Nature Vs Nurture

Dec. 21, 2004
Unique arrangements help manufacturers break from traditional adversarial union-management relationships to improve both business performance and company morale.

Strike. Lockout. Arbitration. Grievances. Ugly words. Adversarial words. A union-management relationship gone sour can be ugly -- and costly. The entire public as well as manufacturers saw that last September as a management lockout of the longshoremen's union by the Pacific Maritime Association shut down 29 West Coast ports for 10 days. Among the many manufacturers hurt as exports and imports came to a standstill were Honda Motor Co. Ltd., New United Motor Manufacturing Inc. and Dana Corp., all of which idled entire plants or product lines when the work stoppage temporarily interrupted their just-in-time manufacturing processes. Estimates of the total cost to the U.S. economy ranged as high as $1 billion to $2 billion a day, although other estimates were much lower. Earlier this year, Lockheed Martin Corp. and General Electric Co. were among U.S. manufacturers that became targets of union strike action. Tragic consequences accompanied the two-day strike at a Louisville, Ky., GE plant when a police car struck and killed a picketing union worker. Less public but also painful fallout for companies dogged by poor relationships with their union membership include escalating numbers of union grievances and increasing complaints that go to arbitration. Both drain time and people away from the business of manufacturing. Adversarial has long been identified as the traditional nature of the labor-management relationship beast. Indeed, says Gary N. Chaison, professor of industrial relations at Clark University Graduate School of Management, Worcester, Mass., "[Not] all issues are in conflict. But there are issues that are looked at from different perspectives. For example, wages to workers are costs to employers. Flexibility to the employer is loss of job security to the worker." Despite this, there exist manufacturing facilities that have broken with tradition to develop unique union-management relationships that not only promote cooperation but also help contribute to bottom-line performance. A Need For Change Poor quality, spiraling costs and low employee morale were a few of the problems that beset the International Specialty Products Corp. plant in Calvert City, Ky., as recently as 1997, according to Frank Stevens, general site manager. Yet, by 2001 the maker of specialty chemical products was reporting a host of improved manufacturing performances, including first-pass yields on six key products that jumped from 88.6% to 97.5% between 1998 and 2001, and cost savings and increased profits related to team-based continuous improvement that leaped from $1.42 million to $5.83 million in that same time frame. Process changes and formalized improvement methodologies most assuredly drove the improved performances, but this 2002 IndustryWeek Best Plants winner says that such changes could not have been instituted without first overcoming the adversarial relationship that had characterized the union-management relationship for many years. Its success in doing just that was recognized in 2002 when the plant received a University of Louisville award honoring cooperative labor-management relationships. ISP credits its improved labor-management relationship and performance in part to its implementation of a high performance work organization (HPWO) partnership, a cooperative agreement reached between management and the IAMAW union (International Association of Machinists and Aerospace Workers) that promotes shared decision-making as the means to help a business grow and flourish. Interestingly, it was the union that introduced the HPWO partnership concept to Calvert City's ISP plant. High Performance Work Organizations The HPWO "has a lot of mothers and fathers," notes ISP's Stevens. Also referred to as the high performance organization, the HPWO has no clear author and no exact definition or criteria. In the early 1990s the U.S. Department of Labor identified the high performance workplace as the workforce organizational structure of the future, a must to compete in an increasingly global economy for both public and private organizations, and for both manufacturing and service organizations. It cited the following as characteristics of the high-performance workplace: multiskilled work teams; authority delegated to front-line workers; an emphasis on training; labor-management cooperation; commitment to quality and customer satisfaction. The IAMAW developed its own version of the HPWO partnership in the early 1990s, although the union's HPWO Partnership Department was not formally established at the IAMAW headquarters in Upper Marlboro, Md., until 1997. "Our view of the HPWO is labor and management together making key business decisions that help the company grow and flourish," says Donald Kennedy, director of the IAMAW's HPWO Partnerships Department. Conservatively speaking, at any one time 50 employers are pursuing the union-developed HPWO partnerships. Those 50 employers may have partnerships at single or multiple sites, he says. The IAMAW says it developed its cooperative partnership program in response to an increasingly global marketplace that it saw devastating both U.S. manufacturing and IAMAW membership. (From 1976 to 1995 some 130,000 IAMAW members lost their jobs due to manufacturing company closures, according to IAMAW materials.) The HPWO partnering program developed by the IAMAW builds on the work of Ray Marshall, an economist and U.S. Secretary of Labor in the late 1970s. During a conference