Ed Lawler is a name that should be familiar to those of you who have been around the HR world. He is at the University of Southern California Marshall School of Business and within that he leads the Centre for Effective Organizations. Ed has written 41 books over the years, and the one I would like to mention in addition to this work on The New American Workplace is one called Built to Change. That’s another significant book looking at how organizations need to be designed so that they can survive in a world that is constantly changing.
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EL: The history of this project goes back to the early 1970’s when my co-author Jim O'Toole was working for the federal government in the United States in the Health, Education and Welfare Department. Elliot Richardson was head of that department (some of you may remember his name from the Watergate issues; he was one of the few heroes of that whole saga). The department commissioned Jim to get a number of position papers and do research on what work was like in the United States in the 1970’s and look particularly at some of the health risks involved in the way we structured and designed work. Jim chose to look at accidents and those areas of physical safety, but he focused strongly on the condition of jobs and the consequences that the structure of work has for people, particularly their mental health, their well-being, and of course their satisfaction.
That work was published in a book called Work in America, which was extremely popular at the time, produced some Congressional hearings, and quite a bit of debate in the leading papers. It stayed in print until just recently when we replaced it with our new volume. For years Jim and I have talked about moving on and doing a new analysis of the American workplace to update that one. We finally got money to do that from the Society for Human Resource Management and partnered with them in both data collection and in some of the work that went on to make the book possible. In addition, of course, they gave us some much need financial support.
We did a number of things to gather data for this report. We did a survey of the Fortune 1000, we went and analyzed some new and old data from national samples drawn by the Institute for Social Research at the University of Michigan, we held focus groups, and probably most importantly, we commissioned 16 papers from leading experts in various areas of the American workplace. Those have now been published separately from our work in a book that we edited and called America at Work and I can strongly recommend those papers to you. They are very well written, thoughtful pieces. They are based on research, but they are not pure academic papers that are difficult to read by any means. They are right on target with the current issues and we had just an exceptional group of authors that wrote those papers, including Jeffrey Pfeffer, Peter Cappelli and Wayne Cascio, who share widely different viewpoints on what's going on in the American workplace.
We have looked at health, work/family conflicts and a whole bunch of issues that I’m going to turn to now, based on those papers. Let me begin then with what we looked at. We broke the book up into changes, consequence and choices. Let me just quickly identify the changes; I think most of them will be familiar to you so I will not need to go into a great deal of detail.
Clearly the work itself has changed dramatically from the 1970’s. Information technology, the employee involvement movement, the total quality management movement, re-engineering, offshoring and the changing role of supervisors have all had a major impact on the nature of the work itself in developed countries, certainly not just in the United States. Consequences of that we will see in a moment, but I just want to key up the point that the actual work that people do and the way they do it has changed dramatically.
In some ways, offshoring has sent a lot of low-level unskilled repetitive tasks offshore as well as some more knowledge-based tasks offshore. Reengineering created a downsizing of many companies, a reduction of management levels. TQM changed many of the work processes that people did. Employee involvement changed the work structure around the discretion that employees have, involved them more in decision making where it was seriously implemented and the nature of work depended upon which portfolio of these changes that a particular workplace chose to implement. Significant changes in the nature of the work have occurred, as we will see when we start talking about consequences, some of which I think were for the better, and some of which perhaps were not for the better.
DC: Many of the ideas that were written up in the original 1972 report have become commonplace and it’s these kinds of reports that set the intellectual stage for how we all understand an era. So it’s great that this kind of work is being done because that’s the basis from which everyone else moves forward.
EL: Organizations themselves have certainly changed significantly. The western knowledge-based economies are much more service oriented. In the US, for example, only about 8% of the workforce is now doing manufacturing versus 37% in the 70’s; companies are much more global, doing much more complex things. Human capital is more central to what they do and how they do it. Finally, the ownership base of major corporations changed significantly, with more employee ownership, but perhaps more importantly, more ownership by large institutional investors, pension funds, etc. In some cases longer-term ownership potentially has a stronger voice to say about how corporations are managed and perhaps is partly responsible for greater emphasis these days on corporate performances in the financial area rather than in the kind of experience in work life that they create for people.
