Breaking the Mold : Companies Struggle to Reinvent Themselves
Experiments springing up from the scorched earth of corporate chaos in the 1980s are reinventing the way work is performed and companies are run throughout the United States.
At the forefront, corporations such as General Electric and Pepsico have handed the baton of decision making to front-line factory workers, who are adding business judgment to their technical skills and joining an all-out assault on high costs and low productivity.
Industrial woolly mammoths--those big, slow, bureaucratized concerns that have been steadily losing markets for the past decade and longer--are breaking up old hierarchical structures modeled after the military into collections of small units. Run informally, these nimble teams try to reproduce the intensity and accountability that energize small business.
Nowhere are the changes further developed than at the Lynn, Mass., plant where General Electric manufactures huge turbines to power aircraft carriers.
A team from the International Union of Electrical Workers, worried that defense cutbacks might cost them their jobs, offered 10 months ago to organize a marketing team to seek new business for the factory.
With the blessing of the plant manager, the union set out to win contracts to supply generator casings to three other GE plants.
Welder Jim Tilden, 42, poured over design specifications on weekends, searching for ways to cut time and cost. He succeeded, and the team devised a low-ball bid that wrested the work away from Korean conglomerate Samsung.
“We blew their socks off,” crows Charlie Ruiter, 45, the union local’s business agent.
“My job is a lot harder now,” Ruiter allows. “I used to fight for shift discipline, pension benefits. That was easy. Now I have to sit down and figure out how to drive overhead costs out of the business to come up with a competitive bid. It’s aggravating, but if we don’t do it, we’ll lose our jobs. Business as usual just isn’t making it anymore.”
To be sure, changes with so profound an impact are occurring only in fits and starts. Many companies adopt the buzzwords--they claim to have “empowered” workers to “own” their businesses. But few have delved below surface change to genuinely denounce the corporate verity that bigger is automatically better.
Still, the far-sighted in American industry are coming to believe that wrenching upheaval--seemingly at its worst in the 1980s--is just getting started. Inevitably, turmoil will be visited on more and more companies in the ‘90s by a triad of forces: deregulation, international competition and swift technological change.
In retrospect, it seems clear these forces were at work in the last decade, when predators stalked bloated, complacent companies and financiers shuffled corporations and their divisions like so many Lego blocks. That first wave of restructuring, the experts say, will be followed by a never-ending reassessment of markets, strategies, organization, costs, quality, flexibility and speed in a phenomenon that has been dubbed “re-engineering.”
Says Steven Kerr, a management professor at USC on leave to assist GE’s training facility in New York: “The prevailing paradigm we always taught was an organization with a physical, tangible quality. Companies kept reorganizing to find the right fit. The new view is the organization as kaleidoscope--always changing, always trying to adapt to a continuously changing world.”
Other experts agree that far from a fad, business is on the cusp of a historic shift that will eventually bury the practices that have defined corporations since the beginning of the Industrial Revolution.
Listen, for example, to Claremont Graduate Center Prof. Peter F. Drucker, who spoke at a recent conference at the USC Business School’s Leadership Institute.
“We’re in one of the those great historical periods that occur every 200 or 300 years when people don’t understand the world anymore, when the past is not sufficient to explain the future,” the 82-year-old guru said. “We are entering a ‘post capitalist’ era in which organizations will have to innovate quickly and be global.”
Adds Charles Handy, a visiting professor at the London Business School: “Things are moving so fast and so unpredictably (that) we can’t run things from the center anymore. These changes will turn our organizations upside down--and it will be wonderful.”
Companies as diverse as GE, Xerox, General Motors’ experimental spinoff Saturn, Southern California Gas, Goodyear Tire & Rubber, Johnson & Johnson, Hallmark Cards, Florida Power & Light, Colgate-Palmolive and Texas Instruments are embracing concepts that would have been unthinkable just a few years ago:
* The bully boss is out. The boss-as-coach is in. In this brave new industrial world, managers recognize that workers closest to the process understand it best. So the good boss listens and removes hurdles.
