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Insourcing Saves Jobs at Harman

June 1, 1996
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Related Topics: Downsizing, Workforce Planning, Featured Article
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Bertha Torres was a little nervous as she took the podium to introduce the President of the United States. As she addressed 1,500 of her co-workers in the makeshift auditorium, President Clinton stood behind her—ready to tell the employees of Harman International that their company is a model of ingenuity and responsibility that Corporate America should strive to equal.

In her 30-year career with Harman International Industries Inc. in Northridge, California, this was one job responsibility Torres likely didn't anticipate. A lead assembler on one of Harman's product lines, she was chosen for the honor because of her success in achieving growth and career longevity with the support of Harman's innovative programs. "I have mastered many jobs through company education and job training," she said. "The company has encouraged me to learn and grow." Torres is a model employee of a model company. And on March 8, she was the Harman spokesperson for employee loyalty.

Loyalty like hers is refreshing in a time when many of America's manufacturing operations face their competition by encouraging employees to meet high productivity demands, and then—once those have been met—rewarding workers with layoffs. Harman International has found the solution to this riddle. Instead of standing on the sidelines shouting cheers as assemblers work themselves out of jobs, managers have created temporary projects and given otherwise-idle workers a second chance at employment.

Harman develops a backup plan.
Harman International, based in Washington, D.C., employs 8,000 people worldwide. Harman is a leading manufacturer of high-quality audio and video products under several brand names including JBL, Infinity and Harman Kardon. Like manufacturing companies across the country, it has been pushing to achieve higher levels of productivity. With better processes and designs, more advanced technology, and an emphasis on training and development, its workers now produce nearly three times the dollar value they did just three years ago. The consequence, of course, is that these workers are becoming so efficient that it now takes fewer of them to accomplish the same work.

Other factors that impact labor demand include seasonal sales fluctuations, market conditions and availability of materials. At some other companies, these conditions might have meant layoffs. But visionary leader Chairman Sidney Harman, a 40-year veteran of the sound business, chose to view them as a challenge. "We have no greater responsibility to our employees and our shareholders than to free employees from the threat of job loss, simply because they respond to our urging for greater productivity," Harman says. "That increased productivity is critical in an exponentially more competitive world, and we must seek improved processes and design in order to reduce the direct labor content in our products."

Sidney Harman's idea was to create a job bank of projects that assembly workers, or employees supporting assembly operations, could be temporarily redeployed to work on until demand for their labor picked up again in their original jobs. Dubbed Off-line Enterprises (OLE), this program encourages employees to approach productivity improvement strategies without the fear that they may be working themselves down the road to unemployment.

Sue Hammond, VP of HR for Harman Consumer Group Manufacturing Operations, says: "OLE has created a job bank of projects to draw upon for employing surplus employees should the need arise. Our real goal, of course, is to never use these jobs. This requires that production remain at a high level even with productivity improvements and advanced technology. However, if changes do occur, we will be ready to provide continuing employment to those affected."

Managers build the job bank.
OLE began two years ago with a six-month planning period during which several senior-level management personnel from manufacturing operations began developing the list of jobs. As managers created the job pool, they had six key considerations to keep in mind:

  • Could enough meaningful positions be documented?
  • Which projects were feasible?
  • What equipment was necessary for the projects?
  • Is there space available to set up the production lines?
  • How much time would it take to implement each project?
  • In which cases is it better to make products in house, and in which would it be better to buy from suppliers?

Since then, it has become standard practice for managers to keep an eye open for potential projects. As a result, Harman International currently has a list of approximately 100 positions in the following four general categories:

  • Building products it usually purchases from outside suppliers. Example: stereo components
  • Providing service personnel it usually contracts through outside suppliers. Example: security guards
  • Converting waste byproducts into salable products. Example: clocks made from scrap wood rounds
  • Training employees to become salespeople in Harman's outlet store.

Workers may be assigned to these temporary positions for one day, two weeks or two months, and they retain the same compensation and benefits coverage as under their regular jobs.

Harman has learned that careful planning makes implementation easier. "One thing we do is inventory what parts and materials we do have and we'll build out particular products that use those parts. We're now planning to store materials for some number of the OLE programs, which otherwise would be tooled and documented," Hammond says. "Also, we're looking at every type of service and product purchased to determine our internal capabilities of doing the same thing, either on a short-term basis or as a permanent function."

Harman International arranges for its workers to have first crack at some of its jobs usually handled by outside suppliers. Hammond explains, "We look at the services that are contracted. In some cases we build into the contract language that our employees can be employed for that service or that our employees will also perform the same function without it being considered a contract violation."

OLE saves Harman big bucks.
The cost benefit to Harman International from the OLE program is substantial. Not only does the company retain the investment of employee training and development, but in many cases, workers are producing a marketable product or saving the expense of work normally outsourced to suppliers.

"We also save costs associated with final pay, severance, unemployment insurance and the learning curve. By having our experienced employees remain, we save the skills, not to mention the intangibles of loyalty and goodwill that translate into productivity," says Hammond.

Since its inception, the OLE program has been extremely successful at meeting its goals. Hammond estimates that throughout the course of a year, 75 to 100 employees who otherwise would have been laid off were redeployed to temporary or permanent alternate positions. Has this completely wiped out layoffs at Harman? Not in every case, but it has substantially reduced the number of people affected by them.

Sometimes short-term layoffs are necessary until preparations can be made to activate an OLE project. "When we have a lull in sales, we may not have enough positions to accommodate all affected immediately. We may have to resort to a temporary layoff as we await the arrival of materials and parts for the OLE line," Hammond says. This was the case for a recent layoff of 233 workers from the Northridge facility. All but 35 were retrained and redeployed after only a brief time—without interrupting their benefits.

HR does the upfront planning.
Harman's 20-person HR staff is a visible player throughout the redeployment process. In the event of a slowdown, every team member is involved to some degree. HR first evaluates the work in progress in other areas of the facility, looking for OLE projects with openings. Staff members also look at outsourced products currently in demand and they consider the feasibility of bringing them in house. Another avenue, HR also tries to place personnel into other divisions temporarily. If preparation time is needed for an OLE project, HR handles the layoff and recall processes. Then production managers make the final assignments based on skills and experience.

When it comes to training, HR staff members also manage the programs required to prepare workers for their new assignments. In some cases this means developing and conducting training sessions, such as those for retail salespeople and security guards. Other times this may require arranging for other employees to administer on-the-job training.

HR is also working with managers to develop a new employee-suggestion program. It's meant to encourage employees to submit ideas for improving productivity as well as for additional OLE projects.

Once the now-vacant position of OLE manager is filled, this person will carry on the publication of a special newsletter, the OLE News. It keeps employees abreast of positions currently available and reminds them of projects that are under consideration. In an early issue, it identified 97 possible jobs. The OLE News also advertises OLE job-training opportunities, encouraging those interested to participate.

The Northridge location has been the host of Harman's pilot program. The site was a good choice for this because of its large employee population and because it has the type of production workforce most commonly impacted by daily, weekly or seasonal shifts in demand. In the future, Harman International hopes to widen the scope of the OLE program by expanding it to other Harman facilities.

But let's not stop there. There's plenty of demand for this kind of creative problem solving throughout the country. As President Clinton said in his address: "It's just one solution, but it's a solution that deserves to be considered all across America."

Personnel Journal, June 1996, Vol. 75, No. 6, pp. 85-89.

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