Monday, January 10, 2005


This article by Gil Friend of Natural Logic eloquently confirms what my miniscule coterie of loyal readers already knows: The standard American business model is a disaster not merely because it's environmentally unsustainable in the long term, but because it stifles technological innovation and American competiveness in the short term.

In particular, Friend points up the folly of companies that

...have taken a "do as little as possible, as late as possible" strategy -- a strategy based on a pervasive and deeply wrong-headed assumption: that designing and delivering better, more efficient, less toxic, more recyclable products would necessarily cost more money and yield less profit. The bottom line impact of losing access to the European market aside, the assumption is patently -- and demonstrably -- false.
In this context, I want to describe my personal experience with re-engineering. Not because it shows how clever or forward-thinking I am, mind you, but because it shows how incredibly hard it can be to think clearly when you're stuck in a rut.

A company I worked for about a decade ago sold a product that included a number of chemical components. New federal regulations meant that suddenly, a specific component could no longer be sent via airmail. Obviously, our first impulse was to curse the regulations, and that impulse got stronger the more often we had to explain to customers that we couldn't get a working product delivered overnight. Customers in Alaska and Hawai'i posed even worse logistical problems, and within a month the situation was intolerable. And it was only at that point that I asked myself, "Couldn't we just use something else?"

It turned out that we didn't even have to: the solution was a simple matter of diluting the compound below the regulatory threshold. This didn't just solve our regulatory problem; it also saved us money by making the raw compound stretch much, much further.

Having made this embarassingly simple discovery months - if not years - too late, I began to wonder what else was wrong with our product from a design standpoint. A lot, as it turned out. I won't bore you with the details, but after a month or two of research, testing, and hunting down alternative manufacturers, I found that the product had 18 components - most of them hazardous and heavily regulated - that could either be replaced with less hazardous alternatives, or dispensed with altogether.

The process of finding this out also uncovered flaws with the product's functionality, and made improvements possible. Manufacturing was quicker and easier at all stages. In addition, the product weighed less after re-engineering, which meant it cost less to ship. Also, with the hazardous materials removed, the cartons no longer required time-consuming hazmat labeling. We'd also solved problems for our customers, by making it easier for them to comply with in-house and local hazmat-disposal regulations.

And best of all, the overall production cost had been reduced by roughly $800, which meant that we made an extra $800 on every unit sold. Or, looking at it another way, you could say that the opportunity cost of "business as usual" for our firm amounted to roughly $40,000 per month before re-engineering.

In other words, far from being an intolerable burden imposed by the unregenerate socialists of the Clinton regime, the new federal regulatory threshold had been a blessing. But not until I'd stopped whining and started thinking. The sad fact is, we all sometimes need a good swift kick in the ass to get our brains working properly.

My experience shows the value of simple re-engineering, but doesn't take into account far more lucrative possibilities for cashing in on intellectual property developed in response to new regulations. The potential value of patents for green technology and processes is unfathomable; countries and businesses that sink research dollars into this sort of innovation are going to be rewarded very handsomely in years to come.

For U.S. industry, the intelligent course of action in regards to EU regulations is to beat Europe at its own game by adopting a consumer orientation; if Europe wants green technology, Americans should be designing, patenting, and selling them the best the world's ever seen. Unfortunately, too much of our industry prefers to spend money on PR campaigns geared at attacking or changing regulations; that money and energy would be better spent on keeping American industry competitive in a changing marketplace.

Most of this is straight out of Marketing 101. It's almost always going to be easier and cheaper to sell people something they want, than to convince them through a PR blitz that they want something else. The problem is that so many industry leaders are focused on their traditional positions at the expense of their best interests; they're more concerned about being "right" than about staying competitive. That's a mistake that "Old Europe" is trying to avoid, and we'd do well to follow their example.


Thersites said...

So what're you saying, that you're a commie?

Seriously, though. Do governmental regulatory agencies do anything to assist companies in this kind of re-engineering? That would be a useful kind of a project to fund (companies could even pitch in to fund it), though I imagine in practice under this administration it would turn into a camouflage mechanism for getting rid of the regulations instead of accomplishing anything positive.

Phila said...


There're programs intended to help people innovate, and to get patents and so forth. And there are still (I think) modest incentives for green technologies and so forth.

We could always do with more programs like those, but the problem's more systemic. We simply don't have a level playing-field, and it's hard to compete on the basis of better design alone when laws are continually being written (or removed) for the benefit of your competitors' bottom line. A real governmental commitment to innovation would mean ending subsidies and loopholes for dinosaur corporations that hang on to market share by stifling competition.

What ends up happening is that larger companies stop innovating in any real way, preferring simply to buy out smaller firms once they've got a viable product. Thus you have weird situations like in the organic food market, where whores to agribusiness like John Stossel will trash the entire concept of organic food, while Ag megacorporations simultaneously buy out the companies that make it (most of the organic brands and fake meats are owned by companies like Kraft and Con-Agra, at this point). Of course, they do this for branding purposes, or for diversification; they're not philosophically committed to the actual processes, and in fact, often lobby to weaken organic standards. So the argument you sometimes hear on the Right AND Left, that innovative small businesses act as R&D departments for big companies through joint ventures and so forth, even when true, doesn't necessarily lead in a progressive direction.

Personally, I'm confident that the EU will eventually force our big companies to meet its standards. But if I had a small manufacturing business, I'd be doing whatever I could to meet EU standards right now. And what a time to be a designer..some of the green products and processes people are inventing right now are just mindboggling!

joshowitz5 said...

I am still waiting for Dean Kamen to come out with his water distiller/electricity generator. Kamen is definitely an American businessman who understands innovation.