Crisis in German Decentralized Production: Unexpected Rigidity and the Challenge of an Alternative Form of Flexible Organization in Baden Wrttemberg

Home , Werner Abelshauser

CRISIS IN GERMAN DECENTRALIZED PRODUCTION: UNEXPECTED RIGIDITY AND THE CHALLENGE OF AN ALTERNATIVE FORM OF FLEXIBLE ORGANIZATION IN BADEN WÜRTTEMBERG

Gary Herrigel University of Chicago, USA

Abstract

This paper discusses the current crisis in the German they are being challenged by an alternative system of industrial district of Baden Württemberg. Considered flexible manufacturing that is superior to their own. to be a flagship example of flexibility and international Rigidity in the system of production in Germany can competitiveness for European manufacturing during be traced to institutional arrangements that were the 1980s, producers in the district - both large and previously thought to be a source of strength: broad small - have fallen upon hard times in the 1990s. This yet nonetheless specific skill categories and distinct, paper suggests that the explanation for the crisis can- functional divisions within management. Successful not be traced either to high wages or low levels of adjustment in Germany today will have to involve productivity in the region. Rather, the problem con- profound self-reflection on and debate about the fronting the producers in Baden Württemberg- and reform of some of the most taken-for-granted dimen- by extension in German industry as a whole - is that sions of German industrial order.

Introduction decentralized production in Germany, and in particular Baden Wurttemberg, had hit upon the Renewed of small and medium competitiveness secret for enduring competitive success in a sized producers, timely decentralization on the part turbulent, rapidly changing international market of large producers and a robust infrastructure for environment (Katzenstein 1989; Simon 1992). decentralized flexible all supporting production This impression did not last long. By 1992 the contributed to a within very heady atmosphere German economy had fallen into the deepest German the later many industrial regions during recession of the entire post-war period, and the half of the 1980s. The southwest of province Afiisterlatidle Baden ivvrttcmbcrg was by no means Baden Wurttemberg, in particular, was heralded spared (Association of German Economic Research within Germany as a AliiJterl3ndle (a model or Institutes 1992; Atkinson 1994; Heilemann 1993; and was admired showpiece Land) widely Isaak 1992). Indeed, in 1991, GDP growth rate in and North America for its throughout Europe Baden Wurttemberg (2.8 per cent) fell beneath the and its effective dynamic, high quality producers Federal average of 3.4 per cent for the first time industrial and policy (Cooke Morgan 1990a, since 1978, placing it behind all other western Funck and Becher Hassink 1990b; 1994; 1992; German provnces except the Rheinland Pfalz. Herrigel 1993; Semlinger 1993). Moreover, at a Investment rates, especially in investment goods time when it seemed that things could not get branches, fell off dramatically while job growth in much the Berlin ivall fell and was better, Germany those sectors fell off alarmingly: the total number unified, giving a new boost to the business cycle of jobs in the Baden Wurttemberg investment and life to the extended boom. longer already very goods industries fell by 11.4 per cent between 1991 As the 1990s it that began, truly appeared flexible, and 1993. Large and small firms in a variety of

33- 34

sectors - especially, machiney, auto and . They were unable to lower their production electronics-related - announced sometimes costs into competitive ranges. dauntingly large losses and lay-offs: Daimler-Benz, for example, announced in 1992 that it planned to Both parties further agreed that producers had lay off 29,000 workers and engage in massive become overly rigid and bureaucratic (Iwer 1994: internal restructuring. Berthold Leibinger, a 50-9 and 66-82; Zukunftskommission Wirtschaft prominent machine tool industry executive, was so 2000 1993). Finally, though both groups were alarmed by the dramatic downturn in orders for writing about Baden BVürttemberg, both intimated German machine tools in 1993 that he predicted that the problems they identified applied far more 2 that nearly half of the industry’s jobs would have to broadly to German manufacturing as a whole.2 be cut by mid-decade (Cooke, 1994; Cooke el al. Despite this surface consensus on the symptoms 1993; Engelmann et al. 1994; Iwer 1994).’ of crisis, fundamental disagreements existed Bankruptcies (both personal and business) in between the parties regarding the underlying general increased dramatically in the Federal causes and possible remedies of the crisis. The Republic during this period. From a tow of 12,437 government and employer side claimed that the in 1990 totalling DiN,16.82 billion, the number of decisive problem for German competitiveness was bankruptcies increased by 1993 to 19,264 in 1993, the high comparative level of German production totalling some D.,N129.03 billion (Industrie- und costs and in particular wage costs (e.g. Handelskammer Heilbronn: V’irtschaftsdienst Zukunftskommission Wirtschaft 2000 1993). 1994). Labour and academics sympathetic to labour, on Most interesting about this recession is that the other hand, claimed that the real problem lay Nirtually no one in Baden Wurttemberg believed not in wages, but in the failure of government and that it was simply a cyclical downturn. On the management to raise productivity and engineer a contrary, most voices clearly understood the shift within the economy to more modem and downturn to be some kind of structural crisis and growth intensive industries and technologies, such there was nearly universal agreement on the as information technology, biotechnology, new primary symptoms of the crisis. For example, both materials technologies and energy, aerospace and an elite, heavly business dominated, environmental technologies (Iv-er 1994; Naschold Zukunfiskommission (Commission for the F’uture), 1994). One side wanted to shift the blame and which was appointed by the Government of Baden ultimately the burden of adjustment onto labour, Wurttemberg to study the economic problems of the other side onto management. the region, and a study by the IMU Institute As politically weighty as each of these positions commissioned by the IG A’Ietall trade union, may be, neither one is altogether satisfactory as an concluded that the crisis in the region was due to explanation for the crisis. Though it is true that the incapacity of regional producers to keep pace German wages are higher than most of their major with increasing international competition. Relative competitors’ (and particularly those of the Japanese to their main competitors in Japan, the rest of the and Americans), the gap is moderate and, Pacific Rim and in North America, the two studies moreover, has not changed appreciably from the agreed that Baden BVürttemberg producers, large period of the 1980s when German competitiveness and small, had the following failings: was being celebrated (Iwer 1994: 30-43). Likewise, German productivity levels have always been out of line with many of their foreign . They brought new products to market more competitors in many sectors, largely because slowly than their foreign rivals. Germans traditionally have very successfully . They had more difficulty continuously and emphasized the production of lower series, high quickly integrating new technologies into their quality niche products that their primarily volume- products. producing international competitors did not and ~ They had a tendency to ’overengineer’ their could not produce. (The production of such products. products was always cost intensive and resisted 35 productivity enhancing rationalization.) The regulate relations between all parties in labour and difference now is that the distinction between a product markets. Crises are moments of collective niche product and a volume product has begun to self-redefinition in which the order of relations, collapse and Germany’s competitors have been able roles and institutions in social life is recomposed. to maintain their higher levels of productivity while The current crisis in German manufacturing, this entering German high quality markets (Naschold paper will show, is provoking a set of debates and 199-I). This, moreover, has nothing to do with a experiments which aim at nothing less than the failure to enter new ‘growth’ markets: German reconception of the actors within and the competitors are gaining market share in traditional boundaries of industrial practice in the German German markets such as machine tools and political economy. automobiles! The problem is not simply that the Finally, before getting started it is important to German employers have been unable to maintain address the fact that like many of the participants levels of productivity. Rather, it is that German in the debate referred to above, I will make here a manufacturers can’t compete in world markets general argument abut industrial transformation in using the market strategies and production Germany through a close analysis of the experience practices that have made them successful in the of producers in Baden Wurttemberg. This may past. appear paradoxical to those familiar with the arguments for the peculiarity of Baden BVürttemberg’s industrial structure during the 1980s, but the paradox is easily clarified. The An altenzative view significance of Baden BVürttemberg during the 1980s largely had to do with the striking success of This paper will present an alternative to both of the dense networks of small and medium sized firms above explanations of crisis. It suggests that the there. Baden ivfmembcrg was constructed in current crisis afflicting German producers stems public debate as an industrial district and . from the fact that they are now confronted in contrasted with the competitive and organizational international competition with forms of flexible strategies of larger scale firms elsewhere in organization that are superior to their own. Germany; and, indeed, within Baden lVurttemberg 3 Adapting to and adopting some or all of the itself (see for example Herrigel 1989).~ features of the alternative system will involve In the current period, hov;~ever, both large scale profound restructuring in many of the most taken- producers and the dense networks of small and for-granted dimensions of German industrial medium sized producers are suffering competitive practice: in particular the central structuring role of decline together in international markets. The skill distinctions within German workplaces and premise of this paper is simply that it is plausible functional divisions within the managerial that the problems that large and small firms have in structures of German firms. Reforming these common stem from characteristics they share, dimensions of German industrial order will force rather than from their differences. Ironically, the Germans to reconsider the adequacy of because Baden ivirttcmberg, unlike many other institutional solutions to labour and product market German regions, has important concentrations of processes that have been in place for much of the both large scale and decentralized small and current century and, moreover, which have long medium sized producers, close analysis of the been considered to be sources of Germany’s experience of producers there can be taken to be competitive strength in world markets. characteristic of the experience of producers The current crisis in German manufacturing, in throughout the German Federal Republic. other words, cannot be resolved by shunting the burden of adjustment onto either labour or management. Instead, successful adjustment will have to involve the collective reconsideration of the institutional mechanisms that both define and 36

