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Restructuring in manufacturing: management, work, and labor relations.

Restructuring In Manufacturing: Management, Work, and Labor Relations

In September 1990, 71 percent of Fortune 500 CEOs felt the United States was in a recession, or would be within 12 months. Indeed, there is evidence of a weakened economy. The National Association of Purchasing Management's index of economic activity dropped to 43.4 percent in October 1990, its lowest since December 1988. Business failures for the first nine months of 1990 rose 14.5 percent. In September, construction spending fell 2.8 percent; residential, nonresidential, and government spending, seasonally adjusted, was the lowest since November 1988; and payroll employment fell by 68,000 in October 1990 to its lowest since the 1982 recession.

In addition to the economy, U.S. businesses continue to face challenges from foreign competitors, who, even on U.S. soil, better manage their plants. For example: It takes an average of 25 hours to assemble a car in a U.S. plant, while it takes 21 hours in Japanese plants in North America. Plants in the United States average 82 defects per 100 cars, compared to the Japanese at 65. Among the variable which contribute to their success is that workers get 370 hours of training, compared to 46 in U.S. plants. Seventy-one percent of the Japanese work force consists of teams, while just 17 percent are in teams in U.S. plants. Manufacturers in the U.S. compete in a global market, but not always on a world-class basis. This economic and performance data reflects a few of the challenges that U.S. companies face.

For some companies, these challenges prompt no action, while others recognize the environmental volatility yet opt for the status quo. A third group will make the strategic decision to restructure the company in preparation for the next decade, which will include realignment of positions, decentralization, job redesign, and an enhanced relationship with the union and workers. These companies will also better utilize the intellectual power of workers in a way previously not tried in the United States.

This article chronicles organizational design paradigms since the late 1800s which have facilitated internal company restructuring, and explores a paradigm characterized by flexible management structures and job design schemes to ensure the intellectual participation of workers. Additionally, the concept of "collective gaining," will be explored, along with a new role for labor unions and innovations in human resource policies, including advocacy for employment security programs.

The economy and global market forces increases the urgency in which companies must prepare now for world-class competition.

Management has experienced many internal restructuring eras. Since the owner-managed paradigms of the 19th century, companies have experimented and stabilized with functional paradigms, divisional paradigms, and matrix paradigms. Rarely, if ever, were labor unions invited to participate as management experimented and adapted to new structures. In fact, negotiating the impact of restructuring on workers more likely occurred after a new structure was implemented, and even then it was often through the grievance procedure.

* The owner-managed paradigm. In the 1800s, companies were managed largely by owners. Because the companies were small, the owner-manager performed many of the managerial and professional tasks. Company growth and diversification was governed by the energy, time, and intellectual constraints of the owner. At the end of the 19th century, as the demand for products increased, opportunity beckoned those companies capable of producing larger quantities.

* The functional paradigm. Because of greater production capacity and outputs, growing companies restructured to relieve owner-managers of the awesome duty of being all-purpose experts. Using the principle of division of labor, companies departmentalized by business function, and professionals were hired in, for example, such areas as bookkeeping, production, and sales. This structure was efficient. It enabled vertical growth around limited products. However, this also signalled the decline of management generalists, which lessened demand for professionals with multi-dimensional experience. Even top managers tended to view problems primarily from their functional specialty.

* The divisional paradigm. In the 1930s, as companies diversified their product portfolios, expanded geographically, and tailored products for different consumer markets, a new need arose. Top executives freed themselves to oversee corporate matters that had strategic influence. At the same time, responsibility for day-to-day operations, in product and profit centers, was delegated to general managers. Hence, the divisional paradigm. It permitted divisional departmentalization by product, by customer, and by territory.

* The matrix paradigm. Although owner-managed, functional, and divisional paradigms all contributed to company objectives during periods of phenomenal growth and expansion, many companies in the 60s and 70s discovered that these paradigms alone did not accommodate contemporary needs. Divisionally structured companies were not efficient and responsive, and functionally structured companies lacked the specialized expertise of the divisional paradigm. Both wanted to respond quickly to new initiatives, as well as staff new ventures and projects with professional competence. The matrix paradigm met both needs, as it was an appendage to either the functional or divisional paradigm, depending on which was in place and which was needed. The matrix is one of many project paradigms that enabled companies to staff both functional requirements and experimental initiatives.

