The Debris of Lessons Not Learned – 1

FORTUNE magazine named Henry Ford as Businessman of the Twentieth Century.

In the late 1960s, the Ford Motor Company decided to introduce a sub-compact car. The design team led by Lee Iacocca had the task of meeting the “2000 and 2000 challenge.”

The car had to cost no more than $2,000 and weigh no more than 2000 pounds.

The Ford Pinto was a spectacular commercial success.

The first trouble for the Pinto occurred in 1972. A lady was driving the Pinto with her thirteen-year-old daughter as the other passenger. Another car traveling at 30 miles an hour hit the Pinto from the rear. The gas tank exploded. The lady died and the daughter suffered devastating injuries. In the suit that followed, the court awarded the family $560,000 and the injured daughter $2.5 million in compensatory damages.

A few years later, the Pinto was in the news again. A truck allegedly carrying prohibited substances hit a Pinto from the rear. The gas tank exploded. All three women in the car died.

The Problem

What came out during the trials was a design flaw in the Pinto. The positioning of the gas tank was such that it was susceptible to explode in a rear collision.

The Solution

Prevention is better than cure. Designers could easily enhance the Pinto’s safety by a relatively simple alteration costing $11 per car. As Ford’s internal records showed, the alteration never happened.

Cost-Benefit Analysis

In deciding not to carry out the $11 alteration, the managers at Ford relied on a tool widely used in the industry and being taught even today in business schools across the world – cost-benefit analysis.

Exhibit – Ford’s use of cost-benefit analysis in the Ford Pinto

Benefits and Costs Relating to Fuel Leakage

Associated with the Static Rollover

Test Portion of FMVSS 208

Benefits

Savings:  180 burn deaths, 180 serious burn injuries, 2100 burned vehicles

Unit Cost:  $200,000 per death, $67,000 per injury, $700 per vehicle

Total Benefit:  180 x ($200,000) + 180 x ($67,000) + 2100 x ($700) = $49.5 Million

Costs

Sales: 11 million cars, 1.5 million light trucks

Unit Cost: $11 per car, $11 per truck

Total Cost: 11,000,000 x ($11) + 1,500,000 x ($ I 1) = $137 Million

From Ford Motor Company’s internal memorandum: “Fatalities Associated with Crash­-Induced Fuel Leakage and Fires.” Source: Douglas Birch and John H. Fielder, THE FORD PINTO CASE: A STUDY IN APPLIED ETHICS. BUSINESS AND TECHNOLOGY. p. 28.1994.

Subsequent analysis of the cost-benefit shows that Ford’s “break-even” point was $3.96 per car. Scale economies might well have achieved this level.

Disturbing Questions

While some judicial pronouncements accept the reasoning behind the cost-benefit approach, others don’t. In one instance, a jury awarded punitive damages of $135 million.

The case is a reminder of the limits of economic reasoning while dealing with human lives.

1.  Is it morally and ethically acceptable for any organization to place a pre-determined dollar value on human life and injuries?

2.  How do you measure the trauma and possible life-long suffering that affected families undergo?

3.  Can a justice system that places a mighty cash-rich corporation and a middle-class customer with limited means on an equal footing be fair?

What Next?

Fifty years down the line, we still do not have definitive answers to these questions.

What have we learned?

Nothing.

Negligence in quality and safety continue to plague practically every industry.

We will examine these in subsequent columns.

Meanwhile, I will leave you with this thought to ponder over:

In a survey covering 3,500 senior executives from 29 industries and 70 countries, the skill that recruiters are least interested in graduating students happens to be microeconomics.

For all the tall talk of preparing leaders of tomorrow, has any business school stopped teaching microeconomics? Or cost-benefit analysis? At the very least, are faculty aware of the limits of such models?

If you have an answer, I would love to hear from you. Before you post anything, please read all about the Ford Pinto. Thanks to the ubiquity of information, the entire story is available online.

लक्ष्य निर्धारण भाग 4. लक्ष्य प्राप्त करने में समस्याएँ और कुछ उपाय

लक्ष्य निर्धारण, अच्छी योजना और कड़ी मेहनत करने के बाद भी कई लोग लक्ष्यों तक पहुंचने में सक्षम नहीं हो सकते हैं। इस वीडियो में हम लक्ष्यों को प्राप्त करने में लोगों की कुछ समस्याओं और लक्ष्य तक पहुँचने के लिए यदि आवश्यकता हो तो course correction कैसे कर सकते हैं इस पर चर्चा करेंगे ।

7-Eleven, Japan example is sourced from: https://sloanreview.mit.edu/article/w…

Goal Setting Part 4 – Problems in achieving goals and some solutions

For many people even after doing goal setting, good planning and hard work, they may not be able to reach the goals. This video will discuss some of the problems people face in achieving the goals and how you can change course if required to reach your goal.

7-Eleven, Japan example is sourced from: https://sloanreview.mit.edu/article/w…

लक्ष्य निर्धारण भाग 2. लक्ष्य निर्धारित करने से पहले एक प्रश्न

लक्ष्य आपको अपनी मंजिल तक ले जा सकते हैं और आपको उपलब्धि की भावना दे सकते हैं, लेकिन कौन सा सवाल है, जिसका उत्तर देकर आप सही गंतव्य चुन पाएंगे। अधिक समझने के लिए वीडियो देखें।

Goal Setting Part 2. A question before setting goals

Goals can take you to your destination and give you a sense of achievement, but Which is the question, answering which will ensure you choose the right destination and derive satisfaction on reaching it. See video to know more.

Click here to sign-up and get a free introduction to the ‘Realize Your Potential Program’ : https://thevrio.com/sign-up/

लक्ष्य निर्धारण – भाग 1

हम सभी जानते हैं कि लक्ष्य निर्धारण महत्वपूर्ण है, फिर भी 90% जनसंख्या लक्ष्य निर्धारित नहीं करती है। अधिक समझने के लिए वीडियो देखें।

‘हमारे व्यवहार को बदलना इतना कठिन क्यों है’ ब्लॉग के बारे में अधिक पढ़ने के लिए यहां क्लिक करें: https://thevrio.com/2018/11/01/why-is…

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Linkedin: www.linkedin.com/in/dilshad-jalnawalla

Goal Setting (Part-1)

We all know that goal setting is important, yet 90% population does not set goals. Check the video to understand more. To read more about the blog ‘Why is it so hard to change our behaviour’, click here: https://thevrio.com/2018/11/01/why-is…

Click here to sign-up and get a free introduction to the ‘Realize Your Potential Program’ https://thevrio.com/sign-up/

Facebook: https://www.facebook.com/crazilyaspire/

Linkedin: www.linkedin.com/in/dilshad-jalnawalla

सफलता क्या है?

हम सभी जीवन में सफल होना चाहते हैं। लेकिन सफलता क्या है? अधिक जानने के लिए वीडियो देखें। सक्सेस फॉर्मूला के मेरे नियमों के बारे में अधिक पढ़ने के लिए, लिंक पर click करे: https://thevrio.com/2018/11/09/the-su…