More tales of corporate cannibalism

Excerpted from Transcompetition, by Harvey Robbins & Michael Finley, McGraw-Hill/Business Week Books, 1998

(c) by Harvey Robbins & Michael Finley

There are many companies today that have bent backwards to make the people who work there feel like part of the business. Empowerment, participative management, profit- and gainsharing, quality circles, and open book management all send the message to employees that they matter, that they are a valued part of the overall team, and that success for the enterprise and their own personal success are intertwined.

United Airlines was perhaps the biggest organization to send this message, when its employees bought 55 percent of the company's stock in July, 1994. The acquisition was a tradeoff, because workers had to give up $4.8 billion in wages and benefits. Symbolic of the new arrangement was the removal of the heavy glass doors separating the executive office area at the company's Chicago headquarters.

The United buyout became the largest employee buyout ever, and it has proved a success, as United stanched the flow of red ink ($800 million in the previous three years) and has expanded service on two continents. The buyout was a terrific example of a business and its people joining hands for long-term success.

Business Week described United's takeoff as the fruit of an unthinkable collaboration between workers and managers:

"For example, after the buyout a group of pilots, ramp workers, and managers devised a simple way to use electricity instead of jet fuel when plans are idling at the gate, thus saving the airline about $20 million a year. The only capital investment required was longer ladders so the ramp workers could plug in the electric cables. "In the past, we would have sent out an edict and nothing would have changed," the executive in charge of fuel explained.

But many companies compete against their own people. They lose sight, whether at the businesswide or departmental level, of the goals of the business, and focus instead on the emotional goal of not letting hired hands get the better of them. From that moment on, the relationship is hopelessly adversarial, with employees seeing he employer as a brutal ogre and the company seeing the employee as an untrustable upstart who must not be allowed to "win."

Sometimes companies they are so competitive that they reach out across death itself to score the last goal. Here's a story of benchplay worthy of Robert Grisham:

An elderly widow was allegedly handed a bill for more than £12,000 [$19,645] by the firm of solicitors her son worked for, after they went to his house and found him dead. Irene Brierley, 80, of Henley-in-Arden, Warwickshire, was said to have been charged pounds 150 for being told her son, a solicitor, was dead and an extra £300 for his firm to identify his body at the mortuary.

Searching his office to sort out affairs cost another £750, and £5,799 was charged for writing 172 letters and receiving 64. The total bill from the legal firm James Beauchamp of Edgbaston, Birmingham, came to £12,278.16, it was claimed.

Mr. Bryant's sister, Melanie Weerdmeester, said: "He was a very well respected lawyer. He was unscrupulously honest, he was just a very, very fine professional." Mrs. Weerdmeester, 45, of Snitterfield, Warwickshire, added: "He was just totally honest and loved the law, that was his life."

Mr. Bryant, who graduated with first class honours from an Oxford masters degree, was a former chairman of Moseley Rugby Club.

Competition against employees varies a lot from culture to culture. Few cultures draw the line as firmly as China. Nobody, but nobody, makes the system there look ridiculous. Ethicist Thomas Donaldson tells the story of an American manager operating in China, who caught an employee stealing. Thinking she was doing the wrong thing, and that it would be wrong to interfere in a local matter, she reported him to the local authorities. Later, she was aghast to discover that the employee had been taken out and shot for his crime.

Relationships decay in Canada, too, though with less fatal results. In February of 1997, Wal-Mart, which enjoys an extraordinary price partnership with its customers worldwide, demonstrated a less than perfect partnership with its workers in Ontario. The provincial Labor Relations Board overrode a vote by one store's workers and ordered United Steelworkers certification for all Wal-Mart employees at a Windsor store. What made this reversal noteworthy is that it was the first time Wal-Mart, with a global chain of almost 3,000 stores, had ever lost a labor dispute. Since it was founded in Arkansas by Sam Walton in 1962, Wal-Mart has defeated every attempt to unionize. Wal-Mart's response: close the store rather than deal with workers.

