Pitfalls of Corporate Leadership: Crises of Management and Culture

By Francis J. Clauss

Our nation is still reeling from the 346 fatalities suffered on two flights of the Boeing 737 MAX 8 planes, the first in May 2017 and the second in March 2019. These are just one of the series of costly and deadly consequences of defective products described in this book. Besides the Boeing 737 planes, the examples of bad products include automobiles, electrical energy networks, pipelines, bridges and other large structures, banks, drinkable water, and financial services. While the immediate or proximate causes of the disasters have been bad design or bad production, the root or underlying causes have been bad corporate management and business cultures caused by corporate leaders. 

The final five chapters provide short essays on product design, production, quality control, management, and culture and what the leaders of our private companies and government agencies might do to reduce the pitfalls that have led to so many defective products and their dire consequences.

• Language: English
• Publisher: Outskirts Press
• Release date: Mar 30, 2023
• ISBN: 9781977263438

Francis J. Clauss

Francis J. Clauss, Ph.D. holds advanced degrees in both chemical and metallurgical engineering from the University of Michigan. His early industrial experience was in steel and chemical companies in the Detroit area, followed by materials research for aerospace systems at the National Aeronautics and Space Administration in Cleveland. His major experience was at the Lockheed Missiles and Aerospace Company (now Lockheed Martin), where he worked on materials research and nondestructive testing, and was Manager of Manufacturing Research for both Navy missile and Air Force satellite systems. He also participated in the mission failure analysis of several aerospace systems while at Lockheed. He was later an adjunct professor in the of Schools of Business of Golden Gate University and the University of California, both in San Francisco, where he taught production and operations management, quality control, project management, management science, and corporate financial analysis. He also served as a consultant to several Silicon Valley firms. He is the author of ten books on a variety of subjects.

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Pitfalls of Corporate Leadership

Crises of Management and Culture

All Rights Reserved.

Copyright © 2023 Francis J. Clauss

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PRINTED IN THE UNITED STATES OF AMERICA

OTHER BOOKS BY THE AUTHOR

Technology and Management

Surface Effects on Spacecraft Materials (Editor, 1960)

Engineer's Guide to High-Temperature Materials (1969)

Solid Lubricants and Self-Lubricating Solids (1972)

Applied Management Science and Spreadsheet Modeling (1996)

Corporate Financial Analysis with Microsoft Excel (2010)

Product Quality: A Crisis of Management and Culture (2016)

History

Alcatraz: Island of Many Mistakes (1981)

Cable Cars: Past and Present (1982)

Angel Island: Jewel of San Francisco Bay (1982)

Opera in Old San Francisco: A Brief Anecdotal History

(coauthor with Mary J. Clauss, 2013)

Italy: An Operatic History (2017)

DEDICATION

We are fortunate to live in a nation that combines

a social and political system of democracy

with an economic system of capitalism.

This book is dedicated to those

who profess and practice

the highest ideals

of each.

TABLE OF CONTENTS

Preface

PART I: THE IMPORTANCE OF GOOD QUALITY AND THE CONSEQUENCES OF BAD QUALITY

Chapter 1: A Management Concept of Quality

Complex Mechanisms

Chapter 2: Automobiles for a Changing World

Chapter 3: GM’s Defective Ignition Switch

Chapter 4: Volkswagen’s Toxic Diesel Exhausts

Chapter 5: Takata’s Exploding Airbags

Chapter 6: Boeing’s 737 MAX Disaster

Large Complex Structures

Chapter 7: Bridges

Chapter 8: Replacing the Eastern Span of the Bay Bridge

Chapter 9: Other Major Structures

Financial Services

Chapter 10: Wells Fargo Bank’s Accounts Scandal

Energy and the Earth’s Environment

Chapter 11: Enron’s Energy Scandal

Chapter 12: PG&E and Its Exploding Gas Line

Chapter 13: PG&E and California Wildfires

Chapter 14: Flint City’s Water Crisis

PART II: TOOLS FOR QUALITY PROUCTS

Chapter 15: Quality of Design

Chapter 16: Quality of Production

Chapter 17: Quality Assurance

Chapter 18: Quality of Management

Chapter 19: Quality of Culture

Bibliography

References and Citations

Nota bene: Numbers for any figures, tables, and references or citations begin anew at one in each chapter.

