The Swedish Production System

Gustavo Abel Carrillo Guzmán Universidade Federal de Minas Gerais Caixa Postal 209 CEP 30161-970 Belo Horizonte MG gguzman(arroba)campus.cce.ufmg.br

Abstract. This paper examines the Swedish Production System from a broad perspective. It shows how innovations in work organisation are function of the wider macro economic and institutional context. It suggests that production systems functioning can only be understood by examining both micro and macro level dimensions.

Área: Estratégia e Organizações Key Words: Production Systems, work organisation, contextual conditions

1. INTRODUCTION The Swedish production model have contributed in significant way to the development of production engineering. Yet, it have been little studied and understood as a whole package. Both production engineers practitioners and academics usually apply specific techniques (eg work group, cellular manufacturing) in isolated way without considering contextual conditions. This constrains its implementation and, in many cases, lead to failure. This paper contributes to the understanding and learning of the Swedish production system from a broad perspective. The uniqueness of Swedish national institutions and organisational features seems to be an important factor in explaining the success of the Swedish production system. Macro economic, political and institutional conditions of the 1980s such as full employment policies, compressed inter-sector wage and export dependence, provided favourable conditions for the development of the Swedish production system (Pontusson, 1990). Democratic ideals are the contextual factor in which production and economic issues are discussed and settled on. To understand the functioning of the Swedish production system 2 dimensions have been differentiated: macro economic issues and micro (firm level) work related issues (Sandberg et al, 1992; Durand, 1993).

2. THE MACRO LEVEL DIMENSION Three events made possible the relative achievement of a 'balance of power' between capital and labour (Meidner, 1994; Milner, 1990). Firstly, the historic 1938 Saltsjobaden accord in which workers collective associations (specifically The Swedish Workers Confederation of blue-collar unions - LO) signed an agreement with the employers associations (The Swedish Employers Confederation, SAF). This accord supported workers' and employers' associations to negotiate without government interference. It focused exclusively on 'distribution' issues leaving aside 'production' issues. Distribution issues concern the creation of conditions for stable economic growth at a sufficient rate to secure full employment. In the early post-war period TUs started to bargain on wage issues as part of a strategy to implement full 2 employment, as a key mechanism to reduce economic inequality. This however did not leave room for TUs to discuss workplace related issues (ie production issues) such as rationalisation programs for increase productivity. Secondly, TUs have been well organised, strong (for example, 90 % of metal workers are unionised) and possessed significant influence on labour market deployment. Thirdly, the Social democratic party (SAP), who is ideologically linked to LO, has been at office for 53 of the last 59 years. The combination of these factors supported stable economic growth accompanied by consistent improvements on both working conditions at the firm level and raising living standards at a societal level.

To promote full employment demand was maintained slightly below the breaking point. Demand deficits were compensated by active labour market policies in specific sectors, trades or regions. Active labour market policies were not only complementary to market, industrial and regional policies (to pursue economic stability) but they were also a complement of solidaristic wages. Further more, employment services improved labour market's flexibility, training and retraining programs increase the supply of skilled labour as well as subsidies for the disabled integrated them to productive work (Meidner, 1997). The equity policy was also promoted by the establishment of a strong public Education and Health system. Three specific economic mechanisms were used to achieve the above: the co-determination law, wage solidarity and wage-earner funds. Despite these mechanism worked relatively well, they also brought political challenges as " ... the coherence between full employment and price stability on the one side and between egalitarism and efficiency, are the principal problems Swedes need to address " (Meidner, 1994: 46).

The 1976 Co-determination Act (MBL) provided a legal framework to support the reaching of consensus decisions. Despite employers continuing to have the decision-making power, the MBL made room for TU intervention in the decision-making process, both formally and informally. Management, nevertheless continue having the last word on decision making.

The wage solidarity program (equal pay for equal work) was designed and proposed by LO's economists to further promote equality. Under this policy inefficient firms unable to pay average wages disappear. Dismissed workers were quickly absorbed by efficient firms as active labour market initiatives provide for additional training needs including financial compensation while unemployed.