One last set of changes has to do with the employment relationship. There have been dramatic changes certainly in the security that people have in their jobs, particularly in the United States, and the benefits that they have. Pay for performance has become much more center stage and contingent jobs have become much more common. Contract laborers, temporary and part-time employees, etc. are much more common today than they were in the 70’s. So if you take those three sets of changes into account, one of the reasons we were intrigued to do this new study is just how much change there has been.
It clearly is a dramatically different workplace today than it was in the 70’s and as insightful as Jim's work was back then, most of these changes were unanticipated. Jim argued strongly and successfully for more employee involvement, more attention to the employee’s opportunity to participate in decision making, etc. and that’s happened. But I don’t think anybody in the 70’s anticipated the kind of structural changes and the nature of jobs that would be brought on by information technology, the degree to which that would enable offshoring. The change in the employment contract around security, benefits issues that we face today, around health care, etc., none of that was really anticipated in the early report in the Work in America book.
DC: And I think for the older people this kind of analysis, and particularly the ‘that was then, this is now’ really cements in one’s mind just how much is changed and how much we need to change our assumptions about what business is about. For younger people who came into this kind of workforce it’s a good lesson that things weren’t always this way and probably won’t always be this way. We have seen very substantial change in the past and no doubt will see structural changes in the future as well.
EL: I think that’s a very good point although we don’t make strong predictions at the end of the book about where all this is going, we do hint at some things we think are inevitable and that employees certainly ought to be very aware of and think a lot about. But let me just quickly go through some of the major consequences that we observed as a result of these changes. Certainly most people are well aware what it’s done to careers. These days you can expect to have multiple careers, you shouldn’t think of just one career. Secondly, people are much more in a self-management mode when it comes to their careers. The amount of support that they get these days from companies is dramatically down. Career planning really depends on the individual, not on the organization in most cases and it ties in directly to the whole security issue.
Recent graduates probably don’t find this particularly surprising or different, but if you have been in the workplace for a while, working for a large major corporation, you probably have noticed a significant change in who is responsible for your career and some of the consequences of that for loyalty to companies and the kind of commitment that people are willing to make to the company as a result of a different career model.
DC: And I know people working at some big companies that have gone through this change and they say there is really a dramatic difference in the way the people on the new deal work versus long-time people who are still working under the old loyalty deal. Some have said that it’s the old loyalty people who are holding the company together. So all the consequences of this change in loyalty haven’t yet filtered all the way through the system because there is still that very significant residue of people who have spent their careers under the old model and are sticking to it.
EL: That’s a good point; the issue of how companies adapt to this and whether they need to develop a core of loyalty employees mixed with the more transactional relationships they have with other employees is an interesting issues for organization design and career management in the future.
Let me move on to the next consequence, work-life balance, which has received an enormous amount of publicity. It was an area where we had trouble coming to a real strong conclusion in terms of whether it’s better or worse than it used to be in some sense. It’s clear that there are many people that are working 24/7 or at least have that kind of potential work schedule. There are clearly more choices around where you work, when you work, how you work, but it’s not clear that a majority of the population, at least from the survey data we looked at, think that’s bad. In fact it’s more like 15% to 20% that seem to feel stressed and overloaded. There are many people who actually find this a reasonable way to work. Maybe they are younger, I am not sure, but they don’t seem that disturbed by the demands of the 24/7 work life and in fact talk about the transfer learning skills and satisfaction from work life to the personal life and vice versa. They have learned things in each that complements the other.
I think work life stress perhaps gets a lot of attention these days because the people that are experiencing this are the people who are writing books and articles and so forth. They may not be in touch with the whole other part of the population that are not experiencing quite the work-life stress and balance problems that perhaps most educated people in the most demanding jobs experience, although certainly it also pops up in situations where you have a single parent household and child rearing demands, etc. There are complicated issues that don’t lend themselves to any simple, easy conclusion.
Let me move on to health and safety. An interesting area, it’s perhaps the area with the best news in some sense because accidents with workplace contaminants and chemicals and so forth have dramatically improved. There are fewer accidents, fewer safety risks, some issues around work and stress, which relate back to the balance and the 24/7 issue. Although the research that followed in the early work in the 70’s showed that if people have control over their work life, even though they feel a heavy workload, they don’t feel the kind of stress that leads to hypertension, heart attacks, etc. You will see later some of the evidence suggests that in fact people do experience more self control, more autonomy in their work and that although the pressure is all there it may not be as dysfunctional as we thought it would be in terms of health and other risks.
