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Production lines and innovative work practices.

Earlier research by Casey Ichniowski and Kathryn Shaw shows that clusters of innovative workplace practices lead to higher productivity levels on production lines in the steel industry. In a 1995 Brookings Paper on Economic Activity, they expand their analysis to explain why production lines do and do not adopt new workplace practices.

Ichniowski and Shaw's sample includes 36 production lines in the steel industry that use similar technologies to manufacture the same product. The workplace practices are adopted in clusters, and four systems of practices stand out. The first system includes 11 percent of production lines that use all innovative practices: selective screening, skills training, work teams, incentive pay, job flexibility, employment security, and regular labor-management meetings. The second system encompasses 31 percent of production lines having regular labor-management meetings, and in all but one line, high-participation work teams and skills training; this group varies in adopting the remaining practices. The third system includes 42 percent of the production lines that have a minimum number of practices, including low-involvement work teams, labor-management meetings, and employment security (the latter in only half of the lines). The final and most traditional system includes 16 percent of the production lines that have no innovative practices in effect.

Estimates from the authors' earlier research indicate that moving from the most traditional to the most innovative system increases net revenues $173,000 per month because of increased uptime. Given the potential gains, Ichniowski and Shaw ask: Why don't all lines adopt innovative practices? To help answer this question, they focus on the costs of change associated with the organization/production line and employees. They hypothesize that organizational costs include changing existing workplace practices and gathering information on new practices and their effects on productivity. Employee costs include changes in the knowledge and skills tied to interpersonal and authority relations within a set of workplace practices, which are very different for traditional and innovative systems. The authors suggest that both organizational and employee costs are much lower for new production lines versus established lines, because of the lower costs tied to information gathering and employee resistance to change.

Ichniowski and Shaw estimate the costs and revenues associated with adopting innovative workplace practices. They find that worker age, tenure of the local union president, and tenure of line manager and human-resource manager all negatively affect adoption of innovative workplace practices, reflecting the high costs of change at an employee level. Supplementary field interviews document the resistance of senior workers who fear failure at new jobs and loss of the seniority system, the concern of long-tenured managers and foremen about their roles in participatory work environments, and the difficulties faced by union and management in building new relations and overcoming low levels of trust. Only the tenure of the chief executive officer has a positive effect on adopting new workplace practice--a measure that is unassociated with the production line. At the organizational level, the line manager's experience, expected to lower the costs of information gathering for the organization, has a strong negative effect.

As the authors hypothesize, the occurrence of plant layoffs, percent of the plant that has been shutdown, and other nearby plant shutdowns have positive effects on adoption of workplace practices, indicating that the effects of credible threats increase the likelihood of employees investing in skills necessary for new workplace relationships. Many of expected revenue gains for the production lines are similar, given the narrow sample. However, the number of new competitors has a positive effect on adoption, while production lines that compete in national markets are less likely to adopt new practices. Contrary to expectations of integrated firms having greater access to information and cost spreading, large integrated producers are less likely to adopt new practices.

Ichniowski and Shaw investigate further tenure issues, as newer production lines--those that began operating in 1983--have younger workers and managers with less tenure and are more likely to use innovative practices. They report that the year the line began operating under current ownership reduces the effect of "new" production lines, indicating that the adoption of new practices has increased over time, both in new lines and old lines with new ownership. Why do existing firms move to an innovative system? The authors say that shutdown threats increase change, while an increase in competitors lessens change, the latter due to a short time horizon for gains from new investments. The authors conclude by emphasizing the high costs of change in existing lines. They draw an analogy between capital and labor resources, suggesting that just as it is usually less expensive to introduce technological change by building a new plant rather than retooling an existing one, it may be less expensive to open a new plant with new management and workers, rather than attempt to implement change at an existing plant.

"Work lace Performance" is prepared by Polly A. Phipps of the Office of Publications and Special Studies, Bureau of Labor Statistics.
COPYRIGHT 1996 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Workplace Performance
Author:Phipps, Polly A.
Publication:Monthly Labor Review
Date:Jun 1, 1996
Previous Article:Seasonal adjustment of Producer Price Index for passenger cars.
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