
Competing underjexibilitypressure. At the end of the improve market position. This choice for quality
46 Long Range Planning Vol. 23 August 1990

(initiated by Japanese industry) stemmed not only quickly introduce improved products and offer a
from the idea that customers wanted good quality wide range of products.
and were willing to pay for it. For years Deming
and Juran had been hammering at the point that In short, the large multinationals will have mastered
non-quality costs a lot of money, that quality the arts of quality and flexibility by then. Conse-
improvement is ultimately the way to increased quently, companies will be forced to really make
efficiency. Quality can therefore be seen as an their products stand out in the market. This can be
extension of efficiency, encompassing and reinforc- done in various ways, for example by products with
ing it. a clearly superior performance (the Volkswagen
Beetle in the 196Os), or products with an individual
History repeats itself with the appearance of the new style and price (Swatch watch), or completely new
market requirement of wide ranges of up-to-date products (CD players in the 1980s flat screen CTV’s
products. Flexibility, the ability needed to produce in the 199Os), or products opening up new markets
such product ranges, can only be achieved (at (Walkman), or product-service combinations (large
reasonable costs) if processes are controlled, if co- turn-key projects).
ordinated actions are taken, if components and
semi-finished goods are of excellent quality with no New technologies will often play a key role. The
rejects, returned lots or repairs wasting time and past decade has taught us the amazing possibilities
money; in short, if and when ef?iciency and in new technologies offer for improving the perform-
particular quality are properly under control. ance of existing products and supplying even
Flexibility is thus an extension of efficiency and completely new products. Fibre-optic cables,
quality. The last two characteristics are a precondi- micro-electronics, industrial ceramics, micro lasers,
tion for the first one. Moreover, in the long term highly accurate combined plastic-metal products
flexibility supports and enhances efficiency and are just a few examples. The use of new technologies
quality. Flexibility is profitable since it leads to in products accounts for much of the recent
decimated inventories, less space needed, and productivity increases. Other productivity im-
simpler logistics; it improves quality through faster provements stem from advances in process-techno-
feedback loops, less inventories and improved logies, such as flexible manufacturing systems
overview of products and processes. Flexibility is all (FMS’s), or automation equipment for placing
the more profitable as it enables companies to very surface mounted devices (SMD’s).
quickly introduce new technologies-eg. IC’s-
leading to high quality products with improved The past decade also taught us, that technological
price/performance ratios.7’8 know-how does not ensure success. Revivifying
entrepreneurship, encompassing hands-on manage-
Companies now simultaneously compete on three ment, open communication, promoting and accept-
fronts: the price of their products, their quality and ing new ideas, is an absolute necessity for a timely
the product line. Although these developments implementation of renewal. It calls, above all, for
originate from industry, customer wishes remain the courage to put existing procedures, conventions
very important and determine to a large extent the and strategies up for discussion. So it is not just a
speed and SUCCESS of the changes. Each new market matter of technological expertise, although techno-
requirement is an extension of the previous ones, in logies do frequently play a major role.
the sense that the corresponding organizational
characteristics are an extension of each other. Thus, The requirement of the 1990s that products clearly
existing market requirements do not disappear stand out from those of competitors will be called
when new ones come up, making the competitive uniqueness. The corresponding internal character-
game increasingly complex. istics, needed to fulfil that requirement, we will call
innovative ability, or innovativeness. The ability for
Now that the process has taken place this way, its renewal under time pressure will give innovative-
evolution can be analysed and understood in ness a completely new character, compared to the
retrospect. Based upon the insights obtained there- past.
by, predictions can be made on which developments
will, in all probability, take place in the 1990s. It thus seems highly likely that innovative ability
will be the new market requirement of the 1990s. If
The Future Market Requirement our previous arguments are correct, this require-
Following through on our line of reasoning, the ment is an extension from the previous ones i.e.
market requirement of the 1990s should now efficiency, quality and flexibility. Also, flexibility in
already be discernable as an extension of the existing particular should be mastered before innovative
ones; moreover it should lead to a further widening ability can be improved. This is true, for innovation
of the competitive battle. We may take it for always involves renewal, and renewal always
granted that in the 1990s the quality of products includes change. Flexibility means the ability to
supplied by large companies, will be good. Poor change quickly, innovativeness means the ability to
products will then no longer exist. We can also renew quickly and thus more than change. It is quite
assume that these companies by then will be able to possible to be flexible without being innovative, but
 Manufacturing in the 199Os- -Productivity, Flexibility and Innovation 47

