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Danger In The Comfort Zone
From Boardroom to Mailroom-How to Break the Entitlement Habit That's Killing American Business
By Judith M. Bardwick
AMACOMCopyright © 1995 Judith M. Bardwick, Ph.D., Inc.
All rights reserved.
The American Dream Shattered
Generation after generation of Americans have climbed up the economic ladder, each standing higher than the one before it. The American Dream is based on a contract that says, "If you work hard, you are going to be more successful than your parents were." Those born in the Depression years found themselves, after the war, with opportunities and resources their parents had never imagined. Their children, the baby boomers, grew up with even higher expectations of success.
The same economic trends that realized that dream for an extraordinary number of people also spawned a certain way of thinking. In American companies, an attitude of Entitlement developed in both the organizations themselves and among the people who worked in them. What happened to the dream, and what happened to that way of thinking, is the focus of this chapter.
America the Prosperous
The years after World War II offered more people the opportunity for success than ever before in the United States. The boom years lasted approximately from the end of the war in 1946 to the recession and oil embargo of 1973 (the exact dates vary for different industries and organizations). The fat times were created by four extraordinary conditions that occurred simultaneously.
The first was the growth rate of the economy. For more than twenty-five years, despite several recessions, the U.S. economy sustained its highest growth rate ever. After sixteen years of depression and war, we experienced an explosive growth in consumer demand.
The second was our dominance in the world economy. During all those years, we were simply the unquestioned leader.
The third variable was the incredibly high birth rate that began in 1946. In the eighteen years from 1946 to 1964, 76 million babies were born.
In combination with the high growth rate of the economy, the high birth rate created the fourth condition: the tremendous expansion in the size of companies and organizations. In the decades that followed the war, institutions grew at the highest rates the United States over experienced. In some companies, like AT&T, middle management grew by 500 percent. The 1950s and 1960s have been called "the Golden Age of the U.S. corporation."
Together, these four extraordinary conditions created unparalleled opportunities. And the people who could take advantage of those opportunities had been born in the 1920s and 1930s when the birth rate was the lowest in U.S. history. Thus, people who grew up during the Depression went to work at a time when the opportunity rate was at its highest.
Entitlement: The Legacy of Prosperity
On the surface, unlimited growth would seem to be a good thing. Companies are strong and profitable and people have no trouble finding good jobs, so everyone is secure and happy. But it is one of the premises of this book that it is possible to have too much of a good thing, that those years of prosperity have now backfired. Gradually, insidiously, prosperity created the crippling condition called Entitlement, where workers have no real incentive to achieve and managers have stopped doing the work of requiring real work. (The dynamics of Entitlement are discussed in Chapter 3.)
How did this happen? For most of its history, the United States has honored a tradition of self-sufficiency; individuals have been expected to take care of themselves and to earn their way. But by the 1950s, we had become a nation that expected our society to provide for its citizens and we expected U.S. companies to take care of their employees. What changed?
The answer was both an economic and a psychological component. Economically, Entitlement comes from two forces at work in those incredible years after World War II: economic boom and demographic bust. With a limited pool of employees, rich organizations kept all their workers, no matter how well or how poorly they performed. In spite of this, business and industry flourished. Entitlement is a legacy of these years of affluence.
At that time, too, the social sciences gained new significance in the popular culture and there was a shift in our beliefs about behavior. Psychology, psychiatry, and sociology all try to analyze and explain why people behave as they do. As we focused on the reasons for incompetence or non performance, we ceased judging. When people's work falls off in the midst of a nasty divorce, for example, we hesitate before we burden them with criticism. It's very difficult to be judgmental when you understand the cause.
As a nation we came to a new understanding of human behavior, one that led us to tolerate low achievement while also enjoying a tremendous economic prosperity. We were so rich we could afford to be kind.
Under the double influence of their corporate compassion and their rich treasuries, in the postwar decades organizations began to grant job security without regard to how well people worked and how much they contributed. They stopped evaluating employees and discharging those who were nonproductive; they failed to hold people accountable for their performance.
This tolerance of nonperformance was especially obvious in the case of plateaued employees, those who had reached the upper limit of their productivity. They were not required to be productive; they were not dismissed for being unproductive. Instead, plateaued people were allowed to hang around, read the paper, and serve on insignificant committees, such as the Christmas Party Committee, the Annual Picnic Committee, the Committee to Allocate Office Space.
