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JUL 29 1982




MARCH 17, 1982


Thomas A. Barocci*

W.P. #1300-82

April 28, 1982






MARCH 17, 1982


Thomas A. Baroccl*
W.P. #1300-82 April 28, 1982

♦Associate Professor, Sloan School of Management,
Industrial Relations Section, Massachusetts Institute of Technology


Thank you for the opportunity to speak, here today. American
industry and its managers have felt battered in the domestic and
world economic environments over the last decade. The so-called
"crisis in productivity" has a long history, but came to the
forefront of industrial concerns about the time of the first Arab oil
embargo in 1973. Following this, the interest rate rise and
leveling, commodity shortages and international competition with our
mature industries, such as steel and autos, have exacerbated the

American firms have taken actions to respond to their weakened
position. To begin with, the responses can be divided into the
long-term strategic and systematic responses and the short-term ad
hoc responses. At the outset, let me say that regardless of how
enmeshed they were in a crisis, those firms which have taken a
strategic and systematic view have been more successful.

Overall, a strategic and systematic method of addressing the
need to increase the efficiency of a firm without sacrificing the
quality of the product or service offered requires that everyone
within the firm be involved in the formulation and execution of the
productivity enhancement program. The business plan and the changes
that have been proposed at the top of the firm are only the beginning
of the work for top management. They must then systematically obtain
the cooperation, literal and judgmental, of the division managers,
plant supervisors, foremen and direct labor. Everyone must work in
concert; the firm's efficiency is greater than the sum of its parts.

Also, it is noteworthy at the outset that the firms with the
best and most successful programs for increasing

0744-: r:o


their efficiency have "banned the naysayers." Those who immediately
take a skeptical attitude, those who point out the reasons why not
and those who believe that change is too difficult to bring about and
not worth the effort have been asked to step aside. After
quantification, to the extent that it still has credibility,
management judgment must reign again ; this is the reason for the
existence of management in the first place. The pointing contests to
assign blame have stopped, and proactive forward-looking moves have
taken their place.

The genesis of the research I am reporting was quite simple.
Last -year a project was organized within the Sloan School to
investigate the way in which a group of the best US firms were
implementing their quality assurance and quality control programs.
Students at the Sloan School of Management are required to complete a
thesis prior to obtaining their Masters degree. In the spirit of the
profesional school that we are, the theses often have a practical
orientation. Thus several students, under my supervision, set out to
interview a wide variety of managers and executives, and then to
synthesize the empirically generated information with that offered in
the texts and literature. Out of this study came three basic

1. The Corporate culture was a prime determinant of the
quality assurance system in place;

2. Relationships with the Department of Defense had a
positive and extremely significant relationship with the
sophistication of the quality assurance system in place;
and L

3. "Quality is free" in an organization only from the
perspective of corporate staff, not plant and line
managers I

Over the course of this research we were told time and time

again of the need to research the development of productivity programs

and the measurement of productivity at the finn level. Responding to
this very real problem, with the financial support of several
companies connected with MIT's Industrial Liaison Program, I
organized a project to do just that. The companies we chose to
investigate ranged from banks to mature manufacturing firms, high
technology electronics companies, and small service companies - over
25 firms in all. Each firm was involved in a series of interviews,
with as many as 80 in one company to as few as two or three at the
top of other companies.

All of the companies perceived that inefficiency (low
productivity) within their organizations was a problem.
Surprisingly, according to the interviews, technology and lack of new
capital equipment took only ten percent of the blame. The remainder
was attributed directly and indirectly to people problems — mostly
the failure of managers to do their job, e.g., provide the systems
and leadership that would foster a productive organization. As one
executive relayed to me (quoting Pogo) , "We have found the enemy and
they are us."

The most important management action that is being (re)leamed
is the skill of management itself - the bulk of which centers on
people and process management. Before I go further into the
synthesis of the emerging formula and some examples, it is worthwhile
to discuss the "crisis."


We have a tradition of reacting to crises, which in some ways
has helped the energy crisis by providing a lot of hot air around the
boardroom, the Halls of Congress, the cocktail lounge and the living


room. These "crises" include: "Sputnik," "The Missle Gap," "Why
Johnny can't read," "Urban Bankruptcy," "Over Regulation" and the
like. These were, and in some cases are, very real. It is just that
in this country we build things up to life-threatening proportions
and then begin to assign blame.

