How Business and Employees Can Both Win: Managerial,
Union, and Business Partner Support
by Dr. David I. Levine
Lower and Midmanagement Support
Top Management Support
Business Partner Support
Supplier Relations at NUMMI
Problems with Just-in-Time Delivery
Worker and Supplier Participation
The Importance of Integration
Total Quality Management
Reinventing The American Workplace Home
Policies that enhance the ability and willingness of employees to participate effectively in their
place of employment, although critical, are not sufficient for employee involvement to succeed. A
company must maintain support of its managers, unions (where present), and business partners
such as suppliers and customers.
Ninety-five percent of American managers today say the right thing.
Five percent actually do it. -JAMES O'TOOLE
Most directly, employee involvement requires changes in companies' management systems,
both for low- and midlevel managers and for top-level executives.
Lower and Midmanagement Support
Many middle- and lower-level managers resist and sometimes sabotage employee
involvement.(1) For frontline employees, one of the main advantages of participation is the
greater freedom to use their own discretion, instead of having bosses hovering over them. This
same freedom may be threatening to supervisors and managers.
Participation challenges supervisors' authority and status. Employees are encouraged to
make decisions on their own. Discussions may reveal managers' mistakes. Autonomous work
teams are encouraged to contact staff people and suppliers directly, thus bypassing line managers.
In addition, first-line supervisors often feel discriminated against. Quality circles have
often been described as "something the top tells the middle to do to the bottom." Supervisors are
forced into a system that typically they had no part in designing. In many cases they are forced to
share their power, but they do not see their bosses sharing theirs. In extreme cases, supervisors'
jobs may be threatened. Job redesign can lead to the elimination of one or more levels of
management, as occurred at Ford's Sharonville plant.(2)
Finally, American management has always stressed the division between managers (who
know and plan) and employees (who execute). As justification of this division, an ideology
emerged that stresses employees' incompetence to participate in decisionmaking. Many first-line
supervisors are firmly convinced that quality circles have nothing to teach them.(3) If managers
are forced to listen to their subordinates, they are often uncertain as to what they are supposed to
do, which is very threatening. Yet participation is unlikely to take root if it is confined to an
occasional committee meeting, while day-to-day workplace relations between employees and their
supervisors remain autocratic.
Managerial attitudes such as these may threaten participation's success. Research suggests,
for example, that the success of the Scanlon Plan, which combines gainsharing with a formal
employee involvement program, is directly related to the degree to which managers believe that
their subordinates are capable of making worthwhile suggestions.(4) When trust is lacking (for
example, when the supervisor views participation merely as a morale builder), the parties may go
through the motions of "counterfeit participation," and the desired payoff in productivity and
satisfaction is unlikely to be obtained.(5)
A variety of approaches can reduce management opposition. First, managers must realize
power is not "zero sum": Increases in employee discretion need not come at the expense of lower
management.(6) When the parties are at loggerheads, neither side has much power. Effective
participation can increase everybody's power.
In a similar vein, managers need to quit doing some of their old tasks before taking on new
coaching and training duties. Thus an important step in implementing high-involvement
management is to identify tasks managers perform that are not needed. Managers will appreciate
the new work system more if one of its goals is to make their lives easier by, for example,
reducing the number of unread reports they must create. Managers are more likely to feel
comfortable in the new system if they have had a voice in its design. Retraining managers in the
training, leadership, coordination, and planning skills upon which participation relies is essential.
Managers will also be more likely to support participation if they share in the organization's
profits and if part of their performance rating is based on their subordinates' successful
If job redesign leads to a reduction in the number of managers, those who become
redundant should be transferred within the organization. Management, as well as employees,
needs job security if participation is to work.
Top Management Support
Successful implementation of participation requires that top management give the
program continuing support. This may require wholesale modifications in the overall
organizational culture. As Howard Love, president of National Steel, said, introducing shop-floor
participation in his company involved changing "an old-line hierarchical organization into a more
participative company from the executive suite to the shop floor."(7) Top management must
decentralize power, so that managers as well as workers gain authority.
Changing a long-established organization may be difficult, though the success of Toyota at NUMMI suggests it is possible. In any case,
participation may be easier to introduce in completely new organizations not encumbered by the
heritage of past practices.
Most important, managers must be committed to a long-term vision of the enterprise,
which must include skilled workers and decentralized power. A crucial component is that
employees, customers, and suppliers are stakeholders of the company; thus management decisions
must take into account the interests of these partners as well as the interests of the owners.
The empirical evidence supports the key role of top executive support. In the 1987
Fortune 1000 survey, companies with above-average levels of employee involvement tended to
have higher support from the chairman of the board and other top executives. More important,
companies that reported above-average success with employee involvement also reported higher
support from the chairman of the board and other top executives. On a five-point scale of support,
companies with more involvement and more successful involvement reported support ranging
from 3.3 to more than 3.5; low-involvement and less successful companies had mean support
ranging from 2.7 to 3.0.8
back to top
We want more school houses and less jails; more books and less arsenals; more
learning and less vice; more constant work and less crime; more leisure and less greed; more
justice and less revenge; in fact, more of the opportunities to cultivate our better natures.
Establishing and maintaining union support for employee involvement is both crucial and
difficult. Understanding the role of the union in the high-involvement workplace requires knowing
about the three bases of union power in the traditional U.S. workplace and how employee
involvement challenges each of them.
The first source of union power is an ideology based on worker solidarity, united against
management. In the traditional setting, managers make all investment, technological, and
production-related decisions; thus unions are left free to fight for workers' interests with minimal
regard for productivity. In an extreme case of management-worker conflict, such as at GM-Fremont, the union fought the dismissal of workers who
were caught stealing or were routinely incapacitated by drugs or alcohol.
Employee involvement challenges solidarity based on opposing management by
emphasizing labor-management cooperation. Cooperation in dispute resolution puts union leaders
in a quandary. Even if joint problem solving leads to more fair outcomes on average, in any given
grievance the affected worker wants the union to be a strong advocate, not a fair judge.
Furthermore, many gainsharing and bonus plans reduce solidarity by turning workers against their
slower colleagues. In addition, some autonomous work teams determine pay and discipline
blurring the sharp line between managers and workers that unions have sought to maintain.
The second source of power is a detailed contract that limits managerial favoritism.
Employee involvement, by contrast, leads to flexibility, which opens up possibilities of managerial
favoritism and playing workers off against each other. Moreover, the contract is often disregarded
when workers make suggestions that contradict it. In addition, in a high-involvement workplace,
new nonunion forms of employee representation often compete with the union as mechanisms to
resolve problems. These alternative sources of power are often threatening for the union
The third source of union power is the set of detailed work rules that permit workers to
"work to rule" as a form of job protest; that is, workers precisely follow all rules when they want
to slow down work and punish management. Employee involvement's flexibility removes this
source of bargaining power. Workers often offer their good ideas, leading to management
demands for a faster pace of work. In many cases, managers embrace the additional flexibility of
weakened work rules and increased ability to reassign workers, but they do not deliver substantive
participation as a quid pro quo. The result is often unhappy workers with fewer job rights and a
distaste for participation.
Tensions between unions and employee involvement are augmented when the threat of
plant closures is one force motivating managers to propose employee involvement. Many workers
come to participate and share their ideas because they fear that their plant or office will close
down otherwise. Critics claim that employee involvement introduced under the threat of job loss
is hardly "involvement." In defense of employee involvement, the threat of plant closure is present
for workers whether or not their jobs include involvement; employee involvement merely makes it
more likely that surviving jobs are more interesting (although they may have less slack time). This
point does not address critics' claim that an economic system based on the threat of job loss to
motivate employees has a built-in element of stress and injustice. Furthermore, no amount of
cooperation at the workplace or the corporate level eliminates the struggles workers may have
with owners at the industry, national, or international level over the appropriate amount of wages
To maintain union support in the long run, employee involvement must not eliminate the
role of the union leadership, reduce union solidarity, or lower the union's bargaining power. Thus
strong pressures exist to extend the scope of participation beyond the shop-floor level, if for no
other reason than union officials are permitted to become involved in the participative process. At
NUMMI, for example, the union participates in committees that resolve disputes that occur at a
lower level; for example, when a work group feels a suggestion will increase safety, but the
supervisor disagrees. Labor-management committees are also important when issues span multiple
work groups. Finally, these forms of participation can provide benefits to all workers that no
single worker has an incentive to provide.
