Chapter 8
Running Lean

Avoid cut-overs
New breed of manager
New rules; different tools
Cultures built on trust
Lean HQ


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Chapter 8

Running Lean

Excerpt from Downsizing: Reshaping the Corporation for the Future

By Robert M. Tomasko


"What do we do now that they're all gone?" lamented a chronically overworked survivor of deep demassing. Let us look at one post-cutback worst case that he might be facing.

"Our headquarters has shrunk to a handful of people. We don't even own the building anymore. But division and plant staffing is on the increase, and what's more frustrating is that each division, now that we've given them complete hire-fire authority, is taking on the same kind of professionals and engineers that their sister groups already have. Hasn't anybody ever heard of economies of scale? Don't they realize they're going to start inventing work to keep them all busy? Have they considered what they'll do with these high paid folks in a few years when they'll all want promotions?"

"Still we are pleased, at least for the moment, because the total corporate payroll has had a big bite taken out of it. But some of the remaining staff departments are submitting pretty large capital budget requests for new computers, workstations and telecommunications. Staff headcount has gone down at the computer center, but overtime is way up and the net savings there to date seem minimal. And we are making more use of outside contractors than ever before. Two divisions have already overspent their budgets for consultants, and the year's not half over.

"We haven't gone as far as Rene McPherson at Dana. He replaced 22 1/2 inches of corporate procedure manuals with a one-page philosophy statement. But we've come pretty close. The trouble is we've had to double the size of our training program to be sure everybody understands how to apply our abbreviated standards."

"Decisions do move along faster without all the layers of approval we used to have - but I'm a little concerned that our overall direction in the marketplace isn't as focused as it once was. Being quick to make decisions doesn't always mean we are making good ones. I'm starting to get concerned that our image with customers is suffering from whiplash. One day we decide to advertise our products as the cheapest available, the next month our sales campaign is focusing on how many bells and whistles each one has."

"We're certainly less guilty of analysis-paralysis, but only a few of our managers know how to solo without a lot of staff backup. The result: occasional hip shooting. Without the headquarters staff around to second guess every decision our managers' morale has sure risen, but I still wonder how many are broad gauged enough to handle all this new responsibility."

While this example is a composite of a number of companies' experiences, the situations commented on are very real. Companies that carefully plan their downsizing should be able to avoid the frustration behind problems like these. But in doing so they quickly rediscover, in case they have forgotten, the no-free-lunch rule. For every economy achieved, new costs may arise. Even in situations where a company clearly had more managers than needed to do all the work, downsizing will disrupt many long ingrained habits and a longer-than-expected transition period may be necessary before operations reach peak efficiency. Running lean successfully, and safely, means managing by making tradeoffs. An important one to consider first is that even in a time of reducing management, an additional amount of management attention needs to be given to the problems arising in moving from bloated to lean.

Avoiding the cut-over mentality
Demassing involves deep cuts in management and staff, often done across most of the company, and usually made in a short period of time. While the period of execution is brief, the recovery time may be prolonged. This contrasts with the slower pace planned downsizers take in eliminating positions and restructuring their organizations. This pace allows for greater use of layoff alternatives, and potentially allows for time for the remaining managers to adjust to the new organization and their new responsibilities in it. But this is a potential benefit, one to be gained only by those companies that actively manage the transition.

Edward Mayhew is a senior business planner at Southern New England Telephone Company (SNET). SNET, because of a unique ownership situation, was the first member of the former Bell System to chart an independent course in advance of divestiture. This gave them an opportunity to do a lot of deliberate planning for their new business environment. Mayhew was SNET's chief human resource planner at this time and was an eloquent spokesman for the need to avoid the "cut-over mentality." Telephone companies have, even before the Bell break-up, learned well how to manage major changes. These changes were usually more technical than strategic, and among the most difficult would be the replacement of the complex equipment that would handle the switching of customer's calls from a local exchange to the nationwide trunk line network. Mistakes in the changeovers could be costly to locate and repair, and if the change was not made very quickly customer service would be interrupted. To avoid these problems telephone companies adopted the "cut over" approach to replacing or upgrading these complicated switching systems. The entire new system would be built from ground up right next to the one is was to replace. Then after it was carefully tested, off line, it was "cut in" to the telephone network, and the old switch "cut out." This maneuver was usually planned with the attention to detail that went into the Normandy invasion. And the results were usually worth all the front-end planning: few customers were ever aware any change had been made through interrupted calls.

