Seventeen years ago, the president of a small electronics company looked at the business he had built and realized that it had turned hostile and threatening. In order to change it, he had to invent a new kind of corporation.
Seventeen years ago, the president of a small electronics company looked at the business he had built and realized that it had turned hostile and threatening. In order to change it, he had to invent a new kind of corporation.
Skip Griggs, 50, the president of one of Kollmorgen Corp.'s 16 divisions, once worked for a well-known manufacturer of household appliances. He supervised two assembly lines that produced electric toothbrushes and knives. Each day, the people who worked on this assembly line were given half an hour for lunch and two eight-minute breaks, during which they could eat a candy bar or a sandwich and also go to the bathroom before the assembly-line belts started up again. The company would not allow the workers to use the nearby cafeteria for their breaks, so they took them in the bathroom instead.
"Management figured," Griggs says, "that if you let them use the cafe, they'd eat and hang around and when the belts started up again, then they might rememto go to the bathroom. They couldn't even be trusted to do that by themselves. management just didn't seem to be able to see that this was a little attention that could produce great results. You know little things mean a lot to people, and you can't do anything without people. I just couldn't stomach that. I mean eating in a bathroom, come on. So I opened the cafe on my own and everybody cheered, but I got chewed out like you couldn't believe.
"It was very frustrating. I never met the president of the company, not even once. I had a boss in Chicago. If things were going well, he'd come and visit me. If things were going poorly, I had to visit him. And all the while you're worrying, 'Lord, what did I do now?' You didn't know for sure, you just had to sit there and worry what it might be. It was an atmosphere of suspicion."
In time, Griggs was fired. He came away from the experience not so much embittered as confirmed in the belief that management mistrust of employees was the natural state of the corporate world. He would be a hard man to convince otherwise.
In 1974, Griggs interviewed for a job as manufacturing manager at the Inland Motor Division of Kollmorgen in Radford Va. Corwin Matthews the personnel manager, explained to Griggs that Kollmorgen -- a $79-million-a-year electronics company -- was not like other corporations. There was a new philosophy at work there, Matthews said, which disagreed strongly with the precepts of traditional authoritarian management. People came first at Kollmorgen, he said, and they were seen as basically good, well-intentioned, willing to work, responsible, and creative. Everyone was treated as an equal in an environment grounded on mutual trust and respect. Here people felt secure and could talk openly about their opinions and problems.
Griggs listened politely to this description of what seemed like a mythical kingdom, and took the job, reasoning: "I looked at it as one of two things -- a gold mine or a disaster. Either way I felt I'd know soon enough."
A year passed, and even after Griggs listened to Robert L. Swiggett, Kollmorgen's chairman of the board, chief executive officer, and leading evangelist, describe the company's new corporate vision at a meeting in Hartford, he was still uncertain. Maybe the vision was only that, he thought, fun for a sunny day but quick to evaporate when business got tough. "Maybe then they'd say, 'Let's go back to the old way and tell those dumb bunnies what to do," he recalls thinking. "I thought it was working in our division, but what about the others? You know you go so far, but you sometimes tread lightly. I still had some vague reservations. Let's face it, freedom and respect for the individual are just different."
Four more years passed. Storm clouds came and went and, if anything, the "bunnies" were given more freedom. Meanwhile, Griggs' division also witnessed extraordinary growth. From 1974 to 1979, the company's sales nearly doubled, from $79.1 million to $154.5 million, while earnings almost tripled, from $3.3 million to $9.8 million. Yet Griggs still had some doubts.
Then in 1980, Swiggett published the philosophy in a seven-page brochure that was widely distributed. Griggs was ecstatic. "I knew he had to mean it because he put it in black and white for the world," he says. "He was putting his reputation and all his experience on the line. I said to myself: 'I'm in this for the rest of my life."
The Kollmorgen Corporation Philosophy is philosophy of a very practical sort, as well it should be. After all, Bob Swiggett the philosopher-author is also Bob Swiggett the chairman of the board of a company with 5,000 employees, 16 divisions, and 25 manufacturing locations, not to mention approximately 4,500 shareholders -- a generally skittish crowd favoring results more than contemplation. Thus, Swiggett declared his intentions as early as the front cover of the brochure.