* Businesses must focus on their customers. Insular, inward-looking companies did fine in the post-World War II era of global hegemony, when customers had few choices. But today they are doomed to fail. The success of discount chain Wal-Mart Stores, which concentrates obsessively on pleasing customers, is invoked over and over.
* Big is bad and must be broken into manageable parts. While the optimum size depends on the company, William G. Ouchi, a professor at UCLA’s John E. Anderson Graduate School of Management, contends: “Companies should never grow beyond the limits of knowledge of a normal human being. We will see large-scale disaggregation of big companies into their constituent pieces.”
Adds Drucker: “For the first time, biggest isn’t better. Size is becoming a strategic decision.”
* Company walls must be blown up to form the “boundaryless” corporation. A revolutionary concept still in the experimental stage, this is the brainchild of GE Chairman John F. Welch. In this vision, workers spring from one project to another without regard to permanent structure. At GE, that means sonar experts from the aerospace division can jump in to advance ultrasound technology in the medical-systems business without bureaucratic restraint.
While no company as yet has successfully identified every last change necessary to recast itself for the coming decades, the bits and pieces of transformation are emerging. Some companies are in the embryonic stages; others have struggled with new techniques for several years.
The unifying themes represent an abrupt departure from past manufacturing practices, in which complex processes were broken down into tiny, easily understood, repetitious segments. The new thinking remolds workers, changing them from assembly line robots carrying out orders into decision-makers.
This massive transfer of authority requires teamwork.
To set the example at Xerox--which already has been restructuring its copier operations for a decade--newly appointed Chairman Paul A. Allaire reorganized the president’s office into a six-man team.
Allaire sounds more like Chairman Mao than a Fortune 500 chief executive when he declares Xerox’s Cultural Revolution: “We have to change our culture, our organization, the way we manage, our systems, our processes and how we behave as individuals.”
Is that possible?
From Frito-Lay headquarters in Plano, Tex., the answer is a resounding “Yes.”
The most profitable unit of Pepsico, Frito-Lay dominates the market for salty snacks. But national competitors such as Anheuser-Busch’s Eagle snacks and Borden’s Wise & Old London Foods, as well as dozens of local companies, are chipping away at Frito-Lay’s lead. The intensified competition has lowered prices and squeezed margins.
In response, Frito-Lay’s chairman and chief executive, Roger Enrico, has laid off 1,800 workers, killed some unprofitable products and reorganized the company around leaner headquarters and field offices where decision making is pushed down to the factory floor.
At Frito-Lay’s 20-year-old factory in Rancho Cucamonga--where Cheetos, Fritos and Doritos ripple temptingly off the assembly line--the effort has been underway for a year and a half.
“At first, workers viewed us suspiciously when we said we were going to turn management of the business over to them,” manufacturing manager Steve Smith, 36, explains. “They only believed us after we spent a lot of time teaching them the fundamentals of our business: what consumers are looking for, how to calculate profit and loss, the importance of quality, how our plant fits into Frito-Lay as a whole.”
Today, Margie Valentino, a packaging-machine operator, sits down at a computer at the end of her shift to key in vital data: How many pounds of raw materials such as corn, lime and packaging film were used, how long the assembly line was down for repair, how many man hours were employed. The computer delivers instantaneous feedback on how her shift performed against two measures--a business plan and a more ambitious target level.
“I think that people have more pride in their work now,” says Valentino, 36. “We go to the computer at the end of the day and see how much we made or lost. If the numbers are good, we feel proud because we know we did it. If the numbers aren’t so good, we get with our team members and figure out what’s wrong. Before, we seldom even saw the numbers. It’s no wonder we weren’t very interested in the business.”
Manager Smith ticks off benefits of the Rancho Cucamonga reorganization: Safety in 1991 improved 60%. Turnover among hourly employees plummeted from more than 30% to less than 5%. Formal grievances have dropped by more than half. The cost per pound of product declined. Consumer complaints to an 800 number are down substantially.
