HENRY FORD'S UNIVERSAL CODE

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1 Session 11 B HENRY FORD'S UNIVERSAL CODE William A. Levinson P.E. Levinson Productivity Systems, P.C. ASQ NEQC 60th Conference, Springfield, Massachusetts

2 A PROVEN SYSTEM FOR WORLD-CLASS, PERFORMANCE IN ANY ENTERPRISE ASQ NEQC 60th Conference, Springfield, Massachusetts 2

3 The Book with All the Answers ASQ NEQC 60th Conference, Springfield, Massachusetts 3

4 Overview: What is the Universal Code? An impartial, inarguable, synergistic, and universal triad of natural laws: Economic: recognition that we cannot get something for nothing. Scientific: elimination of waste (muda) allows us to get more from what we have. Behavioral: buy-in and commitment require a square deal for all stakeholders. ASQ NEQC 60th Conference, Springfield, Massachusetts 4

5 Learning Objectives (1) 1. Quantify, in the language of money, the effectiveness of Henry Ford's universal code. Gain buy-in from the organization and its supply chain 2. Know and apply the economic, scientific, and behavioral aspects of the universal code. ASQ NEQC 60th Conference, Springfield, Massachusetts 5

6 Learning Objectives (2) 3. Gain buy-in from other organizational stakeholders, including supply chain partners. 4. Teach coworkers and supply chain partners how to recognize many forms of waste on sight. ASQ NEQC 60th Conference, Springfield, Massachusetts 6

7 HENRY FORD'S BOTTOM LINE: THE LANGUAGE OF MONEY ASQ NEQC 60th Conference, Springfield, Massachusetts 7

8 Henry Ford's Bottom Line (1) Why should modern quality practitioners (and executives) be interested in a 90 year old business model? We will answer this question in the language of money. ASQ NEQC 60th Conference, Springfield, Massachusetts 8

9 Henry Ford's Bottom Line (2) Investors: 35.2% annual capital gain (not counting dividends) 1903 to 1919, when Ford bought out his stockholders for $125 on the dollar. Labor: 7.18% annual wage growth Reduction of the work week to 5 days and 40 hours No need for collective bargaining ASQ NEQC 60th Conference, Springfield, Massachusetts 9

10 Henry Ford's Bottom Line (3) Customers: steadily declining prices and higher quality Country: wages and income from the Model T exceeded the wealth of 35 of the country's 48 states. Does not include jobs in railroads, rubber production, oil, or other supporting industries. ASQ NEQC 60th Conference, Springfield, Massachusetts 10

11 Henry Ford's Bottom Line (4) Simultaneous realization of lower prices, higher wages, and higher profits. The Ford Motor Company made the U.S. into the wealthiest and most powerful nation on earth. Productivity was responsible for Allied victory in World War II ASQ NEQC 60th Conference, Springfield, Massachusetts 11

12 Henry Ford's Bottom Line (5) The key takeaway from this section is that Ford's methods delivered world-class results, which are quantifiable in the language of money. The next step is to understand how he did it. ASQ NEQC 60th Conference, Springfield, Massachusetts 12

13 THE UNIVERSAL CODE ASQ NEQC 60th Conference, Springfield, Massachusetts 13

14 The Universal Code (1) "Universal" means exactly that. Emphatically NOT specific to automobiles, or even manufacturing Equally applicable to health care, transportation, and every other conceivable enterprise Ford demonstrated its effectiveness in health care, mining, and railroads. ASQ NEQC 60th Conference, Springfield, Massachusetts 14

15 The Universal Code (2) Impartial and Inarguable All stakeholders (e.g. management, labor, customers, and suppliers) must accept it just like any other law of nature. This (as well as the language of money) gains buyin. Synergistic Its three elements are mutually supporting, whether for good or bad. ASQ NEQC 60th Conference, Springfield, Massachusetts 15

16 The Universal Code (3) Three elements: Economic: we cannot get something for nothing. Scientific: we can get more from what we have through the removal of waste or muda. Behavioral: buy-in and engagement require a square deal for all stakeholders. ASQ NEQC 60th Conference, Springfield, Massachusetts 16

17 ECONOMIC LAW ASQ NEQC 60th Conference, Springfield, Massachusetts 17

18 Economic Law (1) We cannot have wealth we do not produce. Jack Cade's speech in King Henry VI Promised seven half-penny loaves for a penny The three-hooped pot would have ten hoops. A stream would run with claret wine. All would eat and drink at Cade's expense when he became King. France (2000) mandated 40 hours of pay for 35 hours of work. ASQ NEQC 60th Conference, Springfield, Massachusetts 18