As with management support, participation is more likely to enjoy union support at low
levels if it is also supported by higher-level union officials, as is increasingly the policy of both the
AFL-CIO and many national union leaders.(9) Companies that implement participation at one
plant while fighting unionization at another will often run into difficulties with higher levels of the
The union is understandably less likely to resist if it is an equal partner in designing the
participative program, as is occurring increasingly. Employee involvement must be implemented
with carefully crafted agreements, so that workers have no incentive to punish their peers, such as
those who emphasize safety or quality at the expense of productivity and short-run bonuses.
Finally, successful employee involvement in the long run requires that the workers'
collective bargaining power not decline. Critics of employee involvement are correct when
describing how the typical employee involvement plan does little to truly empower workers.(10)
At the same time, low-power employee involvement programs are not long-lived, given that
workers are rarely repeatedly fooled. If employee involvement is only a cover for a speed-up, the
flow of new ideas usually dries up. In almost all cases, sustained employee involvement is coupled
with reduced managerial oversight and increased reliance on workers' suggestions and creativity.
The result is a workplace where productivity will decline immediately if workers protest or even if
they passively fail to share their ideas. Management's reliance on workers for continuous
improvement can strengthen workers' bargaining power. For employee involvement to be
sustained, this increased bargaining power must be coupled with implicit or explicit gainsharing
Empirically, QCs introduced in unionized settings are more likely to last than those in
nonunion plants for at least two possible reasons: (1) unions may screen out badly designed plans;
and (2) unionized employees may be less afraid to express their opinions, even if they are critical
of management.(11) Guarantees of job security and gainsharing are significant as means of
reducing employee resistance. These promises become more credible if the union is in a position
to guarantee them.
Because of the advantages to worker representatives, some nonunion employers in the
United States and abroad (especially Japan) have introduced forms of representative participation.
They include American counterparts of works councils, in which workers elect representatives
and employees to sit on appeals committees for grievances and dismissals. Some of the forms of
representative participation have been judged illegal in the United States.(12)
Union involvement is more common at successful high-involvement companies. In the
1987 Fortune 1000 survey, unionized companies that reported above-average success with
employee involvement also reported higher union participation in the employee involvement
effort. Companies with more union participation also reported that their employee involvement
program was more successful in improving union-management relations, in increasing employee
trust in management, and in decentralizing power.(13)
Other studies supported the positive effects of union involvement with employee
involvement. Maryellen Kelley and Bennett Harrison also found that worker-management
committees raise productivity in unionized establishments, but not in nonunion ones. Kelley and
Harrison's measure of committees was ambiguous, encompassing both direct participation such as
quality circles and representative participation such as union-management quality of worklife
committees. One possible interpretation of their findings is that the combination of quality circles
and union-management committees is effective, while QCs alone have negative effects. Similarly,
William N. Cooke concluded that teams are more useful in raising productivity in union than in
back to top
Business Partner Support
Paralleling the change in employment relations, many high-involvement organizations
made modifications in their customer and supplier relations, turning customers and suppliers into
business partners. A new business partner model emerged. At NUMMI, as at other examples of
successful quality programs, "The organization establishes a partnership with suppliers and
customers to assure continuous improvement in the quality of the end products and
In contrast, in the days of GM-Fremont, GM's
relationships with outside suppliers were adversarial and were held at arm's length. If one supplier
had rising costs or declining quality, GM quickly switched to
another supplier. To maintain a credible threat to terminate a relationship, GM employed many suppliers per part and negotiated only
short-term contracts. To facilitate comparison among prospective suppliers, GM did virtually all of the design.