in 1991, Marshall outlined eight components of the most successful high performance workplace. It included as a component a union as an independent source of power for workers. Improved labor-management relationships are more a consequence rather than a goal of the HPWO partnership. In a nutshell, an IAMAW HPWO partnering agreement formalizes methods of working together by management and the union. Each partnering agreement is tailored to the unique circumstances of an individual facility or company, but they all include shared decision-making around jointly determined vital functions critical to business success, new workplace roles and responsibilities for management and production workers alike, and strategies to implement change. When Stevens joined ISP's Calvert City site in 1996, an HPWO partnering agreement had yet to be implemented at the 500-plus-person facility. However, the national IAMAW organization had delivered presentations about the HPWO partnerships to several chemical companies in the area, including ISP, shortly before Stevens came on board. He learned about both of the presentations and the company's possible interest in the idea while interviewing for his position, and was intrigued. "It's [HPWO] one of the reasons I came aboard," says Stevens. "My belief is you're not going to be successful unless you have all employees engaged in decision-making." When he arrived at ISP in 1996, he says, "four-fifths of that gray matter wasn't being tapped." After both management and the union local reached an agreement to follow this path, both sides began the 10-step process of building an IAMAW HPWO partnership. Initial steps included a week long planning and training session at IAMAW headquarters to assist the labor-management partners in laying the groundwork for an HPWO implementation. ISP's plant leadership team is a four-person plant steering committee comprised of two management and two union members. The plant's seven operating areas are each jointly led by a management representative and a union partner. "It's still a challenge, day in and day out," Stevens says. "My personal goal is when it's all said and done, there's 500 business owners who have a vested interest in the success of this enterprise." Even the IAMAW acknowledges the challenge involved in driving this change in a traditional workplace environment. Introducing an HPWO requires a tremendous willingness to change from both managers used to operating in a command-and-control type of environment and by union workers used to clocking in, doing their jobs and clocking out. And without buy-in from both top management and top union representatives, an HPWO has no chance to succeed, says the IAMAW. "It's a very, very, very drastic mindset change to get out of the traditional roles of adversaries and coming to terms to working together like this," says Lou Brogna, IAMAW Grand Lodge Representative assigned to the southern territory. "Communication is the main thing." Tensions Run High While business wasn't bad at Alcoa Packaging Machinery (APM) Inc. in Englewood, Colo., in the early 1990s, morale certainly was. Garry Harper, president of Local 47 of the IAMAW, says that in the early 1990s some 50 to 100 grievances were filed per year by each of the four union stewards at that facility, where he is the full-time union representative. And, as chief steward at the time, the 17-year company veteran said, "I had to lead by example." As of mid-April 2003, a grievance hadn't been filed since 1999 at the 130-person facility, which custom manufactures can-making equipment and printing presses, and serves as Alcoa Inc.'s packaging machinery division headquarters. Alcoa Packaging Machinery signed its first HPWO partnering agreement at Englewood in 1996. Prior to that, says David Groetsch, APM president, management had pursued other improvement initiatives. The company usually introduced them, however, and they met varying degrees of resistance, he explained. Yet "there was a need and a desire to move away from a 'police force' mentality to equal thinking and equal decision-making," says Groetsch. With both factions looking for methods to improve the business environment, a local union representative initially brought to the table a program being introduced by the national labor organization. "It had all the attributes we were trying to do any way," Groetsch says. "We thought, 'If this is what an HPWO is, then this is good for our business. It certainly reads well." Both management and union members struggled with culture change required to implement the HPWO. "I think that management had to tear down some of the basic business tenets in information sharing," says Groetsch. And despite the fact that the IAMAW developed the HPWO partnership program, Harper said many union workers initially did not embrace the HPWO idea, himself included. Hourly workers would be asked to write processes, an activity usually held by salaried workers, he explained, and they were hesitant. "Now [some of] those decisions happen on the floor." Like ISP's Stevens, Groetsch emphasizes the challenge of implementing -- and reaping the benefits -- of an HPWO partnership. It's measured in years, not months. "There's a lot of sweat," he says. "There's been pain, and there's been gain." And it isn't consensus decision-making every day, he adds. On the plus side, he says, the union-management relationship, while not perfect, is vastly improved from what it was prior to implementing the HPWO partnering agreement. Grievances, for example, are "resolved in a much more professional way," he says. Indeed, a lack of grievances doesn't mean that issues have