How to succeed in business: components plants can easily turn a profit

It is possible to be successful in a business without trying - or at least with a lot less risk, effort and time. I'm talking about businesses that you don't have to start from scratch. They have an existing product line and a captive market. They are the component parts plants that build transmissions, engines, electrical components, plastic parts, glass and more.

At one time auto companies thought all of their component parts should be built inside. They could control costs, engineering, design, quality, capacity and availability. This went on for many years until the financial wizards thought it was cheaper to buy component parts than to produce them inside. They cited the high cost of union labor and restrictive contracts, inefficient management and antiquated technology. So, some of these plants were sold.

Interestingly these plants continued to supply the same auto companies with the same parts, produced by the same workers and managers, using the same processes. Everything was the same as far as the plant was concerned. But within a short time the plants were turning a profit. Want some examples? Detroit Diesel, American Axle and New Venture Gear

What happened? How can plants that were "losers" be turned around so quickly? Not only that, many of these companies made enough money to pay off their loans ahead of time and pay bonuses to their workers. In a lot of cases they became so competitive that they were able to hustle up additional sales from other sources.

The answer is not hard to figure out. Spun-off plants usually can improve their costs immediately simply because they no longer have to absorb the huge corporate cost burden. Plus, they can make productivity-improvement decisions quickly because they no longer have to cope with the tedious chore of getting corporate approval. Lifting this burden also renews the enthusiasm of the workers and gives them incentives to do their jobs more efficiently.

Large auto companies can easily solve this problem. All they need do is treat component parts plants as completely separate identities whose business operations are autonomous. Their profits can be reinvested in their operations. They borrow money if they have to, just like any outside business would. If they want to use corporate services, they have to pay for them. If they can get the same services cheaper from someone else, so be it.

From a corporate standpoint, the component parts plant must produce a satisfactory return on its investment and be able to compete with outside sources.

This may not be exactly how to succeed in business without really trying, but it's pretty close.

Mr. Sharf is a retired manufacturing v.p. at Chrysler Corp.