Supervisor/worker. Manager/employee. The company/the union. Us/them. That's the way the workplace has been organized in the United States since the turn of the century, and until recently we have taken the system pretty much for granted. Owners and managers expect to run the corporate show; employees expect to do what they're told. Us/them.
But the marketplace has changed dramatically in the last 20 years, and now the old thinking no longer works. You can see its failure in the sorry state of so many American companies -- and in managers' frenzy to try out Employee Empowerment and Total Quality and all the other hot-off-the-presses managerial techniques.
Meanwhile, a growing number of pathbreaking managers, in large companies and small, are ignoring both the old ideas and the latest fads. Instead, they're creating a wholly different mind-set about business and a different way of organizing work -- one in which there's no room for us and them.
Whatever their differences -- and there are many -- each of those innovators is creating not a company of employees and managers but . . .
Tumultuous times spawn innovation, particularly in the Darwinian world of business. And the economic turmoil of the last 20 years has given birth to a fundamentally new kind of company, as different from what preceded it as a swallow from a pterodactyl.
These next-generation companies are sprinkled across any number of industries. Wabash National makes truck trailers. LifeUSA writes insurance, and Springfield Remanufacturing Corp. rebuilds engines. Some of the companies are big, such as Wal-Mart and Nucor and Southwest Airlines. Others are tiny, such as 18-employee James-town Advanced Products, a metal-parts maker. A few have turned up in unlikely places. The Baltimore plant of Chesapeake Packaging Co., with 145 employees, is an exemplar of this new kind of business, poised for success in the 21st century. Its parent, Chesapeake Corp., with 5,100 employees, is a conventionally managed Fortune 500 manufacturer, poised for success in the 20th.
What do the new enterprises have in common? It isn't youth, though some are pretty new. Nor is it their unusual success. (Wabash National, only eight years old, has hurtled to the top of a sluggish industry. LifeUSA has been snapping up market share while competitors bathe in red ink.) It isn't even some trendy management catechism. These companies don't all practice the tenets of Excellence or Total Quality Management or any other school of 1980s thought.
What they do share is a way of doing business -- a way of thinking about business -- that is dramatically different from everybody else's. The chief characteristic: a new conception of how people in a company work together.
That new conception has plenty of familiar elements. Profit-sharing and equity schemes. Techniques for disseminating information (open-book management, we've called it in the past). Even a few of the latest consultants' fashions, such as employee teams. But the distinguishing feature isn't the parts, it's the whole. In the mind-set created by the next-generation companies, the roles and obligations and expectations prescribed by conventional corporate pyramids go out the window. CEOs are freed up, since the responsibility for the business is no longer all at the top. Everyone else undergoes a kind of liberation, too. Managers don't have to figure out how to motivate lethargic employees. Workers don't sit around waiting for instructions (and cursing their idiot supervisors in the meantime). That elusive goal, a company in which everyone thinks like an owner, becomes part of everyday life.
The new conception has bubbled up out of the turbulence of the past two decades. It has been created not by consultants or academics but by businesspeople, mostly through trial and error. It doesn't look the same from one company to another. No one has packaged it into a blueprint or a manual. But it works. Indeed, it may be the only sure route to success in a marketplace as treacherous as today's.
To understand it -- to see how dramatically the new approach differs from the way most companies are run -- it helps to revisit the beginnings of the modern business era and to see why the organizational principles created back then suddenly quit working.* * *
As any business-school student can tell you, the 20th-century corporation was born in the four decades between 1890 and 1930. Large multiunit mass-production and mass-distribution companies were scarce until then. Now they were flourishing in nearly every industry. Their reach extended from the production of raw materials to the sale of finished goods.
Explorers on the uncharted frontiers of management, the new giants' executives had to invent methods of running their big, far-flung operations. They established divisions and departments, each with its own managerial hierarchy -- the familiar linked boxes of the corporate organizational chart. They created a new class of middle managers to administer and coordinate the business. Those innovations shaped the form of the corporation right down to the present.
