|Issue No 106||10 August 2001|
2.2 The Information Organisation
Peter Lewis and Michael Gadiel look at how network technologies will change the way organizations operate in the Information Age.
The New Stage
In the Industrial Age most organisations were structured vertically, each process complimenting another to deliver the most efficient output. The organization itself resembled a production line - a logical series of steps in an engineered process. Network technology is changing this by taking many of the traditional cost incentives of vertical integration out of the equation. In its place we see a more disaggregated entity; where the old lines of production have been replaced by disperse networks of specialist providers, contracted from without to fill a specialist part in the production process.
We're seeing a narrowing of the bands of competencies that an organisation specialises in. The managerial principle of "core competencies" means that a company makes a decision about what areas they are to specialise in and then focuses its energies around these activities. The principle is that you do less - but better because you attention is tightly focused.
All other areas, that are "non-core" are outsourced to another organisation that specialises in those areas. As the digital revolution makes communication between organisations more cost effective, particularly over large distances, the issue of "control" is not as much of a problem. Instead of control you have constant interaction between the various collaborators.
The net result is the narrowing of the functions of organisations and a decline in the overall size of the average firm. People talk about working in "layers" of a process now, rather than owning lots of different components of the process. Take Nike, for example, it doesn't do its own manufacturing any more, it doesn't even necessarily do its own design work, its doesn't do its own retail or distribution, it only manages the brand and marketing. It manages, if you like, the customer relationship.
The same model is going to apply in every area of endeavour. Banks are the classic organisations that are open to attack because at the moment they are deeply vertically integrated organisations. What's happening now is that a whole series of services provided by banks are being outsourced. Commonwealth and NAB have already outsourced their entire IT functions - a pretty dramatic shift for the workers in those areas. They are being outsourced to specialist companies who maintain relationships with large organisations and do support work for them.
The Brand Manager and the Outworker
In the future you're going to see corporations employing people who are just brand managers, and who outsource virtually everything else. Yahoo for example, which is a pure brand play, doesn't have long tentacles into the production or delivery process. Instead Yahoo has 300 content partners who deliver content to the Yahoo Website to make it as good as it is.
You'll start to find that model adopted for more traditional production processes. GM, for example, has already changed their relationship with suppliers. They've just moved to global tendering, whereas in the past they only had around 20 suppliers that they worked with closely. Then they decided to throw it open through their website so people in China or Turkey could bid for the same contracts that those suppliers in Deerborne used to get before - now that's got pretty dramatic ramifications for a whole range of things including workers, in those supply chain companies. I don't think it's quite so bad as it first looks, but nevertheless it is a major change.
The problem for the big companies is that if they become nothing more than a brand, they become vulnerable to areas they have no control over. Nike becomes vulnerable to attack as a brand by the practices of its supply chain companies. For example, by outsourcing to get the cheapest labour in Sri Lanka or China it jeopardises its image as a happy, healthy, supplier of sports equipment. The problem is, if consumers get upset with the company's workplace practices and say "Nike has a problem", the company finds they have formally ceded control. In this way the deliberate strategy the company originally had to avoid responsibility on their part is coming back to bite them.
There's a whole body of literature about the customer relationship being the primary asset of any organisation. Not the workers even, which some would still argue is more important. Certainly not the productive capacity or the investment capital. There are real problems with this perspective, for example a balance sheet, that is compiled each month is all to do with hard and fast equipment, there's nothing the balance sheet which gives one the value of the workforce. At the moment if you invest in the staff it's a write off of expenditure that doesn't contribute, in an ongoing sense, to the benefit of the company in terms of accounting standards. Equally the customer relationship isn't valued. "Good will" tries to approximate it, so Coca Cola for example has a valuation - but you're stretching the edges of accountancy to do it.
All those things are going to change, because the customer relationship in a wired world is completely different - there's a just single click for a customer to move away. This makes the customer relationship more vulnerable, but also more critical - because in the mass of information, people will go to brands they know but they will abandon them quickly if they have to. So how you manage that customer relationship, to make it work, becomes important. The reason why Amazon is triumphing over other kinds of retail sites in the States, just in terms of the numbers of people using it (although it's still yet to make a profit) is because it has invested a huge amount in the customer relationship side of it. It invests, invests, invests, in really good quality letters, emails, service, a whole range of things. Commerce on the web is going to be customer driven, far more than it is able to be in the more traditional forms of endeavour.
