A key problem—one faced by many Japanese firms today—was that Showa’s market strategy was at odds with its new production methods. Showa had discovered how to build a complete boiler in four days (compared with sixteen to twenty weeks) and how to build all boilers to special order without paying a significant production cost premium, yet the firm was looking to overcome weaknesses in its Japanese markets by selling standardized products in the American market at the end of a three-month distribution line. At such great time and distance, no customization or rapid market response was possible. What was more, the export drive had hardly gotten into fall swing before the yen began to strengthen steadily, soon doubling in value from 260 yen to the dollar in February 1985 to 129 in February 1988.
Clearly something was wrong when a highly flexible firm was looking desperately on the’ other side of the world for standardized business, so President Yamamoto launched a rethink of Showa’s whole strategy and product line. He concluded that there was simply no future beyond replacement demand in Showa’s traditional product line of cast-iron boilers, even if some competitors could be forced out of the business. (Remember that to keep his core workforce busy and reap the full financial benefits of the lean transition, he needed to double sales very quickly at constant prices.) He also concluded that profitable exports through long supply lines were a mirage.
Yamamoto therefore decided that Showa should reverse course and work backwards, asking what its key technologies and capabilities really were and how these could be matched up with new needs among domestic consumers. As he looked at the booming Japanese economy it seemed obvious that the Japanese were under-spending on themselves—both in their public goods and in their private lives. Therefore, the most promising growth opportunity would be to build lower-volume, customized goods supporting a new and higher-quality lifestyle for domestic customers. However, Showa’s functional organization was ill-suited for this new task.
Excerpted from page numbers 224-225 of ‘Lean Thinking’ by Womack and Jones