"Freedom and respect for the individual," he wrote, "are the best motivators of man, especially when innovation and growth are the objectives." To avoid misunderstanding, "innovation" was quickly defined as "technological leadership" and "first to market with the best" in the company's three business segments: printed circuitry and associated technology, special direct current motors and controls, and electro-optical instruments. And "growth" was identified as doubling sales and earnings every four years while exceeding a 20% return on shareholders' average equity.
Traditional forms of management cannot sustain these goals, Swiggett went on, particularly in larger companies. In order to achieve innovation and growth, a company must maintain "a free-market environment for every individual in the company," wherein "each employee is exposed to the risk and rewards of the market. . . [and is] primarily responsible for using his abilities and for his own success or failure." The best way to encourage such entrepreneurial commitment is to break a company into small, autonomous "profit center teams.
"Within each small, close-to-its-market business unit," Swiggett wrote, "each person can accurately assess the contributions of the other team members. Each can feel like a partner. Each can feel he contributes, and feel confident that his contribution will be recognized. . . . Each feels responsible. Each individual is every other's judge."
There is a compelling personal conviction throughout this statement that carries with it the incontrovertible certainty of revelation. It is hard to believe, based on the fluid exposition of his cosmology, that Swiggett, like Griggs, came to his faith slowly, awkwardly, and once, even reluctantly. Like any good laboratory scientist, he placed a premium on activity for its own sake, always trying this or that until he or a colleague stumbled across a breakthrough. Then he kept going, content to figure out the theory later.
Swiggett traces the origins of his faith back to a day in 1967 when he stood on the edge of the production floor and watched some of his company's 500 employees moving through the complex patterns of their individual enterprise. The company's name was Photocircuits Corp. -- it later merged with Kollmorgen -- and it was a model of traditional, rational management. Indeed, there were more than 1,000 open orders out there on the floor, each one with a different set of manufacturing requirements, often 50 process steps long, and each one passing through 10 or 15 different departments. "It was a classic case of confusion," Swiggett recalls. "Later, when we began to analyze what it took to get an order through the shop, [we realized] we were lucky ever to ship anything."
That landscape, which for so long had seemed to Swiggett the natural and fruitful condition of a traditional, centrally controlled, functionally structured organization, had turned hostile and threatening. Something was missing out there, some unifying first principle, some elemental sense of design, and its absence was confounding the company's future.
Photocircuits's primary business was the manufacture of printed circuit boards. The company had, in fact, pioneered the field, which in turn had revolutionized electronics-assembly technology. Before the advent of printed circuits, each of the myriad capacitor and resistor joints on a terminal board had to be soldered by hand. The printed circuit board allowed mass soldering and automatic assembly of electronic components, and later fertilized numerous other technologies.
The company's first big breakthrough came in the mid-1950s, when it obtained an agreement to make half of the printed circuit boards for computers being used in a new continental air defense system. According to Jim Swiggett, Bob's brother, who joined the company in 1953, the deal"contributed about $1 million a year until [the program] petered out in 1967." These were significantly larger revenues and responsibilities for a company that had, until then, been operating out of a garage, a cellar, and a basement beneath a bar.
"We had a minimum of management skills," Jim recalls. "It was definitely the dark ages all the way. I mean, you had to take your used pencil to the accounting department to get a new one. It was just a bunch of guys trying to get something done." Deciding that it was time to acquire the accoutrements of a real business, Jim Swiggett hired a consultant, who helped him rough-in the framework of a traditional, centrally controlled function-managed corporation.
As the business grew, so did the new management structure, but in time the company found itself resorting more and more frequently to distinctly nontraditional operating tactics. The impetus came from new, smaller printed circuit companies, which frequently won business at Photocircuits's expense because they could respond more quickly to the customer's needs. In order to meet this challenge, Photocircuits would often organize a small, dedicated task force to solve particularly urgent problems. Invariably, this task force, which operated without cost systems or formal scheduling and with utter disregard for the precepts of modern management theory, bulled its way to a solution. The idea proved so successful that it was institutionalized in 1960 when the company established a so-called Proto department.
