On Management

Changing the way America works (Part II).

Most companies take pride in communicating regularly with employees. But what do they talk about? And how well are their messages understood? A few months ago, I was stunned to learn the results of a survey conducted with 1,010 adults and 1,085 high-school students. Fully 49% of the adults and 66% of the high-school students failed a simple test on basic economics. Two-thirds of the people participating in the survey did not realize that inflation reduces their purchasing power. This is your workforce of today and tomorrow. If people don't understand basic economics, how can they understand your impassioned pleas about controlling costs in the face of competition and inflation? They don't know what inflation is! The survey reminded me of something we did in the company I headed 15 years ago. At the time, a strong dollar was creating devastating cost competition from imported products. We knew that there was a large untapped well of potential productivity and cost savings in our plant, if only we could figure out how to unleash it. The employees -- members of the United Steelworkers of America -- were hard-working people, but they didn't understand economics. Moreover, they didn't grasp why improving productivity would be good for job security. They thought it would cost them jobs; after all, if fewer people make more products, that equals fewer jobs. What they didn't realize is that fewer jobs are better than no jobs. These loyal, experienced employees knew how to do their jobs as they had been defined: clock in on time, make the rate on the job, make scheduled production, and then go hang out in the break area until it's time to wash up and clock out. Well, we changed that. First, we taught them about free enterprise. We even brought in a Russian migr, who had escaped from behind the Iron Curtain, to explain how great freedom and the free-enterprise system are. We taught them the most basic economics -- and convinced them that profit is not a dirty word. Then we talked about how they could help improve their situation through their own efforts. Finally, we explained the competitive situation -- and now they understood it. Did they respond? You bet they did. We did more training and team building, which gave them an opportunity to make rapid progress. They began to speak up, sharing their ideas. We promised that no one would lose his or her job because of any productivity-improvement initiatives. We wound up with a few extra floor sweepers on a couple of occasions, but, over the longer term, lower costs resulting from improved productivity and reduced waste allowed us to hold market share against imports and eventually gain market share. This created more jobs. Normal attrition took care of the reductions stemming from the productivity improvements. I began sharing the income statement and balance sheet with the workforce each quarter, along with nonfinancial strategic metrics on quality, customer service, market share, new-product introductions, and so forth. We met with 300 to 500 steelworkers at a time. It took six one-hour meetings to cover all three shifts. I explained where our profits went (dividends, new equipment, acquisitions, new facilities, and retained earnings for a "rainy day") -- and they understood. At first, the questions came slowly. But as the meetings continued, their questions became bolder and more insightful. And before long, they had turned the plant into the world's most productive facility of its kind from 1985 until the early 1990s. However, "old-fashioned" management subsequently took control. The progress stopped and regression set in. Sadly, the plant is no longer in operation -- but there are still a lot of people in a few small northwestern Ohio towns who do understand economics, productivity, and profit. Do your employees understand those things? John Mariotti, a former manufacturing CEO, is president of The Enterprise Group (www.shape-shifters.com). He lives in Knoxville. His e-mail address is [email protected]

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