Regardless of the paradigm in place, relationships with workers and the union remained the same. Workers were recruited, hired, classified, trained, evaluated, and supervised, essentially in the same way, which resulted in a burdensome classification system, antiquated work rules, and low expectations. Unions were organized based on craft or industry. Negotiations, under all structural paradigms, centered on traditional wage, benefits, job security, and seniority issues.

The eighties brought expanded global competition, a declining growth rate, and other environmental, regulatory, technological, and societal changes, which necessitated still another paradigm. During the periods of growth, expansion, and diversification, top management had distanced itself from the point of production. It had relinquished business coordination to middle and divisional managers, and each paradigm that succeeded owner-manager added middle management staff.

Manufacturing companies are in danger of not being ready for the next decade. Sure, there are many reasons for this plight, but chief among them is a failure to structurally adapt to a volatile and complex competitive environment. Old managerial strategies and practices require scrutiny. Some should be discarded. Boring and monotonous jobs need to be redesigned. And, most importantly, companies must dramatically re-connect with workers and improve the partnership with the labor union that represents its workers.

From a technology perspective, plants and equipment currently under design and purchase consideration require flexibility to respond to environmental challenges. Likewise, the company's structure and work force utilization should be comparably fluid and flexible.

There are many U.S. companies, union and non-union, that have adopted flexible and organic structures and unconventional job designs. Chief among them are Motorola, Ford, General Motors, Mead, Xerox, Honeywell, and GTE. They have worked to create an organizational culture characterized by caring, trust, respect, and sharing.

These companies have adapted to a new management philosophy - one that emphasizes shared values at all organizational levels. It is a philosophy cemented by a trust in the willingness of all employees to work in the company's best interest.

There are common themes these companies illustrate.

* Gone are the tall pyramidal structures. They have been replaced by short, flat, and lean structures. There are fewer management layers and fewer managers. The remaining managers have more responsibility, more authority, wider spans of control, and will lead a worker who is better skilled, better educated, and in search of serious intellectual challenge. At the New United Motor Manufacturing Co. Inc. (NUMMI) in Fremont, California, a joint venture of GM and Toyota, there were formerly more than two dozen salaried managerial classifications, now there are five: president, executive vice president, general manager, manager, and group leader.

* Flex-structures include small self-contained units or teams that have responsibility for a significant aspect of a product, service, or task. This gives group identity to the members. The group can identify with its customers and keep customer needs and interests in the forefront.

* The self-contained units help place authority for day-to-day decisions closer to the point of production. Accordingly, top management relinquishes some control to workers, and shares critical information about production, quality, employee performance, attendance, competitive costs, technological changes, long-term employment prospects, and other data. This gives worker feedback and also provides data for planning purposes.

* With fewer management layers, fewer managers, wider spans of control, and workers with more autonomy and information, the nature of work itself is more interesting and challenging. Jobs are redesigned to increase the degree to which workers experience skill variety, task identity, task significance, autonomy and feedback.

* Innovative human resource policies recognize and reward workers based on the knowledge and performance of individuals as well as groups.

For companies where workers are unionized, the challenge of management is greater. Not only must it sell its management and supervisors on the new flex-management philosophy, it must also persuade the union that workers will benefit, and invite it to be a partner. Union endorsement and cooperation is a prerequisite to achieving restructuring goals, new job designs, enhanced worker input, and a high level of worker involvement.

Flex-management and flex-structures, by a variety of names, are in place at many companies, including:

* New United Motor Manufacturing Co. Inc. (NUMMI), a joint venture of GM and Toyota, in Fremont, California.

* The General Electric plant in Lynn, Massachusetts.

* General Foods' plant in Topeka, Kansas.

* The Mitsubishi-Chrysler jointly managed plant in Bloomington, Illinois.

* Saturn Corporation division in Spring Hill, Tennessee.

