April 11, 2011

Management as the Science of Squeezing

Justin Katz

This interesting article by Matthew Stewart mainly questions the value of an education specifically in business administration, as opposed to, say, philosophy. Stewart notes two general management theories that alternate in emphasis in the popular mind, and this anecdote from the founding of one theory, indeed, from Frederick Winslow Taylor's invention of the field of management science, resonates with me, after my years in construction:

Taylor was forty-three years old and on contract with the Bethlehem Steel Company when the pig iron question hit him. Staring out over an industrial yard that covered several square miles of the Pennsylvania landscape, he watched as laborers loaded ninety-two-pound bars onto rail cars. There were 80,000 tons' worth of iron bars, which were to be carted off as fast as possible to meet new demand sparked by the Spanish-American War. Taylor narrowed his eyes: there was waste there, he was certain. After hastily reviewing the books at company headquarters, he estimated that the men were currently loading iron at the rate of twelve and a half tons per man per day.

Taylor stormed down to the yard with his assistants ("college men," he called them) and rounded up a group of top-notch lifters ("first-class men"), who in this case happened to be ten "large, powerful Hungarians." He offered to double the workers' wages in exchange for their participation in an experiment. The Hungarians, eager to impress their apparent benefactor, put on a spirited show. Huffing up and down the rail car ramps, they loaded sixteen and a half tons in something under fourteen minutes. Taylor did the math: over a ten-hour day, it worked out to seventy-five tons per day per man. Naturally, he had to allow time for bathroom breaks, lunch, and rest periods, so he adjusted the figure approximately 40 percent downward. Henceforth, each laborer in the yard was assigned to load forty-seven and a half pig tons per day, with bonus pay for reaching the target and penalties for failing.

When the Hungarians realized that they were being asked to quadruple their previous daily workload, they howled and refused to work. So Taylor found a "high-priced man," a lean Pennsylvania Dutchman whose intelligence he compared to that of an ox. Lured by the promise of a 60 percent increase in wages, from $1.15 to a whopping $1.85 a day, Taylor's high-priced man loaded forty-five and three-quarters tons over the course of a grueling day—close enough, in Taylor's mind, to count as the first victory for the methods of modern management.

Stewart goes on to note that the method apparently did not do much for Bethlehem Steel, and the experiment mainly benefited Mr. Taylor, who went on to teach at Harvard and become a sort of management guru. For my part, having long been very concerned with efficiency and proving my worth, I have to confess a shift, in recent months, toward the attitude of the Hungarians.

A carpenter I know who works for a custom woodworking company has the worst of two worlds: He is handled as a regular employee, meaning that corporate salesmen estimate the time that each project will take, but he is paid per project, not per hour. When the economy began to sour, the company simply reduced the amount of time that it estimated for each job. One day, installing a set of stairs was a two-day task; the next day, it was a one-day task.

I'm sure my employers aren't alone in having made a point of repeated reminders that their workers are fortunate to have jobs at all, in this economy, but I wonder whether the effect on employees mightn't be contrary to managers' intentions. Eventually, all workers will reach the point of suggesting that if such a pool of ready replacements exists (all certain to prove as competent and reliable as current employees), perhaps the boss should bring them in. With that attitude established, employers might be surprised to find that morale and personal dedication to the company weren't as high as they'd thought when things begin to turn around.

As the fatal flaw of Taylor's theorizing, Stewart points to the high degree of fudging that has to be done to make human activity estimable. Breaks, meals, health, motivation, and so on all affect outcomes. In other words, a stopwatch and limited-time experiment may tell the manager how quickly something can be done, but the relevant question is really how quickly it is reasonable to expect a particular person to accomplish a given task in specific conditions, and that's highly subjective.

The aforementioned building contractors believe it's reasonable to squeeze their employees in a recession, and it may, in fact, be. It depends on the justification for the squeeze. If competition has decreased the prices that he can charge, then pay decreases can be justified... and employees would understandably expect a resumption of their prior rates when prices go up again. If the employer's merely making a calculation on the amount of profit that he can claim for himself, then pay cuts are more apt to rankle.

Of course, the sort of management theory that Stewart describes above creates an ongoing battle entirely apart from wages. In construction it is especially noticeable, because the actual work is so distinct from the management and planning aspect of it, but a large portion of information technology's boon went to employers, who thereby gained access to workers around the clock, with weekend emails and lunchtime cell-phone calls.

One could argue, on the other hand, that technology has made it easier for workers to duplicate the activities of their employers, making it easier to go out and to compete. (The motivation is only stronger to the extent that employers don't respect the end-of-day bell as the true cessation of work.) In the long run, then, it may be the managers who find themselves obviated.

Workers know how long a task should take, in reasonable terms, as a matter of absorbed knowledge. If the rest comes down to timing and calculations, let a computer handle it.