While this is an excellent way to deal with complex machines, it frequently falls apart, as Mayhew was quick to observe, when applied to seemingly simpler humans. For most people effective change involves a less instantaneous process. This is especially true when the change is downsizing with all its attending emotional turmoil. Well established work groups are broken up. Long held habits and expectations no longer fit the new situation. The loss of these, and the close relationships that may have accompanied them, needs to be recognized, possibly mourned, and finally adjusted to. This, and the feelings of anger, depression, resentment and guilt that often accompany downsizing, all require a time of consolidation. Counseling assistance may be needed by the survivors as well as the targets of cutbacks. This is a time when top management needs to be doubly sure that communication channels, both upward and downward, are clear, and are being used to help reinforce the company's new direction. Manager's expectations, both founded and unfounded, about where the business is going, what their role is, and what the new terms of their working relationship is, all need to be considered. They need to be reinforced or modified as the case may be. Only after all this happens will the downsized organization be ready to completely focus on the objectives set for it.

Because most management attention during downsizing goes into the mechanics of the personnel cutbacks and the details of the reorganization planning (as discussed in Chapters Four, Five and Six), many of the psychological issues are ignored or possibly delegated to a low level staff unit. But these are the issues whose handling can make or break the entire effort. Harry Levinson has observed from his years of consulting and company-watching that "most organizational change flounders because the experience of loss is not taken into account. When the threats of loss are so severe as to increase peoples' sense of helplessness [as often is the case during downsizing], their ability to master themselves and their environments decreases. To undertake successful organizational change, an executive must anticipate and provide means of working through that loss."

One way to do this is to set up a series of task forces, each dealing with a different aspect of the organization and system changes that must be made to support the downsizing. These teams of managers and staff professionals can focus on issues such as developing new reporting procedures, adapting the management information systems to the new structure, and finding ways to speed product development through the streamlined structure. While they are discussing these concrete issues opportunities may arise to also consider some of the less tangible aspects of the reductions.

Having worked through this difficult period, the company will be able to face issues that will have a long term impact on its ability to thrive with a lean structure and few staff assistants. It then needs to give consideration to what kind of manager is going to do the best job in this new environment, what ground rules and management tools will be needed, how the corporate culture will have to adapt, and how a slimmed headquarters will still be able to guide the business.

A new breed of general manager
A number of the key players may need to change. Managers comfortable in corporate bureaucracies where decision making was slow and job scope limited, where pleasing the boss was more important than collaborating with peers to get things done, and change was glacial at best, may be out of place in a streamlined corporate environment. The proverbial "bull in the china shop," the highly aggressive and narrowly single minded manager, may also have trouble fitting in.

The manager who will thrive in settings where expert analyses are needed, but staffs of experts are not available to deliver them, where fearsome cost competition may mandate tight expense controls, but close supervision and an army of auditors are not present, this person may well be a new breed for many recently streamlined companies. While some features of the situation are similar to those faced by small and medium sized companies daily, the numbers of zeros on the financial report sheets will be much longer. Downsized companies still operate in upsized, often global, markets. They face threats from well financed overseas competitors as well as new technologies grown in nearby garage startups.

Companies are only beginning to get experience running large businesses leanly. Ways to do so well are only beginning to emerge. At Emerson Electric Company, a leanly managed relentless cost-cutter, some patterns are apparent. Its forty four divisions have been run as near autonomous businesses and its cadre of division heads compared to princes reporting to a strong king. In addition to being very bottom-line oriented, these managers are selected for their abilities to stand up to, and fight when necessary, their aggressive boss, Charles Knight. Corporate staff number less than fifty with each division head responsible for creating and implementing strategy. This situation is antithetical to the culture of mistrust that has grown in many other firms. The chief executive does not lay back and let the business run itself as a loose collection of semi-independent companies. He is deeply involved in a carefully selected number of areas that are key to overall competitive performance, such as labor cost control. Knight is constantly visiting Emerson's facilities, and constantly asking challenging questions of his managers. His activist style is far different from that of the "corpocrats" Deputy Treasury Secretary Richard Darman has complained about. It is a style not without its flaws. The autonomy it encourages can make it difficult for units to cooperate on projects that cross divisional lines.

At Unilever, for long the world's largest consumer products company with over a thousand worldwide brands, a similar formula has been tried. Its five hundred subsidiaries have been run by a team of executives using what one calls lion tamer management: "Keep them well fed and never let them see that all you have is a whip and a chair." Lean headquarters may reduce some managers to adopting this stance, but hopefully behavioral and computer technologies will arm them with some stronger tools.

What characteristics will this new breed of managers possess? What should be looked for when new general managers must be selected? Here are some clues to look for when examining candidate's track records.