But the new corporations' most far-reaching invention lay not in the office or boardroom but on the shop floor. It was the creation of wage labor. More than the hierarchy, more than middle managers, wage labor and all the psychological baggage that went with it defined the parameters of 20th-century business.
To be sure, people had worked for wages for centuries -- on farms, in craft shops, in the first manufactories of the Industrial Revolution. But the simple act of hiring someone for a wage doesn't define the terms of the deal. Before, employers had typically expected a lot. Hired hands on farms were supposed to know farming and to work independently. Apprentices in workshops were supposed to learn a trade and eventually take on the role of master. In early factories skilled craftsmen and "inside contractors" engaged by the owner were often expected to provide their own tools, organize their own work, and hire their own helpers. The new corporations, by contrast, developed and institutionalized the modern idea of wage labor. Work would be organized by management and directed by a supervisor. Equipment would be provided by the company. An employee's job was to do what he or she was told -- no more and no less.
The marketplace of the day pushed employers relentlessly in that direction. Consider what they faced:
The new companies were trying to supply huge national markets, opened up only recently by the railroad and the telegraph. So their payrolls were gargantuan by the standards of the time. Back in 1870 the McCormick reaper plant's 500 employees made it one of the nation's largest. By 1900 some 70 factories counted more than 2,000 employees apiece, with a dozen or so in the 6,000-to-10,000 range. The demand for manufacturing labor skyrocketed all over the country. Between 1880 and 1920 the U.S. population doubled. The number of factory workers more than tripled.
To fill those swelling ranks, companies coaxed young men and women off the farm and snapped up hordes of recent immigrants, themselves often of rural origin. The new workers had little schooling. The immigrants didn't speak much English. Few knew what to expect from the giant, noisy, regimented factory. What they found there ranged from merely difficult to brutal. Workdays were long -- no surprise there. But work was sporadic in those boom-and-bust days, and layoffs were frequent. Wages were usually determined by some form of piece rate, so the pace was intense. When new technology or procedures led to an increase in output, the piece rate was cut. Working conditions could be fierce: Cotton mills were heated with live steam to maintain high humidity all year long. A typical meat-packing plant, according to a contemporary account, had "slime and grease . . . so thick that a foothold was hardly possible." From 15 to 25 employees died in accidents during an average year at Andrew Carnegie's Homestead steelworks.
Strangers in a dangerous land, the workers grumbled and protested and walked off the job. Between 1880 and 1900, notes one writer, "nearly 23,000 strikes affected more than 117,000 establishments -- an average of 3 new strikes a day for 20 years." Union organizing and walkouts provoked firings, blacklisting, and violence, creating an us-against-them mentality on both sides. Turnover rates and absenteeism were astronomical by today's standards. The Amoskeag Co.'s textile mills, in Manchester, N.H., had to hire 24,000 in one year to maintain a labor force of 13,700. Ford Motor Co.'s Highland Park, Mich., plant, incredibly, had to hire 54,000 over 12 months to maintain 13,000 employees. At Highland Park, says the historian David Montgomery, between 1,300 and 1,400 workers a day were discovered "missing from their stations." That ratio -- about 10% out every day -- was more or less standard in the years preceding World War I.
So plants were adding or replacing people all the time. The managerial conclusion was inescapable: most of a company's employees had to be essentially interchangeable. Someone leaves? See who's standing at the gate looking for work. Training or skill development? Forget it -- the new employee had to get up to speed in a matter of hours, even minutes. Skilled workers were a liability, not an asset. If they left, they were hard to replace.
That need for interchangeable employees defined two basic assumptions about work and workers -- assumptions that have shaped business thinking for most of this century.
First, a job must be defined as narrowly as possible. Production workers in particular should perform minutely segmented tasks. The simpler the task, the easier it is to replace people. New production technology, developed around the turn of the century, facilitated specialization: more and more goods were produced by special-purpose machinery and assembly lines rather than by hand labor and craftsmen. The word operative, meaning machine tender, came into use. Operatives weren't expected to worry about the whole product, let alone about matters such as customer relations, finance, and work flow.