the reverse is not true: you cannot be innovative adequately responding to the market requirement
without being flexible. which has appeared most recently. The develop-
ments lead to the following model depicting the
The former market requirements are not just a evolution of large-scale industry (see Figure 2).
precondition for becoming innovative. As before,
the new requirement reinforces the old ones: The above model shows the different phases of large
innovativeness reinforces efficiency, quality and companies from approximately 1960 until the
flexibility. For it improves efficiency through better 199Os, in relation to changes in the environment.
price/performance ratios of products, increases
overall productivity (especially of white collar Not only the characteristics of companies in a
workers), it leads to improved quality and being certain phase are interesting, but also the transition
able to more quickly capitalize new ideas enhances processes between the different phases. Generally
flexibility. speaking, transitions pass through the following
stages:
Summing up, the market requirements and per-
(a) Denial of the new market demand. Extra efforts
formance criteria show an evolution in time, as
are being put into playing the old game. (It is not
given in Figure 1. true. Give them more of the same.)
The Phase Model (b) The new market demand is seen as a problem to
The evolution of industrial performance criteria and be solved. (We have got a problem. Fix it boys!)
corresponding market requirements described, are
(c) The new market demand is seen as an opportu-
not only true for a few exceptional organizations,
nity to be explcited in the competitive battle.
but they hold fairly generally for multinational
(This is great. Let us do it!)
producers of high volume and mass products. All
these companies have passed through various stages
Over the past years we have been able to see these
of the same development.
transitions clearly in various industrial companies.
As shown, companies having to fulfil specific
performance criteria possess specific performance Of course, not all companies react with the same
criteria and possess specific characteristics. Table 1 swiftness to a new, upcoming market demand.
outlines the developments. Delay times vary. Also, new market demands do
not emerge for all industrial sectors or product/mar-
The table shows that during each period companies ket combinations at the same time. So not all parts of
are mainly occupied with the market requirement a company will be in the same phase of our model.
which emerged most recently. The periods can be
seen as different phases over time. During each phase The following section will describe the ideal
successful companies grow mainly by quickly and characteristics of companies during each phase.

Market Performance
60 70 80 90
Requirements Criteria

Price

Quality

Uniqueness /m lnnovativeness

Figure 1. Evolution of market requirements and performance criteria for large manufacturing industry
48 Long Range Planning Vol. 23 August 1990

Table 1. Market requirements, performance criteria and idcal types of firms in the
period 1960-2000

Market requirements Performance criteria Firm (ideal type)

1960 Price Efficiency The efficient firm

1970 Price, quality Efficiency+quality The quality firm
1980 Price, quality, product line Efficiency+quality+flexibility The flexible firm
1990 Price, quality product line, Efficiency+quality+flexibility+ The innovative firm
uniqueness innovative ability

z The Innovative Firm

2L
E
s
The Flexible Firm
g
z

g
0

The Efficient Fin

t

Figure 2. Evolution of high-volume manufacturing

In reality, companies or parts of companies will ideal types exist of the Efficient Firm, the Quality
never show the ‘pure’ characteristics of one phase. Firm, the Flexible Firm and the Innovative Firm.
The efficient firm or the flexible firm do not exist as Indeed, using other premises leads to other ideal
such. Reality is therefore multiform. The hypo- types. We described our premises with regard to
thetical companies are described to obtain a clear- markets, technology and competition in the intro-
cut picture of the characteristics of the various duction. Concerning people and organization, WC
phases. believe that people form the key clcmcnt in
effectively exploiting the possibilities offered by
This gives an insight into where the main emphasis new technologies. This more and more rules out
should be placed for each phase and what the success force as a means of achieving the required improve-
factors are for each phase. Moreover, it indicates ment, change and renewal which arc at the core of
what the transitions to the subsequent phase mean. the Quality Firm, the Flexible Firm and the
This latter point is of vital importance for the Innovative Firm, rcspcctively.
effective management of the transition processes. A
description of ideal types also clarifies our views on
the required structure of our companies in the The highly complex and uncertain environment
future, which in turn is vital for developing and leads to the search for ways to reduce risks and calls
implementing an effective industrial strategy for the for competence overriding hierarchy. But this must
long term. not lead to an approach in which organizations are
seen as machines, where everything is program-
One should, however, be aware that in theory more mable and decision making is completely rational.
 Manufacturing in the 1990s-Productivity, Flexibility and Innovation 49

