Book summary “Competing against time”: summary

Introduction

You face a relentless pressure to reduce costs while customers demand greater product variety and instant delivery. Traditional management tools often fail because they focus on efficiency and scale rather than speed, leaving you vulnerable to agile rivals who compress time across every business process.

Competing against time reveals that elapsed time is the primary measure of competitive advantage, and shrinking it transforms cost structure, quality, and responsiveness simultaneously.

George Stalk and Thomas Hout argue that time-based competitors outperform slower industry peers by mastering the delivery system. The book details how you can restructure manufacturing, accelerate innovation, and reorganize your company for velocity.

• How does time become the fundamental metric of corporate performance?
• What separates traditional cost-cutting from time-based productivity gains?
• How do you redesign an entire organization around rapid response?

1. The Emerging New Source of Competitive Advantage

Time-based competitors that offer greater product variety at lower costs and higher speeds routinely outperform slower industry peers.

By focusing the entire organization on responsiveness and giving customers what they want when they want it, you can grow significantly faster than the industry average while securing double the profitability.

Wal-Mart replenishes stock twice a week compared to the industry norm of every two weeks, allowing it to maintain equal service levels with one-fourth the inventory investment while growing three times faster than the discount retail industry. Wal-Mart grows at 36 percent versus 12 percent for the industry with a 19 percent ROCE versus 9 percent. Atlas Door grows at 15 percent versus 5 percent for the industry with a 10 percent ROS versus 2 percent.

Time-Based Competition

Japanese manufacturers have opened a massive responsiveness gap over Western competitors in order processing, manufacturing, and product development. Japanese companies compress cycle times across the entire value-delivery system, enabling them to introduce technologically sophisticated products that are much fresher than those of Western rivals.

Japanese automobile manufacturers require only 2.5 to 3 years to design and introduce new car models, whereas Western automakers take 4 to over 6 years. Japanese order-to-line-set time takes 6 to 8 days versus 16 to 26 days for Western automakers, while Japanese vehicle manufacturing time takes 2 to 4 days versus 14 to 30 days for Western automakers.

Strategic Innovations Retrospective

Costs of complex products and services typically decline by 20 to 30 percent with each doubling of accumulated experience. Cumulative volume drives down costs because workers and management become more efficient, better operational methods and new technologies are adopted, and products are redesigned for easier manufacturing. Texas Instruments exploited experience-curve cost dynamics by slashing semiconductor prices to stimulate demand, driving up accumulated volume and crushing competitors who relied solely on traditional cost-plus pricing. Texas Instruments experienced a 73 percent learning curve for transistors and semiconductors.

Managing a diversified collection of businesses as a portfolio allows corporations to balance cash generation and strategic growth across units. Instead of letting profit centers operate in isolation, corporations allocate capital based on a growth-share matrix that categorizes units into cash cows, dogs, question marks, and stars. Dow Chemical aggressively managed its portfolio and used debt to fund growth in high-demand businesses, whereas Monsanto underinvested in its high-growth opportunities by adhering to short-term profit-center methods. Dow Chemical maintained an absolute debt-to-equity ratio of 1.1:1 compared to Monsanto ratio of 0.46:1.

Aggressive financial policies such as high debt-to-equity ratios and no dividends can be used strategically to fund growth and upset market leaders. Follower companies disadvantaged in absolute profit can use debt as a strategic weapon to finance lower prices and faster asset expansion, forcing conservative competitors into a defensive corner. Company B maintained a debt-to-equity ratio of 2:1 supporting a 25 percent annual growth rate, while Dow borrowed 2.2 dollars of debt for every dollar of profit generated on the margin during its high-growth attack against Monsanto.

Averaging overhead costs across all products creates accounting disinformation that penalizes high-volume lines and subsidizes disruptive low-volume complexity. Standard accounting systems misallocate support costs onto simple, high-volume products while hiding the true administrative burden of product proliferation, leading to declining yields and profitability. A train wheel manufacturer watched its casting process yield drop from 91 percent down to 83 percent and labor productivity fall by 40 percent as it proliferated product variants without de-averaging costs, realizing that only 20 percent of train wheel products were profitable, while over 60 percent generated no profits.

Compressing time directly increases productivity, allows higher price premiums, minimizes forecasting risk, and expands market share. Shorter lead times eliminate the costly error margins of long-term demand forecasting, justify premium pricing for urgent customer needs, and compel customers to rely on responsive sole suppliers. Productivity increases 20 to 70 percent for every halving of cycle times and doubling of work-in-process turns, and commercial doors holding a time advantage of 9:1 command a 100 percent price premium over market averages.

