James O’Toole: An interview by Bob Morris

James O'Toole

Until recently, James O’Toole was Research Professor in the Center for Effective Organizations at the University of Southern California, and the Mortimer J. Adler Senior Fellow of the Aspen Institute. Currently, he is the Bill Daniels Distinguished Professor in Business Ethics, Department of Business Ethics and Legal Studies, at Denver University. He received his Doctorate in Social Anthropology from Oxford University, where he was a Rhodes Scholar. He served as a Special Assistant to Secretary of Health, Education and Welfare, Elliot Richardson, as Chairman of the Secretary’s Task Force on Work in America. At USC O’Toole has held the University Associates’ Chair of Management and served as Executive Director of the Leadership Institute. He has been editor of New Management magazine and Director of the Twenty-Year Forecast Project (where he interpreted social, political, and economic change for the top management of thirty of the largest US corporations). From 1994-97 O’Toole was Executive Vice President of the Aspen Institute. He also has served recently as Managing Director of the Booz Allen & Hamilton Strategic Leadership Center, and Chair of the Center’s Academic Board of Advisors. His fifteen books include The Executive’s Compass (1993), Leading Change (1996), Creating the Good Life (2005), and most recently, The New American Workplace with Edward E. Lawler III (2006).

I conducted this interview in 2008 for KL@TG magazine, published by Dallas-based Thomas Group. As you will soon conclude, O’Toole’s responses remain rock-solid.

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Morris: Over the years, what do you think have been the most significant changes in how effective leadership has been defined…and measured?

O’Toole: Recently, there has been a profound change in how we think about corporate leadership. The 1990s was the era of celebrity leaders: we focused on Jack Welch, and not GE, on Bill Gates, and not Microsoft, on Steve Jobs, and not Apple, on Larry Ellison and not Oracle. But, on reflection, the records of most high-profile leaders have not withstood closer scrutiny. In almost all cases, it turns out that the success of organizations is due to the collective efforts of many, and not to the genius of a single, all-powerful individual at the top.  In some cases, the 90s celebrities turned out actually to have had feet of clay, and a notorious few even proved to be cheaters and felons. As a result, today we are more likely to talk about the leadership capacity of the team in the executive suite and even to measure the overall leadership capabilities of an organization.

Morris: In Leading Change, you examine all manner of barriers to change initiatives, including what you characterize as “the ideology of comfort and the tyranny of custom.” That book was published in 1996. In your opinion, to what extent (if any) have barriers to change initiatives changed significantly since then? If so, why?

O’Toole: The optimist in me sees corporations in the present era as more open to change than they were in the 1990s. Certainly, because of the relatively poor performance of many corporations in the early part of this decade, there seems to be less arrogance in executive suites, and that usually translates to a willingness to consider alternatives. Nonetheless, the factors identified in Leading Change are endemic to all large organizations and at all times. For example, the current CEO of Wal-Mart says he has “no choice” but to sacrifice the welfare of his employees in order to serve his customers’ need for low prices. So, why are they paying the guy millions a year if there is no possibility for him to change things? I think he is either kidding us or himself. The truth is more likely that he likes things the way they are, or he lacks the strategic imagination to come up with a viable and profitable ways to change them. If either is true, he is overpaid and probably not up to doing the job.

Morris: When people consider reading Creating the Good Life, some people may wonder what relevance Aristotle’s ideas have to finding meaning and happiness in the 21st century. Why did you select Aristotle?

O’Toole: The book was written to help mature men and women answer the question that Baby Boomers are currently struggling with: What should I do next to find meaning and fulfillment in the next stage of my life? Aristotle turns out to be an extremely practical guide for those asking such personally profound questions. He offers timeless advice to business people who want to be successful both at work and in their private lives. For example, he shows how business leaders can create successful organizations and, at the same time, behave ethically. Come to think of it, the CEO of Wal-Mart should study Aristotle!

Morris: Please provide some background information concerning the Work in America report that is the baseline for your current book. What was the mission for the HEW’s Task Force on Work in America? What were some of the most significant revelations provided in that report?

O’Toole: In 1972, when I was twenty-seven years old, the then-Secretary of HEW, Elliot Richardson, asked me to explore the effects of working conditions on the health, education, and welfare of Americans, on the one hand, and the effects on the workplace of the Nation’s social programs and policies, on the other. In doing the study my colleagues and I involved dozens of leading scholars and reviewed a vast literature on the subject. Our prime conclusion was that the conditions prevailing in manufacturing at the time were having adverse effects on the physical and mental health of workers. The results made front-page news in the New York Times and the cover of Newsweek. The report was rushed into print by the MIT Press a month later, and sold something like 120,000 copies.  So you could say that I had my allotted “fifteen minutes of fame” rather early in my life…

Morris: What are the most significant changes that have occurred in the three decades between the publication of Work in America and The New American Workplace?