The Four Phases and Their the efficiency battle. On the contrary, their higher-
quality products conquer ever larger market shares.
Transitions
The Eficient Firm
Midway through the 1970s almost all efficient firms
All efforts are directed at reducing costs in these recognize they have a quality problem. And, as with
companies: make it cheaper. The efficient firm every problem, this can be solved in the scientific
produces a narrow range of products, tuned as it is management way: responsibility for the problem is
towards the mass production of standard goods. It allocated to the experts designated, the quality
delivers competitively priced products of-in department: ‘Fix it, boys.’ Since everybody ‘knows’
almost all cases-substandard quality, when meas- that quality costs money-you cannot have all the
ured to present-day quality levels. Organizational frills without the expense-optimum quality levels
design is based on the creation of simple, repetitive are calculated by comparing quality costs to benefits
tasks, deemed necessary for the production of fairly as reduced waste and less repair and service costs.
complex products using cheap labour. New techno- Quality campaigns are started, mostly in the form of
logies develop at a pace yielding ample time for tightened discipline, more rules, procedures, testing
R & D departments to devise new generations of and checking. The results are clear: the quality of
products ‘at leisure’. products delivered improves considerably, but at
high cost. On top of that, it becomes clear that any
The efficient firm separates line from staff, operation slackening of attention makes the quality levels slip.
from control, planning from execution and indi- Quality is not really under control.
vidual jobs are split up to yield repetitive tasks. The
aim is to run down the learning curve as fast as you Slowly but surely it dawns upon western industry
can, both by the separation ofjobs and by increasing that quality should be seen as a powerful means of
scale. Within the growing organization, there is a improving competitive strength. The quality threat
mushrooming of ever more specialized staff func- turns into the quality challenge, to be met by all in
tions. the organization. The revival ofJaguar in the U.K.,
based largely upon a rigorous quality campaign, is a
Thus, growth is accompanied by, and made possible notable illustration of the quality message.
through, horizontal and vertical differentiation. The
resulting complex organization is controlled effi- ‘Do it right the first time’ is the new adage.
ciently by a multitude of rules, procedures and Embedded into it is the recognition that all activities
regulations. Managing is mainly planning and are part of a larger entity. All employees arc, at the
control. Nothing is left to chance and unforeseen same time, customer as well as supplier. Top-down
events seldom, if ever, occur. The organization quality campaigns are started, aimed at improving
resembles a well-oiled, smoothly running machine. the quality of everybody’s work. Quality as well as
quantity counts when assessing people’s jobs. It is
found that the organization can and must crcatc
The Transition to Quality specific conditions, necessary if people arc to
At the end of the 1960s the quality of products continuously improve the quality of their work.
becomes increasingly important. The Japanese
industry picks up the message of Deming and Juran. Competence is a precondition for doing things
Japanese audio/video products, for instance, con- right. Employees who, for whatever reason, are not
quer the world not by means of lower prices, but by suited to their task cannot raise the quality of their
offering superior quality, at first noticed by such work to the required zero defects level.
large customers as rental companies and hotel
chains. Quality of management is particularly at issue hem,
especially concerning professional expertise and
The efficient firms at first react with downright leadership, without the hierarchical relationships
denials : ‘customers shop for bargains, not for being affected in the process. The top-down quality
quality’. They simply cannot believe it is (also) approach, often known by names as Total Quality
quality customers are after. So the efficient firms Control or Company-Wide Quality Improvcmcnt,
react to this new competition by intensifying the ultimately leads to a metamorphosis of the efficient
price war, the pursuit of efficiency is given new life. firm, turning it into the quality firm.

Appropriate measures are taken cverywhcrc to The Quality Firm

neutralize the new threat: more efficient designs in All efforts are directed at the pursuit of quality as
terms of factory costs, overhead value analyses to well as recognizing the still necessary efficiency
reduce overheads, drives to rev up the assembly improvements.
lines, purchasing campaigns to obtain cheaper
supplies etc. These campaigns are successful insofar Quality is recognized as a strategic issue, for which
as costs arc reduced and efficiency is raised signifi- top management’s involvement and commitment
cantly. But market shares do not increase, neither do are necessary. The whole of the company is
profit margins. The new competitors are not losing involved in a long-term process of continuous
50 Long Range Planning Vol. 23 August 1990

improvement, encompassing products and pro- All this results in campaigns to limit product
cesses, top management and factory workers. It is diversity. These campaigns receive an extra impulse
results that count, of course, and so concrete quality as analyses show that a sizeable number of products
plans exist at all levels of the organization. Every- only account for a small proportion of sales and
body is convinced there is money to be made profits. On top of that, customer tastes do not seem
through quality. Doing things right the first time is to differ very much from each other, one and the
the best and cheapest way to run a business. same product can be sold successfully throughout
the world to the global customer. Put differently:
The many changes necessary to achieve this goal we do not need all this variety, all that customers
amount to nothing less than a cultural shock for the want are low-priced quality products. So give them
efficient firm. Close co-ordination exists between less choice, but pay even more attention to quality
product development and engineering, as well as and price.
between the technical and commercial sectors.
Customer orientation, one of the specific character- The restriction of product diversity does result in
istics of quality firms, is also based upon greatly improved efficiency, as many products are found to
improved information feedback systems, system- add more to costs than to profits. Profit margins
atically collecting data from such varied sources as scarcely increase, however, prevented by the exist-
factories, competitors and customers. Flawless pro- ing over-capacity in total world production. More-
ducts through manufacturing perfection is at the over, products having a large market share need a
heart of the firm. Design for manufacturing and wide assortment of models for so-called flank
building in quality right from the start of develop- protection. There is also increasing evidence that the
ment, ensure a minimum of engineering changes global customer does not exist, that markets are to
and a maximum of manufacturing quality. be viewed as consisting of many niches. Finally,
customer tastes keep changing in a fickle, unpredic-
Within production, the all too well-known hectic table pattern.
pace of the efficiency period has given way to an
efficient, but not too fast, smoothly running process, So, it turns out to be an impossible task to stick to a
enabling people to inspect and test their work. restricted product line, pressures to react to ever
more fragmented markets are simply too high.

