Robert Reich Takes on Rambo
Peters, Thomas J.
ROBERT REICH TAKES ON RAMBO by Thomas J. Peters The mythology of corporate America A merican managers have been besieged for almost a decade by an endless parade of "how-to" books. All...
...But for all these anecdotes and analyses, the involvement of labor to make the difference is not widespread...
...The makeup of the new 100th Congress suggests that more such "cooperation" will be coming...
...Steve Jobs of Apple and Lee Iacocca—should be supplanted as our heroes by workers, every one of whom can demonstrate entrepreneurial behavior...
...The manager as seeker of change, facilitator in the workforce, destroyer of functional barriers within the firm, and arranger of partnerships outside it must replace the manager as cop and protector of a narrow functional fiefdom...
...In shaping new economic myths, the service sector must be considered...
...ring fast enough to stave off serious economic deterioration in 75 percent of manufacturing industries, or in the service sector where, for instance, our recently formidable positive trade balance has disappeared...
...While many of these proposals have merit by themselves, they have fallen far short of addressing the deeper problems of our increasingly troubled economy...
...Asked how many agreed with, "I have an inner need to be the best I can regardless of pay," American workers, surprisingly, outscored the Japanese...
...and especially surprising, capital stock per employee is higher...
...it's standard procedure for managers' paychecks to get hit first and by far hardest when downturns occur...
...President Cooper Procter stated at the time: "The chief problem of big business today is to shape its policy so that each worker will feel that he is a vital part of his company, with a personal responsibility for its success and a chance to share in the successes" In 1958, Louis Kelso and Mortimer Adler wrote The Capitalist Manifesto, providing the basis for employee share ownership plan legislation (ESOPs) enacted 16 years later...
...The problem is that cooperation among big special interests almost invariably does degenerate into collusion...
...Chrysler has pushed GM to "de-integrate" by beating it on cost by $500 a car...
...This is clearly wrongheaded...
...The trick is to tap the best of both...
...Is it impossible to support unstintingly the specifics of Reich's conception of "collective entrepreneurialism," which he implicitly directs at large manufacturers, and still acknowledge the crucial role of the more entrepreneurial enterprise, from tiny start-ups (run by Gilder's Rambolike mavericks) to the $50-500 million firms chronicled in Don Clifford's and Dick Cavanaugh's Winning Performance: How America's High-Growth Mid-Sized Companies Succeed...
...Yet another unsung part of the Japanese story is their new business start-up (and failure) rate, which has been higher than ours since World...
...This is the probably hopeless prayer of GM's Saturn project, which stands in such stark contrast to the successful incrementalist approach taken by GM in its joint venture with Toyota, the New United Motor Manufacturing Inc...
...small, incremental improvements in production processes and products that can make all the difference in price, quality, and marketability!' Reich's survival formula requires nothing short of a national lobotomy—a switch from adversarial to collaborative relationships in just about all business and industrial dealings...
...Nonetheless I have several major objections to Reich's latest work...
...Random House/Times Books $19.95...
...Ross Perot observes that automation can readily become a "narcotic...
...His shift of the debate beyond quick-fix management devices and annual policy choices is pathbreaking...
...To keep it, we must turn labor from a commodity that we constantly attempt to reduce, to the antithesis of that—the chief source of added value...
...Reich has posed his vision of collective entrepreneurialism in opposition to more vital and contentious models of competition...
...The number of business starts and the jobs they've created is record-breaking...
...Our morality tales," he says, "are increasingly at odds with the new challenges we confront . . . . The prevailing versions do not speak of mutual obligation...
...Whither the manager...
...Through each of these myths we view life as combat...
...But they are, increasingly, not our future—whether the issue is manufacturing or service...
...Must we wholly reject the rough and tumble of the marketplace in order to embrace cooperation on the grand scale Reich proposes...
...The Harvard Business Review reported a 1986 study of half the flexible manufacturing systems installed in America and Japan in which the American systems were described as a "desert of mediocrity...
...James Abegglen and George Stalk Jr., in Kaishcr The Japanese Corporation, point out that the Japanese respond instantly to competitors' tiniest moves...
...The American worker knows the score, as a Yankelovich poll of Japanese and American workers reveals...
...competition...
...when times get tough, in good Kaisha style, managers get the first and severest pay cuts...
...The average wage at Worthington, where everyone is on salary, is pegged at about 25 percent above the comparable geographic area manufacturing average...
...firms versus foreign competitors, and so on...