PREFACE

This book is a revision of the author’s earlier book entitled Product Quality, which was published in 2017. Its thesis remains the same – viz., good product quality is important, often a matter of life and death. We can and should do a better job of providing it.

A few examples and chapters from the earlier book are largely intact, others have been expanded and updated, and four new chapters have been added for (1) the two fatal crashes of Boeing 737 MAX airplanes, (2) the Wells Fargo fraudulent accounts scandal, (3) the Pacific Gas and Electric Company and the devastating California Wildfires, and (4) the deadly Flint City water crisis.

The reason for changing my book’s title to Pitfalls of Corporate Leadership is the persistence of corporate leaders for causing bad product quality and leaving others to suffer its consequences. As examples in both the earlier book and this one illustrate, although the proximate or immediate causes of bad product quality and its consequences have been defects in design, production, or quality assurance, the underlying or root causes were poor management and culture created by poor leadership at the top. This is reflected in the book’s subtitle, Crises of Management and Culture.

Our government is critical to balancing the roles and goals of our economic system of capitalism with those of our social and political system of democracy. The author hopes that this book will help readers understand better the problems we currently face and the roles of our government and private business so as to secure a better working relationship between the two.

…………

As you read the examples in the first 14 chapters, think not only about the technology of design, production, and quality control, but also about the roles of corporate management and culture. Again and again, you will find that mandates by autocratic leaders to reduce costs and expedite the development of new products or update old ones have caused the opposite. Instead of reducing costs or expediting work, they (1) introduced defects that led to thousands of injuries, and hundreds of deaths; (2) increased costs and delayed the development of new products or revising old ones; (3) emitted toxic gases into the earth’s atmosphere that have shortened countless lives; (4) resulted in severe financial losses for investors; (5) caused heavy losses and corporate bankruptcies; and, (6) destroyed companies that had been noted for creating products that were safe and effective and replaced them with managements and cultures that produced products that were deadly, costly, and overdue. These have been pitfalls of poor business leaders.

While maximum profit for stakeholders is a legitimate and proper goal of a private business, it is not an open-ended invitation to operate outside the safety and rights of their workers, consumers, the country they serve, and the world and its environment.

The first three chapters of the final five discuss the functions and responsibilities (F&Rs) for product design, production, and quality assurance that are critical to product performance and safety. The final two chapters discuss how poor managements and cultures caused bad product designs, bad production, and bad quality that then led to dire consequences. They tell what corporate leaders might do to correct bad business managements and cultures.

A Bit of Economic History

From 1929 to 1939, our nation and others suffered through the worldwide Great Depression. In 1933, the Financial Act of that year incorporated the Glass-Steagall provisions of 1932 that had separated investment banks and commercial banks. Following the end of World War II in 1948, as industry converted from a wartime to a peacetime economy, our nation emerged as a great power.

In 1999, the enactment of the Gramm-Leech-Bliley Act (GLBA). pulled down the legal barriers that separated investment banks and commercial banks. GLBA and later legislation allowed investment banks to acquire or merge with other financial services, such as credit card and insurance companies.

The Bitter Legacy of GLBA

The enactment of GLBA led to the Great Recession of 2007-2009, after which the financial sector of our economy was bailed out by taxpayers. It also upset the traditional role of investment banks, which had been to provide capital to found private companies and to fund their acquisition of factories, equipment, and other fixed assets needed to design and produce goods or provide services for customers.

GLBA allowed investment banks, commercial banks, insurance companies, credit card companies, and other forms of financial services such as equity financing, mutual funds, hedge funds, and venture capitalism. GLBA has also encouraged the formation of holding companies, in which the. parent (or umbrella) entities are financial services that hold the ownership or the controlling stock or membership in other companies. which are known as subsidiaries of the holding company. It is the subsidiaries, not the holding companies, that design and produce goods or provide services to customers. Although leaders of holding companies do not actively oversee or manage the design or production of goods or services, they can and do dictate conditions for their design, production, testing, costs, and delivery dates which subsidiaries are expected to satisfy.