In all of these respects, GM was like most of the
organizations in the American public and private sectors. Purchasing decisions were based on the
outcome of a competitive process for supplier selection. On the one hand, this strategy
maximized GM's bargaining power and made monitoring the
purchasing agents easy. On the other hand, it cut GM off
from suppliers' ideas about product design and limited suppliers' willingness to invest in equipment
and skills that were useful only for GM products.(16) The
result was a cumbersome purchasing bureaucracy that maintained comparability among suppliers
while stifling communication between suppliers and the purchaser's engineers (because that might
lead to favoritism). Taking an example from another big purchaser, the military specifications for
chocolate-chip cookies run to sixteen pages of tiny, single-spaced type.(17)
back to top
Supplier Relations at NUMMI
Partly to promote close supplier relations and partly to avoid protectionist pressures,
NUMMI has rapidly increased the proportion of its parts that are made in North America.
Unfortunately, few North American suppliers had ever dealt with the Toyota Production System.
Toyota and NUMMI engineers initially worked
closely with seventy North American suppliers. In some cases, the company responsible for
supplying Toyota in Japan helped its North American
counterpart establish a lean production process. During the production start-up period, NUMMI
found three times as many defects in North American supplied parts as in Japanese-supplied parts.
But between 1985 and 1989 North American suppliers improved steadily to achieve quality,
delivery, and cost levels comparable to their Japanese competitor.(18)
The NUMMI production system leads suppliers, like workers, to continuously work to
improve the production process. While GM would often
have a dozen or more suppliers producing a single part, NUMMI has one source for each major
component. GM's strategy maximizes bargaining power but
requires GM to perform all design work in-house.(19)
When a supplier was late in delivering parts or did not deliver sufficient quality, GM threatened to cut off purchases. NUMMI works closely
with the supplier to discover the root cause of any problem that arises. As with just-in-time
production, just-in-time deliveries from suppliers increase opportunities for learning each blip in
production leads to a stoppage of the assembly line. The procedure greatly increases incentives
for understanding root causes of problems and preventing recurrences. As part of the process,
engineers (and even production workers) often move back and forth between NUMMI and its
During start-up of a new model year, engineers from the supplier work in the NUMMI
plant, just as they worked with the Toyota design team
during the previous year. The goal is to jointly optimize, eliminating operations that are expensive
for the supplier but add little or no value to the product. For example, one NUMMI supplier
discovered it was painting the surface of a piece that, when installed, could never be seen by a
consumer. When a supplier better understands the use of a part, operations that are not cost
effective are eliminated. Similarly, the automakers better understand the cost of their design
decisions, permitting future models to be built more cheaply. Under the old arm's-length regime,
suppliers did not want to share information with purchasers. They feared that if the automaker
knew how much a part cost, then the price would be lowered to that level.
New forms of supplier relations have spread throughout the United States since the
mid-1980s. One indicator of the magnitude of the change is that the percentage of U.S. auto
suppliers that provide detailed information about their production process to their customers has
doubled over the last ten years, from 38 percent to 80 percent.(20) The basis for this change has
been mounting evidence that long-term, information-rich relationships between suppliers and
customers lead to faster product development, increased flexibility, and higher quality. For
example, Kim Clark estimated that supplier contributions accounted for one-third of the Japanese
automakers' advantage over their U.S. counterparts in total engineering hours required to develop
a new car.(21) In the mid-1980s defect rates of parts supplied by Japanese companies were
one-tenth the rate of those supplied by U.S. companies.(22) In the United States, suppliers with
long-term contracts are significantly more likely to invest in computer-controlled equipment
investments that increase productivity, quality, and flexibility.(23) In all of these long-term
relations, quality and innovation count as much as or more than price in determining sales.
The contracts between purchaser and supplier are mostly implicit. Michael Smitka
described the arrangement as "governance by trust."(24) For example, if the supplier experiences
a problem with cost or quality, the automaker will attempt to work things out before switching to
another supplier perhaps by sending its own personnel to help resolve a supplier's production
problems. The high degree of trust engendered by such a process means that complete contingent
contracts are not necessary. Instead, the parties continuously renegotiate their agreements. Each
side is confident that if it loses a little bit (compared with its expectations) in one instance, it will
come out ahead in the next.
