an interview with Robert Schwartz, by Leslie Ehle
Robert Schwartz is the director of the Tarrytown Conference Center, which for many years has been the site of organizational development training programs of all kinds. From this perspective, he keeps close tabs on emerging trends in the business world (as well as instigating some).
Leslie: Over the time that Tarrytown’s been in existence, what have you seen happen in the business community?
Robert: The business community has clearly grown more sensitive to those things that interest people. Things like organization development and the organizational transformation movement. I’m interested in a little pamphlet (Baby Boom II Comes Of Age, Clear Glass Publishing, Box 257, Bodega, CA 94922, $5) put out by Michael Phillips, the guy who wrote The Seven Laws of Money (Random House, 1974), in which he talks about the population bulge as being like a sheep swallowed by a python – it gradually moves through the whole system. The population bulge that went to Esalen and places like that, that got involved in growth centers and the personal transformation movement has now gotten to organizations. As recently as the last six months we can do things in organizations that were Esalen- like things, group process things, that they would have been embarrassed about a year ago. They now ask for more of it, it’s changed that quickly. So things are happening in that direction. I just hope the intellectual content which they’re going to demand is equal to the emotional content which all of us know how to give.
Leslie: What do you see as the paradoxes that are shaping business right now?
Robert: I think the big paradox is this: Every business must release more of the creativity of the people who work there. As we move from repetitive, industrial-type jobs to creative, information-laden high-tech and more thoughtful work, you can’t do it with that fraction of a person who used to be used at work with the rest left at home. You have to use the whole person. Yet nobody knows how to control an organization in which everybody is urged to be his/her whole self. Organizations couldn’t do it when they used to send a few people to sensitivity training – those few then came back and blew the whole joint apart. Now you’re saying everyone in the plant has to be like this or we aren’t going to win. If they don’t do this the guy next door who figures out how to do it will steal the market because he has tapped all that latent energy and potential of the people who work for him. So businesses are in a bind: It’ll kill you if you let everybody run free in your plant, but you’ll get killed in the marketplace if you don’t. That’s the paradox.
THE KEY ISSUE facing organizations today, as Robert Schwartz describes in the above interview, is how to combine empowerment and coordination. If people are to be more productive and effective, they need to make more use of their full human potential, they need to feel motivated in their work, and they need to be able to respond to opportunities and changes as they happen. This suggests considerable independence, yet today’s complex activities also require a great deal of interdependence, specialization, and coordination. It does indeed seem like a paradox, but there are signs that it is being unravelled, as the following examples illustrate.
The Mondragon Cooperatives in the Basque region of Northern Spain are probably the world’s most successful group of employee-owned private companies. Their system encompasses more than 20,000 workers in 85 industrial cooperatives, as well as a bank (one of Spain’s largest) and a major research institute (see IN CONTEXT, #2, Spring 1983). To create their remarkable system, they began by redefining the usual rules of ownership to give it a more democratic character. Every employee must contribute significant capital ($5,000 or more, treated formally as a loan), but control and profit sharing are based on working involvement, not the size of each employee’s investment. The board of directors is elected on a one-person/one-vote basis. On the other hand, the day-to-day operation of each cooperative uses an (at least partially) conventional management system that gives managers clearly defined real power. At the production level, however, they work often in self-supervised teams. They have found that, to maintain a close community feeling in each cooperative, it is necessary to keep the size of each group under 500 employee-owners. The relationship between cooperatives within the federation is in some ways like divisions in a large corporation and in other ways like independent units in the marketplace.
Kollmorgan Corporation has turned corporate decentralization into a resounding success. It is a collection of sixteen semi-autonomous divisions that manufacture printed circuit boards, specialty electric motors, periscopes, sophisticated electro-optical equipment, and related products. It has about 5,500 employees and annual sales of $350 million. While not as deeply innovative in its structure as the Mondragon Cooperatives, it is remarkable in American business for the effectiveness with which it has decentralized decision-making and built team spirit. From 1970 (when it gave up on its previous attempts at centralized control) through 1982 its sales grew by a factor of 8, yet all this was overseen by a corporate staff of only 25. The basic organizational unit is the product team (typically about 50 people), which has almost total control over the making and selling of their item, and which receives profit-sharing bonuses based on that product’s performance (thus bringing direct marketplace feedback to everyone in the business). Overall, Kollmorgan distributes about 1/3 of its pre-tax profits in such bonuses. Each division, whose size is kept below 500 employees in order to maintain a family atmosphere, is made up of product teams that can share overhead and equipment. Each division’s board of directors is made up largely of top executives from the other divisions – peers rather than organizational superiors – and decisions are made by consensus. Within each division, monthly "People Meetings" give all employees a voice in running the business. As part of their regular annual review process, employees evaluate their supervisors. While Kollmorgan does have a chain of command, its levels are few, status differences are kept to a minimum, and most decisions are made at the team level.