...we are "mavericks all," seeking via individual opportunism to climb over others to the top...
...However, when asked the much more practical question, "Who would benefit most from an increase in [worker] productivity," the tables were turned...
...War II, featuring, for instance, well over 100 small robotics start-up companies...
...Procter & Gamble, for instance, introduced profit sharing a century ago...
...Needed: a national lobotomy Readers of Reich's 1983 book, The Next American Frontier, are familiar with his basic economic thesis, which is reiterated in Tales of a New America: "High wage economies can no longer depend on standardized mass production ." To compete, says Reich, American factories must meet the demand of small market niches around the world for high-quality, complicated, specialized products...
...Three other recent books come to similar conclusions...
...Reich's imagery is frighteningly on the mark...
...In addressing these underlying, suicidally restraining forces, Reich makes his most original contribution...
...Such a shift would surely take decades...
...Americans, the inventors, have made money from transferring our Big Ideas, as Reich calls them, to the Japanese...
...Reich gives the appearance of being among the ranks who imply that the service sector consists of only hair-care and pizza establishments, conveniently ignoring Federal Express, Citicorp, Humana, AMR (American Airlines), American Express, etc., in the process...
...But Reich's analysis, driven by the specific sources of our competitive disadvantage relative to the Japanese, is quite original...
...cooperation among them, we feel, only becomes collusion aimed at the accumulation of power...
...a chorus of recent books and studies backs up most of what he says...
...The service sector ignored...
...Yet in the end, one feels cheated...
...For a quarter million dollars, "minilabs" can do photo finishing that only Kodak could do a dozen years ago...
...I wrote a column last year about a small Wisconsin sausage maker who was successfully implementing novel participatory management schemes...
...In older industries, upstart firms have "industry leaders" by the ear...
...They neither celebrate joint gain nor forebode reciprocal loss ." Reich identifies several predominant myths...
...Reich's failure to address the role of the smaller firms is particularly surprising, since these firms are most often the ones on the leading edge of experimentation in employee share-ownership, gain sharing, profit sharing, and employee involvement in general—from failed People Express to stellar Apple to my favorite trio of steelmakers, Nucor, Chaparral, and Worthington Industries...
...But I surprise myself by being at least as sympathetic to Gilder's analysis as to Reich's...
...More important, in even the highest of technology arenas, where substantial capital investment is required, new and mid-sized firms are forcing Reich's giants to reform—although the pace is pathetically short of what's needed...
...Next in line is the myth of the Triumphant Individual...
...Surely somewhat bridled competition is preferable to unbridled cooperation among the three Bigs...
...Industry analysis also supports this argument...
...News & World Report story on the Los Angeles basin's economic vitality attributed it in part to the astounding fact that "some 90 percent of those employed . . .work in small firms with fewer than 50 people that can change course fast to stay competitive!' Miniaturation technology is making it possible for small and mid-sized manufacturers to achieve economies of scale at a tiny fraction of the former minimum viable size...
...Whether the instigator is corporate raiders, the Japanese and Koreans, or the emerging smalland mid-sized firms, it seems clear that only competition is forcing change in our dinosaurs...
...He has thus snared himself in the "us" versus "them" thinking that he has asked us to reject...
...His call for massive training and retraining, the centerpiece of The Next American Frontier, is renewed, and he adds a hearty plea for substantially increased employee ownership and productivity-based incentive plans...
...Yet competition remains a better purgative than the baleful progression of cooperation toward collusion...
...This means production systems flexible enough, and workers skilled enough, to change the product quickly to meet new consumer demands...
...on top of that, a quarterly profit-sharing bonus (based upon a predetermined formula) usually amounts to 80 percent of the base wage...
...In international dealings, a Mobs at the Gates myth prevails in security and economic affairs...
...Mythbusters Procter's imaginative incentive scheme didn't start a revolution...
...An insistent, almost vitriolic, tone pervades his demand for the replacement of opportunism and the myth of the Triumphant Individual with collective entrepreneurialism...
...Neither firm has had a layoff in decades...
...Nakasone adviser and management expert Kenichi Ohmae recently told Time, "The Japanese [company] winners look more like survivors of a demolition derby than meticulous strategic planners...
...Yet, the American semiconductor industry is vital—led by a "third wave" of more than 125 start-ups since 1977...
...Reich has performed a major service in moving beyond short-term policy choices and quarrels over competing management technologies...
...First, traditional mass production is surely in its death throes...