Competing with new forms of flexibility: The Achilles’ heel of this strategy and possibly of automobiles and machine tools the entire supportive social economy, it now appears, was that it depended on the existence of a The experiences of the machine tool and the relatively stable space in markets for higher quality automobile industries provide paradigmatic and/or customized products that were more examples of what has happcncd to flexible expensive than standard variants. This space seems decentralized production in Baden Wurttemberg in to have disappeared in the 1990s, not because the 1990s. In both cases, the traditional strategy for there are no longer consumers interested in high success had been to aim for the high quality quality and customization, but because a whole segments of markets for particular technologies or host of producers in these industries, particularly in products and attempt to narrow (or, as in the case Japan and the United States (though not only of Mercedes Benz, manage) the price gap between there), adopted production methods that enable their higher quality good and standardized variants. them to supply this demand at a much lower price This strategy was made possible by a unique array than the Germans can. Moreover, these of social roles, political and economic practices and competitors can do this while driving the pace of institutional mechanisms that shaped and regulated innovation to levels even the historically highly labour and product markets among producers in innovative Germans are not accustomed to (see for the region: example Schumann et al. 1994).~ The key advantage the new alternative a In general there were relatively high levels of production methods have over the traditional skilled labour in production. German form of decentralized industrial order is 0 Significant dimensions of the specialty that they organize production in ways that not only production processes utilized craft or batch break down boundaries Between firms, as the production organizational principles and not decentralized Germans have done, but that break mass production ones. down internal divisions within their production 0 Among industrial workers and managers in the units as well. Extremely flexible organizational region, in large and small firms, there existed a forms have been diffusing, in different ways in strong social norm according social honour to different countries, bringing production, the successful performance of a Emf or skilled purchasing, sales and development departments vocation. together, often along with suppliers, to co-operate 0 Relations among producers were constituted in the ’simultaneous engineering’ of products. vertically through extensive and collaborative These changes have been accompanied by and are sub-contracting relations and horizontally integrated with the broad diffusion of group or through long-standing arrangements for the team work in direct production, modularization of stabilization of competition and the co- production, the proliferation of U-shaped ordination of specialization. production lines, and the institution of zero defect 0 Finally, many costs and risks that especially and continuous improvement policies managed by smaller and medium sized producers teams themselves. All of this is organized around encountered w ere socialized across a supportive and enforced by the maintenance of extremely low exoskeleton of institutions for technology inventories throughout the production process transfer, vocational training, export promotion, (Aoki 1988; Koike and Takenori 1987; Nishigushi market stabilization etc. 1992; Rommel et al. 1995; Shingo 1987, 1992; IVomack et al. 1990). This system of industrial order in southwest Such systems attempt to orient the entire process Germany relied on quality and customer chain in production, from development and design satisfaction to compensate for what where to the assembly of the final product, around the traditionally considered to be, given the way they needs and desires of the customer. The key to the were produced, the Î1n’an’ab!)’ higher costs of the system’s tremendous fleacibility is the fact that it products it manufactured.;4 effectively reunites the conceptual development of 37 product and production design with their actual Challged The lvorld (BVomack et al. 1990: 91; Cooke manufacture within production units by removing et al. 1993). According to the MIT Report, this all fixed roles in the workplace. Product teams plant was ’expending more effort to fix problems it design and produce a good and specific tasks are had just created than the Japanese plant required 7 defined and allocated through tire process of to make a perfectly new car the first time’.7 developme7it and productioll itself. The key to the Daimler-Benz itself estimated in 1993 that its system’s remarkable innovativeness rests in the production costs were roughly 35 per cent higher close and continuous self-monitoring practices that than its main competitors’ in Japan. In that same the new product teams engage in under conditions year, the company announced a record D1~II.8 of extremely low inventory: because buffers are billion net loss (Morgan 1994). extremely small, each position in the production The competitive disadvantages of the process has an incentive to get information about decentralized German craft manufacturing system and communicate with the entire set of positions in relative to the more flexible and lower cost one the process to optimize How and avoid bottlenecks. increasingly being adopted by the best of their This structure engenders a continuous discussion major competitors is if anything even more clear in in production about its organization and the nature the case of the machine tool industry. Here, too, of its product. At its limit, the logic of this the Germans have performed badly relative to the alternative system causes the old style ’firm’ to Japanese and rejuvenated US producers during the disintegrate entirely into an infinitely recombinable 1990s (Finegold et al. 1994; Schumann et al. 1994: set of roles and relations that the participants 371-528, esp. 406f). As in the automobile case, themselves reflect upon and structure (Sabel high German production costs and the high 199~).66 quality, greater flexibility and relentless innovation Experience in direct competition has proven the of competitors have been to blame. Producers of superiority of these alternative methods over the high quality standardized computer guided tools, traditional forms of decentralized flexible high such as Traub Maschinenfabrik of Reichenbach/ quality production that have existed in German Fils and the Index-~Verke of Esslingen, have been regions such as Baden Wurttemberg. The radically out-produced by Asian, especially significance of the growth of Toyota’s Lexus luxury Japanese producers: the Japanese have been able to models and Nissan’s Infiniti, for example, has been improve their machines to be able to perform the widely appreciated as a threat to German luxury same kinds of procedures as the latter two automobile producers, especially Daimlcr-Benz’s companies’ machines can, and the Japanese can do Mercedes Benz marques. Without (at least the this, moreover, at a much better price, and with perception of) any drop in quality, Nissan and better service and delivery conditions (Schumann ei especially Toyota, using the alternative production al. 1994: 404-5). At the high end of lower volume methods, managed to produce luxury cars much specialty machines, German producers arc being more cheaply than Daimler-Benz and quickly squeezed on the one hand by the ever improving garnered a very large section of the American quality and flexibility of Japanese standard luxury automobile market during the later half of machines (which can be used in increasingly broad the 1980s. By the early 1990s, the Japanese were manufacturing realms, formerly only accessible to turning towards European markets. specialized machinery); on the other hand, If there were any doubts at Daimler-Benz that competition in those remaining markets has been the production methods deployed by the Japanese intensifying with the resurgence of American were superior to those in place within its own producers (Finegold et al. 1994; USDC, factories, these doubts werc dispelled when it was International Trade Administration 1994). revealed that their main assembly plant in The inefficiency of German production relative Sindelfingen was the notorious &dquo;anonymous high to the Japanese can readily be seen in the fact that quality but low productivity European plant’ in the despite a 74 per cent increase in production MIT Automobile Project’s famous study of the between 1983 and 1990, rates of labour world automobile industry, TJie4la

