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All those characteristics can be found at Publix, America’s largest employee-owned business. Publix has become a !xture on Fortune’s list of most admired companies and its list of best places to work, while achieving the highest customer satisfaction ratings in its industry (American Customer Satisfaction Index, 2016).
Bonus and pro!t-sharing plans spread rapidly in the boom years of the 1990s. The bene!ts often went mostly to top managers, but many successful !rms shared bene!ts more widely. Skeptics noted a signi!cant downside risk to pro!t-sharing plans: They work when there are rewards but breed disappointment and anger if the company experiences a !nancial downturn. A famous example is United Airlines, whose employ- ees took a 15-percent pay cut in return for 55-percent ownership of the company in 1994. Initially, it was a huge success. Employees were enthusiastic when the stock soared to almost $100 a share. But, like most airlines, United experienced a !nancial crunch after 9/11. Employees were crushed when bankruptcy left their shares worthless and their pensions underfunded.
Invest in Employees Undertrained workers harm organizations in many ways: shoddy quality, poor service, higher costs, and costly mistakes. A high proportion of petrochemical industry accidents involve contract employees (Pfeffer, 1994), and in postinvasion Iraq some of America’s more damaging mistakes were the work of private security contractors, who often had less training and discipline than their military counterparts.
Many organizations are reluctant to invest in developing human capital. The costs of training are immediate and easy to measure; the bene!ts are long term and less certain. Training temporary or contract workers carries added disincentives. Yet many companies report a sizable return on their training investment. An internal study at Motorola, for instance, found a gain of $29 for every dollar invested in sales training (Waterman, 1994), and an analysis of the effects of training programs over the period 1960 to 2000 found consistently positive effects, “comparable to or larger than other organizational interven- tions designed to improve performance” (Pfeffer, 2007, p. 30).
Empower Employees Progressive organizations give power to employees as well as invest in their development. Empowerment includes keeping employees informed, but it doesn’t stop there. It also involves encouraging autonomy and participation, redesigning work, fostering teams, promoting egalitarianism, and infusing work with meaning.
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Provide Information and Support A key factor in Enron’s dizzying collapse was that few people fully understood its !nancial picture. Eight months before the crash, Fortune reporter Bethany McLean asked CEO Jeffrey Skilling, “How, exactly, does Enron make money?” Her March 2001 article in Fortune pointed out that the company’s !nancial reports were almost impenetrable and the stock price could implode if the company missed its earnings forecasts.
Over the last few decades, a philosophy sometimes called “open-book management” has begun to take root in progressive companies. The movement was inspired by the near-death experience of an obscure plant in Missouri, Spring!eld Remanufacturing (now SRC Holdings). SRC was created in 1983 when a group of managers and employees purchased it from International Harvester for about $100,000 in cash and $9 million in debt. It was one of history’s most highly leveraged buyouts (Pfeffer, 1998; Stack and Burlingham, 1994). Less debt had strangled many companies, and CEO Jack Stack !gured the business could make it only with everyone’s best efforts. He developed the open-book philosophy as a way to survive. The system was built around three basic principles (Case, 1995):
• All employees at every level should see and learn to understand !nancial and perform- ance measures.
• Employees are encouraged to think like owners, doing whatever they can to improve the numbers.
• Everyone gets a piece of the action—a stake in the company’s !nancial success.
Open-book management works for several reasons. First, it sends a clear signal that management trusts people. Second, it creates a powerful incentive for employees to contribute. They can see the big picture—how their work affects the bottom line and how the bottom line affects them. Finally, it furnishes information they need to do a better job. If ef!ciency is dropping, scrap is increasing, or a certain product has stopped selling, employees can pinpoint the problem and correct it.
Open-book strategies have been appliedmostly in relatively small companies, but they’ve also worked for Whole Foods, the natural foods supermarket chain, and Hilcorp, the largest privately owned U.S. business in the oil and gas industry. Whole Foods “collects and distributes information to an extent that would be unimaginable almost anywhere else. Sensitive !gures on store sales, team sales, pro!t margins, even salaries, are available to every person in every location” (Fishman, 1996a). Hilcorp attained notoriety in December, 2015, when CEO Jeffrey Hildebrand came through on his promise to give every employee
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$100,000 if the company met its !ve-year goals to “to double Hilcorp’s oil!eld production rate, net oil and gas reserves, and equity value.” The bonuses cost Hildebrand more than $100 million, but he could afford it—the company’s success had made him a very wealthy man. The checks went out in time for Christmas.
