Cooperative Corporate-Level Strategies and Divergent Labor Relations Outcomes: An Institutional Analysis

Smith, Suzanne Konzelmann, Journal of Economic Issues

Since the late 1970s, firms in most American industries have experienced increasing pressure from domestic and foreign competition. This pressure has generated changes in product markets, which, in combination with changes in technology, have forced them to rethink traditional ways of doing things. The result has been the restructuring of industries and companies and significant changes in the nature of work organization and industrial relations systems [Kochan and Cappelli 1983; Kochan, Katz, and McKersie 1986; Kochan, McKersie, and Cappelli 1984]. An important component of these changes is the belief that labor-management cooperation is an effective strategy for solving competitive difficulties and responding to change. Cooperation, it is argued, potentially benefits organizational performance through improved productivity, product quality, organizational flexibility, and responsiveness to changes in the external environment [Kochan, Katz, and McKersie 1986; Delaney, Ichniowski, and Lewin 1988; Arthur and Dworkin 1991; Konzelmann Smith 1995].

The role of strategic choice as an important determinant of industrial relations, and organizational performance has received widespread attention. In fact, industrial relations research is now dominated by use of a strategic choice theory that focuses on the choices available to parties subject to economic and technological constraints [Kochan, McKersie, and Cappelli 1984; Kochan, Katz, and McKersie 1986; Arthur 1992; Cappelli and Singh 1992]. As Kochan, Katz, and McKersie explain, "Industrial relations practices and outcomes are shaped by the interactions of environmental forces along with the strategic choices and values of American managers, union leaders, workers and public policy makers" [1986, 5]. This theory represents an improvement over past frameworks not only because it draws attention to organizational strategies, but also because it underscores the existence of three "tiers" of industrial relations activity: long-term strategy and policy making, collective bargaining and personnel policy, and workplace and individual organizational relationships. However, applications of strategic choice theory seldom devote much attention to non-management parties. They also give little attention to the mechanisms through which strategic choices affect outcomes and to the interaction of elements of systems. Consequently, most analyses do not account for cases where companies that are pursuing similar objectives and strategies realize diverse plant-level outcomes.

This article treats strategic choice as part of a broader productive systems framework that allows focus on these often neglected aspects of contemporary industrial relations.(1) It presents the results of a comparative analysis of two American steel companies that pursued similar business and industrial relations strategies that were implemented in workplaces organized by the same union, yet realized quite different plant-level outcomes. In one case, outcomes were consistent with objectives, whereas in the other, company tactics precipitated intense conflict in the plant.

This article also describes the methodology and analytical framework that guided the case studies. The approach taken is that of institutional economics, which served as the roots from which contemporary industry relations research evolved. Institutional economics seeks to understand the process and institutions shaping labor market and industrial relations outcomes; it differs from mainstream theory in that no optimal outcome is presumed.

Institutionalism is holistic because it focuses on patterns of relations among parts and the whole . . . systemic because it believes that those parts make up a coherent whole and can be understood only in terms of the whole . . . [and] evolutionary because changes in the pattern of relations are seen as the very essence of social reality [Wilber and Harrison 1978, 71].

Summaries of the two cases identifying the patterns of similarities and differences are then given. I then highlight the critical role played by non-management parties (e.g., the union, workers, and supervisors) whose own objectives and attitudes affected their response to change and consequently affected internal labor market and industrial relations system outcomes. I also illustrate differences in plant- and corporate-level strategic choices and the problems and resistance generated by their imposition on agents at the level of the plant.

Productive Systems and the Strategic Process

A productive system is any decision-making institution engaged in the process of producing goods and services for markets. Its primary objective is to create wealth for distribution among its various stakeholder groups. Constituent parts of the system include labor, the means of production (e.g., technology, materials, and services), the structure of ownership, and the structure of control. At a macro level, the productive system is a nested, hierarchical system in which the global economy constitutes the highest level in the hierarchy and the workplace the lowest [ILLUSTRATION FOR FIGURE 1 OMITTED]. While the focus of this study is on the corporation, conditions in the industry and national and international economies provide both opportunities for and constraints on the corporate-level strategic process.

