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 / Summer 2003 / Issue 31(originally published by Booz & Company)


Delphi Builds a Board

That institutional integration had eluded Delphi, even though the company has worked on the techniques for more than six years with James Womack, one of the leading U.S. experts on lean manufacturing. Mr. Irimajiri’s study was invaluable in showing that what made lean engineering so difficult for U.S. companies has as much to do with philosophy as it does with engineering.

Mr. Irimajiri “kept suggesting to us that the Japanese culture is so deep that even with the best of intentions we might be better served by having someone who’s done it, someone who’s coming out of that culture,” says Mr. Battenberg.

Today, the influence of Mr. Irimajiri’s study is evident all over Delphi, apparent in the way the company approaches its supplier relationships and in key new hires, including consultants and employees, who are sensei, the Japanese term often used to denote a master in such areas as total quality management or lean engineering.

Significantly, Mr. Battenberg recognized that implementing Mr. Irimajiri’s recommendations would not be as simple as “writing down the eight or 10 things we have to change” and then changing them. Some changes will require years of work. Take the application of lean concepts to Delphi’s suppliers and to its own relationships with customers, one of the challenges identified in the Irimajiri study. To make “lean” work in these areas, Delphi needed to shed the supplier culture and practices it had inherited from GM. “The culture we came out of was so repulsive from the standpoint of purchasing,” says Mr. Battenberg, referring to the regime of Jose Ignacio Lopez de Arriortua, GM’s purchasing czar from 1992 to 1993. Mr. Lopez was known for fostering brutal price competition that often strained relations between automakers and their suppliers.

As Delphi follows through on its director’s recommendations, the company knows it still has a long way to go to mend relations with its suppliers. But Mr. Irimajiri’s connections at Honda turned out to be a good networking opportunity for Delphi. Just around the time that Delphi was mulling the results of Mr. Irimajiri’s study, Donald L. Runkle, who is Delphi’s vice chairman and chief technologist, met R. David Nelson, the former supplier chief for Honda, and recommended that Delphi hire Mr. Nelson. Mr. Irimajiri endorsed the decision, and Mr. Nelson became Delphi’s purchasing chief in February 2000.

Mr. Battenberg is quick to point out that while Delphi values the knowledge of its directors, the company is run entirely by Delphi management, which is free to reject board suggestions. Some of Mr. Irimajiri’s recommendations, for example, are not feasible in an American company subject to American market forces, he believes. The Japanese “really are not interested in quarterly earnings; they’re interested in investing for the long term,” Mr. Battenberg says. “We could not implement all his recommendations because of that very point. If we tried to convert overnight and go a few quarters without any profit…” His voice trails off as he muses the consequences of such a rash act.

Accordingly, Mr. Battenberg has been forced to modify a key Irimajiri recommendation that he thinks would otherwise make perfect sense: moving a significant number of Delphi engineers to Tokyo for the entire two- to four-year product development cycle of a new automobile, to improve the company’s ability to work with and co-develop entire product systems with a Japanese automotive manufacturer. “We’ve done that, but we haven’t done as much of it as we might like,” says Mr. Battenberg, because it would involve transferring huge numbers of people from America to Japan, at great cost.

The challenge comes down to balancing Delphi’s short-term need to maintain earnings with the long-term strategic necessity of expanding its overseas business. Japanese automakers, who are the benchmark for engineering excellence, now account for close to 10 percent of Delphi’s sales; Delphi’s share of Japanese business continues to creep up, albeit in low-single-digit increments each year, and is a major focus of Delphi’s engineering efforts. The company’s future success will depend on forging more “strategic supplier” relationships like the one it has with Toyota, in which Delphi supplies sound systems and electronic control modules that regulate such things as engines and catalytic converters. Delphi also hopes to pare its own supplier base and to forge similar long-term collaborative relationships with its own suppliers.

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  1. Art Kleiner, “The Cult of Three Cultures,” s+b, Third Quarter 2001; Click here. 
  2. Paul F. Kocourek, Christian Burger, and Bill Birchard, “Corporate Governance: Hard Facts about Soft Behaviors,” s+b, Spring 2003; Click here. 
  3. “The Way We Govern Now,” The Economist, January 11, 2003
  4. Andrea Gabor, “Challenging a Corporate Addiction to Outsiders,” New York Times, November 17, 2002
  5. Corporate Governance, The Wall Street Journal Reports, February 24, 2003
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