Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 3, 1993 TAG: 9212310056
SECTION: BUSINESS PAGE: E1 EDITION: METRO
SOURCE: STEFAN FATSIS ASSOCIATED PRESS
DATELINE: LENGTH: Long
NEW WAY TO WORK
AS TROUBLES intensify, companies across the nation are dismantling their old hierarchies.\ GENERAL Motors Corp. slashes tens of thousands of jobs and ousts the chairman.
IBM spends more than $11 billion to streamline and its stock sinks. Sears, Roebuck & Co. abandons its non-retailing businesses amassed over 20 years. American Express Co. loses nearly 1 million card customers and the chairman steps down.
On the surface, 1992 appeared to be a disastrous year for corporate America. Fortune 500 pillars performed a bloodletting that was steady, extreme and unprecedented.
But the headlines masked a positive trend emerging at the corporations whose troubles spilled into public view. At dozens of other companies seeking to compete in the 1990s, change is in full force.
From the biggest manufacturers down, U.S. companies are radically redesigning themselves, spending hundreds of millions of dollars on consultants and scrapping time-honored management methods viewed as obsolete.
What's out at the new corporation is the hierarchy that has characterized American business since the Industrial Revolution. What's in are small business units, empowered workers and customer-driven processes.
The restructurings - occurring quietly at household names such as Xerox, Motorola, Chrysler, General Electric, AT&T and others - reflect how long-brewing ideas about management have entered the mainstream workplace.
More important, though, the changes demonstrate how American companies that for years seemed oblivious to foreign challengers or customer complaints have had to respond to an increasingly competitive and demanding world.
"What we have seen are the first stages of what I call the decomposition of the large corporation," said David Nadler, president of Delta Consulting Group Inc., who has helped redesign several big companies.
"The critical organizational issue has ceased to be stability. It's become change," he said. "It's not that that stuff was bad. It's just that it's less effective now given the environmental realities."
In management-speak, companies are "flattening" - razing the bureaucratic pyramid with a chairman at the top and workers along the bottom. Size alone no longer is considered an attribute, as the failures at GM and IBM show.
Companies are eliminating layers of management, authorizing workers to make decisions, ensuring their work has value, identifying and responding to customers, and contracting outsiders for work done more efficiently elsewhere.
The changes take many names - "business process redesign," "process re-engineering," revamping "organizational architecture," implementing "horizontal organization."
Whatever the buzzword, a key goal is getting workers and managers to find better ways of generating ideas, managing technology and information, and cooperating toward a common goal.
Chrysler Corp., which received a billion-dollar government bailout in the late 1970s, is winning management raves for its "platform teams" that unite all the people who build a car.
At the old Chrysler, designers, engineers and manufacturing managers worked independently, rejecting or modifying plans passed around. Now engineers specializing in engines work on specific vehicles with engineers specializing in electronics. They in turn team up with design, finance, purchasing and manufacturing experts.
"We no longer wait for senior management to sign off on a piece of trim or the angle of a roof," said Tom Kowaleski, a Chrysler spokesman for production and manufacturing. "The role of senior management now is not to make the final decisions but to make sure the decisions the team is making are ones that fit in with the vision of the company."
Chrysler has created six platform teams - Jeep truck, minivans, large cars, small cars, special projects and long-range projects - and reduced product development to about three years from 4 1/2 years. Its new LH line, the first mass-produced under this team concept, has been praised widely.
Such decentralization has two important components: training and trust. Consultants say companies carefully must develop the skills workers need to function in a cooperative environment.
In the rush to "downsize" at the end of the 1980s, many businesses didn't identify what they wanted newly empowered workers to do. The team concept itself is about 20 years old, but until now was rarely part of a broader management and culture shift.
"You have to establish a rock-solid linkage between the new behavior you want to see in your employees and the performance objectives that are felt urgently by the company," said Frank Ostroff, an organization consultant with McKinsey & Co.
To do that, companies are abandoning the command-and-control approach in which orders came from above as problems climbed from below. McKinsey, a big consulting firm, counsels clients to identify three or four core processes that drive their success, and organize around them.
Such steps amount to a rejection of the classic management philosophy that big is beautiful. American Telephone & Telegraph Co. once employed 1 million people, IBM half a million. Eastman Kodak Co. employed more than 30,000 people at one site in Rochester, N.Y., which is run like a small town.