The Importance of Vision

Time-based businesses willingly let their slower competitors serve patient customers who demand low prices, while capturing impatient customers with high prices and fast response.

• Make the value-delivery systems of the company two to three times more flexible and faster than the value-delivery systems of competitors.
• Determine how its customers value variety and responsiveness, focus on those customers with the greatest sensitivity, and price accordingly.
• Have a strategy for surprising its competitors with the company's time-based advantage.

2. Value Delivery Systems and Complexity

Companies have historically evolved through four distinct stages of competitive advantage. Following World War II, Japanese companies utilized a 98.8 percent devaluation of the yen against the U.S. dollar immediately following World War II to exploit low wages in textiles and shipbuilding. They then shifted to capital-intensive scale strategies, followed by focused factories, and ultimately moved to flexible operations that mastered both low cost and high product variety.

Increasing product variety drives up management complexity and overhead costs unless organizations adopt flexible manufacturing and time compression.

As variety grows, you face the complexity slope where variety-driven costs increase by 20 to 35 percent with every doubling of variety, while scale-driven costs decline by only 15 to 25 percent. A multinational construction company saw its selling, general, and administrative expenses increase by 139 percent for every doubling of operating divisions.

Flexible Manufacturing

Traditional factories waste immense resources because products receive value only 0.05 to 5 percent of the time they spend in the system. You can eliminate this waste by organizing your operations into time-compressed operations and closed-loop cells.

• Shorten production runs as much as possible and reduce setup complexity.
• Organize manufacturing processes by product rather than process technology centers.
• Implement local scheduling to enable employee decision-making on the factory floor.

Yanmar Diesel adopted the Toyota production system, improving manufacturing productivity by over 100 percent, cutting costs by 40 to 60 percent, and more than quadrupling product breadth. Japanese component manufacturers heavily populated the time-compressed archetype, operating with overheads averaging one-third of Western competitors.

White-Collar Time Compression

Most delays occur outside the factory in white-collar administration, sales, and order processing. In the classic Forrester business system example, a 19-week total cycle time consists of 6 weeks in the factory and 13 weeks in distribution.

Toyota merged its manufacturing and sales companies in 1981 and built a direct computer network connecting salespeople to factory scheduling. By 1988, this information-processing network connected 317 wholesalers and 4,200 dependent distributors, generating a 5 percent increase in sales and a 13 percent increase in dealer profits one year after its introduction.

Rules of Response

You can evaluate your value delivery system by tracking how long products spend waiting versus receiving value. Time-based competitors operating under the 3 x 2 rule achieve 3 times the industry average growth rate and 2 times profit margins.

• Measure and track the proportion of time products actually spend receiving value versus waiting.
• Divide waiting time categories into batch completion, rework, and management decision delays.
• Quarter the time interval required to provide a service or product to double labor and capital productivity.

Atlas Door utilized time-based strategies to respond to customized industrial door orders in three to four weeks instead of the industry average of 12 to 15 weeks. This performance helped Atlas Door achieve a 15 percent annual growth rate in a 5 percent industry and capture an 80 percent market share.

3. Customer Responsiveness and Economic Value

Embracing demanding customers and delivering rapid resupply generates immense customer loyalty, premium pricing power, and superior capital returns.

Customer Loyalty

Management has three distinct choices when responding to demanding customers:

• Fight them by forcing them to accept standard performance, product, or service.
• Insulate its organization from customers by building mounds of inventory or getting them to do their own work.
• Embrace customers and ensure they are more satisfied with the service provided than they could have imagined.

Most car dealerships force customers to fit weekday operating hours without appointments. Specialty automotive service retailers offer fast 10-minute oil changes and guaranteed speed.

Responsive suppliers capture customers who become dependent because they receive exactly what they need when they need it. Satisfied existing customers generate valuable referrals at a fraction of the cost required to acquire completely new customers. Joe Girard, recognized in the Guinness Book of Records as the world's greatest automobile salesman, discovered this principle through funeral directors and caterers who noted average event attendance.

Price Premiums and Time

The time elasticity of price measures customers' willingness to pay higher prices for immediate delivery or rapid response when time is critical. When customers need a product or service instantly, price negotiation diminishes and profitability surges. Document transmitters pay up to 400 times postal rates for same-day courier service.

