Australian corporations cannot afford to embrace the deep-seated sense of unreality that has become entrenched in both treasury and the government.
So this morning I want to focus on what just one company is doing because its action will need to be copied in many industries – especially as major industrial relations changes are unlikely before 2016.
Unbelievable as it might seem to most Australians, the chief of Toyota Australia, Max Yasuda, is staking his reputation on a plan to make Toyota’s local manufacturing operation profitable in four years on the basis of a local currency that is at parity with the US dollar.
The five-year plan started a year ago and is on track. Yasuda’s first step was to change the culture of his Australian management. Toyota management, like so many other Australian manufactures, had fallen behind world best practice. Associated with that management problem, Yasuda had to face the uncomfortable truth that when Toyota shifted its Port Melbourne manufacturing to its new Altona facility in 1994 it maintained a working tradition that was of a bygone era – the plant was new but the work practices were outmoded.
Last year unions complained bitterly when Yasuda retrenched more than 300 people, many of who were long time union organisers. But this action was a key to getting his five-year Toyota Australia plan started.
But much of the knowledge of how to keep Toyota manufacturing in Australia is actually in its employees – they know how to make Toyota more efficient. This reverses all conventional management practices but is exactly what Ernst & Young found when they surveyed 2,100 Australian employees in seven industries who explained that they knew how to work 20 per cent smarter (not to be confused with 20 per cent harder). The Ernst & Young ‘Productivity Plus’ study estimated that this untapped employee knowledge represented a $305 billion productivity potential in the Australian economy (Young workers are wasting more time May 8).
At Toyota the processes of educating mangers to tap the knowledge of employees – in itself a huge cultural change – is well underway.
But operating Australian motor manufacturing is not easy because we have the lowest tariffs in the world. This means that in Australia there are more makes and models than in the US – and with the high Australian currency local production naturally struggles. In Australia during 2012 Toyota sold 218,000 of the 1.1 million cars sold in Australia but only 36,000 were made here. However another 74,000 – twice local consumption – Toyota vehicles were exported.
The Yasuda plan for Toyota in Australia requires that export volume be increased to enable Toyota to get its production closer to the 150,000-vehicle capacity. That requires head office to allocate Toyota Camry markets to Australia. It also needs local component suppliers with the same management culture, almost certainly using their talents to make and export non-automotive products. And Toyota has found that there are provisions in existing employee agreements that help the change.
In Switzerland manufacturers have cottoned onto the fact that if plants are modern and managers empower workers there can be surprising results despite a high currency. In Australia the food processing industry had the same cultural problem as the motor industry so the plants had to be shut, managers and workers retrenched so new plants with modern cultures could start up. In many ways Toyota’s plan to change the culture of an existing plant is harder than starting again.
General Motors and Ford will also need to join Toyota and set up a plan to make money on the basis of parity with the US dollar.
Of course the good news is that once the mining investment boom runs down and currency markets understand that the mining boom over, there is likely to be a substantial fall in the Australian dollar, which transforms the outlook for those manufacturers who have made the cultural change (Buckle your seatbelts for an Australian automotive revival April 17).