August 1996 € Volume 6 € Number 8

Corporate Responsibility And The New Math

By Sidney Harman, Ph.D.
Chairman and CEO
Harman International Industries, Inc.


The colloquy about corporate responsibility has reached a high level of intensity. Wall
Street seems to reward downsizing while responding negatively to efforts to avoid it. The old math says that fewer people doing the same work produce a better bottom line. That's good for shareholders. My math suggests that it can work better another way.

All agree that to prosper in an exponentially more competitive world, manufacturers and service providers must continuously become more competitive. But since productivity practices, new organizational architecture and the encapsulation of traditional production line labor in silicon chips generate work force reductions, it follows that workers who participate actively in those programs are in danger of working themselves out of jobs.

Workers have been learning that lesson since the dawn of the industrial revolution. Then, speedups were the demon; today, it is a more complex set of activities. When jobs are threatened, work slows. "Work to rule" can become the antidote. However benign the program may be, for the individual worker, it can have the same awful effect: "I lose my job."

Experience at Harman International persuades me that, if workers are free of concern about becoming their own executioners, they can unleash levels of productivity of which we have hardly dreamed. That conviction drives a series of programs in our domestic factories. In Martinsville, Ind., where we manufacture high-fidelity systems for the automakers, we have a union-supported program called "Cost Saving Sharing." It establishes negotiated cost references for the work, on an individual or production line basis. If the worker does better than the reference, the savings are shared between the worker and the company. The program places control directly in the employee's hands. It may be more important during periods of decline than in periods of prosperity because savings generated this way can be the difference between survival and disaster for a company. The key, however, is that the program communicates management's respect for what the individual can contribute. It encourages innovation and worker participation.

This is no modest matter. In our book, Starting With The People, Daniel Yankelovich and I characterized the old workplace social contract as "less for less." The employer provided as little as he could under the law, and the employee reciprocated by delivering as little effort as he could without being fired. The new paradigm that we identified was a contract that proffered "more for more." More to the worker -- or from the worker. Such a social contract can be the core of a mutually constructive process at the office and in the factory. It speaks to a different mind-set and a new kind of math.

In Northridge, Calif., where we produce professional and consumer audio products, a program titled "OLE" reflects the new mind-set, the new social contract and the new math. OLE is a series of off-line enterprises that provide a reservoir of jobs into which our employees can move when they are displaced by technology, shortages of material or other disruptions. They stay on our employment rolls, there is no reduction in wages or benefits and they are, therefore, available as we need them. The program safeguards our substantial investment in our people. It makes them more secure in their jobs, and in the end, we believe that it generates a better bottom line. The reservoir of jobs is fully tooled and documented so that OLE can be invoked promptly whenever a layoff is necessary. The jobs vary from service (gardening, painting and security) to producing components and assemblies typically sourced on the outside, to converting scrap into useful product. For example, instead of discarding the millions of circles of wood we create as we prepare mounting baffles for our loudspeakers, we finish the circles in various ways including with high-gloss lacquer. Inexpensive clock mechanisms can be installed and the resulting wall-hanging clocks are used as marketing items and gifts to charities and hospitals.

We require all executives to work 18 days a year on various production lines so that they understand the nature of the work firsthand. Experience demonstrates that after a short period of hesitation or skepticism, our workers embrace the effort of the executives. The workers teach. The executives learn that in many ways, people working on production lines often know more about how to do it right than the manufacturing engineers who designed the process. OLE and similar programs in our company avoid the defects of guaranteed jobs and their paternalistic overtones. OLE does not merely "take care of them." It is highly dependent on them, and it teaches them new skills such as selling, installing and servicing our products.

In our plant in Indiana, the new social contract has seen productivity double. In 1991, each hourly worker produced approximately $165,000 of product annually. In the current year, each worker produces more than $321,000 of product annually. In that one plant in the same period, employment has grown from 512 direct workers to 710, and total annual sales grew from $85 million to $226 million. Thus, as productivity doubled, employment rose approximately 50 percent and sales almost tripled. That kind of activity might be titled "upsizing." It argues that the best way to release the enormous potential for productivity in workers is to create a climate in which we are in this together; one in which management truly cares. Management's fundamental responsibility is to increase job security by growing the business through the development of new products and new markets and, therefore, new jobs. In return, management can expect an enhanced level of participation and cooperation from the employees.

The particular program is less important than the mind-set. Some programs may be transportable from one company to another or from one geographic location to another. Some may not be, but I am convinced that the principles are universally transportable. According to my math, programs designed to increase job security can unleash enormous productivity. In the end, that is the best possible way to improve the bottom line and to enhance shareholder equity.
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