The subsidiaries of the holding companies now take orders from leaders of the holding companies, whose primary goal is profit from the operation of their subsidiaries. Many harms from this merging of roles and goals are illustrated in the first 14 chapters of this book.

While the leaders of banks and holding companies profited handsomely from GLBA, consumers and the public suffered. Among the consequences of GLBA and related acts were unsafe products that killed, injured, and caused billions of dollars in losses for holding companies, their subsidiaries, and private investors.

Instructions from holding company leaders to the managers of their subsidiaries were usually equivalent to run it like you own it – which carries the tacit message and don’t tell me of any problems that you are being paid to solve yourself or you will be fired. In effect, it created an information firewall that prevented bad information from reaching the leaders of a holding company, thereby limiting their liability for what was done to perform what they had directed or mandated their subsidiaries to do.

The weak point in this system of limited liability holding companies and their subsidiaries is the lack of a management informa-tion system that reports critical activities in the subsidiaries to a holding company leader. This has led to harmful consequences, as illustrated by examples in the first 14 chapters of this book. In these examples, the harm caused by bad products from subsidiaries was directly related to performance mandates from financial leaders of the holding companies that controlled them.

While the subsidiaries followed the dictates of the leaders of their holding companies, their relationship was structured and managed to protect their leaders from criminal liability for the consequences of their directives or mandates. That is, the holding companies became limited liability companies or LLCs.

In none of the examples in the book has the top leader of a holding company been found criminally guilty of causing harm and sent to jail, though some top and lesser leaders have paid fines of millions of dollars.

While the leaders of banks and holding companies profited handsomely, consumers and the public suffered. Among the conse-quences of GLBA and related changes were unsafe products that killed, injured, and caused billions of dollars in losses for holding companies, their subsidiaries, and private investors.

There is little or no reason, outside of what is legally termed willful ignorance, for top leaders not to be fully informed of actions by or within their subsidiaries that are causing the design and production of defective products.

Functions and Responsibilities

A proper management system must be an open system that provides information about delays and problems as well as cost overruns so they can be responded to quickly and effectively. The information must be accurate, complete, and timely. It should include a secure system for collecting and responding to complaints from whistleblowers, and it should welcome suggestions and ideas for improvement.

Books have been written, courses have been taught, and large computer-based systems have been available for the complete scope of management functions and responsibilities for many years. There is simply no legitimate excuse for limited liability companies that do not keep presidents and CEOs fully informed of important day-to-day details of what’s happening in the companies they lead. What should be sufficient is an administrative staff that reports directly to the top leader and a modern management information system that’s used properly. There is no reason for a top leader not to know important details of what’s going on below them other than willful ignorance, as examples in the text illustrate.

Those who administer, own or control holding companies should not be allowed to dismiss their own responsibilities by instructing the leaders of their subsidiaries to run it like you own it – with the tacit admonition and do not tell me of any problems you are being paid to correct yourself or you will be fired. I do not want to hear about your problems. Such action can create information firewalls to protect dictatorial leaders from criminal liability for their orders.

So-called limited liability companies should not be allowed to empower leaders to dictate orders for which they are not ultimately responsible for the consequences. It is wrong – dead wrong – to free business leaders from criminal responsibility for the consequences of defective products caused by their mandates.

The Role of Our Government

Our government is the kingpin that holds our economic system of capitalism in balance with our social and political system of democracy.

Government oversight and regulation of private business is an essential counterbalance to the mandates of business77 leaders for more profits, regardless of their consequences. That is the role of the National Highway Traffic Administration for automobiles; the role of the Federal Aviation Administration for commercial airplanes; the role of the Food and Drug Administration for foods and medicines, the role of the Environmental Protection Agency for protecting the earth from discharges of toxic substance into the ground, waterways, or the atmos-phere, the role of the Consumers Financial Protection Bureau for financial activities, and the role of the Department of Justice for taking legal action against violators of our laws and rules. These and other agencies at the federal, state, and municipal levels are our means for holding leaders of private businesses criminally liable for issuing mandates that result in defective products that harm consumers, investors, and the public.

