POINT OF NO-RETURN ?

Synopsis: Communication For Productivity Letters written to some 7500 Workers / Managers / Union Leaders, following a period of strike / Go slow / Murders (1979 - 1987), at Mumbai factory of Larsen & Toubro Ltd. This direct / open / honest communication led to a remarkable atmosphere of trust between Workers and Management, which, in turn, increased productivity at 3% per year (ave).

24 Aug 1986

To:

Dear Friends                      

POINT OF NO-RETURN ?

Is  the American Steel  Industry about  to disappear  from the scene ?   perhaps not - atleast  not in the  near future.  But it  could  very well  happen  within  15  years  - before  the arrival of the  21st century !  May be  it is in the final act of a 3-act drama.

One  company  - LTV  -  has  already  applied for  "bankruptcy protection".  This  means, the banks  cannot recover its loans and the  company can retrench  all employees  - without paying any compensation I

But the company about  which I want to talk  to you today is a company called  USX  - the  largest steel-maker  in  America -which will  soon become  the smallest -  or may not  even make any steel before long  I

THE  USX  STORY                                (SOURCE: BUSINESS WEEK: 18.8.86)

At one  time,  USX was  known as  "U.S. Steel"  -  the largest steel manufacturer in the world.   Chairman is David Roderick. The company  had a steel-making capacity  of 379 lakh  tons of steel.

From 1978, USX  started reducing its capacity, In the last  8 years  it reduced  it to  262 lakh  tons.   It closed  down 20 factories and retrenched 27,000 workers.

During the next 4 years  (1986-1990), USX is planning to close down another  4  factories, retrench  another 7,444  employees and bring down capacity to 165 lakh tons of steel.

So USX will be bringing down

-      capacity by 57%

-      employee strength by 38%

But what is the reason behind all this chopping and chipping ?

If you want a one-word answer, it is "COMPETITION".

If you  want  a two-word  answer,  it is  "COMPETITION  & HIGH LABOUR-COSTS".

To give you a better idea -

-      In the  steel  industry, world-wide,  surplus capacity  is 2000 lakh tons of steel.

This means fierce competition.  American  steel makers are finding it difficult to sell steel at $ 400 per ton.

-      American  labour-costs are  33% higher  than  the Japanese labour-costs  and  700%  higher  than  the  South  Korean labour-costs !

So what can USX do ?

-      USX has started  sub-contracting in a big  way and reduced its  own  labour-force.   This  has  helped  it  to  boost productivity.    Earlier  USX  spent  10.8   man-hours  to produce one ton of steel.  Now  it spends only 4 man-hours (its own man-hours) to make one ton of steel.

    But this has not .helped - not enough.

Chairman Roderick says only 2 things  can help -

-      Wage and Benefit cut  (he has submitted a formal demand to the Union on July 29th).

-   Company's   right  to   assign   jobs  and   fundamentally     reorganise work

crews with no union interference.

He  calls  these  his  "last  ditch  attempts  to   restore profitability".

The Union has  responded by going on strike from 1st  August -their first strike since 1959.

The question is,

"Did the management fail to make the employees - and the  union - see the dark clouds on the horizon before reaching  the point of no-return ?"

or

Like  any  good,  Australian ostrich,  the  union  -  and  the workmen - hid their face under the sand to ignore the storm ?

As far as  Powai-works of L&T  is concerned, I do not  wish to sound  like a  pessimist but  atleast,  I do  not wish  to  be accused  of  the  single  biggest  managerial  failure  -  the failure to share the facts of life with the employees.

H.C. PAREKH