The UK government argues that modern employee relations are essential in order to compete within the new "knowledge economy". This feature reports on research in two high-skill sectors, completed in 1999, which evaluates the contribution of new work practices - such as job security, semi-autonomous teamworking and various forms of employee participation - to explaining the success of these industries.
The "knowledge economy" has become a common term to encompass what are perceived to be all-embracing changes in the nature of competition and production. The key element is the idea that the widespread use of information and communication technologies has led to knowledge being the most important productive resource. It has been taken up with enthusiasm by a wide range of policy-makers and their advisors, including the Organisation for Economic Cooperation and Development and the European Commission (TN9903201S). The UK government has been particularly influenced by these ideas, culminating in the 1998 economic strategy document Building the knowledge-driven economy (UK9902182F). As part of its approach, the government argues that employers require modern employee relations practices in order to compete effectively in the new economy.
According to the Department of Trade and Industry, the UK pharmaceutical and aerospace industries consist of "world-class" businesses operating in high-technology parts of this knowledge economy. Recent research undertaken by Caroline Lloyd at the University of Warwick and funded by the Economic and Social Research Council investigated whether there is something to be learnt from the way that these sectors manage their employees. In the context of the current debate about "high-involvement work systems" (HIWS) and business performance (UK0002156F), are companies in these sectors successfully using sophisticated employee relations practices?
The research, completed in 1999, consisted of interviews in 22 pharmaceutical and aerospace companies employing more than 1,000 people in the UK. The main employment practices considered in this feature are:
- job security;
- semi-autonomous teamworking;
- consultation with employees and their representatives;
- appraisal;
- training and development;
- team briefings; and
- quality circles.
Pharmaceutical industry
The 1990s saw the end of the "long boom" of British success in the pharmaceutical industry. The worldwide squeeze on health expenditure and the growth in the costs of developing new drugs has led to a series of large-scale cross-border mergers followed by rationalisation and redundancies which have left the UK without a wholly-owned major pharmaceutical company. For example Zeneca has merged with Sweden's Astra and GlaxoWellcome is merging with the US-dominated Smithkline Beecham. Employment has declined from a high of 74,000 in 1992 to around 60,000, as many employees experienced redundancy programmes for the first time.
Traditionally, the management of employees in this sector had centred on relatively high wages, job security and good working conditions, rather than sophisticated management techniques. The current climate of job losses and the need to cut costs have led managers to search for new ways of improving employee performance. Six of the 11 pharmaceutical companies studied were involved in large-scale mergers that had involved rationalisation and the closure of plants. As a result, cutting costs, particularly for manufacturing plants, was seen as essential to try to secure plant survival.
The research found that all of the 11 companies had relatively developed human resources (HR) functions both at corporate and at plant level. There appears to have been no systematic attempt to introduce HIWS across the workforce, but a number of different elements had already been introduced in some companies. The most common of the HIWS practices were team briefings followed by consultation with employee representatives. Semi-autonomous teamworking was being introduced into a number of companies, particularly for production workers, but quality circles and employee appraisal were relatively limited. Surprisingly, a number of companies were not giving priority to training and development, preferring to buy in the required skills or rely on informal or ad hoc training. Those plants with the most elements of HIWS were part of US-owned companies, which had not recently been involved in a major merger. These companies had relatively centralised management structures and it may be that stability, alongside the US influence, are important reasons for the greater diffusion of these practices.
The research found that one of the main problems associated with attempts to implement new management practices was the failure effectively to involve or consult employees or their representatives. In most organisations, trade unions were relatively weak or non-existent and management was often unwilling or unable to manage the change process effectively. Additionally, lack of trust and low morale - a result of job insecurity - meant that employees were reluctant to engage with management initiatives. Success in the sector has predominantly been based on drug discovery and marketing, rather than on the productivity and performance of the whole workforce. With the changes in the competitive environment, there is more emphasis on new employment practices, but the UK industry has been relatively slow in adapting to the new requirements and is hindered by the uncertainties of the merger process.
Aerospace industry
The aerospace industry suffered an extremely severe recession at the beginning of the 1990s. The cyclical downturn in the civil aerospace industry, alongside the long-term decline in defence-related aerospace, saw employment cut in the UK by 40%. With the following upturn in the industry, there has been a rapid increase in employment (around 36%), so that by 1999 approximately 150,000 people worked in aerospace, making it the largest aerospace industry in Europe. In contrast to the pharmaceutical industry, companies based in the UK have remained predominantly British owned, eg BAe Systems, Rolls Royce, Smiths Aerospace and GKN Westland, although many companies are engaged in joint ventures and mergers are increasingly on a cross-border basis.
The industry has a more turbulent history in terms of industrial relations than the pharmaceutical industry. With large numbers of skilled manual workers, the industry has been heavily unionised and the larger companies have been characterised by highly conflictual relationships. Despite their strength on the shopfloor, unions have been unable to stop the large-scale redundancies which occur systematically within the industry. All the companies studied had experienced extensive redundancies that had left an environment of low trust and low morale.
Currently cost is the overwhelming priority for the majority of firms, arising from the intense competition from other suppliers. Introducing new forms of work organisation into the traditional engineering structure of aerospace has been seen by many companies as an important mechanism to reduce costs and meet more exacting customer demands. Although larger companies had relatively developed HR functions, there were found to be far fewer modern practices and much less sophisticated HR strategies than in the pharmaceutical companies. Across the 11 companies covered by the research, quality circles, team briefings and appraisal were limited, as was semi-autonomous teamworking. Training and development was more developed and systematic, with most companies having apprenticeship schemes, some with their own training schools and a number gaining or aiming for "Investors in People" recognition (UK9703111F). Consultation processes were widespread, mainly because of the existence of trade unions. However, communications between management and employees were generally found to be poor, with few employee involvement initiatives. Job insecurity was the main issue and was seen as a key reason for union and employee opposition to changes in work organisation and the introduction of functional flexibility.
If job security is the basis for developing HIWS, then the aerospace industry is unlikely to benefit from such practices. It is difficult to see how policies designed to improve employee commitment and motivation can be effective when employees have a justifiable fear for their own job. There is a widespread concern amongst production workers that new technologies and new forms of work organisation are a threat to their skills, making them more vulnerable in future redundancies. Despite the failure to adopt new management practices, UK aerospace companies continue to grow, competing on the basis of both quality and cost.
Commentary
The research provides a number of reasons as to why the use of HIWS may be limited, not just in high-skill sectors, but across the UK economy. First, companies can continue to compete successfully on the basis of traditional forms of work organisation. Second, there may be opposition from employees and their representatives to the individualisation of the employment relationship that these practices often imply and from the negative effects of working "smarter and harder". Third, lack of long-term perspective and job security may limit the ability of management to introduce such policies which are argued to require the commitment and trust of the workforce. If the UK government is to base its policies for the knowledge economy on these types of management practices, the issue of job insecurity needs to be addressed. Without being given some kinds of guarantees, will employees be committed and motivated to participate actively in improving their work process and applying their knowledge – mechanisms that are viewed by proponents of HIWS as essential to improving company performance? (Caroline Lloyd, SKOPE)