The subjective value of time and responsiveness can be priced systematically by following three steps:

• Estimate the costs of providing a rapid response or greater choice.
• Add the desired profit margin to obtain a price.
• If the capacity to add value is oversold, raise the price; if it is undersold, cut the price.

Economic Value for the Customer

Rapid resupply by suppliers dramatically increases inventory turns for retail distributors, yielding massive gains in gross margin return on investment. When suppliers deliver products within a day, lightly capitalized retailers can reduce their finished goods inventory, sell goods, and collect payment before paying their suppliers. A Canadian hardware distributor carrying four times normal inventory achieved 12 inventory turns per year and a 1200 percent gross margin return on investment with rapid resupply compared to 3 turns with monthly resupply.

Industry Case Studies

Citicorp transformed the mortgage-lending industry by targeting real estate agents as primary customers and using electronic data transmission to guarantee loan decisions within 15 days. Citicorp mortgage originations surged from $756 million in 1983 to $14.8 billion in 1987 through the MortgagePower program, building a 37-state sales network. Real estate agents paid an annual subscription fee of $2,500 to join MortgagePower.

Ralph Wilson Plastics defeated Formica in decorative laminates by segmenting customers and providing rapid 24-hour regional inventory distribution to residential cabinetmakers alongside specialized variety for architects. Regional distribution centers rushed stock items to local distributors in 24 hours or less, while mill orders of nonstock items turned around in 10 days or less. WilsonArt distributors achieved 8 to 10 inventory turns per year, making them two to three times more profitable than competing distributors stuck at 3 to 5 turns.

4. Time and Product Innovation

Timely execution is just as important to the success of an innovation as the original idea itself. Fast innovators meter their exposure to risk by introducing products with incremental improvements rather than waiting for major breakthroughs.

Fast innovators use market experimentation, dedicated collocated teams, and incremental annual upgrades to establish market dominance and avoid long forecasting traps.

General Motors spent years attempting to bring the Saturn to market with modular assembly and plastic body panels, whereas Honda steadily improved its Civic CRX and managed three major model changes in the same timeframe. Toys R Us used daily sales data transmissions from stores to spot a trend in handles-equipped skateboards called scooters, turning a trial order of 10,000 into sales of over a million.

Time and Innovation

Innovation requires change, and change is measured by time. The magnitude of change is calculated as innovations per unit of time.

Methods That Don't Work

Companies with fast acquisition or distribution systems can order test lots, observe consumer reactions, and quickly reorder winners while abandoning losers. Slower systems force companies to forecast far into the future, leading to missed sales or heavy markdowns. The Limited tests new apparel designs for a month with a special lot.

Kelly Johnson successfully set up the Lockheed Skunk Works to develop aircraft without intermediate administrative delays, but noted that very few companies would pay the price of revising their standard methods and procedures to adopt the formula. Isolated skunk works units fail to solve an entire enterprise's innovation crisis because their practices are not adopted as broad management methods.

The Factory of the Fast Manufacturers

Product development delays are caused far more frequently by internal management actions than by uncontrollable technical problems. At a major U.S. consumer electronics company, program managers averaged only 18 months of experience due to high turnover and spent up to 25 percent of their time walking between scattered buildings, leading to prolonged development cycles of 20 to 30 months.

Organizing new product development like a flexible factory cuts development time and labor requirements in half. A Japanese affiliate of a Western specialty mechanical transmissions manufacturer produced equivalent products at 30 percent lower costs and completed its development cycle in 14 to 18 months compared to the Western company's 30 to 38 months.

Become a Fast Innovator

Companies can transform themselves into fast innovators by embracing a new philosophy centered on time management and dedicated team structures.

A major U.S. consumer electronics company successfully reduced its new product and introduction cycle from 20 to 30 months down to less than a year by applying fundamental organizational changes. You can follow these principles to reshape development:

• Treat time as the key performance variable to be managed to attain improved cost and quality.
• Set time benchmarks by the performance of competitors and what is technologically possible.
• Actively manage necessary support functions to be invisible and never let them slow the development process.
• Manage and execute each program by a small, dedicated, decision-empowered, and experienced team.
• Organize development programs around planning and preparation, product definition, design development, manufacturing ramp-up, and product improvement.
• Freeze the product specification after definition and do not allow it to be changed.
• Include manufacturing and design resources as full-time participants in the definition and design teams.
• Collocate team members.
• Keep senior management reviews few, focusing their role on ensuring teams have appropriate resources and incentives.
• Generate new programs continuously at regular market-driven intervals incorporating incremental advances.
• Adjust compensation and promotion systems so people can accumulate experience in their positions.