- Because their jobs will be too big to allow time to constantly watch how well each subordinate complies with all facets of company policy, these managers will have to be better internal salespeople than police officers. They have to be good at eliciting the commitment of their subordinates to company plans. Their motivational skills will take precedence over their monitoring ones.

- They will have to be well attuned to the overall company strategy. Since their workload will only allow them to monitor a few performance indicators, the ones they select better be the right ones. Monitoring short term sales results at the expense of product development milestone completion, for example, may have been just a minor annoyance in a management heavy company. In a lean one it could be disastrous.

- They will have to balance their commitment building abilities with a keen sense of knowing when to let go. An executive vice president of an experienced downsizer, Wells Fargo and Company, once noted that as the bank prepared for deregulation managers became as much of a hero for withdrawing from a business as they were for making a new, big deal.

- They will enjoy being visible; they will relish the information spreading and spokesmen roles that good managers fill. As masters of lavishing attention on customers, products and high performing subordinates, they will be comfortable both sending and receiving recognition. There may be less room available for quiet introverts in these action oriented streamlined firms.

- Working in what TRW's Pat Choate calls a High Flex business environment will require a lot of flexibility and independence on the part of managers there. Aggressiveness will still be important but it will need to be tempered with adaptability and self restraint. Being a self starter will be vital, because the manager's boss may be too busy to keep providing short term motivation. Being a self stopper is also necessary; the lean corporate staffing will provide fewer restraints and checkpoints for overly aggressive behavior.

As at Emerson, these jobs will not be desk bound. They will not spend much of their day filling forms and relaying information from one level of the hierarchy to another. Nor will they be nursemaids to departments of part time managers. Tom Peter's management-by-walking-around will be second nature. They will trust their senses for information about what is happening more than their computer reports. Their incumbents will be expected to fuse both staff and line perspectives; more top management appointments like Seymour Sternberg's will be made. Sternberg is now one of two executive vice presidents of Massachusetts Mutual Life Insurance Company. His duties include responsibility for one of its line business growth areas (group life and health insurance) and several of its key staff areas (finance and information systems). His background: information systems, the industry's new key strategic technology, not sales, its traditional career path to the executive floor.

The once popular idea of the professional manager ("I can manage anything") will quickly become a discredited myth in streamlined companies. Operating with fewer managers means they need to be flexible, but they also need to have a sound base of experience and knowledge around which they will operate. They will have in-depth contact with key customer groups, or understanding of critical technologies or functions, or familiarity with the major players in their industry. This was something realized by electronics technology oriented-TRW. As part of a restructuring they sold an aircraft turbine parts foundry to a much smaller Portland, Oregon firm that specializes in the low tech/high skill business of making precision castings. When TRW ran the foundry it lost money, partially because about a quarter of its products had to be scrapped for not meeting its customers' exacting specifications. The purchaser from Portland provided a foundry manager who knew this business inside and out. He was able to quickly spot the problems and provide hands on instruction in how to correct them. The results: scrap rate cut in half, sales increased and red ink turned black is less than a year. Not having to bear the overhead burden of a multinational diversified manufacturer also helped. This is a story being repeated across the U.S. Restructuring is turning portfolio companies managed by generalists into lean, focused stand alone businesses run by managers able to roll up their sleeves and quickly add value.

At Pepsico Inc. these ideas have even been built into the top management structure. Rather than having a group of high paid executives collectively oversee all of this food and beverage firm's businesses, each of the top three is allocated a speciality (the chairman and chief executive watches the restaurants, a former president oversees the Frito-Lay snack food business, and another heads the beverage units). The chief executive, D. Wayne Calloway, admits he makes no attempts to run all three, and feels this set of assignments keeps executives minding the store rather than concentrating on "numbers at headquarters." A former Pepsico president, now teaching at Harvard Business School, Andrall Pearson, explained the simple logic behind the system: "If top managers don't get involved in the details of the markets they compete in, they're going to get killed by people that do."

The function of management is sometimes distinguished from leadership, with management more concerned about the day-to-day operations of the business and leadership with the more visionary and strategic issues. Managers are seen as people who use rule books and procedure manuals, supplemented with frequent audits, to keep the company on track. Leaders, on the other hand, are expected to function more mystically. They seem more detached from the fray and use their abilities to be articulate and charismatic to inspire people to action. Whatever the validity of the distinction, it is unlikely that streamlined companies are going to have room for many of both types of executive. More people will have to assume both roles as the number of layers in the hierarchy decrease. Executives that have enjoyed the view from the top of the pedestal will find that their leadership is sometimes best expressed through everyday, routine contact with the troops. Companies that have been very procedure driven will learn the virtues of using some of the softer aspects of management, such as corporate culture and training, to do the work of their recently eliminated bureaucracy. But the direction of downsized companies will not happen through charisma alone; the nature of the manager's tool kit will also change. So will some of the operating ground rules.

