As manufacturers improved their shop methods, those methods took on a new shape. To achieve interchangeability of
Chapter 5 • Artful Making as Part of the Shift to a Knowledge Economy 71
musket parts, to create the productivity gains of the Highland Park factory, every single part of every product had to be painstakingly, and completely speci-fied in advance. Taylor’s rate clerks similarly pre-specified every aspect of the process of making parts and prod-ucts. Design activities became sepa-rate from production activities. The people responsible for advance specifi-cation of parts and processes took up residence in separate areas of the factory and eventually left for separate white-collar buildings.
By applying technology and reorganizing work in this way, industrial makers could drive down unit costs and allow more transactions to occur. Workers—ordinary men and women—
would be able to buy things that formerly only the rich could afford. Henry Ford understood this very well:
. . . in making the price on the four-cylinder runabout, the question was not, “How much can we get for this car?” but
“How low can we sell it and still make a small margin on each one? How many cars must be turned out to get the lowest cost per car, and will the demand absorb this tremendous output?”9
Here we can see the singular brilliance of the changes we described in our brief evocations of Whitney, Ford, and Taylor.
We can express the logic of their advances this way: If high costs of reconfiguration and exploration limit our ability to transact, let’s stop incurring these costs in production. How?
We can stop adjusting each thing to its unique purpose. Let the customer adjust.
Like many great ideas, this one is simple, obvious in hindsight, and radically subversive in its time. Of course, industrial methods don’t avoid the costs of reconfiguration and exploration, but only extract them from making itself, and place them at the front end of the process, transforming them into what we now call “product development” and “process engineering.” The costs associated with reconfiguration and exploration in these early stages of a sequential process can
To achieve interchangeability of parts, every part had to be painstakingly specified in advance. Taylor’s rate clerks pre-specified every aspect of the process of making. Design activities became separate from production activities. The people responsible for advance specification of parts and processes took up residence in separate areas of the factory and eventually left for separate white-collar buildings.
then be shared by a large number of units emerging from a standardized manufacturing process. The average cost of mak-ing one unit of the made thmak-ing is significantly reduced. The great leap here was the insight that if costs can be lowered enough, customers won’t mind that the product no longer perfectly suits them. Many customers will happily buy a knife that, although not perfectly suited to them, cuts pretty well, provided its price is low enough. They will trade unique per-fection for affordability and availability.
With costs thus lowered for many common items, many more transactions become possible. People who previously could have only one knife in their household can suddenly afford several. This creates new value, for the seller in the form of profit not there before, and for the buyer in the form of use-ful (if not perfect) knives that before cost too much. Every one of these new transactions creates additional value, additional wealth. And as the descendants of Whitney, Ford, and Taylor continued to refine production systems, the world benefited from more transactions that created ever more value. Thus, the great economic engine that supports the standard of living of the developed world came into being.
When Henry Ford made Model Ts, he incurred reconfigu-ration and exploreconfigu-ration costs in advance, before most units were produced. When he made 10,000 units, he reduced the per-unit reconfiguration and exploration costs by a factor of 10,000, radically bringing down the average cost of making each car. With his up-front costs thus diffused, he could price a car much, much lower than if he used Hugh’s methods. Many more transactions could occur, because many more people were willing to accept a mass-produced car they could afford, rather than paying what a specially crafted car would cost, or doing without.
Figure 5–2 depicts the arrangements of benefits and costs in Ford’s way of making. The sequential structure of the process, which allows reconfiguration and exploration costs to be spread across a large number of units, yields economies of scale. If we produce a large number of similar units, the average cost to make each unit drops, dramatically. In Figure 5–2, the
“Industrial Making Cost” curve is not flat, but dips sharply,
Chapter 5 • Artful Making as Part of the Shift to a Knowledge Economy 73
reflecting this way of reorganizing work. That’s a good thing, because when we make products for the average user rather than customizing for each individual, the items we are making provide an average benefit that is lower than the customized benefit. In Figure 5–2, the “Industrial Making Benefit” curve has become flat. If the cost curve dips far enough, though, we can achieve larger numbers of transactions—many transac-tions, in fact. Getting the cost curve to dip far enough is the point of Ford’s and Purdy’s cleverness in rearranging the Highland Park factory. Because the costs implicit in customization were high, there was plenty of potential for
“industrialization.” In Figure 5–2, the distance k represents this potential for industrialization, the limits within which the clev-erness of Ford and Purdy can operate freely to create value.
Although Ford might make a smaller profit on each unit using this approach than if he made customized vehicles, he can generate many more transactions by doing it this way, which ends up making much more profit. As the old joke goes (although it is perfectly correct in this case), he doesn’t worry about the loss of profit margin because he can “make up for it in volume.” Many more transactions mean much more value cre-ation. Value creation happens more rapidly than before. Many
FIGURE 5–2
The benefits and costs of industrial making.
1 Number of Units Produced
Industrial Making Cost
Average Benefit or Cost Per Unit
k
Industrial Making Benefit transactions
more people can participate in this market, can benefit from these transactions. In a real sense, the region of transactions in Figure 5–2 is the heart of the Industrial Revolution engine, the engine of increase in standards of living across the world.