Second, workers need close, direct supervision. The historian Daniel Nelson refers to 19th-century factories as "the foreman's empire," and the description fits. Foremen hired workers, assigned them jobs, showed them what to do. They set individual pay rates. They handed out discipline (fines, dismissal, occasional physical abuse). The typical foreman's style of management was referred to as "driving," defined by Nelson as "a combination of authoritarian rule and physical compulsion." Driving had a certain compelling logic. Given the conditions, what besides a foreman's wrath or beneficence would induce workers to work? Or to do anything beyond a bare minimum? This was not the age of the loyal employee -- or of the loyal employer.
The invention of "scientific management," by Frederick Winslow Taylor and his followers around the turn of the century, gave both assumptions the imprimatur of the industrial engineer. Scientific management -- the TQM of its day -- sought to eliminate bottlenecks and inefficiencies in production. Analyze every step of the production process, preached Taylor. Scrutinize every worker's every motion; break jobs down into their smallest components. Then set up a central department to standardize production methods, job descriptions, and pay rates. ("All possible brainwork," he wrote, "should be removed from the shop and centered in the planning or laying-out department.") Though Taylor was in effect curbing foremen's authority, he had no thought of abolishing close supervision; indeed, he felt more foremen than ever were needed to make sure workers did what the planners prescribed. Businesspeople evidently agreed. Between 1910 and 1920 the ranks of supervisory employees grew nearly two and a half times as fast as the ranks of wage earners.
None of that sat well with workers, who continued to feel (sometimes rightly) that management was trying to screw them. Unions howled about specialization. They protested arbitrary authority and excoriated scientific management. (Molders at the Watertown, Mass., arsenal walked off the job in 1911 at the very appearance of a Taylor disciple with his stopwatch.) But employee protests had little impact on the development of wage labor. Not until after the Wagner Act, in 1935 -- and after a series of often-bloody strikes -- did unions establish themselves in major industries. And not until after World War II did they set the patterns of collective bargaining that characterized labor relations for the next few decades.
By then, both specialization and hierarchical supervision were ensconced in business practice. Unions accepted them and concentrated on protecting their members against abuse. The newly negotiated contracts spelled out the requirements of each job, for example, to the letter. U.S. Steel's 1946 contract with the United Steel Workers of America specified matters such as how much river sand -- moisture content approximately 5.5% -- a sand shoveler was expected to shovel (12.5 15-pound shovelfuls per minute). Union work rules and grievance procedures, similarly, set limits on foremen's and supervisors' authority but took for granted that all employees would be told what to do.
Beyond such rules, unions explicitly disavowed any interest in how a company was run. Paragraph eight of a typical contract between the United Auto Workers and General Motors read, "The products to be manufactured, the location of plants, the schedules of production, the methods, processes, and means of manufacturing are solely and exclusively the responsibility of the corporation."* * *
What was created by this history, of course, was a mind-set. You could call it the mentality of wage labor, except that it affected employees and managers alike. And it persists today.
The mind-set's most visible manifestation is the feeling of us against them, management against labor, bosses against workers. From 1960 to 1980 more than a million employees a year were involved in large-scale strikes. Some strikes forced companies to shut their doors. Some companies shut their doors voluntarily rather than accede to labor's demands. Though union membership has declined in recent years, disputes are still bitter. (Last year's Caterpillar strike involved 12,000 workers and ran 163 days, ending only when the company threatened to bring in strikebreakers.) And union or nonunion, most workplaces live with a certain amount of daily in-your-face hostility.
But mistrust and malevolence between labor and management are only a part of the wage-labor mind-set, and not always the most important part. Even in the kindest and gentlest -- or the smallest and most familylike -- workplaces, the assumptions of specialization and supervision create characteristic ways of thinking and acting.
To an employee, the most important facets of any workplace are "my job" and "my boss." Doing the job well and satisfying the boss constitute success at work: they govern one's job security and chances for raises and advancement. Doing anything else may interfere with those goals. So even the best employees may balk at a task not in their job description or cringe when a manager other than their own supervisor gives them extra work. ("What's my boss going to think?") Less-than-diligent employees have ready-made excuses for not doing all sorts of things. It's not my job is a favorite. I didn't know I was supposed to do that is another.