This commitment leads both sides to make many investments whose value depends on the
relationship continuing. Suppliers make large, fixed investments in areas such as quality-control
training and in maintaining a product-design staff. The parties also invest in mechanisms for
information flow. Intensive communication over the course of a long-term relationship means that
the parties come to understand each other's products and processes very well. Typically, a
Japanese automaker will not design a part that it requires for a new model. Instead, it will specify
exterior dimensions and performance characteristics, then allow a specialist supplier to design the
part to best match its process.(25)
back to top
Problems with Just-in-Time Delivery
Just-in-time deliveries from suppliers to automakers put pressure on suppliers to be
perfect. When JIT is coupled with successful problem solving, suppliers rapidly learn about their
own production problems. When JIT is not coupled with successful problem solving, suppliers
hold on to inventory buffers instead of the purchaser, leading to no net savings on inventory cost.
(Inventory shifting is common at GM suppliers.) (26)
NUMMI, for example, works with its suppliers to integrate JIT delivery with JIT production and
to reduce set-up times on its suppliers' machines.
Integration of JIT delivery and production poses difficulties for U.S. auto suppliers. They
dislike modifying their production process for a single customer, particularly one known to be as
fickle as GM. Most important, suppliers distrust GM engineers investigating their production process. They fear
losing their trade secrets and anticipate that sharing true cost information will remove their
bargaining power. To counteract these worries, NUMMI depends on only one or two sources for
each of its major components. For example, because of the subtle interactions between a stamping
press and the chemical composition of steel, NUMMI requires two years to switch suppliers for
its rolled steel. GM prided itself on being able to change
most suppliers within a matter of weeks.
back to top
Worker and Supplier Participation
A linkage between supplier and employee participation can be expected for several
First, the process of continuous improvement is more effective if good communication
flows from the supplier's shop floor to the manufacturer's marketing department and on to the
consumer. For example, in 1991 Honda of America found
that its customers wanted a continuously variable heater control, instead of the initial design that
allowed the vent to be only on or off. A team of engineers and operators at Honda's supplier realized that they could achieve variability
with the existing design if they could tighten the tolerances enough so that the plastic louvers
could come to rest anywhere in their range of motion, not just at their endpoints. Implementing
the change, however, meant modifying the production process at five or six places. Operators
contributed many of the suggestions to reduce variability by understanding the different steps in
the manufacturing process. The supplier's high level of employee participation made supplier
participation work, and Hondawas able to implement the
change quickly and with minimal cost of redesign and new tooling.
Continuous improvement requires that employees' ideas be spread to suppliers. For
example, when Hondaof America introduced a new paint
system, more than one thousand suggestions were made by Honda to its paint supplier.
In addition, worker participation can improve processes as well as products. The U.S.
Japan quality gap in automobile parts is both a cause and an effect of Japanese companies'
widespread use of JIT techniques, which, as described at NUMMI, increase incentives for and
ability of suppliers and workers to understand the root causes of problems and prevent
recurrences.(28) Employee participation can be crucial in permitting problems to be solved
quickly so the line will begin running again, even with minimal inventory buffers.
Close business partner relations can make employee involvement more effective because
suppliers' workers, by visiting the plant and witnessing the production process, see the big picture
of what they are doing. Suppliers also can help troubleshoot problems at the customer's site,
promoting closer relations.
Finally, both forms of participation require significant and similar changes in management
vision. The company must move from a low-trust environment to a more cooperative system
based on high levels of communication, skills, and relationship-specific investments, supported by
a foundation of trust and commitment to a long-term relationship.(29)
Close supplier relations are more common at high-involvement companies. Employee
involvement efforts are substantially more common in companies with long-term customer
contracts. According to a 1989 survey, auto suppliers with contracts one standard deviation
above average in length had 10 percent more of their work force in quality circles or related
employee involvement groups than did suppliers with contracts one standard deviation shorter
than average (56 percent versus 46 percent). (By contrast, a supplier's report of the difficulty its
main customer would face in switching to another supplier was not correlated with employee
involvement.) For reasons that are unclear, this relationship disappeared in preliminary analyses of
a 1992 follow-up: Auto suppliers with close relations to their customers (that is, the Big Three
and Japanese producers) were no longer more likely to have high levels of employee involvement.