There was an unarticulated agreement that plateaued people gave up the excitement of being in the mainstream of the business in return for the comfort and security of lying on the shelf until it was okay to retire. Thus, management no longer did the work of evaluating their performance.
Over time, that attitude originally directed toward plateaued workers spread to all employees. Organizations no longer expected to get performance from every employee all the time. In the affluent years, companies were doing so well they could afford to carry nonproductive people.
Despite the recent and ongoing ravages of downsizing, that trend continues today in many companies, boosted by changes in the law. Under the old common-law concept of employment at will, the company had all the power; managers could fire laggards on the spot. Today it is very difficult to fire someone without running the risk of legal counteraction. When organizations don't fire, they never get rid of unproductive people. They can't afford to have them in responsible positions, so they make up jobs for them where they can't do any harm. Therefore, organizations end up with lots of employees who don't produce and who keep their jobs just by showing up. If the organization is really fat, these people even get merit raises. It is this corporate tolerance for nonperformance that has generated the psychology of Entitlement in American companies.
The End of the Dream
By the 1950s and 1960s, our economic lead was so total it was inconceivable that it could change. But in the early 1970s, our seemingly invincible strength was hit with a series of economic blows: the recession and oil embargo of 1973; the inflation and stagnation that followed; the recession of 1979; the recession of 1981–1982; and the stock market crash of October 18, 1987, Black Friday, when the Dow fell more than 500 points. In less than a generation, our nation went from feeling confident to feeling threatened.
The sons and daughters who assumed the American Dream from their parents are finding that for them the dream has begun to unravel. Hard work no longer guarantees upward mobility. No one anticipated what Paula Rayman of Wellesley calls "the middle-class squeeze — falling behind while getting ahead." As a group, the baby boomers are actually downwardly mobile. They're not able to live as well as adults as they did as kids. Richard Michel, an economist at the Urban Institute in Washington, D.C., says "The young middle class has experienced a dramatic decline in its ability to pursue the conventional American dream: a home, financial security, and education for their children." Lately, the average American has been running hard to stay in place.
The History of the New Business Reality
Something very fundamental has changed in economic realities. Productivity, which was growing at 4 percent a year, is now little more than 2 percent and is not rising. In February 1990, Business Week reported:
Productivity in the U.S. has been in the doldrums for a long time — but now, its poor performance poses a threat to the economy. Output per hour in nonfarm industry rose at a paltry 1.2% annual rate in the 1980s — no improvement from the 1970s. Moreover, productivity heads into the 1990s at its slowest pace since the 1981–82 recession.
For the coming year, poor productivity growth has a number of implications for the outlook — all bad.
We are the largest debtor nation in the world. The number of positions in our large corporations-white collar and blue collar — is declining. Previously immune to foreign competition, we are now unceasingly aware of it. Nations of the Pacific rim and Europe are lining up, competing for our markets, wooing our customers.
What this situation means for American companies is that they can no longer afford to perpetuate conditions of Entitlement. What that has meant for American workers is that companies can no longer afford to carry entitled, nonproductive people.
That's what led to the downsizings, restructuring, and reengineering of our corporations. It was necessary to increase our productivity rates significantly, and that's what happened. Productivity grew by the anemic rate of 0.9 percent in the 1980s, and averaged a measly 1 percent in the 1970s and 1980s. Fortune expects productivity to grow by 1.7 percent in 1994, and Alan Greenspan, chairman of the Federal Reserve is hoping it will continue to grow at 2 percent, the average of productivity increases since mid-1990.
Why is it really necessary to get high levels of productivity from everyone? One of the key answers is the shift to a global economy. A global economy is one in which you no longer have your customers. Companies can come from your own country, a neighboring country, or a country on the other side of the world in search of your customers.
With air travel there is no distance, there is only time. And sometimes there is no time. Communication by phone and fax is instantaneous. You can talk anywhere and deal anywhere instantly. And so can your competitors. In combination with increasing deregulation, the immediate result of this technology is that you have to fight for, service, and please your customers, because they literally have all the choice in the world. In the end, the only one who can provide job security is the customer.
Drew Lewis, chairman of Union Pacific, is trying to get the railroad to be more responsive to customers. In a recent meeting, several hundred rail workers demanded guaranteed jobs. He told them, "If I promise you a lifetime job, what is that worth if we're not competitive? It's worth a deck chair on the Titanic."