Since employees are human beings, they may find themselves caught between what they feel they ought to do and what their job calls for. An insurance-company clerk confessed to Barbara Garson, author of a book about work, that she OK'd a store owner's policy calling for $5,000 protection against fire and $165,000 against vandalism -- exactly the reverse of what she figured the right numbers were. "I was just about to show it to Gloria [the supervisor]," the clerk admitted, "when I figured, Wait a minute! I'm not supposed to read these forms. I'm just supposed to check one column against another. And they do check. So it couldn't be counted as my error." Garson says she must have looked disapproving, because the clerk suddenly got mad. "Goddamn it! They don't explain this stuff to me. I'm not supposed to understand it. I'm supposed to check one column against another."
Rifts and resentment are built into the system. By common consent, for example, it's management's job to organize the work and provide the tools. Management, also being human, periodically screws up. Employees get conflicting instructions. Equipment doesn't get fixed. Parts aren't where they need to be, the phones aren't being answered promptly, the department is understaffed and overworked. The employees' verdict? They have messed up. They don't know what they're doing. They is every workplace's most common name for management. It's heard in hospitals and software companies as frequently as in grimy metalworking shops.
Managers experience the system's flip side, which is often equally thankless. They are supposed to get the work done, mainly by giving instructions and seeing they are carried out. But supervision as a method of management has built-in limits, particularly since driving has gone out of style. Managers may be poor instructors, or employees poor learners. No one can specify what to do in every eventuality, yet employees may decide to do exactly as they are told and nothing more. ("You never said I had to do that too.") And no manager can be everywhere at once.
Ever since Taylor, those difficulties have spawned an industry of advice peddling. A good manager, so it is said, won't just supervise but will motivate workers to superior performance. How to do that motivating? Read the books; call in the consultants. Some urge exhortation and inspiration, which they often call leadership skills. Others rely on performance reviews, still others on incentive-compensation systems (Taylor's favorite, and still fashionable today). Managers in most companies practice a mixture of techniques, with varying degrees of success. Many conclude that employees are inept, poorly educated, lazy, rigid, and dumb -- in a word, unmotivated.* * *
For most of the 20th century, the inefficiencies and foul-ups of the traditional system didn't matter much. Work was done; goods were produced and services provided, often in astonishing quantity. Competitors, virtually all of them domestic, faced similar costs and conditions. Conventional management practices were part of the landscape; companies took them for granted. Many still do. But for a lot of U.S. businesses, competition has stiffened dramatically. Suddenly, corporate survival was in doubt and management practices were up for grabs.
The convulsions that rocked the marketplace in the last 20 years are only too familiar. Foreign competition swelled, not just from Japan and Germany but from Taiwan, France, Singapore, Mexico, Italy, China -- and from foreign-owned companies locating here. Along with that globalization came wave after wave of new information technology, spawning a thousand new products and services and transforming both factory and office. Both trends put acute pressures on managers. Manufacturers had to match Japanese quality or Taiwanese prices. Service companies had to offer unprecedented levels of convenience and friendliness. Everyone had to manage an unprecedented pace of innovation. Introduce new products and services fast enough to match the competition, but not so fast as to alienate customers. Install new production and information systems to boost efficiency and speed, though not so often that employees never catch up. Bet wrong -- wait too long or plunge in too soon -- and you're out of the race.
A century ago the old marketplace had pushed companies in the direction of specialized, supervised wage labor. In the process it had created the manager-and-employee mentality. The new marketplace was saying, in effect, that system and that mentality wouldn't work anymore. Companies were coming up short on two critical counts.
Quality and service was one. Production could be maintained, up to a point, by supervisors. And minimum levels of quality could be assured by a squadron of inspectors. But what about zero-defect (or "six sigma") quality? And what about the intangible quality of customer service, where a smile and a little extra effort may create a customer for life? No army of inspectors or supervisors can make recalcitrant employees do exceptional jobs. The best systems, companies discovered, work only if the employees want them to.
