FORDISM, POST-FORDISM AND THE FLEXIBLE SYSTEM OF PRODUCTION
Abstract. Fordism refers to the system of mass production and consumption characteristic of highly developed economies during the 1940s-1960s. Under Fordism, mass consumption combined with mass production to produce sustained economic growth and widespread material advancement. The 1970s-1990s have been a period of slower growth and increasing income inequality. During this period, the system of organization of production and consumption has, perhaps, undergone a second transformation, which when mature promises a second burst of economic growth. This new system is often referred to as the "flexible system of production" (FSP) or the "Japanese management system." On the production side, FSP is characterized by dramatic reductions in information costs and overheads, Total Quality Management (TQM), just-in-time inventory control, and leaderless work groups; on the consumption side, by the globalization of consumer goods markets, faster product life cycles, and far greater product/market segmentation and differentiation.
Fordism. Henry Ford was once a popular symbol of the transformation from an agricultural to an industrial, mass production, mass consumption economy. Aldous Huxley's Brave New World (1932), for example, styles the modern era AF -- after Ford. Although partly myth, there is some merit to this attribution. Ford was the creative force behind the growth to preeminence of the automobile industry, still the world's largest manufacturing activity. As Womack, Jones, and Roos (1990: 11) explain: "Twice in this century [the auto industry] has changed our most fundamental ideas about how we make things. And how we make things dictates not only how we work but what we buy, how we think, and the way we live."
The first of these transformations was from craft production to mass production. This helped to create the market as we know it, based on economies of scale and scope, and gave rise to giant organizations built upon functional specialization and minute divisions of labor. Economies of scale were produced by spreading fixed expenses, especially investments in plant and equipment and the organization of production lines, over larger volumes of output, thereby reducing unit costs. Economies of scope were produced by exploiting the division of labor -- sequentially combining specialized functional units, especially overheads such as reporting, accounting, personnel, purchasing, or quality assurance, in multifarious ways so that it was less costly to produce several products than a single specialized one. It also engendered a variety of public policies, institutions, and governance mechanisms intended to mitigate the failures of the market, and to reform modern industrial arrangements and practices (Polanyi, 1944).
Ford's main contributions to mass production/consumption were in the realm of process engineering. The the hallmark of his system was standardization -- standardized components, standardized manufacturing processes, and a simple, easy to manufacture (and repair) standard product. Standardization required nearly perfect interchangeability of parts. To achieve interchangeability, Ford exploited advances in machine tools and gauging systems. These innovations made possible the moving, or continuous, assembly line, in which each assembler performed a single, repetitive task. Ford was also one of the first to realize the potential of the electic motor to reconfigure work flow. Machines that were previously arrayed about a central power source could now be placed on the assembly line, thereby dramatically increasing throughput (David, 1990). The moving assembly line was first implemented at Ford's Model-T Plant at Highland Park, Michigan, in 1914, increasing labor productivity tenfold and permitting stunning price cuts -- from $780 in 1910 to $360 in 1914 (Hounshell, 1984; Abernathy, 1978)). Hence, the term Fordize: "to standardize a product and manufacture it by mass means at a price so low that the common man can afford to buy it."
Ford ultimately made everything he needed for his cars from the raw materials on up. Ford vertically integrated for two reasons. First, he had perfected mass production techniques and could achieve substantial economies by doing everything himself. Second, given the information processing capabilities of the time, plus Ford's skepticism about accounting and finance, direct supervision could more efficiently coordinate the flow of raw materials and components through the production process than arms-length relationships (Chandler 1977). Of course, total vertical integration required the organization of huge numbers of activities and employees. Workers, staff specialists, and middle managers had to be recruited, sorted out, and fitted into a hierarchical scheme.
The model for Ford's administrative system was largely perfected by the Prussian Bureaucracy under Heinrich von Stein, Gerhard von Scharnhorst, August von Gneisenau, and Helmuth von Moltke during the 19th century. Their administrative innovations included detailed centralized materials requirements and logistical planning, control by rules, standard operating procedures, and the merit principle, functional administrative design, decomposition of tasks to their simplest components, and sequential processing. The Prussian administrative system was widely emulated by forward looking contemporary organizations and in a majority of cases these organizations out performed the market.
Not only did the Prussian administrative system make large, complex organizations efficient, it also evidently made them inevitable. Only very large organizations could take full advantage of the Prussian administrative system. Only they could afford to devote substantial amounts of resources to gathering and processing quantities of data for top management to use to coordinate activities and allocate resources. Hence, for a long time it seemed that bigger organizations were necessarily better. And, there seemed to be no natural limits to this conclusion. The planning and control system used by the General military bureaucracy under Ludendorff to mobilize Germany's resources during World War I, the Kriegwirtschaftsplan, was practically identical to Ford's administrative system. The centralized planning system, Gosplan, used in the Soviet Union to implement its long-term policies and strategic plans was merely an adaption of the Kriegwirtschaftsplan. Indeed, Lenin explicitly joined the two elements of Ford's system in his definition of socialism: "Soviets plus Prussian railway administration plus American industrial organization" (Hughes, 1989:474).