Taklt 1. Performance and costs of German machine tool enterprises

Note: . Average values for firms with more than 500 employees. In 1990, these producers represented 19.7 per cent of all firms in the industry, 63.3 per cent of all employment, a significant proportion of production and the bulk of exports in the industry. Source: Table adapted from Engelman et al. (199~: 37).

German industry were well beIow those in the cent of the Gen7iaii market for such machines Japanese industry, which grew at an even more (Cooke 199994.. spectacular rate (see Tables 1 and 2). Labour productivity in the German industry, moreover, did not keep pace with increases in output over the period, while in Japan they did. The gravty of this Internal reorganization: the end of trend appears, however, only when German German-style decentralized craft performance in international markets in the 1990s manufacturing? ’ is taken into account. The incursion of Japanese and American producers into markets the Germans The decisive difference between the highly flexible once dominated is indicated by the movement of system of production increasingly being deployed world production and trade figures in the 1990s by successful producers throughout Japan, the (see Tables 3 and 4). Since 1990, both Japanese United States and elsewhere (each, naturally, to and German production levels have fallen relative different degrees and in its own way) and the to the United States, Italy and China, but the system of flexible production as practised among German descent has been much more precipitous large and small producers within the industrial than the Japanese. More ominously for the district of Baden BVürttemberg lies in the former’s Germans, benveen 1992 and 1993, Germany’s far more open and flexible organizational practices total share of world machine tool experts declined inside production units. This is extremely by 17 per cent, while the share of the Japanese paradoxical, because it was thought during the increased by 25 per cent (despite nearly constant 1980s that, in addition to the capacity to utilize appreciation of the Yen) and that of American specialized sub-contractors, the flexibility of small industry increased by 20 per cent. The and medium sized German firms (as well as, to a attractiveness of German products in export considerable extent, even that of large volume markets is simply falling off. By 1994, Japanese producers in the region such as Robert Bosch) producers of CNC lathes accounted for 25 per rested on the tremendous resourcefulness and 39 autonomy of broadly skilled workers in production institutions which have become so pervasive in the and the close, co-operative relations between those organization of German industrial order that they skilled shopfloor workers and higher levels of are taken for granted as quasi-natural features of management within the firm. The competitor ’lean’ the organization of industrial work: broadly defined or ‘open’ or ’simple’ forms of flexible organization, yet nonetheless distinct skill divisions within the however, rely on far greater worker autonomy and production process; and functional divisions within cross-functional and cross-departmental co- German managerial hierarchies. These operation within the firm than is currently possible institutionalized features of German industrial life within the traditional internal organization of played a very significant role in the success of German craft producers (Herrigel and Sabel 1994; German producers after the Second World War. Kern and Sabel 1993; Naschold 1994). But they now constitute, at least in their current The sticking points within German firms arc form, obstacles to effective adjustment to the roles, jurisdictions and hierarchies that date back to challenge of alternative forms of flexibility. an earlier period of recomposition in the industrial system. In my book (Herrigcl 1995: chs 2 and 5), I show that through the construction and elaboration The creation of specific skills of an industrial structure of co-ordinated specialization in the first part of this century, small The first outcome of the early r