Encourage Autonomy and Participation Information is necessary but not suf!cient to fully engage employees. The work itself needs to offer opportunities for autonomy, in”uence, and intrinsic rewards. The Theory X approach assumes that managers make decisions and employees follow orders. Treated like children, employees behave accordingly. As companies have faced up to the costs of this downward spiral in motivation and productivity, they have developed programs under the generic label of participation to give workers more opportunity to in”uence decisions about work and working conditions. The results have often been remarkable.
A classic illustration comes from a group of women who painted dolls in a toy factory (Whyte, 1955). In a newly reengineered process, each woman took a toy from a tray, painted it, and put it on a passing hook. The women received an hourly rate, a group bonus, and a learning bonus. Although management expected little dif!culty, production was disap- pointing and morale took a dive. Workers complained that the room was too hot and the hooks moved too fast.
Reluctantly, the foreman followed a consultant’s advice and met face to face with the employees. After hearing the women’s complaints, he agreed to bring in fans. Though he and the engineer who designed the manufacturing process expected no bene!t, morale improved. Discussions continued, and the employees came up with a radical suggestion: let them control the belt’s speed. The engineer was vehemently opposed; he had carefully calculated the optimal speed. The foreman was skeptical but agreed to give the suggestion a try. The employees developed a complicated production schedule: start slow at the beginning of the day, increase the speed once they had warmed up, slow it down before lunch, and so on.
Results were stunning. Morale skyrocketed. Production increased far beyond the most optimistic calculations. That became a problem when the women’s bonuses escalated to the point that they were earning more than workers with more skill and experience. The experiment ended unhappily. The women’s high pay created dissension in the ranks. Instead of trying to expand a concept that had worked so well, management chose to restore harmony by reverting to a !xed speed for the belt. Production plunged, morale plummeted, and most of the women quit.
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Successful examples of participative experiments have multiplied across sectors and around the globe. A Venezuelan example is illustrative. Historically, the nation’s health care was provided by a two-tier system: small-scale, high-quality private care for the af”uent and a large public health care system for others. The public system, operated by the ministry of health, was in a state of perpetual crisis. It suffered from overcentralization, chronic de!cits, poor hygiene, decaying facilities, and constant theft of everything from cotton balls to X-ray machines (Palumbo, 1991). A small group of health care providers founded Ascardio to provide cardiac care in a rural area (Palumbo, 1991; Malavé, 1995). Participation was a key to remarkably high standards of patient care. A key innovation was the General Assembly, which brought together doctors, technical staff, workers, board members, and community representatives where they discussed everything from individual performance issues to the system-wide implications of salary increases ordered by the President of Venezuela (Malavé, 1995, p. 16). Arteta (2006) argued that Ascardio’s skill at learning has helped it to survive and grow in a very turbulent environment as Venezuela lurched from one economic and political crisis to another.
Studies of participation show it to be a powerful tool to increase both morale and productivity (Appelbaum et al., 2000; Blumberg, 1968; Katzell and Yankelovich, 1975; Levine and Tyson, 1990). A study of three industries—steel, apparel, and medical instru- ments—found participation consistently associated with higher performance (Appelbaum et al., 2000). Workers in high-performance plants had more con!dence in management, liked their jobs better, and received higher pay. The authors suggested that participation improves productivity through two mechanisms: increasing effectiveness of individual workers and enhancing organizational learning (Appelbaum et al., 2000).
Lam, Huang, and Chan (2015) found that participation only works when it rises above a threshold level—managers need to be fully committed, and to include information sharing and effective leadership in the package. Efforts at fostering participation have sometimes failed because of managers’ ambivalence—even if they like the idea, they often fear subordinates will abuse it. When managers are con”icted, participation is often more rhetoric than reality (Argyris, 1998; Argyris and Schön, 1996) and turns into “bogus empowerment” (Ciulla, 1998, p. 63; Heller, 2003). Without realizing it, managers often mandate participation in a controlling, top-down fashion, sending mixed messages—“It’s your decision, but do what I want.” Such contradictions virtually guarantee failure. Fast, Burris, and Bartel (2014) report that the less con!dence managers had in their own effectiveness, the less likely they were to welcome employee input. That suggests that insecure, defensive managers set up a self-destructive spiral: They need help but avoid getting it.
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Redesign Work In the name of ef!ciency, many organizations spent much of the twentieth century trying to oust the human element by designing jobs to be simple, repetitive, and low skill. The analogue in education is “teacher-proof” curricula and prescribed teaching techniques. When such approaches dampen motivation and enthusiasm, managers and reformers habitually blame workers or teachers for being uncooperative and resistant to change. Only in the late twentieth century did opinion shift toward the view that problems might have more to do with jobs than with workers. A key moment occurred when a young English social scientist took a trip to a coal mine: