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Dave Young:
Welcome to The Empire Builders Podcast, teaching business owners the not so secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
[Seaside Plumbing Ad]
Dave Young:
Welcome back to The Empire Builders Podcast. Dave Young here with Stephen Semple. And Stephen just told me we’re going to talk about Henry Kaiser.
Stephen Semple:
Yes, sir.
Dave Young:
And that’s not … I’m thinking of the German leader in World War I.
Stephen Semple:
Not Wilhelm.
Dave Young:
That was Wilhelm Kaiser.
Stephen Semple:
Yes.
Dave Young:
Must be one of his great nephews or something.
Stephen Semple:
Maybe.
Dave Young:
Who knows?
Stephen Semple:
Who knows? Maybe. That’s always a possibility. I did not look into that to see where his background was from. Didn’t do a 23orMe test or anything like that.
Dave Young:
Yeah. Yeah. So let’s hear about him.
Stephen Semple:
So when I came across this, I came across this story. I sort of enjoy a bunch of World War II history and things like that. I came across this story as part of World War II history. But to me, it was really interesting and I think there was a lesson to be learned there, especially when we consider a little bit of Henry Kaiser’s background. So let’s talk about that a little bit.
He was born in 1882 and he was a massively influential entrepreneur in American history. He started with almost nothing, never went to college, and he became famous for building massive infrastructure projects. So for example, some of the projects he did, his companies helped build the Hoover Dam, the Grand Coulee Dam, major highways, bridges, things along that lines.
Here’s where things get interesting. When the United States entered World War II, Germany was not concerned about the United States entry into the war. Even though the United States had all sorts of production capabilities, all sorts of people, all sorts of food, the analysis at the time, which turned out to be true, the analysis at the time was the speed at which the United States could manufacture cargo ships was slower than the speed at which they could be sunk by German U-boats.
Dave Young:
Okay, that’s interesting math.
Stephen Semple:
So when the United States entered the war, basically Germany was like, “The United States is an island onto itself because we can sink these ships as fast as they can build them. And so yes, some stuff will make it over, but it’s not going to be this huge buildup.” And their analysis showed even the build more shipyards, and it took nine years or something like that for somebody to become skilled at shipbuilding, it was going to take a long time for that to ramp up. All right?
Dave Young:
All right. Yeah.
Stephen Semple:
That was the view. So along comes Henry Kaiser who has no … So here’s the big part of the message. No shipbuilding experience.
Dave Young:
Yeah. I mean, you think about that. I don’t want to jump the gun, but if I’m thinking about this problem and the Germans think, “Oh, all we got to do is outbuild them.” We’re like, “Well, we don’t need more ships. We need better ways to destroy U-boats.” I mean, that’s part of it.
Stephen Semple:
That’s part of it.
Dave Young:
But what did our buddy …
Stephen Semple:
And I bet you, ’cause I do know there was improvements in that in terms of planes being able to fly further and things along that lines, and I’m going to suspect they approached it from a couple of angles.
Dave Young:
Absolutely.
Stephen Semple:
Basically, what Henry Kaiser was hired to do was speed up shipbuilding. Here’s what he noticed, rivets. Rivets was the pinch point. And not only that, every ship was built one at a time and riveted together. And he looked at it and went, “Okay, modern manufacturing techniques, there should be an assembly line. We should be building a part here, a part here, a part here, and a part here, and putting it together and that would be faster.”
Dave Young:
That makes sense.
Stephen Semple:
And it takes a long time to teach a person how to do proper rivetings. Very complex. Riveting is very skill-based. So what he figured out was a way to build a ship welding.
Dave Young:
Okay. So he would weld plates together instead of rivet them together.
Stephen Semple:
Yeah. Now, his first couple of experiments didn’t work. He literally had some that fell apart in dry dock.
Dave Young:
Okay. Yeah.
Stephen Semple:
Because temperature variations and all this other stuff and the stresses and everything that a ship goes under and it all had to be … He literally changed how a ship was designed, constructed, and put together. This is what he did.
Dave Young:
Yeah. I mean, if at first you don’t succeed, you just try something else. You just keep going. ‘Cause he knows that the problem is they got to build them faster.
Stephen Semple:
Got to build them faster. He approached it not as a shipbuilder, but as a manufacturer.