Dedication and precision, so necessary for achieving More and more analyses show the lack of flexibility
perfection, calls for motivated employees, ruling of the primary process being a problem. In some
out non-functional hierarchical differences and cases, for instance, reducing inventories-as part of
letting businesslike actions prevail over politics. logistic campaigns-leads to considerable loss of
There is a spirit of co-operation, in which people are sales as products in high demand are sold out and
assessed on results and much attention is paid to cannot be rcplcnished in time, while at the same
horizontal and vertical communication. time unduly large stocks exist of products not selling
well. Also, long manufacturing lead times with the
Negative sanctions have largely given way to associated high inventories seriously hinder the
positive ones, getting people to really put their necessary quality improvements and are costly.
hearts into their work. The spirit of quality which Development processes taking too long also have
permeates the firm, also extends to its suppliers. As increasingly unfavourable effects: the shortening
for customers, ‘The customer is always right’ simply commercial life of products means that delays in
is not up for discussion- any more. So the prime introducing new products cause profits to nosedive.
parking spaces are for customers, and satisfying a
customer is really more important than pleasing the In short, the lack of flexibility is seen as a problem.
boss. This is all the more so as conviction mounts that
profit margins will remain low-due to
The Transition to Flexibility overcapacity-and improved profitability will have
In the mid-1970s a trend emerges towards signifi- to come from increased capital turnover rates. The
cantly raising the variety of products, together with solution is found in promoting flexibility by
a reduction of their commercial life cycles. People minimizing resetting times, setting up continuous
are more fashion-conscious, faddish young cus- flow productions with synchronized cycle times,
tomers demand up-to-date products incorporating introducing vastly improved product designs incor-
the latest gadgets-e.g. Dolby C or dual cassette porating far fewer components etc. Development
decks. However, at the beginning of the 1980s this lead times are also analysed; parallel development,
trend is seriously being questioned. Product variety CAD equipment, project management, better co-
apparently has got out ofhand, leading to significant ordination between development and production
inefficiencies: factories are strained by having to are all used to speed up development processes.
produce too many models, logistic costs are on the
rise, finished goods stocks are too high, and The results are truly impressive. Within manufac-
dumping obsolete models is a costly affair, driving turing, it is found that throughput times can be
prices downward. decimated, with proportional decreases in inventor-
 Manufacturing in the 199Os-Productivity, Flexibility and Innovation 51

ies and space required. The associated fast feedback flexible firm offers a wide and varied assortment of
systems also greatly improve quality. Similar effects products, suiting the individualization trend of the
can be seen in development processes. But gradually affluent clientele. As said before, increased competi-
it turns out that further improvements in flexibility tion under circumstances of stagnating economies
involve more than methods and techniques as it with the associated overcapacity leaves the Flexible
demands a completely different way of ‘looking’ at Firm no alternative. The firm has a strong external
the organization. This shows, for instance, in the orientation, keeping in close contacts with external
changes necessary with regard to intercompany developments in such areas as technologies, com-
networks, customer-supplier relationships and the petition and markets.
subject of vertical integration.
The organizational design is based upon the creation
Regarding customer-supplier relationships, it is of fast feedback loops, enabling processes to quickly
found that the introduction of continuous flow react to changes, while retaining their reliability.
production in assembly results in similar require- The functional organization of the former efficient
ments to be met by the parts manufacturers. Put and quality firms has largely given way to product
differently, flexible assembly in combination with oriented organizations, consisting of relatively auto-
inflexible suppliers merely leads to shifting stocks nomous product-market combinations, business
away from the assembler to the suppliers. Because units, in which all primary and directly supporting
the production methods of the suppliers should be functions are present. Communication lines are
tuned to the requirements of the customer, lasting therefore short, the number of hierarchical levels is
and intensive customer-supplier relationships are limited and central staff groups are kept to a
found to be necessary which are no longer based minimum.
simply on price and quality. The short development
throughput times call for better communication and Short manufacturing throughput times are achieved
co-operation all along the product line from by continuous flow production of very small
components to final assembly. batches using, among others, synchronized cycle
times and short resetting times. Both dedicated and
While there is a trend towards buying more and mixed-model production lines are used, depending
more standard components from outside suppliers, upon the turnover of the various models produced.
high-tech components are increasingly seen as being The infamous logistic problems have been solved by
of strategic value, necessary to be produced in house. now and goods flows are under control.
As such, a high degree of vertical integration is
deemed necessary for having technological leader- Most manual work is carried out in groups,
ship. employing multi-skilled employees, responsible for
day-to-day operations. The inflexible mechaniza-
In order to be able to capitalize on flexibility, a top- tions of the past have given way to flexible, often
down approach to flexibility is needed Such an computer-aided, automation.
approach opens the way to making flexibility
profitable as the company becomes a market leader. Reducing the number of parts and components,
And in the hotly contended markets, with products designing families of products using standardized
having very short commercial lives indeed, there is subassemblies and the introduction of CAD/CAM
in fact little future for market followers. A broad, equipment all helped in speeding up the introduc-
up-to-date product line is now used as a competitive tion of new products.
weapon; with corresponding short delivery times
and the ability to cater to the specific requirements At all levels extensive use is made of temporary
of large customers. groups, such as task forces and problem-solving
teams, to deal with unforeseen events. This contri-
In the 1980s most industries have dramatically butes to a climate within which changes are
increased their assortment. In the U.S. auto branch, regarded as a challenge.
for instance, there are now more than 350 different
models on sale, 50 per cent more than in 1984 and The Transition to Innovativeness
today’s choice in cameras, audio/video products or The ever decreasing commercial life cycle of
motorcycles is simply bewildering (The Economist, 1 products poses a serious problem as the costs of the
July 1989). associated necessary technological innovations are
rising steeply, often exceeding the financial
Companies are growing into the flexible firm. resources of individual firms. Sharing costs is of
course a natural solution, leading to a mushrooming
The Flexible Firm of co-operative networks in research and innovation
In addition to cost reduction and quality improve- projects. Efforts to improve R & D efficiency are
ment, efforts are directed at increasing speed: also intensified.
minimize the time needed from ‘ore to customer
store’. This also holds true for developing and But the effects of more innovation involve more
introducing new generations of products. The than just higher R & D costs. The constant stream
52 Long Range Planning Vol. 23 August 1990