New rules; different tools
"Run it like you own it" will be the instruction given to many managers of downsized businesses. And to help them feel more like owners it is likely that good performance will be increasingly rewarded with stock (real or phantom), not just immediate cash payouts. Systems of pay-for-performance and various types of incentive pay and gainsharing will become more widespread. Compensation systems will have to become instruments for line managers to use to guide their subordinates, not just mechanisms for distributing pay equitably that are administered by compensation experts. General Electric, and a number of other companies, has already gotten several years experience in applying executive bonus systems to their shrunken ranks of middle managers. Five thousand GE managers, each with a base pay of $50,000 or greater, were put into an incentive pay program that rewarded them for meeting both short term financial targets and long term financial and non-financial goals.

Pay for performance also implies no pay for no performance. While it is likely that many who survive streamlining reductions will have enlarged and better paying jobs, they may also have more risk associated with their performance. Fewer managers means more visible ones, it will be easier to pinpoint who is behind the company's successes and failures. "You run the show, or they will put someone else in to run it," explained one general manager at the leanly managed Marmon group. At Fairchild Industries its chief executive, Edward Uhl, characterizes his business as "a meat-and-potatoes company....We don't have a deep palace guard. People on the corporate staff have to produce. If they don't produce, we're not interested in them." He expects that his managers "better damn well put down on paper what they're going to do and then go do it."

The bureaucratic style of many large organizations will need to depart along with the staff they lay off. Memos and reports will have to shorten, their should be fewer staff available to write them and fewer managers with time to read them. At the Chevron Corporation, which has gone through merger and a number of major reductions, departmental meetings are held monthly instead of weekly, policies and procedures have been reduced from 400 to 18 with common sense being expected to replace many of the detailed instructions, and the executive committee of the board is looking at capital expenditure requests that have at least a third fewer pages than those of previous years. The research and development group is focusing more on applications than basic research. When a new chemical process is discovered the key question is "What will we do with it?" not "Why is it happening?"

Downsizing also means turning many organizations on their sides. Getting things done will mean being able to work the company horizontally more than vertically because streamlined structures will be wider than they will be taller. Being able to elicit support and cooperation from your peers may be a more important skill than currying your bosses' favor. Talents at negotiating will become key to obtaining resources in operations like GE's manufacturing businesses where functional units like marketing and engineering have been recentralized. New laterally oriented positions will be created in many slim companies. While Ford was sharply reducing its staff size it created twenty new line product-manager positions in its divisions to be sure the division heads have all the information to need to closely manage costs and market shifts. At Campbell Soup Company the orientation is more toward customizing its products, advertising and sales efforts to diverse regional markets. It followed the successful approach of another consumer goods maker, Johnson and Johnson Company, in dividing its factory dominated monolithic organization structure into 50 small divisions, each with profit and loss responsibility. Sales and marketing staffs have been first combined, then regionalized. They are told to stay more attuned to their local markets and not to act as offshoots of the corporate office.

As the experiences of GE and Campbell Soup suggest operating lean will mean centralizing for some companies and decentralizing for others. The trick is to focus the corporate organization on the key factors needed for business success, not on its internally generated requirements. Many companies will reorganize to strike a new balance between staff and line, but there is no one way to organize that is appropriate for all downsized firms. One practice that will be common in many streamlined companies, though, will be extensive use of forums that help promote communication and idea exchange across departmental and divisional lines. For some this may mean annual internal trade fairs where managers can show off and swap ideas for productivity improvement, new products, and new technologies. Others may accomplish some of the same results by making extensive use of tasks forces whose membership puts together people across organization units and management levels who do not otherwise see much of each other.

Managers will also adopt some new tools to leverage their time and talents. First thought of are usually the now ubiquitous microcomputers and data terminals appearing next to every manager's desk. While these can be great time savers and grasp-extenders they can also become tools that promote inappropriate micro-management and excess analysis. They can also chain managers to desks when they should be walking around, and tempt some into getting things done all themselves instead of delegating to subordinates. Lester Thurow observed that in many corporate accounting departments increased automation do not lead to increases in productivity. Instead it was primarily responsible for increasing the frequency and types of accounting that was done - generating more paperwork and reports, not less!