We search for a single villain and a single answer. We produce
so many volumes and so many words that while some of us solve the
problem, some get bored and some go out of business. The anecdotal
evidence of our productivity crisis is real. The tire industry is
flat, the semiconductor business is being chipped apart byte by byte,
and the auto industry has embarked on a crash program to maintain
market share.

There are many theories (hypotheses) concerning the reasons for
the productivity crisis in America. Let's look at some:

1. "It's all the workers' fault" or "You can't get good help
anymore." The theory says that the unions want too much
for too little, that kids are too anxious, too
self-centered and have little respect for authority, and
that everyone is drinking beer in the washroom. It goes
on to offer that no one knows what a quality job is

2. "Its all management's fault," or "No one knows how to play
this game." This theory asserts that the MBAs, lawyers
and financial wizzards have taken over and that all is
done for the short-term bottom line. Rather than take
risks, the theory goes, American managers try a new
organizational chart or merge with another company. What
they don't try is new production processes, changes in the
corporate culture, or paying attention to employees.
Further the theory asserts that no one knows what goes
into production, since the top management did not come up
through the ranks; pleasing Wall Street or the bankers is
more important than pleasing customers.

3. "Its all Washington's fault" or "The devil made me do
it." The theory asserts that the government created
inflation and made everyone short-term conscious. And,
the government created regulations so that money would
have to be put into nonproductive equipment and things
like equal employment opportunity. This was, according to

this line of thinking, an example of the government giving
in to interest groups who want clean air, a safe working
environment and equal opportunity.

' 4, "Its all the foreigners' fault." This theory profers that
foreign governments are protecting their own markets while
pushing into the US with high quality, low priced goods.
What's worse, the theory goes, is that the countries that
are doing it were built up after WWII with our money.
What gratitude 1

5, "Its the American culture" or "The decline and fall of New
York." Since the days of the Puritans we Americans have
taken a liking to finding the blame within ourselves.
National heroes are rock stars, professional athletes and
assorted misfits, all of whom make a lot of money without
doing much work. We have a safety net, for the weak that
discourages work. Getting dirty and taking risks is
passe, the theory concludes.

These ideas are, of course, all right in reference to some
specific situations and, of course, all wrong, since it is easy to
find counter-arguments in any industry and many firms.

American labor can be the most or least productive in the
world. We have, after all, the most educated labor force, but one
that is often lacking in an understanding of the purpose of their
job, and how they fit into the organization, and worried about
whether they will have a job in the future. They do not need to work
harder, just smarter in a more secure environment.

American management has the ability to manage well and plan for
the future; the US did not become the most powerful economic power in
the world with a bunch of people who did not know how to run a
business in their time . But times have changed and management has
not adapted well. Still, we do have marvelous success stories of new
and expanding companies meeting and beating competition with a firm
and definite strategy executed with the full commitment of their

The government _is too big; the result of citizen demands

for protection from the whims and abuses of the free market.
Unfortunately, all of the business community must live with
regulations geared to the most serious and irresponsible offenders.
This is, however, changing as the sifting and winnowing, always a
part of government involvement, takes its toll in the form of
unnecessary regulations and controls.

Foreign competition is a factor, but it has never deterred
American development in the past and is not likely to do so in the
future. We must act on our comparative advantages. If a foreign
government wants to subsidize the supply of a cheaper and higher
quality good to the American consumer, we should not lament. A trade
barrier is only a short-run placebo.

And finally, certainly the affluence of America is partly to
blame. Until very recently our young people were not going into
business if they could help it. Whose fault was that? At what point
did business begin to project itself as so solid and so sure that the
sheer adventure and satisfaction of risk-taking dissappeared?
Solidity and sobriety are great to attract a banker's attention, but
not so great at getting the best and the brightest into the business
world. Business could use the spunk and idealism that is present
deep down in the youth of America.

All of the above are either general or anecdotal hypotheses
about the way in which the American economy operates. Averages tell
us little about firm-specific problems; and anecdotes are, by
definition, illustrations that are not central to the issue.

