November 1996 € Volume 6 € Number 11

Anatomy of a Turnaround

By Tom Wallace

T om Mathers, age 82 and founder of the Mathers Fund, as quoted in Morningstar Investor for August 1996, stated simply: "I think business has a great future."

In the same article, Bill Berger, age 70 and founder of the Berger family of mutual funds claimed: "I think there's the most beautiful future ahead. I wish I was 30 years old so badly, I can't stand it. The whole capital system is really beginning to just work like a well-oiled clock."

Daniel Kadlec, in USA Today's Street Talk (June 11, 1996), cited a strong statistical relationship between U.S. stock market performance and the Japanese 22-year bull market that ended in 1989. Two separate studies -- one by Smith Barney and one by Piper Capital -- have confirmed a tight correlation between the Nikkei 225 index and the Dow Jones Industrials with a 13-year lag.

If the correlations hold, he stated, then "the Dow Jones Industrial Average could triple in the next six years." (emphasis mine) In other words, if the Dow in the 1990s and beyond continues to behave like the Nikkei in the 1970s and '80s, then we would see the Dow Jones Industrials at almost 20,000 by the year 2002!

Kadlec continues: "... the Dow-Nikkei comparison is compelling because as chief economist Ron Reuss at Piper Capital points out, it is supported by two powerful fundamental forces. One is the return of U.S. companies to global leadership in terms of productivity and competitiveness." Here again, the emphasis is mine. I've said more than once in this column that the U.S. has regained its role as the world's leading industrial nation. It's great to see Wall Street starting to get the picture.


A pat on the back
We have just lived through one of the most remarkable turnarounds in industrial history. We did it in record time, and also won the Cold War during the same period. As recently as eight to 10 years ago, we as a nation were in a deep funk over how we had let our industrial base decay and lost our competitive edge. We worried about becoming a nation of hamburger flippers, while all of the really good jobs went offshore. Think again. We're number one.

How did such a remarkable transformation happen? The people primarily responsible for this amazing turnaround are you and others like you -- the people who work in American manufacturing companies. You're the ones who implemented total quality, concurrent engineering, manufacturing resource planning, Just-in-Time, supplier partnering, etc.

Secondary contributors include:

• College faculty people -- who have been teaching the right stuff to the new people coming up
• People who staff the manufacturing centers across the country, whose mission it is to help manufacturing companies increase productivity and quality
• Some of the folks who've spent their careers in the consulting field -- and helping companies implement the TQMs, JITs, DFMs, and others

A good idea gone bad
What about business process reengineering -- did it play a part in this renaissance? Well, forgive me, but I really don't think so, at least not much of one. Reengineering, however valid its original intent, is a sad example of an initiative gone awry. One of the developers of reengineering, Thomas H. Davenport, wrote recently, "Reengineering didn't start out as a code word for mindless corporate bloodshed. It wasn't supposed to be the last gasp of Industrial Age management ... Once out of the bottle, the reengineering genie turned ugly."

No, it hasn't been reengineering that turned U.S. industry around; it's people and processes. It's people recognizing the centrality of our manufacturing base to our national well-being. It's people using superior processes to run their businesses better and more productively, providing higher and faster customer service. It's you -- and I salute you.


Boomers give the stock market a push
Back to the stock market. The other push behind this potential 20,000 Dow is, of course, demographics. The baby boomers have started to think about retirement; they don't trust Social Security to be there and they're becoming aware that they'll live longer than their parents, perhaps much longer. As a result, the boomers are on an investment binge -- not dissimilar from the high savings rates experienced in Japan, around 13 years or so ago.

Is there a downside to this rosy scenario? Of course: The Japanese stock market has been in the tank for years. It's not unreasonable for us to experience a sharp correlation, during the middle of the next decade, from this theoretical 20,000 Dow down to a less stratospheric level. But it'll most likely wind up a lot higher than today, one reason being we're so good at what we do.

A word of caution: Between now and then, and beyond, let's not let up. Let's keep getting better and better. The great American philosopher, Yogi Berra, said, "The game ain't over till it's over." Being globally competitive is one game that never ends.

Commentary Some companies like to have their suppliers ship on time. The following is taken from Home Depot's vendor manual: As long as you continue to provide The Home Depot with high quality products, here are 10 ways you can retain and increase your business with us: 1. Ship complete and on time. 6. Ship complete and on time. 2. Ship complete and on time. 7. Ship complete and on time. 3. Ship complete and on time. 8. Ship complete and on time. 4. Ship complete and on time. 9. Ship complete and on time. 5. Ship complete and on time. 10. Ship complete and on time. The "high bar" for superior customer service -- complete, on time, and also quick -- is being raised dramatically. How is your company doing shipping complete, on time, and with minimal lead times? Would the Home Depots of this world like to do business with you? How do your customers feel about how well you're doing

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