Automobile suppliers, however, who had close relations with their suppliers were more likely to
have high levels of employee involvement.(30) In a separate study of machine tools users,
Maryellen Kelley, Bennett Harrison, and Cathleen McGrath found that group problem solving and
gainsharing are more common at companies with collaborative ties (for example, mutual
technology assistance, joint product design and development) to subcontractors and
Companies with high levels of employee involvement also have more employees in units
that undertake collaboration with suppliers in quality efforts, although the companies report
similar proportions of employees with direct exposure to customers, according to the 1990
Fortune 1000 survey. In the 1992 survey of steel plants, companies with work teams were three
times as likely to have frontline employees visit customers as were those with no teams. At
companies undergoing workplace restructuring, collaboration with suppliers is positively
correlated with team structure, skill variety, and having multilevel participation.(32)
Close supplier relations are more common at successful high-involvement companies.
Companies that report success with employee involvement have more employees in units that
undertake collaboration with suppliers in quality efforts, although the companies report similar
proportions of employees with direct exposure to customers, according to the 1990 Fortune 1000
survey. Similarly, at companies undergoing workplace restructuring, collaboration with suppliers
is positively correlated with higher quality and lower accident rates.(33)
back to top
The Importance of Integration
A systematic approach to employee involvement is substantially more likely to bring
sustained success than an individual element, such as a quality circle, a training program, or a
small employee-stock ownership plan.
The Power of Integration
Numerous studies have addressed the effects of employee involvement on productivity and
other measures of corporate performance.(34) A multiyear study of steel finishing lines is one of
the best and yielded results representative of the larger literature.(35) The authors used statistical
techniques to identify four distinct human resource management systems. For example,
production lines that adopted System 1 used much more innovative practices than System 4, while
Systems 2 and 3 fell between the extremes.
The presence of more innovative systems was associated with significantly higher
productivity. The highly innovative System 1 plants ran 98 percent of the scheduled time, while
the untransformed System 4 plants ran 88 percent of the scheduled time. Systems 2 and 3 were in
between. System 4 plants lagged in product quality as well as productivity. In a separate study,
Jeffrey B. Arthur concluded that high-involvement plants not only excel in quality and
productivity but also enjoy lower turnover.(36)
The results are not unique to the steel industry. A worldwide study of the automobile
industry found that a coordinated change to an involvement-oriented human resource system can
simultaneously improve workers' autonomy, product quality, and productivity.(37) Similar results
were reported in the electrical components industry and with flexible manufacturing systems.(38)
Although most of the famous cases are in manufacturing, the basic set of human resource policies
giving all employees the ability, incentive, and power to constantly improve their workplace and
the product also appears relevant in service industries as varied as airlines, insurance companies,
and department stores.(39)
Industry-specific studies have the advantage of measuring performance fairly accurately,
because they focus on specific operations common to different sites. However, they suffer from
concerns about generalizing to other industries and technologies. A few studies have linked
financial performance to human resource practices, but most have suffered from problems of small
sample sizes and unusual samples.
The largest of these data sets was created by Mark Huselid, who surveyed 850 publicly
held companies.(40) He found that human resource policies cluster. Companies with high
participation in employee involvement programs tended to have a high proportion of workers in
formal information-sharing programs. More of the workers are administered attitude surveys and
have access to profit-sharing or gainsharing plans as well as to a formal grievance or complaint
resolution procedure. The workers also received more training. Huselid also discovered that
high-involvement companies have above-average promotion from within, use of formal job
analysis, and administration of formal employment tests before hiring.
In Huselid's sample, high-involvement work practices predicted organizational
performance. He found that a one standard deviation increase in his measure of high-performance
work practices correlated with a reduction in turnover of more than 1 percentage point (for
example, from 14 percent to 13 percent per year). It also correlated with 16 percent higher sales
per employee (controlling for capital per worker and research and development spending), raised
annual cash flow by $3,800 per employee, and raised the market value of the company by more
than $18,000 per employee.
