How American Corporations Can Succeed in the 21st Century

By O'Toole, James; Lawler, Edward E.,, III | People & Strategy, December 2008 | Go to article overview

How American Corporations Can Succeed in the 21st Century


O'Toole, James, Lawler, Edward E.,, III, People & Strategy


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The Fallacy of "No Choice"

Based on what they say in their annual reports and speeches, corporate executives believe the success of their businesses rests heavily on the efforts, initiative, commitment and motivation of "our people, our most important asset" (Lawler, 2008). And it is likely that most major employers want to treat "their people" right. Further, in today's highly competitive global economy, treating people right would seem to be one effective way for American companies to make themselves competitive.

Nonetheless, American companies increasingly outsource and offshore jobs, cut employee benefits, substitute contingent or contract workers for regular or permanent employees, eliminate traditional career paths and reduce expenditures on training (Cappelli, 2008; O'Toole and Lawler, 2006). Corporate executives behave like they think the way to boost productivity is to reduce wages and operate by command and control.

Why the apparent contradiction between word and deed? The executives' stock answer: "We have no choice."

In a 2005 interview on MSNBC, Lee Scott, the CEO of Walmart, argued that his company has no choice in the working conditions it offers its hourly employees: To serve the desires of customers for the lowest-priced goods, Walmart's business model precludes offering higher wages, greater health-insurance coverage or more training to frontline workers. In 2003, when IBM announced plans to offshore the jobs of thousands of its American white-collar employees, the company's director for global employee relations explained, "Our competitors are doing it, and we have to do it."

In 2006, when Boeing announced it would offshore 60 to 70 percent of the components of its new 787 commercial jet, a leading aviation consultant explained, "I think the companies don't have a choice. If a company can go to China and get a widget for 10 cents and it costs $1 in the United States, what's the company to do?" And when the Delphi Corp. called on the UAW to renegotiate the contract with its 30,000 hourly workers--requesting wage and benefit give-backs on the order of 50 to 60 percent--the company's CEO said he had no choice: The alternative was bankruptcy, the loss of U.S. jobs and the forfeiture of pension commitments. Indeed, when the concessions weren't forthcoming, Delphi's CEO followed through and declared bankruptcy.

So it seems that many U.S. executives believe they are prisoners of ironclad economic laws that dictate no choice but to match the pay and working conditions offered by their lowest-cost, global competitors. In reality an increasing number of American organizations face this because they have painted themselves into a corner. At places like Delphi, decades of poor strategic choices and flawed labor relations have made it "too late" for managers to pursue other options but downsize, outsource or offshore.

But are all U.S. companies predetermined to suffer Delphi's fate? Do most top managers have no viable option but to lower their working conditions to the level offered by their lowest-cost competitors, or to offshore jobs? After a two-year review of hundreds of academic studies and company case studies, we are convinced that most U.S. companies can choose management practices that don't require low wages to make their companies effective competitors in today's global economy (O'Toole and Lawler, 2006; Lawler and O'Toole, 2006).

We found numerous examples of American businesses that have created a competitive advantage by adopting people-based business strategies. Harley-Davidson, Alcoa, Trek and SRC Holdings in manufacturing, Nucor in steel, Xilinx and SAS in software, Whole Foods and Best Buy in retailing, UPS in shipping and Southwest in the airline industry have done it. Each of these companies has significant labor productivity advantages over their competitors who, typically, pay their employees less and offer fewer benefits. …

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