HARRISON BOUDAKIN
PORSCHE'S JAPANESE CONNECTION
HOW THE MEN FROM THE LAND OF THE RISING SUN HELPED PORSCHE TOWARDS A NEW DAWN
It’s no industry secret that Porsche is a massively profitable cash cow for its owners, the Volkswagen Group. In a year when the Dieselgate scandal badly wounded its parent company, Porsche seemed to shrug off any concerns and just flew through 2015 on an absolute high. Last year, global operating profits leapt by 25%, hitting an all-time record of 3.4 billion Euros. And in 2015, Porsche SUVs were the real heroes: between the full-size Cayenne and the smaller Macan, they made up a staggering 68% of the company’s worldwide sales.
Here’s where the magnitude of the Porsche phenomenon becomes truly apparent: reports from a UK financial institution show that owners of Macans are actually seeing their cars increase in value on the second hand market by as much as 25%, thanks to a glut of buyers scrambling to get their hands on one right now and jump the eight month waiting list.
Porsche, it seems, is a car company that can do no wrong and lose no profit. In fact, it's very interesting to consider just how far removed the manufacturer is from its not too distant and very volatile financial past. And the story of how they went from near bankruptcy to global profit machine in just 25 years is a fantastic lesson about adapting business to change and the benefits of being willing to learn from the innovation of others. It’s also a tale that many companies - large or small - should be aware of.
In 1992, the word ‘chaotic’ could be used to accurately describe the Porsche company. Crippled by a global recession that killed demand for its sports car lineup, the company fell hard after the 1980s. In the US, which at the time bought half of all Porsche production, the company recorded only 3713 sales, one-ninth of what they managed in 1986. For an independent manufacturer with no major parent company to fall back on, Porsche was left to simply carry on building ageing models with no money to fund replacements, whilst facing stiff competition from new designs emerging from the increasingly-strong Japanese.
Porsche’s problem was a complex one. Beyond limiting themselves to selling products only in the sports car market, Porsche was also hardly what you’d call a modern mass manufacturer. The production line at Zuffenhausen was a mess. Half-built engines littered the factory floor. Employees could be found rummaging through disorganised bins of spare parts. There was no true production line; more a sort of collection of Germany’s finest craftsman and engineers pottering around and taking their own sweet time. Efficient manufacturing? No, not even slightly.
So while none of the Japanese competition could truly rival Porsche as a manufacturer of ‘driver’s cars’, they were streets ahead when it came to productivity and cost efficiency. In the early 1990s, it had become painfully clear that the money, space and time the Japanese needed to build a car nearly as good as a Porsche, was just a tiny fraction of what the Germans needed to make a real one. With costs through the roof, sales in a slump and the competition thriving, a corporate takeover of Europe’s last truly independent sports car maker seemed all but inevitable.
It was a man named Wendelin Wiedeking who would save Porsche from that fate. Having arrived in 1991, Wiedeking quickly came to see just how antiquated and insular Porsche’s production methods and thinking had become. For Wiedeking, this was an acutely cultural phenomenon - his experience at other German engineering firms had shown how far his country had fallen behind the world leaders when it came to fundamental manufacturing productivity.
Wiedeking had a reputation as a hardline manager, and as CEO, he only boosted that image. In ’92, just as the bottom started falling out of the world’s economy and Porsche’s losses soared past $150 million, Wiedeking began a series of 'study tours' to Japan. His aim: to learn from companies like Toyota and Honda about how to steer his company back to health. It didn't take long for Wiedeking to realise how effective the Japanese manufacturing techniques were, and so in a surprise move, he commissioned some of Japan’s finest minds to travel to Germany and forcefully introduce their philosophy of ‘lean manufacturing’ - which had so impressed Wiedeking - to the engineers at Porsche.
Inviting Satan to run the production line would have been less controversial. The story goes that the lead Japanese engineer, Chihiro Nakao, turned up on day one at Porsche’s engine assembly plant, walked through and asked Wiedeking in a loud voice, “Where’s the factory? This is a warehouse!” When Wiedeking assured him that it was indeed their engine factory, Nakao declared that the company could not possibly be making money like this, and that drastic improvements were to be implemented immediately. And with that, he turned, walked out, and set to work implementing his plans that very same day.
Suddenly, the Porsche production line staff found themselves being scolded by foreign men who barely spoke a word of German. The Japanese quickly introduced employee accountability and fastidiously streamlined every aspect of production. In a defining moment, Chihiro Nakao handed Wiedeking a circular saw and told him that the height of every shelf in the factory must be halved to speed up inventory flow. So, in what has become a Porsche legend, the German CEO grabbed the saw and began marching around the factory in a spectacular shower of sparks as he lopped the tops of every shelf. When a shocked production-line engineer demanded to know what was going on, Wiedeking walked over to him, power saw in hand, and threatened to cut off his balls.
“The Japanese were tough guys,” Wiedeking later said, “They were absolutely aggressive to the people. And we wanted it that way.”
Change, though, served the company well. Wiedeking’s decision to employ outsiders to save Porsche from itself was a courageous example of a company executive who understood that to be the best, you have to be willing to learn from the best - even if it means abandoning long-established ideas and swallowing your pride to learn about what is new and better instead. Today, Porsche is so renowned for its efficient production strategies that it actually teaches 'lean manufacturing' through its Porsche Consulting subsidiary.
This, however, is not really a story about lean manufacturing. Rather, it's about company attitudes and how a reluctance to evaluate how we do things can be self-defeating. Wiedeking’s willingness to think differently and challenge what was accepted set his company on the path to profit within three years, which would soon allow Porsche to implement the next phase of its renaissance: reinventing its product line in a bid to push themselves to all new heights.
The Japanese connection gave Porsche a new chance at life in the early 1990s. Join us next week when we explore what Wiedeking did next with his company’s newfound profits, and how Porsche’s happy present is a product of a kind of innovative and daring management that many companies can learn from.
Harrison Boudakin
21 August 2016