Management thinkers say bigness, over time, deindividualized the American worker, leading to higher absenteeism, turnover and accidents. The combination of standardized practices and huge size also slowed work and created tremendous inefficiencies.
"You lose speed and build in increased costs by building in this overhead," said Edward E. Lawler III, director of the University of Southern California's Center for Effective Organizations. "What you do is create another level of management that causes trouble and slows the organization down."
That structure evolved after World War II, when big made sense as companies grew rapidly. Technology was limited; people manipulated simple, specialized machines like typewriters and slide rules. Markets were highly regulated and almost exclusively domestic. The labor force was mostly low- or semiskilled.
None of that applies anymore. In the last decade, executives and investors have demanded greater efficiency. That was behind Sears' decision in September to sell its financial services units and concentrate on retailing, where the 106-year-old mail-order titan has fallen behind upstarts such as Wal-Mart Stores Inc. and Kmart Corp.
The challenge for an organizational designer is maintaining size where it's useful - such as in purchasing supplies or raising capital - and creating small units where appropriate - as in core operations or customer relations.
Motorola Inc. has been working for several years to achieve that balance, decentralizing to accelerate decision-making and fostering creativity by encouraging debate and dissent on thousands of small work teams.
At the electronics company's Government Electronics Group in Scottsdale, Ariz., about two-thirds of 5,300 employees work in teams. One area, supply management, has eliminated several management layers and redefined its primary task: managing supply not just on orders and price, but on the costs of bad quality, delays and unproductive work.
It does that with 30 percent fewer employees, who carry cards stating: "Our fundamental objective and everyone's overriding responsibility is total customer satisfaction."
GE has used foresight and innovation to flatten its management structure companywide. CEO Welch has cut employment from 400,000 in the 1980s to 275,000 now, while increasing revenues to $60 billion from $27 billion and nearly tripling profits to $4.4 billion.
At GE's electric motor plant in Tell City, Ind., two of four levels separating managers and hourly employees have been eliminated. Workers accompany managers on customer visits - almost unthinkable in the old system. Inventory, quality, speed and costs all are down at the 400-employee plant.
"We want more from our people," Plant Manager Don McCracken said. "We don't want just their backs and their arms. We want their minds."
Getting employees to change, however, requires establishing new expectations and rewards. Lower-level workers have to adapt to responsibility. Managers have to adjust to leading teams, not giving orders. Titles mean less.
As part of a larger program at AT&T, senior managers are rated by subordinates on about 30 specific behaviors. Then they discuss the findings. The first executive rated was Chairman Robert E. Allen.
In the old corporation, reward meant promotion. In the corporation of the future, it may mean tougher challenges or leading projects - as well as higher pay.
"You need to pay people by the contribution they make, not level or status," said Rosabeth Moss Kanter, a Harvard Business School professor and author of "The Challenge of Organizational Change." "And you need to give them a stake in the company.
"The hierarchy has not just been a hierarchy of reporting," she said. "It's a hierarchy of career progress."
At Xerox's factory in Webster, N.Y., a tote board records whether workers on specific products are meeting goals for quality, safety, cost and delivery. Meeting targets can mean up to $350 in quarterly bonuses. Managers, too, are rewarded based on performance.
For top executives, seminar training is inevitable to persuade them that change can be effective and that others can be trusted to make decisions.
Xerox's top brass bonded on an Outward Bound sailing trip in the Chesapeake Bay. IDS Financial Services Inc., a financial planner owned by American Express, sent senior executives to the Pecos River Conference Center in Santa Fe, N.M., where they climbed mountains and ascended telephone poles.
"It was a watershed event," said Steve Kumagai, a sales executive who is heading the Minneapolis-based company's "IDS 1994" project to redesign its core business.
"One of the ways we always thought we were reducing risk was by controlling decisions ourselves," he said. "We learned we were our own worst enemy in that regard."
Companies also are learning that change is gradual. IDS executives visited more than 40 companies to study innovations, from Ben & Jerry's Homemade Inc. to the Aid Association for Lutherans. They catalogued 1,200 ideas in a database.
From it, IDS has designed a structure that simplifies financial planning for customers and field representatives. The company is testing it in three states.
"To be able to show companies that it can work, you have to show them it will happen over time," said John Hoffecker, director of manufacturing consulting at KPMG Peat Marwick. "You have to teach them that change is good vs. change is bad."