BerlinPacific.com Blog

There’s a recent Forbes article on “Why Amazon Can’t Make A Kindle In the USA”
http://www.forbes.com/sites/stevedenning/2011/08/17/why-amazon-cant-make-a-kindle-in-the-usa/

It is quite interesting and people can learn a lot from Steve Denning about management. The article is a bit problematic though. The issue is probably more that the tone and content are misleading than that the fundamental ideas are totally off.

For one Dell makes a lot more money than Asus in profits and has as many employees. Its market cap is still much larger than Asus.

The implication of the article is that the Kindle probably couldn’t be made in any one country. (Interestingly too Germany still makes the machines that make the machines. Japan and the US do too.)

The classic essay ‘I, Pencil’ from 1958 talks about how no one can make a pencil.
http://www.econlib.org/library/Essays/rdPncl1.html
This is true about the international economy.

Apple is winning because it banks on designing its products in California and getting them built abroad. I don’t think they’re an exception at all. They’re the exemplar.

The author is right about throughput accounting though. Most companies don’t realize that this is an important way to help the align their business with customer demand. People should learn more about the Theory of Constraints www.scribd.com/doc/24192653/TOC-and-Mises . They’ve shown that many management theories apply bad economic theory - though they don’t approach it from the perspective of economic theory. (They complement the Austrian School quite well.)

I think his article is a bit misleading. It is true companies should not give up their core competency. However Dell could have grown more by creating more products that wow consumers and outsourced much of the production. That’s what Apple does.

He doesn’t seem to fully account for opportunity costs. Dell can find only so many workers. It is wasteful to use them to make things Asus can make IF it can find other useful thing for them to do. On a national scale this is true - expanding companies will bid up the price of US workers. This makes companies in older technology sectors less willing to hire many of them. U.S. Manufacturing is still huge - it just requires less workers. Also many workers may be vital but don’t count as traditional manufacturing workers. How would you count a bunch of highly paid engineers who manage a highly automated factory?

His point too is really about management - not so much manufacturing.

The key is not so much decreasing costs, as increasing the productive capacity of your assets to produce more goods and services that people will pay for. That’s throughput accounting and his real point. (In a sense though this can imply decreasing costs by finding unproductive uses assets and re-allocating those assets.)

Sometimes that means outsourcing though. Microsoft has or had a very profitable group that had few employees - they designed keyboards and mice etc. and outsourced all production. It was a good use of Microsoft’s assets to outsource.

Hopefully more people will be inspired by the article to learn more about throughput accounting and theory of constraints and put the focus on aligning productive assets with consumer demand.

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