Paul O'Neill, International Paper company's president, has long felt that many layers of management exist only to sort and transmit information. He hopes that by the mid-1990s these will all be eliminated. Hopefully so, but past experience shows that for many companies increased spending on office automation brings with it large information bureaucracies. The focus of too much corporate automation has been on computerizing existing manual systems, sometimes in ways that build into the new system the jobs of those managers who do the collecting, sorting and relaying on of the information produced. Automation in streamlined companies needs to start with replanning the work most critical to do, then automating it. Start with activity prioritizing, not soft and hardware purchasing. Obtaining the kind of strategic results from information system investment that Robert Crandall of American Airlines has requires continual management by line executives of the entire process. This kind of attention helped him reduce his corporate controller's organization to half the size it was five years before.

Making the most of personal computers will require a shift from their being used primarily as tools (to do spreadsheet analysis or to write a memo) to their becoming more of a day-to-day partner or special assistant of the managers using them. For this to become a reality technological developments, such as the advances in artificial intelligence reviewed in the next chapter, will need to occur. This may also require more time for training than many overworked managers now have. For some companies the manager-machine partnership will have to wait until a new generation of managers, computer-literate since college, takes over.

On the factory floor computer integrated manufacturing can be a double edged sword. It can either promote more centralized management than is currently possible, or it can allow for significant decentralization and upgrading of factory workers skills. The way numerically controlled machines are managed illustrates the distinction. It is common in the U.S. for staff programmers to be the only employees allowed to change their programs to adjust them to production or product changes. In Europe and Japan, where no-layoff policies and restrictive labor laws encourage companies to make the most of their factory floor talent, these machines tend to be "unlocked" allowing the workers to make faster and more flexible responses to changing conditions. Overseas production workers are expected to make significant inputs into factory equipment purchasing, rather than delegating this task completely to the industrial engineering staff and the purchasing department. Inventory control staff have been eliminated in some Japanese plants by enriching the assembly line worker's jobs with this responsibility. Proctor and Gamble has been ahead of many U.S. manufacturers in adopting some of these methods. Half of their domestic production workers are salaried technicians charged with making and implementing most day-to-day operating decisions. This has permitted elimination of a layer of middle management in each plant using this job category.

Running lean the Proctor and Gamble way requires both computer and behavioral technologies. Rather than just looking a what changes are possible by adding a new tool or policy, executives stand back and consider the entire picture. The look at their overall corporate culture and ask what aspects of it needs to be changed to make lean and mean management a workable reality. And they have learned from the anthropologists who have studied cultures for decades the lesson that you cannot change just one thing. Every aspect of their company's culture is linked in some way to every other one. New systems and management tools can help shape the streamlined culture, but the starting point in changing a company's culture is the principle carrier of the culture: the company's managers.

Corporate culture built on trust
An important job of the new breed of managers in downsized companies is their role the creation of a culture that helps fill the vacuum left by fewer staff and less supervisors. This is a corporate culture that, at its root, is based on trust. The word "trust" does not refer to connotations of openness and honesty, although these qualities are certainly important in all organizations. Instead it is the kind of trust that Vince Lombardi worked to achieve through his coaching. He explained the effectiveness of the Green Bay Packers as a result of: "Every man on the team trusts every other player to do what he is trained to do, win football games."

The key words here are "team," "trust" and "trained." The kind of trust that is vital to leanly staffed organizations (whether on the football field or global marketplace) is that which comes from being part of a close-knit team, not being an independent player only temporarily affiliated with the company. The team is formed around the leadership provided by the new breed of hands-on manager emerging in many slimmed down organizations. It stays together because of a focus on common goals and through the interlocking network of relationships that form among the team players. But the trust that keeps the team and the lean company together is based on more than just good camaraderie, it is based on the knowledge that the other players share your skills and viewpoints. In short, they have all been trained together; they all share a common corporate culture.

There are as many types of corporate cultures as their are corporations. Companies differ considerably in the extent to which they actively use their culture as a tool to manage their employees. Most do not. At best their culture is something of interest to only a few managers, most likely based in the personnel department. It is occasionally mentioned in a chief executive's speech, and usually forgotten soon after the speech is made. Sometimes its quirks are the subject of an interesting after work discussion around drinks. Most managers are aware that their corporate cultures include the values, habits and behaviors that are commonly shared in the company. They know that potentially these can have a great impact on how well the company performs. But most believe that culture does not really matter, that performance comes from good plans, skilled managers, comprehensive policies and systems, and lots of hard workers. Maybe they are right, but the reality for most downsized companies is that these factors are probably in short supply. Using culture, the "softer" side of management, may be one of the few ways left to leverage the contributions of the remaining managers and staff.