To address the problem which emerged in the case of highly efficient firms, which can pay higher wages, a specific mechanism was created to re-distribute capital surpluses. Wage earner funds (WEF) financially support the solidaristic wage policies. WEF were financed by 20 % surtax on the firms pre-tax profits paid partly in money and partly in shares. These funds and shares were controlled by TUs. This scheme worked well while the socialist government was in office, despite the fact non-socialist parties out pressure on the government to cancel the project. In 1991, when a non-socialist government took office this fund was eliminated (see section 4).

3. THE FIRM LEVEL DIMENSION By the late 1960s both technological and organisational changes brought about by employers resulted not only in higher productivity levels but also involved higher work intensity and decrease the quality of work, specially for women and older workers. This triggered an increase in staff turn-over, absenteeism and difficulties in hiring young educated workers. These events convinced TUs of the need to gain the power to deal, on an equal footing, with 3 productivity and rationalisation related issues. Firms, on the other hand, were interested in addressing the high turn-over rates, accompanied by low unemployment levels, that occurred between the 1970s and 1980s, to obtain economic growth. Then, the development of work issues occurred in along 2 strands. One led by employers (SAF) and other by TUs (mainly LO). SAF's initiatives were more directed towards the achievement of higher productivity and efficiency than to the improvement of better working conditions. Conversely, LO's efforts were directed more towards the improvement of working and job conditions than to productivity increases. Both parties, from different perspectives however, pursued the increase of the overall efficiency of the firms as this would directly support their full employment macro economic goals. These developments are outlined next.

SAF's "New Factories " : The key contribution of this initiative was the development of the idea of product or flow oriented production instead of functional orientation. This supports efficiency through the simplification of short-term production planning issues, shorter lead time and work-in-process involved as well as material handling on the productivity side. On the social side, group organisation supported a wage system rewarding groups - and not individuals- as well as increasing leeway for workers to self-manage their immediate work environment. Firstly, 'co-ordinated independence in small systems', was achieved by dividing up large technological systems in subsystems to manufacture complete parts or components. The production unit is then controlled by measuring outcomes. Secondly, 'stability of production' was sought through the use of one layout to one product and via the insulation of the unit from external disturbances.

New Production Concepts at Volvo: In order to improve factory whole performance Volvo's corporate management and workers' association representatives decided that traditional Tayloristic production organisation needed to be substituted by a 'Human' approach in which productivity gains came from highly skilled workers performing holistic tasks. This nevertheless, was not an straight forward process. External and internal factors contributed to shape the alternative solutions. Externally, high competition, raising quality standards word- wide as well as uncertain economic growth in world markets were key factors considered. Internally, prevailing the pluralistic views regarding the path to take, in both workers and employers associations made this change of approach difficult. Christian Berggren (1989, 1992) in his longitudinal study has synthesised the key production and work organisation innovations that evolved in the Swedish automotive industry in final assembly from 1970 to 1990. He concluded that Swedish automotive manufacturers developed and used a large variety of technical and organisational concepts in different plants producing different product lines, at different times and responding to specific product markets, productivity pressures and firm's managerial orientation. From this resulted very different technical and organisational solutions in layout, material handling systems, production control and pacing principles (cf Auer and Riegler, 1990).

* The production layout (assembly concept), the two extremes being, on the one hand, a strict series layout (the traditional mechanical moving belt) and, on the other hand, complete parallelization, (dock assembly). Kalmar was an early attempt not to abandon the line but to combine it with certain elements of dock assembly. This attempt was not successful. Basically the same concept has, though, been realised in Oskarshamn where materials handling system has been developed to match this idea.

* Oskarshamn has (as Kalmar always did), retained the centralised pacing and control, allowing computer control to replace the conveyor belt. Excluding bus production, only Volvo 4

Trucks in Gothenburg (and for a part of its production, Volvo Umea) has abandoned the principle of centralised pacing in their final assembly operations.