Although the Proto department was originally set up to make prototypes of new production business, it soon became a small-quantity, quick-turnaround business in its own right, with its own list of customers. There were only 35 people in the department, but they could turn around an order for a new type of printed circuit board in I to 3 weeks, as opposed to the 6 to 10 weeks normally required. What's more, the Proto department was the most profitable part of the company. "The Proto guys had one game," Bob Swiggett says, "and that was to satisfy the customer. The other people in production were playing departmental games, like who has the best score for efficiency in their department. To them the customer was only a job number."
It is one of those ironies of history that Swiggett, even with the evidence right in front of him, couldn't see in the Proto department the very substance of what Skip Griggs would later read in the Kollmorgen Philosophy. It was all there: the importance of small groups of individuals acting autonomously, the profitability, the customer satisfaction, the innovation and growth. But to Swiggett, the Proto department was somehow tangential to the company's main operations, a arenegade of sorts meant to have little impact on the status quo. Besides, he was totally preoccupied with building the business in a more traditional manner.
From 1957 to 1967, Photocircuits nourished an intense effort to diversify the business and overwhelm the competition. "We couldn't deal with competition," Swiggett says. "We wanted to have something the other guys didn't have." Routinely spending 10% of sales on research and development, the company accelerated its chemical-engineering research and established a product-development operation. By 1967, it had come up with a number of new technologies that promised substantial additions to the company's $10-million sales base.
Perhaps it was this flurry of activity that obscured the subterranean rumblings of approaching disaster. In any case, when Swiggett finally heard them on that day in 1967, it was nearly too late. Somehow Photocircuits had trapped itself in a paradox of self-defeating success. "Rarely did we meet promised deliveries," Swiggett recalls. "Quality problems were enormous; profit performance was erratic; morale was poor. Production managers burned out quickly. Functional departments fought with one another. Only the rapid growth of the market and the even more disorganized condition of our large competitors sustained us."
Such difficulties, typically dismissed as "growing pains," are not uncommon in young companies. Swiggett sensed, however, that Photocircuits's problem was at once small and prosaic, yet cosmic and mystifying, with implications far larger than the company's size. He was like a man who in simply asking for the correct time had, in turn, been posed a question that involved determining the correct relationships between the earth, the sun, and all the planets.
The prevailing Ptolemaic view of management theory saw its universe as quanititative, analytical, cooly objective, and unerringly precise. It held that systems could be devised that, once fueled with enough numbers and hard facts, could transform any given company to harmony and order. The system, flawlessly rational and detached, was even immune to the unpredictable and irksome frailties of the employees who served it. People, in the celestial mechanics of this view, revolved around the system.
But there was a new gospel loose in the land that presented a fresh, Copernican universe with people at the center, around which all else revolved in minor orbits. By 1960, for example, Douglas McGregor had published his book, The Human Side of Enterprise, which celebrated the individas creative, productive, and responsible and served as a focal point for other critics of existing attitudes in the years ahead. Then, as now, the differences between the two views suggested that there were also profoundly different ways that individuals could organize themselves and relate to one another within the modern corporations. In a sense, Swiggett was being called to bear witness to one view or the other, although at the time he was not really aware of his opportunity, consumed as he was by the urgency of the moment. Plus, he was a true product of his times, and he still believed, even though he had ample reason to think otherwise, that the rational systems approach was his answer.
As it happened, Swiggett and some of his colleagues had just returned from a tour of an IBM Corp. plant in Endicott, N.Y., where they had seen what IBM had done with computer-aided manufacturing management. "The complexity of our production routine was so mind-blowing that we thought something like the IBM process control system was what we needed," Swiggett recalls. "We said, 'Boy, what we're going to do is put this whole business on line in real time, and we're going to know where every part is. We're going to be able to have scheduling, we'll have loading algorithms, we'll have all those things.' We were smart guys, at least we thought so, and we wanted to do things right. We weren't willing to trust our gut."
Jim Swiggett, then vice-president of manufacturing and production, was put in charge of developing System 70, a customized method of scheduling and management that was to produce daily departmental scheduling by 1970. The project was successfully completed in late 1969 at a cost of around $500,000. Then it bombed. "Statistically, we got everything we wanted," Bob Swiggett says. "We could spit out printouts that would cover the wall in about 15 minutes. The computer worked beautifully, but company performance, if anything, got worse. Foremen were preoccupied with printouts instead of people. Managers spent time worrying about internal systems instead of our customers. People couldn't relate to those printouts, and they resented the control."
