Magazine article Management Review

Play the COMPANY Way? : Market Forces May Compromise Employee Loyalty

Magazine article Management Review

Play the COMPANY Way? : Market Forces May Compromise Employee Loyalty

Article excerpt

The New Deal at Work: Managing the Market-Driven Workforce by Peter Cappelli Harvard Business School Press, 1999 320 pages

Why do companies exist? That question has puzzled economists since the 1930s, and with good reason. In a pure market economy, there should be no place for companies. They operate as little command economies, floating in a sea of market relations like lumps in buttermilk.

Think about it. Within each company, resources are allocated not by price, but by decree. Workers are compensated not according to their productivity alone, but also by how long they have been part of the firm. Loyalty is rewarded with lifetime employment for the "organization man," sweetened by the prospect of steady advancement through the middle and upper management ranks-the occupants of which form a kind of nomenklatura that monitors all the activities of the company.

That's the classic industrial company, the kind that began to appear around the turn of the century and whose existence has so mystified economists.

Sounds almost like socialism, doesn't it?

And like socialism, it's just about extinct.

Since the 1980s, new management techniques, such as profit centers and benchmarking, have brought the market inside the company. Information technologies have taken over the monitoring and coordinating functions of middle managers, resulting in a flattened corporate structure. As outsourcing and subcontracting have become common, job security has declined dramatically. What motive is there to stick loyally with one company anywayto "play it the company way"-when there's no longer any hierarchy to rise through at ever-increasing pay? The employment relationship, which used to be like marriage, has become more like serial monogamy.

With market forces increasingly prevailing inside companies as well as among them, one would expect greater efficiencies, reduced costs and quicker product development. One would also expect new tensions and dislocations- the kind that Peter Cappelli ably anatomizes in The New Deal at Work.

According to AMA surveys cited by Cappelli, employee morale, especially among middle managers, declined noticeably at companies that downsized in the late 1980s and early '90s. Oddly, the surveys showed that employee productivity at these firms rose or held steady.

Some have taken this to mean that the "happy worker" model of employee performance-that mainstay of business school coursesis no longer valid. But Cappelli points out that the early downsizing took place at a time when jobs were scarce and unemployment high. …

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