"Equipment, Not Workers"

The New York Times reports that manufacturing companies are recovering, but not in a way that much reduces unemployment. They are acquiring, the report says, machines, not workers. This was as foreseeable as financial bubbles in an age of electronic securitization, and many have been warning about it for a generation.

Back in 1997, I wrote a piece for Strategy and Business laying out in simple terms what innovations in manufacturing would do to "labor" and, broadly, how governments ought to prepare for them. I imagined the warning coming as a farewell speech by a retiring CEO with common sense and vision (I confess, I was thinking of Motorola's 1980s leader Bob Galvin). When I read the Times lead this morning, I looked over this imagined speech and thought it finally sounded true. Add to its warning the job losses from peer networks that dominate the management of supply chains, and the social networks that dominate marketing and you start to get the picture.

TOMORROW IS MY last day as C.E.O. The first was more than 23 years ago. I suppose you're expecting some words of gratitude -- you richly deserve them -- but indulge me. I want to talk to you about something that has been weighing on my mind more and more in recent years, but I could never find the words or opportunity to raise. It is about what business owes society, what has fashionably and not improperly been called business' "social compact." Nothing could be more important than clarity about this, given the disturbing changes we've been living through. Everyone, from Business Week to former Labor Secretary Robert Reich, says we need a new one. But it seems to me there has been growing confusion about business' obligations under this compact because we have forgotten some first principles.

A friend of mine once quipped that America is the only country in the world where people tell you, "You're history," and they're insulting you. Whether I like it or not, I'm too old now not to know some history. Retirement brings one to consider the work of our lives, and, in any case, takes away the excessive fear of appearing tactless. So I want to start by examining what in the conditions of work has changed, and what has not. I'll build on that to argue what, if anything, needs to be changed in the compact between business and society.

The most direct way to get into this is to think about what has happened to the circumstances of "labor." I'll just touch on some points, which have been extensively debated in the press and in the recent election campaign.

Labor is a fast diminishing part of value. When I first joined this business, in 1954, the cost structure of our manufactured products included about 55 percent direct labor. Today, the number is less than 11 percent. There is a revolution underneath that deceptively simple number; you would not still be senior managers of this company if you didn't appreciate it.

Blue-collar jobs have been made redundant by robotics, flexible machine tools and automated inventory management systems, others by outsourcing to low-wage countries. White-collar jobs have been made redundant by scheduling, order entry, word-processing and dozens of other kinds of software -- and more recently by growth of our fledgling corporate intranet. Middle management is disappearing.

Some have called this a revolution of re-engineering. It is really a revolution in computer-integrated production, and we are only at the start of it. While the market capitalization of the Fortune 500 has grown three- or fourfold since the early 1980's, their work forces have shrunk by 25 percent.

Lost jobs? Good riddance. Remember Michael Dukakis's earnest promise of "good jobs at good wages." His campaign now seems quaint. The new entrepreneurial economy -- technology companies with 500 employees or less -- is responsible for virtually all of the job growth since 1988, and no Federal industrial policy could have precipitated so much dynamism. Investors, not the Government, have been picking winners and losers, and on the whole have not done a bad job of it. Businesses, not Department of Commerce officials, have made the necessary investments in crucial technologies.

What Mr. Dukakis neglected to add, moreover, was that the "good" jobs he wanted to assure through a Government industrial policy were mainly boring, soul-destroying and intellectually demeaning -- production-line assemblers, data processors, the kinds of jobs that were the hallmark of old manufacturing. Frederick Winslow Taylor once wrote that the best businesses were the ones in which workers "left their heads at home." He was right, which explains why socialism had always seemed so magical for working people who could not bring off the feat.

Anyway, much of this dehumanizing work is impossible in the businesses of the new economy. Manufacturing and service businesses like ours want fewer workers, but we want all of our people to be literate, numerate, imaginative and civil enough to engage in team-based problem-solving. We want a scientific mind for production, and an empathic heart for customers and fellow workers. We know that manufacturing matters, but that developing a piece of scheduling software for a plant in Taiwan is manufacturing. All in all, this new style of work is significantly more satisfying than what it has replaced. If socialism is dead, it is because the industrial capitalism it rose up against died first.

The game into which workers are recruited has changed. The new technologies have changed the rules of management: the old division of labor has been replaced by more integrative approaches, interfunctional teamwork, knowledge sharing. A business' most important asset is its "intellectual capital"-- the competencies of employees that allow them to be innovative in a thousand ways. Employees must be learners for their whole lives, not just specialists. They must also understand the business' strategy.

A company used to be like a football team, in which only senior managers, like quarterbacks, saw the whole field, and most everybody else performed a single, drudge task. Your plays (that is, your product lines) were mostly set for the long season; the few times you got close to the goal you had better score. Bigness mattered.

Now a company has to be more like a basketball team -- or really an alliance of basketball teams -- lean, versatile, disciplined in spontaneity. Marketing, design and production people take on problems together; senior managers must lead like a point guard. Real-time communication is key, and it must be horizontal, not just vertical. Networks are replacing hierarchy. The corporate office I run looks more like a holding company, a teaching center and a bank than it does a command center.

By the way, a football team can have too many Dan Marinos. A basketball team can never have too many Michael Jordans, and has no room at all for a 300-pound, barely educated tackle.

Labor's real crisis is not unemployment but unemployability. Of course, the only thing worse than a boring job is no job, which is why some people -- opponents of Nafta or the critics of outsourcing, for example -- view the loss of old industrial jobs with alarm. Their concerns are reasonable. Their solutions are not. Don't be fooled by apparent fluctuations -- last year's "downsizing" or this year's drop in unemployment. For the first time in the history of industrial labor markets, the problem for unskilled people is not cyclical unemployment but chronic unemployability. The bottom rungs of the ladder are disappearing; protection and macro-economic "stimulation" can do nothing to change the trend.

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