At the heart of the dispute is a paradox. On the one hand, Wal-Mart is a big believer in financial incentives. Though it pays its associates bottom dollar, it rewards them with stock ownership and talk of empowerment. But heaven help the employee who takes empowerment to the logical stage of negotiating working contracts. In 1994 the company paid $15,000 to settle a complaint by a New Hampshire store clerk in New Hampshire fired for trying to organize coworkers.

"I can't believe we won," said Mary MacArthur, a worker at the Windsor store who helped lead the organizing drive. The union argued that the May vote was not a free expression of opinion. Marie Kelly, a lawyer for the union, said Wal-Mart managers had left the impression that the store might close by refusing to answer questions about what would happen if the workers voted for certification.

The best evidence that companies compete actively against their own workers is downsizing. Between 1985 and 1995 some 22 million jobs were cut from Wilshire 5000 companies, all in the name of becoming more competitive.

Many of these companies used restructuring to reinvigorate themselves, and ultimately hired back as many as they let go, or more. A more common experience, however, was that the company expected the people remaining after the downsizing to pick up the slack and be more productive -- but they didn't.

People don't compete well when their supply of confidence and self-esteem has been reduced to zero. But brute companies, seeking to extract victories wherever they can -- even at the expense of their own team -- keep flicking the restructuring switch. One definition of insanity is to keep doing the same thing, hoping it will work when it has never worked before. Bludgeoning employees in order to free up their competitive spirits must surely qualify.

Competing through non-competes

One of the more demoralizing trends in recent years has been the rush to hang non-compete clauses onto employment contracts. The trend is a sick side-effect of our metamorphosis into a knowledge economy. Companies are finally recognizing that their employees are valuable because of their skills and knowledge base. But instead of treasuring employees for this reason, companies are imposing career limitations on them.

Consider the case of a lowly reporter for MplsStPaul magazine, a regional magazine about personalities, lifestyles, and the arts. Hayes and other writers were informed that the new publisher, former owner of a law book publishing company, expected people to sign no-compete statements if they wanted to keep their jobs. The clauses forbade them from taking their inside information to other publishers within two years of leaving the magazine.

Hayes balked. Minnesota is a small media outlet, and the no-compete clause effectively made him an indentured servant -- he couldn't leave, and thus he lost all negotiating leverage. the clause was a career-killer. Hayes, 42, saw the move for what it was, a chance for the magazine to bottle up all available talent and keep a lid on the price.

For his part, Hayes thought the MSP non-compete contract was preposterous. Though Hayes was among MplsStPaul's most competent writers, he did not consider himself a "marquee name" -- like the news anchor and radio personalities frequently bound by such contracts -- and denied his absence would cost the magazine substantial readers.

But Hayes said he knew little of consequence about his employer, MplsStPaul magazine -- certainly nothing of value to a competitor. "They wouldn't even tell me where the copy paper was," he said.

Hayes, 42, was making slightly more than $28,000. What Hayes and his colleagues did have, according to his former employer, was a new kind of workplace currency: Knowledge.

"There is nothing more proprietary than intellectual property," said Gary Johnson, chief operating officer for MSP publications. "Our assets are the brains of the people who sit in our offices. We do not make widgets, we produce information."

And so it was that the new publisher, surrounded by attorneys, cast a noose around the people he purported to "value."

Non-compete clauses have been around for a long time, but they have typically been confined to holders of mission-critical knowledge -- e.g., people in product development, or sales management, who could deliver a devastating blow if they went to work for a head to head competitor.

But the new trend is to throw the noose around less critical employees, like Hayes. Employees who decline to pledge allegiance to the company can legally be denied yearly raises, promotions and other benefits.

The irony is appalling: first the company says these people are corporate treasure; then it herds them into a doghouse. Later, the company will wonder why the creative types inside don't seem happy, and aren't putting out like they used to. Perhaps they lack "competitive fire."

The employer's view lacks no such fire: Whether employee fears about non-competes are legitimate or not, said MplsStPaul's Gary Johnson, competition forces companies to implement them. "We'd be crazy if we just sat there and let rivals cherry-pick off our staff," he said.