Table 2. Performance and costs of Japanese machine tool enterprisesj~

Notes: t Converted using 1989 exchange rate. * Average values for firms with more than 500 employees. Source: Table adapted from Engelman et al. (1994: 37). 40

Table 3. World shares of machine tool production 1990- craftsmen learned as many operations as were 93 (%) necessary for the production of specialties associated with the enterprise that employed them (Adelmann 1979; Lee 1978). During the period of rationalization, firms collectively limited themselves to the production of a limited range of product in order to stabilize product market competition in a broad array of specialized manufacturing industries (Herrigel 1995: ch. 2). These reforms in the structure of product markets had significant consequences for the organization of production and labour markets within specialized producers: in particular, it made the very broad and general knowledge typical of nineteenth-century skilled craftsmen no longer necessary. Through a long and intense process of Source: American Machinist & MTTA. social and workplace struggle between management Table taken from Cooke (1994: 8). and labour, rationalization ultimately transformed the identity and the role of the skilled worker in specialist production: specific kinds of skills were Table 4. Export share of world machine tools, 1992-93 constructed as specific specialties with specific (%) hierarchies of learning and social and workplace status associated with them. Masters in factories, for example, went from being generalists in broad areas of craft production (e.g. machine making or ironworking) to being specialists with particular, circumscribed areas of vocational expertise, such as lathe operation, tool-making or the repair of electrical circuitry. This process of rationalization was exacerbated in the early decades after the Second ivorld War when many industrial markets became more concentrated and product cycles changed more slowly: relative stability encouraged the proliferation of specialized jurisdictions at the workplace. (On these processes see Freyberg 1989; Source: American Machinist. Herrigel 1995; Kern and Schumann 1970; Preller Table taken from Cooke (1994: 8). 1949; Seyfert 1920.) Through this process, very specifically large scale craft producers as well, was very open: circumscribed skills and associated job ladders skilled workers were cut off both socially and were gradually naturalized and integrated into the ph}~sically, from the old craft (Haudmerk) system way that people thought, not only about industrial and deployed their abilities and developed their work and its organization but about vrtue, honour skills according to the needs of the firm and its and status for industrial actors in German society.9 customers. Since firms themselves. tended to A skilled worker (Facharbeiter) demonstrated his or produce a wide variety of specialized products, her integrity and acquired prestige through the skilled workers within the firms tended to develop perfection of his or her craft. Social standards for very general and broad skills. Just as in the old craft the evaluation of achievement existed because it system, where artisans learned all of the operations was possible to distinguish one group of people’s associated with the craft, the transplanted industrial special skills and contributions to the production 41 process from others, both on the shop-floor and in underlying principle of specialized skill as a the formal negotiations with employers. Moreover, particular role with its attendant jurisdiction and individual hierarchies of job ladders within skill inherent hierarchy continues to play a very distinctions gave rise to social status distinctions important shaping role in German workplaces and both in the workplace and outside (Kern and the institutions that attend to them. Schumann 1970; ~1ooser 1984). These relatively fixed role identities involving the possession of a particular skill, distinct from others, have formed the basis for the emergence of an Functional departments in management estate-like (what the Germans would call a Stairdisclre} position for skilled industrial workers The second taken-for-granted feature of the within Germany today: skilled machinists, for German manufacturing system that emerged out of example, are inculcated with an ethic of the value the period of the first great period of rationalization of their own expertise for the firm and of the in the early twentieth century consists of the formal significance of their skills for the prosperity of the departments for the various functions of German economy in the post-war period from the management: for example purchasing, marketing, very beginning of their apprenticeships. Their development, finance and production. These identity as a skilled worker provides them with a departments, which exist in all but the very smallest measure of dignity, and their capacity to exercise of enterprises, are typically staffed by a mixture of their skill and develop it contributes to their é/all, managers who have been recruited out of the shop- not only within the factory among their fellow s, but floor milieu and those with more academic training. also in the broader society as word and evidence of They, too, have particular conceptions of the role their expertise spreads throughout their their department plays in the success of the communities. Skilled workers form the backbone of company and, like the skilled workers, have career the strong German labour movement and dominate hierarchies and status hierarchies based on and the institutions of workplace representation in cultivated by performance and experience within German factories, such as works councils. the milieu of thc department itself (Chandler 1990; Finally, although the status of Facharbeiter groups Hartmann 1959). Initially, such functional divisions skilled workers from all trades equally within the within firms had relatively modest consequences general space of social positions within German for the degree of bureaucracy within functional society, within all indivdual skill categories there is departments. But as firms grew larger, particularly a fairly rigid paternalistic hierarchy. Older master with the diffusion of mass production during the tool-makers, for example, direct less experienced Second World War and in the 1950s, bureaucratic ones and supervise the shop-floor training of hierarchies of specialized managerial positions apprentices. They organize the labour market and within each of these functional departments grew transfer by example and through instruction the very large and the ranks of middle management values associated with their trade. Once the status grew tremendously (Guillen 1994; Pross and of skilled worker has been achieved, moreover, I3oettieher 1971; Thanheiser 1975). hierarchy continues to structure the career of the If not quite an estate like their blue-collar Facharbeuer, as those with greater dexterity or counterparts, management in Germany has energy (or both) are allocated greater responsibility nevertheless a very robust sense of its own position and given more challenging tasks (Hildebrandt in society and of the kinds of achievements, 1991; ivdtz ei al. 1974). credentials and social entitlements that should be This social world of skilled workers has been associated with its role in the economy. Unlike periodically modified over the course of the post- their American counterparts who, with the typical war period, and quite significantly in the 1980s: in lB1BA, receive a very broad and largely non- order to facilitate workplace flexibility, the number technical business education, most German of discrete skill designations has been decreased managers are technically trained, either as (Streeck 1987). But, for all of these reforms, the engineers or as Betriebsmirterr, the latter being the 42

