Firms Can Get Smart by Really Listening

From a purely jingoistic American perspective, the most depressing comment I’ve heard about U.S. competitiveness was uttered by Applied Materials Chief Executive James C. Morgan.

“No question,” he said. “We learn more from our Japanese customers than we do from our American ones. . . . That’s beginning to change, but much of our success in the rest of the world comes from what we learn from our best Japanese customers.”

Applied Materials is as high tech as they come. Morgan’s company is the largest independent producer of the wafer fabrication equipment so critical in manufacturing silicon chips. That market is global, relentlessly competitive and extraordinarily capital-intensive. It’s innovate and invest--or die.

Even though Applied Materials’ stiffest competitors are affiliated with Japan’s biggest electronics concerns, more than 40% of the company’s revenues come from Japan. (Indeed, Morgan has recently co-authored a book on participating in the Japanese market.) The ability to capitalize on knowledge gleaned from working with some of Japan’s most demanding chip manufacturers has been key to Applied Materials’ global growth. The insights and ideas that ignite innovation at this ostensibly American company increasingly come from Japan.

That’s depressing. Harvard Business School competitiveness guru Michael Porter stresses in his studies of globally successful businesses that smart customers are key to assuring that suppliers remain energetic and innovative. Smart customers get smart suppliers; stupid customers get stupid suppliers. By that measure, a lot of American companies qualify as morons.

Procter & Gamble Chief Executive Edwin L. Artzt tells the story about a problem the consumer products giant had with its Pampers disposable diapers. It seems the company was having trouble mass-producing the thin rubber leggings that keep the Pampers from leaking. According to Artzt, the thinness of the rubber caused it to “creep” and made high-speed production of Pampers virtually impossible. The problem would cost the company millions.

In desperation, Artzt says, Procter & Gamble did something that it had never done: The company invited the supplier into the plant to look at the problem. The supplier looked at the problem and said two words, “Golf balls.” It turns out that the supplier was the leading manufacturer of the ultra-thin, tightly wound rubber filaments that form golf ball cores, which gave the supplier the expertise to solve P&G;’s production problem with a minimum of fuss and expense.

This happened less than a decade ago, and Artzt’s Procter & Gamble still has a reputation for clutching to its “proprietary” manufacturing and marketing procedures. How many other problems could be solved or opportunities created if P&G; were more open with its vendors?

Companies such as Procter & Gamble have a wealth of resources available to them by displaying the simple willingness to learn from customers and suppliers. But the reality is that most companies are too busy doing “market research” to learn from their customers and too busy setting “quality standards” for suppliers to learn from them.

It’s not that these companies necessarily suffer from the NIH--Not Invented Here--syndrome that reflexively rejects ideas from the outside. The real problem is that nothing in the reward structures or cultures of most American companies encourages people to learn from “outsiders.” When was the last time you heard of a meeting in which people discussed what they learned from their customers instead of what the marketing department had learned about their customers? How about a meeting in which a company decided to reward suppliers for the ideas they helped generate to improve the business as much as the products and services they sold?

As any elementary schoolteacher will tell you, listening is a necessary but insufficient condition for learning to take place. The kind of learning that needs to go on at an Applied Materials or a Procter & Gamble requires much richer and more intense personal interactions. That’s now the nature of learning in an increasingly complex and technology-intensive environment.

Sure, chief executives yammer endlessly about being “market driven” or “customer driven”--as if their organizations were limos or minivans. But customers (or, for that matter, suppliers) are neither chauffeurs nor back seat drivers. They are, for better and worse and, especially, richer or poorer, partners in enterprise.

Partners who learn from one another tend to do better than those who dictate terms (or, even worse, politely listen) to one another. The economy would be a lot better off if more companies would take pride in how much they learned as in how much they made.