...Steel (now USX), IBM, et al., are very important to our future...
...The reason for the slow diffusion of ideas with such demonstrated worth, Reich argues, is that our most deeply held assumptions are out of whack...
...So, how big a change in our mythology is needed...
...NUMMI) operation...
...It is unnecessarily shrill in its denunciation of entrepreneurs, it overemphasizes the role of old and very big manufacturing firms, and it embraces significantly increased cooperation between Big Business, Big Labor, and Big Government without examining the down side of such major interest group collusion...
...Thanks to its sophisticated COSMOS computer system, Fed Ex can offer a customer his money back if his packages precise location can't be pinpointed in 30 minutes or less...
...economy and are a principal force in shaping up our sluggish big firms...
...Having raised such a challenge and then underscored its urgency, he would seem to owe us at least the outline of an agenda to deal with it...
...The Triumphant Individual has always shared the stage with myths of collectives...
...the small-town, barn-raising, volunteer fire department spirit has roots as deep in the American psyche as those from which individualism springs...
...We do not worry about the host of small innovations in autos, for instance...
...In the end, one is left with a troublesome question...
...The list of success stories brought about by worker involvement grows longer by the day...
...His analysis of the problem is brilliant...
...Japan, says Reich, has followed a far different route...
...This approach has crippled former stalwarts from GM to...
...In almost the same breath, he repeatedly reminds us that time is not just running out, but essentially has run out...
...In steel, the integrated mill is dying, while the "mini-mill" surges, and now "micromills" —which may well be peppered along the highways every 25 miles—are setting the industry abuzz...
...If we are to have the necessary revolution on the shop floor and in attitudes between suppliers and buyers and between companies involved in joint ventures overseas, etc., it must be based, says Reich, upon, a new core assumption that replaces opportunism with trust among owners and workers: "Collective entrepreneurialism requires mutual investment !' Reich provides a Chinese menu of prescriptions...
...And while Federal Express is a paragon when it comes to pay, profit sharing, and employee involvement, an equal determinant of its competitive edge is its extraordinary use of technology...
...What to do first...
...The Japanese have made money in turn by perfecting production methods and selling the technology back to us in the form of high-quality products: "Thus, the emerging Japanese-American corporation allocates to the Japanese the most important assets for the future [my emphasis]—experience in making complex parts cheaply and well . . . . They learn how to make...
...In particular, we tend to couch all of our debates in an "us" versus "them" framework—management versus workers/unions, U.S...
...It's America as "beacon light" versus "barbarians that lurk 'out there...
...I think this is also possible in the U.S...
...Kaizen means [perpetual] improvement . . . involving everyone...
...we ignore them and assume that we can "leapfrog" with, per Reich, a Big Idea...
...They can try to match the wages [that is, reduce], for which workers elsewhere are willing to labor, or they can compete on the basis of how quickly and how well they can [utilize labor to] transform ideas into incrementally better products ." His principal emphasis shifts from managerial shortcomings (he coined the term "paper entrepreneurs" in his 1983 work) to labor's requisite new role in the emerging scheme...
...Here Reich badly misreads the Japanese situation...
...To even think about alternative governing myths for a nation is daunting...
...Yet, Rot at the Top is the dominant mythic image of our leaders (business and government) that we carry with us...
...As Reich says, waiting for the Big Idea to leapfrog competitors and save us is stupid, especially for the sizable firm...
...There is no question that the choices made by GM, the remnants of U.S...
...Policymakers have likewise been inundated with proposals ranging from massive funds for worker training to huge tax breaks to support quicker automation of our plants...
...At Nucor, a 60 percent weekly bonus, based upon small group productivity, is the norm...
...Reich savagely, and correctly to my mind, attacks the prototypical, numbers-oriented, emotionless American manager, middle or top, in The Next American Frontier...
...Competition stifled...
...The product of renewed big union/big government/big business cooperation is already on gruesome display: the non-legislated protection for steel, textiles, autos, and now semiconductors that is hastening each industry's decline...
...The notion of profit sharing, gain sharing, and employee shareownership have been around for decades...
...Reich seems to think so...
...Reich also seems to suggest that the Japanese follow a pure model, closely akin to his vision of collective entrepreneurialism...
...Robert Reich...
...To ask Reich to specify precisely how to change the structure of myths is perhaps too much...
...Reich further develops these themes in his new book: "The older industrial economies have two options...
...is not chief among them...
...Reich evades this entirely...
