Daniel Roos
Daniel Roos
The Machine That Changed the World
ISBN: 0743299795
The Machine That Changed the World
Daniel Roos discussed the book, The Machine That Changed the World, which he co-authored with James P. Womack and others. It an analytical comparison of American and Japanese auto manufacturing practices. According to the authors, the Japanese have developed a better way to make cars and other mass-produced goods. Development of the Japanese process, called "lean production," began after World War II and has been refined for the last 40 years. Massachusetts Institute of Technology studied the competitive advantages of "lean production," the results of which were recently released by the International Motor Vehicle Program, directed by Mr. Roos. Aspects of "lean production" include: catching and fixing defects at the point they occur on the assembly line, robotization, labor teams, and cross-training in production skills. Statistical data were drawn from European, Japanese and United States auto companies and organizations.
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TRANSCRIPT
The Machine That Changed the World
Program Air Date: January 13, 1991

BRIAN LAMB, HOST: Dr. Daniel Roos, co-author of the book "The Machine That Changed the World," what's it all about?
DANIEL ROOS, AUTHOR, "THE MACHINE THAT CHANGED THE WORLD": It's about making automobiles and more generally it's about making a variety of products.
LAMB: Speaking of automobiles, who was Alfred Sloan?
ROOS: Alfred Sloan was the person who revolutionized General Motors. Years ago General Motors was a group of very disjointed companies. Sloan came in and introduced a management logic that, together with the principles of mass production that had been introduced by Henry Ford, really set the pace for how we make things in the country for the past 50 years.
LAMB: Alfred Sloan at some point gave money to the school you're from, MIT.
ROOS: Yes.
LAMB: MIT is behind this book.
ROOS: Yes.
LAMB: Would he be surprised, if he were alive today, that the money he gave went to a study that suggests that the Japanese have got it all over the Americans when it comes to making cars?
ROOS: Well, I think Alfred Sloan would be pleased because Alfred Sloan was an innovator. Alfred Sloan was somebody who came in an gave a new direction, gave a new philosophy, to not only the automotive industry but to industries in general. This book does not say that the Japanese have it over everyone. What this book says is that the Japanese are responsible for developing a different system, a different framework, for making things. It's very important that the world understand that, but by no means is it a uniquely Japanese phenomenon.

One of the things that we point out in the book is that you can now see aspects in the United States and in Europe, and what the book says is, this is how the system works, this is why it's important, this is where the competitive advantage is. Now, the issue is, how do we take these experiences and transfer and translate them to the United States? Sloan gave money to MIT to set up a school of management, the purpose of which was to look ahead, to understand what were important issues to this country. So the book is very much in the spirit of Alfred Sloan.
LAMB: One of the sub-sentences on the cover: "Based on the Massachusetts Institute of Technology $5 million, five-year study on the future of the automobile." First of all, what is MIT?
ROOS: MIT is the Massachusetts Institute of Technology, a university, and as such concerned with three things -- education, research and public service.
LAMB: How big is it?
ROOS: How big is it in terms of students? Roughly about 4,000 undergraduate students and about 6,000 graduate students. It has a faculty of about 1,000. Many people think of MIT as engineering and technology, and without question engineering and technology are the fundamentals of the university. It's a university that really is polarized around science and technology. But it also includes, as we mentioned before, the Sloan School of Management, a humanities department, urban studies and planning. So it very much is a university that is broad-based as well as specialized.
LAMB: How long have you been there?
ROOS: Thirty years.
LAMB: Where is it based?
ROOS: Cambridge, Massachusetts -- physically based in Cambridge, Massachusetts. We like to think of ourselves as an international institution, and therefore we have activities going on throughout the world.
LAMB: And where does it get its money?
ROOS: Its money for education or its money for research? For education we get our money partially from students, although that only covers a small part of their education. We rely on a variety of contributions in terms of providing financial support to supplement the entire cost of the education.
LAMB: It's not a state university?
ROOS: No, it's private. As a matter of fact, I believe it is the only private institution that was a land-grant institution if one traces back its history. Research-wise we receive money from a variety of sources, primarily the public sector but also the private sector.
LAMB: Five million dollars, a five-year study. The list of the number of people involved in this is huge. First of all, is it IMVP?
ROOS: Yes.
LAMB: What does that stand for?
ROOS: International Motor Vehicle Program.
LAMB: Is that an MIT organization?
ROOS: It's a program at MIT. I'm director of the Center for Technology, Policy and Industrial Development. That's the organization that was responsible for carrying out the study.
LAMB: When did the study start?
ROOS: 1985.
LAMB: How did you get the $5 million, and who was involved in it?
ROOS: The purpose of the study was to be as broad based as possible, and that meant to involve organizations that are concerned with automobiles. The organizations are industrial organizations. They are not only the nameplates that you see on cars, like GM and Ford, but there are lots of organizations, supply organizations, that work with your GMs and your Fords.
LAMB: Like Motorola.
ROOS: That's right. TRW. The study, because of its international nature, involved participation from outside the U.S., so our support included all the major manufacturers of automobiles throughout the world and many of the principal government organizations as well. In the United States we received support from the U.S. Department of Transportation and the U.S. Department of Commerce.