Innovation was another. To innovate successfully is to learn how to do things better, cheaper, and faster; how to use new equipment and materials and procedures; how to improve the product and the service. In the new marketplace the ability to innovate was a company's critical resource, more important than big factories or a well-known brand name or access to capital. The trouble was, a company of wage laborers marching dutifully ahead wasn't well adapted to learning. Employees weren't going to come up with new ideas. Managers had enough to worry about just to get the work done. So it was that Sears, Roebuck & Co. took years longer than its competitors did to learn that a mail-order merchant really ought to accept Visa and Mastercard -- and really ought to have an 800 number.* * *
For some businesspeople it was all too much. Their companies foundered or were bought out. They themselves were sent packing. Others decided the answer was simply to slash the payrolls. Most managers and executives, however, found themselves groping -- for new methods, new techniques, new principles, anything that would help them run a company better in this puzzling and exacting new environment.
The gropers created huge markets. General-management books, which for years had inhabited a backwater of the publishing business, suddenly were as hot as Judith Krantz. (In Search of Excellence, which had an initial press run of 15,000, ended up selling more than 4 million copies over a 10-year period.) Classes and seminars and training institutes attracted droves of customers. Philip Crosby's Quality College, in Winter Park, Fla., has trained more than 140,000 managers since 1979. Consultants did a thriving business, too, teaching executives concepts like intrapreneurship and reengineering and cluster management.
Ideas provoked action, and businesspeople began experimenting. Manufacturers introduced just-in-time inventory systems. Offices streamlined or eliminated paper flow. More than anything else, though, companies began monkeying with their methods of managing people. New cross-functional teams were designed to break down barriers between departments. New pay-for-performance systems were supposed to get everyone pulling in the same direction. Managers learned new techniques of motivation, too. Directives were out, coaching was in. Sitting in an office was out, walking around was in. The very word employee began disappearing, in favor of associate.
In recent years the hottest new approach has been Total Quality Management, and its popularity shows how badly managers have been feeling a need to restructure things. TQM has exploded. Thousands of companies have set up formal programs; hundreds have put messages such as "A Total Quality Company" on walls and stationery. What's more, TQM seems to challenge the top-down style of modern management. Differently conceived, it might have been just another engineering fix, like just-in-time, based on techniques such as statistical process control (SPC) and enforced by a beefed-up quality-assurance department. But the evangelists of TQM preach employee involvement, and some managers, at least, are obliging. Machine tenders, trained in SPC, check their own defect rates. Quality teams, drawing people from every level of the company, rout out sources of error. Employees bandy about concepts such as internal customer and price of nonconformance.
So chinks have been appearing in the armor of wage labor. Employees (or associates) are being asked to think a little about what goes on beyond their workstations. They are being taught a little -- just a little -- about managing their own jobs. And yet, often enough, both employees and managers seem unsure of what to make of it all. Is the company really serious, or is this just another fad? Sometimes executives or even whole departments are sent off to some retreat or other, but nothing seems to change.
Maybe most damning, the new experiments and practices often lack a business rationale. Is TQM, for instance, really worth the trouble and expense? It wasn't to the Wallace Co., a Houston oil-supply company that won the Malcolm Baldrige National Quality Award in 1990 and entered Chapter 11 shortly thereafter. The accounting firm Ernst & Young, in a 1992 survey of quality practices in four nations, noted that the business community was growing "disenchanted" with the axioms of quality: "After implementing management practices that were reputed to lead to improved quality and improved overall performance, companies have experienced mixed results." Newsweek late last year pronounced Total Quality all but passé. Citing companies that had abandoned TQM programs in the face of hard times, the magazine concluded sourly, "American firms may not truly embrace Total Quality Management until it makes their shareholders more money than it did the seminar organizers, consultants and book publishers, who reaped the biggest quality rewards of the 1980s."
It's silly to object to experimentation. TQM and most of the other programs of the last 10 years have undoubtedly done more good than harm. The best ones have woken up sleepy companies and have helped them compete in a hazardous marketplace. Even so, how those companies will adapt to the markets of the future is less than clear because in many ways the companies haven't changed at all.
