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The Wisdom of Chairman Ko – Fast Company – Bryce A. Smart

by on October 15, 2007

Flextronics made an incredibly prudent decision. When the opportunity presented itself, they acquired Solectron. It happened on October 1, 2007 and Solectron sold for over $3.6 billion. This just shows how fast business moves in a globalized economy.
Solectron saved the American manufacturing industry. Chairman Ko Nishimura saved Solectron. The high-tech assembly and manufacturing company began in the solar energy niche market but moved into manufacturing in order to avoid marginalization as oil prices plummeted after the energy crises of the late 1970s. Formed by flow of refugees from IBM and other industry giants, Solectron began to develop into a stable, respectable company. Then outsourcing was discovered. With the trend of sending manufacturing overseas where labor and COBs were more than twelve times lower than in America, the U.S manufacturing industry became maligned as ‘inefficient, overly priced, and poor net value’.

Enter Ko Nishimura.

Just Enough
The man is amazing. One can tell from a first impression that he has fully adopted his Zen Buddhist heritage. Doing “Just enough”, the essence of Shibui—the Japanese reverence of a state of austerity, both beautiful and beautifully efficient—rules Nishimura’s life and business practices. He claims to be able to be fully dressed and ready for work in less than two minutes after waking up. The reason? All his suit jackets (grey) match all his shirts (white), which match all his ties (simple, go well with grey), which match all his slacks (also grey), and match all his socks (darker gray/black), and finally, which match all his black shoes. Additionally, none of his suits are extravagant designer outfits, despite his personal fortune. They’re all quality, off-the-shelf makes.
His work philosophy is equally Spartan. His building has no fanciful decorations, those are unnecessary costs. His office is a simple, undecorated 12’ x 12’ square—and is the biggest one in the building. By reducing other cube and office sizes, Nishimura could increase the capacity of his office, which otherwise may have necessitated the purchase of a second office space. This in turn would have required an entirely different set of communication infrastructure, jumping fixed costs.
This “just enough” philosophy transformed Solectron from a Silicon Valley start-up grossing $300 million a year into a $30 billion juggernaut in an industry that was almost written off as a failure.

Learning Lessons
After seeing his father, an experienced engineer, reduced to working at a fruit stand after the Japanese Internment ended, Ko Nishimura learned that no one should be underestimated or underutilized. In college, he was advised against attempting a degree in engineering, but convinced a professor to add him to his calculus class. While the professor expected him to fail, he succeeded and received Bachelor and Master’s degrees at San Jose state. He later earned a PhD at Stanford. At Solectron, Nishimura grew the employee learning program to over 2600 possible courses, completely paid for by the company. Employees could even receive full, accredited Master’s degrees from Santa Clara University without paying a cent. Everyone deserves a chance, no one should be underestimated.
In addition to personal learning and growth, a major part of Nishimura’s success lay in a belief in organizational learning. When he first learned of the Baldridge awards, the highest distinction that can be awarded to an American manufacturing company, Nishimura immediately applied, despite Solectron’s being significantly under-qualified for the award. While his application didn’t even merit a site visit, the response he received explained, in broad terms, where his company failed to meet the board’s criteria. Nishimura never intended to win—he counted on the details in his denial letter and used it as free consulting. Because of the value of the feedback (which added up to millions of dollars in free consulting), Nishimura applied for the Baldridge every year, revising his strategies off of their recommendations. After several years, he won. Then, once he became eligible again for the prize, he won again, becoming the first manufacturing company to receive a Baldridge twice.
After bring Solectron up to the top of its category, Nishimura still wasn’t content. “We want to be the best at what we do. Our internal process, which we administer every 18 months, keeps us focused on continually improving things for our customers.” It also helped keep Solectron agile and responsive to changing market conditions.