When the customer is the only source of security, then security has to be continuously earned. Therefore, in a fundamental way, organizations cannot promise security because they don't have it. Organizations have to earn security through performance. And so they must demand performance from their employees, those individuals who make up the organization. No organization can afford to carry unproductive people anymore. Cost cutting has dominated the defensive strategies of corporate survival in recent years. Stripping away euphemisms like downsizing and reduction inforce, the reality is one of layoffs, even of productive people. Job security for many is gone or at risk.
Beginning in the early 1980s, even corporations that had never fired people began to do so. One estimate is that in the 1980s more than 1 million managers and professionals were cut from the corporate ranks. Another estimate is that the number may be as high as 2 million.
Later in the decade the rate of cuts increased, and 1989 and 1990 saw more cutbacks than ever. The actual numbers vary according to who's counting and how middle manager and white collar are defined, but one fairly recent count emphasizes the accelerating problem: 111,285 middle managers and executives lost their jobs in all of 1989; in the first quarter of 1990 alone, the number was 110,152. In 1990, announcements of corporate cuts occurred at twice the 1989 rate. This retrenchment is cutting deeply in the ranks of middle and top-level managers and is now occurring in a wide range of companies that had not been affected in the 1980s.
Even organizations like Eastman Kodak, Polaroid, Exxon, AT&T, and Xerox, which have always had policies that amounted to lifetime employment, have begun to push out people through early retirement and firings. Eastman Kodak did away with 10 percent of its work force when it cut 13,000 positions. Exxon reduced its staff at headquarters in New York from 1,400 to 320. Hewlett-Packard offered early retirement packages to 1,800 employees. By the beginning of 1988, General Motors had cut its white-collar labor force by 25 percent and announced a further cut of 25,000 for 1989. Xerox pared down by 20 percent in the 1980s and said another one-third of its management and administrative staffs would be cut in the early 1990s.
America's largest, most powerful, and wealthiest corporations continue to downsize as though the United States were still in a recession. The ten largest industrial corporations in 1993 included General Motors, Exxon, Ford Motor Company, International Business Machines, General Electric, Mobil Corporation, Philip Morris, E.I. Dupont, Chevron Corporation, and Texaco Incorporated. These ten firms account for more than two-thirds of a trillion dollars annually, and they employ 1,273,517 people. That number of employees is down by 160,000 jobs from the start of the economic recovery in 1991. With the exception of Ford, all of these companies trimmed their payroll during a period when the economy was growing. We find the same pattern in the Standard & Poor's 500, a much broader sample than the thirty companies in the Dow Industrials. In 1993, we saw that the number of jobs in the S&P had declined by 500,000 from 1991, during a period of economic growth. In 1994, Fortune reported the trend was continuing: Total employment among the 500 had fallen again for the ninth straight year, from 11,802,133 to 11,546,647. Clearly, productivity rates have grown at the expense of job security.
In 1993, the Families and Work Institute found in a survey of 3,400 workers that 42 percent had experienced downsizing and 28 percent reported cuts in management in the preceding year.
The private sector is not alone in the changes it faces. By 1983, it had become clear that the employment boom in the public sector was also hard hit and had become an employment bust. In the middle of 1980, the federal government employed 16,735,000 people. Two and a half years later, after the recession of 1981–82, it was down to 15,197,000. In many local and state governments the declines have continued, some dramatically. During the recession, for example, the state of Michigan cut its 70,000 employees by 10,000.
One thing that made all the costs especially hard to bear was that after we recovered from the recession of 1981–82, the rate of cuts increased. Major cuts took place in the mid- l980s, when employment was high, interest rates were low, there was little inflation, the stock market was strong, and the economy was growing. This situation increased people's sense of vulnerability.
The same thing is happening now. Long after the recovery of the 1990 recession, corporations are continuing the practice of laying people off. Middle managers especially continue to be vulnerable because reengineering and technology continue to make it possible to manage well without them. Middle management's primary purpose was to transmit information up to executives and then relay orders down to the troops. That work is now done better and more cheaply by computer networks and databases.
Stephen Roach is a member of the National Academy of Sciences group that recently studied productivity in the service sector. That study concluded that the job shakeout which began in manufacturing in the early 1980s was probably about two-thirds completed. In contrast, in the service sector the job cuts are only about one-third done. The next big downsizing will impact retailing, banks, insurance companies, and any other organizations in which electronic systems are now poised to do work that millions of clerks used to handle.
Excerpted from Danger In The Comfort Zone by Judith M. Bardwick. Copyright © 1995 Judith M. Bardwick, Ph.D., Inc.. Excerpted by permission of AMACOM.
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