We should not allow political lobbyists, who are being paid millions of dollars annually by leaders of holding companies, to influence or cause changes in the laws that affect product safety and other qualities or that reduce budgets for enforcing them. Corporate leaders should not be allowed to hide liability for criminal responsibility for actions or negligence that harm workers or buyers.

We should correct the tax laws and plug the loopholes that reward the misbehavior of corporate leaders, and we should reestablish and enforce their social and financial responsibilities as members of our social system of democracy.

Government oversight and regulation are intended to work as a partner of private business and to share the roles and goals of private business with those of our social and economic system of democracy.

It is time to end the combination of the privatization of profits for corporate greed with the socialization of risk on the backs of private taxpayers. We should enact laws to provide stronger oversight and regulation of industry, and we should provide adequate budgets to pay for implementing them by transferring tax income from Wall Street to appropriate government agencies and to businesses, workers, and customers on Main Street. And we should end the nonsense of allowing leaders of limited liability holding companies to avoid criminal responsibility for causing harm by what goes on below them.

Final Comments

My examples of defective products and their dire consequences are distressing examples of poor leadership in some of our most important private businesses. They have already been the subject of many articles and books by journalists, reporters, economists, lawyers, business professors and others, who have written about their causes and consequences from different backgrounds and points of view.

As an engineer, I have discussed some of the technical aspects of product design, production, and quality to help readers understand how faults in business management and culture have been responsible for the consequences that others suffered, and why stronger govern-ment oversight and regulation are needed to prevent their continuing.

Francis J. Clauss, Ph.D.

Palo Alto, California

March 6, 2023

Chapter 1

PITFALLS OF CORPORATE LEADERSHIP

Those who ignore the lessons of history

are doomed to repeat the mistakes of the past.

To put the book’s subject into perspective, we begin with a bit of pertinent history, when imports with better quality eroded American automakers’ market share and reduced their profits.

POST-WORLD WAR II

During World War II (1939-1945), which involved most indus-trialized nations, factories converted from peacetime production of civilian goods to wartime production of military arms and supplies. In the nations where battles were fought, homes and factories were destroyed. Those in the United States survived intact.

After the war ended, U.S. industry converted quickly from wartime to peacetime production, and our nation enjoyed a seller’s market at home and abroad. Civilians, starved for automobiles, furniture, refrigerators, and other household appliances they could not purchase during the war, were ready with money and eager to buy.

It was truly a sellers’ market. Customers meekly accepted poor quality and paid to have defects corrected. Factory managers were smug with the bonuses they received based on the number of products they pushed off the ends of assembly lines, regardless of their quality. An average of 25 percent of automobiles, fresh off assembly lines, had to be reworked to fix defects before they left the factory. Others were delivered to customers, defects and all.

It really was not that business executives did not know how to do better. It was because they really did not care – and that was simply because they did not need to care. Our economy was growing rapidly, and business and profits were booming. Quality went to hell because it was not needed to compete in the sellers’ markets of the time, and business leaders earned bonuses for exceeding production targets.

Should anyone expect otherwise? Is not making money the primary purpose of every for-profit business and its leaders?

The situation changed as other nations rebuilt factories destroyed during the war and reentered world markets. In 1955, with Japan and Germany still rebuilding their war-ravaged economies, Volkswagen Beetles from Germany, Japanese Toyotas, Swedish Volvos, and other imports of better quality were becoming familiar sights on U.S. streets and highways. They were welcome alternatives to American-built automobiles. A study in 1969 reported that a third of those who purchased American cars judged them unsatisfactory.

The shift to imports accelerated in the 1970s, when the first round of oil-price shocks hit. Japanese cars, which provided better quality and lower gas consumption, then became smart buys for many Americans who previously would never have considered an import.

