The Business & Finance section Jan. 19 incorrectly reported the date that John J. Nevin resigned as chairman of Zenith Radio Corp. to become president of the Firestone Tire & Rubber Co. Nevin resigned from Zenith in October, 1979, and became president of Firestone a month later. The article also incorrectly stated that Zenith was hand-wiring television sets when Nevin headed the company.
John J. Nevin was a model of the American business executive of the 1970s.
A Harvard Business School graduate in 1952, he had reached the top echelons of Ford Motor Co. in 1971 when Zenith Radio Corp. hired him as president. In 1978, an embattled Firestone Tire & Rubber Co. turned to Nevin for rescue from a soaring debt and a badly damaged image following the Firestone 500 tire controversy.
Nevin kept Zenith alive despite ferocious foreign competition that helped drive six other U.S. television manufacturers out of business in the 1970s. And he saved Firestone, producing a $121 million after-tax profit in the first nine months of its 1981 fiscal year, after a loss of nearly that much the year before. In baseball parlance, he was the star late-inning relief pitcher, the stopper brought on to save the game.
But to some business observers, Nevin's tenure at Zenith is also an example of a central failure among U.S. business managers in the past decades, when the creative, competitive edge of key U.S. industries began to slide.
Nevin and his former colleagues in the television industry failed to anticipate and respond to the challenge from Japanese competitors, according to Professors William Abernathy and Richard Rosenbloom of the Harvard Business School. The U.S. industry leaders didn't match Japanese research investments, were reluctant to make risky commitments to promising new products, and focused only on the American market, believing they were safe--or should be safe--behind its walls, the two professors argue in interviews and a newly published study of the television industry.
Zenith's customary investment in research and development amounted to only 3 percent of sales a year--well above what most of its U.S. rivals spent and a normal level for a "mature" industry in this country--but only one-third of of the percentage spent by firms that depend on technological leadership.
"Success in the world marketplace in competitive industries requires an organizational commitment to compete on technological grounds . . . over the long run by offering superior products or superior manufacturing processes," Abernathy and Rosenbloom say. The American companies lacked that commitment, they assert.
Their criticism centers on the race to develop the home video cassette recorder, the fast-selling television component that permits consumers to record TV programs at home for future viewing. Many industry analysts see it as the dominant consumer electronics product of the 1980s and 1990s.
Zenith, General Electric Co., and RCA, the U.S. leaders in the television industry, all are bystanders in this competition. Led by Sony Corp. and Matsushita, Japanese producers today account for 90 percent of all sales of video cassette recorders. Their only other rival is another foreign giant, Philips of the Netherlands. To provide a video cassette recorder to its dealers, Zenith has had to buy it from Sony.
Zenith is still considered the leader in the U.S. color television industry, and it continues to equip its sets with innovative features, but it is stuck in a market where strong profits are almost impossible because of fierce competitive price cutting. Some Wall Street analysts say its best hope for the future is to be taken over by a richer company.
What Zenith lacks is powerful new products that would bring growth, and Nevin's critics lay that at his feet. "Management just didn't come up with the right decisions," says Charles Ryan, a Merrill Lynch analyst of the television industry--conceding that such judgments are much easier now than at the time that Nevin and Zenith had to make critical strategic decisions.
Nevin's supporters in industry and Wall Street deny the criticism, sometimes heatedly. "It's a lie," said James I. Magid, a veteran television industry analyst with L.F. Rothschild, Unterberg, Towbin.
Nevin and other U.S. television industry executives faced a coordinated attack by the Japanese in the 1970s, Magid noted. Only two U.S. television manufacturers besides Zenith--GE and RCA--made it through the 1970s, and both had strong products outside the television business upon which to lean.
"He survived," Magid said. "I defy anyone to have done it differently and have made it through."
Nevin and Magid argue that the Japanese television coup was achieved through unfair, cut-throat pricing that violated U.S. trade laws, at a time when the Japanese market was effectively closed to outsiders. The U.S. companies were victims, not villains, they argue.
