Solution Manual - Chapter 1

Study Questions
1. The First Industrial Revolution was characterized by technological breakthroughs that allowed
substitution of capital for labor, and the steam engine, which provided cheap, potentially distributed,
power. The result was the transition from the craft guild and domestic systems to the factory
system.
The Second Industrial Revolution was characterized by innovations in mass production and mass
transportation. The result was a huge increase in scale and integration of manufacturing facilities.
The First Industrial Revolution made factory management a job. But, because of the relatively small scale,
overseers and shop foremen could manage all of the necessary functions in early factories. The large-scale
integrated manufacturing enterprises brought about by the Second Industrial Revolution became too
complex to be managed by overseers or foremen. The result was the creation of functional areas, staff
support positions, formalized accounting techniques, and much greater reliance on managing by the
numbers. A professional managerial class, which neither produces
nor owns, arose.
2. Some key impacts of Frederick W. Taylor's Scientific Managementon the practice of manufacturing
management in America were:

Recognition that management is something that can be studied and developed as a profession.

Separation of planning (i.e., by the managers) from doing (i.e., by the workers). Scientific
Management was a result of and a contributor to the adversarial relationship between management
and labor in America.

Emphasis on setting standards for how tasks should be done and at what rate.

Framed debate over what motivates workers. Although Taylor viewed money as the prime
motivator for workers, he did recognize some psychological component. His followers,
particularly Lillian Gilbreth, pursued this issue more explicitly.

3. Agriculture was automated, which meant that jobs declined but output did not (it increased). Some of
the loss of American manufacturing jobs is due to offshoring, i.e., other countries taking over
manufacturing functions, as in the case of VCR production.
Offshoring manufacturing may cause tightly linked jobs, which are often classed as service sector (e.g.,
management consulting, equipment maintenance, financial and insurance services, etc.), to go with them.
If we lose service jobs that are tightly linked to manufacturing jobs, as well as some jobs indirectly linked
to manufacturing jobs (e.g., pizza sales, home improvement services, etc.), the overall effect could be a
significant downward pressure on wages and a decline in standard of living.
4. Some signs of a decline of American manufacturing include:

Perceived inferior quality of American goods relative to some foreign goods, since at least the 1970's.

GM has dropped from 50% to 35% of the American automotive market in the past two decades, has
posted enormous losses, and has reduced its workforce from 500,000 to 250,000. Recall that Robert
MacNamara said what's good for GM is good for the country.

IBM has gone from being the bluest of the blue chips with a defacto policy of never laying people off
to posting billion dollar losses and downsizing its workforce from 400,000 to 200,000.

Productivity growth in U.S. manufacturing has not kept pace with that in Japan, Germany, and
elsewhere in recent years.

The fraction of U.S. patents granted to foreigners has doubled since 1970.

Loss of some high visibility markets. For instance, there is no American manufacturer of VCR's.
Zenith was the last American producer of consumer electronics (although a significant amount of their
manufacturing is done in Mexico) was recently bought out by foreigners.

5. Counter-arguments for each of the following usual answers as to why American manufacturing is in
decline are:

Growth of government regulation, taxes, etc.some economies (e.g., Sweeden) have much higher
taxation and heavier regulation than the U.S.

Deterioration in the American work ethic combined with an adversarial relationship between labor
and management. Labor/manager relations were even worse during the first half of the twentieth
century when American manufacturing was acknowledged as the world leader. Americans work
longer hours and more days than many of their European (e.g., German, French) counterparts.

Interruptions in supply and price increases in energy since first OPEC oil shockJapan is much
more dependent on foreign oil than is the United States.

Massive influx of new people into workforceteenagers, women, and minority groupswho had to
be conditioned and trained. America absorbed a much greater influx of foreigners into its
manufacturing sector during the 1880-1920 glory period.

Advent of unusually high capital costs caused by high inflation. European inflation (except
Germanys) has generally been higher than that in the United States.

If it is none of the above, what else is left? Bad management!

6. Some post WWII management trends that may have contributed to the decline of American
manufacturing include:

Finance View: encouraged myopic focus on short-term returns.

