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Fiat Revs Up the Engines of Change

May 1, 1994
Related Topics: Change Management, Featured Article
In 1990, management at the Fiat Group—Italy's largest private employer—responded to today's business challenges by reevaluating our structure. After taking a hard look at ourselves, we embarked on a long journey of organizational development focused on delegation of authority, management training and an improved focus on customers. In short, we decided that to remain competitive we must do what we do both better and at a lower cost.

That such changes might be necessary at Fiat isn't surprising; it's a well-established company that has been adapting to changing business conditions since 1899. Once strictly an automobile manufacturer in Italy, Fiat now operates in 65 countries and is involved in 15 distinct lines of business that range from automotive components to chemical-fiber bioengineering. In such a complex organization, change is inevitable; the challenge is managing it.

For us, the process began by renewing our commitment to customer satisfaction. Our definition of customers included both final customers (buyers, who are the impartial judges of Fiat's ability to meet their requirements) and internal customers (whom we believe we must treat as a supplier treats its customers).

Within this framework, structure exists not so much to chart decision making and paper flow, but instead to map professional skills, techniques and tools. Managers serve then not to direct, but to link various groups—storehouses if you will—that offer particular skills. We are committed to creating an environment that ensures cooperation, whether through formal committees or ad hoc work groups. Working sessions, therefore, include the people who have the most to contribute, regardless of their position. Individuals with specific skills support those responsible for implementation. To achieve their goals, the work groups and committees must make decisions and take appropriate responsibility.

Still, employees within the group must make decisions within context. For us, the work began with the supposition that delegating authority works best when it's limited to a specific responsibility and task. This demands a consensus: The person who delegates authority and the person who receives it must jointly define the scope of the autonomy that is being granted. The rules must be accompanied by knowledge, so that employees can solve their particular problems, taking into account the company's customers and competitors. Employees then consult higher levels of authority only in exceptional situations.

The final product then is the responsibility of an individual who has the organizational authority, skill and information to achieve the best quality, cost and improvements. This view is based on what we call the learning organization, in which employees learn from their successes and mistakes.

Managers still have a role to play.
This redefinition of the employees' role does not mean that the role of managers has become less important. On the contrary, a lean organization accentuates the value of each level. We've assessed the value of managers by considering a combination of skills and lead ership, including the ability to:

  • Identify and prevent problems. This means knowing how to set priorities and making sure that they're observed
  • Encourage and promote the new ideas created within their jurisdiction, reinforcing them with their authority and expertise
  • Provide the framework for solutions. This includes clarifying objectives and tasks, guiding activities and evaluating improvements
  • Transmit values and knowledge, which means facilitating the learning process, stimulating professional development and being accountable for results to associates and superiors
  • Keep their system open to other entities and functions, balancing the drive to achieve short- and long-term objectives.

This is a challenging assignment, entailing broad responsibility and seasoned professional skills, which cannot be drawn from any other source. We feel the people who have such knowledge should be given sufficient time to use their professional and managerial skills. For this reason, we keep managers in the same jobs for at least three years, so that they can develop their expertise.

Simply serving time in a job, however, is not enough. Accordingly, training reinforces our goals. For example, all of the Group's senior managers participated in leadership courses developed by ISVOR, a management training center of Fiat Group. Two modules were set up and lasted about four weeks. The modules addressed such topics as self-evaluation and evaluation by associates. The need for individual training went hand in hand with the need to develop human resources principles of organization.

This training, incidentally, represents a key role for the human resources function: Fiat executives knew from the start that any new management culture couldn't be created without the help of HR. The human resources professionals each worked with a mixed team of in-house and outside professionals, including Professor Bernard M. Bass of Binghampton University in New York, to support the organizational development.

Structure must be addressed.
Several factors also have prompted us to look at staffing structure. At one level, we want to reinforce the new role of managers by eliminating those positions that only rubberstamp decisions. Earlier this year in Italy the Group negotiated an agreement with unions to downsize through layoffs, early retirements and special part-time contracts affecting more than 15,000 workers in the automobile sector and corporate headquarters.