The failure of System 70 triggered Jim Swiggett's survival instinct. Time after time, Jim traced back over his experiences, searching for a solution to the company's dilemma, and time after time, he paused at the idea of small, dedicated teams, an idea he called "team manufacturing." He began to see it as something more than a temporary expediency. Meanwhile, the recession of 1970 had made cost-cutting imperative, and that meant either eliminating crucial R&D projects or junking System 70, the shibboleth of modern management. But if System 70 died violently, what would take its place?
These were weighty matters indeed, so Jim packed his bags and went to Harvard University's Graduate School of Business Administration to consult "the world's leading guy on production control," whose name is now shrouded in the mists of time. "I must have talked for quite a while," Jim says, "but he was very patient. Then he said, 'Here you are in the modern age, with computers, control theory, and you've just spent two hours telling me how you want to abdicate your responsibilities. Forget this team manufacturing you've got lurking in the back of your mind and go with what you're doing. You're doing it absolutely right."
While Jim was off to see the guru, Bob was home signing the final papers on the merger of Photocircuits and Kollmorgen. As if the crash of System 70 and a recession weren't enough to worry about, Photocircuits needed outside capital to support its growth. Bob had consulted with investment bankers who told him that Photocircuits would be worth $9 million in a public offering. Shortly thereafter, his old friend Dick Rachals, the president of Kollmorgen, telephoned him with an offer.
At first, Rachals only wanted to buy Photocircuits's printed motor business, but, after subsequent discussions, he ended up proposing a merger. To Swiggett, it looked like a good fit: Photocircuits had sales of roughly $15 million, while Kollmorgen's sales were about $23 million. Moreover, both were involved with high-technology products, and the price was right -- 440,000 shares of Kollmorgen worth about $14 million, considerably better than the expected proceeds from a public offering. In February 1970, the merger was completed.
"There we were," Bob Swiggett says, "newly merged at a great price, and naturally we wanted to look good. So you can imagine the chaos when Jim came back from Harvard saying, 'The hell with it. We're going to throw out System 70. We're going to throw out the whole thing.' "
To Bob and many of his colleagues, especially those who had worked on System 70, Jim's intuitive leap to team manufacturing was actually a stunning setback. "To give up modern management technology for something simpler," Bob says, "to throw that out meant to all of us at that time that we were giving up on another pioneering effort, and we didn't want to ever give up." But within six months, Photocircuits doubled its output per employee, and its on-time delivery rate rose from 60% to more than 90%. "In the middle of a depression," Bob says, "what could've been a disaster turned into a real good money-maker. So we really had it burned into our souls that small teams can lie terribly effective."
Bob Swiggett had found his faith at last. It had taken 20 years, and it hadn't come easily, not bathed in light during a moment of contemplative tranquility, but grudgingly, with grunts, groans, and confusion. "I don't want it to appear that I did anything fancy," he says, "that one day I just dreamed all this stuff up out of thin air. It came from desperate experimentation, and I've always had a lot of help. We tried a few things first because we had to, then we found something we liked and kept at it because it worked. Later, we read the books and found out there were good reasons why it worked."
As soon as the decision was made, Jim Swiggett went to work on what Bob describes as "a chaos of empire shattering." Using the Proto department as a model, Jim and his wrecking crew first broke up the company into some half dozen teams, each with an average of 75 people, and differentiated them by product line, market segment, or customer group. A manager was chosen to lead each team and was given responsibility for the team's profits, losses, and balance sheet. Then they threw out the standard cost system and eliminated most functional manufacturing and overhead departments, including customer service, order processing, production control, and quality control, all of which were turned over to the teams. Every manager was expected to deal directly with customers or field salespeople, set prices, bargain with other product managers for machine time and overhead allocation, and take monthly physical inventories in person.
"In spite of the yelling, almost magically everything improved," Bob Swiggett once said in a speech. "Customers were happier, pricing was better, profits rose, inventories turned faster, troublesome book-to-physical-inventory variance surprises disappeared. Morale rose with the evidence of success."