Competition returned with a vengeance. Products of other nations became attractive alternatives in markets where America had before reigned unchallenged. U.S. automakers were slow to react. Their first response was an exhortation to Buy American, which they spent millions to broadcast in public media. The slogan simply ignored the pleas for better quality by many Americans and by dealers selling American automobiles. Customers responded by ignoring American automakers and continued buying imports.

Competition is a vital part of the role of capitalism in our social and political system of democracy. Unless controlled, monopolies can become enemies of good quality and low prices. They remove an important spur that goads managers either to do better or to fail. The competition from imports eventually pushed many American manufacturers back to their drawing boards to design – and then produce – automobiles and other products of equal or better quality than those from other nations. Companies that did not correct problems of bad quality went out of business or merged with those that did.

DR. DEMING AND HIS MANAGEMENT PHILOSOPHY

The man primarily responsible for improving product quality during the post-World War II period was Dr. W. Edwards Deming. The good doctor’s cure for bad quality began in Japan.

Following the end of World War II hostilities in 1945, Allied Forces occupied Japan under General Douglas MacArthur as Supreme Commander. As Japan's leaders began rebuilding their nation, they realized the need for a census of their nation’s population and requested help. General MacArthur relayed the Japanese request to the U.S. government in Washington, where it made its way to the U.S. Census Bureau. The Census Bureau responded by sending Deming to provide the help that Japan needed.

Deming was an adviser to the U. S. Census Bureau. He was well known for applying statistical methods to industrial production and management. While Deming worked in Japan on the census, the Japanese Union of Scientists and Engineers (JUSE) took note of his presence. They recognized him as a foreign expert who could help them, and the managing director of JUSE invited Deming to attend and participate in one of their meetings.

On June 19, 1950, Deming presented his first lecture in Japan to members of JUSE. He so impressed the attendees that they invited him to teach statistical process control (SPC) as part of Japan's reconstruction efforts. As a result, from June to August 1950, Deming trained hundreds of Japanese engineers, managers, and scholars in quality concepts and SPC. The Tokyo Chamber of Commerce also took note, and they invited Deming to address fifty executives of Japanese companies. Deming repeated his message to Japan’s top business leaders. He told them that improving quality would reduce expenses while increasing their productivity and market share.

Many Japanese companies embraced Deming’s teachings, and they quickly put his lessons to work in their factories. Big improvements followed in the quality of Japanese automobiles and other products. It was a bitter pill for U.S. business executives to swallow ― to admire the quality of Japanese products, once derided as shoddy, and to feel disgrace in how American quality was now wallowing in the poor quality it had before accused others of.

In the summer of 1951, the London Express headlined the following news: JAPANESE NYLONS. AND THEY ARE OF GOOD QUALITY. No longer was Made in Japan synonymous with poor quality. Within four years of Deming’s visit, customers worldwide became eager to buy Japanese automobiles and other products in preference to those made at home.

Japan’s Toyota is perhaps the prime example of the quality achieved by applying Deming’s teachings. For many years after Deming’s help, Toyota automobiles earned a sterling reputation for quality. Toyota became recognized as a brand that stood for safety, reliability, and positive customer experience – the gold standard of automotive quality.

Deming became well respected in Japan. His portrait is said to be one of three that hang prominently in the lobby of Toyota’s headquarters. Another is a portrait of Kiichiro Toyoda, who founded the company in 1937, and the third is the company’s current top executive. The Deming Prize was established in Deming’s honor in 1951. Awarded annually, it is the oldest and most widely recognized quality award in the world.

Unfortunately, as the year 2000 approached, Toyota moved away from what Deming had taught and ran into problems. That part of Toyota’s history is recounted in the next chapter. It is the story of why quality must be a continuing part of any successful business venture, however large or small. In the meantime, Japanese competition forced a response, and companies in the United States sought Deming’s help.

A MANAGEMENT TURNAROUND

In 1980, while American automakers floundered against Japanese competition, NBC featured Deming on a broadcast titled If Japan Can … Why Can’t We? At long last, Deming was rediscovered in his own homeland.

