How Successful Manufacturing Companies Exhibit Clear Vision through Concentration and Persistent Effort
Date March 26, 2019
Good manufacturing companies are overwhelmingly superior to their competitors in adding value to their products.
Management at these companies do not have the ethos of (1) "Create a valuable product with our technology," but (2) “forecast the future market with a careful eye, draw a clear vision of creating a product with value in the market that is not currently available, and develop new technologies to realize that product." Between (1) & (2), the main point is that the logic of strategy is reversed as shown in the figure below.
(1) Technology (Process = P) → New Value (Value = V)
"Use this P to create V!"
(2) New desirable value (Value = V) ← Technology (Process = P)
"Develop a key P to create this V!"
Many of the good manufacturing associates I have worked with in the past, and many competing manufacturing companies that have been shown to be overwhelmingly competitive, have their own clear vision in the (2) concept. And focusing with tough eyes and steadily working on difficult tasks to achieve that vision.
Through experience, hardship, and effort these companies have the ability to see the values of goods that cannot be found in other companies and the techniques and processes that will realize them. These companies will become overwhelmingly strong in the industry.
Does such a company actually exist? Let's look at the case of Toray Industries, Inc., which is known for creating carbon fiber into high-value, high-end materials.
Toray's history begins with Toyo Rayon Co., Ltd., established in 1926. Toray, which develops textiles with chemical fibers and created a vision that had been a secret during World War II: superior touch, ability to be dyed, and cost-competitive synthetic fibers for clothing. Soon after the war, Toray quickly developed products such as nylon, tetron, and shiluck, and put them on the market. Over the course of about 20 years, it has realized these advanced materials products.
Additionally, Toray’s visions included completely new uses of molding resins such as plastics and chemical materials. Since 1959, they have developed molding products such as Lumilar, Toyorac, and Trefan.
Toray recognizes itself as an advanced material maker. At this time, the company, which began developing materials for molding resins, has developed confidence, and Toray's growth will be realized only by finding new value that almost no one else imagines. Torey also has a strong sense of mission: create a light, strong, flexible structural material that exceeds current specifications. In that the sense of mission, future value can be realized by raising continually raising the bar.
If, with a lot of traditional businesses, Toray was stuck with an abstract vision and were making prudent and conservative business decisions, they would not have been able to control the market for chemical materials that they significantly changed.
Toray engineers were able to intuitively find out the value of carbon fiber in the late 1950s. Although it is a fiber, it is not a textile fiber for clothing that Toray has developed until now, but it was a material with a completely different property from resins such as Lumira and Trefan. Toray judged that it could further improve its lightness and toughness, and create advanced materials (carbon fibers) that could lead to future structural materials and executed development investment. It was a time when carbon fiber was still only known as a material for fishing rods and golf shafts. Over 30 years, Toray launched carbon fiber reinforced plastics.
"It takes a certain amount of time to develop and commercialize materials," said Toray’s CTO Vice President, Keiichi Abe. "Taking carbon fiber as an example, Toray started research in 1961. Ten years later, it began commercial production in 1971, and is currently used in many aircraft such as the Boeing 787. As many overseas chemical companies withdrew from or reduced carbon fiber development, Toray saw its value as a material, and long-term efforts have been made in anticipation for aircraft applications in the long run ." Keiichi added, “The ability to identify materials that add value to the company and its strength are the benefits of Toray's research and technology development and the background for creating true innovation.”
Toray's sales and R&D cost ratio has been largely constant for many years. In other words, in situations where the top line (sales volume) is sluggish, R & D expenses are reduced, and R&D efficiency and methods are elaborated. In addition, it is said that the leading edge of the product group is evaluated with severe eyes, and even if the product now produces business revenue, it may stop subsequent development.
Nylon development investment stopped 10 years after its latest product development, and Tetron stoped about 15 years from its first commercialization.
Management that constantly evaluates vision and focuses on development investment can make it possible to achieve both capital profitability and sustainable growth. Keiichi further explains, "(This) proves the fact that Toray's research and technology development has been carried out with superior forethought.” Toray's return on invested capital (ROIC) in recent years has been stable at least 1.0 point above Japan's manufacturing average (5.34%). This is further proof that value added processes are effective in resource investment.
The essence of the competitiveness of a manufacturing company is the overwhelmingly high product value delivered to the changing market, not the process to realize it.
It is management's leadership that must first determine and then act on what has value. A leader is always required to draw a clear vision, and based on that vision, strategically execute a drastic investment.