McKinsey & Co. consultant Ennius E. Bergsma contends that information systems such as Frito-Lay’s are essential to controlling the new decentralized corporation. Computerized networks have effectively replaced middle management, he says, by providing quick feedback and the data necessary to make informed decisions. They also route data from one team to another and provide headquarters with a check.
In downtown Los Angeles, Southern California Gas Co. is in the third year of a five-year effort to shake off the status quo of 125 years as a regulated utility.
As deregulation of the natural gas industry accelerates, Chairman Dick Farman, 56, is urging every employee to take responsibility for forging a new corporate identity with an unswerving focus on the customer.
His urgency reflects inroads in the Gas Co.’s markets by competing pipeline companies and proposals to substitute electricity for natural gas throughout the South Coast Air Basin. “Furthermore, our largest customers are threatening to build additional pipelines into our territory if we don’t offer them the service they need,” Farman says.
To effect this shift, Farman says his managers “communicate, communicate and then communicate again.” Laying the groundwork for closer teamwork, Gas Co. executives have been meeting with employee groups in frank two-way discussions for the last year and a half.
The sessions can become heated.
“To the extent emotions are involved, it’s better to get them out,” Farman says. “When a company goes through a change like this, theorists say workers go through stages of denial, anger, bargaining and, finally, acceptance. Our employee dialogue sessions have moved us beyond the denial stage to trying to achieve mutual understanding and a new bargain.”
Many workers, however, remain suspicious that the company’s commitment to communication is not genuine. “Management is screaming and yelling about competitors, but they never really cough up facts and figures about who they are and how they are impacting the company,” says Maureen Lynch, president of the utility workers’ union.
Even by management’s measure, Southern California Gas is only about halfway to its goals--heightened flexibility, competitiveness and responsiveness to customers’ and employees’ needs. Pockets of worker initiative hearten Farman. The marketing department, for example, organized a brainstorming session that led to more than 100 ideas for improving operations. The result: The workload of 84 full-time jobs is targeted for elimination.
Customer service reps demanded the right to throw away a scripted response to callers’ problems; today they are authorized to extend billing deadlines by a month. A field service rep’s suggestion that meters be offered in decorator colors to match homes was initially ridiculed, but the change is a hit.
Farman is counting on such from-the-bottom-up initiatives. “I believe that there are real limitations on what meaningful change can be achieved from the top down,” he says.
Will companies succeed in gearing up for the one-world economy of the next century?
In a recently published book, “Corporate Culture and Performance,” Harvard Business School Prof. John P. Kotter reaches the worrisome conclusion that “the vast majority of firms currently do not have cultures to produce excellent long-term economic performance in an increasingly competitive and changing business environment.”
Kotter and co-author James L. Heskett point out that up until a decade ago, a stable world with only moderate competition allowed stodgy managements with unimaginative leaders to prosper. They warn that in the unstable and competitive decade ahead, companies need bold leaders with vision.
When that archetype of fossilized management, General Motors, established its Saturn unit as a separate entity several years ago, the company appeared to admit that radical new ideas could not thrive amid the balky bureaucracy of corporate gigantism.
Established in the rolling, green hills of Tennessee as a joint venture between the car company and the United Auto Workers, Saturn was charged with building a small car that could compete successfully with Japanese imports. Run by worker-management teams drilled in conflict management, consensus decision-making and team dynamics, the company discovered, says President Richard (Skip) LeFauve, 57, that “you can eliminate hierarchy.”
The plant rolled out its first cars, priced from $8,000 to $12,000, late in 1990. “Road & Track” magazine calls the Saturns “probably the best small cars America has ever designed and built.” More than 100,000 have been sold; the plant is now turning out more than 900 a day.
But there is also bad news: Saturn loses vast sums of money. Analysts estimate that the venture has cost GM $3.5 billion so far.
Just as the jury is out on GM’s grand experiment, so it remains out on American industry as a whole. Historians note that though corporations display seemingly invincible power at the heights of success, most do not establish long track records. Of the top 100 firms on Fortune magazine’s first list of America’s 500 biggest companies, published in 1956, only 29 remain.