disappeared, says Harper. "We have problems every day. It's how we deal those problems that makes [the HPWO partnership] unique," he says. "Usually in the past, problems on the floor would become grievances right away. Now we leave those problems on the floor, and we let the people closest to the issue solve the problem." An Ever-Evolving Process The IAMAW's HPWO partnerships are more successful in some locations than others, "and that's a fact," says the IAMAW's Brogna. "But even in places where it doesn't take full hold, what we've seen, if nothing else . . . the adversarial relationship that may have been there sort of dissipates. They get along better, thereby grievances fall, arbitration cases fall, and that saves everybody a lot of time, effort and money." If implementing an HPWOs partnership is a challenge, so too is sustaining it -- a lesson the Englewood Alcoa Packaging Machinery plant is learning first-hand. Its parent company, Pittsburgh's Alcoa Inc., announced in January plans to sell the packaging machinery division as well as other non-core businesses. What new ownership may mean to the HPWO partnership is unclear. The partnership also faces the challenges brought by new managers with new ideas and a lack of experience with the HPWO process, says Harper. That's not unexpected, counters Groetsch. Not only is there a learning curve, but the "HPWO is not a status quo." Union-propelled HPWOs are by no means the only methods companies employ that give both management and union members a voice in improving the business. Team-based structures, however, seem to be a common denominator. Raytheon Co. in Louisville, Ky., a 260-person facility that is part of the company's missile systems business unit, has improved both its union-management relationship and its business prosperity via several approaches that demand teamwork between its managers and union workers, represented by the IAMAW. This year its accomplishments were recognized with a labor management award from the University of Louisville. Raytheon is organized into integrated product teams composed of both managers and union workers that work together to drive products from creation through to manufacture. "Empowerment at the team level gives employees an opportunity to directly affect profitability and productivity. Through this, the team develops pride and ownership in their work," noted the Raytheon labor-management award application. Additionally, the plant empowers all employees through Raytheon Six Sigma (R6Sigma), the company's continuous-improvement program. Teams of hourly and salaried employees who are subject-matter experts perform improvement projects that analyze processes, target improvements and implement changes. In its nomination form, Raytheon credited its IPT concept for improving cycle times and efficiency, as well as improving labor-management relationships: "Communications from top down concerning topics such as workload, human resource issues and company policies are greatly improved. We believe this has all come about because of teaming and a better understanding of what each other's role is in the team." "That's not to say we don't have problems," adds Patrick Vilarden, the Raytheon facility's employee services manager. "We work on them every day." In 2002, 16 R6Sigma projects were completed with an estimated benefit of $2.16 million. And like ISP, while it's the process improvements and new methodologies that drove these estimated savings, the improved labor-management relationship plays its part. "It provides the environment that can help those [improvements] happen to a greater degree," asserts Vilarden. ISP's Stevens says the benefits of participatory management are unequivocal. They include the diversity of creative thought expressed by employees, as well as uncovering undiscovered leadership talents among the workforce. Also, he adds, "it's a big, powerful message" to hear the same commitment from union leadership and company management.

Key Components The IAMAW High Performance Work Organization Partnership process uses 10 key components to help create the partnership.
  1. A full partnership between the union and management.
  2. Shared decision-making around the vital functions that are critical to the business, its costs and the processes used to do the work.
  3. Development of continuous learning and skill building.
  4. Continuous integration of leading-edge technology that builds on the skills, knowledge and insights of front-line workers. Technology includes equipment, new materials, work processes and labor relations.
  5. A co-determined definition on quality.
  6. Shared technical and financial information.
  7. Ongoing joint determination of the cost of the design, prototype development, production and administrative overhead; encourages the use of activity-based costing.
  8. The union accepted as an independent source of power for the workers.
  9. Dedicated people from both the labor side and management side assume leadership positions in the partnership.
  10. A jointly development strategic business plan.
About the Author

Jill Jusko

Bio: Jill Jusko is executive editor for IndustryWeek. She has been writing about manufacturing operations leadership for more than 20 years. Her coverage spotlights companies that are in pursuit of world-class results in quality, productivity, cost and other benchmarks by implementing the latest continuous improvement and lean/Six-Sigma strategies. Jill also coordinates IndustryWeek’s Best Plants Awards Program, which annually salutes the leading manufacturing facilities in North America.

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