* A third, central issue is the vertical division of work in final assembly operations. The range here is from traditional authoritarian management forms to far-reaching decentralisation and multi-skilled team-working, with the teams having responsibility for planning, training and production scheduling (Berggren, 1989: 189-90).

Within the large variety of technical and organisational forms, Berggren has differentiated two groups of plants. On the one hand, there is a group in which Flexible Taylorism is the dominant trend and on the other hand, there is a group of plants which applied 'qualitative changes', representing a real departure from flexible taylorism.

Flexible Taylorism was defined by Berggren as the combination of (i) a traditional line with highly repetitive work with a short cycle time (a few minutes at most) and weak-group organisation within a traditional management structure. That is, the production group determines only internal task allocation, the group leader is appointed by the foreman, and management continues planning, co-ordinating and controlling production pace and output; Or (ii) a modified line with longer cycle time (10-30 minutes), with some chance of varying the working pace and/or moving between line assembly and the less restricted pre-assembly work, and a conventional hierarchical and individually structured organisation in which workers have no participation. Positive outcomes were limited for labour and significant for the firm.

The second group of plants (LB and Uddevalla) went beyond flexible taylorism and applied what can be qualified as early exemplary forms of Human-centred 'New Production Concepts'.

The production design of the LB heavy truck plant has two non-mechanical flows and worker-controlled carriers. The organisation was group based with each group allocating all tasks, detailing scheduling and balancing, choosing group leaders as well as rotating jobs. Buffers were set up between groups. The cycle time is between 30 and 50 minutes. The wage system has individual grades and group based bonuses. Flat hierarchical organisation (only 3 levels) and significant Union participation through joint management-Union committees are features of this type of production design. In social terms, this approach did not end all worker related problems but made significant advances. Comparing LB to other Volvo plants, Berggren (1989) pointed out that, LB's social outcomes are much better than other plants.

The Uddevalla plant was the first greenfield project where TU representatives were involved from the early stages. Berggren (1992: 154-62) and Engstrom and Medbo (1995) pointed out the main innovations introduced at Uddevalla.

### The central idea applied at Uddevalla was to build in small parallel shops a large factory. This allowed the free application of socio-technical principles for coping with required product and volume flexibility. Each assembly shop was composed by eight teams which were responsible by three sub- assemblies. Teams of 7 workers using a 'dock' system assembled one-fourth of the car -while it remained static - with a 2 hours cycle time.

### In order to make the complete assembly possible, save space for optional materials and to facilitate learning of long work cycles, an individualised material supply was implemented.

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### Naturally grouped assembly work was used. This involved the combination of many tasks in one job and the creation of new skills.

### A final assembly-oriented product structure allowed greater worker access to technical information in order to get an overview of the whole process. This was required to support large cycle time that involves handling large number of parts, operations, processes, tools and technical specifications.

### The holistic conceptualisation of work organisation (teams of workers performing in long cycle time parallel shops) was also designed to minimise strains by repetitive work (a high variety of activities exists). Complementary ergonomics efforts were also made to minimise work-related injuries by contracting the development of new hand tools adaptable to different sizes and applying the idea of tillers in assembly to allow, as much as possible, assembly work be done in an upright position.

### In organisational terms, the small shop idea allowed the application of decentralised production concepts, flat hierarchies (one plant manager, shop managers and work teams) and low vertical and horizontal division of labour. Teams carried out maintenance, quality control and short-term work organisation activities. The team representative was selected by team members. Different types of training were provided as well as the rewards systems being modified in accordance with the new organisation: bonus pay for productivity, individual and group based performance evaluation.

The application of the above production concepts allowed saving in space requirements (including buffer volumes compared to traditional line assembly); reduced need for technical production support (production engineering and supervisory functions) to the work groups; reduced need for expensive tools compared to traditional line assembly and efficient information handling. All these achievements supported flexible work scheduling, shorter lead- times than traditional line assembly, efficient change of model and facilitated the manufactured of complex product variants without generating disturbances in the production system (Engstrom and Medbo, 1995: 70-2).