Dave Young:
Yeah, love it.
Stephen Semple:
Right? Now, here’s how fast they got. During his time, the United States built 1400 cargo ships. And there’s one very famous Liberty ship called the S.S. Robert Peary that was assembled in four days. So they were like nine months and they took it down to, it was like nine months, then it was six months, then it was four months down to they actually built a ship in four days. And basically-
Dave Young:
So you just leave him in charge, and pretty soon there’s not room in the ocean for U-boats.
Stephen Semple:
Well, right. We can produce them significantly faster than you can sink them. We win.
Dave Young:
Yeah. Yeah. Very interesting.
Stephen Semple:
Now, there’s a couple of other things that he did. He employed tens of thousands of people. And one of the other things that he noticed was as soon as you have an assembly line piece, if somebody’s out sick, the whole assembly line grinds to a halt. So he actually needed a way to keep workers healthy and productive. So here’s another innovation that he did. He started working with a physician, Sidney Garfield, and they developed a healthcare system for workers called the Kaiser Permanente, I think is what it’s called.
Dave Young:
Kaiser Permanente. And then they’re still big. Wow. I know a little bit about that. It was the first baby steps into the insurance morass that the United States is in today. And I think it was under Nixon in the ’70s.
Stephen Semple:
Well, yeah, Nixon is the one who opened the door on privatizing hospitals, isn’t it?
Dave Young:
I think so, yeah.
Stephen Semple:
Yeah.
Dave Young:
So to put the profit into it, right?
Stephen Semple:
Yes.
Dave Young:
Yeah.
Stephen Semple:
So he originally developed this basically to ensure his own workers.
Dave Young:
Okay, that makes sense.
Stephen Semple:
Right? Because the whole idea was when he was working with Sidney Garfield was, “How do I keep my workers healthy? How do I keep them healthy? Because if I lose a few people, the whole assembly line comes to a halt. And we got to keep making, in this war effort, we got to keep making ships. We got to make them as fast as we possibly can make them. We got to crank them up.”
So it is kind of interesting that he also, it’s too bad what it’s devolved into, but it is interesting what he created and what the intent around that creation was.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Using Stories To Sell]
Dave Young:
Let’s pick up our story where we left off and trust me, you haven’t missed a thing.
Stephen Semple:
So it is kind of interesting that he also, it’s too bad what it’s devolved into, but it is interesting what he created and what the intent around that creation was.
Dave Young:
Well, and gosh, the intent around the creation was pure, right?
Stephen Semple:
Yes.
Dave Young:
It was let’s keep these people healthy so that they can work more.
Stephen Semple:
Yes.
Dave Young:
So that they can work more. But that’s the reason that any employer should want to keep their workers healthy.
Stephen Semple:
Okay, so we’re going to sidetrack here on worker stuff. Okay. There’s a stat that I came across today. I’m going to have the difference correct. I’m going to have the raw numbers wrong. But according to ADP data, the big payroll folks, the average pay for a person working for a company over the last 12 months in the United States on average, their pay has gone up 4.4%. If they change jobs, the average pay increase for somebody who changed employers is 6.4%.
Dave Young:
So you’re better off changing.
Stephen Semple:
And then employers are sitting back going, “Why am I losing people?” It’s because the economic incentive is to change. What’s that costing you? Just pay your people more.
Dave Young:
Yeah, exactly. Exactly.
Stephen Semple:
Anyway, I know I’m sounding socialist, but at the end of the day, everybody, what we know is retraining and finding people is fricking expensive.
Dave Young:
Well, I don’t think it’s socialist, but I think people have gotten so deep into this management by the quarter that they look at it and go, “Well, if I lose an employee right now, then temporarily my bottom line looks better ’cause I don’t have that expense on my sheet.” I don’t know. We’re not going to solve that one.
Stephen Semple:
So here’s the thing I think is the lesson, ’cause let’s bring this back to the lesson for entrepreneurs. Because what happens a lot of time, I noticed in a lot of our podcasts, it’s been an innovation of solving a problem or an innovation of a brand new product or service that didn’t exist before. We’ve not had many examples other than like Henry Ford. There’s been a few, but we’ve not had many examples where the breakthrough that created an empire was the changing of an operational thing. And I think the problem with it is folks who manage operations think in terms of iterations. It’s that Japanese, what is it called, Kenzai or whatever were, where it is this constantly improving, but those constant improvements are iterations.