A necessary ingredient for flex-structures to be effective is the acceptance by first-line managers and supervisors. A common problem that surfaced at General Foods in Topeka was supervisors' discomfort with the vagueness and ambiguity caused by openness in a culture in which secrecy and confidentiality had previously prevailed.

Still, environmental changes necessitate movement away from the structural paradigms of the past, management practices that are outdated, job designs that do not add value to the product, and a labor/management relationship grounded in archaic and historic constraints. Alternative structures must be tried and tested, and the flex-management paradigm will be granted more utilization as time passes.

As the hierarchy flattens, change must trickle to the production level. There are many job design schemes that change the way workers are organized, classified, trained, and deployed, and which also ensure their involvement in management decisions. There are three in particular, and they have some overlap: generalist classifications; self-managed teams; and adding indirect labor tasks to production work.

A key criterion in any change is the ability to increase worker intellectual ownership. When increased ownership is achieved, workers are empowered, their participation in decision making is broadened, and they implement decisions made about their own work, as well as work beyond their own individual responsibilities. Regardless of the scheme adopted, the company must invest in training to provide workers the skills, knowledge, competencies, and attitudes required to contribute effectively in their new roles.

* Generalist classifications. The over-specialization that began in the early 1900s - and the failure to recognize its weaknesses earlier - has contributed to the productivity decline in manufacturing companies. Many companies have from 50 to 100 job classifications in which each worker has a carefully carved work territory. By comparison, Japanese plants have fewer classifications and fewer specialists, and workers are trained to accomplish a variety of tasks using multiple skills.

Although archaic, the old classification scheme dominates. But it will undergo a transformation in order for companies to achieve flexibility and improved efficiency. Specialized skilled and semi-skilled craftsmanship classifications, as they are presently known, will decline, and generalist classifications will increase. Workers will not be organized and trained in a way that retards their lateral and upper mobility or that unnecessarily limits management's flexibility to assign work.

For example, at NUMMI, 80 skilled and semiskilled classifications were replaced with just four: three skilled classifications (trades, maintenance, and tool and die), and one production classification.

After substantial training to develop new skills, new knowledge, new competencies, and, indeed, a new concept of work, production work at NUMMI has more variety, involves teamwork, collaboration, and worker participation in decision-making. Automobile assembly work quality is better, and management has the flexibility to deploy workers in accordance with fluctuation in demand.

A second example is the General Electric plant in Lynn, Massachusetts. General Electric cut to three the number of skilled and semiskilled classifications, leaving only repair control, automatic factory mechanic, and stager. Workers in such classifications as electricians, plumbers, and other conventional skilled classifications were assisted in developing new skills, covering more than one craft.

A third example is the General Foods plant in Topeka, Kansas. However, rather than three or four, there exists a single classification, but four different pay levels based on pay-for-knowledge.

Other plants at which a small number of classifications are in place include the Mitsubishi-Chrysler joint venture in Bloomington, Illinois and Saturn in Spring Hill, Tennessee.

* Self-managed teams. The generalist classifications give companies increased flexibility to deploy workers. Additionally, with short, lean, and flat company structures, less middle management, and fewer middle managers, a tremendous opportunity exists to give workers more autonomy and discretion in managing their work. Accordingly, another feature of the new flex-management is self-managed teams.

The implementation of self-managed teams improves worker participation in decision-making that has been historically absent. The teams schedule themselves, move members from task to task to meet demands, and they accept responsibility for quality and inter-group coordination. They solve their own problems, do most of their own maintenance, and make limited shop-floor decisions.

Team members not only accept responsibility for self-management, but also for their own skill development. They increase the degree of skill variety in their work. Individually, as well as by group, they accomplish more tasks, use more equipment and tools, and use a variety of procedures and systems. They are no longer specialists - who would refuse, for example, to oil a conveyor belt because of classification limitations - but generalists, who performed a cluster of tasks. They know the goals and objectives of the team, and for most tasks they do not need supervisory direction to initiate or react.