of new products sometimes bewilders customers, In short, in order to be able to use innovation as a
inducing a cautious wait-and-see attitude negatively competitive weapon-to be more innovative than
affecting sales. Furthermore, new products may call your competitors-a top-down approach is found
for considerable changes in related areas: high to be necessary, involving mainly:
definition television sets, for instance, require
* accelerating processes of renewal;
modified TV transmission stations. Working out
the necessary new TV standards and modifying the * creating an innovative climate;
existing transmitters is a complex, time-consuming
72 being able to closely manage creativity.
process. Introducing new products might also
conflict with existing products just reaching the
Mastering these processes changes the company into
cash-cow stage, thereby causing considerable prob-
the innovative firm, of which many characteristics
lems with regard to profitability. Finally, innova-
are described in the literature.
tive products, requiring new or drastically changed
production processes, can mean considerable desin-
The Innovative Firm
vestments in existing equipment.
In describing the characteristics of the innovative
firm we use our own ideas as well as several articles
As a result, companies attempt to play for time with
on innovation.“”
new products, or to reach agreements on the time of
introduction. In short, the new market demand is
Cost reduction, quality improvement and increas-
denied. However, there is growing evidence that-
ing flexibility are all embedded in a continuous
in the environment of structural overcapacity and
search for breakthroughs in all areas involved; with
tough competition from low-wage countries with
the ultimate goal of delivering outstanding products
an industrious highly educated population-
in terms of price, quality and performance. As such,
innovation is the key to achieving the required
the company of the 1990s produces not only a wide
increases in productivity as well as improving
and varied product range, but it is also known for its
market position.
unique products.
New materials and components, new designs, new The innovative firm is characterized by its ability to
project organizations or new intercompany co-ordinate technological developments, applicable
networks lead to great leaps forward in price/per- in separate business units. This means that the
formance ratio’s. Recent illustrations of such break- Strategic Management of Technology, as it is called,
throughs include the RISC processor design, Team is an important activity. Outwitting competitors by
Taurus development project approach, Megabit
changing the game, is an important part of the
project, continuous flow production. company’s success.
At first, innovation is promoted bottom-up by Considerable use is made of multi-disciplinary ad hoc
means of innovation teams, parallel development, teams, generally manned by experts coming from
introducing CAD and office automation equip-
all over the company. Lines of command to the
ment. In other words, the innovativeness of the
various teams change with time, depending upon
organization is improved by speeding up the
the state of the activities concerned. Integrating
innovation processes without changing the organiz-
managers exist to direct and co-ordinate the various
ation’s structure and culture.
activities both horizontally-from research through
development and engineering to production-as
There are a number of reasons why this is not
well as vertically along the product axis from
possible. Major innovations more often than not
components to end-products. The traditional line-
involve radical changes, which are resisted by the
staff distinction has lost most of its significance as
existing organization. Creativity is also often sty-
teamwork is the name of the game.
mied by the various layers of management, leading
to a drying out of the stream of new ideas. It is also
found that innovation, based upon creative ideas, The company firmly believes that-as the techno-
contains a contradiction. logical abilities of companies equalize-innovative
capacity becomes the key success factor. Thus the
On the one hand the creation of an innovative basic premise is the inseparable link between
climate requires openness, leaving scope for the technological innovation and social renewal. An
imagination, while on the other hand innovation innovative climate is created and maintained by
must be strictly controlled. Creative people arc not such measures as the employment of mavericks, the
always easy to get on with, are sometimes inclined use of an open-door policy, including the possibili-
to condemn the ideas of others. On top of that, it is ties of hierarchical bypasses and the promotion of
absolutely csscntial to be able to estimate the side diagonal communication, supplementing the hori-
effects of all sorts of innovations. Promoters of new zontal and vertical communication of the flexible
ideas seldom have an eye for the effects their plans firm. The innovative organization is a ‘learning’
will have on others. Finally, it turns out that there organization. Open relations arc maintained with
are generally more ideas than money. the outside world.
 Manufacturing in the 1990s-Productivity, Flexibility and Innovation 53

