Consider This -- Rethinking Management for the 21st Century

Aug. 14, 2009
A return to 'classical management' would shore up American manufacturing, and the U.S. economy

Leaders seeking to navigate their companies through this recession must not continue to exercise management principles that have failed their companies in the past. Since the 1970s, 25% of manufacturing jobs in the United States have left while the sector represents an increasingly shallow percent of corporate profits (10%), with a smaller impact upon the American consumer.

Many managers scoff at the notion that the welfare of consumers, workers and investors is a strategy congruent with that of the corporation's financial health. This way of thinking wasn't always the case. In 1908, Henry Ford's Model T strategy represented a sacred bond between the autoworkers, owners and the American consumer. Ford promised his company would "initiate the greatest revolution in the matter of rewards for its workers ever known to the industrial world." In 1914, he doubled the worker's pay from an average of $2.34 to $5 a day, and shortened the work day from nine hours to eight hours. At the same time, the cost of the Model T went from $850 in 1908 to $440 in 1915, an unheard of phenomenon during that era.

America's industrial base became grounded upon this definition of "classical management" -- managers who devised strategies of creating business value through utilizing technological advances and matching them with an improved treatment of employees (better conditions and higher wages) to create real productivity improvements. Back then, Ford's detractors suggested that the objectives of classical management weren't consistent with the "business of the company," but Ford's decisions enabled a middle class to burgeon and ignited a cycle of growth never seen before in companies. Managers back in Ford's day misunderstood the definition of real productivity, and chased quick-hit quasi forms of it, just as is happening today.

There are companies today that practice this same definition of classical management as in Ford's day. Nucor Steel, the largest steel producer in the United States ($23 billion in revenue), thrives in an industry that has been long written off as one that is no longer winnable against foreign competition. Nucor's leaders practice classical management by achieving productivity through having a ridiculously small corporate staff (95 managers), effectively pushing decisions down to the shop floor. Managers are paid below-market wages, but all employees are eligible for bonuses based upon the sales and the profitability of the company. Nucor's business strategy has been developed to deploy innovations in steel production anchored through an empowered and well-compensated workforce.

Costco's top manager runs the company from the retail floor, driving retail innovations through a highly satisfied workforce. Its retail associates are paid nearly 50% more than Costco's largest competitor (including benefits), and the company has one of the lowest margins at retail, enabling lower prices -- all of this in spite of being grilled by Wall Street analysts for being "overly generous" to its employees. The MillerCoors Brewing Co. in Golden, Colo., has also improved the productivity of its brewing operation, not through cutting-edge technologies, but rather through an improvement engagement process with its workforce.

Through pushing decision making and authority down to the shop floor, each of these three companies has been able to improve the productivity of its operations in comparison to its competitors, despite paying higher worker wages. This management philosophy is contrary to conventional wisdom; productivity is frequently sought today through quick-hit income statement improvements rather than more stable, longer-term solutions such as investments in workers and R&D spending.

Leaders in manufacturing who run their businesses in this recession using conventional management techniques should expect conventional business results. Nucor Steel, Costco and MillerCoors have taken a strategic direction driven by management through the origins of manufacturing. Creating a business strategy and corporate culture that aligns technological innovation with an equal investment in the workforce is a difficult endeavor that will take years to implement. A classical management culture of driving productivity at the shop-floor level requires an investment in time and money. The role of the manager must be to support and enable the shop floor rather than to exercise command and control. However, it's much more difficult for a manager to educate and coach his or her workforce to solve problems than to react and fix when things go wrong. It's also more difficult to pay higher wages, offer incentive bonuses and to hold the shop floor workers more accountable for results, especially when it is against the current of present-day human resources thinking.

Can you convince your organization that you can execute a business strategy that enables an improvement in technology and/or process improvements that is powered by a more engaged, more accountable workforce? There are firms that have done so, perhaps some in your industry. But first you must get your organization past the paradigm of "less being more" when it comes to achieving business objectives.

Today's approach to management thinking has gotten us sideways. Instead of focusing on true productivity through technological and process innovations powered by an engaged workforce, we focus on achieving results quarter-by-quarter through quick-hit financial engineering techniques. The current recession in manufacturing is testimony that this existing way of thinking isn't a sustainable business strategy. A time-proven way of achieving real productivity is a sound business strategy based upon these classical management principles, as was exhibited by the auto and steel workers in the early 20th century, and a few companies like Nucor, Costco and MillerCoors today. There are no shortcuts or tricks to a sound business strategy, driven by a stabilizing force of management.

Jack Buffington, author of the book The Death of Management (Praeger, 2009), is a corporate manager at the MillerCoors Brewing Co.; a Ph.D. candidate at Lulea University in Lulea, Sweden; a columnist for CHaINA, the first supply chain magazine in China; and an adjunct professor at the University of Denver.

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