In 1981 Ford Motor Company became one of the first American corporations to seek help from Deming. To Ford's surprise, Deming talked not about quality but about management. He told Ford’s top executives that the primary cause of 85 percent of Ford’s quality problems was due to failures of its leaders. He spoke about the culture of quality proclaimed by the company’s top executives – then contrasted their lofty claims of quality’s importance with the real culture of bad quality that trickled down from them to the factory floor.

The details of Ford’s response are given in the next chapter. The important thing is they worked. In 1986, Ford came out with a profitable line of cars, the Taurus-Sable line, and Ford became the most profitable American automaker. For the first time since the 1920s, Ford’s earnings exceeded those of archrival General Motors (GM). Ford led the American automobile industry in improvements. Profits that followed confirmed that Ford’s success was no fluke, for they continued to exceed GM's and Chrysler's.

Following his success at Ford, Deming was invited to consult with other U.S. businesses. His language was blunt and to the point. His target was company leaders, and the message was the same he delivered earlier at Ford and Toyota. He repeatedly blamed American top executives for 85% of industry’s quality problems – not the workers on factory floors, not the professional staffs of engineers and designers, not the supervisors, not lower or middle managers, but top management – the company CEO's and other leaders who failed to promote the organizational functions and responsibilities and the corporate cultures of quality that were needed to make products of good quality.

Instead, American leaders and executives had been overly focused on short-term profits, cost cutting, and meeting launch dates for new models or products. They gave bonuses, promotions, perks and other incentives to meet those goals. As a result, bad quality was unintentionally encouraged, and its costs were hidden in an accounting system under the term called G&A – MBA jargon for General and Administrative expenses that were accepted as the costs of overhead for which no one was held responsible. In fact, it was CEOs and other top leaders that were responsible for the costs, as well as for defective and unsafe products that harmed people.

QUALITY

A useful management maxim teaches, You cannot manage what you do not measure. To reduce the abstract term quality to a concept that can be defined and measured, we separate it into five parts: Quality of Design, Quality of Production, Quality Assurance, Quality of Manage-ment, and Quality of Culture. Having done this, we can manage product quality by following the same sort of steps one follows to manage financial and marketing operations. These five qualities are discussed in the final five chapters, following examples in the first fourteen of bad quality products and their causes and consequences.

Design: A product’s quality of design describes all the measurable characteristics a product should have to satisfy the needs, wants, costs, and desires of its intended customers. These are typically set forth in a set of part and assembly drawings. They include, for example: dimensions and tolerances; surface finishes; lists of materials and components, including their specifications; and descriptions of the performance characteristics of finished products (e.g., miles per gallons of fuel for automobiles or, memory size and processing speed for computers). For automobiles, the ease of driving and riding comfort must be defined for such items as turning torque of steering wheels, braking power at different speeds, leg room, back support, interior noise level at high speeds, space for luggage. And on and on for other details that affect a specific product’s quality.

Establishing specifications for a product’s quality of design is somewhat like setting detailed budgets for financial management and setting milestones and schedules for marketing management.

Production: The quality of production is measured by inspection and testing. These are done at appropriate points during production and on finished products. For good quality of production, the quality of finished products should match or exceed the quality of a product’s design specifications. This is similar like the use of cost accounting to see whether or not costs are within our outside established budgets, and using schedules see whether or not actions are being completed on time, are late, or are early. Variances between accomplishments and plans — that is, between what actually is and what was intended — are reported to management’s attention for any corrective actions, stops, or go-aheads that are needed.

Quality Assurance: This is a general term for quality matters that must be performed as part of the design and production of products. For reasons that will be discussed later, a quality assurance organization must be independent of the management for the design and production organizations it supports. Just as the design and production operations report to top management in a company’s management hierarchy, so must its quality assurance organization.

Incoming materials, supplies, subassemblies, components, and other items that will be used in finished products must be inspected and tested to ensure they are of the quality needed and used in finished products. In-process inspection and testing is used to insure that steps in production are being done properly and to make needed corrections promptly in order to avoid bad finished products and the need to repair defective ones.