Think back to the manager's essential job in a traditional company -- telling people what to do -- and to that same manager's essential problem, motivating workers. Neither TQM nor most other reforms of the last 10 years have changed that equation more than a trifle. Managers (or consultants) are still telling employees what to do. Employees are still trying to do their jobs as management defines them. We're supposed to look for defects? OK, OK, we'll look for defects. Just get off my back.
Granted, nearly every quality program generates interest and brings about improvements. But so did the famous Hawthorne experiments by Elton Mayo and his Harvard colleagues back in the 1920s. Remember those? The experimenters turned up the lighting, and production went up. They turned down the lighting, and production went up again. It isn't difficult to shake up a workplace. What has been difficult, over the years, is to make the changes stick.
And now: back to that next generation of companies. Because amid all the groping and all the turbulence, by inspiration or by chance, some managers and CEOs in the last decade began experimenting in a different direction entirely. Rather than fiddling just with management techniques -- compensation programs, quality systems, whatever -- they began rethinking the whole employee mentality. Rather than just telling employees to do new things, they began exploring a set of ideas that has transformed their companies and seems likely to transform other companies in the future. Those ideas had a variety of names, but they all amounted to the same thing: abolish wage labor. Change the way people who think of themselves as employees and people who think of themselves as managers work together in a business.
The experiments have been diverse.
LifeUSA, a six-year-old insurance company in Minneapolis, has no just-plain-employees, only owners. The 275 people on the company's payroll get about 10% of their compensation in the form of stock options. The personnel office is called Owner Services. Founder Robert W. MacDonald, former president of ITT Life, knew from the outset he didn't want to re-create his former employer. "People should not be treated the way I saw corporations treating them. It wasn't right, and it wasn't efficient." LifeUSA has gone from a standing start in 1987 to 1992 revenues of $146 million, with profits of close to $10 million. MacDonald: "We'll write more new business than probably 98% of the companies out there. And we'll do it with fewer people. Because they're owners, they're involved, they run the company."
Springfield Remanufacturing Corp. (SRC), an engine rebuilder in Missouri, started life as a money-losing unit of what was then International Harvester. Independent since 1983, wholly owned by people who work there, SRC runs by a system known as the Great Game of Business. The fundamentals: Employees are trained to understand every detail of the company's financials. Every quarter they get bonuses pegged to goals such as return on assets. In the meantime they play the game: watching weekly income statements and cash-flow reports, comparing projected figures with actual. "What they learn is how to make money, how to make a profit," says CEO and Great Game inventor Jack Stack. "The more people understand, the more they want to see the result." SRC's fiscal year 1993 financials: $74 million in revenues, up 13% from 1992, with profits of $1.5 million.
When Jon Wehrenberg started Jamestown Advanced Products, a tiny parts manufacturer in New York State, he had a customer and a contract in hand. But he could meet price and performance requirements only if labor costs were less than 11% of sales. So he challenged his employees to get costs below that level, promising a big and continuing bonus if they succeeded. Wehrenberg told of his company's three-year journey to profitability in this magazine ("How My Company Learned to Run Itself," January 1991, [Article link]). Jamestown's employees marveled at how the system changed their outlook. "Other places I've worked, you're getting paid by the hour and you don't really care," said one. "You don't take pride in the work like you do here. Here, it's almost like you're working for yourself. The boss? Jon's never out there. He's really not needed."
Inside the Baltimore cardboard-box plant of Chesapeake Packaging Co., a subsidiary of Chesapeake Corp., based in Richmond, Va., are eight separate "companies" created by plant manager Bob Argabright. The companies correspond to the departments of any similar plant. Unlike departments, those companies choose their own leaders, do their own hiring, and determine their own work processes. They take responsibility for budgets, production, and quality levels. They deal with their own customers, internal and external. The Baltimore plant was losing money when Arga-bright took it over, in 1988. It turned a small profit in 1989, doubled that profit in 1990 and again in 1991, and saw profits rise 60% last year, all while sales remained flat. "We now rank second