In Europe we had support from the EEC, the European Community. We had support from the government of Canada. The objective was broad based. We also had participation from organized labor. The objective was that no one organization would provide more than 5 percent of the total support so that there could be no question in terms of bias.
LAMB: One interesting thing is that most American car manufacturers -- I think they all are; Chrysler, General Motors and Ford -- are listed. But when it comes to Japan, it's the Japanese Automobile Manufacturers Association and the Japan Automotive Parts Industry Association. How come no Toyota, Honda, Nissan and that kind of thing?
ROOS: Well, Japan Auto Manufacturers Association represents Toyota, Honda, Nissan and about eight other companies, and that's one reason why. Japan has on the order of 11 manufacturers of automobiles. It didn't matter to us how the support came. For example, it could have come in this country through the Motor Vehicle Manufacturers Association, which is similar to the Japan Auto Manufacturers Association. As a matter of fact, we did have support in this country from an organization called MEMA -- Motor Equipment Manufacturers' Association -- which represents all the suppliers. It was not an issue as to how it came. The issue was to make sure that there was broad-based participation. The feeling was that if people had a financial stake in this, then they would be more apt to participate in the study. That was really important because we did not want this just to be an academic study. It was extraordinarily important that it be an objective look at a serious set of questions but that it have the test of industry relevance. So throughout the five years we were constantly interacting with industry to say, "Do we have it right? Do you see any problems here? What more would you like us to do?" That was part of the nature of it -- that interplay between university, industry and government.
LAMB: How many people were involved in gathering information?
ROOS: I'm not sure I've ever made a count. In the book there's a list in the back, but I would estimate well over a hundred directly involved. Directly involved in terms of researchers.
LAMB: Paid researchers.
ROOS: Paid and volunteer researchers. Let me point out that although this is a study that was coordinated by MIT with a fair amount of the research being performed by MIT, another important aspect was to set up an international network of researchers throughout the world, so that we were working with people from Europe, from Japan, in terms of carrying out the work. MIT was just responsible for one portion of it.
LAMB: This is what the book looks like, and one of the co-authors is with us. The automobile. I think somewhere I read in your book that there are 50 million automobiles produced in the world every year?
ROOS: Yes, roughly.
LAMB: But there is a statistic that kind of stuck out that says, "Toyota manages to produce 4 million vehicles per year with only 37,000 employees." Let me repeat that -- 4 million vehicles a year with 37,000 employees. "General Motors produces 8 million vehicles a year" -- that's twice the number that Toyota does -- "worldwide, and it needs 850,000 employees to do it." Why?
ROOS: The principal reason that we put forward in the book is that Toyota is using the lean production system, and that's what the book is all about.
LAMB: Lean, L-E-A-N.
ROOS: L-E-A-N, yes.
LAMB: Versus what?
ROOS: Versus mass production, which is a system that we are familiar with which has guided American industry since the turn of the century.
LAMB: All right. There's a lot to talk about with lean production, but let me ask you . . .
ROOS: Let me just make one other point -- because I suspect we'll spend a fair amount of time on lean production -- in terms of the difference between GM and Toyota. GM is responsible for building a much larger portion of the car in-house than Toyota, so that when you look at the number of people, you have to take into account that Toyota is much more of an assembler of components that are produced outside, whereas General Motors is taking on more of the responsibility for the total process. So that affects the statistics.
LAMB: Let me talk about an experience I had and have you take off of that to describe what the other way is. I've never been in an American automobile plant, but when we were on a trip to Japan earlier this year, I went to a Nissan factory to see what it looked like. Here's what I saw. I saw a group of employees on an assembly line that was heavily roboticized. In other words, robotics seemed to run the whole thing with computers. I talked to a person who told me that they get two breaks a day for 10 minutes each and a half-hour for lunch; that they work roughly eight hours a day; that most of the employees live there on the property in an apartment provided to them by Nissan; that if you come to work for Nissan in your early years, the chances are you'll work there for the rest of your life.