Management: Proper management includes (1) assigning the functions and responsibilities (F&Rs) for accomplishing a company’s mission to a well-organized set of functional organizations with the capability to complete them, along with adequate manpower, money, time, equipment, and facilities; and (2) creating and maintaining a management information system (MIS) that provides complete and timely accountability and transparency across the entire company or corporation. This is much like creating an organizational structure for managing financial and marketing matters and providing a common database for managing them.

Culture: The Chief Executive Officer and other top executives provide the leadership and inspiration to make employees feel they are responsible and appreciated members of a team and are dedicated to doing their best to achieve the company’s objectives. It is important that top executives: (1) include quality goals as well as design, production, financial, and marketing goals in corporate strategy; (2) are informed of how well all quality goals are being reached and keep all employees informed of the same; and (3) react positively and constructively to take correct action when any of the quality goals are not reached.

The examples in the thirteen chapters that follow illustrate how each of the five business components – design, production, quality assurance, management, and culture -- affects product quality and the consequences that can follow when any of them is done poorly. The final five chapters suggest how these five components might be better directed, managed, and controlled to provide products of good quality while satisfying goals for cost and timeliness. The products include automobiles, airplanes, bridges and other structures, electrical energy, banking and financial services, and potable water.

CORPORATE AND EXECUTIVE LIABILLITY

The consequences of bad product quality can be severe. They are illustrated by the examples in the chapters that follow. They include both direct and indirect costs, such as:

Injuries and fatalities of customers, workers, and bystanders;

Fines and financial costs for compensating those who were harmed by the consequences of bad product quality;

Costs to redesign and correct a product’s bad quality problems;

Financial losses for investors because of the lowered value of their stock holdings in companies found guilty of bad product quality;

Financial losses suffered by suppliers to companies whose business declined because of bad product quality;

The economies of cities and states whose industries declined because of bad product quality;

Bankruptcy of companies from the consequences of bad product quality; and

Prison sentences for only a few leaders of companies found guilty of unsafe working conditions or poor management that led to bad product quality and its consequences.

As many examples in the chapters that follow demonstrate, although bad designs or bad production were the proximate causes for bad products and their consequences, the underlying or root causes were bad management, a bad company culture, or both.

With proper management and culture, defective designs or production are recognized by thorough checking and testing as a product is developed and designed, and by full-scale testing of finished product prototypes. Time is taken to get it right by correcting design flaws and production faults.

OUR CHANGING ECONOMY AND DEMOCRACY

Our political and economic structures have changed much in the last fifty years. For example, instead of competition between more than a dozen major automakers in Michigan, as there once were, there are now only four, and the competition with other automakers has become worldwide. The United States once had a half dozen companies that competed in the design and production of large commercial airplanes; today there is only one, and foreign competition is growing.

The changes in worldwide competition raise two important issues with bad product quality: (1) the proper roles of city, state, and federal government in the oversight and regulation of private business and (2) the accountability of business leaders, including presidents and other top executives, managers, and directors for the actions of their employees and their companies.

Government as a Business Partner

To satisfy the needs created by worldwide competition, we need a better understanding and collaboration between private industry and government agencies. The benefits would include products of better quality at lower cost, better competitiveness in world markets, and a more livable planet earth.

To carry out its functions and responsibilities for the oversight and regulation of private business, our state and federal agencies need the authority of just laws, skilled and dedicated personnel, and adequate budgets. At the federal level, those needs are provided by the National Highway Traffic Safety Administration, the Federal Aviation Administration, the Food and Drug Administration, the Environmental Protection Agency, the Consumer Financial Protection Bureau, and other agencies. Such agencies are intended to create stable, effective partnerships with private businesses that benefit not only the private businesses but also people and the world’s environment.

ENDING COMMENTS

Our ultimate product is the world in which we live and work. We are indeed fortunate to live in a nation with an economic system of capitalism combined with a social and political system of democracy.

Regardless of the roles we play as citizens and workers, our well-being depends on how well we all work together. Our federal government was founded as a partner of each citizen, as stated in the first three words of the preamble to our Constitution — "We, the people — and the words that follow.

