How we work now
Wholesale workplace changes wrought by globalization lead to "human capital" crisis; knowledge workers found on plant floor
By Cole Ollinger, contributing editor -- Manufacturing Business Technology, 3/1/2006 7:00:00 AM
To understand how profoundly information technology can change manufacturing, one need only compare the 1962 launch of the Boeing 727 with that of the Boeing 777, first built in 1994. It took 5,000 engineers—burdened with thousands of pounds of complex blueprints—almost seven years to design and build the 131-seat 727. A full-scale model was constructed to ensure blueprints were accurate, and only then was production machinery calibrated to meet specifications. Even so, fitting together the 100,000-plus aircraft parts required a half-ton of shims. Three decades later, the 777—with twice the passenger capacity and greater technical complexity—was rolled out in 52 months: more than one-third faster. And Boeing could tailor finished planes to meet the preferences of individual customers.
One reason for the difference is that in 1994, Boeing engineers used CATIA design and manufacturing software from Dassault Systemes to virtually model the aircraft and digitally manage computer-controlled machinery. The fit of the 777's parts was .023 inch—far below the half-inch specifications for most aircraft.
Customization costs
This example, taken from The New Division of Labor: How Computers Are Creating the Next Job Market, by Frank Levy and Richard J. Murnane, is about more than either productivity gain or job loss. It was always Boeing's goal to bring better, more customized products to market faster, Levy and Murnane write, but "what was new—what computers had changed—was the cost of pursuing those strategies."
Besides its specific role at Boeing, IT advances are more generally the primary enabler of the seismic shifts known collectively as globalization. One of the most pointed impacts of globalization has been more competitive goods markets.
"The process of global economic integration, of which offshore outsourcing is a highly visible component, diffuses the best business ideas and management tools, intensifies competition, and sparks innovation," says Laura Farrell, a director at New York-based McKinsey Global Institute. "It thereby leads to lower prices and higher wages, as well as bigger profits that companies can reinvest in new business opportunities."
Globalization's impact on the workplace is more than simple subtraction. McKinsey points to the growth of "megacorporations" with global reach—including GE, IBM, Microsoft, and Toyota Motors—which earn more than $10 billion annually. To understand the growing value of human capital to these and other companies, know that book value accounted for only 36 percent of the market caps of the top 150 companies in 2004, as opposed to 75 percent in 1984. And the biggest companies boosted their average constant-dollar profit per employee from $21,000 in 1994 to $64,000 10 years later, according to McKinsey.
The problem is that organizational growth exponentially increases the number of possible interactions within a company. Outsourcing increases possible interactions yet again, even as it involves employees in ad hoc relationships with an ever-changing group of outsiders.
As The Economist recently put it, we've gone from the "organization man" to the "networked person," and this is just as true on the plant floor as it is in the engineering department or out in the field. The workplace changes are so profound that, despite the many manufacturing jobs lost in even the last several years, executives say they're hurting for qualified employees.
The question is, in this networked environment of global scope, how can manufacturers get maximum value from the work and specialized knowledge of employees—knowledge not easily codified in software?
While consultants insist this is an organizational problem and that technology alone is not the solution, business applications of all types already address many aspects of the problem. And it's not surprising that in response to the newest workplace challenges, enterprise and other management application vendors have introduced solutions for what is called human capital management (HCM). A related software category, more intent on capturing unique institutional knowledge, is labeled, appropriately enough, knowledge management. (For more on software applications and vendors, see sidebar below.)
Boeing, says Levy, was able to use "computers to substitute for humans in carrying out some tasks and to complement humans in carrying out others. ... The reorganization of work changed both Boeing's jobs mix and the skills needed to do many jobs."
Times have changed
Gone are the days of hiring an employee to sit on an assembly line—either on the plant floor or in the office—to a do a single job, over and over. Simple transactions, the costs of which have been driven down by computerization, are automated or outsourced.
On the other hand, the increased flexibility and coordination called for by globalization and mass customization heighten the demand on the U.S. workforce to be better educated and more highly trained, which increases costs for employers. Mitigating the cost of complex, networked transactions calls for both organizational and technology changes.
To start, business applications and manufacturing automation make highly trained workers more productive, decreasing coordination costs. Rote tasks are replaced by concurrent processes where skilled individuals, supported by software, accomplish much in little time.
Manufacturers use software to support workers with problem-solving, critical thinking, pattern recognition, and communication skills. These jobs are tougher to outsource, and unlikely to go away any time soon. Peter Drucker coined the term knowledge worker to describe this new class of employee, which McKinsey says "might be better called professionals ... and which now accounts for 25 percent or more of the workforce."