...Though the service Reich has rendered is substantial, his book has serious flaws...
...In steel, Nucor Corporation, Chaparral Steel, and Worthington Industries are blending smaller scale, advanced technology, workforce participation, and high-variable compensation to produce remarkable results...
...Historically, however, we have focused on more specialization for labor (many old plants have 80 or so job categories) or its outright elimination through large-scale automation...
...America has a high-wage economy...
...The authors, who are well to the left of Reich, conclude that nothing less than substantial public ownership of enterprise is required...
...Senator Russell Long's ESOPs didn't either...
...Brian Quinn and Christopher Gagnon, in a recent Harvard Business Review article, show that in the service industries, value-added per employee and productivity improvements are as high or higher than in manufacturing...
...Reich is maddeningly vague, beyond suggesting that we all sing the praises of models of collective entrepreneurialism when we come across them...
...Isolation is a by-product...
...ROBERT REICH TAKES ON RAMBO by Thomas J. Peters The mythology of corporate America A merican managers have been besieged for almost a decade by an endless parade of "how-to" books...
...Yet today fewer than 20 percent of the workforce have salaries tied to productivity and profits, and fewer than 15 percent own shares of stock in their company...
...Barry Bluestone's and Bennett Harrison's The Deindustrialization of America dwells on the plight of some 30 million displaced workers...
...But his new firm—even if it is based upon the principles of collective entrepreneurialism— will include managers...
...Either/or...
...In Tales of a New America, * Harvard political economy and management professor Robert Reich, who has the ear of many of the 1988 Democratic presidential hopefuls, argues that these problems all stem from an inappropriate set of guiding myths that shape the national psyche...
...It's the Triumphant Individuals behind America's best mid-sized companies who have created the models of collective entrepreneurialism that Reich rightly admires...
...National Semiconductor...
...Second, there is unequivocal support for Reich's analysis of the Japanese edge...
...Above all, I applaud the depth of his new analysis since quick fixes have neither matched the gravity of our problems nor halted the acceleration of our decline...
...Japan Inc...
...Kaisha also shows how the Japanese...
...IBM is faced with daunting problems...
...twice-yearly bonuses based on profitibility amount to almost 50 percent of pay...
...The service sector is not a dead end...
...achieve their edge through their labor practices: everyone is trained to do a number of jobs...
...The Japanese wholeheartedly embrace cooperation—and competition...
...This story is repeated in chemicals, textiles, biotechnology, chocolate chip cookies, convenience foods, health care, and financial services...
...However, competition in Japan, especially in the home market that we don't observe on a daytoday basis, is much more intense than U.S...
...And neither have the books to date by Reich or those by authors (and their thousands of emulators) I have cited...
...We have, and need to accommodate, both myths...
...Reich is a moderate by those standards but is light years to the left of George Gilder, who in his The Spirit of Enterprise, completely ignores, to his discredit, this wrenching dislocation in his flowery paean to entrepreneurs...
...Even in Japan, Nissan and Toyota have been spurred by the smaller Honda...
...To cope with new economic interdependencies, we need instead, says Reich, to move cooperation to the place of honor, encouraging, for example, more cooperative ventures with foreign firms and more profit-sharing with the workforce in return for more workforce commitment...
...Over the years plenty of thinkers, and not just Marxists, have criticized America's exaggerated individualism and extolled the virtues of cooperation...
...Thus Citicorp is as much a computer company as a bank, with a satellite- and electronic-based global trading and finance network at the heart of its operations...
...But Reich presents us with a conundrum and then does little to help us...
...And when it comes to size, a recent US...
...Rather, Cray in the super computer business, Digital in the minicomputer and networking arena, and Apple and Compaq at the bottom of the line lead a lengthening parade of newcomers revolutionizing that industry...
...Quite simply, the debate as it is now posed obviously misses the mark—changes are not occurThomas J. Peters is co-author of In Search of Excellence and A Passion for Excellence._ *Tales of a New America...
...I accept his specific suggestions...
...Many side effects of competition are negative, and urgently need to be addressed...
...While these mid-sized firms are hardly typical, they nonetheless represent the best models of "collective entrepreneurialism" that can be found anywhere...
...In Kaizen, Masaaki Imai asserts that "kaizen strategy is the single most important concept in Japanese management—the key to Japanese competitive success...
...Third, there is strong . support for Reich's analysis of the power'of wholesale workforce participation in the marketplace...
...If the problem is as pressing as he says, and I believe it is, then what are we to do in the next 12-60 months...