Examples in the text illustrate the serious financial and human consequences that are being caused by defective products. They demonstrate the need for reforms in both private companies and financial systems and tighter government oversight and regulation of both.

………..

Chapter 2

AUTOMOBILES FOR A CHANGING WORLD

The conditions under which the automobile industry now operates have changed substantially from the days when the United States was the dominant automaker. There were once more than a dozen successful U.S. automakers competing against one another. After the U.S, entered World War II on December 7, 1941, they converted to making tanks and other military equipment, and Detroit became the arsenal of democracy. When the war ended, they returned to making automobiles.

As foreign automakers rebuilt their plants and reentered U.S. markets, the number of U.S. automakers gradually decreased. By the latter part of the 20th century, the three major American automakers – Ford, General Motors, and Chrysler -- had absorbed all the others that had not failed, and the Big Three were the only ones still making and selling cars. in the United States. Many other nations had become major automobile producers and competed in international markets. American automakers now have competition from many European and Asian automakers, with more still to come from China.

This chapter provides an overview of the shifts in automobile design and quality problems since the end of World War II. It concludes with some observations for the future.

FORD MOTOR CORPORATION

The modern automobile industry began with the Ford Motor Company. The company was founded by Henry Ford and incorporated on June 16, 1903. Its headquarters are in Dearborn, Michigan, and it has factories around the world. Ford is well remembered for pioneering the system of sequential manufacturing steps with interchangeable parts on large-scale moving assembly lines.

The Edsel Flop, 1958-1960

Ford’s Edsel models were planned to make significant inroads into the market share of both General Motors and Chrysler. The company developed and manufactured Edsels during the 1958, 1959, and 1960 model years. At the time of its introduction, it was the second-largest launch for any new car brand to date.

Technically, the Edsel was an engineering triumph. Its then innovative features included: a rolling dome speedometer, warning lights for such conditions as a low oil level, a system for shifting the transmission gears that was actuated by pushbuttons in the center of the steering wheel, ergonomically designed controls for the driver, and self-adjusting brakes. The Edsel also offered such advanced safety features as seat belts and child-proof rear door locks that could only be opened with a key.

Despite its innovations and the technical quality of its design, the Edsel was never popular. It sold poorly, and the company lost millions of dollars. Ford ended producing the Edsel late in 1959. By then, it had become famous as an example of corporate failure to add quality of production to quality of design. The high quality of the Edsel’s technical design was insufficient to prevent failure when coupled with mistakes by top management.

The Edsel was also a failure of Ford’s marketing. It competed against its own sister divisions. It was a new make without established brand loyalty. Buyers had many other choices – not only for other Ford models but also for well-established automobiles from General Motors and Chrysler. Car buyers had become attracted to economy cars, and a large car like the Edsel was too expensive for many American buyers who were hooked on Volkswagen Beetles from Germany.

There were strong controversies over the aesthetics of its design. Most memorable was its horse collar or toilet seat grille. According to a popular joke at the time, the Edsel resembled an Oldsmobile sucking a lemon. Among other design complaints was the placement of the pushbutton automatic transmission selector in the steering wheel hub, which was the traditional location of the horn button. This caused some drivers to shift gears inadvertently when they intended to toot the horn.

There was also a dismal failure in the Edsel’s quality of production. For example, 16 percent of Edsel owners reported poor workmanship, with complaints ranging from faulty welding to failure of the power steering. In its test car, Popular Mechanics magazine noted these problems and others, such as the trunk's leaking badly in a storm and the odometer's showing fewer than the actual miles traveled. Reliability was also a problem with the 1958 models.

Business analysts blamed the flop on dissension and weak support for the product by Ford executives. Ford never dedicated a stand-alone factory for assembling Edsels. Instead, the first Edsels were assembled alongside other Ford models. The longer-wheelbase Edsel models, Citation and Corsair, were produced alongside large Mercurys, while the shorter-wheelbase Pacer and Ranger models were assembled alongside smaller Fords. Many mechanical flaws followed. Workers had problems assembling Edsels on the same moving assembly lines with other Ford models. It required workers