By the 1930s, Ford's standardized product and his direct planning and control system had been rendered obsolete by innovations in marketing and organization at General Motors. These innovations were implemented by Alfred P. Sloan, who is best known for the multi-product, or M-form, organizational structure, in which each major operating division serves a distinct product market. When Sloan took over GM in the early 1920s, it was little more than a loose confederation of car and car-parts companies. Sloan repositioned the car companies to create a five-model product range from Chevrolet to Cadillac and established a radically decentralized administrative control structure.
GM's operating divisions -- the five automotive divisions, the divisions making components (e.g., Fisher Body or Delco-Remy), and those making refrigerators, air conditioning, locomotives, etc. -- were managed entirely by the numbers from a small corporate headquarters, using the DuPont system of financial controls, devised by Donaldson Brown, later GM's chief financial officer. Under this system, each division kept its own books and its manager was evaluated in terms of a return-on-assets target.
Sloan, believed that it was inappropriate, as well as unnecessary, for top managers at the corporate level to know much about the details of division operations (Womack, Jones, and Roos, 1990: 40-1). If the numbers showed that performance was poor, it was time to change the division manager. Division managers with consistently good numbers got promoted, ultimately to headquarters. Short run coordination between GM's five automotive divisions and the divisions making components (e.g., Fisher Body or Delco-Remy) was achieved via buyer-seller relationships. Longer run coordination was achieved via the first modern capital budgeting system used in the US, also devised by Brown (Chandler 1977).
Within each of its operating divisions, however, GM, was organized and operated like Ford -- or any other mass-production manufacturer. In this system, assemblers were as interchangeable as parts. The mass-production system rested on the presumption that activities should be simplified to the nth degree and controlled from above, engineering and administrative functions delegated to staff specialists, and the exercise of judgment passed up the managerial ranks.
Under mass production, not only were parts interchangeable, so too were assemblers. According to Womack, Jones, and Roos (1990: 31), the mass-production system carried the division of labor to its ultimate extreme: "[T]he assembler ... had only one task -- to put two nuts on two bolts or perhaps to attach one wheel to each car. He didn't order parts, procure his tools, repair his equipment, inspect for quality, or even understand what workers on either side of him were doing. ... Special repairmen re-paired tools. Housekeepers periodically cleaned the work area. Special inspectors checked quality, and defective work, once discovered, was rectified in a rework area after the end of the line. ... The role of the assembly worker had the lowest status in the factory. In some ... plants, management actually told assembly workers that they were needed only because automation could not replace them yet." Of course, this system required armies of middle managers and staff specialists, whose job it was to gather and process quantities of data for top management to use to coordinate activities, allocate resources, and set strategy.
Assembly line work is unpleasant in a mass production environment. It is physically demanding, requires high levels of concentration, and can be excruciatingly boring. As a consequence, Ford experienced very high labor turnover, 380 percent in 1913. (Even today, double-digit absenteeism is common in mass-production assembly plants, necessitating a buffer stock of utility workers, who fill in for the assemblers that fail to show up at the start of each shift). According to the somewhat stylized facts, Ford, believing "men work for only two reasons: one is for wages, and one is for fear of losing their jobs," dealt with labor turnover by doubling pay to $5 a day; that other manufacturer's emulated Ford's wage policies along with his production methods; and that eventually all employers were forced to bring wages into line with those offered unskilled labor in manufacturing. In other words: premium pay for putting up with what Gramsci described as mass production's "monotonous, degrading, and life draining work process."
Regardless of the means, unskilled assembly workers eventually reaped substantial gains from increased industrial productivity -- a forty percent reduction in working hours and a twenty-five-fold increase in wages. In the English speaking world, unions enforced artificial scarcity to win supracompetitive wages for their members -- sometimes on their own, sometimes in cooperation with other unions, and sometimes in collusion with specific firms. In the social-market economies of Northern Europe, workers did even better. Coordinated wage setting between national associations of employers and national labor organizations, usually led by blue-collar unions, achieved both high wages and considerable income equality, almost without strikes (Scharph, 1991).
However, the ability of unskilled manufacturing employees to gain and hold supracompetitive wages ultimately depended upon their political power. By the 1950s, the rise of mass production had made them the largest single group in every developed country. Already organized by their employers, they were easily mobilized on behalf of their own interests. In every developed country, labor unions emerged as the best-organized and often the most powerful political force. Their preferences were reflected not only in labor laws, but in public policy generally. They were the architects and chief supporters of the postwar Keynesian welfare state, with its goals of full employment, social security, and income parity. Indeed, some refer to the welfare state as the Fordist state (see Albo, Langille, and Panitch, 1993; the complementarity between mass production, consumption, and politics is especially well developed by M. Aglietta in A Theory of Capitalist Regulation: the US Experience (1979); see, however, McDermott, 1991).
