Here are two prominent examples of the corporation as a confederation. Eighty years ago General Motors first developed both the organizational concepts and the organizational structure upon which today’s large corporations everywhere are based. And it was based for seventy-five of these eighty years on two basic principles. We own as much as possible of whatever we manufacture and we own everything we do. Now it is experimenting with becoming the minority partner in competing companies: Saab in Sweden, Suzuki and Isuzu in Japan, and it’s about to become the controlling minority partner of Fiat. At the same time, it has divested itself of 70 or 80 percent of what it manufactures.
The second example goes exactly the other way. It’s Toyota, which for the last twenty years or so has been the most successful automotive company. It is restructuring itself around its core competency—manufacturing. It is moving away from having multiple suppliers of parts and accessories to having only one or two everyplace. At the same time, it uses its manufacturing competence to manage these suppliers. They remain independent companies but they are basically part of Toyota in terms of management.
The challenge to executives is to coordinate efforts of all categories of workers.
Along with full-time employees, PEOs, and temp workers, there may also be a closely linked but separately managed organization made up of nontraditional employees in the new corporation. Increasingly, employees take early retirement but they do not stop working. Instead, their “second career” often takes an unconventional form. They may work freelance, or part-time, or as temporaries, or for an outsourcing contractor, or as contractors themselves. Such “early retirement to keep on working” is particularly common among knowledge workers.
Attracting and holding these diverse groups will become the central tasks of people management in the new corporation. These people do not have permanent relationships with the business. They may not have to be managed, but they have to be made productive. They will therefore have to be deployed where their specialized knowledge can make the greatest contribution. Managers need to work closely with their counterparts in the outsource contractor organization on the professional development, motivation, satisfaction, and productivity of these nontraditional workers.
Outsourcing human resources management can save up to 30 percent of the cost and increase employee satisfaction as well.
Companies are experiencing important changes in human resources management and the Professional Employer Organizations, or PEOs, have been one response to these changes. Primary factors driving the growth of the industry include an increase in the complexity of laws and regulations governing the human resource function and the subsequent need for professional expertise to manage and maintain a workforce to deal with these new realities. PEOs concentrate mainly on small- and medium-size companies. The use of PEOs frees up managers to focus on their core competencies rather than on employment-related rules, regulations, and paperwork. This industry, which twenty years ago barely existed, is now growing at a rate of 30 percent a year.
In contrast to PEOs, Business Process Outsourcing firms, or BPOs, assume full responsibility for performing the work of the human resource function in large enterprises, companies typically with twenty thousand or more employees. The innovator and leader in the BPO industry. Exult, founded in 1998, now manages the full spectrum of employee process such as payroll, recruiting and staffing, training administration, employee-data management, relocation, and severance administration for a number of Global Fortune 500 companies. According to a study by McKinsey, the management consultancy, outsourcing human resources management in these ways can save up to 30 percent of the cost and increase employee satisfaction as well.
Knowledge work is deeply splintered in most organizations.
Knowledge work is specialized, and because it is so specialized, it is deeply splintered in most organizations. Managing all of these specialties effectively is a big challenge for knowledge-based organizations. For example, hospitals may use outsourcing, PEOs (Professional Employer Organizations), and temp agencies to manage, place, and satisfy the highly specialized knowledge worker. This results in outsourcing part of the management task. The modern hospital provides a great example of the management complexities created by the splintering of knowledge work and the resultant use of outsourcing, PEOs as well as temp agencies.
Even a fair-size community hospital with 275 to 300 beds will have approximately 3,000 people working for it. Close to half will be knowledge workers of one kind or another. Two of these groups, nurses and specialists in the business departments, are fairly large, numbering several hundred people each. But there are around thirty “paramedic specialties:” the physical therapists and the people in the clinical lab; the psychiatric case workers; the oncological technicians; the two dozen people who prepare people for surgery; the people in sleep clinics; the ultrasound technicians; the cardiac-clinic technicians; and many, many more. Managing all these specialties makes the modern hospital the most complex of modern organizations.
Some of the greatest impediments to effectiveness are the issues of yesterday, which still confine our vision.
The decline in manufacturing as a creator of wealth and jobs will inevitably bring about new protectionism. For the first reaction to a period of turbulence is to try to build a wall that shields one’s own garden from the cold winds outside. But such walls no longer protect institutions—and especially businesses—that do not perform up to world standards. It will only make them more vulnerable.
The best example is Mexico, which for fifty years from 1929 on had a deliberate policy of building its domestic economy independent of the outside world. It did this not only by building high walls of protectionism to keep foreign competition out. It did it—and this was uniquely Mexican in the twentieth-century world—by practically forbidding its own companies to export. This attempt to create a modern but purely Mexican economy failed dismally. Mexico actually became increasingly dependent on imports, both of food and of manufactured products, from the outside world. It was finally forced to open itself to the outside world, since it simply could no longer pay for the needed imports. And then Mexico found that a good deal of its industry could not survive.
How do you get far more output with far fewer workers?
The most believable forecast for 2020 suggests that manufacturing output in the developed countries will at least double, while manufacturing employment will shrink to 10 to 12 percent of the total workforce. What has changed manufacturing, and sharply pushed up productivity, are new concepts, such as “lean manufacturing.” Information and automation are less important than new theories of manufacturing, which are an advance comparable to the arrival of mass production eighty years ago.
The decline in manufacturing as a creator of wealth and jobs will inevitably bring about a new protectionism, once again echoing what happened earlier in agriculture. The fewer farm voters there are, the more important the “farm vote” has become. As numbers have shrunk, farmers have become a unified special-interest group that carries disproportionate clout in all rich countries.
Foreign exchange risks make speculators out of the most conservative managements.
Old and amply tested wisdom holds that unless a company’s business is primarily the trading of currencies or commodities, the firm inevitably will lose, and heavily, if it speculates in either. Yet foreign exchange risks make speculators out of the most conservative managements.
Executives will have to learn to protect their enterprises against several kinds of foreign exchange risks: losses on sales or purchases in foreign currencies, and loss of sales and market standing in both foreign and domestic markets. These risks cannot be eliminated. But they can be minimized or at least contained. Above all, they can be converted into a known, predictable, and controlled cost of doing business not too different from any other insurance premium by the use of hedging and options. “Internationalizing” the company’s finances is also the best—perhaps the only—way in which a purely domestic firm can protect itself to some degree against foreign competition based on currency rates.
Our love affair with government is over, although we keep the old mistress around.
Rarely has there been a more torrid political love affair than that between government and the generations that reached adulthood between 1918 and 1960. Anything anyone felt needed doing during this period was to be turned over to government—and this, everyone seemed to believe, made sure that the job was already done.
But now our attitudes are transition. We are rapidly moving to doubt and distrust of government. We still, if only out of habit, turn social tasks over to government. We still revise unsuccessful programs over and over again, and assert that nothing is wrong with them that a change in procedures will not cure. But we no longer believe these promises when we reform a bungled program for the third time. We no longer expect results from government. Who, for instance, believes anymore that changes in the foreign aid program of the United States (or of the United Nations) will really produce rapid worldwide development? What was a torrid romance between the people and government for so very long has now become a tired, middle-aged liaison that we do not know how to break off but that only becomes exacerbated by being dragged out.