As innovation is not restricted to new technologies, It is very doubtful whether this is possible, in view of
the results of creativity are not limited to the the relationships and dependencies existing between
introduction of new products. They also lead to the various performance criteria. The observation
novel approaches in opening up new markets, that fulfilling previous criteria is a necessary pre-
setting up new organizations-e.g. skunkworks, condition for the ability to control the following
greenhouses, new ventures-designing new factor- criterion in fact rules out the possibility of skipping
ies and offices, updating industrial relations and phases.
formulating new missions.
At this moment the industrial world is in a transition
The know-how of people determines their contri- to flexibility. A number of companies are, however,
bution rather than their position. As so much value still engaged in mastering quality. This results in a
is placed upon know-how, there is a dual career number of predictable problems. It is certainly
line-one in management and a scientific on- possible to promote flexibility without quality-in
which to a large extent eliminates the tension the sense of total quality-being completely
between hierarchy and expertise. Status symbols absorbed by the company. This can be done by such
have also been eliminated to a great extent. The actions as shortening manufacturing throughput
innovative firm thus succeeds in using the know- times or setting up flow productions. More flexibi-
ledge and expertise of all its employees. This makes lity can also be achieved by improved logistics,
participation and human resource management including the elimination of intermediate ware-
more than an empty slogan. Coming up with houses. Also in the development and engineering
alternatives-a necessary ingredient for an innova- processes setting up project teams, introducing
tive organization-is encouraged through an infor- CAD equipment or using Design for Assembly can
mal, open atmosphere. Strong cohesion between all lead to reduced development lead times and hence
members of the organization and much attention to increase flexibility.
superordinate goals and the mission of the company
makes for the concerted, aggressive approach that All these methods will certainly increase the
makes the company such a formidable competitor. flexibility of a company and lead to considerable
More often than not, successful innovations can be cost savings as inventory levels are slashed and the
applied in various parts of the organization, hence amount of space required-both for storage and
much time and energy is spent in spreading the manufacturing processes-is considerably reduced.
word.
However, capitalizing on flexibility by using it as a
All this does not mean that all of the company is in a competitive weapon, will be virtually impossible if
continuous state of flux. On the contrary, the the company is not enough of a quality firm.
Innovative Firm has to strike the right balance Capitalization means the company is expanding its
between renewal and stability; the same holds true product line, with faster responses to changing
for the balance between entrepreneurship and the customer rcquiremcnts and with more segmen-
tight, hands-on management of innovation. There- tation of the markets. Then it will turn out that the
fore, within the company various organizational lack of quality means that expanding product lines
forms exist alongside one another, depending upon and all those other measures have the cffcct of
the requirements of the specific activities concerned. increasing costs. Such cost increases may show up
anywhere, simply because the lack of quality can
Just as not all of the organization is in a process of show up anywhere. For example, expanding pro-
innovation, not all of the company’s products are duct lines may result in sharply increasing stocks
unique. It simply puts more innovation into more because co-makership relations have not been
products, apart from producing a wide variety of introduced properly. It may also lead to a consider-
products, comparable to those of competitors. That able increase of production start-up costs as well as
keeps it one step ahead of competition. lost productive hours because of inadequate design
quality.

It may show that the reduction of commercial life

Managing the Evolution Process cycles and the expansion of product lines cannot get
off the ground because development throughput
Skipping Phases times are increased, because design for assembly is
The speed of the evolution described, is not not used, because the management decision-making
determined by individual companies, but is the processes take too long or because specifications arc
outcome of a complex entity of external events. constantly changing.
Chances are, therefore, that companies are still
engaged in mastering a certain phase, while the next In short, capitalizing on flexibility, becoming a
phase has already emerged. This may lead to a flexible firm, requires ‘Quality in all aspects of the
situation where a company tries to skip a phase, or business’. Without this level of quality, processes are
starts on the next phase while still heavily involved delayed. Compensating for those delays is difficult
in the transition from the previous phase. and expensive. Thus, companies which are not far
54 Long Range Planning Vol. 23 August 1990