It will do little good to dwell on whose fault it has been.
Rather, attention should be paid to how we can reverse the direction
and move forward with the confidence that fills our history. My work


with American firms tells me that they are not taking to heart the
anecdotes that indicate nothing substantial can be done, nor are they
viewing themselves or their workforce as average.

Following are some program examples that I have seen in

Program Examples

As I noted at the beginning, those firms that are most
successfully increasing productivity of their organization have taken
a strategic approach. That is, they are looking at improvement from
a broad point of view, encompassing all internal and external
functions of the firm, and emphasizing not only cost savings, but
also quality, dependability and flexibility. Moreover, the focus and
measurements include direct, indirect and managerial employees, and
the payoff is expected over the long term. In short, they have a
strategic approach that turns on a view of the organization that can
best be described as organic .

Program concentration centers on human resource issues, more
than on automation. This emphasis is, I believe, partially an
artifact of current high interest rates. Money for new investment is
expensive; programs and incentives for the firm's human resources
have lower initial investment costs and potentially high payoffs.

Once the strategy is formulated and a systems view adopted, I
have found that the majority of firms have taken to appointing a
person within the firm who is usually referred to as the
"productivity czar." Ideally, this person is skilled in systems
management, industrial engineering, computer technology, robotics,
and human resource management; in addition, as a change

agent, he/she must have the negotiation skills of a diplomat. The
job description sounds quite similiar to that of the Chief Operating
Officer of the company. In fact, the job of productivity czar could
be called redundant, since this is, indeed, what top management was
supposed to have been doing all along.


All of the firms I have contact with have had ambitious
automation plans "on the drawing boards." Most of the systems fell
into the CAD, CAM and MRP realms. I must say that I have yet to see
an operating CAM system, although CAD is quite common in high
technology firms. Also, in those firms dealing directly or
indirectly with the Department of Defense I have found MRP systems
being installed; they take, I'm told, at least three years to become
fully operational. Robotics, on the other handj are often mentioned,
but "down the road." As one executive said to me, "We've had an
average $13/hour labor cost here, and my financial wizzards tell me
that even if we have to rebuild a robot twice over its life span, it
will still cost only $5/hour in total; we, of course, have robotics
in the future."

Also, a great number of firms had plans to install personal
computers (micros) for their executives and managers to utilize as
decision support aids. This too requires a long time frame, since it
requires a great deal of education and close cooperation between the
DP department and the functional areas that will utilize the
systems. This connection is still, unfortunately, in its infant
stages. As the use of information systems becomes more and more
driven by those who use them (the functional areas) rather than those


who supply them (the DP or IS department) decision support systems
will be more useful and utilized.

Also, I have found that DP departments are beginning to utilize
higher-level languages in anticipation of great increases in the
demand for decision support systems. For example, Fortran IV or
ANSI, in conjunction with newly developed reporting systems such as
IMPS (Information Management Processing System), can be a highly
efficient method of tailor-making reports for top management, and a
way for top management to tailor-make their own reports in the future.


People-related programs dominate the productivity enhancement
scene. A few examples will illustrate:

1. Controlled Maintenance System (CMS). This is a simple
program Installed in a company that had a large machining
department. It is based on the truism that machines do
not break down all at once, but gradually. Thus, all
operators were asked to spend one hour each week checking
machine tolerances. During the first year, down time was
reduced a full percent.

2. Production Activity Monitors (PAfls). Although initially
these monitoring devices look like Fred Taylor housed in a
microprocessor, they have been successful in monitoring
output and throughput on electro-mechanical assembly
operations. The objections to having production
continuously monitored disappeared in one particular case
when a small program was added to the PAM that immediately
showed the bonus earned up until that point in the week.
It is also worth noting that the best production workers
were most enthusiastic about the system.

3. Quality Circles (QCs). There is no doubt that this idea
has caught the eye of American managers. Tapping the
workers' knowledge of the processes and possibilities for
improvement in production makes sense. The educated
American workforce operating in a group problem solving
situation simply has to have payoffs. There are cautions,
however; QCs cannot just be "parachuted" into an
organization that has not had any group interaction
before. People must work in groups to solve problems


within a culture where their jobs are secure and where
they are aware of the delicacy of the process needed to
change an organization. It is noteworthy that production
groups have been part and parcel of gainsharing plans for
over 30 years in the US. Most notable is the Scanlon
plan, currently in operation in over 300 American

4. Quality Control Circles (QCCs). I differentiate QCCs from
QCs, since the former include a component that offers
attention to the training of workers in basic statistical
methods, so that they can spot variances on the line.
This is the real idea behind the programs Dr. Edward
Deming installed in Japanese manufacturing. It seems to
pay off in the US as well.