The introduction of those principles was, nevertheless, not without problems from the labour perspective. The positive effect on working conditions of applying longer cycle time, buffers and semi-autonomous units are lost when, due to market pressures, pace of work is intensified '... With balancing problems absorbed largely by the groups and costs of disruptions minimised, parallel-line systems can be speed up' (van Houten, 1987: 499). The outcome for workers is worsened if organisational innovations are introduced without reward and training improvements.

The above developments in work organisation and production design are what can be labelled as the 'Swedish Model' of production. This is important because, from the early 1990s there were significant changes in Sweden politics that some observers interpreted as the end of the Swedish model. As a consequence of these political changes, a new management approach of the Swedish Model has emerged. The uncomplicated and bright management view of NPCs in Sweden has been outlined by Sandberg et al (1992),

### Flatter organisation through fewer hierarchical levels. That is, both top management and base are strengthened. This involves both centralisation and decentralisation. Control functions for monitoring the achievement of production targets in quality, time, costs as well as the set up of performance measures is centralised in top ranks. On the other hand, the set up of relatively independent work units, in which shopfloor personnel perform and 'control' some activities such as micro planning, quality control and co- ordination entails some degree of decentralisation.

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### Top management control and co-ordination between different units occurs through the use of computer-supported information systems. Then, the group's and organisational unit's performance can be followed up 'on-line'.

### Pay and reward systems are directly linked to both the firm profits and the group performance. Profit sharing schemes, payment by results or bonuses are widely used. Rates determination is a managerial prerogative and usually performance-oriented.

### Ideological control using 'soft' methods. The idea is '... to build up team spirit, a common corporate culture, and thus win the hearts and minds of the workforce' (pp. 276-7).

### A breaking of the employer-employee relationship because a different role is being established between producers (workers) and owners (managers) of the production means. Many tasks of the productive chain are being subcontracted (to the small scale franchised or self-employed) as well as extensive use of short term employment contracts, seasonal and part-time employment is being used.

While the above management-oriented profile of production concepts is frequently found in popular management literature, it is important to note that without a doubt, there has been a change of orientation in management thinking: from production to markets, from inside to outside the organisation and focusing on customer's needs. This brings both risks and opportunities for workers, TU and society at large. On the one hand, it might lead to strengthen managerial control over employees whose short-term interests coincide with those of management. On the other hand, it may lead to increasing freedom and self-determination for employees. The alternatives are open as this is a transition time. Firms are experiencing new options and evaluating them in order to define the way to go.

The main risks of the new management approach of the Swedish model are three (Brulin and Nilsson, 1994; Nilsson, 1996). Firstly, decentralised negotiations represent a clear erosion of TU power position to negotiate as management is usually in a better power position at firm level. Secondly, new trends to determine wages are still ambiguous. There are cases in which wage determination favours the use of an unified systems to fix terms of employment and remuneration (Nilsson, 1997). In other cases, wage determination prevent the local integration of the blue and while collar groups, putting at risk the solidaristic principles that support TU role. In turn, this might evolve and deform the social redistributive character of the Swedish model. Thirdly, workers also face new dilemmas inside the factory. On the one hand, under NPCs , they need to be committed to the work and company goals on which they depend for their livelihood. On the other hand, workers must also to be committed to TUs objectives. The use of soft control methods accompanied by 'corporate culture' approaches and employers efforts to eliminate causes of conflict constitute a threat to TUs, constitutes an ideological control of workers (Sandberg et al, 1992: 273).

Recent developments in Sweden point out, however, that a renewed Swedish model has still a lot to offer in the promotion of social equity and economic efficiency. Levinson (1996: 132) for example suggests that there is a tendency to apply 'integrated' codetermination (ie, when representatives of the employee take part in the firm's ordinary decision-making) in detriment to 'separated' codetermination (ie, when the demands of the employees are dealt with in negotiations), and this development might further promote the renewal of one of the corner- stones of the Swedish model: The stable relationship between workers and employers associations.