The case against Nevin, Zenith and the U.S. industry isn't black and white, and because of that, it is all the more important to understand. The same kind of competitive challenge awaits many other American firms in other industries. Like Zenith and its American television cousins, they will have to decide whether to stay with products and services that are losing ground to tougher foreign competitors, or find a strategy for recovery based on new technology and products, and follow it despite the risks, Abernathy says. U.S. Head Start
Ironically, in the case of the video cassette recorder, the United States had a head start.
It was invented here in 1956 by Ampex Corp., a leading U.S. producer of studio recording and broadcasting equipment. While Ampex concentrated on producing a high-cost, high-quality product for broadcasters, Sony, followed by other foreign producers, began a long, uncertain campaign to make a low-cost model consumers would buy.
The U.S. firms did not.
This reveals a fundamental difference in how U.S. and Japanese companies viewed the television market, Abernathy and Rosenbloom contend. The U.S. firms tended to treat the television market as a "mature" business field with few opportunities for technological leadership, they argue.
With the exception of RCA, the U.S. companies "put a low premium on technology and a high premium on marketing sizzle and low-cost design," Rosenbloom said. "That turned out to be a premature assessment. The Japanese kept pumping new technology into their products," penetrating the U.S. market first with small black-and-white sets that the U.S. firms didn't think would sell, then following with color sets, then pushing the new video products into the market.
Could Zenith have kept pace? It was financially strong in the 1960s, one of the world's leading manufacturers of consumer electronics products. Its sales had soared from $142 million in 1956 to $471 million in 1965, carried by the boom in color television sales.
In 1971, Zenith hired Nevin, the marketing vice president for Ford. Nevin's strength, then and now, was succeeding in "mature", low-growth industries, and that is how he viewed the TV industry.
"More than 75 percent of the people in the world work in nongrowth industries," Nevin told an interviewer last fall. "This great romance about growth industries is nonsense. When I went to work for Ford in 1954, the auto industry wasn't a growth industry any more. Everybody had a car. It was a replacement industry, and a lot of guys got rich in Detroit working at what the analysts would call a nongrowth industry."
The doctrine of the "mature" industry led executives in autos, steel and appliances astray, as well, Abernathy says.
While many were "getting rich" in Detroit, the technological foundations under the auto industry were collapsing, says William Agee, chairman of Bendix Corp., a major parts supplier to Detroit. "Our success and growth through the years concealed some of our sins. Prosperity agreed with us so much that we were insensitive to the eventual need for fundamental change. We simply did not prepare, as we should have years ago, for the massive retooling which would cost billions of dollars."
Nevin's strategy upon arriving at Zenith was to make it the General Motors of the television industry by designing a chassis that could be built on highly automated equipment in this country, giving Zenith the most efficient assembly line in the industry.
"We thought we could dramatically reduce the cost of television receivers," Nevin said in a recent interview. "Did we make mistakes? Damned right. But other guys were making mistakes, too." Research Cut
The dream of a U.S.-based automated assembly line was abandoned in 1977 when the impact of Japanese competition and the steep U.S. recession compelled Nevin to lay off 5,600 U.S. assembly employes, shut down plants and move the assembly operations to Mexico and Taiwan to take advantage of lower-cost labor. It also was the beginning of the end of his tenure at Zenith.
"We were under such terrific profit pressure we didn't have the time and certainty of result to automate the chassis and achieve the cost we could get by going across the border," Nevin said.
Along with these moves, Nevin cut back sharply on Zenith's long-range research budget. Most of the reduction was centered in products outside the consumer electronics field.
But one of the chief casualties was Zenith's research in video disc technology--the major competition to video cassette recorders. Along with RCA and other firms, Zenith had been trying to develop a reliable, inexpensive method for recording movies on hard, thin discs resembling phonograph records, and then projecting them over home television sets.
Zenith's scientists were certain that video disc players would be cheaper than video cassette players (they are about half the price, today), but discs were also less versatile since a viewer couldn't record programs at home with this technology.
Despite a late start, Zenith's research on disc recorders was "quite good," according to Mark Schubin, an author and expert on the industry.