I said, "Well, what happens if you want to fire somebody if somebody's not doing a good job?" They said, "Well, we move them to another job." I said, "What if they don't work there?" They said, "We move them to another job." And I said, "What do you do in the event that they just can't hack it?" They said, "We'll figure out a way, but we usually keep them in this company." What would be the difference if I walked into an American automobile plant around Detroit?
ROOS: You touched on several aspects of the Japanese system. Let's go through them one at a time. Let's start with the workers, because the workers are really quite key. If we go back to the mass production system of Henry Ford, that system was based on the concept of division of labor. You remember the Charlie Chaplin movie -- I think it was "Modern Times" -- of the guy who stands there all day and does the same task over and over again. If something happens to that worker, take him out, put another one in and he turns the crank. If the system increases in production, more workers are hired. Sales go down, workers are let go.
LAMB: American system.
ROOS: That's right. There is not a permanence. There is a very repetitive nature to the job, in contrast to the Japanese system which says first that there is a commitment between worker and between company. It's not a casual commitment. It's a serious commitment, and, in fact, it's a lifetime commitment -- your comment about moving the person around. I suspect you saw some other things when you were on the line, although you didn't mention them. The first is that these people work in teams. They're not just doing one task. They're working together for a common objective. Whereas the American worker is doing a very repetitive, very specific job, the Japanese workers are trained to be an integral part of the production process because the key to the production process is perfect first-time quality. It absolutely has to be right. If it isn't right, we fix it. How do you fix it? If you look at a Japanese production line, you have handles that can be pulled by the worker to stop the production line. That's unheard of in the United States. If you have a problem in the United States, you let the problem go through, and after the fact in the repair area, you fix it. So you tolerate a certain number of defects.
LAMB: Did you say something like 25 percent of the American vehicles have defects in them?
ROOS: Yes. So if a U.S. worker is to operate as a Japanese worker does, he has to understand the process. He has to know what's right, what's wrong, and how you fix it. Now, initially it might mean that the production line gets stopped a lot, but over time you get it right. You decrease the number of defects. Another thing that you probably noticed when you were in Japan was that you didn't have these huge bins with lots of excess parts being stored -- they're called buffers -- whereas you have that in most of the U.S. systems. That's the so-called just-in-time system, that you want to eliminate waste of all sorts. Excess inventory is waste. It costs money, but, more importantly, it masks problems. If a part doesn't fit right, chuck it and put another part in. That's the philosophy in the mass production system. Move the metal. Keep the production line running at all costs.

We'll tolerate a certain amount of poor quality. The Japanese say, have just enough inventory for the cars you're going to build. If all of a sudden you run out of inventory, something's wrong. Find out what's wrong and fix it. Now, you might have seen a lot of automation, but, in fact, the competitive advantage of the Japanese system or of the lean production system is not automation. The competitive advantage is a different way of organizing the way we make things. Now, if you do that right, then you have a system which is perfect for introducing automation. One of the things we looked at was comparison of how successful automation has been when superimposed on mass production and how successful automation has been when superimposed on lean production. What it clearly shows is that lean production provides the foundation and the framework that allows automation to work.
LAMB: Let me ask you about robotics. If I went into most General Motors, Ford and Chrysler plants, would I see robotics today?
ROOS: It varies by plant.
LAMB: Are there some plants that don't have any?
ROOS: Well, it depends on what you call robotics. At this point in time they all have some, but there's a significant variation.
LAMB: In this plant I saw in Japan, I suppose in the whole plant -- they made small cars called the Micra for European sales -- there may have been a hundred people. I didn't count them, but in that one room they made a car in eight hours. Now, what's the difference here in most United States plants?
ROOS: Well, let me go back to the point that we spent a lot of time on in the book, and let's use an example from the United States. The productivity, by and large, of Japanese plants is significantly higher than the productivity of U.S. plants. Now, there is a range. I mean, there are some U.S. plants that are really quite good and better than the average Japanese plant. If one looks at the reasons for the difference, the reasons are not the degree of automation. The reasons are the extent to which lean production techniques have been adopted. Let me give you an example. The example is the NUMMI plant -- it's an interesting example -- in Van Nuys, Calif.
LAMB: What does NUMMI stand for?
ROOS: It's a joint venture between General Motors and Toyota. This was a General Motors plant which was shut down. It was one of the most inefficient plants in General Motors in terms of productivity and quality. The plant was reopened without extensive automation, and that's why I'm using the example, because of your question. It was reopened, so it was the same plant that was before. Eighty percent of the workers who worked there were not only previous workers, but they continued to work under the United Auto Workers, so they were unionized.