Four Patterns of Competition

Japanese manufacturers systematically upgraded their mainstream heat pump lines every year by incorporating integrated circuits, microprocessors, quick-connect freon lines, inverters, and sensors, widening the technological gap against slower American manufacturers. Mitsubishi Electric updated its three-horsepower heat pump almost annually between 1976 and 1988, adding features like remote controls in 1979 and microprocessors in 1981.

Faced with an industry conference's inability to decide between competing digital audio formats, Sony and Philips bypassed consensus-seeking, introduced their compact disc player rapidly, and followed up with multiple lower-priced models to capture the mass market. Sony introduced its first CD player in Japan in late 1982 at 165,000 yen, introduced eight new lower-priced products in less than 24 months, and ultimately secured a 45 percent share of production by 1988 while Matsushita held 12 percent.

Time-based innovators exploit four distinct patterns of competition to outperform rivals: direct advantage, flanking, breathing new life into mature businesses, and changing corporate shape. Black & Decker grew at twice the industry rate by halving its design cycle for small appliances to 9 to 12 months and introducing over 60 new products in 18 months.

5. Financial Impact of Time

Time-based competition drives transformative profitability gains primarily through price realization and operational effectiveness rather than conventional cost-cutting.

Henry Ford noted in 1921 that excessive raw material or finished stock inventories are forms of waste that drive up prices and lower wages. Time waste is the hardest to correct because it leaves no physical litter on the floor like wasted material. Henry Ford reduced his production cycle from 14 days to 80 hours from the mine to the finished machine in the freight car.

First Generation of Time-Based Competitors

The Toyota production system limited scheduled fabrication and assembly jobs to between one-eighth and one-twentieth of traditional lot sizes, opening up huge productivity gains that inspired many Japanese companies during the 1976 recession. Toyota achieved a 200 to 500 percent productivity advantage over Western competitors like Western A and Western B in the late 1970s.

Productivity and Variety

As you become more productive through time compression, you can expand customer choice. Choice makes your company increasingly relevant to its customers and fuels growth better than price cuts alone. Komatsu transformed itself in four years from a short-line producer into a full-line producer with 50 percent more product variety than its principal Western competitors.

Price and Cost Advantages

Customer responsiveness allows firms to charge price premiums ranging from 10 to 100 percent. Furthermore, reducing time consumption in value-delivery systems drops cost of goods sold and order processing expenses significantly. Time-based competitors like Thomasville successfully charge a 10 percent price premium for quick delivery programs.

Value-Delivery System Compression

Furniture value-delivery systems force customers to wait 13 weeks, out of which the actual factory processing takes only one to three weeks, and products receive value for less than 5 percent of the time spent on the factory floor.

To compress your value-delivery system effectively, you must follow these operational steps:

• Use facsimile and electronic data transmission to speed information flow.
• Streamline and computerize order entry systems to reduce order entry time.
• Implement leveled purchasing schedules and electronic information networks to link suppliers.
• Source from quick-ship suppliers providing fabric in a week or less.
• Apply flexible factory techniques including streamlined production flows and quick set-up equipment.
• Adopt modularized product designs incorporating new materials like structural plastics.
• Arrange direct shipments of prepped products to consumers to avoid double handling at the retailer.

6. Redesigning the Organization for Time

Designing a time-based organization requires separating direct value-adding work from support activities, deploying closed-loop teams, and using time as a core performance metric.

Traditional firms focus on internal functions instead of what customers pay for. An aerospace equipment producer discovered that a typical proposal involved 12 departments, 35 people, 9 cycle-backs, 25 signoffs, 16 cross-functional handoffs, 11 geographic transfers, and 91 total days inside the company for only 7 value-added days of work.

How Work is Structured

Traditional companies lump direct and support activities together in the same units. Fast-cycle companies isolate support work and pre-engineer options to keep the main sequence flowing.

Freightliner and Paccar cut truck delivery times from months to weeks and doubled market share by isolating main sequence activities from support work like credit checks and custom engineering.

• Improve function-by-function.
• Focus on the whole system and its main sequence.
• Work in departments, batches.
• Generate a continuous flow of work.
• De-bottleneck to speed work.
• Change upstream practice to relieve downstream symptom.
• Invest to reduce cost.
• Invest to reduce time.