In a recent interview, author Levy, who also teaches at the Massachusetts Institute of Technology, agrees.
"It's hard for the U.S. to compete in large, labor-intensive batch runs, but our competitive advantage remains in complicated, sophisticated products with short runs and customization," he says. "As machinists' jobs get more technical, the value of retaining their knowledge goes up."
"The value of knowledge is particularly high in certain industries like chemical and high-tech," says Judy Sweeney, VP at Boston-based AMR Research. "Leaders who have gotten maximum value from assets like machinery, and from the supply chain, are just now turning to human capital."
Levy recalls visiting a modern automotive plant when a production team encountered a problem in attaching heater motors. The bolts simply weren't attaching properly. The entire plant was at risk of being shut down. But the team on the line solved the problem by tracing the issue back to a painting booth, which was out of calibration, causing small amounts of paint to clog the threads.
"People aren't just extensions of machines," says Levy. "Their skills and knowledge are vital to solving problems."
Manufacturing needs help
Economists believe job losses in manufacturing over the last decade are best attributed to growing use of automation and information technology. But the pace of job loss has quickened in the last several years, and economic recovery hasn't reversed the trend, indicating to some that other factors are in play. The number of U.S. durable-goods manufacturing workers has shrunk to less than nine million—about 8 percent of the workforce, and down from 19 percent 40 years ago. Employment in nondurable goods dropped even more, according to the Bureau of Labor Statistics.
Yet despite all the concern about manufacturing job loss, the National Association of Manufacturers (NAM) says the vast majority of American manufacturers are experiencing "a serious shortage of qualified employees, which in turn is causing significant impact to business and the ability of the country as a whole to compete in the global economy."
According to a recent NAM survey, 83 percent of manufacturers are inhibited in their ability to serve customers, and 56 percent can't maintain production to meet demand, based on these shortages. Companies are looking for everything from skilled and unskilled production positions to engineers and IT, finance, marketing, and HR executives and managers, according to NAM. This is regardless of the type and size of the manufacturer in every region of the country.
An aging labor force presents an immediate problem. The Manufacturing Institute estimates more than 50 percent of the manufacturing workforce—the average age of which is 58—will retire in the next 10 years.
"The industry as a whole is at a crossroads," says Phyllis Eisen, VP, The Manufacturing Institute. "On the one hand, the situation is dire. We have a retirement crisis, negative attitudes and stereotypes in young people, and intense competition from India and China. On the other hand, manufacturing is becoming more high-tech all the time, productivity has never been higher, and new markets have opened."
Profit from human capital
For these and other reasons, manufacturers are seeking more value from human capital—typically their largest single expense, outpacing facilities, real estate, and raw materials, excepting perhaps in the most capital-intensive process industries.
According to McKinsey, "Productive professionals make big enterprises competitive, yet those employees increasingly find their work obstructed. Creating and exchanging knowledge and intangibles through interaction with their professional peers is at the core of what they do. Yet most of them squander endless hours searching for knowledge they need—and coordinating their work with others."
Given the right skills mix, managing people is critical to increasing return on human-capital investment. The equation is simple, and based on lean principles, according to Dr. Katherine Jones, research director of HCM for Boston-based AberdeenGroup.
"The question is how to manage human capital as a strategic asset—like the supply chain," says Jones. "Have the right people with the right skills at the right place at the right time, fully utilize them, and don't have anyone idle at any time."
Harry C. Osle, managing director of human resources transformation at Answerthink/Hackett, a business and technology consulting firm, believes the business case for HCM as a solution for making best use of employees will only grow in importance.
"To understand the cost of human capital, organizations need to baseline where employees are spending their time relative to their responsibilities," says Osle. "That baseline provides a scorecard to measure current costs, and also to identify opportunities to drive improved performance."
While manufacturing faces huge and unprecedented challenges, the central value of people to the industry's future prospects remains undiminished. Not as many people will be involved, measured in sheer numbers, and they won't all be located in the "rust belt," or even in the U.S. But innovation is the key to success. And without people—skilled, talented people at every layer of the organization—there can be no innovation.
Featured Company
Most Recent Resources
- FICO™ Xpress Optimization Suite Schedules Big Profits For Clients
- Strategic Pricing: Three Steps to Higher Profit Margins
- Driving Innovation Through Lean Product Development Practices
- Demand Planning Maturity Model Strategies for Demand-Driven...
- Simulation-Driven Product Development:Will Form Finally Follow...
