Counter Corporate Downsizing By Creating Conditions for Growth

Evidence shows that small, employee-managed units can avoid layoffs by restructuring better than top management

Big business's mania for downsizing seems to have receded temporarily, but a larger wave of traumatic change looms ahead as the rising forces of globalization begin to buffet all economies even more dramatically.

The relentless restructuring of the Knowledge Revolution is gathering speed, so additional layoffs are almost certain, wages will remain low, and more workers will lose health plans and pensions. In Europe, poor economic growth and large budget deficits exert pressure to dismantle government supports, privatize state monopolies, and begin the same round of downsizing now criticized in the United States. And the rapid industrialization of countries like China and India will further undermine the wages and jobs of American workers. With no solution in sight to all this coming economic challenge, it's little wonder that people feel insecure.

The danger was highlighted at last winter's meeting of the World Economic Forum in Switzerland attended by 1,200 top CEOs and politicians. William Bennett, President Bush's secretary of education, and Rosabeth Moss Kanter, a Harvard University business professor, cautioned the audience that the loss of public support is causing a "backlash against capitalism."

The problem is not that working conditions are unusually bad. It's that people now understand that the entire economic system is being transformed for a new era, and that these changes are being dictated by the hard logic of top-down corporate hierarchies. Nothing is more disturbing than realizing we have lost control over our lives.

Outmoded concepts

Many solutions have been proposed, but they are limited by outmoded concepts from the Industrial Age. Liberals urge various regulations for retraining, making benefits portable, and rewarding firms for good behavior - more big government. Conservatives favor lower taxes and deregulation to spur economic growth - but more dynamic markets may simply speed up the restructuring process. For a viable solution, look at the companies that are growing rather than downsizing. Well-run firms that have pioneered the new management practices needed to thrive in an Information Age have the opposite problem of not being able to fill jobs. The 11 companies in the Sematech consortium of computer-design research have 14,000 unfilled openings, even though they pay exceptionally high wages and offer employee stock options. While bureaucracies like AT&T and IBM shed unneeded workers, entrepreneurial employers are hiring them back:

*MCI is one of the most dynamic companies in the world because of a philosophy that urges all employees to take the lead in starting new projects. The company is growing so fast that it may overtake AT&T in a few years to become the world's central communications corporation.

*While IBM nearly became extinct, Hewlett-Packard assumed leadership of the computer industry by allowing small business units almost total control of their operations. The laser-jet line of printers that dominates its field was the product of such bottom-up management.

*Even in heavy industry, Nucor has revolutionized steelmaking because it vests control of each mini-mill in a team whose members share the profits they create. Unlike Robert Allen's multimillion-dollar salary at AT&T, Nucor's CEO is paid a fully adequate $200,000 per year.

Enlisting employee talent

I've studied countless such cases. It seems that a new solution to managing change is emerging - one that draws on the talents of employees. For 50 years business experimented with related concepts like worker "participation," "ownership," and "empowerment," but they were too vague and broadly conceived to be very useful. Now, however, a workable form of employee involvement is emerging in which employees "self-manage" teams and small business units and are held accountable for their performance. In progressive companies, self-managed units are setting their own work schedules, hiring co-workers, choosing their own leaders, designing work methods, contracting with suppliers, and being paid based on their performance. About two-thirds of US companies now use performance-based pay systems.

This is not social responsibility but a historic shift in power for an age of exploding complexity that cannot be controlled with cumbersome hierarchical systems. The collapse of communism is simply the most visible instance of the end of hierarchical authority in many areas. Today's hierarchies are yielding to a new employment relationship in which employees may soon run their own "internal business" as they see fit - if they can do so in a responsible manner that meets corporate goals.

Most important, the evidence shows that self-managed units usually do a better job of restructuring than top management: Employees make clever changes in their jobs that CEOs do not understand, they share any losses through lower pay, and find ways to move staff painlessly.

The big payoff is that employee self-management can avoid layoffs by creating robust growth. Bill Marriott, CEO of the Marriott Corporation, described the new logic: "We do everything we can to help people help themselves." Ralph Larsen, CEO of Johnson & Johnson, said: "Employees come up with better solutions and set tougher standards than I would impose."

It won't be an easy transition, and CEOs will always have to guide the big changes. Many employees who can't handle the rigors of self-management will remain dependent on employers.

But for the majority of Americans who effectively carry the normal responsibilities of mature adults, this "New Management" promises to reconcile today's growing conflict between the creative destruction of capitalism and the aspirations of modern people who want to control their own work lives. Enlisting the support and skills of workers can also create a healthier economy.

*William E. Halal is professor of management at George Washington University and author of "The New Management: Democracy and Enterprise Are Transforming Organizations."

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