far more specialized and technical German variant the operations of the various functional of the American business degree (Lawrence 1980; departments were those at the very top of the firm Locke 1984 and 1989). Once employed, German (Lawrence 1980; Pross and Boetticher 1971). managers typically are cultivated by superiors, For all of the many strengths and successes of nursed along and inculcated with the traditions and these two ’doxic’ features (Bourdieu 1977) of nuances of life in the firm and often in the specific skill jurisdictions and functional divisions department of the firm. Technical expertise and within management over the course of the period seniority are the prerequisites for the promotion since the early twentieth century, both of these and for the acquisition of social status. clusters of roles and institutions within the German During much of the period following the Second industrial system are proving to be disadvantageous World War, German mangers were unique, under the current conditions of extremely rapid certainly compared to American managers, for the production and technological change (Herrigel degree of familiarity they showed with the 1995; Kern and Sabel 1993; Naschold 1994; production process and the technical characteristics Schumann el al.: 643-64). The vulnerabilities of of the products their firm produced. Indeed, the the system become clearest in the case of the confluence of technical expertise and status in the introduction of new products. Each time a new career path of managers appears to have had the product or a new technology is introduced - as interesting result of facilitating vertical opposed to an old one that is customized for a communication within German firms without customer - the various roles that each of the jeopardizing the hierarchy of distinctions: many categories of skill and management will play in the outside observers have noted the ability of German production and development of the new product managers to communicate and co-operate with must be bargained out. Each currently existing production workers and their representatives, while cluster of expertise and institutional power, no one confuses even the lowest levels of naturally, wants to participate; each has its own management with industrial workers. Such ideas and solutions; each defends its turf against communication allowed for considerable flexibility encroachments from the others; each takes for in production, because production management granted that it should have a legitimate place in the and labour were able to quickly reach agreement new arrangement within the firm.’Electrical about problems and work together to adapt masters and technicians, for example, will fight standard procedures to particular market needs. with mechanical ones both on the shop-floor and in Paradoxically, the same factors allowing for the design studios over different kinds of technical vertical communication within firms worked against or manufacturing solutions to problems that have effective horizontal or cross-functional direct consequences for the amount and character communication and co-operation. Technical of work that each will have to do and on the overall expertise was always specific (e.g. mechanical or value that their role within the firm will contribute chemical engineering; accounting or marketing) to the value of the product. and then it was made even more specific as one If the new product involves the increasing gained experience in the firm: e.g. mechanical interpenetration of formerly distinct areas of engineers learned about the manufacture of a technology and expertise - such as micro- particular area of machine tool-making; electronics and mechanical engineering - it will accountants the ins and outs of financial and tax take some time to iron out all of the potential areas regulations for the particular sector and size of firm of conflict. If the market is stable for the product that employed them. The process of gaining and doesn’t change very rapidly, it might be expertise and status turned managerial heads away possible to wait until all of these conflicts havee from one another and focused them on the been resolved before deciding upon the final design functional world in which expcrtisc could be gained of the new product. But, as is the case in the and careers made. All of this, naturally, contributed 1990s, if the market is turbulent and unstable and to the maintenance of hierarchy within firms as a the lifespan of the current technology is clearly whole because the only ones able to co-ordinate going to be limited, firms are forced to bring their 43

products onto the market while these internal recomposed in a new more flexible way. Given the conflicts are still being worked out. More often centrality of skill and technical expertise within the than not, impatient and nervous senior managers social organization of small, medium-sized and under time pressure but with no greater knowledge large producers in Germany, however, this has not of the technology or the market than the been proving easy to do. contending specialists, is forced to broker a Most firms, not only in machine tools and compromise between the players in a way that automobile but throughout the manufacturing allows the solutions of each - to the extent that economy, have recognized the need to change, they are not contradictory - to be built in to the especially since the onset of crisis in the early product. All of this simply to get the new product 1990s and the emergence of the remarkable gaps to the market before it (the market) is completely between German levels of productivity and those of inundated with even newer products and competitors.10 Yet few producers, large or small, technologies (Schlichter 1994). It should not be have had success up until now in being able to surprising that the products of such compromises overcome the opposition of entrenched groupings will appear to the customer as inelegant, overpriced of skilled workers threatened with the loss of status and ’over-engineered’ - they are. through incorporation into teams that deny the boundaries of former jurisdictional specializations or of independent departments, reluctant to have their functional areas of power within the firms redefined and diluted with Dealing with self-blockage: successes and through recomposition failures other areas. It is difficult, after all, to tell workers and who with considerable managers legitimacy ’ This is what is going on in German factories today. understand themselves as having contributed Jurisdictional disputes driven by the need to significantly to the traditional success of high . accelerate new product introduction at a moment quality manufacturing in Germany that their role

’ when the boundaries between traditional skill and have become obstacles to adjustment. management divisions are being technologically The following section will outline how such eroded is driving up the cost and driving down the conflicts have in many cases given rise to furtive quality of products. Such jurisdictional conflicts and self-undermining efforts of adjustment in don’t exist in the alternative flexible system that the formerly successful specialized German firms. Two Germans are competing against because there are examples of self-blockage, drawn from a pool of fewer fixed jurisdictions or occupational identities firms examined during a research sojourn in Baden in that alternative system. Because they are able to Wurttemberg in the summer of 1994, will be combine the work of development departments and presented.’ Both cases show a dynamic of self production (simultaneous engineering) and utilize blockage driven by entrenched jurisdictional modular sourcing and U-shaped, team managed, interests at work, yet in one it is labour that is the production lines, many Japanese and especially primary sticking point, while in the other it is American competitors can bring out new products management. relatively rapidly that are more simply and elegantly These two examples of self-blockage will then be designed, of high quality, produced at very Iow- cost followed by two cases in which the resistance of and which are attentive to customer needs. entrenched interests has apparently been This is extremely difficult to do in the German overcome. These cases will make the important system as it is constituted today in Baden point that the absolute decline of German «urttemberg: to implement more boundary industrial competitiveness in the current blending forms of co-operation (both vertical and environment is not inevtable. They will also horizontal) in development and production, the underscore, ho~;~ever, the point that successful system of discrete skill jurisdictions, career adjustment today can be achieved only through a hierarchies and functional pillarization within firms reconceptualization of the fundamental features of has to be deconstructed and/or its elements social identity and industrial governance that have 44