W.L. Gore & Associates goes even further with no formal ranks or titles at all. Best known as the makers of Gore-tex fabric for rain gear, they also produce a wide range of other products from medical supplies to electronic components to systems for desalinating water and recovering waste oil. Started in 1958, the company now has 4,000 employees, or rather, associates in 30 plants around the world and annual sales of over $150 million. They call their system a "lattice organization" (see below for founder Bill Gore’s comments on how it works). When a new associate joins the company, s/he is not assigned a job. Instead s/he wanders around (with friendly help) until s/he finds something that needs doing (not hard to find) and that s/he wants to do. This generally means becoming part of a work team (or creating a new one) in which an already established associate will act as a sponsor (not boss) for the new employee. New teams are formed whenever a group of associates has a new direction they want to go in. The leadership within the group is not assigned but comes from whatever natural leadership develops. Objectives are set by those who must make them happen, and tasks and functions are organized by commitments between the associates. Pay is set by compensation teams with sponsors acting as advocates for each associate. Associates (including the Gore family) own 90% of the company stock (although without the full employee-ownership structure that Mondragon has), with each associate receiving annually stock equivalent to 15% of their salary. As Bill Gore explains, each plant is kept small to maintain a "we" feeling. The relationships between the plants is a combination of community and marketplace.
Intrepreneuring is not the name of an organization. It is a way to bring innovation into large organizations by encouraging the development of small teams than can operate with almost entrepreneurial freedom. In his book, Intrapreneuring, Gifford Pinchot III describes an intrapreneur as someone "who takes hand-on responsibility for creating innovation of any kind within an organization." For intrapreneuring to work, intrapreneurs must be self-selected, they need to be allowed to follow through with their project, and they need to be able to make most of the decisions about its development. The organization needs to provide them with guidelines to work within, resources and patience. One of Pinchot’s most intriguing suggestions is that successful intrapreneurs be rewarded with "intracapital" – effectively an internal bank account funded from the profits of the intrapreneur’s successful innovation and available to that intrapreneur as capital for future projects. Such a system would convert today’s centrally controlled corporations into confederations of innovative teams backed-up and held together by various support staffs.
While there is a lot of diversity within these (and similar) examples, there are also some strong common themes. The keys seem to me to be:
Size Again and again, the message comes through that effective working units must be small enough to maintain a sense of family, of "we." Whether the upper limit to this is 200 or 500 may depend on the specifics of the situation, but there is no question that somewhere in that range is a very important human systems natural limit. Organizations can be larger than this by federating these units together, but it is essential that each unit be empowered to make most of its own decisions and that it get direct feedback from the market it serves.
Appropriate Leadership All of these organizations are held together more through leadership than through tight management. This leadership creates a social architecture within which the business lives rather than attempting to dictate what each employee should do. It emphasizes vision (rather than commands), clear and open communications and procedures (kept simple enough to be effective), trust-building integrity, and a clear confidence in people. These four qualities closely parallel those described by Warren Bennis and Burt Nanus in their book, Leaders.
Appropriate Ownership and Control Although the degree varies among these examples, in each of them profit sharing and a significant voice in decision-making are crucial, unavoidable elements – essential for cementing the necessary alignment and we-ness. This is probably the most sensitive area of change, and the one that will be most vigorously resisted by the present business establishment both in management and on Wall Street. (I’ve noticed that most of the currently popular authors who are writing for a managerial audience about business innovation avoid it like the plague.) Yet, much to the credit of the competitive marketplace, this revolutionary change is moving forward both rapidly and peacefully. Those businesses in which employees do have significant ownership and control are simply so much more productive than the rest that the rest have to follow suit or die. (Inc. Magazine (p 77) quotes Frank Borman, President of Eastern Air Lines, on their reorganization: "But in all candor, we probably would not have given up a quarter of the company to the employees if it weren’t for People Express.")
In their own way, American companies are gradually evolving toward the pattern pioneered by the Mondragon Cooperatives almost 30 years ago. In the process, they are developing a wonderful richness of variation that adapts the basic principles to the needs of many different industries and to a diverse culture. At the same time, they are reinforcing the validity of these principles. It is looking increasingly likely that the large business of the future will look more like Mondragon or Gore than like IBM or GM.