"We brought it to a point where were making the disc for experimental purposes," said Zenith's George Hrbek, one of the industry's most respected scientists. But faced with a decision on whether to invest in development for production, with the 1974-75 recession squeezing hard on its revenue, Zenith gave up.
RCA, investing heavily in a different video disc technology, offered a lower-cost product than Zenith's promised to be, and Zenith bought the RCA models to sell under its own name.
"We put the disc on the back burner," Hrbek said. "We were ahead of our time, I guess."
Or behind it. By the time Zenith embarked on its video disc research in 1970, it was late in the game. Sony had begun work on the video cassette recorder in 1956 and had pushed on, even though the first models were too expensive to appeal to a mass market.
Schubin believes that if Zenith or one of the other U.S. companies had started soon enough, it would have been possible to perfect the disc technology and push a product onto the market.
But the American management style ran the other way, according to Abernathy and Rosenbloom. U.S. firms depended on consumer surveys to assure them that there was enough public demand for a new product to warrant the risk of introducing it. The dramatic success stories by U.S and Japanese firms have not been based on price competition alone, but also on the risk-taking development of new products lines that created new markets where none had existed.
By the 1976, when Zenith might have made a move with its disc recorder, the company was under heavy financial pressure from the Japanese, whose share of the U.S. television market had tripled to 35 percent in eight years, says Nevin.
"Zenith didn't have the economic resources to put a unique disc system into the market and hope that the American public would choose it over all others," said Nevin. "We couldn't take the financial risk . . . we were betting the company." Patriotic Appeal
Nevin's counterattack was a personal campaign against the Japanese, accusing them of embarking on a calculated plan to price U.S. television manufacturers out of business through hidden discounts and below-cost prices that violated U.S. trade laws. He won some rounds in the battle, but got no real relief from U.S trade officials.
He accompanied that with a patriotic appeal to consumers to buy Zenith sets--the only ones that were hand-made by American workers--arguing that this was the best guarantee of quality. In a speech last October, he said a "great injustice" had been done to American workers, in part because "uninformed sophisticates and pseudo-intellectuals in this country have led a portion of the American public to believe that American-made products are second-rate . . . ."
Nevin's approach did preserve the jobs of Zenith workers for a time, when other U.S. competitors were moving production plants to foreign countries, but it also left Zenith with much higher labor costs.
At a time when the industry was pursuing with a revolutionary design change employing miniature, automatically fabricated printed circuit boards to control the electrical innards of television sets, Zenith's reliance on the old technology of hand-wiring, was a costly error, said Schubin.
Magid says the criticism is unfair.
"Zenith not only survived the 1970s , it maintained its market share" at about 20 percent, said Nevin.
"They spent all they could afford," says Magid, "and they are still a technological leader."
But it also has lost out on the video cassette and video disc competition and missed the takeoff of video games and other profitable consumer electronics products where their expertise should have been an advantage, says Ryan of Merril Lynch.
Robert Galvin, chairman of Motorola, says "most American television executives were confounded, as I was, by the fact that they couldn't maintain a price level to earn money for the future. The Japanese didn't worry about that."
What Galvin is talking about is a basic difference in the motivation of U.S. and Japanese firms.
In seeking to be the low-cost, volume producer of color television sets, Nevin was following the customary practice of U.S. managers in established industries. That is the route toward a steady, positive growth of profits, quarter after quarter, year after year, the goal on which U.S. business plans traditionally have been based.
The competing Japanese firm, backed with heavy financial support from closely associated Japanese banks, are in a far better position to carry out long-term, expensive commitments to speculative products.
In retrospect, Nevin thinks American management "may have underestimated itself." Business decisions are based on judgments of risk, and "the problem may have been one of a defensive orientation," he said.
If there was a common bias among American managers, Nevin said, it was one they shared with society: that America was invulnerable. The lesson that his business school professors never taught was that a U.S. company would one day be put out of business by a competitor from Germany or Japan, Nevin said.
That perception has died, but U.S. firms still face a demanding, impatient audience that Japanese competitors do not face: American shareholders.