The New Worker
In the future you are unlikely to be employed by a major brand. People who work for the big brands will become a minority. Workers will be employed by service companies whose relationships are with the big brands. You'll get a significant reduction in the workforce employed by major organisations while at the same time you'll get an aggregation or increase in capital control by those major organisations. The industrial age firm, which was heavily vertically integrated, which had very broad bands of competencies, is now transforming into a network of organisations each with narrower bands of core competencies, but working in synergy with each other.
The workers who find their functions outsourced from an Industrial Age organisation are at the hard edge of the transition, they're the ones who bear the brunt. Industrial Age firms operated on the basis that you stayed with that firm for your working life, you put in the hard yards during your most productive years and the firm keeps you on in your less productive years and you'll be looked after until your retirement. That has all been changed for these people mid-way through the game.
This is not just about the manufacturing sector or the textile sector, it's about hi-tech workers as well. It you look at how software is now being developed in India, then it's a massive warning to the rest of the world about work conditions. There are six major institutes in India that educate software developers. Those six institutions are set up, well resourced and well funded by the Indian government. Every year there are one-hundred thousand applicants for three thousand jobs. This is the occupational choice for young Indians, the brightest, the cream of their intellectual capital. So you have three thousand people every year coming out of these institutions - and they will be working for what a cleaner would be getting in Australia.
The question that emerges is - while this is Information Age work, is it an Information Age model of work? Or is there also an industrial age IT sector? There were IT companies around in the seventies and eighties, mainly writing software and a lot of that software manufacture is shifting to a place like India, where you've got a highly educated workforce in a low wage economy and a crucial component above everything else, for the IT sector - they speak English.
Maybe, like the loss of manufacturing, the flow of the mechanistic IT work to lower wage economies is inevitable. In which case high wage countries like Australia need to focus at the creative/high value added end of the IT industry. Furthermore, we have to create a way for low wage economies to become high wage economies, maybe the shift in the coding industries to India and Russia is an appropriate way to provide workers in those nations with access to greater wealth.
That emphasises the need for a robust education and training system at all stages of work life. We need to be able to ensure that all our workers can have access to education, at a variety of levels, in both institutions and the workplace to improve their skills and enterprises. Most importantly we need to allow them to have portable skills so they can move around as enterprises get chopped and changed. We're going to see the total destruction of whole enterprises, the creation of new enterprises, and there are going to be many many more small enterprises then there are now. That's going to mean that people are going to have to change their jobs, or re-think their jobs many times over. It's going to be really hard, a lot of anxiety, and we need a system that supports that. We need a welfare and social security system, but we also need an education system that actively goes out to those people and engages them during those phases, rather than just saying, 'ok you're retrenched'.
The New Employment Relationship
In the industrial age you had an approach towards your work, education and career where you went and got your education at an early stage, and after that you were told that you had all the formal knowledge, you never had to learn anything again. You'd go and work for a firm and perform a fairly repetitive for the rest of your life. Once you became good at your job, your job tended not to change, you became fairly rigid and you got this attitude that you didn't have to learn any more.
So these people in an information age context are finding themselves ill equipped to deal with the emerging economy. An information age worker is somebody who has grown up recognising that the industrial age approach doesn't work and has developed the skills to transcend it. The younger generations that have seen their parents laid off, and realised that there was no loyalty from firms anymore have realised that in the new environment you have to continue to learn throughout your employment and ensure that you are expanding your opportunities in remaining in a particular job. So an approach to young people that you might see out there is to go and work for a company provided that they are getting something (other than wages) out of it, and if they don't think they are then they'll leave.
This is clearly a different mindset from industrial age thinking that workplaces and education institutions catered to dealing with a particular task in a modular kind of fashion - the Taylorist model. The whole of society was structured around that. So in a new climate there's a vast array of jobs that require more thinking - that's what it boils down to.
A whole lot of mechanical tasks are being automated, the last twenty-five years have seen a dramatic increase in automation already - at the base manufacturing process. Everything from mining equipment to textile looms are now automated to the nth degree. The kinds of enterprises that are flourishing are enterprises that rely on the intellectual or mental effort of their people. Whether it be call centre staff that are required to actually relate to someone, as opposed to just answering questions, they are supposed to be psyched up to provide good customer service. Whether it be hospitality industry workers, an area where the relationship is critical, whether it be software workers who have to think about there job and derive innovative solutions, rather than programming of tasks in a linear way. Whereas typing pools are disappearing.