O’Toole: Those bad manufacturing jobs we identified in 1972 were, over the next decades, almost all exported, automated out of existence, or redesigned to become good work for Americans. And the status of women in the workplace has improved dramatically. More women today have good jobs, the gap between the incomes of men and women has been markedly reduced, and women are reporting far higher levels of job satisfaction.

Morris: Yet you and your co-author, Edward Lawler, argue that it is difficult to generalize about the state of the American workplace. Instead you distinguish between three emerging types of organizations: Low-Cost Operators, Global-Competitor Corporations, and High Involvement Companies. Why do you feel these distinctions are so important?

O’Toole: When we spoke about workplaces in 1972 we mainly were referring to old-line manufacturing firms, on the one hand, and Main St. shops and restaurants, on the other. Both of those categories are now insignificant in terms of employment. Today, the economy is dominated by the rapidly growing Low-Cost Operators–national discount and mall chain stores, fast food franchises and supermarkets–which offer employees low salaries, few benefits and little training. The other new players are Global Competitors, the glamour corporations in high technology, telecom, entertainment, consumer products and pharmaceuticals who are the headline makers as they move jobs, services and production around the globe. They pay the highest salaries, but offer little in terms of job security, training, or careers. Finally there is a small number of High Involvement companies, which are found in almost all industries. They offer relatively good benefits, security, training, and career paths. These companies have high levels of worker participation in decision-making and profit sharing.  The differences between the working conditions in the three types of employers make overall generalizations about work in America almost meaningless. The challenge is for executives to choose which of these three models is appropriate for their companies.

Morris: There continue to be headline stories about more job losses in Detroit. Have the mangers of the three new types of companies you identify learned lessons from the experiences of the dinosaurs in the old line manufacturing businesses?

O’Toole: Sadly, at Ford, General Motors, and Chrysler sales continually trend downward, manufacturing costs rise, and employment declines. As the result of the decrease in the number of cars produced by American manufacturers, membership in the United Auto Workers has dropped from a high of over 1.5 million thirty years ago to less than half a million today. Yet, at the same time, auto plants in the U.S. owned by Toyota, Honda, and Nissan have been greatly increasing their production–and their employment of American workers. A variety of factors explain this paradox, but the most important one is seldom mentioned by either American auto companies or the UAW: Manufacturing productivity is greatly determined by the design of jobs and how workers are rewarded.

But some American companies have gotten the message. Motorcycle manufacturer Harley-Davidson is a prime example of an American company that uses employment conditions to boost productivity. Nearly defunct in the 1980s, Harley was resuscitated largely as a result of reorganizing its 5000 unionized employees into self-managing teams, and rewarding them for their ideas and efforts to improve productivity and quality. Current CEO James Ziemer–who started with the company while in high school and who sometimes still wears blue-collar overalls on the job–has negotiated imaginative contracts with the unions representing Harley’s workers, agreeing to keep production in the U.S. in exchange for constantly reducing total labor costs through automating tasks and changing work rules. Because Harley regularly reassigns workers whose tasks have been automated to other parts of the company (rather than laying them off) its total workforce has grown to over 9,500, while greatly improving its productivity.

Morris: Were unions responsible for the decline in American manufacturing?

O’Toole: In the ‘70s and 80’s, U.S. automakers, and parts suppliers like Delphi, turned their backs on promising efforts to adopt the kinds of practices found today at Harley and in Japanese-owned auto plants in this country.  In the early 70s, a joint union/ management experiment demonstrated that American workers could produce auto mirrors as productively as their counterparts anywhere in the world–if they were appropriately organized and rewarded. In the 80s, Ford’s successful introduction of the Taurus was, in large part, due to productivity gains resulting from the setting aside of outmoded work rules. Yet, inexplicably, union leaders ignored such efforts to foster employee involvement, much as unions largely stayed on the sidelines with regard to the equally promising practices of employee stock ownership and gain-sharing.

The failure of unions to support efforts to increase employee involvement and ownership coincided with their unwillingness to speak out on the broader issues of business effectiveness and performance. When foreign competitors threatened the survival of American manufacturers, unions chose to voice traditional employee demands for higher wages, better benefits, and more security. What they failed to provide were effective responses to the challenge of globalization.

Morris: If unions largely have absented themselves from the struggle to save, and to create, good jobs in the U.S., what about business executives? What lessons have they learned form the failures in the auto industry?