Cultures, like psychological contracts, happen whether they are managed or not. Building a strong culture means building compliance around at least a few key values and practices. These can start with the basics: what do we assume about our customers, what do we assume about the people we work with. Lombardi's idea of a well functioning team is one where everyone could count on everyone else to know their jobs and do them well. Is this a reasonable assumption in most U.S. companies? Not so, according to the father of statistical methods of quality management, W. Edwards Deming. His experience, and other researcher's studies, indicate that 80% of American managers cannot answer with any measure of confidence these seemingly simple questions:

- What is my job?

- What in it really counts?

- How well am I doing?

Expecting a company to do well with broadened spans of control, and fewer staff monitors, is rather chancy if these the answers to these questions are not easy to come by. Where close supervision may have made up for some of these uncertainties in the past, a strong shared culture is going to have to do the job in the streamlined future. This is where expanded investments in training will be necessary. An important function of operations such as Dana University, Disney University, McDonald's Hamburger U. and IBM's extensive employee training investments is to build unified company cultures while teaching practical work skills. Employee-students learn not just what to do, but how to do it our way. The trick here is to replace explicit controls (procedure manuals, rulebooks and armies of auditors) with implicit, trained-in controls. The companies that do this well are the ones that make training mandatory, not the ones that send a manager to a course as a reward or when time is available.

While the mix of features that make up corporate cultures vary considerably, one factor continually crops up that leads to bloated staffing. It is what quickly teaches most managers that they will do better if they continually win, always stay in control, and keep mistakes buried. This is what we called in the first chapter the tendency to build corporate cultures on mistrust. A big danger many downsized companies face is that these cultural tendencies may be reinforced, not eliminated, by the tough, macho atmosphere that accompanies some major cutbacks. As long as it predominates sustainable streamlining and safely running lean will be very difficult to achieve.

The toughness these values encourage is brittle and only skin deep. Earlier we reviewed the adverse consequences they lead to. These are the values that turn $50,000 mistakes into $5,000,000 catastrophes. Keeping these from happening more frequently will require corporate cultures that reward learning from mistakes as well as they do quick successes.

Instead of attempting to always get it right the first time, and then putting efforts into covering up the mistakes that are bound to happen regardless of how good the manager is, managers in trust-based cultures are more attuned to making small commitments - low stakes gambles - seeing what results occur, then either increasing the investment or pulling out while the losses are minor. They are good experimenters who know how to build on each trial, not gamblers who continually start each day facing the same unfavorable odds.

Changing a company culture in this direction means changing who becomes corporate heroes, seeing that rewards and recognition are fairly distributed to people achieving short term success as well as to those who pave the way for long term accomplishments.

The lean headquarters
While a common culture and shared values will help keep the organization on course, and well developed channels for lateral communication and coordination can relieve some of the upward pressure for decisions, downsized companies will still require some locus of central direction. While streamlining will not eliminate the need for headquarters staff, it can have a considerable impact on what they do and how they do it.

Large companies vary widely in the size and scope of responsibilities assigned to headquarters. Many still have hundreds, or even thousands of employees there. For some, especially those in a single business or several closely related ones that can be put under one roof, this may make sense. But others are finding problems as their large headquarters takes on a life of its own, almost as if it were an independent business. A vicious circle of one-way communications can emerge as headquarters tries to keep control of the divisions and plants; these often ignore their policies because they bear little relationship to the local situation. The usual response by headquarters, to the obvious or suspected deviations from company policy, is to redouble efforts to control the local units. Eventually these efforts dominate the communication channels and agendas of discussion between headquarters and field managers. Little room is left for consideration of customer needs or competitor's moves. The way around this morass for an increasing number of companies is increased delegation of responsibility for operating performance to locally based executives. And a strong restriction on the size of the central office.