19 Economic Law (1) We cannot have wealth we do not produce. Jack Cade's speech in King Henry VI Promised seven half-penny loaves for a penny The three-hooped pot would have ten hoops. A stream would run with claret wine. All would eat and drink at Cade's expense when he became King. France (2000) mandated 40 hours of pay for 35 hours of work. ASQ NEQC 60th Conference, Springfield, Massachusetts 19

20 Economic Law (2) The effects are (or should be) obvious. Price controls (e.g. for bread) shortages and/or black markets Employers (and customers) won't pay 40 hours' worth of wages for 35 hours or work unless somebody can figure out how to do 40 hours' worth of work in 35 hours. Scientific law ASQ NEQC 60th Conference, Springfield, Massachusetts 20

21 Economic Law (3) Speculation in tulip bulbs, stocks, dot-com stocks, mortgage-backed securities, and carbon credits does not produce wealth. Kipling's "The Gods of the Copybook Headings" is highly instructive. ASQ NEQC 60th Conference, Springfield, Massachusetts 21

22 Economic Law (4) Labor cannot bargain collectively for wealth it does not produce. Jobs will simply move offshore, or disappear. Scientific law, however, allows the supply chain to produce more wealth for everybody. ASQ NEQC 60th Conference, Springfield, Massachusetts 22

23 SCIENTIFIC LAW, AND LEAN MANUFACTURING ASQ NEQC 60th Conference, Springfield, Massachusetts 23

24 Scientific Law (1) Most jobs contain enormous amounts of waste (muda). This waste is asymptomatic because, unlike poor quality, it causes no organizational pain. Ford: "Time waste differs from material waste in that there can be no salvage. The easiest of all wastes, and the hardest to correct, is this waste of time, because wasted time does not litter the floor like wasted material." ASQ NEQC 60th Conference, Springfield, Massachusetts 24

25 Scientific Law (2) How many employees (hopefully those of our competitors) does it take to change a light October bulb? 21, 2014 Many real jobs were and are, in fact, as badly designed! ASQ NEQC 60th Conference, Springfield, Massachusetts 25

26 Scientific Law (3) Consider brick-laying, one of the world's oldest trades. 125 bricks per hour What is wrong with this picture? ASQ NEQC 60th Conference, Springfield, Massachusetts 26

27 Scientific Law (4) Actual photo from 1906 (Frank Gilbreth's Motion Study) ASQ NEQC 60th Conference, Springfield, Massachusetts 27

28 Scientific Law (5) 350 bricks per hour, for far less effort! This is how the employer can pay the worker 2 hours of wages for 1 hour of work, while charging lower prices. ASQ NEQC 60th Conference, Springfield, Massachusetts 28

29 Scientific Law (6) Actual photo, Gilbreth's nonstooping scaffold ASQ NEQC 60th Conference, Springfield, Massachusetts 29

30 Scientific Law (7) Fabric folding operation, early 20 th century Ford: Pedestrianism is not a highly paying line of work. Redesign of the job doubled its productivity. ASQ NEQC 60th Conference, Springfield, Massachusetts 30

31 Scientific Law (8) Material waste also hides in plain view Metal or wood chips from machining operations Packaging Consumables (e.g. metal cutting fluids) Rust in blast furnace slag At Ford, however, any of these "worried the men." ASQ NEQC 60th Conference, Springfield, Massachusetts 31

32 Scientific Law (9) Ford also practiced "Refuse, reuse, recycle, and reduce" material conservation Redesign of jobs to reduce machining waste Returnable containers Saleable byproducts from lumber, coal, and blast furnace slag ASQ NEQC 60th Conference, Springfield, Massachusetts 32

33 Scientific Law (10) Distillation of waste wood $12,000 per day (money of 1920s) Enough to pay 2000 workers $6 per day. Ford job design: no job to require a worker to take more than one step in any direction, or bend over ASQ NEQC 60th Conference, Springfield, Massachusetts 33

34 Scientific Law (11) If these methods worked so well, then why did Ford experience labor relations trouble during the late 1930s? His successors went against the behavioral law, which requires a square deal for all stakeholders including employees. ASQ NEQC 60th Conference, Springfield, Massachusetts 34

35 BEHAVIORAL LAW ASQ NEQC 60th Conference, Springfield, Massachusetts 35

36 Behavioral Law (1) Who are these men, and why do they want to smash the textile machinery? ASQ NEQC 60th Conference, Springfield, Massachusetts 36

37 Behavioral Law (2) Textile industry 100-fold productivity improvements from the power loom and punch-card (Jacquard) loom Benefits were not shared with workers. Workers feared destruction of jobs through automation Result: Luddites ASQ NEQC 60th Conference, Springfield, Massachusetts 37