Despite gains to unskilled industrial workers, Ford's mass-production system always had critics. Surprisingly, one of the first was Frederick Taylor, who coined the term Fordism. Taylor directed his criticism at the deskilling of assembly line workers, likening Ford's assemblers to trained gorillas. Another was the Italian Marxist, Antonio Gramsci, who presciently observed in Americanismo e Fordismo (written in 1929-32, but published in 1949), that "Taylor expresses the real purpose of American society -- replacing in the worker the old psycho-physical nexus of qualified professional work, which demanded active participation, intelligence, fantasy, and initiative, with automatic and mechanical attitudes. This is not a new thing, it is rather the most recent, the most intense, the most brutal phase of a long process that began with industrialism itself. This phase will itself be superseded by the creation of a new psycho-physical nexus, both different from its predecessors and superior. As a consequence, a part of the old working class will be eliminated from the world of work, and perhaps from the world."
The transformation forecast by Gramsci, is now well under way (although perhaps not in a form he would have recognized, let alone approved). Flexible production, the second of the 20th century's great transformations in the organization of work, was, like mass production, brought to our attention by a revolution in the automobile industry. In this revolution, mass production and its champion, mighty General Motors, was utterly routed by the Toyota Production System.
However, the transformation didn't really start in the automobile business, IBM, for example, combined total quality management (TQM), lean manufacturing, just-in-time (JIT) delivery, and price based costing twenty years before Eiji Toyoda and Taiichi Ohno implemented the Toyota Production System.
Flexible production rests on the presumption that a competitive edge cannot be gained by treating workers like machines and that nobody in the manufacturing process, but the assembly worker, adds value, that the assembly worker can perform most functions better than specialists (lean manufacturing), and that every step of the fabrication process should be done perfectly (TQM), thus reducing the need for buffer stocks (JIT) and producing a higher quality end-product (Piore and Sabel, 1985).
Like Fordism, this second transformation extends well beyond process engineering. It is transforming not only how we make things, but also how we live and what we consume. It reflects the declining importance of both scale and scope and is driven by reductions in communications, logistics, and information processing costs -- reductions stimulated if not caused by the introduction of computers and by our increasing ability to use them. (Reschenthaler and Thompson, 1996). It is axiomatic, of course, that the comparative advantage of any organizational arrangement ultimately boils down to a question of information costs.
Today, an organization that can afford a computer workstation and software (about $20,000) can have first-class functional overhead systems. Not long ago these systems were available only to giants. Moreover, computerized product design and manufacture permits organizations to produce customized services at mass-production prices. As a result, even large companies are mimicking their smaller competitors: shrinking head offices, removing layers of bureaucracy, and concentrating on core businesses.
Although these firms work to tighter schedules and parts quality standards than Ford or GM in their heyday, they have not integrated their suppliers into a single, large bureaucracy. Nike is an extreme example of this -- it doesn't fabricate or move anything. It markets products -- including their development and design. It contracts everything else out. Its suppliers do not so much sell products as production services. Toyota is another example. Taking intermediate as well as final products into account, it makes one tenth as many different goods as GM. Consequently, along with reduced economies of scale and scope, average firm size has been falling for the last twenty years.
Information technology has also given rise to new modes of internal organization, which emphasize multidisciplinary teams, whose members work together from the start of a job to its completion, in part because modern information systems and expert systems make it efficient to push the exercise of judgment down into the organization, to the teams that do an organization's work. As Shoshana Zuboff explains in The Age of the Smart Machine (1988), efficient operations in the modern workplace call for a more equal distribution of knowledge, authority, and responsibility. This means "dismantling the very same managerial hierarchy that once brought greatness."
Nowadays, single product organizations are often organized as virtual networks; multiproduct organizations as alliances of networks. The system used by IBM at its plant in Dallas, Texas, is the quintessential example of a virtual network, or self organizing system. Everyone in the organization plays the part of customer or provider, depending on the transaction, and the entire plant has been transformed into a network of dyads and exchanges. Johnson & Johnson is an example of a multi-product business that has organized itself into a loose alliance of networks, sharing only its top management and information system, a set of core competencies, and a common culture.
It would be surprising, indeed, if the transformation from mass production to flexible production, did not ultimately effect changes to the state and its institutions of a magnitude comparable to those engendered by transformation from craft production to mass production. It has already profoundly altered the political structure of society.
Flexible production dramatically reduced the demand for unskilled labor. Flexible production requires numerate and literate workers, capable of a high degree of self-direction. As a consequence, the number of unskilled industrial workers in the developed world has been falling for nearly thirty years. Decreased numbers have been reflected in political decline, as unskilled labor lost its leading role in the union movement and union influence in general has waned, and also in falling relative or, in some cases, real wages. Increasingly, workers are forced to chose between full employment (the US choice) and job security (Western Europe's).
Moreover, mass production's decline has been accompanied by a decline in mass consumption. Instead of standardized products designed and manufactured for the lowest common denominator, final products reflect the full array of preferences and pocketbooks. This too has probably exacerbated the trend to further real income inequality.
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Fred Thompson, Goudy Professor of Public Management and Policy, Atkinson Graduate School of Management, Willamette University, Salem, Oregon. 97301, USA. [3155 words]