heretofore been considered central to German southwest Germany continued to be organized competitiveness. around specialized machine and/or part production. Typically, any given workstation operated with an inventory of up to five days. Operators working on particular machines dedicated to the production of a specific range of Two cases of self-blockage: parts had little idea where their work object fitted The first example of self-blockage is that of the into the larger product the plant was constructing - Electric Turbine Works in southwest Germany of a one machinist had no idea where the parts he was European electro technical multinational making were going to go next in the line of (Interview, June 199-1- name of firm withheld production. Masters and foreman set up machines. upon request). The globally active parent European Why this continued existence of the old system concern has very systematically attempted to of skill jurisdictions system beneath an increasingly implement many of the characteristics of the open, flexible, management structure? In part the alternative form of flexible system mentioned answ er stems from the strategy that the local firm above. It has cultivated the development of a new pursued after the German turbine work’s former kind of management career in which indivdual parent company was merged with another managers move throughout the organization, cross- European electromechanical producer in the late functionally, accumulating knowledge of the 1980s. Prior to the merger, the German plant was company, its products, its suppliers and its capable of making complete electrical turbine customers. Promotion within the European generators. After the merger the plant was broken multinational is increasingly becoming contingent up and parts of the production process were shifted upon having successfully participated in co- to facilities in other locations. The southwest operative product development teams that involve German plant was specialized on large part members of different departments as well as key production. Thousands of lay-offs resulted from suppliers. To encourage this, the mother company these changes in the location of production. has introduced what it calls a ’Customer Focus Perhaps understandably, given the massive job Programme’ (CFP) throughout all of its losses, the works council and trade unions have subsidiaries. This programme brings managers been reluctant to engage in additional restructuring together across subsidiaries as well as across within the production lines that remain for fear of functional departments on a regular basis to foster additional lay-offs. The local labour representation dialogue on the improvement of company products was persuaded that additional losses would and the development of new technologies. Not redound to its disadvantage and therefore defended simply a discussion group, how ever, CFP also, the traditional structure of jurisdictions and the because it constitutes itself regularly, acts as a kind jobs that were associated with them. Labour of monitoring forum for projects and subsidiaries representatives resist the new structures, in other throughout the organization. In many of the large words, because the defence of traditional roles and firm’s subsidiaries, this collaborative, team and status for those that they represent is considered to product oriented organizational practice has been be essential for the reproduction of their own taken right down to the shop-floor in the form of pow er and position within the firm and institutional group work, product oriented, low inventory position in the labour market. But management, production. which is committed to the larger European parent Not so in the southwest German Turbine works. company, not to the southwest German location, Hierarchy flattening has occurred within the becomes increasingly frustrated and focused on departmental structures above the shop-floor, finding other more profitable locations for where a number of CFP groups exist. But the production. production process itself remains dominated by the The second case of self-blockage is a medium old workshop based system of skill distinctions and sized machine tool company, which is located in the old skill based hierarchies. The plants in southern ~Vurttemberg. Here, an important 45 obstacle to the adoption of the new system has most highly skilled workers in the plant (tool- been management, not labour (Interview, June makers) and the prerogative of purchasing 1994 - name of firm withheld upon request). This managers - something the management of the firm, machine tool company manufactures large scale at least until now, has been unwilling to do. stamping machines for the automobile industry. Second, changes in production have not been This company has made tremendous strides accompanied by corresponding efforts to towards completely revamping its production deconstruct the hierarchical relations between top process through the introduction of integrated management departments and the newly emergent product islands and group work. The traditional product team structure. Management has retained workshop system has been modified so that the right to veto group decisions which it believes machines are now grouped around the production will not result in the cost savings it desires. It has of particular groups of products rather than around also retained control over the budgets of the parts for all products. All set-up, production product islands: company management, not the planning and delivery scheduling tasks (which teams, makes investment decisions and ultimately formerly were performed by the masters, and evaluates the performance of the teams. A speaker foremen of the individual machine shops, or by a of one of the product islands as well as the head of level of middle management located directly above all manufacturing at the firm claimed that this the floor of the plant) have been integrated into the limitation on local autonomy and the continued new product islands. h’iembers of product existence of hierarchy threatened to undermine the development teams, moreover, now continually effectiveness of the product islands and teams. move between activity in the production teams and When members of the group believe that their the relocated engineering rooms on the shop-floor. success or failure is the direct result of their Technicians, programmers, engineers and skilled collective efforts, all have an incentive to make machine operators now work side by side in close continuous improvements. Without local autonomy, co-operation and to some extent interchangeably however, such incentives do not exist and the within the teams. Groups within the islands havee commitment of team members to the success of the begun electing their own representatives to team is undermined. - facilitate the co-ordination of their own internal Both examples show that a partial movement duties as well as to maintain contact with the away from the old principles of specific skill operations of the other groups and other product jurisdictions and functional departments risk islands. making the new organizational principles appear to There are two factors within the firm, however, the participants as a charade. Making a full which significantly disturb the operation of these commitment, however, means taking prinilege and islands and constrain their ability to produce authority away from those with little desire to give significant gains in efficiency and cost reduction. them up. Clearly there is no equilibrium with the First, the changes in production have only been current arrangement: doing nothing will lead to the introduced in the areas of direct mechanical gradual erosion of morale and enthusiasm within production - areas of work preparation (such as the new product islands; returning to the old tool-making and materials purchasing) have neither system of specific skill jurisdictions and functional been organized into teams nor adapted to the needs divisions within management will price the firm out of teams. As a result, teams have only limited of the market; moving fonvard will involve the control over their overhead costs. Since the idea of spilling of blood. Someone is going to lose this the introduction of teams is to devolve battle, and the stakes in the world market at the responsibility for holding down costs to the teams moment are such that it may be the firm itself. themselves, lack of control over overheads Given that conflicts of this kind are legion at the engenders frustration on the shop-floor - and present time throughout Baden Wurttemberg, and scepticism regarding the effectiveness of the new the German industrial economy generally, it is easy system. Changing this arrangement, however, to see that the current situation is indeed a grave involves attacking the privleges of somc of the one for German industry. 46