The downsizing, however, is only one component of a larger strategy of reconsidering structure within the context of our priorities. For example, we looked at the number of layers in the company—from the CEO to the blue-collar workers on the assembly line—and then examined the numbers of positions reporting to one manager or one executive. Our ideal is to have a flat and wide unit, in which fewer managers are responsible for greater numbers of units or positions. However, most of our manufacturing firms still have too many unnecessary levels. This is true whether the companies are located in Italy, continental Europe or the United States, which confirms a homogeneous industrial culture.

In looking at our structure, we've observed several truisms. Among them:

  • The ratio of managers to specialists is extremely high. This situation is due in part to the former practice of rewarding employees by moving them to a higher level in the hierarchy, regardless of organizational requirements
  • Where there's a substantial concentration of managers, there's also a narrow span of control.

However, thinking based on predetermined models accomplishes little. We must remember that numbers aren't a standard and should certainly not be allowed to become a fashion. Each manager must discover and define what short and lean means within his or her environment.

"Individual training reinforces our business goals. It goes hand in hand with the need to develop human resources principles of organization."

A summary of the review of Fiat's structures, issued in December 1992 after the assessment had been completed, reported 344 ongoing organizational worksites within the Group. Forty percent of them were redesigning structures to leaner organizational units, and 60% were developing a more effective organization and a new modus operandi.

People have one of two reactions to change.
During our organizational development, we've seen that there are two types of individual reactions to change. The first type are philosophically motivated to change. They know how to follow policies and set corresponding objectives. They take a positive attitude toward others and delegate responsibilities. Within the company, they are those who understand their environment, yet set aside their practical experience if a new operation model can be effective. Those individuals know how to take risks, are not concerned (for several reasons) about their personal future and know how to handle the resistance to change.

The people in this category have frequent contact with the outside world and more opportunities to make comparisons. They also see the big picture because their vision is shaped by their personal attributes or the types of jobs they perform. They are the potential engines of change who must be rewarded and granted authority.

"Individuals who are motivated to change understand their environments, yet set aside their practical experience if a new operational model can be effective."

The second type are those people who don't see the need for ongoing change. Although some of these people may be successful, they don't want to—or don't know how to—take risks. They've become wedded to an existing situation and haven't had an opportunity to consider the merit of change. They're the ones who give outdated answers, because they've been successful in the past. They're psychologically inclined to make a change only after it's been tested. They're procedure-oriented.

We also should take into account large organizations, which have always discouraged deviation, even when it's functional.

Nature does not proceed by leaps and bounds. We've learned that corporate change doesn't happen quickly, either. Even under an unstable economic market, it takes time to forge change.

The challenge we must meet today is, on the one hand, to take action, but not to do it in an authoritarian fashion. If we intend to introduce a model based on individual responsibility (delegation of authority, self-regulation, personal contribution), we can't contradict ourselves if the initiative is to have any credibility. Employees must be given the conditions for participation, but the model is largely self-generating.

Fiat's Melfi plant is a laboratory for change.
Nowhere are all the elements of our change process more apparent than at the Melfi auto plant. Fiat opened the plant earlier this year to manufacture the Punto, the company's best-selling compact car in Europe.

Although there are management levels, the Melfi auto plant operates using an entirely different organizational concept than Fiat's previous and more traditional models. In fact, to encourage more day-to-day interaction between the managers and workers, there isn't a separate building for central staff. Also, the auto plant's suppliers are located next door.

Most decisions are made by work teams composed of line workers and team leaders. Managers—all of whom are in their 20s and 30s—make up 19% of a total of 4,000 employees. Melfi expects to hire another 3,000 workers within the next two years.

"At Fiat's Melfi plant, which opened earlier this year, most decisions are made by work teams composed of line workers and team leaders."

Classroom instruction at ISVOR-Fiat in Turin constituted 40% of the training time for those at Melfi; the remaining 60% was lab work nearby the Melfi plant. Additional instruction was provided at Fiat Auto's Mirafiori and Rivalta plants in the outskirts of Turin, and at the Cassino and Pomigliano d'Arco plants. The basic classes included industrial education and organization, organizational logic, and basic and specialized technical knowledge. The classes have been followed by hands-on production activities.

The Melfi plant is estimated to produce two cars per minute (1,600 units per day), three shifts a day, six days per week when fully geared up. Ultimately, Melfi's organizational development will be measured by the reduction of layers, quality in proposals and decision making, and production capacity. Much the same can be said of Fiat itself.

Personnel Journal, May 1994, Vol.73, No. 5, pp. 107-113.

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