The only difference was that a different product was being produced, and the management now was Toyota management. That plant went from having the poorest productivity and the poorest quality of any General Motors plant in the country to having the best productivity and the best quality. And so it was a question of changing the management organization philosophy -- for example, with respect to workers. The workers were organized into teams. Whereas there were hundreds of job classifications in the past, now there were two job classifications. These pull cords were put on the production line. The just-in-time system was introduced.

So, it's a very important example because what it shows is that one can take the experiences that you had in Japan and transfer them here to the United States, that it is not dependent on Japanese culture or Japanese workers. These were U.S. workers in that plant. It goes back to your original question because this is a book of hope. It's a book that says that the U.S. is absolutely able to compete, but to compete it has to do certain things. It has to understand what the lean production system is about. And so, although we use the automobile as a metaphor in terms of how one goes about the transition, it is equally applicable to other manufacturing industries as well.
LAMB: During these five years, how many automobile plants did you go into?
ROOS: We visited 90 plants.
LAMB: You personally?
ROOS: No, not me personally.
LAMB: How about you personally?
ROOS: Ten.
LAMB: Both here and in Japan?
ROOS: Well, here, Japan and in Europe.
LAMB: You say you visited 90. How many of your people were involved, then? All these researchers?
ROOS: The person who holds the record and one of our principal researchers is Jack Krafcik who visited, I believe, 90 plants throughout the world.
LAMB: Ninety plants?
ROOS: Yes.
LAMB: Did you have any automobile companies anywhere in the world that said you couldn't see what they did?
ROOS: The Koreans were not direct participants in the study, but they did allow us to come into their plants.
LAMB: I guess what I'm really asking is did anybody not cooperate?
ROOS: No, I can't think of anyone.
LAMB: And the Japanese didn't have any problems letting you see things right up close and watching how the process works?
ROOS: That's correct. Now, bear in mind that we were not trying to delve into corporate secrets. That was not what this program was about. This program was about increasing understanding, and so to a large extent we really did not want to be shown secret information and we relied almost entirely on publicly available information, but access to take a look and make our own conclusions.
LAMB: You have three names on the front of this book. Who actually wrote it?
ROOS: Well, the principal author was James Womack. Daniel Jones was our European coordinator, and I was director of the overall program. In addition to the three people whose names are on the cover, you'll notice each of the chapters mentions individuals who participated in the research and were responsible for participating in the writing of the book.
LAMB: Is there anybody unhappy with what you found?
ROOS: I'm sure there are. It wouldn't be a good study if people weren't unhappy.
LAMB: But have you heard?
ROOS: This is a second study. It's a follow-on study to one that we did between about 1980 and 1984 called "The Future of the Automobile." We had a book from that study, too. It was called "The Future of the Automobile," and Business Week was very kind and they named it one of the 10 best books of the year in business. But as we were going through, putting that book out, you never saw so many unhappy people in all your life because everybody wanted to make sure that their point of view came through. I still remember a session where somebody slammed their fist on the table and said, "I am not going to allow my name to be on this book and this is a disgrace," and so on and so forth.