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Taylor's authoritarian, manipulative theories were quickly discredited in business, but live on in government.

Perhaps the first anti-Taylor was W. E. Deming, whose books are a great antidote for Taylor poisoning. (But read his actual writings, not the twisted interpretations available on various left-wing, educational psychobabble websites.) Many great companies, large and small, in the last 50 years have proven conclusively that motivation works better than coercion every time. I would also recommend the stories of Semco, a Brazilian multi-industry company (look up Ricard Semler), and Springfield Remanufacturing, the company that originated "open-book management", a management method that I teach to clients.

Daniel Pink, with whom I do not much agree on politics, has an excellent set of insights on the management/motivation issue in his latest book, "Drive".

Posted by: BobN at April 11, 2011 4:32 PM

"We believe it is essential that all company communications, especially those intended for the workers or the public, be absolutely honest. All financial information at Semco is openly discussed. Indeed, our workers have unlimited access to our books (and we only keep one set). To show we are serious about this, Semco, with the labor unions that represent our workers, developed a course to teach everyone to read balance sheets and cash flow statements.

In restructuring Semco, we've picked the best from many systems. From capitalism we take the ideals of personal freedom, individualism, and competition. From socialism we have learned to control greed and share information and power. The Japanese have taught us the value of flexibility."

That's from Ricardo Semler's book; Maverick: The Success Behind The World's Most Unusual Workplace

Interesting Bob. Good post, Justin.

Posted by: Phil at April 11, 2011 6:12 PM

I think the Frederick Winslow Taylor example is a poor one, from another time with only an elemental understanding of things. The day of "time and motion" studies and "efficiency experts". It does open up the idea that business methods, and work practices, can be studied and improved. Once someone begins thinking about it "never handle anything twice" becomes "just in time delivery".

RE, the "open books" theory of management. This may work among "professionals", but production workers still tend to think of themselves as "wage slaves". An opinion fostered by popular culture. Still, everything has to start somewhere. Many workers focus on "final value" without considering "cost". I recall a Ford mechanic justifying the, then current, rate of $50 per hour with "Well, the car is worth $20,000". I think the dealers "bought this" too. I recall bringing my Mercedes into Foreign Motors West (outside Boston, Jay Leno's initial employer) about 20 years ago. Breaking all the rules of Mercedes dealerships, I got a look in the "shop". I noticed two things; Spanish was the predominate language (German manufacturers run large "factory schools" in Central/South America. We do not.), and on the wall was a sign with differing labor rates in the same shop. "BMW - $80.00, Mercedes - $100, Rolls Royce - $120".

Re, carpentry and "efficiency". I understand that since the invention of the nail gun, there are fives times as many nails in a house as previously. Granted, a hammer will do things a nail gun won't, such as "pull in". But, I wonder about the "efficiency" of this. Until relatively recent times (perhaps "efficiency" at work) most houses were enormously overbuilt, I never heard of one falling down for a lack of nails. If you think about it. the "strength" added by nails is chiefly in preventing slippage of weight bearing members. That is a matter susceptible to "scientific inquiry". With due respect to Justin, this has little to do with the "finish carpentry" he speaks of. More time has to be spent there dealing with "existing conditions" and "looking right".

The Japanese adopted the studies of Deming and Juran well before we did.

PS, I understand you cannot copyright titles. "Drive" is also the title of Col. Codman's (initially a wine merchant in France, later a real estate broker in Boston) book about his time with Gen. Patton in Italy. I wonder why Generals now appear in BDU's. Maybe it is a "hand's on", "hard at work" thing. Maybe it is the climates we now find ourselves in.

Posted by: Warrington Faust at April 11, 2011 10:22 PM

Warrington, I think you might be surprised. In fact, at Springfield the key to making OBM work was the value added by the factory-floor workers, who best knew how to do their jobs. A guy who grinds crankshafts knows exactly how much it costs to make one, what it sells for, and how many are needed this week to fill orders. Once they were treated like the adults and shareholders that they were, and given bonuses based on their contributions to improved sales and cash flow, they rose to the challenge enthusiastically. The union leaders were told by management, "We are doing this to avoid having to close the company. Either cooperate or watch all your people become unemployed." Faced with management's "intransigence and refusal to negotiate" (to translate it into Rhode Island terms) they stood aside.

Phil, Semler is a real character as well as a genius. He might say that he borrowed from socialism to control greed, but in fact he did no such thing. What Semler did was convert the corporate culture into one of partnership, in a way similar to Springfield. Nobody at Semco is paid on the basis of need, everyone is paid on performance. The extreme democratic decision-making is a process, one that ensures that people get paid what they earn and not a dollar more. Socialism does not work this way - it operates as described in "Animal Farm" or at Twentieth-Century Manufacturing in "Atlas Shrugged", using a top-down, authoritarian, centralized power structure that disguises its greed with high-sounding Marxist propaganda about altruism, self-sacrifice and the subordination of individual rights, to dupe the little people. Socialism is Marxist and is based on resentment and conflict. Business partnership is capitalist and relies on honestly contributing to value creation.