Dave Young:
Yeah, they’re never-
Stephen Semple:
And yes, they do add up to a lot of things.
Dave Young:
They’re incremental, but they’re not-
Stephen Semple:
They’re incremental-
Dave Young:
… revolutionary.
Stephen Semple:
But they’re not revolutionary. You bring in somebody from outside and it’s revolutionary and yes, everybody will say you’re nuts. And often it’s things like war and space programs and things like that that have these massive, massive goals that seem to be almost impossible to achieve that actually end up with these operational changes.
So basically what Kaiser did is he reimagined how it would be done. He improved the systems and processes. He focused relentlessly on the execution. And it was all with a mature industry where what he recognized is we’re going to make big breakthroughs. We actually have to change the rules. Our goal actually has to be to change the rule in those cases.
And I think a lot of times when organizations are thinking about their operations, they’re stuck in this whole idea of iterative. I am going to go on a bit of a political rant here. Here’s what I believe has created this. I think we have a lack of innovation in operations because we haven’t had to for 50 years.
Because what ended up happening is, well, actually probably a hundred years. We went to assembly line and then we went to automation of the assembly line. And then when we started running out on ideas and that, we went, “Well, wait a minute, we can do this cheaper in China.” So we started doing it in China. And now they’re automating in China. There’s no more iteration to squeeze out of this system.
Dave Young:
Yep.
Stephen Semple:
There’s no more iteration to do. We actually now need people to start creating bold thinking in terms of how they make things.
Dave Young:
No, I agree with you. And I think the innovation comes from solving tough problems.
Stephen Semple:
It does.
Dave Young:
Right?
Stephen Semple:
It does.
Dave Young:
And it’s not to say that the incrementals won’t get you there. Yeah.
Stephen Semple:
The incrementals are still important, but what you need is that big audacious goal. But it can’t just be a goal for the goal’s sake. There needs to be the big tension behind it. Part of what drove this with Kaiser is we’re going to lose the war. We’re never going to get in this thing.
Dave Young:
Huge stakes.
Stephen Semple:
The United States has to get in this thing. You got to make that big stakes, ’cause that’s the big stakes that allow people to go, “Okay, I guess we got to try this.” You’re now sitting there saying there’s a risk to the way we’re doing it today. And that’s the only way you get people to move when it comes to operational ideas.
Dave Young:
And it’s an existential risk.
Stephen Semple:
It’s an existential risk to what we’re doing today. That’s the only way you get operational people to move, because they’ll go, “Well, no one’s done it that way before. It’s too risky. It’s this, that, and the other thing,” and then your aim … So it’s the way you got to almost put that risk on its head and you got to say, “There’s actually a risk to how we’re doing it today.”
Dave Young:
Yeah. Love it. Ah, he’s definitely a guy we’re studying.
Stephen Semple:
Yeah. And when I was reading it, I was like, “Isn’t this really interesting?” And I didn’t know this part of the early story of here’s the reason why Germany was not concerned because they basically like, “We got this. We’re just going to sink ships fast.”
Dave Young:
Yeah. Never thought we’d figure that one out.
Stephen Semple:
Right.
Dave Young:
There’s a lesson there.
Stephen Semple:
They looked at the same way before Henry Kaiser came on board, that it will take a long time to ramp up production to the stage where it’ll tip the scales.
Dave Young:
Yeah, yeah, for sure.
Stephen Semple:
None of them were envisioning a world where you could cut the speed of manufacturing a ship into a third or a 10th of what it was before.
Dave Young:
Yeah. Cool story.
Stephen Semple:
Yeah.
Dave Young:
Glad I know more about …
Stephen Semple:
Henry Kaiser.
Dave Young:
Kaiser.
Stephen Semple:
Not Wilhelm. Not Wilhelm. Henry.
Dave Young:
Thank you for bringing us the Kaiser story, Stephen.
Stephen Semple:
All right. Awesome. Thanks, man.
Dave Young:
Thanks for listening to the podcast. Please share us, subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute Empire Building session, you can do it at empirebuildingprogram.com.