Today, this grand process is known throughout the company by the unfortunate term "productization." It is regarded as a powerful, but generally neglected, elixir that can make sick companies well and dullards into champions of innovation and growth.
The discovery of productization's curative powers occurred none too soon: Shortly after the Photocircuits merger and resurrection, Kollmorgen itself took sick. In 1971, the company recorded an operating loss, as its eight divisions went about reenacting the confusion Swiggett had observed once before from the edge of the production floor at Photocircuits. These problems were exacerbated by conflicting management styles among the three men who occupied the "president's office." "Dick Rachals was an intellectual," says Swiggett, "a solid engineer, not a great people-motivator, but very logical; Norman Macbeth, the flamboyant sales deal maker; and John Maxwell, a quiet man with a great sense of justice and order. I loved them all, but they really didn't get along so well, and they were all so polite that they really didn't work their problems out." The three group vice-presidents, of which Swiggett was one, were also squabbling over style. He himself stood for "team manufacturing, openness, small profit-centers, and bonus-sharing," while the others fought for "strong line control and no communication other than by the chain of command. [Their attitude was,] don't come to see my divisions unless I'm there."
"We had more guys in management then than we do now, and we were only doing $40 million in business," says Allan Doyle, Kollmorgen's vice-chairman and chief financial officer. "It all had to get sorted out."
"The time had come," Swiggett adds, "for Kollmorgen to achieve some type of corporate consciousness. We had to answer basic questions like, What do we want to do?, What do we want to become? and How do we relate to the divisions?"
In late spring of 1972, all of Kollmorgen's corporate officers convened for a weekend of deliberation at The Old Tavern, in Grafton, Vt. The discussions were, to say the least, vigorous. After the Saturday dinner meeting, Bob Swiggett was fired in a fit of pique for disloyalty. "I simply said that I felt Dick, Norman, and John weren't clear on what they were trying to do," he says, "that they were thrashing around and were frequently counterproductive." Later that day, Swiggett was rehired when the principals reviewed his presumed transgression and found it more an expression of vital concern than disloyalty. He was invited to try his luck with Kollmorgen's difficulties, a move soon seen by the two other group vice-presidents as adequate grounds for their resignations. "By 1973," Swiggett says, "we had a clean slate. I'd read the literature, and I was telling a pretty good story. It fit together theoretically and pragmatically because it worked."
Swiggett was no longer a neophyte; he was by now a seasoned practitioner, as well as a serious student of a new, essentially self-taught management art. He set about reorganizing Kollmorgen's eight divisions as if each were a small Photocircuits in need of productization. Henceforth, they would stand free, with no centralized manufacturing and overhead departments to rely on. Every division, he said, must be an "autonomous profit-center," and he meant "autonomous" in the sense of being strong enough to go public. Next, Swiggett pushed the same responsibility as far down into the divisions as he could by creating small profit-center teams arranged by product, process, market, customer, contract, or whatever logical method presented itself.
Along with the Theory Y, "people-are-basically-good" precepts he picked up from McGregor's book, Swiggett had broadened his repertoire with a refinement of his own: "People like to play in a game, to play hard and to bet on the score of that game. Happy, highly motivated players who believe in their game and who understand what they have to do to win will outperform -- by a factor of two to one -- unhappy, poorly motivated players who don't understand or know the score of their game." Swiggett had created the teams, now he needed the game itself. At Kollmorgen today, that game is known as "vision," which, by definition, refers to something extraordinary.
In a series of meetings, the corporate officers committed themselves to superior performance in three areas: innovation, growth, and profitability. As growth objectives, they chose a doubling of sales and earnings every four years because such a growth rate would ensure recognition in the investment community, a high price-earnings multiple, and easy access to investment funds. Similarly, they wanted a conspicuous rate of return on equity and settled on a goal of roughly 20%, or about one and a half times the existing industrial average.
There was also a commitment to freedom and respect for the individual at work, a commitment that was later given form in the so-called partners statement, built word-by-word by 20 corporate officers and division presidents huddled for three days in a hotel in Stamford, Conn. That statement reads: "The purpose of the partnership is to fulfill its responsibility to Kollmorgen shareholders and employees by creating and supporting an organization of strong and vital business divisions where a spirit of freedom, equality, mutual trust, respect, and even love prevails; and whose members strive together toward an exciting vision of economic, technical, and social greatness."