So we said, "The way we're going to judge this book is to see how people feel one year after it's published," and it was amazing one year after it was published. All these people who were banging their fists on the table came back and said, "You know, this is really important. You really did a good job. I was upset at the time, but now that I see what this represents, I feel very, very differently about it." In fact, we had never planned a follow-on study, and the people came back and they said, "You know, in "The Future of the Automobile" you're suggesting that maybe there's a different way to think about making things. By God, if you think that's the case, you really should continue. You've also set up a very unique process here" -- and we haven't talked about that. Part of the program involved a series of policy forums working with executives from companies and government officials to discuss some of the policy implications and broader implications of the research. So, in terms of how people feel about this book, the book is out two weeks at this point and I think we have to wait at least six months to one year to see and evaluate how people really think.
LAMB: Fifty million cars made in the world every year.
ROOS: Yes.
LAMB: Who makes the most? Which country?
ROOS: Well, it varies in the U.S., but you generally are running between 12 million and 16 million.
LAMB: Including the Japanese-owned plants here in this country?
ROOS: Yes. You can roughly think of the U.S., Europe and Japan as each having about one-third of the market.
LAMB: Which company makes the most automobiles?
ROOS: General Motors.
LAMB: Do you remember the number? How does it compare? Who's next?
ROOS: Well, General Motors' market share has been going down some, but General Motors' share is roughly in the mid to high 30 percent at this point in the U.S. It was almost 50 percent at one point.
LAMB: In the U.S.
ROOS: In the U.S.
LAMB: What's the next company in the world in size? I mean, can you give us some idea of who makes the most automobiles?
ROOS: Well, GM and Ford are your leading companies, and what's been happening is companies like Toyota and Nissan are now moving up with regard to the world rank. The U.S. situation and the Japanese situation is very different than the European situation. In the U.S., GM and Ford have traditionally dominated as the two biggest domestic producers. In Japan, Toyota and Nissan have dominated. Now, Honda is very popular in this country, but in Japan it has only about 10 percent of the market. However, if you go into Europe it's a very, very different situation where you find on the order of five or six companies, each of which has about 14, 15 percent of the market. That's where your Volkswagens and Fiats and Peugeots and Renaults as well as GM of Europe and Ford of Europe come in.
LAMB: Which country in the world has the most automobiles of the 50 million that are sold every year? In other words, who buys the most?
ROOS: Well, that alternates. The European market over the past four or five years has been increasing at a faster rate than the U.S. market, and so the European market is really at this point the most important.
LAMB: You mentioned Volkswagen, Renault in France, Fiat in Italy -- there are plenty of other brands we can name. Any of those, including the Japanese automobile corporations, owned by the governments?
ROOS: We've been going through a transition, and at this point we've seen in Italy Alfa Romeo get out from under government control, in Germany Volkswagen get out from some government control, in Spain there's a company called Seat get out from some government control. It's only really Renault that is left that has some tie with the government.
LAMB: What about the business of quotas in these different countries? We keep reading about the Japanese. Are they going to get in to any degree over in Europe in the changes of 1992?
ROOS: That is a hugely complex question, and I am not the person to ask as to how that's going to be decided. It will be decided politically by the European community and by the European auto manufacturers and the Japanese government. It varies considerably in Europe. France and Italy are the most protected countries right now and Germany is the most open, so there is not unanimity. The issue is largely over the question of a transition period. How many years will you have some controls over not only how many cars are imported from Japan, but also how many Japanese plants can be constructed? These are the so-called "trans-plants." We have lots of them here in this country. In Europe at this point, they're primarily focused in the United Kingdom, and this has been an extraordinarily hot debate.

As we talk this very moment, there are major speeches that are being made. France in particular has taken a very, very hard-line position rejecting a proposal that was put forward by the European Community. What we say in our book is that one has to be extraordinarily careful of any form of protectionism. One of the reasons that the U.S. companies have started to turn around is that they've had the opportunity to work with and observe what happens in Japan through things like NUMMI and they've been subjected to competition. It's clearly the result of the competition that has caused the companies to sit back and say, "Now what are we doing wrong and what can we do to change?"
LAMB: We keep reading that in Europe if it wasn't for the Ford Europe plants that Ford would not make money. If it wasn't for GM's Opel plant, it wouldn't make money. Is that true, and how many American automobiles are sold over in Europe?
ROOS: Well, you're asking two questions. Your first question is, to what extent have in recent years the European operations contributed to overall profitability of the U.S. companies, and the answer is a significant amount. How many U.S. cars are sold in Europe is a somewhat different situation because although there's a General Motors of Europe, the General Motors of Europe is not selling Chevys, Buicks and Oldsmobiles. They're essentially making at this point what is pretty much an independent product line. Ford is a somewhat different situation because what Ford has tried to do is to take a global perspective with regard to their product development operations and say to what extent can we utilize not only Ford of Europe, but Ford has a tie-in with Mazda. So we use Ford, Ford of Europe and Mazda to develop a range of product. So, for example, you see this new Ford Escort that has come out this year. That is largely a car that's been developed by Mazda in conjunction with Ford to sell not only in the U.S., but in Japan and in Europe as well.