I teach businesses that in reality, they are partnerships, despite the corporate form. When the partners realize that they are able to share equitably (NOT "equally") in the wealth they create, they find new ways to create more wealth. Everyone becomes a capitalist, and their focus on doing the right things to create the most wealth is anything but socialist. At Semco, the owner (Semler) gets paid plenty in his share of the profits for being the owner and the company's leader.

It's like a bonus system I recommended to a bank once: allocate bonus pools to the teams who produced the deals and let the team decide how to split them up, with the proviso that nobody gets paid until the decision is unanimous. It's amazing how rationally the decision gets made when everybody has the same downside scenario.

Notice also that all of the employees are required to rise to the occasion and earn the partnership roles. Those who insist on class warfare across the management/labor line are forced out, not by management but by their colleagues. The unions are irrelevant, and there are no union contracts defining pay, benefits and work rules. Imagine the attitude adjustment that this would require in, for example, the NEARI and AFT, and it's totally, 180-degrees opposed to the Communist agitation at SEIU.

Note also that this only works in a for-profit enterprise, where people must realize that their personal income depends on their success in the company's mission. Everyone is aware that no profits and cash flow to the company means no profit shares and pay cuts for the employees. It would not work in an organization that is parasitic by nature.

There is nothing socialist about any of this, and there is no government involvement at all.

Welcome to the enlightened, modern face of libertarianism.

Posted by: BobN at April 12, 2011 6:09 AM

BobN writes:

" A guy who grinds crankshafts knows exactly how much it costs to make one, what it sells for, and how many are needed this week to fill orders."

I am not in disagreement with the theory, in fact, it seems obvious.
Those are attitudes I have noticed among older, skilled, manufacturing workers. I have also wondered if they represented the "cream rises" in the sense that they were more intelligent and became more highly skilled. I know tool & die makers who can discuss ADR's, but no such production workers.

You would hope these attitudes would "trickle down", but who you hire initally may be key.

"Atlas Shrugged, Part 1" opens this Friday in Providence.

Posted by: Warrington Faust at April 12, 2011 1:32 PM

An addendum. I am wondering about the effect of our current "bad times". When the economy was up, most highly skilled workers felt a sense of freedom. They were sure there was "always a job for them" and they could go anywhere. As a result, they tended to seek the work environments they preferred. I can see a Semco appealing to them.

Now, they see their jobs taking French Leave and heading for China. To say the least, they are forlorn. They see the time spent developing their skills as time wasted. I can see them wanting to be "Part of it".

Posted by: Warrington Faust at April 12, 2011 1:43 PM

Yes, by all means read what Deming said about education...

Never mind the method. Manage by Results. Wrong....

What is wrong? Numerical goals accomplish nothing. Ranking and reward of individual people, schools, districts, do not improve the system. Only the method is important. By what method? Unfortunately, these goals have been posted in schools, giving pupils and bad start in life--goals without method.

Posted by: Russ at April 12, 2011 4:10 PM

Once again, Russ demonstrates that he knows how to cut and paste, but not how to read or think.

Posted by: BobN at April 12, 2011 4:21 PM
Note also that this only works in a for-profit enterprise, where people must realize that their personal income depends on their success in the company's mission. Note also that this only works in a for-profit enterprise, where people must realize that their personal income depends on their success in the company's mission.

I think you need to rethink that one. I work for a nonprofit where my personal income still does depend on "success in the company's mission."

Posted by: Russ at April 12, 2011 4:23 PM

Please explain how that works, Russ. If your group obtains better or worse results, does it get more or less money, in the same way that a business's sales fluctuate?

Also, does your non-profit get its revenue from state-funneled tax dollars? If so, please explain how the value it creates relates to the amount of revenue it receives.

Posted by: BobN at April 12, 2011 5:34 PM

If I properly penetrate the Russ/Deming quote, I can see some point. At least as concerns schools, where I assume the point is scoring on standardized tests. As I recall, we called the ability to score well on those tests "regurgitation". It seems to spur memorization for "results" with little thought going to the "method" of learning.

A point is made there, but "pupils" will still benefit from the memorization of certain facts and other matters.

Now, "I work for a nonprofit where my personal income still does depend on "success in the company's mission."

Not to put too sharp a point on it, I thought that was the reason that "advocacy statistics" were invented.

Posted by: Warrington Faust at April 12, 2011 7:34 PM
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