...Likewise, after a recent discussion of extraordinary service at a Dallas Cadillac dealership, I was heartened to hear that a group of Procter & Gamble plant managers had visited the dealership...
...Reich wants to replace the Rot at the Top myth that says our leaders collude to gain power with one that stresses their ability to cooperate...
...Some 93 percent of Japanese workers thought that they would benefit while only 9 percent of American workers felt that way...
...The U.S...
...A new role for the manager, from supervisor to chief executive, is desperately needed...
...In computers we are proceeding from "minis" to "micro-minis" Even on liquor store shelves the products of "micro-brewers," such as San Francisco's Anchor Steam, are shoving venerable Budweiser toward the rear...
...Reich summarizes well: "Collective entrepreneurship involves increasing labor value...
...Reich has laid down a monumental challenge...
...Carrying a combatant's mindset through a world increasingly marked by interdependencies has perilous consequences...
...But his main plea is for a change in the nature of the American dialogue and the creation of new myths: "To the extent our domestic economy is animated by this new vision, the central problem of economic policy becomes less how to discipline drones [his term for our disenfranchised workforce] or tease the last ounce of genius out of lone entrepreneurs...
...In the workplace, Reich says, the switch can be accomplished if we adopt what he's labeled "collective entrepreneurialism ." America's John Wayne/Rambo/Great Man/Big Idea entrepreneurs— e.g...
...Abegglen and Stalk focus on the consuming preoccupation that Japanese firms have with their competitors...
...The Ford Motor Company, short of capital in 1980 and therefore primarily dependant on employee involvement, has outdistanced its Big Three competitors, especially GM...
...The conclusion is bleak...
...The auto market and most other markets have been "pulverized" by new technology that diminishes the role of scale and big competitors, say Michael Piore and Robert Sabel in The Second Industrial Divide...
...Emphasis on big manufacturing...
...it is a way of life that goes beyond business, in which cooperation and group spirit are prized above individual performance...
...In The Bigness Complex, Walter Adams and James Brock conclude that "bigness has not delivered the goods!' They support this conclusion with pages of analysis, summarizing a raft of empirical studies dealing with the relationship of scale to efficiency and innovativeness...
...Technology addicts Reich is not crying in the wilderness...
...Yet 75 percent of us now work in the service sector...
...I can't help but conclude that most Democrats, Reich included, think the American economy consists only of GM, Exxon, and midwestern manufacturing companies with $5 billion or more in revenues...
...Does embracing collective entrepreneurialism necessarily mean slapping down entrepreneurs...
...Disdain for entrepreneurial enterprise...
...On the other hand, both the small and mid-sized firms are making a contribution to the Surely somewhat bridled competition is preferable to unbridled cooperation among Big Business, Big Labor, and Big Government...
...All share the basic assumptions that organizational structures and other managerial tools must be changed, probably drastically...
...His suggested specific changes within the firm and regarding its dealings with others are sound...
...In semiconductors, National and most big firms have lost their way because of their reluctance to focus on manufacturing and, indeed, collective entrepreneurship...
...Yes, kaizenconstant refinement—may well be the principal management tool behind Japan's corporate success...
...The challenge is to create settings in which obligation and trust can take root, supported by stories that focus our attention on discovering possibilities for joint gain and avoiding the likelihood of mutual loss!' The best of both I concur with the core of Reich's economic analysis...
...For managers, this task means continuously retraining employees for more complex tasks, automating in new ways to cut routine tasks and enhance worker flexibility and creativity, diffusing responsibility for innovation, taking seriously labor's concern for job security, and giving workers a stake in improved productivity via profit-linked bonuses and stock plans...
...Maryann Keller, a leading auto industry analyst, says General Motors has been "nibbled to death, not chewed" by a number of smaller competitors...
...He asks us, correctly I think, to consider a new intellectual and emotional framework for everything from interpersonal to economic to security dealings...
...reacts naively, they argue...
...I was delighted to learn that my column inspired visits by large groups from 3M and General Mills...
...Tb write off, denigrate, or ignore these firms as a group or as a collection of exemplary role models is a major, continuing failing of Reich's...
...At a Detroit Economic Club speech in January, following his firing by GM, he lambasted his former employer: "Despite spending $40 billion for roboticsequipped plants and other capital improvements, GM . . .went from being the low-cost producer to the high-cost producer among the Big Three...
Vol. 19 • March 1987 • No. 2