enough along the path toward total quality claim The main outline is as follows:
that flexibility costs money, that (global) customers Efficient Firm : specialization and hierarchization
have the same tastes and demands all over the world.
1 1
Quality Firm : communication and co-operation
The fragmentation of markets is already under way 1 1
and companies will find that flexibility i.e. the Flexible Firm : integration and decentralization
capitalization of flexibility, will ultimately lead to 1 1
increased profitability. Of course, the concept of Innovative Firm : participation and democratization
flexibility should be handled prudently. Product
designs should be such that diversity can be built in This shows, already, that the emphasis is on
at the end of the production process. A wide structure and culture alternatively.
product line should not be constructed in such a way
that it requires a broad spectrum of very expensive Although each phase differs considerably from the
moulds or special tools. Designers, developers and previous ones, the strengths developed in each phase
engineers should be closely linked with the produc- not only are retained during the evolutionary
tion process. That, of course, is again a typical process, but newly acquired capabilities contain the
characteristic of total quality. previous ones and reinforce them. The evolution
can therefore be seen as a process of learning.
The same holds true for the necessary customer
orientation. Henry Ford’s saying: ‘They (the cus- Co-operation and communication, for example,
tomers) can have any colour as long as it is black’ is which are characteristics of the quality firm, are
often quoted as an illustration of how little retained in the flexible firm. Even more important,
customer-oriented Ford was in those days. How- the integration and decentralization of the flexible
ever, take a look at the audio equipment on offer in firm only lead to success because of the good co-
1987 and you will notice that you can have any operation and communication obtained previously.
colour, as long as it is black.
By close observation we may discover many
It is a safe bet that at the beginning of the 199Os, the achievements that overlap and reinforce one
quality of products supplied by large multinationals another, and that can be utilized as a learning effect.
will be good. By then the quality message has been We will describe that elsewhere.
brought home. It should be clear that fierce
international competition will then force companies
to distinguish their products from those of their Planning the Changes
competitors. This can be achieved by completely In the 1990s multinationals will have to simultan-
individual styling, but this has in general a very cously fulfil the requirements of efficiency, quality,
short-lived effect because successful styling is flexibility and innovation as they will bc competing
quickly copied. on four fronts: price, quality, assortment and
uniqueness of their products. Ideally speaking, the
Multinationals who want their product families to successful world-sized company will then be an
have a large share of the major world markets will innovative firm. Based upon our arguments, much
then have no option but to distinguish themselves can be said about the change processes on the way to
from their competitors by means of flexibility. They that innovative company.
offer their customers shorter delivery times, with an
increasing number of possibilities for ordering at One must be aware, however, that in reality each
short notice. They supply products in individual company is a mixture of the ideal types outlined.
styling or in styling required by specific customers. The various parts, such as business units or article
They supply a choice as large as possible with regard groups, will not all be in the same phase of our
to product line, price, design and styling. The growth model. This is because market rcquircmcnts
company that can do this has created the conditions have not evolved to the same cxtcnt or because the
for the following phase, the expansion of the processes of adjustment and change take place
innovative ability of the company. diffcrcntly.

So, skipping a phase is impossible. What can be done Identifying the phenomena belonging to the transi-
is learning by doing. The conditional relationship tion stages (denial-threat-challenge) is very useful
between efficiency, quality, flexibility and inno- in drawing up and planning the changes required.
vativeness makes it possible to utilize learning Such improvement plans should include indentifi-
effects. able actions aimed at each criterion: efficiency,
quality, flexibility and innovation scparatcly, taking
A Process of Learning into account the relative importance of each
There is a certain degree of logic in the evolution. criterion in time. The evolution in time for the
Organizations can only achieve the characteristics various criteria and the realization that skipping
belonging to a certain phase once they have phases is next to impossible, yield the main
achieved the characteristics of the preceeding phases. instruments for co-ordination of the various plans.
 Manufacturing in the 1990s-Productivity, Flexibility and Innovation 55

Maximum use should be made of the learning ized form are structures of today, while adhocracy is
effects. the structure of tomorrow. The latter must be
innovative and, according to Mintzberg, is typically
It needs no explanation that management plays a young.
pivotal role on the way towards the innovative firm.
Exploring the external developments underlying Our efficient firm is identical to Mintzberg’s
the speed and extent of the moves from efficiency to machine bureaucracy, while the innovative firm is
quality, on to flexibility and finally, innovation closely related to adhocracy. Our quality firm and
serves as an important tool of management here. flexible firm can be regarded as the stage after
Doing this i.e. analysing the basics of both the machine bureaucracy and the stage before adhoc-
internal as well as the external changes going on, an racy, respectively. New elements of our approach
increase of uncertainty, complexity, interdepen- are the sequential development of market require-
dancy and individualization is revealed. Each of ments, the crucial role they play in determining a
these makes for specific demands being placed on company’s success, and the strong interrelations
management. The results of this analysis will be between the performance criteria.
published elsewhere.
The efficient firm and the quality firm are both
bureaucratic organizations, whereas this is not true
of the flexible firm and the innovative firm. This
Relationships with Other Models distinction is described in detail by Burns and
In the literature, various growth models and StalkerY in terms of mechanistic and organic
development models are described. They differ systems. They show that managing innovations
from our model on several points. requires organic systems.