38 Behavioral Law (3) Soldiering (marking time): a non-destructive form of Luddism Restrictive work rules whose purpose is to "protect" jobs more Luddism "But ILWU wants to continue entering shipment data by hand instead of scanners. The ILWU hopes to protect jobs from the effects of automation." ASQ NEQC 60th Conference, Springfield, Massachusetts 38

39 Behavioral Law (4) Why Luddism? Taylor: " after a workman has had the price per piece of the work he is doing lowered two or three times as a result of his having worked harder and increased his output, he is likely entirely to lose sight of his employer's side of the case and become imbued with a grim determination to have no more cuts if soldiering can prevent it." ASQ NEQC 60th Conference, Springfield, Massachusetts 39

40 Behavioral Law (5) Ford: "If an employer urges men to do their best, and the men learn after a while that their best does not bring any reward, then they naturally drop back into 'getting by.'" Lesson: Luddites are therefore usually of the employer's own creation. ASQ NEQC 60th Conference, Springfield, Massachusetts 40

41 Behavioral Law (6) Ford summarized industrial and labor relations in one sentence: "It ought to be the employer's ambition, as leader, to pay better wages than any similar line of business, and it ought to be the workman's ambition to make this possible." ASQ NEQC 60th Conference, Springfield, Massachusetts 41

42 Behavioral Law (7) Shop floor buy-in, therefore, requires: A no-layoff policy (Ford had one; his successors circumvented it.) Productivity improvements show up in workers' paychecks The success of the lean program requires elimination of restrictive work rules and other forms of Luddism. ASQ NEQC 60th Conference, Springfield, Massachusetts 42

43 Behavioral Law (8) Synergy of the three laws: If labor gets a square deal, it will support (via the scientific law) improved productivity, higher profits, and lower customer prices. win-win If labor does not get a square deal, it will resist improved productivity via soldiering, restrictive work rules, and other forms of Luddism. lose-lose ASQ NEQC 60th Conference, Springfield, Massachusetts 43

44 Behavioral Law (9) The square deal must extend to the supply chain. Squeezing suppliers suppliers cut corners on quality, possibly go out of business Developing suppliers suppliers offer lower prices but make more money ASQ NEQC 60th Conference, Springfield, Massachusetts 44

45 Behavioral Law (10) Supplier Development and Zero Base Pricing (ZBP) C.R. Wilson wanted $152 per car body. Ford was willing to pay $72. Wilson: "That's less than it costs me to make them!" Charles Sorensen: "Here is how you can make them for $50 each." Result: higher profits for Wilson, and higher wages for his workers. ASQ NEQC 60th Conference, Springfield, Massachusetts 45

46 Behavioral Law (11) This section has shown how the natural laws of human behavior can work for or against the organization. The economic, scientific, and behavioral laws are synergistic rather than independent. Next: the Universal Code and Social Responsibility ASQ NEQC 60th Conference, Springfield, Massachusetts 46

47 SOCIAL RESPONSIBILITY ASQ NEQC 60th Conference, Springfield, Massachusetts 47

48 Social Responsibility (1) If an organization needs a 1-sentence social responsibility policy, one is available off the shelf. "If the public, the employees, and the owners do not find themselves better off because of the undertaking, then there must be something very wrong indeed with the manner in which the undertaking is carried through." ASQ NEQC 60th Conference, Springfield, Massachusetts 48

49 Social Responsibility (2) Social responsibility is therefore simply another expression of the universal code's requirement for a square deal for all stakeholders: Customers Suppliers Investors Employees ASQ NEQC 60th Conference, Springfield, Massachusetts 49

50 CONCLUSION ASQ NEQC 60th Conference, Springfield, Massachusetts 50

51 Summary and Conclusion (1) Henry Ford's universal code for business leadership consists of a synergistic triad of economic, scientific, and behavioral laws. Proven effectiveness in the language of money buy-in and acceptance Impartial and inarguable, like the laws of nature buy-in and acceptance ASQ NEQC 60th Conference, Springfield, Massachusetts 51

52 Summary and Conclusion (2) Economic law says we cannot get something for nothing. Legislation, ideology, collective bargaining, and speculation cannot create wealth. Scientific law shows we can get far more from what we have. Eliminate all forms of waste (muda) ASQ NEQC 60th Conference, Springfield, Massachusetts 52

53 Summary and Conclusion (3) Behavioral law requires a square deal for all stakeholders. Square deal buy-in and commitment Unfair deal soldiering, Luddism, and opt-out at the earliest opportunity Ford's results prove unequivocally that we should choose the first option! ASQ NEQC 60th Conference, Springfield, Massachusetts 53

54 Thank You for Listening Questions and Discussion ASQ NEQC 60th Conference, Springfield, Massachusetts 54

55 William A. Levinson ASQ NEQC 60th Conference, Springfield, Massachusetts 55

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