Together, the technological goals, the financial goals, and the partners' statement constitute the Kollmorgen "vision." Having thus defined the game and set up the teams, Swiggett and his colleagues went on to find a way of keeping score, a ballpark, and some rules of good sportsmanship -- or, respectively, a bonus plan, an organizational structure, and a corporate culture.
Swiggett wanted each division to struggle in the free-market arena. He also needed a method for making sure that the financial goals of the divisions conformed to those of Kollmorgen as a whole, without sacrificing divisional autonomy and a vigorous spirit of individual self-interest. What he came up with was "RONA," for "return on net assets," in which "net assets" are defined as the sum of receivables, inventories, and net fixed assets, minus payables.
The RONA plan was extremely versatile. It was easy to understand; it correlated with the company's overall objective for return on equity; and it was universally applicable among the divisions. "We had out the argument whether each division should be judged by the same economic performance," Swiggett says. "We studied all the SIC codes and found that in every SIC code, regardless of the kind of business, the leaders were making it and the others were doing poorly. So no matter what the business, the money market -- which is blind to the nature of your business -- judges you, and you ought to be able to do the same return on net assets."
As the basis for a new bonus plan, RONA also gave individuals a handy way of keeping score. If a division has a good year, even its least skilled workers can gain an additional 15% to 20% of their gross annual salaries. And indeed, the RONA plan quickly proved to be a powerful motivator. It was introduced throughout the company in the first quarter of 1975; six months later, receivables and inventories had been reduced by $11 million. "When people started thinking about an asset," Swiggett says, "they found they had five years worth of drills, five years worth of sheet metal, five years worth of everything. We practically didn't buy a thing for six months after putting in the bonus plan, and we ran the business beautifully."
Kollmorgen also needed an organizational structure that would ensure divisional autonomy, yet allow for coordination at the corporate level. After some experimentation, Swiggett and his colleagues hit on an ingenious solution: Every division president would communicate quarterly with his own board of directors. Each board of directors would generally be composed of three corporate officers, two other division presidents, and a senior technical person from another division. The boards would offer guidance and suggestions but never commands. "After all, what's the role of a leader?" Swiggett asks rhetorically. "It's to create a vision, not to kick somebody in the ass. The role of a leader is the servant's role. It's supporting his people, running interference for them. It's coming out with an atmosphere of understanding and trust and love. You want people to feel they have complete control over their own destiny at every level. Tyranny is not tolerated here. People who want to manage in the traditional sense are cast off by their peers like dandruff."
Such a relationship between a division and its board can sometimes create painful dilemmas. "You can see a situation deteriorating," Doyle says, "but doing something about it that's effective and not damaging to the long-term health of the division can only be done locally by people who are really part of that organization. It's their business; their business got in trouble, and they take the necessary actions."
This was exactly the situation faced by Skip Griggs's board from late 1981 to early 1983.
The Industrial Drives Division had consistently been one of the company's best performers. It had been recognized for more than a decade as the technological leader in supplying motors to the machine-tool industry. But in late 1981, the division's board members became concerned that the industry was undergoing fundamental changes, thanks primarily to a flood of Japanese imports. Industrial Drives would therefore be wise to diversify into more attractive market segments.
In fact, the division had already set up groups to explore other potential markets, including robotics, military systems, and general automation. But, "although they understood what the board was saying about the increasing risks, there they were with the highest backlog in their history, and business was still strong," says Jack Walnes, chairman of the Industrial Drives board and Griggs's predecessor as division president. "So the feeling of urgency wasn't the same between the board and the division."
Then, in the second quarter of 1982, the national economic recession caught up with the machine-tool industry. The division's bookings dropped by 40%. Business continued to decline throughout the year until, finally, Industrial Drives reported a loss during the first quarter of 1983. The board helped as best it could, and Walnes himself talked with Griggs continually But, through it all, Griggs was left to make his own decisions.
"If the best genius in the world had been running his business, I don't think it would've been anything different," Swiggett says. "Everybody in this office talked about Industrial Drives and looked at every single option 52 ways, and nobody could second-guess Skip on a better way of handling it. I don't think there was a thing wrong with our system; I think it was fabulous."