Greine? describes the growth phases of a company, Toffleti5 describes a non-bureaurcratic organization
without taking account of the environment. The which is very similar to our Flexible Firm. He too
company is thus implicitly conceived as closed or calls the organization of the future an adhocracy in
the environment is assumed to be stable, which is which bureaucratic hierarchies have been removed.
understandable concerning the market in the begin-
ning of the 1970s. Greiner also describes the Portetih outlines three possible strategies from which
transition phenomena between the phase transi- companies have to choose in order to stand out from
tions; he calls these crises. their competitors i.e. pricing, differentiation and
focusing. Pricing means a strategy of cost cutting,
In various contingency approaches it is stated that establishing overall cost leadership, so as to enable
structure and functioning of organizations should be companies to offer the lowest priced products in a
consistent with the environment. In the case of certain market segment. Differentiation has to do
Perrow, for example, this results in four types of with trying to offer unique products, uniqueness
organizations depending on two environmental showing in quality, design, technology, product
variables: complexity (simple vs complex) and mix or whatever other aspect possible. Customer
stability (stable vs dynamic). tastes and wishes often play a major role here.
Focusing is a strategy through which companies
Mintzberg’” draws up a typology of organizational limit their scope to a certain market segment or to a
structures and also establishes links with the en- narrow product range. Within that scope, a strategy
vironment in the above terms. The configurations of pricing or differentiation is followed.
are built up by describing in particular the most
important structural elements and co-ordination We agree with Porter that companies should stand
mechanisms. out from their competitors. We also agree on the
importance of customer demands. We differ with
This results in five ideal types i.e. simple structure, Porter, however, in our stating that several market
machine bureaucracy, divisionalized form and demands must be met simultaneously. The time
adhocracy, each with its own co-ordination mech- phasing of the market factors and their interrclation-
anism. Mintzberg describes in detail the functioning ships, are new elements.
of these types.
This holds especially for our statcmcnt that quality,
In agreement with others, Mintzberg shows that the flexibility and innovation can bc pursued in such a
size and age of an organization forms an essential way that they enhance one another and, at the same
element, leading organizations to expand from time, improve the efficiency.
simple structure into a machine bureaucracy, which
again grows into a divisionalized form, irrespective Miller’s research,*’ based upon studying hundreds of
of the environment. Based upon changes in the large and medium-sized Western companies, shows
environment, Mintzberg says that the simple struc- the relations between strategy, structure and en-
ture and the machine bureaucracy are structures of vironment. Different from Porter, he distinguishes
yesterday, the professional bureauracy and divional- four strategies which are not mutually exclusive.
56 Long Range Planning Vol. 23 August 1990

These strategies focus on costs, differentiation, (h) During the process of evolution, structural
width of product assortment (niche vs diversifica- changes take turns with cultural changes.
tion) and product innovation respectively. His
(i) As a company in each phase builds upon the
research indicates that the various strategies fol-
strengths developed in preceding phases, the
lowed often coincide with a stable (costs), hostile
evolution can be seen as a process of learning.
(differentiation), heterogeneous (assortment) or
dynamic (innovation) environment. The environ-
It is essential that management understands that
mental characteristics have some elements in com-
there are no ‘natural’ conflicts between efficiency,
mon with our market demands: efficiency, quality,
quality, flexibility and innovation. So today it is tl~t
flexibility and innovativety. Concerning structure,
a matter of choosing between positions of low-cost
Miller uses some tens of variables, divided into
producer, quality producer or flexible producer.
bureaucreatic and organic ones. The first two
Multinationals today should be flexible, low-cost
strategies of costs and differentiation correlate with
quality producers. And in the 199Os, add innovation
a bureaucratic structure, whereas the other two
as well.
strategies need an organic structure. The relation-
ships between strategy, structure and environment
Multinationals therefore face increasingly complex
as found by Miller, support our arguments. But
market demands. It is the management challenge to
Miller’s study does not contain the time sequence in
build companies that can meet these seemingly
the environmental changes. As a consequence he
contradictory demands.
does not mention a phased evolution and the
associated learning processes within organizations.

Finally, in addition to the previously mentioned Acknou&&ement--The authors thank all those who com-
contingency factors, Child2” points to the signifi- mented on earlier drafts of this article. Their suggestions and
cance of ‘political contingency’. This is used to mean improvements have been of great help. This article is based on
in particular the norms, values and skills of a presentation at the 2nd International Production Manage-
management and technical experts which determine ment Conference on Management and New Production
the choices which are made with regard ‘to the Systems at Fontainebleau in March 1989.
structure and functioning of the organization.
Mintzberg speaks in this connection of the influence
of power, fashion and culture. Our description of
ideal types in a growth model based on explicit References
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