Innovation and Productivity : Lessons from Texas Instruments

No U.S. company is working harder than Texas Instruments, Inc., to foster innovation and to boost productivity, a crucial factor in an era of seemingly endemic inflation. And they’re pretty successful at it. Some observers point to TI as the prototype of what a U.S. company must be to compete in the surging, worldwide electronics market of the 1980s. Others suggest that only TI—of the major U.S. consumer electronics corporations— can compete effectively with the Japanese. How successful is TI?

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• TI reduced the retail price of an electronic calculator to less than $10 from $1,600 in a single decade.
• In 1960, the simplest functional circuit needed two transistors and five other parts; today, 20,000 functions fit on a single chip of silicon.
• In 1960, the cost of an electronic “function” was nearly $10; today it is less than a penny.
• In a single decade, the power of the three-ton, $200,000 computer of 23 years ago has been compressed into a 12-ounce, hand-held $300 unit.
• In 1960, with sales of $200 million, TI set a goal of $1 billion for the early 1970s; in 1973, TI hit $1.3 billion wage and benefit increases (averag¬ing 9.2% annually) and its price de¬creases (averaging 6.4% per year).

What’s TI’s secret? How have they produced all these modern miracles of productivity? There are a number of factors, including a highly complex management structure and a tightly controlled, on-going productivity im¬provement effort. But the primary fea¬tures that experts suggest make TI such a tiger are these seven:

1. The TI culture. Arnold C. Hax, of the Sloan School of Management, M.I.T., suggests that TI style and cul¬ture are, in fact; much like that of a Japanese firm. He says, “TI stresses a strong spirit of belonging, a strong work ethic, competitive zeal, company loyalty, and rational decision-making. The TI style creates a TI culture, and, for the people there, it works.” A former employee suggests that “5:30 p.m. meetings are rather common,” and “the office is a good place to meet people on Saturday mornings. People show up because it’s expected.”

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2. The production learning curve. Some time ago, industrial engineering and systems types noticed a relation¬ship between number of units of prod¬uct produced and the cost of produc-tion. The theory says, simply, that manufacturing costs can be decreased by a fixed percentage each time vol¬ume is doubled. This relationship has been documented for cases as far back as the Model-T Ford. At TI, the learning-curve effect is expected of all manufacturing operations. TI Presi¬dent J. Fred Bucy says that the effect is not only expected but that TI mana¬gers are encouraged to precipitate and accelerate it by “…constantly forcing manufacturing costs down through design improvements of the product and the production process.”

3. Participation and Involvement at all levels. More than 83% of all TI em¬ployees are organized into “people in¬volvement teams” that seek ways to improve their own productivity. Called the People and Asset Effective¬ness program (P&AE), it is credited with improvements in both operations and employee relations. Example: Last year, as a result of a P&AE sug¬gestion, TI gave one of its $300 pro¬grammable calculators and six hours of training to each of 8,000 technical and administrative personnel. In six months, this $3 million program paid for itself by boosting the productivity of these people by 3.5% to 4%.

4. Job security. Observers suggest that at TI, as in Japan, employees do not normally get fired— especially those with five or more years tenure. A former employee says that “there’s a lot of yelling and screaming but not much ripping off of badges.” Seniority is widely honored. Badge color indi¬cates years at TI, not authority level.

5. Internal development and growth opportunities. TI tends not to hire ex¬perienced people from other companies. They tend to hire young and train their own. Over the past five years, TI has hired 5,604 graduates right out of school.

6. Wide variety of benefits. TI has a fantastic recreation center, with gym and baseball diamonds. There is a company rod and gun club and 75 acres on Lake Texoma, where a lot to build a cabin or put a trailer costs $43 and a nickel a year.

7. Management by objectives and ex¬ceptions. TI is a zero-based budgeting company. Every year, managers submit something called an OST plan— Objectives, Strategies and Tactics. Under this project-oriented system, managers vie for funds. This “bottoms-up” planning system finds more than 250 Tactical Action Pro¬grams (TAP) a year.

If a manager really believes in a project or an idea but can’t get TAP funding, he or she can apply for some¬thing called an IDEA grant. Annually, TI splits up $1 million among 40 IDEA representatives— not managers, but senior technical people—who pass out grants up to $25,000 to employees with ideas for products or process im¬provement. No one, riot even the pres¬ident of TI, can rescind these grants. And employees with ideas can apply to any of the 40 IDEA grantors. If one turns the idea down, the employee can go to yet another grantor.

One recent IDEA grant was for a low-cost speech synthesizer built en¬tirely on one tiny chip. The result, an¬nounced last June, is a talking, learn¬ing aid to teach spelling— called Speak and Spell—that sells for $50 in toy stores. A number of educators sug¬gest that the invention may revolu¬tionize training and learning devices.

TI people are already refining the talking chip to function as a foreign language training aid capable of stor¬ing a vocabulary of 20,000 words. If you soon find you can sit down at a typewriter and literally “talk” a letter out of it, remember that the idea came from a Tier with a wild IDEA grant. At Texas Instruments, people don’t seem to worry much about productiv¬ity slump or blue-collar blues and work alienation. They seem to be too busy enjoying what they are doing and figuring out how to do it better. And thafs what productivity improvement is really all about.

Source : Training Magazine, January 1979.

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