One other aspect of that is for the first time now we are starting to see U.S. cars exported in increasing numbers to Europe and to Japan. Some of these are specialty vehicles -- things like the Jeep and vans which are predominantly U.S. products. But there's a very interesting phenomenon with respect to the question you asked before about quotas. Honda was the first company in the United States to build one of these trans-plants, in Marysville, Ohio. They now have put in an engine facility, and Honda will reach a point shortly where on the order of 75 percent of the car has what we would call domestic value in it, and so it has Honda on the nameplate, but in every other respect it would be classified as a U.S. American car. What happens if Honda decides to export the Accord to Europe? Is that a Japanese export or is it a U.S. export? Honda would argue it's a U.S. export.
LAMB: I want to show the audience this chart. I don't know whether you can read this on your television screen very well, but it shows the number of plants -- General Motors and Chrysler; I don't know that I see a Ford listed on there -- that have been shut down since 1987, representing about 1.7 million automobiles in production. Then if you go over to this chart, this represents about 2.5 million cars in production during a year's time that are produced in all these different American cities, but as you can see listed there they are Japanese-owned companies. What's going on?
ROOS: What's going on is the transition to lean production, on one hand. Secondly, if one goes back 10 years ago as the imports from Japan were increasing significantly, there was a call for this to happen. If you go back and you check the speeches of the auto executives, what they were saying was, "This is unfair. We don't object to the Japanese participating in the U.S. market, but if they're going to participate in the U.S. market, they should have a presence in the United States." So what we've seen happen is a situation where there's been a transfer of the Japanese strategy from completely utilizing the home market to coming into the United States.

Now, we're the most open market in the world and this is an industry where we don't have enormous market growth, and so the result is a rather significant over-capacity problem. That creates a major difficulty because everybody can't be winners. Particularly in an economic slowdown, what it means is that some plants are going to have to be closed down and phased out, and so that's what you see happening. Unfortunately it's our feeling that the over- capacity problem still continues, and therefore we are going to be faced with continuing plant shutdowns in this country and in North America.
LAMB: With the Japanese lean production and the American mass production, what happens in a slowdown period to your lean production- oriented manufacturing facility compared to your mass production facility?
ROOS: The lean production facility is geared towards a steady production volume, and that's a very interesting question. We really haven't seen what happens because in the Japanese case, the system is designed to maintain that constant output as opposed to the inherent cyclical nature of plants here in the United States.
LAMB: One of the things I asked earlier and we got off track was that when I went to visit the Nissan plant, there were facilities right on the property where people lived. Are there any American manufacturing plants in automobiles where Americans live on the property?
ROOS: No.
LAMB: Is that important?
ROOS: No. It's important only from the perspective of the idea of reciprocal obligation between company and worker and that providing some living facility is one way in which the company expresses that in Japan. If one goes back to the early mill towns -- you go to Lowell, Massachusetts, for example -- where the industrial revolution to a large extent was born, it's really fascinating. You have that same sort of environment where the workers were given housing. I think that part of it is cultural, and it's quite likely it will change in Japan. But it does represent the commitment of the organization towards the worker, and that is very, very important.
LAMB: You suggest in the book here -- or whoever wrote that part of it -- that the United States' influence in Japan after World War II really is the one that forced their automobile companies into being like they are and the way they treat the workers and that the workers stay there forever and that we supported a strong union type of an organization back then. Am I correct on this? Am I remembering right?
ROOS: Well, there are a couple of things that happened after World War II which are interesting. Japan had very much the structure that we have in this country, which is industry-based unions, and there was tremendous labor turmoil and a series of strikes. One of the ways that the strikes were settled was to change from industry unions to company unions. So, in this country if you work in the auto industry, you're a member of the UAW. In Japan there's a Toyota union and a Nissan union and a Honda union, and that's when the lifetime employment guarantees were introduced.

Now, after World War II, Mr. Toyota came to visit the Rouge, which is the huge complex that Henry Ford set up, and he brought with him his chief technical person Mr. Ohno. They went back and they tried to set up a mass production system in Japan, and they found that it wasn't working -- and it wasn't working for a variety of reasons. They had scarce natural resources, so having excess inventory was a problem. Their scale was not large enough to promote mass production. So Ohno then said, "Now, wait. The solution is not to replicate mass production. The solution is to come up with a very unique way of developing what we produce." That's where the lean production system was first born after World War II. It's taken a good 40 years for it to develop.