Self-blockage transcended: Germany combined the previously separate departments of reinvented? de~-elopment, planning, purchasing and production. The many levels of management hierarchy in the The follow ing two examples are intended to old system between top management and shop- introduce a ray of hope into the gloomy picture the floor were reduced to three. Relations with Getrag preceding examples have painted. In both cases, suppliers were also reformed so that their parts and producers have been able to overcome entrenched materials would be delivered according to the interests and transform the entire organization and stringent cost and quality standards of the Kanban structure of the way in which they produce system. industrial goods. Both cases also demonstrate, It is at the level of the production process, hov-ever, that successful adjustment poses very however, that the departure from the old system profound questions about identity, authority and can be seen most clearly. In the restructuring, the institutional design in labour and product markets production process was broken down and narrowly and in German society more broadly. completely reorganized. All line and workshop Indeed, moving from these isolated cases of organization was eliminated and production and success to a general process of successful assembly islands, governed by autonomous work adjustment will ultimately have to involve a teams, were introduced. Members of the teams collecti~~e process of self-reinvention on the order allocate work among themselves and take of that transformative social discussion that took responsibility for most aspects of their quality place during the first great period of rationalization control and maintenance. Island teams possess a at the beginning of the twentieth century. small budget to help them perform these tasks. The first example of a producer that has Teams also have the option of turning to different apparently succeeded in breaking from the old suppliers - inevtably also outsiders - to ensure that system of skill jurisdictions and functional their quality responsibilities are met. Workers in departments and adopted a more open and flexible the teams are multi-skilled and are not constrained alternative is the medium sized family firm, Getrag, by old skill categories: their responsibility is to keep located in northern BVürttemberg. The firm is a the island performing at exacting cost and quality manufacturer of high performance gear units for standards in the best way that they can. standard shift automobiles. Getrag began to initiate Clearly, one of the central ways that they do this major changes in its organization in 1987 in order is by interacting with the other work teams and to meet stringent cost and quality terms being with suppliers so that the entire production flow demanded in a new contract with the large German can be continually optimized and improved. In an auto producer, the BTB1BV AG - itself a company effort to encourage this kind of cross-boundary that has made great strides towards the adoption of communication both within and across teams, even the alternative system (see Herrigel 1995: ch. 6; the old apprenticeship system is being broken Sabel et al. 1991). According to a spokesman for down: rather than training workers in specific Getrag, the reorganization was to be guided by the trades away from the production process under the idea that the new organization would be defined stewardship of masters, the firm attempts to more by a process of change, rather than by a integrate the apprentices into the teams from the specific organizational structure. The company start. Rather than learning a specific craft skill, literally and somewhat naively set out to constitute newer apprentices are trained in the much more ’trusting’ relations among all actors within the firm, demanding trade of general problem-solving and regardless of role or position in the organization, co-operation. which were informed by mutual respect. It The new system, which the firm has been discouraged thinking in terms of hierarchy and introducing piecemeal over the last seven years, has status and made all information about the company been tremendously successful. The firm has rates (its finances, its products, its suppliers, its of machine utilization above 80 per cent in the customers) available to eveyone within it. teams, while serviceability rates on the same To realize this, product teams were created that production machinery (time not spent in repair) are 47 over 90 per cent. Moreover, over the course of the The introduction of teams made it possible for last seven years, the firm has introduced three new fewer workers to perform more operations - hence generations of its product. making many others redundant. Hundreds of A second example of successful adjustment is workers and managers lost their jobs at Getrag and the small machinery firm Mettter Toledo, a maker inlettler Toledo over the course of the long of electronic scales and weighing devices on the transition to the new system. Moreover, the cases Schwäbische Alb in southern Wurttemberg. This are fairly isolated within the landscape of German firm has nothing to do with BNINNI or the industrial producers and their situation is unique automobile industry. Rather, reorganization at because of the early onset of crisis. Nevertheless, Mettter Toledo was brought on by a financial crisis they are important to note because they make it associated with an unsuccessful shift to new micro- difficult to claim that the Germans can’t change electronic variants of their product during the mid- and that they must live or die by the old system of 1980s. The crisis brought in new management with specific skill jurisdictions and functional a mandate to radically restructure the company. departments. Management made two major moves. First, all Moyement beyond these isolated cases, however, production was shifted onto area suppliers so that will inescapably involve profound rye-evaluation the company could focus its energies fully on among all actors in the German industrial system product development, product assembly and sales. (labour, management, associational, educational Relations with suppliers, which were already very and governmental) of their own roles and of their close and co-operative before the reorganization, relations to one another. The examples of the were intensified so that important providers were effect of team work on the way in which firms view drawn directly into the development process. vocational training is one example of how processes Second, all remaining activities within the firm of reform w ithin firms also involve institutional were reorganized into teams: no functional systems that go well beyond the firm’s boundaries. divsions or departments survived the At both Getrag and at IBlctùer Toledo, teams are reorganization and all levels of formal middle flirting with illegality by integrating apprentices into management associated with those areas werc actual team work - there has been a long taboo dissolved. The company was reorganized around against using apprentices for productive labour in products and processes. Teams organized by production. It is by no means clear that the themselves the development and production of new vocational system will be reformed to accommodate products and dealt with the continuing needs of this kind of behaviour: reform would make it easier existing customers. The emphasis was on total for other producers to do the same, yet it would process optimization and improvement. Teams also jremove an institutional support for the old maintained intimate and open contact with the system of jurisdictions. There is likely to be assembly workers about individual orders. opposition to this not only among skilled workers Assemblers worked as individuals and had and their representatives in plants (such as the responsibility for the complete assembly of a large turbine works mentioned above?), but from product. They could call on team members for instructors in Berufschrrleu and Farhhoclrscht~len as advice and service at any time. As at Getrag, this well, who themselves possess identities and roles in reorganization at R’Iettler’I’oledo led the firm to the educational system that correspond to the old attempt to get away from the old specific skill system of skill jurisdictions in the plants (as well as jurisdiction-based system of apprenticeship and to to old distinctions betw een management and labour attempt to integrate apprentices right from the in production). Accommodation at a general beginning into production and team work. institutional level in a way that would allow Neither of these successes was achieved experiments to become generalized would painlessly. Both were initiated in periods of invariably call into question these secondary financial and market crisis for the firms. The identities, roles and relations within the supporting elimination of hierarchy involved the dislocation of infrastructure of institutions surrounding the many unnecessary jobs in middle management. industrial economy. 48