How Information is Created and Shared

Compressing the OODA Loop of observation, orientation, decision, and action allows you to act faster than competitors. Batterymarch performs the portfolio management loop in 24 hours compared to the traditional 72 hours, using one-fifth of the employees by automating decisions and linking portfolio managers to brokers through interactive software.

Closed-Loop Teams

Closed-loop teams bring together everyone needed for a deliverable, unify codes, and operate with short lines of communication. A jet engine parts manufacturer reduced order entry processing time from two to ten weeks down to one to two weeks by creating a closed-loop team of six individuals who unified product codes and dedicated a portion of their time twice a week to order entry.

An auto company reduced its average field repair fix cycle from 18 months down to 6 months by designating a middle manager to take charge of the cycle, developing software to connect different numbering systems, and closing gaps between field recognition and engineering action.

How to Measure Performance

Cost is a lagging indicator that includes arbitrary allocations and cannot easily distinguish value-adding expenditures from wasteful overhead. Time is an objectively measurable current flow that exposes physical activities and uncovers quality and cost problems.

• Keep the measure physical.
• Measure as close to the customer as possible.

7. Implementing Time-Based Strategy

Successfully transforming an organization involves system mapping, external benchmarking, buffered pilot teams, and sustained continuous improvement.

The journey requires moving through three distinct phases: vision and decision, making the change, and sustaining improvement. You must overturn accepted practices to build responsiveness.

A custom industrial component manufacturer mapped its ordering and production cycle to discover that promised delivery dates averaged 24 weeks with actual value-adding time totaling only one to two weeks.

• Identify key value-adding work cycles separately such as developing new products or processing orders.
• Lay out the process with key players across the company on one axis and time on the other.
• Ask what players are involved and how often, where decisions are made, and where time is lost.

Multiply uptime and yield across sequential steps to reveal hidden leverage. A light fixture manufacturer with a 19-step manufacturing process calculated its cumulative uptime times yield and found that improving each station's performance by just 1 percent would raise effective capacity by more than one-third.

• Calculate percent uptime and percent yield at each station in a sequential set of operations.
• Multiply the results across all sequential steps to find cumulative uptime times yield.

Study time-compressed competitors to discover integrated operating paradigms.

• Look for unusual practices and view them hypothetically as missing links.
• Talk to customers the competitor sells to but you cannot.
• Imagine the competitor to be one-tenth your actual size and ask how work would be organized.
• Imagine the competitor's ideal information flow and figure out how material flow problems disappear.
• Study the competitor's distribution frequency, lot composition, channels, and customer selection.

Sustaining time compression requires institutionalizing management processes and rapid feedback loops.

• Monitor progress against the vision and emphasize existing gaps.
• Continue benchmarking the best time-based performers.
• Involve key managers in driving new pilots and breakthrough teams.
• Seed new breakthrough teams with members from successfully completed past teams.
• Formally institute new measures and rewards while phasing out old ones.
• Grant capital spending authorizations for time compression proposals like distributed information networking.
• Communicate principles and objectives repeatedly to all constituencies.

10 Key Ideas

1. Competing against time reveals that elapsed time is the primary measure of competitive advantage, and shrinking it transforms cost structure, quality, and responsiveness simultaneously.
2. Time-based competitors that offer greater product variety at lower costs and higher speeds routinely outperform slower industry peers.
3. Increasing product variety drives up management complexity and overhead costs unless organizations adopt flexible manufacturing and time compression.
4. Embracing demanding customers and delivering rapid resupply generates immense customer loyalty, premium pricing power, and superior capital returns.
5. Fast innovators use market experimentation, dedicated collocated teams, and incremental annual upgrades to establish market dominance and avoid long forecasting traps.
6. Time-based competition drives transformative profitability gains primarily through price realization and operational effectiveness rather than conventional cost-cutting.
7. Designing a time-based organization requires separating direct value-adding work from support activities, deploying closed-loop teams, and using time as a core performance metric.
8. Successfully transforming an organization involves system mapping, external benchmarking, buffered pilot teams, and sustained continuous improvement.
9. Fast Japanese automobile manufacturers require only 2.5 to 3 years to design and introduce new car models, whereas slower Western automakers take 4 to over 6 years.
10. Shorter lead times eliminate the costly error margins of long-term demand forecasting, justify premium pricing for urgent customer needs, and compel customers to rely on responsive sole suppliers.