You know, we've talked primarily about what happens on the factory floor, but the lean production system goes far beyond the factory floor. It involves relationships with supplier organizations, it involves the distribution system, it involves the product development system as well. The result of this is that in mass production you have a system that's geared towards producing a few things at very, very large scale, whereas in lean production you have a series of simultaneous benefits -- that you can not only produce products of higher quality and with less effort, but you can produce them in a much shorter product development cycle. You can do it with about a third of the effort, and you can get tremendous product diversity.

So you put all those things together and you think about what is needed in terms of competition over the coming years, and you basically have an extremely adaptable, flexible system that in a way combines the best features of the craft production system, which is designed to produce almost a one-of-a-kind unique product, with the advantages of mass production. That's why we think the system is really very important.
LAMB: By the way, one of the things in your bio is that you are professor of civil engineering, Japan Steel Industry Professor, and director of the Center for Technology, Policy and Industrial Development. What is Japan Steel Industry Professor?
ROOS: Japan Steel Industry Professor is one of the endowed professorships at MIT, of which there are many. These are typically given by an industrial organization or a very wealthy individual or a collection of organizations. In this case the Japan steel industry came to MIT with the idea of having an endowed professorship for somebody who was interested in the broader implications of technology on society, and so that's what the professorship is for because that's my interest.
LAMB: I'm going to ask you a question. It's not part of the rules of this program that you have to answer this kind of a question, but I'm dying to ask you what kind of a car you drive.
ROOS: I was just sitting here figuring this is going to come, I don't know when. Let me answer that question in several ways. First, I am an atypical car buyer. During my life, if I look at our family purchases of cars -- and we're a family of four. I have two children, one a teenager and one just transitioning out of being a teenager, so I have four people who drive. I figured it out once that we have bought 16 cars. We have never bought the same brand twice -- to some extent, I think, purposely so because given the field that I'm in, I really like to experiment. We've had U.S., Japanese and European cars. Currently the family of four has three cars, and two of them are American cars and one is Japanese.
LAMB: Did studying all of this and thinking about all of this affect when you went to the showroom what car you bought?
ROOS: Yes, absolutely.
LAMB: What did it do to your own thinking?
ROOS: Well, what it did to my thinking was influence me to buy a car which personified lean production in terms of quality. Bear in mind, I'm atypical in one other respect. One of the cars that I drive -- one of the American cars, I might add -- has 110,000 miles on it, so it pre-dates this study. When I bought that car, we were in the other study and I bought that from the point of view of testing to see how good an American car was. Actually, that was an interesting experiment because I had absolutely horrendous problems with that car over the first year. I kept bringing it back to the dealer to get it fixed, and they just somehow couldn't get it fixed right. Eventually, after a year, they got it fixed. Once they got it fixed, it's been a terrific car.

As I say, it's got 110,000 miles on it. In some ways that is the mindset problem with respect to mass production, which is you tolerate a certain number of defects and then after the fact you fix it, whereas the lean production system says you get it right. I might also mention that I went through extraordinary hassles with the dealership in terms of trying to get the thing fixed, and it was quite clear that to a large extent the relationship between dealership and the parent company was very much of an adversarial relationship.

So, we look at the auto industry -- adversarial relationship between worker and management, adversarial relationship between the assemblers and their suppliers, adversarial relationship between the assembler, the corporate entity and their dealers. You look at the Japanese situation and it's a series of shared responsibilities -- shared responsibility between the workers and management, shared responsibility between assemblers and suppliers, shared responsibility between the distribution system, the dealers, and the company. It's a very different philosophy of what one might call the extended corporation. It's being able to coordinate in a decentralized manner and to put these components together in a way that passes responsibility as far down the chain as possible.
LAMB: There's a mention in the book -- and I don't know whether this is a fact -- but in Japan, after five or six years they junk the cars.
ROOS: Well, they don't junk them. Interesting system. They recycle them is the way I would put it. It also gets back to your question of cyclicality. Japan has an extraordinarily tough inspection and maintenance program.
LAMB: By the government.
ROOS: The government does, yes.
LAMB: Whereas we have our state stickers in Virginia where I live.
ROOS: That's exactly right. But this is national in nature and much tougher than anything that we have in this country -- so tough that for all practical purposes by the time the car is five or six years old you have to get rid of it. It just doesn't pay anymore to continue to maintain it. What happens as a result of that? Well, the first thing that happens is that it tends to stabilize the markets in terms of demand for new cars. What we see happening in this country is during tough economic times people hold onto their cars longer and the sales for new cars go down. The second thing that it does is to improve social objectives because typically if you look at issues like fuel economy or emissions, the problem is not the new cars you're selling.