DC: Some might think safety wasn’t so good in the 70’s and it took a little while to clear that up, but even if you just look at the last 10 years from 1996 to 2006 there has been improvement in many companies, year after year after year and it’s really a good indication of how it’s possible to make significant improvements, year after year, decade after decade when you put your mind to something. It really is a great success in the American workplace; it hasn't got the publicity it should.
EL: I think you are absolutely right. Particularly companies have made it a central part of their culture; it has shown some amazing results, really quite amazing and there’s no reason to believe that it won’t continue to improve.
EL: In the 1960’s one of my first focuses was on relationships between job satisfaction, performance, absenteeism, turnover levels in different groups, etc. It is also a topic that is frequently the subject of editorials and conclusions and bullet points saying workers are more satisfied, workers are less satisfied, increasing dissatisfaction, etc. And it’s certainly an area where there are numerous opportunities to take data and distort it, present it the way you want to make your point. What we did was look pretty carefully at several national surveys and there is really only one—interestingly enough—the ISR one, that has actually asked the same questions of a random sample of the US population.
There is a series of surveys done in the 70’s that had a true random national sample and an update in the early 2000s. There are a couple of surprises there. Actually job satisfaction has improved, if you compare the 70’s with the 2000 data. Not greatly but more people say they are either very satisfied or highly satisfied or just plain satisfied with their job than said that in the 70’s. The evidence also shows that approximately 90% say they are satisfied with their job. Often you will see reports that say that number is 30% or 40% and if you look at those they usually just use the category of response very satisfied and they ignore satisfied and don’t report that. So what you get is about an equal split between very satisfied and satisfied, but together those make up almost 90% of the workforce. That is a higher number than people report when you ask them about their general life satisfaction and satisfaction with life off the job. So at least in the US, and this may be pathology, but it’s an interesting characteristic, the people are more likely to say they are satisfied with their work than satisfied with their non-work life.
DC: Now if you ask people today some of the things that they would love to have they would say: secure health benefits, a secure pension, and secure employment—people had all those things 30 years ago. Why is it that when people had the things we want now they were less satisfied?
EL: Well I think there are multiple answers to that. Actually they are better off financially, they have many more choices today. And they have some gains in flexibility and freedom in the workplace. So, they have traded off choices in freedom and flexibility for risk and on balance they are saying, ‘well I am maybe slightly better off than people 20 or 30 years ago.’ It’s obviously a complex balance of some things getting better and some things definitely deteriorating.
EL: Clearly a significant increase in performance pressures and this ties back to the issue of stress and balance in one’s life. Performance pressures are not necessarily negative if people feel that they can deliver, if they feel they have the flexibility, the tools, the knowledge, and the skills. It’s unreasonable performance pressures that turn out to be, in the eyes of the employee, a dissatisfier, a stress producer, etc. So, although I am not surprised by that I don’t think performance pressure has actually increased, which may be a little bit surprising, as it didn’t drive greater dissatisfaction or discomfort with the employment deal of today.
DC: And that’s a very important point for HR managers, the issue is not pressure, the issue is inappropriate pressure and having the wisdom to help managers recognize the difference.
EL: And it has to do with reasonable goals versus unrealistic goals, flexibility and the ability to make some decisions about how you deliver on your commitments of your goals. All those things go together to create either a very stressful dissatisfying work environment or just a challenging one that people enjoy because they feel they make this and can compete and deliver and successfully meet the challenge.
EL: It’s always a complicated issue; it has gotten even more complicated in the last few years. The comparison between the 70’s and 2000 is pretty straightforward in terms of conclusions. Most people are much better off today, particularly in terms of cash compensation. Most people have more compensation at risk. The number of pay for performance systems has increased dramatically but that hasn't been all bad. It’s resulted in more employee ownership and more overall compensation versus inflation versus purchasing power. So, people are simply better off financially. Now, a big footnote to that is increasingly there is a have-not group, probably more so in the United States than in the other developed countries that have fallen behind and continue to fall behind in terms of their income. There are a number of explanations for this, but the most straightforward one is the skill mix that it takes to keep pace is getting more and more difficult for people to achieve. We have more and more people, particularly in the United States who because of our education system and other problems, are not keeping pace with the skills they need in order to have a reasonable compensation level in their work.
