How to Run a “Nonhollowed-Out” Company

Nov. 19, 2010
Machine Design recently published an article about how a lack of knowledgeable old timers in engineering departments may discourage young engineers from staying in the profession

Machine Design recently published an article about how a lack of knowledgeable old timers in engineering departments may discourage young engineers from staying in the profession. The conditions we described in The case of the hollowed-out engineering department (Sept. 9, 2010) seem to be widespread, judging by the mail we received. So perhaps it is time for some soul searching on the issue among manufacturers.

My own feeling is that businesses are less competitive when a lot of their assets have been marched out the door in an effort to stay lean and mean. With them goes a body of tribal knowledge about how to bring products to market.

There is at least one U. S. company that agrees. Lincoln Electric Co., a maker of welding equipment, has had a no-layoffs policy in place for most of its 115-year history. Lincoln’s reasons for this policy are not altruistic. It has found that the policy pays benefits by letting the company retain enough knowledge to ramp up quickly when the economy shows signs of turning around.

Some of Lincoln’s inner workings were exposed in a recent book called Sparks by engineer-turned-journalist Frank Koller. Among the book’s most noteworthy insights is how a no-layoff plan leads to continuity that is a competitive advantage in a world where most companies are run by a passing parade of short timers. Lincoln’s employee turnover rate is about 6% annually, about one-fifth that of other U. S. manufacturers. Lincoln CEO John Stropki thinks high turnover ultimately leaves businesses vulnerable to being outfoxed by competitors whose managers have a better understanding of industry fundamentals. Remarking about his competitors, Stropki told Koller, “You see new faces turning up all the time in critical areas, and while they may be very bright people, they do not understand the business, and they may not even know how to make the products.”

One of the slams against a workforce with low turnover is that it can lead to an insular company that isn’t open to better ideas from the outside. But it is easier to deal with that problem than with the more serious issue of an inexperienced work force lacking tribal knowledge. As Lincoln’s head of new-product development related, “I hate to say this, but even after five years on the job, an engineer here may know how to design something, but he won’t know what to design. That takes until about year 10.”

And of course, this is with experienced hands around to show young engineers the way.

The typical substitute for tribal knowledge in most modern manufacturers is a CAD system with some kind of knowledge database and lessons-learned document. Lincoln managers don’t think such a practice adds much. They seem to feel a computerized database is a poor substitute for lifers sharing experience face-to-face with younger employees as problems pop up.

There are also hidden costs of layoffs even when it comes to production-line workers. A Lincoln manager puts the total cost of replacing one of the firm’s pieceworkers at $100,000, a price that factors in training by an experienced worker who is pulled off the job, learning curve mistakes on the line, and recruiting expenses.

The irony is that what seems at first to be a worker-friendly policy of no layoffs makes for a more-competitive company than does the management-by-spreadsheet approach usually advocated by supposedly savvy managers who run most U. S. businesses.

— Leland Teschler, Editor

It seems like the challengers at World’s Smartest Design Engineer really know their stuff. While they have been answering away, we have been tracking some of the easiest and most-challenging questions. See where you stack up against your fellow coworkers. Plus, let me congratulate our October winner, Marshall Renicks (aka mrenicks), whose top score of the month earned him a $250 Amazon Gift Card. Way to go Marshall!

© 2010 Penton Media, Inc.

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