Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do. There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Now as I approach my 90th birthday ( 27 June 2023 ) , I invite you to visit my Digital Avatar ( www.hemenparekh.ai ) – and continue chatting with me , even when I am no more here physically

Monday, 17 November 1986

SUN RISES IN THE WEST ! PART-I

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).


17 Nov 1986

To:
Dear Friends

SUN RISES IN THE WEST !
PART-I       

As children,  we learned in  Geography that the  sun rises  in the  East.    It  first  rises  in   Japan,  then  in   India, thereafter in Europe and finally in  America.

Europeans are  waking-up when we  are almost  ready for lunch !  They are behind us by 4-5 hours.  We are ahead of them.

But not when it comes to creating jobs.

When  it comes to  creating new  jobs,  the sun  rises in  the West!

I did not believe myself until I read an article

"Europe  starts to  create Jobs"  -  (Fortune -  July  7, 1986).

It is a good article, but it is difficult to understand.

So  I decided to  'rewrite it in simple  words which  you can understand.
With  lots  of  figures,  the  article  tries  to  prove  the following points:

POINT NO. 1
Using  their collective-bargaining  power.  Unions manage  to get big  wage-increases  for workers, year-after-year.   They also   manage  to   get   narrow,  rigid   job-classification ("This-is-not-my-job" type of work-rules).

POINT NO. 2
Companies'   costs  keep   rising  (due   to  ever-increasing employee-cost).  So their  product-cost rise, forcing them to raise  selling-prices.  In  the meantime,  productivity keeps at  same  level  -  or  even   drops  -  due  to  rigid  job-classification.  This pushes-up product-cost still higher.

In the  meantime, competitors are  doing something  smart (we will talk about  this soon), to push-up  their productivity -and  keep  their  costs  down.  A  high-cost  company  starts losing  orders.   Sales and  production goes  down  but costs remain high.

And if you think  this is true of  Europe but not in  India, I quote  from  Shri Rajiv  Gandhi's  inaugural  address  at  the National Conference  on 'Productivity in New Delhi on  October 29, 1986.

"I was  told by  an industrialist from Bombay the other  day  that  the  lowest paid  unskilled  employee  in  his industry  gets Rs.  2300/-  a month.   The  demand  is to double  the salary  and reduce  the working  days by  100 days a  year so  that 25%  more people  can be  employed. The result is  that he is going to shut down  his factory in  Bombay and   move out   into a  district  where  such demands don't  come about".

"The unions  must  be more  responsible, they  must work for  the rights  of the  workers but  the rights  of the workers must be  linked  with the increased productivity and efficiency of the worker".

POINT NO. 3.
Company's profitability  (profits  as a  percentage  of sale) goes  down -  (as  in  our own  case.   Do  you  recollect my circular on  Economy (Co-operation) Drive  - ECD -  3 of July 28,  1986, showing  L&T's  falling  profitability  and rising wage bill ?).  Sometimes even profit amount goes down.

POINT NO. 4.
Companies start one or all of the following actions  :

(a)      Stop further recruitment (as in our case).
(b)      Lay-off or retrench employees (if law permits).
(c)Encourage employees for early retirement (voluntary).
(d)      Stop or  reduce sub-contracting  (to keep own employees busy,  produce  components at a much higher cost as compared  to buying  from outside. Although this is alright  for a  short  time, if  this  is  continued for long, it further pushes-up the product-cost!).
(e)      Start an Economy-Drive (as in our case).
(f) Invest, whatever little  profits are there,  in more and      more  automatic  machinery  which  can  work  with  less number of operators.
(g)      Start   new  factories  in  remote locations  where labour-costs are low.
(h)      And  if  nothing works,  close  down  or   sell off  the factory (if law permits).
(i) And finally - in a  country like ours - if  law does not permit  you  to   close  down   the  factory,   let  the government take it over  and run it for ever  (using tax      payers' money) at a loss !     
(Some  of these  points  are  mine  - not  mentioned  in FORTUNE article).

POINT NO. 5.
With   factories  stopping  recruitment   or  retrenching  or closing  down.  Union's  influence  reduces.   Less and  less employees want to become members of Unions.

Realising that  economy is slowing  down and  unemployment is rising, the Government and the unions get worried.

So  Government  passes   laws  which  makes   it  easier  for companies to "hire-and-fire" - hire  workers when business is good and  fire (lay  off or retrench)  when business  is bad. Adjust employee-strength according to business-condition.

Unions also become more reasonable  and agree to remove rigid job-classification   and  introduce   flexible  and   liberal work-rules.

POINT NO. 6.
Wage-increases  granted  are  less  than  the  inflation-rate (i.e.  the rate at  which prices  are rising in  the market). Wage-increase  does not  100% neutralise  the  rising prices. This means decrease in the purchasing power of the workers.

POINT NO. 7
Decrease   in   labour-cost,    brings   down   product-cost. Companies  can keep  the selling-prices  constant  for longer periods.

If at  the same  time,  labour-productivity also  goes  up, a company can  afford to actually  reduce its selling  prices .' This can bring more orders.

POINT NO. 8
If a company (or a country) can manage for 5/7 years,

(a)  to keep wage-increase below the inflation-rate     
and
(b)      to improve productivity by 5% each year,  then there can be so many orders
that it can afford to,

(  i) expand existing factories;
( ii) put-up new factories;
(iii) increase employment;
( iv) share its prosperity with employees.

Now  if  all  of  above-stated  points  sound  so  much   like fairy-tale, please  do challenge  me to  prove it  with facts and figures!  Even if you don't,  I will share with  you  some harsh facts of today's industrial  life in the second part of this circular next week.

H.C. PAREKH

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