We have more and more a society that’s divided between the haves and have-nots. The have-nots I would said, at least up until recently, were maybe 5% to 10% of the population. Often they don’t even show up in the unemployment reports because they are not seeking jobs and in the US, our unemployment numbers are based on job seekers, not people who have given up on employment and are pulling away unemployed and unemployable. So, part of the issue here is that offshoring has sent a lot of relatively easily done jobs off shore; IT has eliminated a number of them as well. So, people who have minimal skills are increasingly at risk in terms of not being able simply to find a job or end up with a part-time or temporary job that’s very low paying, often minimum wage and that’s creating greater segmentation. The other thing that is creating greater segmentation is the incredible rise in executive compensation.
It’s clear who the haves are. The haves certainly are the highly educated; education correlates more strongly than ever with income levels and the people who are in senior executive positions. So you can crank the number anyway you want, but versus the 70’s the ratio of top to bottom in organizations has gone from let’s say 50 or 60 to 1, depending upon whose numbers you use 600 to 1, 500 to 1. There’s an enormous spread now in total compensation and that spread seems to continue to grow. Executive compensation looks like it grew about 17% to 20% last year again and almost year after year we see double digit increases in senior executive compensation, particularly CEO comp and increases in other compensation, especially in the last five years of just a little above inflation - 3% or 4%.
The most recent reports are interesting since they suggest that more and more people are not even keeping pace with inflation anymore. One explanation is at least with offshoring, as more and more skilled jobs are being offshored and as unions have disappeared - we will come to that later. There is very little upward income pressure for people who don’t have really critical skills or in senior management positions. So, it seems like an increasing number, particularly in the US, of the workforce is not keeping up with inflation and this is data really based on the last two or three years, not the comparison from the 70’s to today.
DC: While there has been a lot of talk about executive comp and there is now a lot of pressure and governance changes which were meant to weed out the really offensive, badly designed CEO compensation packages, my executive compensation consulting friends tell me that this is not to be confused with a general trend to push CEO pay down, it’s just to get rid of some of the worst abuses.
EL: I think that’s absolutely accurate. We just surveyed 700 Fortune 1000 boards. They do not expect to see a slow down in the growth of executive comp and they don’t feel that any of the most likely to be implemented changes such as better public reporting will stem the growth of executive comp. They feel that the only thing that would really have a significant impact on the growth of executive comp is if shareholders had a direct mandatory vote on the compensation packages that senior executives get and that doesn't look like it’s in the immediate offing. An interesting side note is the major responsibility they feel for the dramatic rise in executive comp is the consultants. They blame the consultants. Not the boards and not those who hire the consultants but the consultants themselves.
If anybody would like to see the report on that study you can find it on our CEO website, you will see we just posted the brief results from the survey, there will be more coming out later. I think David you alluded to that earlier, it’s quite an interesting situation in the sense that again the United States stands out as different than every other developed country when it comes to benefits. Clearly, we have a healthcare benefits crisis and that many fewer people are covered in healthcare versus the 70’s, with an estimated 56 million people in the country without healthcare insurance at the moment. Companies are increasingly backtracking on the kinds of programs they offer, whether they offer any at all. It looks like we are well into a massive exodus from workplace provided healthcare in the United States.
Similarly, with retirement, companies are increasingly changing their retirement plans to move away from defined benefit programs to defined contribution programs. There is potentially some advantage in that those are more portable and fit the new lifestyle and career choices people are making of multiple employment situations and so forth but again, they put much more responsibility on the individual to self manage themselves, their career and their retirement. If they want to retire, that’s another piece of the equation, whether this particular group of people that are in the workplace today, let’s say those under 60, are going to all retire. There is interesting evidence that suggests they may not have that much interest in retiring and certainly evidence that says they are not going to be able to retire financially, with anything like the lifestyle that they currently have or would like to have. So maybe the magical solution to the crunch of the baby boomers leaving the workplace and the critical need that that will produce for new human capital will be solved by the baby boomers not leaving, because either they can’t afford to or they simply do not want to.
DC: And again one can imagine it’s very interesting and hard to predict the impact of having an organization where a lot of the population is over 60. Imagine 25% of your population somewhere between 60 and 85 and that’s a very different kind of workplace.
EL: It’s very different and could be a major problem for organizations if they want to bring in people with new technology knowledge, etc. There are certain fields where most of the big breakthroughs and insights come from people in their 20’s and 30’s. Universities have this huge problem because with tenure and age discrimination laws they basically are looking forward to a lot of faculty continuing to teach in their 80’s and perhaps 90’s.