This all leads to a very important, and at first, not easy to understand change in the experience as a worker. It means that enterprises are asking workers to have a sense of ownership of what they are doing, to not be totally alienated from their output.
There are currently some extraordinary inconsistencies during this transition period. How is it possible that an organisation like Anset could try to conceive, or empower its workers to have a sense of ownership about the company and then not let a union delegate send out information over the companies email system? There is a mismatch between the culture that they are trying to engender with their employees and their management culture. These organisations are happy to engage in the rhetoric of the new economy and new management, but they really don't put it into practice, the management still has an industrial age mindset. They want to dress up as new age, but only as a tool to rid the organisation of unions so they can be freer to go back to their old ways, unhindered. There's a genuine climate of fear in workplaces that is not at all conducive to creative thinking and lateral thinking you need to be a productive worker in the information age.
To understand this you need to look at the transition from an industrial age organisation and an information age organisation. Because in an industrial age organisation the value is invested in the capital and equipment and the people are, for the most part, expendable and interchangeable. In such an organisation each employee will have a minute, well defined task which they are required to perform repetitively. The workers have no value because anybody else can simply be slotted into any role. In an information age organisation each worker has a unique role, defined by the capabilities of that person. They are not so easily replaced because they have created their own role. The value of the company is linked the quality, skills and outside relationships of the people working for it.
Information is Power
There's another new dynamic: a structured hierarchy tends to aggregate power at the apex - all information has to flow to the centre, where all decisions are made. You get an information log jam because often the information can't get in or out fast enough, leading to organisational paralysis. Whereas if you let the organisational structure flatten out, you get decisions made closer to the ground, so not all of the information has to flow to the top of the structure, only the really important stuff. In the modern organisation, employing good information workers, they have to be able to recognise what is routine, or minor and don't need to go upstairs, and what decisions need to be made by a person, higher up, who has access to a broader pool of information and therefore a broader perspective. The person at the top is free of the day to day clutter associated with running the place and can properly focus on larger issues. It's command and control, versus, a disaggregated organisation, a structure versus a network. You've still got the person at the top of the organisation, and they still have power, but the extraordinary power they have in the industrial age model has been exchanged for influence.
The freeing up of information has interesting flow-on effects as well. We have at the moment this extraordinary thing in this country where a whole lot of companies have realised "Oh God, our workers don't think we are doing anything good for society, we've got to do something about it." So Westpac and AMP have set up foundations to give money to charities. Now that could well be a red herring because they are not actually changing the sense of work of individuals within each work unit. But what's going to happen in the long run is that people are going to want to try and change the day to day basis and belief in their work.
In IT companies now - the dominant thing you hear people say is "We're going to change the world." Now, a lot of that is utter crap! But curiously enough what they are trying to tap into is a kind of altruism - not just potency but also altruism - on the part of young, highly educated workers who want to feel they can make a fortune plus do good. Marrying of the idea of having a productive work life economically with also a productive work life socially, is one of the future challenges for management. This is now becoming, interestingly enough, a standard part of the US management literature - the importance of addressing what you are doing in your workplace and making sure that it's credible and real.
It's also about trust. Workplace relationships, whether it's between employer and employee or between different companies - all require elements of trust. This has been an issue that has raised challenges for the trade union movement. The 'trust' argument was basically ridiculed during the Weipa dispute where Rio Tinto used the argument as a justification for moving workers onto individual contracts. As ACTU advocate Bob Hwake observed at the time: it comes across as 'psycho-babble'. Yet, there is also a kernal of truth: where you've got an increasingly educated community - and not just university educated, but also you've got an increasing uptake of education in the workplace. You've got a set of new management theory that started in the US but it's moving through. And you've got a set of people whose needs are becoming a lot higher. In this context, unions need to shift their focus to those higher level needs if they are going to appeal to that highly educated workforce.
Management Mindsets and the Textiles Experience
Many companies adopt the rhetoric of 'trust' but they don't actually embrace it themselves. They have the rhetoric of a new management style but the philosophy of the industrial age. They do not embrace it realistically, instead they have a ruthless bottom line attitude towards business and their allegiance is to shareholders rather than their employers.
That actually holds their organisation back. If they actually properly embraced the theory as well as the rhetoric then their organisation would move ahead. There are some Australian examples. Lend Lease has adopted this business of purpose over the last 20 years and has now become an enormously successful company on the Australian scene. Their managers would argue that their "humanist" approach to employees has been an important part of their success. There are cruder examples. People like Body Shop and so on, who have tried to make their whole organisation a marketing tool.