Productive Relationships

Technical, social, and power relationships are embodied in each economic institution at every level in the system [ILLUSTRATION FOR FIGURE 2 OMITTED]. Technical relations of production are those required for effective production and distribution of goods and services and for efficient performance; they exist between the stages of production for particular products as well as between different types of human resources (e.g., managers and workers), machines, raw materials, and services required for each stage. Since one part (whether it be a stage of production or productive resource) cannot operate independently of the others, the failure of any to satisfactorily perform its productive role lowers the joint product of the whole, causing inefficiencies that lower the wealth-creating capabilities of the productive system [Tarling and Wilkinson 1987; Wilkinson 1994]. Thus, operational efficiency can be achieved only if the factors and stages of production work together or "cooperate." Social relations of production involve stakeholders at various levels in the system, including government, owners and shareholders, corporate managers, plant managers, supervisors, international union officials, local union representatives, team leaders or crew coordinators, and workers. The position of stakeholders in the system's hierarchy determines their relative power and control, which increases with movement up the hierarchy.

There is continuous tension between mutual and conflicting interests among stakeholder groups, which determines, in part, the effectiveness of the system in meeting the technical requirements of production. All stakeholders share mutual interests in the system's ability to operate profitably, but they have conflicting interests over the distribution of relative shares. Production is necessarily cooperative; distribution is competitive. Distributive conflicts also occur with regularity over perceptions. Accounting practices often disguise financial conditions; unions are not fully informed nor do they always understand the basis on which a set of financial data was created. Regardless of their source, internal conflicts have the potential to generate inefficiencies and impose costs on the system that hamper economic performance.

Productive System Change

Change in any productive system results from changes in its external environment that put pressures on the system to adjust [ILLUSTRATION FOR FIGURE 3 OMITTED].(2) Such pressure can arise from changes in public policies, product markets, financial markets and stock markets, external labor markets, or technology. It can also originate from within. For example, a firm may discover a new, more efficient way to organize productive relationships and choose to adjust in order to gain competitive advantages. Productive system change puts pressure on competing productive systems; if one productive system is successful relative to others, it gains market advantages that affect conditions in the external environment to which competitors must ultimately respond.

Whatever the cause, productive system adjustment involves complex interactions among technical, social, and political forces over time. Continual interaction and feedback among the system's constituent parts, as well as between the system and its external environment, characterize the process of change. Within these external constraints and opportunities, productive system behavior and change is largely determined by the interaction of objectives, strategies, and counter-strategies pursued by its stakeholder groups.

Strategy can be understood as the plan that combines various tactics in an effort to achieve a stated strategic objective. There are two dimensions to the framework for understanding how strategic business and labor relations objectives are translated into outcomes. The first is the strategic process [ILLUSTRATION FOR FIGURE 4 OMITTED]; the second is the role played by decision-making agents at various levels in the organization [ILLUSTRATION FOR FIGURE 5 OMITTED].

Objectives. According to Schumpeter,"Every piece of business strategy acquires its true significance only against the backdrop of that process (capitalism) and within the situation created by it" [1950, 83-4]. Companies develop their competitive business objectives and strategies both in anticipation of and response to environmental pressures. In the context of the firm, the ultimate objective is successful market performance for the firm as a whole, which includes productive and financial viability. If there is a union, its ultimate objective is institutional viability for the international union, which may involve achieving certain objectives required by its membership (e.g., stable employment and remuneration, satisfactory working conditions, and effective representation of membership interests) [Lester 1958]. Beneath these highest organizational levels are those located at the plant, where the primary objective of both management and labor is economic viability for the plant.

Strategies. Strategies are the plans developed in an effort to achieve objectives. In the context of the firm, competitive business strategies involve plans regarding the firm's competitive market position and its response to the external environment.(3) Industrial relations strategies concern the choice of policies regarding employment, the organization of work and responsibility within the firm, and plans regarding relations between the company, employees, and the union.(4) Competitive business strategies are interrelated with industrial relations strategies because the industrial relations system is both shaped by and affects the firm's ability to meet higher-level objectives.

Tactics and context. Tactics involve the specific methods by which strategic objectives are pursued; and different tactics may be used to pursue the same objectives. Their effectiveness is influenced by the context in which tactics are implemented, which might include management and labor force skills, values, perceptions, expectations, and objectives; history or past practice; current structures; current industrial relationships; and available resources. In the industrial relations literature, context is also …

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Publication information: Article title: Cooperative Corporate-Level Strategies and Divergent Labor Relations Outcomes: An Institutional Analysis. Contributors: Smith, Suzanne Konzelmann - Author. Journal title: Journal of Economic Issues. Volume: 30. Issue: 3 Publication date: September 1996. Page number: 797+. © 1999 Association for Evolutionary Economics. COPYRIGHT 1996 Gale Group.

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