The problem is the cars that have been on the road for five or ten years, for two reasons. First of all, when they were built, the technology wasn't as good and the standards weren't as high. Secondly, they tend not to operate particularly well. Now, what the Japanese do with those cars is in a sense they dump them in Third World countries. They resell them. They recycle them.
LAMB: Do they rebuild them?
ROOS: Well, to some extent they do. It depends on what country it's going into.
LAMB: Time always flies by. We've got about five minutes, but I do want you to look into the future. Ten years from now will lean production be the way of American automobile manufacturing?
ROOS: We believe not only American automobile manufacturing, but also more broadly manufacturing, yes.
LAMB: How much of American automobile manufacturing facilities today use lean production?
ROOS: Manufacturing facilities, probably about 20 percent, in varying degrees.
LAMB: Cars.
ROOS: Cars, yes. I say manufacturing because, again, we haven't spent any time on the program, unfortunately, talking about product development and the whole rest of building a car and suppliers.
LAMB: You've got to give the people a reason to go buy your book.
ROOS: Absolutely.
LAMB: It's only $22.50, so it's all in there.
ROOS: We've only talked about one chapter, really, and there are about 10.
LAMB: Why don't we stop there for just a second. If we've only talked about one chapter, what are the other significant chapters that you feel that the people if they are interested can find in the book?
ROOS: Yes, I'm glad we can do that. There's a chapter on product development that talks about how you conceptualize a new car and how much time it takes to develop it and how you go about developing it. There's a chapter on the relationship of assemblers with suppliers, which is absolutely key in an industry that has so many components that all have to come together. There's a chapter on the distribution system in which we present a radically different viewpoint of how people are going to buy cars in the future -- as opposed to going and picking a car off the lot which you may or may not like, being able to custom order a car and getting it within a matter of weeks. And towards the end of the book we talk about what we view as the post-national corporation -- how functions are going to reorient themselves.

You talked about the trans-plants before. Japanese companies not only are putting in manufacturing and assembly facilities, they are putting in research facilities, they are putting in design facilities. We're dealing with situations of international markets and international companies, and how those companies organize their activities and locate their facilities is absolutely key to the future. We talk about that in the book. We talk about the financial system.
LAMB: Are you optimistic ...
ROOS: Am I optimistic?
LAMB: ... about the American businessperson figuring it out, hanging in there with the percentage they've got now?
ROOS: I'm very optimistic. I'm optimistic for several reasons. Reason number one is we still have a technological advantage, and technology is extremely important. Optimistic because this is an international culture in this country. We come from many nationalities and many races and religions, and that's going to be absolutely key in the future in terms of people working with one another. That's a big problem in Japan. It's a culture that has not had this diversity. We raise that question in the book. This is not a book that just says Japan is good. There are some serious problems that Japan is going to have to figure out in terms of the future.
LAMB: As a matter of fact, I wanted to ask you about that. What other problems besides the fact that we are a very diverse culture and they're very homogeneous? Are there other problems about the way they do business?
ROOS: Well, they're a culture going through transition. All of the customs of the past which have influenced how the Japanese society operates -- for example, living at the company -- are being questioned at this point in time. Japan has to go through a fundamental re-examination of its role as a society and as a world citizen.
LAMB: You also say that in the seniority system, if you're 23 and 45 and doing the same job, the 45 year old makes significantly more than the 23 year old?
ROOS: Yes, that's correct.
LAMB: And if you leave that job and go to another company, you go back to the bottom of the heap.
ROOS: That's correct.
LAMB: Is that good or bad?
ROOS: There are good and bad points to it. I think that the idea of continuity within the organization and everybody working for the organization is extremely important, and that's part of it.
LAMB: We're out of time. This is what the book looks like, "The Machine That Changed the World." It's a joint project coming out of the Massachusetts Institute of Technology, MIT, in Cambridge, Massachusetts, and Dr. Daniel Roos has been our guest. Thank you for joining us.
ROOS: Well, thank you. I enjoyed it very much.
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