A number of companies have managed all their operations with less than one hundred people at headquarters. Dana Corporation sells over $3 billion annually with a Toledo, Ohio, staff of 85. And these headquarters personnel are activists, not just consolidators of data. When an opportunity to purchase the Warner Electric Brake and Clutch Company was spotted the staff went into action. The chairman, Gerald Mitchell, approached the Warner top management directly, telling his colleagues: "I didn't need an investment banker to do that. We understand that company's business pretty well." His staff negotiated the deal, paid a modest premium over the listed stock price, and saved a million dollars in investment banker fees. Another mid-west based corporation, the Marmon Group (owned by the family that controls the Hyatt hotels and Braniff airlines), has a strong aversion to top heavy corporate staffs. Its multi-billion dollar collection of 75 companies is run by some very busy senior executives and between 80 and 90 at headquarters, including secretaries. As it tripled in size, only 35 were added at the Chicago home office. The functions represented there include three operations-oriented vice presidents who help the chief executive monitor the companies, three corporate controllers, and small units for communications, human resources, public relations and taxes. There is no planning staff and Marmon's president, Robert Pritzker, feels they would only be counter productive: " We don't have a staff of business analysts in our headquarters, the way most companies do to analyze capital programs. Those financial people can only crunch numbers. They can't add any original thinking. They don't know anything about whether a new piece of equipment would work or whether there is a market for a product." Pritzker makes these equipment and product decisions by closely interrogating the operating people who are proposing them. He pays as careful attention to the thought process used by the operating managers to rationalize an expenditure as he does to the numbers themselves. He realizes that numbers are always soft until they become historical records, so as much time is spent judging people as goes into quantitative analysis of business plans.

At CSX Corporation even fewer workers and executives are based at its Richmond, Virginia, home office. They are supported by a heavy investment in computer information systems and telecommunications links to coordinate the activities of this transportation megacarrier. A novel form of decentralized functional organization has been installed to put all marketing responsibilities under one roof, and all operational ones under another. Both "roofs" are kept outside headquarters. This eliminates the extra corporate bureaucracy that would result from CSX functioning as a holding company with self contained units for each of its individual rail, shipping, pipeline and trucking operations. But it still provides a strong measure of operational integration that railroads formerly had to achieve by monumentally sized headquarters staffs. Another railroad turned megacarrier, the Seattle based Burlington Northern Corporation, has also followed this philosophy of organization. Less than 100 people in Seattle provide, through three departments, the direction for the entire organization. These units are finance and planning, law and corporate affairs, and human resources.

U.S. West, one of the regional telephone companies created from the Bell System split, maintains a 100 manager headquarters by keeping them focused on shareholder-related concerns while its operating subsidiaries concentrate on serving customers. Innovative single business companies can find ways to keep their central staff even smaller. The steel minimill pioneer, Nucor Corporation, operates with 15 (including clerical workers) at its Charlotte, North Carolina, headquarters.

Running a company with staffs this small requires special management practices. An important objective of them is to break down some of the traditional barriers that arise between line managers and staff professionals. Two tactics that have helped many companies lower these walls are:

- "Don't let them ever get too large,"

- "Don't let them ever stay too long in one place."

Both of these require involving the line organization in doing more of what has been traditionally considered staff work, and in at least one case, giving the headquarters staff executives some line responsibilities.

At TRW the rule has long been, as it is in the companies just mentioned above, to limit headquarter's size. Rather than concentrate power, efforts have been made over many years to delegate it to middle-level line executives. If you talk to one of them you are likely to hear: "It is my responsibility to find ways to grow this business ­ not ... [the chairman's], or ... [the president's], or... [my boss']." Great pains are taken not to legislate anything out of corporate headquarters. Staff vice presidents exist for company-wide issues such as productivity, quality, technical resources, manufacturing, material and information systems, just as they do in many similarly sized companies. The main difference lies in how these officers get things done. They tend to have very small groups to back them up; rather than build headquarters empires they are expected to get their work done by deputizing line managers. They are expected to serve as true catalysts, not dictators. They themselves frequently team up to pool talent on issues that cut across their specialties.

For example when TRW was concerned about developing productivity measurements that could be applied across its diverse business units, one of these vice presidents was given the overall mandate. He recruited a team from among the other staff officers and outside experts. The group's first job was to start building communication networks with line managers throughout the company , not to study the subject in depth themselves. A steering committee of top executives to direct demonstration projects was appointed. Several councils made primarily of divisional managers were then set up. They developed potential productivity measures and initiated projects in their divisions to test them. They also spread the results of their tests, and those done by the other divisional councils, throughout their groups. The staff vice presidents did most of their work behind the scenes, providing inputs and keeping each council aware of the other's projects. The result, a slow-to-analyze but quick-to-implement process. It was also one that built commitment to an important issue where it counted most: among the mid-level line managers.