At NUMMI, the teams consist of about eight hourly and salaried workers. Team leaders do much of the work formerly done by first-line supervisors, except they have no responsibility over dismissals. Team leaders are selected by the joint labor/management committee, and when hourly workers are selected, they are paid a $.50 per-hour premium. At Saturn, teams also have budget responsibility and they are involved in parts and supply purchase decisions.

Other companies, including Boeing, Caterpillar, Champion International, Cummins Engine, Ford, General Electric, LTV Steel, Xerox, and Eastman Kodak have redesigned production work.

* Indirect labor tasks. Traditionally, manufacturing separates direct labor activities (those that add value by transforming raw materials into finished products) from indirect labor activities (for example, quality control, material handling, scheduling, purchasing, cost administration, industrial engineering, and manufacturing engineering). An alternative job design to improve quality, worker participation, and to enrich production work, is to redesign the work to include carefully chosen indirect labor activities.

Production workers can be trusted to perform higher-level activities, and they should be trained and given the responsibility. For example, instead of having inspectors, production workers can assume responsibility for ensuring the quality of their outputs.

They can also participate in deliberations on industrial engineering, design, customer service, safety, cost containment, quality, and more. Much of the new manufacturing technology has user-friendly computerized and electronic controls which enables production workers to handle it, reducing the need for specialists.

Also, they can schedule their work. Certainly, the master production schedule requires an integrated approach and coordination has to be done by those who have a global outlook on the manufacturing operation. However, production workers can do short-interval scheduling and should be permitted to exercise some autonomy over what and when to schedule within the boundaries of the master schedule.

Regardless of the design chosen, companies cannot skimp on the necessary training. The training investment in workers in U.S. plants is twelve percent of the investment made by the Japanese in workers in their plants in North America. Clearly, for the new approach of re-skilling, multi-skilling, and training on indirect labor tasks, there must be a systematic development of the new skills, knowledge, and competencies, to achieve performance objectives.

There are a number of ways to redesign work. What is important is that five key characteristics be the measure for determining the final design.

* Will the workers have a variety of tasks to perform, use a variety of skills and knowledge, and use a variety of equipment and procedures?

* Will workers have an identifiable piece of the product for which they, individuals or in groups, can be responsible for?

* Will the work have significance to others within the company and outside?

* Will workers have some autonomy and discretion to make decisions within an agreed-upon framework?

* Is the work structured so that people and teams get direct feedback with respect to the quality of their contributions?

Labor unions, along with companies and workers, have experienced mass layoffs, plant closings, and relocations. Some of this has been caused by decline in demand, offshore competition, intrusive legislation, technological change, and a host of other environmental threats.

Clearly, in companies where the workers are represented by a union, the union's acceptance of management's restructuring thrusts are critical to the company's success. Accordingly, management must sell the union on the concept and achieve its endorsement and partnership to ensure a smooth transition from the old practices to the flex-management concept.

This requires that the union accept a different thrust in negotiating. Companies want flexibility to maneuver in a highly competitive market during an economically difficult period. Unions understand environmental conditions, challenges, and threats, as well as management does. The union and workers must be invited to have input into areas heretofore reserved as a non-mandatory subject of bargaining, such as design and quality issues.

Historically, unions have not supported generalists classifications, self-managed teams, or a blurring of direct labor with indirect labor activities. Within the framework of this cooperative experimental approach, forward-thinking unions have loosened their grip on specific and detailed job descriptions and work rules, and allowed management more flexibility to utilize workers - but at the same time, unions have achieved employment security goals.

Futuristic unions, like flex-management advocates, share a belief in "collective gaining" in negotiations, rather than the traditional "collective bargaining."

Collective bargaining has customarily been an adversarial process with winners and losers. Negotiations are characterized by numerous tense moments over a prolonged period of time.

In accepting a philosophy of understanding and shared values, rather than continuing an era of bargaining that centers on one-for-one exchanges, there are a number of aspects of the process that changes for the better.

* The primary focus in "collective gaining" becomes finding areas of agreement and compromise within the framework of the philosophical agreement.

* Production workers are included, as well as supervisors with whom they will work. Typically, it is felt that smaller groups work better in negotiations. But with a larger group and better representation from both sides, real problems can be addressed, preventing them from surfacing as grievances.

