This article was controversial when first published in 1980. At the time, American business was suffering from marked deterioration in competitive vigor and economic well-being, which most economists and business leaders attributed to factors such as the virus of inflation, the limitations imposed by government regulation and tax policy, and the feverish price escalation by OPEC. Not quite right, say the authors. In their judgment, responsibility rests not with general economic forces alone but also with the failure of American managers to keep their companies technologically competitive over the long run. Drawing on their extensive work in the manufacturing sector, as well as their association with Harvard's International Senior Managers Program in Vevey, Switzerland, the authors prescribe some strong medicine for American business. They compare the U.S. system of management with those of Europe and Japan and call for fundamental shifts in management attitudes and practices. In advocating change, they also reaffirm the importance of following business basics: to invest, innovate, lead, and create value where none existed previously. The original article now includes a sidebar by Robert Hayes, who summarizes what has--and what has not--changed in American management over the past 27 years. He encourages managers to go beyond the traditional fundamentals to implement a new set of essentials for today's networked, virtual world.

It is important for managers to realize that they cannot receive the benefits or cost reduction provided by a steep learning-curve projection and at the same time accomplish rapid rates of product innovation and improvement in product performance. Managers need to exercise care in choosing between the learning curve approach, which shows that manufacturing costs fall as volume rises, and the experience curve approach, which traces declines in the total costs of a product line over extended periods of time as a volume grows. When selecting a strategy, management investigates: the practical limit to volume/cost reduction, the pattern of changes in the organization which accompany progress along the learning curve, and the expected results when the practiced limits of cost reduction are reached.