Will the creation of new kinds of workers and Conclusions new institutional arrangements within firms result The moment in which this is being written is a very in the creation of new kinds of educators and a new crucial period for German manufacturing. If firms, system of disciplines in the academy capable of large and small, succeed in constructing (adopting serving the industrial economy? It is not possible to and adapting) arrangements within themselves that answer this question now, but it is easy to see in are capable of the same kind of low inventory, low this case how debate and experimentation about cost, high quality manufacturing achieved by their the reform of roles and positions within firms must most it could well lead to re-cvaluatian and debate about the sophisticated competitors, very result in a transformation of the kind of between the firm and the identities, complete relationship decentralized industrial that has existed roles and structures of institutions in production supporting in like the southwest of for much Failure to in this of regions Germany society. engage process of the twentieth extensive external collective self redefinition could be century. Already ultimately decentralization the existence of collaborative for German international (i.e. devastating ties the boundaries of the will be so will involve a massive beyond firm) competitiveness; doing matched the dissolution of the internal reconceptualization and recombination of the by architecture of the firm in a that roles and relations industrial way integrates identities, constituting and with the in order in Germany. development purchasing shop-floor the form of teams. This of the between self recombinatory example relationship the entrenched interests in the old internal reform of production and the reform of If, however, departments of management and among the vocational training is only one among a myriad of various skilled groupings on the shop-floor succeed interconnected processes of change currently in blocking movements in this direction, it is taking place in Germany. With more space, it difficult to imagine, given the dramatic productivity would be possible to show how teams are creating a and cost differentials currently separating German system of workplace representation that could producers from their major competitors, how the potentially rival, if not supplant, the one that decentralized industrial order can continue to exists in German How wilt currently workplaces. itself in the form which it had trade unions deal with work teams reproduce adopted self-governing in the 1980s. This article thus ends with flexible in which the old distinction between management German manufacturing in an historical situation and labour no longer applies? NVhat will happen to not unlike the situation it was in at the of traditional conceptions of the firm and of private beginning the twentieth century during the great period of property if existing firms recompose themselves rationalization and then the diffusion of mass into teams with their self-governing production An and own of their own production. unprecedented extremely budgets, capable acquiring from abroad is the materials etc? None of the old actors in the strong challenge creating conditions as well as the incentives for producers to German industrial system is unaffected by the break out of and recompose existing arrangements. current changes, and all will be participating in the Time will tell how the current public dialogue that will invariably change it. plastic system actually is and how much of it, if any at all, will be Though nothing is certain, it seems fairly clear that reconstituted in the new environment. whatever happens, the roles and identities of actors and the institutional structures that help to support and govern them will be (re)constituted Acknowledgements simultaneously in and through the process of dialogue itself. I would like to thank Lowell Turner, Richard Locke, Charles Sabel, Jonathan Zeitlin, Peter Katzenstein, Nick Ziegler, David Finegold, Tom Ertman, Horst Kern, Bruce Kogut and two annonymous reviewers for help and comments in the writing of this paper. All mistakes are the sole 49 responsibility of the author. I would also like to the contrary! But it is the case that the principles thank the Center For European Studies, Harvard mentioned in the text are at the centre of debate University and the Akadamic fur worldwide about the reorganization of production, and 1’echnikfolgenabschNtzung in Baden BVürttemberg many have diffused in one form or another, above all and the United States. For a discussion of the for the conduct of the research in Japan support during diffusion of these principles, with examples taken from upon which this paper is based. throughout the advanced industrial world, especially Japan and the United States, see Sabel 1995. 7 Daimler’s reaction to this news is discussed in Morgan Notes et al. 1992: 13f. 8 It is perhaps obvious, but I think nonetheless 1Iwer (1994) points out that average annual rates of job important, to remind the reader that rationalization growth fell even more precipitously in the narrower should not be understood as the implementation of Stuttgart/Böblingen region. Investment goods mass production techniques. Rather, rationalization industries had 15.5 per cent fewer jobs in 1993 than involved the clarification and definition of procedures, they did in 1991. norms and roles in any kind of production process. 2 Indeed, the Zukunftskommission solicited members Werner Abelshauser makes the point that most of the from all over Germany, not just Baden Württemberg. rationalization in the interwar period occurred in batch The IMU study was sponsored by the IG Metall, production processes and involved the optimization of which obviously regards events in Baden the deployment of skilled labour. See Abelshauser Württemberg, its strongest and most prosperous 199-1: 2. district, as crucial for developments elsewhere in the 9 For a theoretical description of this kind of social Federal Republic. understanding as an institution, see the essays in 3 Indeed, much of the debate about Baden Württemberg DiMaggio and Powell (1991), especially the during the 1980s involved whether or not this claim introduction. Bourdieu (1977) refers to such deeply was true - or at least to what degree it was true relative entrenched understandings of the world of practice as to other German regions. For dissenting views see ’doxa’ while Schutz (1962) uses the term ’cultural Cooke and Morgan 1990a and 1990b. sedimentation’ to describe social understandings and 4 For an elaboration of the concept of industrial order in practices, such as those described here, which have the Baden Württemberg context, see Herrigel 1993 become a kind of grammar for social behaviour in a and Sabel et al. 1989. historically specific social formation. 5 It is important to emphasize in the presentation of 10 Naschold (1994: 16) claims that despite the scepticism whatI am calling the new production methods that I that emerged around the debate about lean production am in no way suggesting that these production in Germany there is a consensus within the current methods should be associated with practices of all discussion of work reorganization on the need for a producers in a particular country - such as Japan or fundamental reorientation. In particular, most people the United States. As the world and European agree on the need for: zero defect manufacturing, economies become more integrated and national customer oriented process chains, decentralized boundaries become less significant, best practice in responsibility in production, new constitution of the manufacturing is increasingly located everywhere and relationship between conception and execution within nowhere: that is, examples of the highly successful the firm as well as the institution of processes of flexible production of the kind to be described in continuous improvement in production. 11 subsequent paragraphs can be found all over the The cases presented in the text have been selected advanced industrial world (even in Germany). from over 30 interviews with German manufacturers, Producers in different national and regional trade unionists, government officials and association environments implemented the new methods in bureaucrats conducted in Baden Württemberg in June distinctive ways and they encounter distinctive and July of 1994 by the author and Charles F. 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