* Instead of negotiations characterized by demands and counter-demands, collective gaining focuses on questions of interest, real problems and concerns, as well as opportunities to improve the effectiveness of the company and maintain a truly harmonious relationship between the company and workers.

* It becomes unnecessary in a relationship of trust and respect to demand contract specificity in anticipation of every eventuality. Also, contract start and finish dates are not crucial events. Instead, both sides agree to disagree agreeably, and agree to meet to resolve disagreements as they occur.

* Both sides perpetuate openness, frankness, and an atmosphere of sharing. Deceptive and slick practices, and tactics to wear the other side thin are counterproductive and avoided.

* The dialogue is civil and refined. It lacks combative argumentation, but flourishes in exploring, questioning, explaining, illuminating, and clarifying. Rather than holding to concealed "bottom lines" or "resistance points," they are revealed and honestly dealt with.

This approach to negotiating is risky, and requires uncompromising honesty and openness on both sides. There are examples of success or partial success with futuristic thinking in bargaining where some or all of these concepts have been tested. They include General Motors and UAW at NUMMI; General Electric and IUE in Lynn, Massachusetts; UAW and Saturn in Spring Hill, Tennessee; General Foods' plant in Topeka, Kansas; the Mitsubishi-Chrysler jointly managed plant in Illinois; Ford and UAW; LTV Steel and USW; AT&T and CWA; and Xerox and ACTWU.

Consistent with the flex-management concept, there will be innovations in the selection process, as well as in compensation, training, and performance evaluation.

* Selection. At Saturn, NUMMI, and the General Foods plant in Topeka, members are selected for inclusion on a team by the team members, based on what the candidate is able to contribute. Candidates from other GM plants waive their seniority as a condition of selection. The selection process includes interviews and assessment-center-like simulations.

* Compensation. Pay methods will shift from hourly to salary, overtime is likely to give way to bonus programs, and pay-for-knowledge systems will be tested.

At Saturn, production workers are paid a salary (average shopfloor salary is $34,000). Twenty percent of the salary is at risk in that it is received dependent on the outcome of a complex formula that includes variables such as car quality, worker productivity, and company profits. If performance is better than planned, a bonus could be added.

The General Foods plant in Topeka employs a pay-for-knowledge compensation strategy. As mentioned earlier, it has one classification, but four different rates. It has one starting rate, which is paid for the initial job assignment. An increase in pay is a function of a worker's learning. Once the worker has mastered the initial assignment and has learned the jobs of all team members, the pay increases to the team rate. Next, the plant rate is paid to individuals who learn all the jobs in the plant. Finally, if a person has some special skills (e.g. electrical maintenance), he or she could qualify for a special "add-on" rate). The company places no limits on the number of people paid at any rate.

* Training. Unlike the average manufacturing plant in the United States where a worker receives about 46 hours of training, workers at NUMMI receive 250 hours during their first six months, 75 of which is classroom instruction. Workers learn the new management philosophy, and they study techniques for safety, control, problem-solving and work standardization. Additionally, each year they get 50 hours of training in the principles of Kaizen (continuous improvement) and leadership. At General Foods in Topeka, workers are encouraged to learn as many jobs as possible and receive pay increases accordingly.

* Measuring Performance. Evaluation of work will focus less on such criteria as in-house production of previously subcontracted work, inventory control, output per hour, and will focus more on group performance in areas such as quality, delivery, process system costs, customer satisfaction, and company earnings.

These innovations may sound theoretically radical, but in practice they have earned the approval of the workers. Such approval is critical in order for the changes to have the desired effect - that is, to improve the overall performance of the company to achieve world-class performance, and to continuously improve.

The evidence is persuasive that effective manufacturing companies of the future will be different in many ways. During the transition, there will be pain and discomfort; anger and uncertainty. Once a stronghold for unskilled and semiskilled workers, as well as skilled and white collar workers, plants will employ fewer people at all levels of the company than in the past. But, the remaining jobs will be different. They will be more interesting, challenging, and rewarding, and competition for the workers and for the jobs will be intense.