A final word about QCs and QCCs. There is a great deal of
reseach, particularly in reference to engineering and
development groups, that indicates clearly that any group
effort has a productive half-life. Those who have
installed or plan on installing QCs or QCCs should
seriously contemplate a rotating membership, possibly
every six to nine months, to keep the spirits and ideas
coming. Moreover, connecting an incentive system with the
cost savings that result should be seriously considered.
Finally, a word of caution is in order. QCs and QCCs must
be set in a place where the culture is suited to them.

5. The Book. In conjunction with QCCs, one company has added
a large "bible-sized" book v/ith blank pages to each
production area. Any employee can write a suggestion or
idea in the book and management must respond, in writing,
within 72 hours. After the initial playful period, the
results have been very encouraging.

6. Turnover Reduction Programs. Virtually all of the"
companies with a long view have taken the turnover problem
seriously. This issue is particularly important for those
in firms that utilize computer professionals. The costs
of turnover can be astronomical, especially v.'hen one
calculates the direct and indirect costs. In one firm,
three of the top 13 professionals in the IS department
left within a one year period. The cost of replacing them
and bringing the replacements up to full productivity was
almost $300,000. This brought top level attention to the
establishment of career paths and other long view
personnel programs.

7. Less Management, More Productivity (MMP). One
electronics company has cut their plant level supervision
by 25 percent and pulled the workers into the process.
The first six months showed a 10 percent output increase
with no quality decrease. Impressive, and really quite


8. Treat Your People Like Machines (TYPLM). In this

particular company the computer department decided that
they would offer the employees the same kind of day to day
attention and long run updating as they did their
computers. An interesting concept. No results as yet,
but it fits quite well with the turnover reduction method
of increasing corporate productivity.

There are many other examples of programs currently in place in

the corporations with which I've had direct dealings. A summary of

systems, programs and structures will be forthcoming through the MIT

Industrial Liaison Program, later in the year.


A word on measurement is in order. Many believe that
measurement is difficult, if not impossible, for knowledge workers.
I completely disagree with this assertion. Most measurement efforts
become bogged down when the question is asked about comparability
across companies or company divisions. My response is that
comparability is not necessary. Productivity measurements are a tool
for management within an organization. If the persons who are going
to be gauged by the internal mesurement are intimately involved in
its formulation there is, in my experience, no problem at all. The
measures can be ratios, metrics, awards, patents or anything else
that is considered important to the group. The point is quite
simple. The best and the brightest usually do like to have a goal, a
measurement of progress.


Finally, I would like to offer you a list of the 10 factors
that I have seen to be the most important ingredients in successful


efforts to increase the productivity of a firm. These are not in
priority order, nor do they offer a guarantee of success, but they do
offer the beginnings of a formula.

1. A learning attitude was present in the companies. A
willingness to listen and learn from other US and foreign

2. The firms are positive risk-takers , and have a long view
for returns.

3. A strategy for the firm and its business units was in
place. The strategy includes human resource management

4. A systems view is present. The firm is viewed as an
organic entity and all employees and processes flow

5. Investment in education and training was foremost on the
company's priority list.

6. People management is explicitly rewarded.

7. Productivity is measured for all in the organization,
usually by groups.

8. Groups are used for suggestions, decision making and

9. Quality and productivity are viewed together .

10. The culture of the firm is explicitly identified and
written down for all to see and refer to as strategy is
being put together.

In summary, let me say that my optimism increases with each
company contact. American managers are convinced that they must, and
will be able to, regain world leadership in their industries.

The cup is, indeed, moving past the half-full mark.

(Special thanks to Jan Van Meter and Henry Erlich.)



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Online LibraryThomas A BarocciThe cup is half full : American firms react to the productivity crisis → online text (page 1 of 1)