Marketing View: fostered conservative view of product development (i.e., by relying too heavily
on the numbers) and diminished use of manufacturing as a strategic weapon.

Fast Track Manager System: diluted experience of upper management.

Profit Center Approach: encouraged segmentation of business enterprise rather than itegration of
various functions with manufacturing to achieve business goals.

7. It was unimportant for a manager to be terribly concerned with production details in the 1950's and early 60's because, in the wake of WWII, American manufacturing was the only game in town. No other
country could match us on a cost basis because we had an enormous domestic market and huge economies
of scale, while their plants were bombed out rubble. Saving a few pennies in cost efficiency due to

better production was not a major concern. The major challenges during this period were Finance, to fuel
growth, and Marketing, to open up huge potential markets (e.g., convince American housewives of the
efficacy and desirability of dishwashers).
Business schools responded by making Finance and Marketing cornerstones of their programs. Companies
responded by promoting people from Finance and Marketing to upper management positions, thereby
establishing these as the areas with the most promise and making these views predominant in corporate
planning.
8. Pros of a portfolio management approach to managing a manufacturing enterprise are:

it encourages use of measurable performance criteria (e.g., ROI)

it encourages balancing activities with respect to risk (e.g., diversifying the product lines to avoid
being catostrophically sensitive to conditions in a single market).

Cons of this approach are:

It can pit parts of the firm against one another (e.g., as each tries to achieve individual numbers
rather than supporting overall corporate performance).

It neglects the fact that performance of a manufacturing enterprise, unlike that of an externally
purchased financial instrument, is subject to internal control. Too much effort spent trying to
massage ROI by buying and selling companies can sap needed efforts in making better products
and selling them profitably.

9. The need for the fast track manager in the 1950's and 1960's was caused by the rapid growth following
WWII that left many firms with needs for more managers than they could develop via the traditional career
paths. Unfortunately, fast track managers may have skipped rotations through important parts of the
enterprise (e.g., the shop floor?). By being moved to corporate staff too quickly, they may have failed to
develop an appreciation for key non-financial facets of the business.
10. A professional manager (i.e., a manager who is allegedly capable of managing any business) and a
manager of a purely financial portfolio both are accustomed to looking at businesses in general financial
terms, the financial analyst to evaluate stocks, the professional manager to evaluate performance. Both
view ``business as business,'' the financial analyst buying stocks from any sector, the professional manager
managing any business.
The professional manager is unlikely to appreciate the deeper non-financial determinants of a business's
success and therefore may be prone to a conservative maintenance approach rather than a technologically
innovative leadership approach.
11. A modern professional manager in America shares a desire for freedom, individualism, and adventure
with the early settlers of this country. This may have led to a tendency to focus on the big glamorous
aspects of business (e.g., leveraged buyouts) at the expense of a hard-headed attention to important details.
12. Managers may pursue imitative designs even in circumstances where it can be documented that
innovative designs have had markedly better long term performance, because imitation is safer. If you are
evaluated on short-term criteria, then a high probability of a small success is better than a lower
probability of a big success (with a significant probability of a high-visibility failure).
13. Some policies that might discourage the the over-reliance by American manufacturing on short-term
financial measures include:

Greater use of physical measures (throughput, WIP, quality indices, etc.) to make evaluations at
the plant level.

Management bonuses that are carefully tied to long-term performance of the firm.

More government emphasis on commercially relevant R&D.

Alterations in stock market regulations that would require more investors to hold stock for the
long-term.

14. The essential skill a manufacturing manager requires to be able to appreciate the big picture and still
pay attention to important details without becoming completely overwhelmed is good intuition. A manager
with sound intuition can focus on the areas that offer leverage without being distracted by the myriad of
details that do not.
15. Possibilities for the next important dimension of global competition are:

Flexibility (e.g., mass customization).

Customer service after the sale.

De-manufacturing (i.e., taking back products for recycling, and maybe upgrading, purposes).

Green manufacturing (i.e., environmentally benign products/processes)?

Who knows? But, tomorrow's success stories are figuring this out today.