September 2010

Channel Chat

Cheaper, faster, better

By Jim Pinto

Productivity has now become a global race. It is a fierce, head-to-head competition between regions and nations for the single reason that it is the source of the wealth, the key to improvements in living standards. Those who can make things cheaper, faster, better win!

Global productivity race

For most of the past century, America and Europe have held the advantage, since most technology originated there. The West had most of the resources, the major centers of education and research, the business facilities, and the infrastructure.

After the turn of the century, U.S. growth slowed and simultaneously, global competition accelerated. Foreign labor suddenly became ultra-competitive, and many U.S. and European companies moved quickly to take advantages of significantly lower cost. It was not just the cheap labor, but also significant productivity advantages brought by diligent labor (what I've termed "asymmetric motivation") plus high investment by offshore suppliers in automation and quality procedures.

At the same time, foreign education accelerated, and countries like China and India started graduating engineers in numbers that exceed U.S. and European levels. Foreign knowledge-workers became more accessible through widespread availability of cheap telecommunications. Beyond just cheap factory labor, many design development centers have moved offshore.

The long-held U.S and European technology edge is now being threatened as product design and manufacturing process knowledge spreads worldwide. And the productivity race is speeding up-every company and country is looking for advantage through whatever means are available.

Productivity gains through automation

Automation improves productivity in five ways: reduces labor, optimize use of raw materials, saves energy and waste, improves quality, and saves time. When technology is proprietary, it has value and generates wealth. When the knowledge is spread widely, the products become commodities-available from several sources with marginally different features and benefits. The lowest cost producer usually wins market-share.

Driven by global competition, productivity improvements are reshaping business and industry today and generating significant results. Indeed, this is perhaps the key factor behind the so called jobless recovery. It is not just jobs going offshore; it is just that many jobs have simply disappeared, eliminated by automation and productivity improvements.

"Jobsare going down the silicon hole, not the outsourcing hole," explains Dick Morley. The figures support this contention: Productivity resulting from industrial automation, not outsourcing, is the biggest culprit behind most manufacturing job losses. And all industrialized countries are losing manufacturing jobs too, including China.

Real time makes a difference

Productivity keeps improving steadily, not just from manufacturing automation but from inexpensive and effective information technology-the ability to operate in real-time. Today's real-time enterprise applications are cutting through several layers of previous inefficiency, allowing all segments of a business to interact in ways that were previously unthinkable.

The goal of the real-time enterprise is to act on events as they happen. It is all the old concepts of customer-driven marketing, on-line process automation, just-in-time delivery, and tactical business adaptation all rolled into one. It is about getting information in and out quickly, monitoring business as it happens, and making quick, effective, agile decisions.

At operations level, the primary benefits of real-time capabilities are improved customer service, reduced inventory, risk reduction, and lower processing costs. At the executive levels, the clear benefits are faster exploitation of emerging opportunities, less damage when things go wrong, and increased agility when dealing change. At the leadership level, real-time operations allow faster implementation of plans that must adapt to meet new opportunities and threats.

The concept of real time has been a dream for a long time. But now, technology has evolved and penetrated to a level of usage where it is inexpensive, effective, practical, and generating immediate results-cheaper, faster, better!

Management challenges

The best results come from completely re-thinking business and organization in the light of available technology and globalization. Productivity comes from automating routine decisions, while giving workers the information (and the authority) needed to make on-the-spot decisions, in real time. The most successful are those who combine understanding of overall objectives with the ability to implement automation and information technology solutions to meet always changing needs.

The challenge for today's managers is to generate a spirit of change and innovation throughout the organization. It is no use going only partly through the process, using new systems to automate functions in the home base, while chasing cost-reductions through offshore production.

Inevitably, routine jobs that call for simply following policies and procedures will simply be shunted offshore, where cheaper labor is all that is required. It is an innovation-driven workforce that will continue to generate productivity growth.

As someone who is involved with automation, consider this: The fundamental purpose of automation is to improve productivity-generate increased output with reduced costs. The intrinsic value of each and every piece of automation equipment is its ability to provide increased productivity for the user. What productivity advantages is your organization providing?

Remember, cheaper, faster, better wins.


Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at [email protected] or view his writings at Read the Table of Contents of his book, Pinto's Points, at