Let’s move on to voice. Big change, huge change here. We used to have a union movement in the United States in private enterprise, over 30% belonged to unions in the 70’s. Today it’s down to about 8% in the private sector; our labor law here makes it much more difficult to organize than in Canada, for example, which has much easier certification laws. That certainly is part of the reason why the American union movement has shrunk so dramatically but let me try another fix on that, I think a lot of it is due to their failing to produce a product that fits today’s workplace. They struck with their 1960’s, 1950’s product line and it simply has not worked for technology workers, it has not worked for the new auto industry, which happens to be owned by the Japanese.
It essentially has not enabled them to organize any workplace that is new and starts with a set of policies and practices, which are not union friendly. As a result, unions no longer provide a significant voice for the US workforce. That has direct effects both in terms of those employees who are in unions, who have lost a lot of their political clout and for employees who are not in unions and used to be able to use the threat of unionization as a lever for them getting higher compensation, better benefits, etc. Now that threat is much more likely off shoring of downsizing, not organizing as a union.
What has replaced unions, of course, is a large number of laws around workplace treatment with respect to discrimination, fair wage actions, compensation, etc. and of course innumerable lawyers who provide a very loud voice for employees who feel that they are unfairly treated or wrongly treated in the workplace and provide much more lucrative solutions to those who are able to win their cases than unions could ever produce through the collective bargaining processes. So some employees in fact are much better off, I think, having unions gone and lawyers filing complaints around sexual harassment or whatever because they get a much better solution and all too often in the world of unions, what they got was a grievance negotiated away when the contract was renegotiated or maybe a mild correction action but certainly nothing like they get today.
Now before I say unions are irrelevant, I need to backtrack a little because they aren’t. They are major factors in the public sector and growing in the public sector and in fact they are successful in negotiating some of the same things that they negotiated in the auto industry, in the chemical industry, in the steel industry in the 70’s. They are potentially creating exactly the same kind of crisis for our public sector organizations that they created, along with management certainly, in the auto industry, the steel industry etc. where we have these incredible benefit packages which are providing huge restrictions on what companies can do and how effectively companies can compete with offshore competitors like the Japanese, where the government provides a lot of the benefits that companies have to provide in the United States. So it’s a complicated situation. There is nothing that I see that would suggest that unions are going to make any kind of comeback in the private sector.
In fact, the split in the United States of the AFO-CIO on service workers I think recognizes the reality that the old union movement is a declining industry. This has created a union that can attack the one area where there is a chance for growth. So basically what has happened is the union movement has split up into a growth business and a declining business and the growth business is with service workers in hotels and restaurants and so forth who have many of the same problems that the manufacturing workers had in the 50’s and 60’s: low wages, stressful working conditions, bad hours, etc. And there is certainly room there for unionization and that is where the most recent triumphs are occurring. They also have enormous advantage and they can be offshored in most cases. So an organizing drive starts in a Wal-Mart or somewhere. Wal-Mart can’t move these jobs offshore, what Wal-Mart says is they will close the place down. They have done that a couple of times but that is where there is a chance for unionizing. The retail industry is very hard to organize though, because in the US there is a bargaining unit question and if you have to go organize store by store, your organizing costs are so high that you would go bankrupt before you have enough success to create a viable business.
EL: It ties very much with what I said about careers, development is more self-directed and clearly more important. I will go back to what I was saying earlier about incomes. Incomes today are best predicted by education, more so than they have in the past. Particularly in the last few years we are seeing more and more evidence that employees are willing to pay for just-in-time training, over the Internet or something, but are less and less willing to make the long term commitment to development and to broader education than they used to be. What that has done, I think, has put more and more responsibility and demand on individuals to decide when they need more skills, to find the right courses, and in some cases to pay for it.
We have an executive MBA program here; when it started 10 or 15 years ago the idea was that the whole tuition bill would be picked up by their company. But companies today pay less than half, most people are paying their own way now. Why? Companies do not want to pay for that kind of education. They see it benefiting the individual, but they are not clear that it will benefit them.
DC: And I have heard that at other business schools as well, in fact for some business school it’s really the foreign students whose companies are paying.
EL: The Asian companies have not moved away from paying for employee’s education, I am not sure about European companies, but they have not moved into the self management, self directed mode quite as much as the US have.