A transcompetitive company would direct this fire at the external competition, not at its own people. In the words of Hayes: "They are trying to manage by contract, which is the easy thing to do. The harder thing to do is to win people's trust so they don't want to take another job."

networks of Trust

Francis Fukuyama, author of The Last Man and The End of History, calls transcompetitive relationships trust networks -- any relationship between individuals or groups of individuals whose continued success requires that they minimize mutual suspicions and security measures.

A trust community can be any group of people bound together by an ethic more compelling than profit or self-interest: one's ethnicity, one's religious heritage, one's professional code of behavior, one's political ideology, one's commitment to the broader community.

That's why architects, because of their professional code, conform to building standards more stringent than bottom-line requirements.

That's why in certain industries, collaboration across corporate lines is common: in Silicon Valley, 80% of bosses once worked for Fairchild Semiconductor. That commonality of origin creates a network of trust within the industry.

That's why, in Little Tokyo, as a boy, Fukuyama heard his father explain why he bought a hammer from a Japanese-American owned hardware store, instead of getting a cheaper one from, say, Sears: "I trust the Japanese merchant."

That's why friends within an organization, from different functions or divisions, will share information in advance of official notice by the company. Something more powerful than the hierarchy takes precedence over it.

In "flat organizations," where workers supervise themselves, such trust networks are critical. When Saturn or Toyota empowers individual workers on the manufacturing line to shut down the line, it is saying that it trusts the workers to use good judgment. A work environment riddled with distrust, by contrast, is one ripe for employee sabotage.

Likewise, with virtual corporations, it is essential to trust the outlying members of the partnership -- even though they are out of sight. Without this trust, the spontaneous organization will sputter to a stop.

A trust network is not a substitute for a hierarchy, but a supplement to one. All organizations properly partake of both the formal mechanical model for organization and the informal biological one.

Because they are informal, trust networks reduce transaction COSTS, such as NEGOTIATING, CONTRACTING, LITIGATING, ENFORCING, etc. The New York diamond market is an example of this. "People move diamonds around as if they were pinto beans," in Fukuyama's phrase, with relatively minor worries about security.

Where does the trust come from? Nearly all the market's participants are Orthodox Jews of the same sect -- the odds of one cheating the other are low. Consider the arrangement in Silicon Valley: companies subcontract freely to people who work for competitors. In that kind of knowledge-based market, the ethic of technological advancement outweighs the skirmishing of individual companies -- transcompetition in action.

Hierarchies order the vertical flow of information through an organization; networks of trust do the opposite, freeing information to flow laterally across organizational boundaries, to the trust community.

Trust networks are not for everyone. Don't expect the new Barings Bank, burned in the $14 billion Nick Leeson/Singapore fiasco, to move too rapidly toward a trust network and away from command and control. Neither will governmental bodies resort any time soon to trust as a referee -- the public demands accountability from the public sector, even at the cost of inefficiency. When people are sure the government has ceased buying $600 hammers at their expense, trust in government may begin to blossom.

Trust networks must also walk a tightrope between the natural favor extended to members of the network -- Orthodox Jews in the diamond exchange, for example -- and systematically excluding others. "The good old boy" system is a trust network, but that doesn't mean it's good. Favoritism and nepotism foster trust in the narrow community, but annihilate it in the larger one.

Likewise, the new form cannot take shape if principles cling to the old ways. Trust networks cannot coexist with excessive compartmentalizing, keeping members in the dark about other projects and functions. Status barriers must all be torn down. Fretting nonstop about what the competitors will find out prevents the development of trust across corporate membranes. And there is the ever present danger of supercollaboration: imagine simple tasks complicated needlessly by chaotic processes.