Griggs and his team successfully introduced some 20 new products during the remainder of 1983. By year end, machine tools accounted for only 40% of the division's total business, compared with 80% in 1982. In 1984, Griggs expects bookings to increase more than 20%, shipments to grow more than 40%, and earnings to almost double. "I think the merits of our approach show up in the way the division has come back so quickly and so strongly from that trauma," Doyle says. "It never could've happened if the order to do something had been given from the corporate office."
In addition to the divisional boards of directors, Swiggett and friends also designed a forum, similar in spirit, to review each division's actual operating results and projections. Now, once a month, every profit-center team gives its division president a financial statement detailing its operating results for the past several quarters and projecting results 12 months out. These are then sent to corporate headquarters for consolidation, along with a statement from the division president reflecting the operating results of the division as a whole.
In this manner, more than 50 statements are submitted each month. When all are in, the corporate officers spend the next day around a conference table reviewing each one of them by telephone with the division presidents and project managers. Says Allan Doyle, "The real strength of our system is that, in times of adversity, there is no pressure within the system not to communicate what the division president or product manager sees in his markets. The only way people get into trouble really is by surprising other people. They don't get into trouble by saying, 'Hey look, we've got a problem here.' And here it comes out very early in the process."
Swiggett adds, "The boards and the statement meetings are both ways of growing the business without enlarging the corporate staff very much." This is a remarkable understatement, given that the entire company is "run" by only 11 corporate officers, 2 of whom are senior scientists.
Kollmorgen is sometimes described structurally as a holding company supervising a portfolio of small technology companies, but Doyle contends that this description ignores a crucial difference. "In portfolio-management theory," he says, "individual companies are viewed largely as temporary elements in the portfolio, to be traded much like stocks. Here, every division is regarded as an integral part of Kollmorgen's future, to be nourished accordingly." This sustaining commitment to businesses and people finds its highest expression in what Swiggett calls the Kollmorgen "culture."
At some final and irreducible level, culture appears to rest on an act of faith in which individuals experience the company's vision in very personal terms. They are not "sold" on the vision; they commit themselves to it voluntarily because they perceive it as essential in shaping the meaning and significance of their own lives. Culture, then, is created employees give life to the values of their shared belief. Management cannot control, nor even ensure, the moment of its flowering, but it can prepare the soil.
Swiggett himself goes to extraordinary lengths to foster the Kollmorgen culture. Twelve times a year, he leads so-called Kolture Workshops, designed to "keep the fires burning and spread them broadly." These workshops are either one or three days long and include from 35 to 100 people. At the three-day session, Swiggett reviews the history of Kollmorgen and, using a relaxed, Socratic method, examines the philosophical issues that inform the company's culture. "Do you think this philosophy can work in a corporation?" he asks. "Do you think it can work at Kollmorgen? Is it working now? How can we improve it?"
The participants are unusually well-equipped to address these questions. In each spent about 40 hours reading from McGregor's The Human Side of Encerprise; Alexis de Tocqueville's Democracy in America; Martin Luther King Jr.'s "Letter from the Birmingham Jail"; Machiavelli's The Prince; and numerous articles on leadership, innovation, and economics.
Through the Kolture Workshops, the company articulates its vision, over and over and over. At the least, the process bears witness to the potential of that vision; at best, it becomes part of a self-fulfilling prophecy. "Actually, it's very simple," Swiggett says. "We preach trust and the Golden Rule, and we're very careful that what we do is the same thing as what we say.
Accordingly, there are no time clocks at Kollmorgen, no policy or operations manuals, no information monopolies, no cafeterias closed during breaks. All such things are signals" that belie lofty rhetoric, and employees read them unerringly. "Once we had a rule book," Skip Griggs says, "that said you get three days off if your mommy or daddy dies, but if your neighbor, whom you've known for 35 years, dies, you get no time off. We threw it out."
If you want openness and trust, Swiggett urges, then you have to act openly and with trust, every day. Thus, every division president sees the monthly financial statements prepared by every other division president. And the employees are similarly kept informed at monthly meetings that cover the company's progress, as well as the division's specific performance and its effect on the RONA bonus.