Casey Ichniowski studied sixty-five nonunion manufacturing companies and found,
consistent with Huselid's results, that those with more flexible job design and training had
substantially higher stock market value and productivity than did other companies. Unfortunately,
Ichniowski's sample size was small, consisting of only about 2 percent of the initial population of
Sample selection problems also arose in a result reported by the Department of Labor:
Companies that appeared in the 1984 edition of 100 Best Companies to Work for in America had
significantly higher stock market returns from 1985 to 1992 than did most companies (15 percent
a year for the sixty-three publicly traded companies listed in the book versus 12 percent for the
Frank Russell average of 3,000 companies' stock prices).(42) The companies were selected based
on nominations, site visits, and interviews with employees. They ranked high on pay and benefits,
career opportunities, job security, perceived openness and fairness, and friendliness.
Different sample selection problems affected a detailed study of more than six thousand
work groups in thirty-four companies.(43) To enter the sample, companies had to volunteer
access to their employees. The study concluded that an emphasis on workplace cooperation and
the involvement of employees in decisionmaking were both positively correlated with return on
investment and return on sales over five years following the survey. (Performance measures were
standardized by industry.) The financial measures took up to three years to show improvement.
Dennis Kravetz conducted a similar study of 150 large companies and found similar positive
results, with similar problems of interpretation.(44)
Following a different methodology, Barry Macy and Hiroaki Izumi presented evidence
drawn from a number of companies by aggregating results from 131 different studies.(45) Each
individual study focused on one or a few cases and measured the effects of introducing employee
involvement on productivity, quality, or other outcomes compared with the preintervention levels
or to a control group. The individual studies typically found beneficial effects from employee
involvement; companies with more interventions generally had larger increases in productivity or
quality. Tempering the conclusion is that descriptions of individual cases are more likely to be
written up when they are successful.
back to top
Total Quality Management
A final set of evidence on the power of an integrated approach comes from evaluations of
total quality management (TQM) programs. While not all TQM programs contain much employee
involvement, most successful cases of TQM do empower employees.(46)
While TQM has been credited with much of Japan's manufacturing success, an integrated
approach has also been effective in American-run workplaces. A General Accounting Office
(GAO) analysis of U.S. companies that won the Baldrige award for their quality programs
Companies that adopted quality management practices experienced an overall
improvement in corporate performance. In nearly all cases, companies that used total quality
management practices achieved better employee relations, higher productivity, greater customer
satisfaction, increased market share, and improved profitability.(47)
A large number of cases of successful TQM are found in the public as well as the private
sector.(48) In Madison, Wisconsin, for example, the very first quality team improved preventive
maintenance on the vehicle pool and saved the city $700,000. Since then, teams have spread
throughout the city government, from administrative offices to cops on the beat.(49)
Unfortunately, at many private and public sector workplaces in the United States, TQM is
implemented in ways that do not empower employees. For example, Ken Stockbridge, a GAO
expert on TQM, told of a county government quality team that required ten meetings over ten
weeks to choose a name for the group.(50) Even worse, in many programs, workers are not
rewarded for their efforts or ideas, and both middle managers and unions often resist the new
programs because they are seen as poorly conceived and threatening. At its worst, TQM becomes
a management speed-up that makes workers work harder but does not lead to sustained
improvements in the quality of products.(51) Thus many TQM efforts show only modest success.
Because of TQM's relatively recent implementation on a large scale, empirical analyses
with large samples remain rare. One of the largest samples comes from a 1991 GAO survey of
more than twenty-eight hundred federal government installations.(52) Two-thirds of the
respondents claimed to have some quality program in action, but most programs were less than
two years old. As expected, given the newness of the typical program, only 3 percent of
respondents claimed that their installation had achieved "long-term institutionalization" integration
of TQM into all aspects of the organization's operation. All of this 3 percent reported that TQM
had a positive impact on customer service, efficiency, customer satisfaction, and timeliness.
Barbara Flynn and Roger Schroeder surveyed U.S. plants in the machinery, electronics,
and transportation components industries.(53) They found that plants high in use of teams are also
high in training, information sharing, gainsharing, and worker-management cohesiveness.