Now, that doesn't mean to say that bottom line situations aren't important. At the end of the day financial considerations have to be a critical indicator for any organisation.
You are going to get the best if you take a humanist view of your workers. That is, that if something is going wrong it's probably how you are managing your worker - as your first thought. In other words, you are not getting out of them - is your first thought - and that doesn't mean people don't get fired, because sometimes management has to accept that I don't have the skills to get the best out of that person. And that's something enterprises need to accept. But that's very different to saying "That f....ing worker is a lazy bastard."
It's a totally different mindset. An example: in the late 70s that's exactly what happened in the textile industry. Bradmill decided, under competitive pressure from Chinese mills - we have to reduce wages. And the government helped them with this. That is, the Fraser Government initially, and the Labor Government eventually too. The gist was: We've got to grow. We've got to wipe out all the other competitive players to be able to be a global player (which is the NAB argument in Australia in the banking industry), because big enterprise will succeed, so therefore we can reduce our cost of production. It's the only way we'll compete. We need to keep a lid on wages and a range of things like that.
Bradmill doesn't exist anymore. It disappeared anyway. Because in fact, what actually happened, was the way to make money was to pay workers more and to get more creative input out of them. Because the other thing that was going on at the same time was an increase in wealth of the consuming public in Europe and the US and they wanted a high level product. They didn't want a cheap, bland product. They didn't actually want Chesty Bond T shirts anymore. So the textile industry in Australia went down the chute quite quickly, and it wasn't just because of the abolition of tariffs. Delaying the abolition of tariffs would have just simply delayed the demise of the Bradmills of the world.
The companies that did come up in Australia were Mambo and their ilk, which are high value added textile companies which require thinking workers in the design processes. Now I have to say, which might spoil the argument, is that Mambo then sent all their production to China. But nevertheless the brand that arose had a different area of creation of wealth. It is a different sort of textile company.
There was a shift in the core competencies of the company too. Because in the industrial age the core competencies of the textile firm were the actual weaving of the fabric so there wasn't as much intellectual effort put into what went on the fabric, what designs there were. Whereas Mambo said, rather than "we are a textile weaving company", it changed its core competencies to "we are a textiles design company". Well, they are actually a lifestyles company.
There are two countries where production wasn't shifted offshore to the world's leading textile countries - Italy and Germany. And in Italy, rather than have large enterprises, there was a growth of small enterprises, and what the government stepped in and did was set up cooperative industry schemes, including marketing schemes. It was owned by the small businesses, but it was originally initiated by the government and got some tax breaks accordingly. Cooperative selling schemes; training programs for workers were all put in place.
Today, there are some flourishing small companies that are on the second and third tiers and fourth tiers of the production process. And this has led to two things: One is enormous flexibility by the brand names, so they can turn out a whole new line of clothing a week from design. They don't do it themselves, they farm it out to all the small enterprises. A lot of them are family companies in the Prado region of Italy - the manufacturing estate of Italy. It's high value added manufacturing. No one does Chesty Bonds - they all get done in China. But they do the production of the really high quality sweaters and shirts in Prado. 'Prado' now adds more to the value of Australia's wool clip than Australia does from the grass up because they are doing high value added, thinking approaches to production.
International Solidarity and the Trouble with Seattle
This leads into a broader discussion on global trade and what individual countries can do. At the moment this debate is polarized between the free traders and those who argue that developed countries should impose standards like labour laws and environmental codes before they'll trade with the developed world. The disrupted Seattle became a flashpoint for that debate and a symbol of the challenge of Globalisation. The protestors, mainly from the developed world were effectively arguing that the developing world should be locked out of trade until their countries adopted Western social benchmarks. Yet these benchmarks can not be reached until the countries reach a mature point of development. So what should come first?
At the same time you've got the Chinas and the Indias entering their industrial age, who are actually on the verge of making the jump to the information age from the agrarian society within a very short time-frame. Is it in our collective interests to halt this transition, or facilitate it - even at the cost of local jobs? If we decide on this course, we have to accept they'll have lower labour costs. Their country is at a very different level of development. The cost of living is different. So it can't be about wages -= but it canm be about things like the right to organize and bargain collectively, so that those workers can maximize their wages and minimize the extent to which they undercut workers in the developed world.