The grammar of transcompetition

A good friend of ours, writer and consultant Jerry de Jaager, had the good fortune to work as a consultant during the early days of at NUMMI. NUMMI stands for New United Motor Manufacturing, Inc. and it is a joint venture between Toyota and General Motors that has been hailed as one of the greatest transformations ever. Jerry describes his NUMMI experience as one of the most remarkable he has had. The determination to blend the best aspects of fiery competition and teamwork into a single powerful instrument reached all the way down to everyday grammar:

The degree to which teamwork mattered at NUMMI was driven home to me one day when I was leading a project-management training session.

At NUMMI, all employees are referred to as "team members," and there are no distinctions in dress or deference among managers, team leaders, and other team members. I had taken on an actual project -- the creation of a manual of travel guidelines -- as the basis for my class, and I ran into trouble right at the beginning, when I was describing the objectives for that project.

Knowing how intensely participative everything was there, I proudly wrote as an objective, "The manual must be approved by all team members." I could see severe looks of disapproval among the Japanese participants, so I asked what the problem was.

"Here at NUMMI," I was told, "team members are the subject of all sentences, not the tail end of prepositional phrases. Your objective should read, 'All team members must approve the manual.'" A lesson I've never forgotten in the difference between "being" and just "doing."

What NUMMI achieved was the creation of a transcompetitive culture on the ashes of a plant that was the most abysmal in the GM system, a new kind of bureaucracy that, instead of stamping out innovation and commitment, actually encouraged it.

GM-Fremont had been a disaster. One manager called it "the worst plant in the world." Productivity was among the lowest of any General Motors site. Quality lagged terribly. Morale was so bad, and drug and alcohol abuse were so rampant, that the plant employed 20 percent more workers than it needed just to ensure an adequate labor force on any given day. The local United Auto Workers unit was angry and activist in character, and not afraid to walk out when their demands were not met. The placer was a mess.

When the Toyota-GM management team came in to rebuild, they hired from scratch -- new people, untainted by the years of bitterness. That, plus the new training in quality and teamwork, resulted in a completely different story.

How would they effect this sea-change of mindset? First, they unapologetically broke American cultural norms and installed a bottom-line guarantee of no-layoffs in return for solid teamwork.

Second, the company worked overtime to eliminate the customary we-they divisions between American workers and management. It tossed out traditional perks and privileges like parking and separate dining rooms for managers.

Third, they did the unthinkable thing in America -- they instituted a uniform dress code, and everyone had to abide by it.

Fourth, Toyota planted the idea in workers' heads that the company was not the property of management; it belonged, rather, to everyone that was there, from the lowest person in the hierarchy on up. Management only existed in order to support the production teams with its problem-solving expertise.

Finally, managers spent time on every individual hired and inculcated each one with the vision of a plant they could be proud of, a plant that would build "the finest vehicles in America."

A NUMMI report lays out the significance of the turnaround:

What the NUMMI experiment shows is that hierarchy and standardization, with all their known advantages for efficiency, need not build on the logic of coercion. They can build instead on the logic of learning, a logic that motivates workers and taps their potential contribution to continuous improvement.

NUMMI seeks to build an atmosphere of trust and common purpose. NUMMI maintains exceptional consistency in its strategies and principles, it carefully builds consensus around important decisions, and it has programs ensuring adequate communication of results and other essential information.

From these collaborative measures, Toyota fashioned a powerful competitive weapon. Within two years NUMMI's productivity was higher than any other GM plant. In fact, it nearly matched the performance of the legendary Toyota Takaoka plant. And the problems of absenteeism and substance abuse dwindled to insignificance.

A brand new bag

Is your organization ready to trust its own people?

First be sure you understand its requirements. You have to relax your sense of organizational boundaries. You have to develop a consuming commitment to keeping people educated. And you have to be doing business in a society which also shows a certain level of trust: trust networks can't happen in paranoid or totalitarian environments.

And most important, you have to continually deserve the trust. Reciprocity is the fuel of trust. Give in order to get. Germany and Japan enjoy world class trust networks because management does not screw with workers' heads. Their commitment to workers is lifelong and reliable. U.S. companies have not been so deft, talking trust one moment and downsizing the next.

If you can view workers not as short-term costs but as long-term assets, you may be ready for a brand new bag.

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