O’Toole: Sadly, too many corporate leaders still believe that the way to boost productivity and profits is to continually reduce salaries, benefits, and training expenditures, a strategy that can be taken only so far. At a certain point in a developed society, salaries and benefits can’t be slashed further and, in the long term, comparative economic advantage then must be realized through the effective mobilization of an educated, engaged, and loyal workforce. Indeed, if America is to maintain its precarious position perched atop the world economy, business executives must recognize that providing good jobs is not just a “nice thing to do,” it’s a competitive necessity for both their companies and nation.

In our book, Ed Lawler and I document that the key to creating good, productive jobs in all industries is to organize work processes and systems in ways that allow employees to contribute significant amounts of “added value” to the products they make and services they provide. When mangers give employees the organizational structure, resources, and authority needed for them to contribute their ideas and efforts, American workers, like those at Harley-Davidson, almost always prove capable of effectively competing against their overseas counterparts.

Morris: Are you only talking about old-line manufacturing firms, or are these lessons applicable to other industries as well?

O’Toole: Lawler and I show how workers in low-wage countries are out-produced routinely by the ingenuity, initiative, and efforts of their American counterparts who make steel at Nucor, consumer goods at Proctor & Gamble, and high-tech products at WL Gore and Associates. For example, Trek is able to export bicycles to the world because their American workers are empowered, and rewarded, to make continual improvements to their products and work processes. Trek’s workplace system creates a constantly rising competitive bar that forces the poorly paid, under-educated, and micro-managed workers making copy-cat bikes in South Asian factories to play catch up.

In our study, twenty-three leading experts from American universities examined findings from over a thousand published research papers, and the evidence turned out to be overwhelmingly consistent: When businesses are managed correctly, the productivity of U.S. workers more than justifies the higher pay, and benefits, they receive compared to overseas workers. Thus, the comparative advantage of having educated, motivated, and committed workers enjoyed by Trek can be realized by a variety of American businesses, high tech and low.

Morris: If what you say is true, why don’t more companies adopt what you and Lawler call “high-involvement practices”?

O’Toole: It goes back to our earlier discussion abut the assumptions the CEO of Wal-Mart is making: American managers often say they would like to pay their employees more, they argue that they can’t afford to do so and, at the same time, keep the prices of their products competitive. As one CEO recently explained, “I would treat my employees as well as Starbuck’s treats theirs, if I could charge the equivalent for my product of three dollars for a cup of latte!” But managers who assume that higher profits drive better working conditions may have their logic backwards. Contrary to conventional wisdom, our research identified companies in virtually every industry that are profitable because they provide good jobs.

As Starbucks’ CEO Howard Shultz explains, the high-quality customer service that makes it possible for his company to charge a premium for its coffee results from the investments it makes in employee welfare and training. Ditto the productive contributions of employees at such diverse companies as Costco, UPS, Whole Foods, and Goldman Sachs. By designing work tasks that are challenging, using management systems to share business information with employees at all levels, rewarding individual, team, and organization performance, and investing heavily in the development of their human capital, executives at these companies create the conditions in which workers can add large amounts of value.

Morris: This anecdotal evidence is dramatic, but to what extent can it be generalized to employers across the board?

O’Toole: Evidence of the positive potential of employee participation doesn’t rest on a few company examples. Analysis of the recently released 2002 U.S. Census Bureau’s General Social Survey of a cross-section of American workers shows that the greater the extent to which employees participate in profit sharing, stock ownership, and other forms of financial gains that derive from their efforts, and the greater the extent to which they also participate in organizational decision making, the more they are committed to, engaged in, and satisfied with, their jobs.

Morris: In light of that, what should American executives be doing?

O’Toole: If America is to compete effectively in world markets, its corporate leaders must strategically position their companies in the right businesses, and then manage their workforces in the right ways. By all indications, American business leaders are more adept at creating business strategies than they are skilled at human capital management.  American entrepreneurs are world-beaters when it comes to creating new businesses, and corporate managers are adept at using the latest marketing, financial, and technological practices. However, the nation has a shortage of business leaders who understand the importance of utilizing human capital to gain competitive advantage, let alone the know-how to do so. In the future, that shortcoming promises to be exacerbated because few business schools today teach aspiring executives how to create the kind of high-involvement organizations America needs to remain competitive in the global economy.

Morris: So what is the main lesson to be learned from the last thirty years of experience in the American workplace?

O’Toole: In a nutshell, the ability of American companies to compete in world markets depends on creating conditions in which workers can add sufficient value to justify their higher wages and benefits, much the Japanese auto manufacturers have done in this country. Until unions and mangers understand the necessity of effectively employing the nation’s most important resource, the American worker, we are destined to have more Detroits.

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