The challenge for the union movement is to force governments to take control of the World Trade Organisation process in a manner that extends this free trade-closed world dichotomy. And they have got to do it with a generosity of spirit that allows people in Third World countries to get the jobs that are going around, to help people in First World countries that have been locked into an industrial age scenario to make the transition, because they are the losers when a plant shuts down and moves to the Third World. You've got the winners in the Third World who are getting more wealth but you have got a set of losers that have to then be in some way compensated.
If unions don't make this transition to taking a different approach to what the workplace means in First World countries, they are going to effectively do over Third World country workers. They have got to make the transition in a way that works and get government to help facilitate the transition rather than stop it. A lot of unions I think are in a stop mode still. And it's not going to go anywhere. Membership numbers will continue to reduce.
Workforce in Transition and the BHP Closure
Take for instance, the closure of the Newcastle steelworks. In a scenario like that where you are seeing the industrial age structure shut down and shift to the Third World, or shift offshore. You have a whole community - identifiable communities - that are left washed up as a result of that. There's got to be a social contract is what you are saying. There has to be a responsibility towards those people. If you are saying the shifting of those jobs was natural and had to happen, then you have also got to say, well what are you going to do about those people. Well, the union movement then has a role in ensuring that those people are protected, that they are reskilled and help to find new jobs in new industries that will be more durable.
The free market won't deliver this, but unions other agents of change within our system - like community organizations - must fulfill the role. You have got the Hunter now that has really pulled in behind the Newcastle steelworkers and as a community - as a geographic community and also as a union movement. So the challenge is how you facilitate transitions rather than block them
The thing that worries me more is not bottom line driven competition by markets. What worries me more is the lack of that. I think what's more harmful to workers is monopolies. BHP had a steel monopoly in this country, and that led to an ossifying culture. There is no way that steel is necessarily unprofitable, but BHP invested a huge amount in infrastructure and didn't bother to update that infrastructure. They had one stab at it in Rooty Hill, where they put in a new, modern steam plant, but it was small fry compared to the Smorgens, the only competitor in Australia, who put in small scale, highly flexible production - and that can be quite profitable. So what we are actually seeing is BHP 20 years too late, taking its capital out of old style manufacturing enterprises to put in new areas they should have ages ago. And one of the reasons they took so long was because there wasn't much competition in the Australian market.
What Does it Mean for the Workers?
Let's get to a conclusion. What we are talking about is the acceptance that in a new economy it is educated and informed people, that make a difference to enterprises. That's a significant paradigm of change. There is a whole lot of things that will flow from that.
There are challenges for managers because you cannot treat someone who is highly educated, highly informed in a command and control manner. In the past people were ruled by limiting information - keeping people ignorant. That's much harder to do in this sort of economy. You have to therefore work with your workforce in an entirely different way as managers. You have to look for enterprise, motivation, leadership, orchestration - all of that - as distinct from directing them. We also need to look on a societal basis and a global basis at the kind of cultural infrastructure that will support the growth in the economy that will come from those sort of workers and we need to look at what will allow third world countries to make that transaction faster too.
For this reason, a social agenda for WTO is required. But not one to protect jobs in the first world. There is a really important difference: rather than blocking change, we need to share the fruits of the whole concept of being a different sort of worker - and it will be a 20 to 50 year transition we are about to go through.
The other challenge for educated and informed First World workers, is to better understand their own workplaces. They need to be informed about what's going to happen with their company and their industry. And they'll need unions to offer them objective advice about what's going to happen to help manage the transition from workplace to workplace, rather than telling me to be scared because my job is going to disappear. If I am a typical workers, I will most likely be fired sometime in my lifetime for reasons out of my control. But I'll want to know in advance. I'm not going to find out about that much from management, I'm more likely to find out about it from a union, so I need that access to objective intelligence.
These transition services will probably be provided by unions and by government to allow me to make those changes, which will be important because there will be a lot of small companies and no big companies, and you can't stay in one small enterprise for more than a few years. For no other reason than it just gets boring. So I will want to move - let alone the fact that they are going to go bust all the time in a changing economy. Now, that means that we let the commercial sector get off itself and f... us all around if it wants to and go broke and rise up from the ashes. And that's important too. We do not try and protect individual enterprises, as governments have traditionally done. We let them rise and fail and concentrate on making sure the workers don't get crushed in the process.
This chapter based on a conversation with the authors, Social Change Media director Sean Kidney and the labour web activist Noel Hester
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