EL: Jim wrote this part of it and it was not really so much on my radar but once we started gathering data and Jim and I were debating it, it was pretty obvious that the sense of community at work has declined, even though it’s still a very important community for people. What do I mean by that? I mean a place where we make friends, where we engage in social activities, etc. In some companies, not very many have made an effort to build community, to do events, activities, shared missions like helping neighborhoods or schools or libraries, that will give the company some sense of identity separate perhaps from the normal objectives of work.
It is much less than it used to be, partly because of the very nature of careers, the time pressures; 24/7 has an interesting comparison, it puts people in the work place perhaps more often but they may not have quite as much time to socialize, make friends, etc. Still putting all that together people in the United States say that most of their friends are in the work place but the relationships perhaps are not as long lasting because of the mobility of everybody and the continued change and turmoil that goes on.
DC: And if you don’t mind I will jump in with a question from the audience about the utility industry where a significant amount of the workforce is unionized. The listener has commented that they started to see the unionization of exempt professionals such as engineers at other companies. That will create challenging issues. Do you have any thoughts on whether this is a new trend, the unionization of exempt professionals?
EL: Well it’s been an objective certainly of the union movement for a long time and historically in the United States at least, there have been fairly large groups of engineers organized, for example Boeing and McDonnell-Douglas. Some of the aircraft manufacturers have had their engineers unionized and in some cases de-certified over the last 20, 30 years. So-called professional unions or unions that get into more the exempt area are difficult from two points of view. One certainly is the labor laws in the United States, what is a bargaining unit? They ensure that you really can’t bargain and those rules keep making it more and more difficult for unions to organize people in terms of defining who is eligible for union membership and who is not.
But probably more importantly are the products that the union movement offers. Certainly up until now there has not been a set of things that people really want and are difference makers. They want education, they want job security, but this is not something that unions can provide in most cases. There are exceptions; some of the most successful unions of the United States for example are in the entertainment industry. There if you look at the products that those unions offer, it’s a whole different mix than in other situations. For example, they offer retirement homes, they collect fees, and they assure fair treatment in the workplace in the areas that are not covered by labor law. There are very successful unions there, representing directors for example, who are certainly doing knowledge work and are quite responsible.
EL: I just cannot resist pointing out that the biggest winners have been women, in terms of the quality of the work that they get to do and their incomes. They are still paid less than men, they are still under represented but the gains over the last 30 years have been phenomenal and if you go back to the job satisfaction data I mentioned, increase in job satisfaction on total workforce, most of that is due to increased satisfaction on the part of women. They have grown more than anybody else in their satisfaction with work and objectively that is easy to understand. They have better jobs, better treatment, etc. Obviously, that is not an issue we can congratulate ourselves and say okay it’s all done now, but it is interesting how much change has occurred there.
I have already mentioned unskilled but that I think is the biggest societal problem in the United States certainly because they are not only out of work, that means no healthcare, that means no retirement, etc. No chance of jobs. We are building a permanent under class. There’s an enormous shift in risk from firms to individuals. How corporations have adapted to this new rapidly changing environment, globalization, capitalizing on offshore, etc. is to minimize their commitments to job security, to retirement, to healthcare etc. That has put enormous pressure on individuals to self manage their way through careers, through new skills, through retirement, through medical care. The offset of that is enormously greater choices for individuals, particularly those individuals who have it, who are tuned in, who know what the world is about, who can learn to adapt, etc.
Great opportunities are everywhere for those individuals, they can choose where to work, when to work, what to learn, what type of career, etc. So it’s a very different world and some of you may remember William Whyte's book, The Organization Man. There’s no room for the organization man today, there’s a lot of room for the individual who is an entrepreneur. That individual may be working for a corporation or may not, in any case with every term we use to describe this, every individual is a business of one.
DC: And I am going to plug your Build To Change book again. When you look at a book like The Organization Man from a number of years ago it is stunning just how completely different things are now. We used to complain about the conformity required in organizations and now all of that is out the window. Sometimes people think okay, well those are ancient times and now we are in the new world but again, the new world is not going to stand still. We will see quite different arrangements of some kind or another in the future and we had better be prepared to ride whatever those changes may be.