The bulk of TRW's staff employees are distributed among the divisions. This way those who are paying for them have more of a say in how large they are and what they spend their time on. Staff specialists are sometimes rotated among the divisions to spread ideas developed in, say the Cleveland human resources function, to the personnel department at Redondo Beach, California. Also it is common for line managers, before being promoted to senior general management slots, to spend time in a staff function to broaden their development. Finally, it is worth considering a practice TRW has pioneered to do technological forecasting. Rather than setting up a large headquarters group to do trend analysis, or continually fund large outside research projects to predict which new technologies will be practical when, TRW started in the 1960s to pick the brains of its in-house experts. Detailed rosters were prepared of all scientists, engineers and managers on the payroll. They indicated what their technical specialties were and who was most likely to be keeping up with developments in what fields. Then panels were selected, each with a dozen or more "experts," to cover the technologies of most interest to TRW. Each would be asked, delphi style, to predict when breakthroughs may occur or new technologies be commercialized. The results of these periodic surveys would be analyzed by a small headquarters group and the results spread around the company for use in individual division's business planning.

While TRW has achieved good results by not letting headquarters staff size grow to the point it is doing what line managers can do better, IBM has significantly lowered the line-staff wall by continually moving employees across it. This is made possible by the cross-training that helps keep IBM's no-layoff practice workable. A normal career progression will have many managers doing tours in both staff and line jobs. This is a great way to be sure each perspective understands well the needs of the other side. A staff manager may be more reluctant to add a new rule which will make his day go quicker, but lengthen that of the operating managers when he knows he is likely to occupy one of their slots in a year or two.

Some companies have avoided this kind of rotation because they feel they will end up with second class staff experts, out of touch with their fields. This is more of an excuse for not carefully managing their peopleflow than it is a fair reason for avoiding well prepared rotations. IBM, and a number of other companies that work hard to keep from developing narrow staff specialists, have found there are many other ways to keep abreast of changing fields in addition to expecting employees to spend their entire careers in them. Consider the compensation and benefits speciality, an area in which IBM is considered among the most proficient companies in using it to support the company's strategic direction. Compensation is frequently considered the most technically complex part of the human resources field. But at one point, almost half the corporate staff in compensation were no more than eighteen months away from holding management positions in IBM's operating divisions. And the head of the department, IBM's senior compensation expert, started his career there as a typewriter salesman.

Another reason some have avoided staff-line rotations is they feel if they move a staff expert into an operating position all the expert's specialized knowledge is lost to the company. Not completely; the person is still on the payroll and available to advise and consult. Even more important, by spreading staff know-how and perspective into the line organization it just may be possible to get by with a smaller, less adversarial staff bureaucracy. Creating this kind of organization has its costs in increased training budgets and more time spent deliberately planning individual's careers. But the real issue is, are these expenses worth the benefits a streamlined organization will bring?

Xerox has successfully found a middle position between IBM's extensive staff-line rotation and TRW's efforts to get line managers doing staff work. It works hard to see that its headquarters staff managers have some line management duties as well in an area of critical competitive importance: insuring customer satisfaction. The title of "officer of the day" is rotated among all central staff officers, each has it about a day a month. The person holding it is responsible for handling, personally, all customer complaints that reach headquarters that day. This executive also follows through to see that they have been eventually resolved. On a longer term basis, each headquarters manager of director rank and above, in addition to his regular duties, has some account management responsibilities for key Xerox customers. For example, the Director of Personnel Administration is also charged with working closely with the Xerox team that serves the Florida state government. He visits purchasers of Xerox equipment in Tallahassee and reviews copies of sales reports and customer satisfaction surveys.

All of these practices, and many others, can help keep headquarters small and the company on track. But even more important are the fundamentals of running lean: managing the post-downsizing transition well, selecting a new breed of manager when necessary, giving them broad charters and new tools, and learning to use culture to manage, not just rulebooks and staff police. Maintaining a culture that will work this way requires incessant training, for both managers and those managed. Running a lean and mean company puts its chief executive in a position similar to that of the Roman emperors two thousand years ago described by author Anthony Jay:

" One reason why the Roman empire grew so large and survived so long ... is that there was no railway, car, airplane, radio, paper or telephone. Above all , no telephone. And therefore you could not maintain any illusion of direct control over a general or a provincial governor... [nor could you] fly over and sort things out if they started to get into a mess. You appointed him, you watched his chariot and baggage train disappear over the hill in a cloud of dust... and that was that. If there was a disaster you would know nothing about it until months later when a messenger came panting up from the port of Ostia or galloping in down the Via Apennina to tell you that an army had been lost or a province overrun. There was, therefore, no question of appointing a man who was not fully trained, or not quite up to the job; you knew that everything depended on his being the best man for the job before he set off. And so you took great care in selecting him; but more than that, you made sure that he knew all about Rome and Roman government and the Roman army before he went out."


© Robert M. Tomasko 1987, 1990, 2002

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