4. THE SWEDISH MODEL IN CRISIS: A PARADOXICAL END ? 7

Since early 1990s a paradox has been evolving in Sweden: while the Sweden style NPC seemed to be adequate to cope with uncertain and turbulent market conditions (Boyer, 1993), such as the ones emerging since late 1980s, the early 1990s has been witnessed what can be interpreted as the dismantling of the Swedish model. This however, does not relate to the intrinsic production and organisational features of the Swedish production system, but to external and domestic conditions, such as significant changes in the global economy, the European unification issue, world economic slow down, change of winds in Sweden's politics and domestic economic problems. From 1985 to 1990, productivity rates decreased from 2 % to almost zero. In order to lower costs the Social democrats made 'Third Road' strategic choices that weakened the labour movement. In the 1980s Social Democrats departed from their traditional approach to macroeconomics management, by relying primarily on increased corporate profits as a mechanism to stimulate growth. This means that full employment, for the first time in 20 years was no longer the central aim of the government. In order to achieve this a 16 % devaluation, public sector cutbacks and wage restraint occurred. The third road then encouraged competition based on labour costs and prevented the firm's innovation and affected somewhat the Welfare system. Unprecedented levels of corporate profits led to wage drift and boosted inter-Union wage rivalry in the mid 1980s and thus undermined LO's and white collar TU to exercise solidaristic wage restraint (Berggren, 1994a; Pontusson, 1990).

This was a result of the government's incapacity to promote full employment and price stability, the increase of power of white collar TU which is less interested in the egalitarian policies, the refusal of employers associations (SAF) to participate in central negotiations with blue collar TUs (LO), and the incapability of workers associations to set up new mechanisms to define equitable wages considering differences in types of jobs. The heavy international crisis, and the government led deflationary policies to maintain low demand levels (in order to meet European Economic Unification demands) further helped to erode the efficacy of the Sweden model (Meidner, 1994: 54; 1997). Finally, the defeat of the Social Democratic party in 1991 and the shift of government policies, from promoting full employment to preventing inflation, was interpreted as the end of the Swedish model. The above domestic crisis brought new contextual conditions for the firms and workers. As recruitment problems did not exist any more, the need to improve working conditions disappeared. Under this conditions TUs' role have shifted from work reorganisation issues to a defensive role: concentrating on saving their members' jobs (Thompson and Sederblad, 1994).

Three additional factors help to understand the erosion of the Swedish model (Czarniawska- Joerges, 1993). First, a 'legitimacy crisis': The Swedish Employers' federation (SAF) announced a retreat from the practice of collective bargaining. This means carrying out decentralised negotiations which brings crucial challenges for TUs. Second, there was a basic assumption that employers and workers negotiated on the labour market, freed from State intervention. However, this needs to be examined considering that (i) state and local governments were major employers (but not major owners); (ii) the bargaining process that occurred between social parties was supported by specific institutions. 'Nowadays, however, organisations are neither few, nor centralised nor homogenous'. Three, despite consensus have a practical value for handling complex interactions, its normative value, has changed. Because public opinion prefers a more critical attitude nowadays, consensus seeking has been dubbed 'conflict avoidance' and striving for equality as 'pressure to conform'.

5. CONCLUSIONS 8

How should all these developments be interpreted? Is this the end of the Swedish model ? Any answer to this question might be premature since firms continue experiencing with the combination of traditional Swedish work organisation innovations, the new management approach and-or Japanese style techniques (cf, Berggren, 1994a; Nilsson, 1996). Additionally, macro economic and political issues seems to be far from settled. In early 1995 for example, the Uddevalla plant was reopened to produce (in co-operation with British TWR) Volvo's top end models. Thus, the Swedish model of work organisation seems to have a clear role in the world of work as recent developments in shows: A slow and steady wave to reform work and organisation applying 'Swedish work organisation concepts' in order to face domestic structural problems (cf Gronning, 1995; Nohara, 1997; Tanase et al, 1997). On the other hand, the understanding and learning from the Swedish production model as a whole package, rather than the isolated application of specific production engineering techniques, will favours its complex adaptation to the Brazilian industrial conditions.

5. REFERENCES

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