Moreover, these companies are high in measures of TQM practices such as just-in-time
production, systematic preventive maintenance as well as in worker commitment and
cohesiveness. Perhaps most important, companies with these practices enjoyed higher product
quality. (Unfortunately, the sample selection included "world-class" plants. To the extent these
respondents were chosen based on knowledge of their high performance, the correlations reported
may overstate the effects of management practices.) In the long run, a high-involvement work
organization appears to translate into stock returns as well as high quality and productivity.
Sherry Jarrell and George Easton, for example, used a search of companies' annual reports to
reveal those with TQM efforts. Follow-up phone calls identified which companies were fairly
thorough in their implementation of TQM; that is, those that would score above approximately
five hundred (out of a maximum of one thousand) on the Baldrige award evaluation. They found
that the companies had 15 percent excess returns over the five years after the start of the TQM
program.(54) No excess returns were evident over the first three years, which was consistent with
the stock market failing to observe the quality of the investment in the TQM program
until it was already paying off financially.
Similar results are found for companies that won independently administered quality
awards, according to a study conducted by Kevin Hendricks and Vinod Singhal.(55) The
companies achieved stock market returns greater than those of similar companies only about 0.6
percent in the narrow window of a few days around announcement of the award but more than 6
percent in the years leading up to the award (and after the implementation of the quality
program). Both the Jarrell and Easton and the Hendricks and Singhal studies suffer from modest
sample sizes a limitation that will be alleviated as their research continues and as more companies
have mature TQM programs.
Thomas Heller identified companies with TQM programs from their annual reports and
from his meetings with top management. Heller, an independent stock market analyst, used the
maturity of a TQM program as a leading indicator of corporate stock returns. He found that a
portfolio of such companies that was matched to achieve risk similar to the S&P 500 had excess
returns of several percentage points per year.(56) The recent introduction of most American
quality programs makes all conclusions tentative. Researchers also have had difficulty
discriminating between typical TQM programs and those that are best practice. In addition,
several of the studies were possibly biased in their sample based on positive financial results.
Nevertheless, so far all research on the relation between mature TQM programs and corporate
performance demonstrates that well-designed TQM programs can increase productivity, quality,
and returns to shareholders. These well-designed programs, in turn, rely on, for example,
employee involvement, training, and rewards for employees who innovate.
back to top
In 1990 Laura D'Andrea Tyson and I summarized forty-three empirical studies on the
relationship between employee involvement and productivity:
There is usually a positive, often small, effect of participation on productivity,
sometimes a zero or statistically insignificant effect, and almost never a negative effect... .
Participation is more likely to produce a significant, long-lasting increase in productivity when it
involves decisions that extend to the shopfloor and when it involves substantive rather than
Several dozen new studies have been conducted since then, several of which have
particularly strong research designs and data quality.(58) Their conclusions reinforce the earlier
findings: A small-scale employee involvement plan, just as a small amount of training or a modest
change in pay systems, may have some beneficial effects, particularly in the short run.
Furthermore, a system of high involvement, strong rewards, and high levels of skill and
information, integrated with a corporate strategy that relies on frontline employees' ideas and
creativity, is capable of impressive improvements in organizational performance.
The positive effects of a high-involvement system do not appear to be restricted to
management goals such as quality and productivity.High involvement companies tend to have
lower turnover, and most studies found higher job satisfaction as well.(59) A smaller number of
studies examined wages, and again the relationship was generally positive.(60) The effects are
typically stronger and more likely to be long-lasting when companies create a high-involvement
system instead of adding a single profit sharing, involvement, or training program.
Deep cultural change accompanies the policies and practices of successful
high-involvement companies. Despite their important differences, most successful
high-involvement companies share one fundamental feature that explains their similarities.
According to Masahiko Aoki, "The body of employees is, together with the body of shareholders,
explicitly or implicitly recognized as a constituent of the firm, and its interests are considered in
the formation of managerial policy."(61) More broadly, employee, managerial, union, and
business partner support is maintained by increasing each group's ability to contribute to the
organization and by providing incentives for each group to work for the organization's long-term
back to top