A prerequisite for union and worker support for flex-management concepts is an assurance that workers will not be adversely affected. The company must guarantee workers employment security in order for workers to participate in improving the competitive posture of the company without fear of cost-improving themselves out of work. This holds for companies whose workers are not unionized as well.

Unions will seek protection for workers as a condition of its support. It is critical to establish opportunities for those who chose to leave the company, and to ensure that they be enabled to do so with dignity and income secured for the immediate future. There should be available all or a combination of such benefits as early retirement, retraining programs, transfer rights, formal education initiatives, severance packages, and outplacement assistance.

In order for GM to have the desired flexibility for the future, GM and UAW agreed, in the 1990 contract, to pre-retirement leaves, an enhanced retirement, an early retirement program, a voluntary termination program, a jobs bank, and enhanced package of supplemental benefits.

A long-term commitment to workers in the flex-environment is a benefit to the company as well as workers. As a result of restructuring, the hierarchy will be altered, middle management will be gone, the union will have a greater role, the role of workers will change from a single-dimension unskilled worker to a multidimensional, multi-skilled, intellectual member of a team. A substantial investment will be made by the company in plant modifications, technology upgrades, and in training. The training will range from skill and competency development, knowledge enhancement, communications, human relations, team-building, and much more. With this level of investment, companies cannot risk losing workers during economically difficult periods or due to turnover.

Once the company establishes its staffing core, during peak periods extra help can be found through seasonal help or outsourcing.

Admittedly, labor has traditionally seen both as an effort to deny work to its members and to weaken the union's base. But given the philosophical underpinnings of the "collective gaining" approach, labor should view its obligation to guarantee employment for the core, while at the same time permitting the company cost-effective flexibility to meet competitive demand fluctuations.

There are employment security programs in operation. As early as 1974, the New York Times negotiated the right for news reporters to prepare news articles on terminals that were also used to operate automatic typesetting equipment, which drastically reduced the need for typesetters. But the parties negotiated a lifetime employment agreement for the typesetters. Over time, many retired, some accepted retraining, and some accepted lump-sum severance payments.

In 1984, GM and UAW negotiated a $1 billion job bank to absorb, for six years, workers who were displaced due to technological change, outsourcing, negotiated productivity improvements, and job loss due to transfer or consolidation of work within the company. A worker in the bank could be assigned to either a training program or to replace another employee who was eligible or interested in a training program. In the 1990 GM and UAW Master Agreement, the fund was increased to $3.35 billion. Ford Motor Company agreed to a similar arrangement, but at a cost not to exceed $284 million.

Employment security is critical to capture labor's support of restructuring, and to cement workers' commitments as true stakeholders.

Restructuring is not new, but there are new restructuring paradigms. Many times in the past, a new paradigm has surfaced to accommodate company needs as environmental changes occurred. Although the paradigms are few, there exist variations of each.

What is tremendously unique about the flex-management paradigm is that it does not add bureaucracy, it eliminates some. It does not add hierarchy, it cuts it. It does not fatten management, it flattens it. It is not just a shell game of moving people and positions, it represents real change.

Unlike other paradigms where the change is concentrated at the top and in the middle, flex-management is real organizational change. It indeed reaches and concentrates on people at the production level, it changes the nature of production work, and adds value to workers through increased responsibility, autonomy, and discretion.

Also, unlike paradigms of the past, flex-management and flex-structures seek true partnership from the union and mandates a different and improved bargaining relationship.

Although the owner-manager, functional, divisional, and matrix paradigms contributed substantially to the restructuring needs of companies at different times during the 20th century, as companies prepare for the 21st century, the flex paradigm is the structural option that will best facilitate the transition.

WILLIAM A. NOWLIN, PhD, is an associate professor in the college of business at the Rochester Institute of Technology in Rochester, New York. An author of over 30 articles on workplace and employment research, his current interests include employment and labor policies for the 21st century, valuing cultural diversity, and managing abroad. Dr. Nowlin is also a labor arbitrator.
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Author:Nowlin, William A.
Publication:Industrial Management
Date:Nov 1, 1990
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