EL: Absolutely, and I think the issue which we will come to in a moment around how the society adapts is a critical one. Organizations have unilaterally to some degree said that we are going to put employees more at risk. Government, at least in the States, has said: where do we go from here on that dimension? Look at that in terms of choices. We argue that organizations have essentially three management models that they can use to adapt to this new world.
One is what we call the low cost operator, and our poster company for that is Wal-Mart. Basically the low cost operator tries to cope with this now world by squeezing cost everywhere possible, labor cost and benefits cost being of course very high on the list because in many companies they are major costs. That’s where the greatest opportunity is and that brings with it a number of consequences, higher turnover, in some cases union organizing drives, and public criticism. But it also in the case of Wal-Mart has led to an organization with 1.6 million employees and the number one position on the Fortune 1000 list.
We are not particularly interested in that model for a variety of reasons, but it is certainly a prevalent one and growing one. We spend more time in our book talking about the high involvement model and the global competitor model and distinguishing between them as viable alternatives to the low cost operator model. We think they are particularly appropriate for organizations that are expecting to be knowledge based, customer service focused and in a competitive global world. The high involvement one is probably more familiar to everybody because it goes way back to the 50’s and 60’s when we started creating self managing work teams and employee ownership.
DC: Please explain the differences between high involvement and global competitors.
EL: There is continuing debate as to who is in that model and who is using it and who is not. We cite a number of people in the book that we think are practicing it, either in part or in whole. They range widely from technology firms like W. L. Gore through service businesses where it seems to be more characteristic of let’s say Whole Foods and Starbucks than of McDonalds and Burger King. Arguing that, in all those industries there is real choice that you can choose the high involvement model in comparison to the low cost competitor model.
Starbucks is interesting to me in that it is characterized by the global competitor model—even though we don’t call it that. It does pay good wages, it may well have good benefits but they are usually not security type benefits, they are portable retirement and it usually offers interesting work.
Many companies I see have adapted; the best known glamour companies of the last decade or so seem to be adapting, or have adapted this model and it has what led to this issue of individuals having many more choices but being much more at risk. It is not just the low cost competitors that have contributed to the greater risk.
DC: And this conceptual model of these three sorts of organizations - low cost, high involvement, and global competitor - is one of the most useful conceptual things that came out of this book for me. If you are reading about management practices you may say Wal-Mart has these great management practices that make them successful, but if you are in a high involvement organization and you get excited about Wal-Mart practices, you are going to destroy the high involvement organization. If you love the idea of a high involvement organization but are working for a global competitor, you are going to be pushing some management practices which are contrary to the overall company strategy. So it’s really important that you get a good reading of where your company fits within these three models.
EL: Yes, you need to get a congruence of the package that matches the strategy that matches the orientation. We compare Costco with Sam's Club because they take dramatically different approaches. Costco is much more of the high involvement model and Wal-Mart much more the low cost competitor model. Evidence there tends to say that you can win with the high involvement model, you have to be good at it but the low cost competitor model does not always win.
Let me just talk about one last set of choices that we have and these are the societal issues. Some people would certainly frame this in terms of ethics and responsibly. They are basically asking, what is the societal responsibility in a global economy for healthcare, for retirement? What's the response of society on education and support for research and development? And I think we are really struggling in the United States where there is a vacuum if you will, certainly at the federal level on where the country is going on these issues in response to the changing position of companies. Is it going to come back and say companies have to do this or is it going to say the government is going to fill in this void? It’s not clear at all what the response is going to be in the United States, at least.
It’s clear in other centuries in the developed world where there has been a long history of the government saying we are going to provide quite a bit of this, we don’t expect companies to do it, we are going to provide healthcare, we are going to provide reasonable retirement for people, etc. Now here, the immigration issue is particularly interesting. We have unfortunately I think shut off a major immigration flow of skilled people by not being willing to give visas for skilled people; that’s all tied up in our immigration debate.
Global competitors are usually in very challenging industries like software and technology or global manufacturing. They are very willing to look at talent pools on a global basis and if that calls for offshoring, they offshore. They have a transactional relationship with many of their employees, which is based on people having the right performance and the right skills. They may have a small core of relatively permanent employees who are there to keep the culture and continuity in direction. They almost always have a heavy reliance on incentive pay, not necessarily ownership, but certainly incentive pay. Training is largely on a just-in-time basis. They are always thinking about whether it is better to buy new skills or train, what's cheapest, what's most available. The emphasis is on career self management. And finally, market driven pay and rewards.