In the words of the Kollmorgen Philosophy: "Trusting people to be creative and constructive when given more freedom does not imply an overoptimistic belief in the perfectibility of human nature. It is rather a belief that the inevitable errors and sins of the human condition are far better overcome by individuals working together in an environment of trust, freedom, and mutual respect than by individuals working under a multitude of rules, regulations, and restraints imposed on them by another group of imperfect people."
The whole weight of the Kollmorgen structure and culture seeks to confirm its members in service one to another and to sustain a sense of caring among them that includes yet transcends their time on the job. Again, the events at the Industrial Motor Drives Division during 1982 and '83 provide an excellent case in point.
As order rates declined and cancellations accelerated during the second quarter of 1982, Griggs and others cautioned employees at the monthly "News Conference" that "hard times were inevitable." Be careful of your discretionary spending, they urged, and don't make long-term financial commitments. By the third quarter however, it was aparrarent that roughly 30 people -- or 10% of the work force -- would have to be laid off indefinitely.
"I felt terrible as hell when we had to lay off people," says human resources manager David Workman, 34. "My way of trying to cope with that feeling was to get everybody committed to getting them back as soon as possible." At the News Conference in December, when the lay-offs began, departing employees were told in detail what their friends would be doing to restore their jobs in the interim. They were told that their health, dental, and educational-assistance programs would remain in force, that the company would help anyone facing a financial emergency, and that they were welcome at all future Conferences. "In our minds, the still very much our employees," an says. "They were being convenienced."
"It was shown that they worked every way they could not to lay anybody off," says motor assembler Billy Hubbard, 34. "They even tried to help people get other jobs. They told every employee what to expect. There was no hiding this and hiding that, things which other companies just don't seem to do."
Fred Paris, 45, a maintenance man at Industrial Drives, describes his feelings this way: "This is the best job I've ever had. A lot of people won't realize how good it is unless they've had a chance to work somewhere else. We're like a family here. In December, when our people were laid off, we all pitched in and promised ourselves that we would get all those people back as soon as possible. And we did it." Indeed, recalls began as soon as business turned around during the second quarter of 1983. By July, everyone who had been laid off was back at work.
Encountering Kollmorgen for the first time, the serious student of corporate America is apt to feel a sudden flush of exhilaration that here, at last, in the cogency of its inner logic and the inspiration of its design, is the perfect answer to perpetual growth. But the system is not perfect; it is only close. Sales more than doubled, and earnings per share quadrupled between 1975 -- the year productization really took hold -- and 1979. But for whatever reasons -- national economic conditions, flawed judgments, or both -- Kollmorgen did not reach its objectives in 1982 or '83 as earnings declined both years.
Today, Wall Street analysts are projecting hefty earnings gains through 1985 at a rate well above the company's own goals, but here, too, there is a sense that these measures cannot adequately express the complexity of Kollmorgen's progress. In 1974, Swiggett began a correspondence with Prof. Jay Forrester of Massachusetts Institute of Technology, who in 1965 had written a paper that anticipated many of Swiggett's later thoughts. In the paper, "A New Corporate Design," Forrester wrote: "The precedents set in the last several hundred years by changes in the form of national government suggest that corporate power will also evolve from the authoritarian toward the constitutional. With this evolution, the primary objectives of the corporation would change from the already diluted idea of existence primarily for profit to the stockholders and toward the concept of a society primarily devoted to the interests of its participants." Therein lies the real significance of Kollmorgen. If nothing else, it is certainly part of that evolution.
"There's a lot of sin out there in the world," Swiggett says. "People lie, they cheat, they steal, they rip off your car radio. You don't have to set up your business like it is in the outside world. You want people to feel as free from threat as they do in their own bedrooms. We just assume that everybody's honest, and we run the business that way. And people rise to this. But the devil's out there, and he's always whispering in the ear of some manager, 'Hey, you've got to control these suckers or they'll run away from you.' So we can't even give away the secret of our success, because most people think it's crap."
But not everybody thinks so, as Skip Griggs can attest. On that day in 1980 when he finished reading the Kollmorgen Philosophy, he went straight home and asked his wife, Sue, to read it. He waited impatiently as she turned the pages. "What do you think?" he asked.
"It's okay," Sue said.
"Just 'okay'?" Griggs demanded.
"Well," Sue asked, "aren't all companies run this way?"