Downsizing Literature LO4229

Rol Fessenden (76234.3636@compuserve.com)
14 Dec 95 00:20:08 EST

Replying to LO4205 --

Rol writes:

>It is interesting that the major reason given for down-sizing is the
>amount of overhead in American companies compared to their international
>competition -- 27% of costs in the US, 22% in Germany, and 18% in Japan.
>Those differences are astounding.

To which Marion Brady responds:

"REALLY interesting. I spent some time in both urban and rural Japan
recently, and that 18% figure is just astounding to me--differs so much
from what I thought I was seeing as to make me wonder about the possible
agenda of its source.

"Pull into a service station, and 4, 5, 6 attendants come running out to
fill the tank, clean the windows, check under the hood. Go to a
department store, and there are one or two greeters at every door (I mean
_every_ door in a bank of doors). Elevator operators on automatic
elevators. Two or three clerks behind every counter, in situations where
an American department store would have one clerk for two or three
counters. A very rural post office--the sort that here would have a
single worker--with 6 or 7 people behind the counter . . . Maybe it's
different in the industrial sector, but I was probably in scores of
service places of business, and saw no exceptions to the pattern."

************ End Quotes *******************

It is interesting, isn't it? It is pretty well documented that Japanese
organizations are 'flatter' by far than American. I think Peters and
Waterman (The "Excellence..." Books), mentioned that Toyota had 1 first
line supervisor for 250 employees, while Ford even later had more like 100
- 120. And ford is known among American companies for having relatively
flat organizations. In many knowledge companies, the ratio is more like
10 or 20 to 1.

One exception that Marion mentions is the retail industry, and this is a
true exception to the above rule. In Japan, retail has among the highest
prices in the world for precisely the reasons mentioned -- huge amounts of
staff. However, the service staff mentioned in the quote above do _not_
generally qualify as overhead, but as direct labor. Also, interestingly,
the Japanese retail industry is undergoing a massive shake-out as we
speak. Prices are tumbling dramatically in the face of some American and
European competition. While imports are very small compared to the overall
market size, importers are enjoying enormous success. LL Bean can
manufacture goods anywhere in the world, _fly_ them to Japan, and sell
them for 50-70% less than same quality Japanese-made goods. The American
retail industry is the most competitive in the world, and the Japanese is
the least.

Also, there are advantages to 'overhead' that some companies are starting
to turn to account. A disadvantage for the Japanese is that they have a
difficult time forming partnerships with their suppliers. That may fly in
the face of conventional wisdom, but it is true. They have tight
relationships, true enough, but the relationship is one of servant-master,
not partners. Suppliers to Japanese companies operate on extremely thin
margins, generally have no R&D capability, and are so totally dependent
that they cannot argue the merits of a decision as equals, but only as
servants. In other words, ineffectively.

There is some evidence now that American and European companies are
leveraging their overhead by using their 'knowledge workers' to develop
better, true partnerships with suppliers, and thus finding ways to take
out significant costs. Chrysler is now the world's most profitable car
maker (per car), and they have achieved that position through excellent
synergies with their suppliers. Other companies achieving similar
performance levels include Motorola and Marks & Spencer -- a British
retailer.

Overall, what I am trying to point out is that overhead is neither good or
bad. It depends on whether or not it is adding value. Americans have been
lethargic, but in the face of a little competition, some companies have
found ways to turn their overhead to good account. At the same time,
other companies have followed the Japanese example and flattened their
organizations, eliminating layers of middle managers. I doubt that this
'Japanese' approach will work, but only time will tell.

Japan is now changing dramatically. Lifetime employment and guaranteed
employment are dying fast. Nissan hired 3,045 college graduates 3 years
ago, and this last year, only 40+. Unemployment, which was 0 for 45
years, is now 3%, and my Japanese partners say it is actually higher.
They do not have good mechanisms for measuring unemployment, and they are
not enthused about knowing how bad it is.

--
 Rol Fessenden
 LL Bean, Inc
 76234.3636@compuserve.com