Winds of Change
The outsourcing boom in full swing, Ko Nishimura took the reins at Solectron at what seemed to be a very bad time. Fortunately, however, Nishimura understood an important business concept that, in some ways, was being overlooked by many large assembly firms: supply chain management. He realized that to remain competitive with, and beat, foreign manufacturing organizations, Solectron had to shorten the supply chain for its clients. Nishimura’s constant demand for improvement, his Spartan, efficient mentality, coupled with Solectron’s central location in Silicon Valley made this possible. With outsourcing, a technology giant like HP or IBM would have to freight ship raw materials across the Pacific Ocean to their manufacturing facilities—at best a 15-day journey. When the materials have to be transferred overland to a major departure port, like Oakland, CA, another 10-14 days will be added on to the journey. After the raw materials are manufactured, then assembled, they are either sent by FedEx as completed products (as in the case of Dell Computer) or are mass shipped back to the American company—another 15+ day journey from most locations.
Because of the tremendous costs associated with coordinating massive supply chains spanning tens of thousands of miles, Nishimura found an opportunity to provide a unique service that outsourcing firms could not: location. By providing a dramatically shorter supply chain, Solectron could reduce the overhead costs associated with overseas outsourcing.
This critical benefit, coupled with Solectron’s Baldridge award, effectively allowed Nishimura to pick his customers. While this was a nice problem to have, it was still a problem. Seizing the opportunity, Nishimura began to acquire high-tech factories across the country as fast as he could. His excitement and vision of the future of America high-tech manufacturing was almost wholly unique. When Solectron bought a manufacturing function divested by NCR, a subsidiary of AT&T, Nishimura exclaimed “I need these people. I need these people—and more.”
Jim Wallace, the NCR manufacturing director who architected NCR’s sale to Solectron: “Rather than seeing us as a necessary evil—a cost center to be controlled—he saw us as a business in which manufacturing was the core competence.” He was so impressed by Nishimura’s unique perspective that he told NCR’s board that if they didn’t sell to Solectron, he wouldn’t be part of selling to anyone else.

Mixed Messages
When NCR was incorporated into Solectron, they found themselves effectively out of their league, as Solectron provided large amounts of autonomy. Rather than just being another cost center to the much larger company, Nishimura treated each factory as their own company, setting a specific set of quality and production goals for them to meet each quarter. Aside from that, they were supposed to be able to do almost whatever they wanted.
Much of this changed quickly, however. During a meeting with a client, Nishimura was told that despite Solectron’s excellent deliverables, the client felt like he was ordering from many different companies. All of the letterheads, invoices, and other documents were different, as were uniforms, and some other customer touch-points.
Nishimura took this to heart and immediately began standardizing machinery, human resources elements, documentation, and other elements within the company. Within the first year of these sets of changes, more than 6 percent of the NCR plants quit or were fired. Many others, from all areas of the company, voiced frustration and dissent, but got onboard anyway. Apparently, however, most were pleased, or at least content, with the changes. Yet the degree of dissent and grudging compliance seemed more than one would have expected.
For instance, many found resistance when Solectron required all of its employees to wear identical, logoed, and unmodified smocks in each factory. The explanation was that this prevented static discharge into electronic components. The factory workers voiced their frustrations, pointing to the dehumanizing sensation it left them with, and mentioning that they already tethered themselves to the assembly line with anti-static wristbands that performed the same function as the smocks. In reality, this policy change, out-of-the-hands of individual plants, seemed to be to present a degree of conformity to their customer contact points. It also undermined the factories’ autonomy. Additionally, Nishimura ordered all the factories to adhere to corporate standard machine ordering processes, even dictating which machines they should order and how many of each. When one factory needed customized machinery to make parts for a major client whose components the standard machinery could not handle, they bypassed all of Nishimura’s carefully-constructed processes and deployed the new line in three weeks, rather than the three months that the process would normally take. When Nishimura found out, he was livid, saying that they were undermining the integrity of his standardization, and even considered firing them. Once the customer reviews came in from the client, however, Nishimura had to eat his sharp words. The clients lauded the innovative factory staff for making things happen so quickly and effectively, without sacrificing quality. Their autonomy was only accepted after it succeeded, not beforehand.

You make the call
1. How important is it for a CEO’s personal life and work life to align?
2. How well did Nishimura handle the balance between standardization and factory autonomy?
3. How did Solectron do well in terms of Organizational Learning? How did it do poorly?
4. If you were in Nishimura’s shoes, what would you have done to make Solectron successful?

Resources
· http://www.solectron.com/main/index.html
· http://www.flextronics.com/en/default.aspx
· http://www.asianpacificfund.org/awards/bio_nishimura.shtml
· http://www.manufacturing.gov/report/index.asp
· http://www.sdcexec.com/web/online/In-Depth/Impact-of-Globalization-in-Creating-Sustainable-Competitive-Advantage/4$9855
· http://www.hanjin.com/eservice/enis/en/schedule/Schedule.do
· http://biz.yahoo.com/ap/071001/flextronics_acquisition.html?.v=1
· http://www.purchasing.com/article/CA6487171.html

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