Thursday, December 11, 2008

Businessweek: Fixing Detroit—and jump-starting U.S. manufacturing—is possible, if companies adopt "high-involvement" management practices

James O'Toole, professor of business ethics at Denver University, argues in a Businessweek article that "high-involvement" business practices can enable higher-wage workers to compete successfully against lower-wage workers by making them produce better products. This has critical implications for the Detroit 3.

In the grocery space, I think of Whole Foods versus Wal-Mart. Whole Foods workers get a stock plan and have significant autonomy. Wal-Mart's workers, and other low-wage workers, are managed to death by petty bureaucracies that stifle independent thought and innovation. High-involvement allows workers more dignity - and franky, Christians ought to prefer companies that use such practices.

In fact, O'Toole argues that automakers, including the Detroit 3, use or have used high-involvement practices in the past.

Exhibit One:

Currently, American workers make quality cars—and profitably—in U.S.-based plants owned by Toyota (TM), Honda (HMC) and Nissan (NSANY). These workers are not unionized and do not enjoy the same retirement benefits as their peers in Detroit. While that difference gives Japanese manufactures a decided cost advantage over their American-owned rivals, it does not account for the much higher labor productivity and quality standards found in the U.S.-based Japanese plants than in Detroit. As Toyota executives testify, their workers are more motivated and productive than their peers in Detroit because they participate in high-involvement working environments.

What this means is that production tasks in Japanese-managed plants are organized in ways that allow—and encourage—workers to add value to the manufacturing process by way of their ideas and initiative. Instead of Detroit's adversarial "us vs. them" labor relations, workers and management in the Japanese-owned plants see themselves as part of the same team, and both enjoy the fruits of their joint successes. As a consequence, workers in the Japanese-owned plants not only are more productive than their oversupervised and rule-constricted counterparts in Detroit, they actually have greater job security because the cars they make are more price-competitive with cars made abroad. Adding in bonuses, and adjusting for fewer involuntary layoffs, they also may actually bring home a larger total income over the course of their careers.
Exhibit Two:

The productive potential of high-involvement practices was demonstrated to the UAW and to General Motors in a series of experiments beginning in the early 1970s, first at auto-parts supplier Harman Industries, then at GM's Tarrytown (N.Y.) assembly plant and, most dramatically, in the '80s at GM's joint-venture with Nissan in Fremont, Calif. Ford's dramatic comeback from near bankruptcy in the mid-'80s was due, in large part, to an unprecedented period of labor-management cooperation in which tens of thousands of jobs were saved when the UAW set aside traditional work-restrictive practices in exchange for employee profit-sharing and worker self-management in small teams. For the first time since the death of Henry Ford, the company had the best-selling car in America, and it made unprecedented profits.

That brief, golden era came to an abrupt end when the Ford family petulantly replaced its far-sighted CEO, Donald Petersen, with the early-industrial-age throwback, Jacques Nasser, who quickly centralized total control of the company under his command. Ford's progressive management practices were curtailed, and productivity and profits quickly slipped back to pre-Petersen era levels. Across town, GM's top executives similarly decided to put their "managerial prerogatives" ahead of productivity and profits, declaring they wanted no part of "Japanese management." Instead, they planned to automate the union into impotence. After all, robots work 24/7, and they don't collect pensions!

To make matters worse, the UAW's old-guard leadership then breathed a sigh of relief, and happily returned to what they did best: pursuing conflict with management over economically unjustifiable wage and benefit demands.

In sum, knowledge about the advantages of high-involvement workplaces has been available in Detroit for nearly 40 years, but Big Three executives and UAW leaders have repeatedly rejected it, much as they have rejected the manifest need to build small, fuel-efficient cars.
Exhibit Three:

In the late '80s, motorcycle manufacturer Harley Davidson (HOG) was in deep trouble, on the verge of bankruptcy and plagued by most of the same problems currently besetting U.S. auto manufacturers. To save their company, and its five thousand jobs, Harley executives and the UAW hammered out a groundbreaking contract in which the company agreed to keep production in the U.S. in exchange for constantly reducing total labor costs. Harley workers were reorganized into self-managing teams and rewarded financially for their efforts to improve production methods, product quality, and customer service. Over the next decade, Harley's domestic workforce grew to more than 9,500, its productivity and profitability greatly improved, and its high-quality motorcycles found new markets around the globe (even in Asia).

Of course, adopting high-involvement techniques is no panacea. All the employee efforts in the world can't overcome the handicap of products that no one wants to buy or cost structures that are out of line with labor productivity. And hammering out contracts, like the one at Harley, requires real, and painful, concessions from both labor and management, such as lower executive salaries and reduced pension and retiree health-care benefits. Indeed, the most legitimate role the U.S. government might play in any Detroit bailout would to assist with easing the effects of such changes on union retirees.

Even failing that, it is in the long-term interest of employees, employers, and the nation for more manufacturing companies to adopt the high-involvement practices found not only at Harley but at W.L. Gore, SRC Holdings, and Nucor (NUE) in other American industries. What is at stake here is not just Detroit. In a 2002 scientific survey of a cross-section of the entire domestic workforce, the U.S. Census Bureau found that the most motivated, committed, and loyal employees in all industries are those who participate most fully in decisions that affect their own work, and those who share most fully in the financial gains resulting from their ideas and efforts (through profit-sharing, stock ownership, and the like). All told, there is mounting evidence that, when properly deployed, led, and rewarded, American factory workers can make goods that are price-competitive with foreign imports, even those from low-wage countries.

The opportunity is at hand to halt the export of good American jobs, and perhaps even to recapture some of those recently lost. Far more effective than trying to prevent U.S. industries from exporting jobs, one of the most effective ways the Obama Administration can deliver on its promise to protect and create domestic private employment is to encourage American business and labor leaders to adopt high-involvement workplace practices. The place to start is with the high-visibility auto industry, and the time to do so is now, while there is real leverage over both labor and management.

Encouraging American businesses to adopt high-involvement management practices will, I hope, eventually force Asian businesses to do the same. I would hope to see such practices improve labor conditions in the sweatshop industry. I'm not trying to understate the need for stronger labor laws, because there will probably always be a market for low-involvement mass production labor, but there is the potential to transform the global labor movement from the bottom up.

Autonomy is a fundamental human need. In psychology experiments, American nursing home residents who were given even limited control over their daily routines lived longer than those who did not. Autonomy is a fundamental part of human dignity. Sweatshops are a fundamental denial of human dignity. So are inflexible management practices at places like Wal-Mart. Conversely, if O'Toole is right, American industries have much to gain from adopting high-involvement practices and allowing their workers greater levels of autonomy.

1 comment:

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