When the python bulge (see Schwartz, above) wakes up to this issue, American business may finally come alive and able be to serve the planet. How long will it be before you move the business you are part of into this future?
by Bill Gore
Bill Gore is the founder of W. L. Gore & Associates. The following piece is excerpted with permission from transcripts for the video program, The Executive Edge. See Glossary and Resources in this issue for details.
I THINK THE THING THAT has enabled us to be successful with Gore-tex, and with some other inventions, is that we flattened the organization out, eliminated titles, created what we call a "lattice organization," and made an effort to enlarge the freedom of everyone in the enterprise to the maximum degree. We do have certain restraints. We have to work together and there have to be things like fair play. But the aim is to encourage and allow freedom, because this leads to invention, innovation, entrepreneuring, productivity and efficiency.
We have found we can do this best through teams. Our success, our very survival, depends on having created a society, a family, of teams. Many organizations have fundamentally forgotten how teams work successfully and have smothered many of the things that operate in an effective team. Removing those restraints, bringing out the freedom for teams to organize themselves is the real key, I think, to releasing this human resource.
I must tell you, however, that there are, in my opinion, some very serious limitations to this form of organization. You can’t do this in very large groups. The size of the group where I think it becomes difficult, and to some degree impossible, is the point where it isn’t any longer possible for everyone in the organization to know everyone else. This begins to happen somewhere in the range of 150 to 200 people. At about this number you begin to hear conversations change from we decided, we did, or we planned, to they decided, they told us. That is the signal that the organization is not together.
Sticking to this limitation of 150 to 200 in a team requires some special skill and determination. When a group gets to that 200 level, it is necessary somehow to break it up, to keep it from growing any more, and yet to reserve to the group the continuing possibility of growth and progress. From an accounting point of view this breaking up is always a stupid thing to do. The capital investment to go to another place, the building of all of the services, the utilities and all of the things you have to have is expensive in terms of capital investment. I suppose there are high capital investment enterprises where it just isn’t feasible to do this. It’s too bad, because it is a waste of the human resource to fail to do this.
We have some devices to help us and some mitigating procedures. One is that we don’t build our plants too big. We find that if we limit the size of a plant to about 50,000 square feet with about 45 desk spaces, perhaps 30,000 or 35,000 square feet of manufacturing, that it’s just very comfortable for about 150 people yet becomes crowded and difficult as the group size reaches 200. At 200, you have people stacked in offices and pushing against each other in the manufacturing space, and things just get uncomfortable. This discomfort aids in the impetus to break off a group, go next door or ten miles away, build a new plant, and move to it.
We do find that a group, a team of 150, can’t afford certain resources that in high tech operations you need. They can’t have an electron microscope, a high polymer specialist, a statistical analyst, a large scale computer, and all of those things. We find we can mitigate this by going to the plant cluster organization, where within about a ten-mile diameter we may have as many as a dozen small plants who can share certain kinds of technical specialists and equipment.
We have one objective, and this is to earn money and enjoy doing it. The enjoyment, the having fun of course involves the sociability, the parties, the celebrations, the friendships, the enjoyment of working on teams, but most fundamentally this is a feeling that what you are doing is worthwhile. It is a significant activity, your contributions are important to many people and they are recognized. In a sense, you know that you are being a hero. This is the motivating thing; this is the reward.
In addition to the agreement on our basic objective, we have four operating principles that guide us in our interrelationships and how we organize ourselves. The first of these is the requirement that every associate sincerely try to be fair – in our dealings with each other, with our suppliers, with our customers, with the people in the community where we live and work, in every interrelationship with other human beings. This is an absolutely necessary principle.
The second principle is freedom. Freedom is the source of innovation – invention, trying new things, and bringing about change and new projects. It is crucial to the long-term success of an enterprise.
The third principle is commitment. When you have commitment, and a culture that insists that you keep your commitments, you have a powerful organizational tool. Complex things can be done. They can be done between different cultures. They can be done between Japan, the United States, Germany, France, or wherever else.
Our fourth principle is the principle of the water line. We’re all in the same boat, and before any action is taken that might "hit below the waterline" – might cause serious damage to the enterprise – we have to consult with our associates and obtain their agreement.
I would like to make the point that people given freedom, and the necessary creative restraints on freedom, become unbelievably enthusiastic, and unbelievably energetic, and unbelievably creative, and do accomplish things that are, to me, inconceivable. Our problem is not opportunity, our problem is not finances, our problem is our capability of bringing in new associates and getting them oriented and going in the kind of organization we have. I think I can summarize this by a sign that I saw in our Flagstaff plant recently: We are confronted with insurmountable opportunities.