Flexibility and restructuring of value chains: findings from the WORKS project
Ursula Holtgrewe()
Jörg Flecker()
Annika Schönauer(
Paper presented at the International Labour Process Conference,
Edinburgh, April 6-8, 2009
Forschungs- und Beratungsstelle Arbeitswelt
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Flexibility and restructuring
1.Introduction
This contribution analyses the effects that value chain restructuring has on organisational and employment flexibility. It is based on case study evidence from the EU-FP6 WORKS project ( which investigated the effects of value chain restructuring on work and conducted 58 coordinated case studies in a range of industries (IT, food, clothing, public sector, services of general interest) and business functions (such as R&D, production, customer service, logistics and IT service) in 13 countries.
Since the 1990s, in both management studies and the business press flexibility has been regarded as a general aim and necessity of restructuring and business process reengineering in saturated, globalised markets. However, it is worth keeping in mind that organisation studies have regarded flexibility as something an organisation seeks to limit in order to increase efficiency (Thompson 1967). To balance the requirements of flexibility and efficiency, labour market segmentation was expected to be used within companies to combine the advantages of internal and external flexibility as the concept of the “flexible firm” suggested (Atkinson 1984).
The WORKS findings (Flecker et al. 2008b)show that indeed, through value chain restructuring that goes beyond the boundaries of individual work organisations, demands for flexibility are distributed along the chain. Companies and organisations attempt to externalise it and to pass on risk and cost to others where possible – and not least to workers. Yet requirements for flexibility are not simply divided up along the value chain. Externalisation is complemented both by a standardisation of products and processes and by a multiplication of interfaces and boundary-spanning roles. Indeed, the standardised and contractualised procedures that extend control across organisational boundaries, continue to require interpretation and negotiation. Thus, restructuring generates its own demands for flexibility, and these demands reiterate the dilemmas of competition and collaboration (Thompson 2003), and co-ordination and control. Beyond the flexibilisation of employment and work organisation, the functional and ad-hoc flexibility of live labour is required to fulfil the multiplied demands of business and work processes that extend across organizational boundaries. However, it is compressed as work and business processes accelerate.
Indeed, in this context, the WORKS project did not find many uniform trends beyond the overall speed-up of business and work. It shortens time horizons and simultaneously, multiplies the perspectives that workers need to take into account.Otherwise, the dilemmas of flexibility and efficiency, co-ordination and control play out in sector-specific ways. The effects are contingent upon the competition on the respective sector’s product or service markets, on customers’ or client companies’ demands, on power relations in the value chain, demands by shareholders to increase return on investment or on public policies.
Adverse effects on the quality of work tend to concentrate on the weaker groups of the labour market, in operative production, logistics and customer service work. In manufacturing we found ongoing Taylorist patterns of work organization, although when standardised work is outsourced and offshored, internal and functional flexibility may increase at the point of origin. Outsourcing was found to directly increase precarious employment chiefly in the public sector and in services of general interest. Here, employers sought to escape from the traditionally strong labour protection in the public sector. In the knowledge-intensive functions, standardisation of work and codification of knowledge is directly related to value chain restructuring and may even hamper organizational flexibility.Here, we find a multiplication of pressures and perspectives that both expands working times and compresses demands. Changes of work organisation then can offer challenging and more interesting work but this does not necessarily mean more favourable working conditions.
2.Flexibility
In the debates on organisational flexibility and flexible employment firms’ need for flexibility is usually taken for granted. The consensus is so widespread that authors usually only have to refer to globalisation, intensified competition, versatile markets and capricious consumers to establish the salience of the issue. This applies both to academic discourses on organisational change or employment and to political debates for example on labour market flexibility. Yet, ‘the market’, or ‘the environment,’ is not only shaped by consumers and regulators but influenced first and foremost by the strategies of all companies competing in a market. It is thus both the outcome of aggregated strategic actions and their consequences, and provides the conditions of further action(Fligstein 2002). However, the main focus of debates on flexibility has been on the organisation and its capacity to increase adaptability and responsiveness in view of versatile markets and shifting consumer demands. Organisational flexibility then, is usually seen to lie in the flexible use of personnel in numerical or functional terms, or drawing on external or internal resources. The traditional distinctions of internal/external flexibility or numerical and functional flexibility have been treated as analytically distinct dimensions (Vickery/Wurzburg 1996; Goudswaard/De Nanteuil 2000). Figure 1 provides an overview of types of flexibility and the different types of employment contracts, HR and organisational practices to achieve the respective types of flexibility.
Figure1Types of flexibility
Numerical / FunctionalInternal / Part-time work, flexitime arrangements, annualised working hours, working time accounts / Multitasking, job enrichment, multiskilling, teamworking, project organisation
External / Fixed-term contracts, freelance work, temporary agency work, temporary layoffs/seasonal work, irregular work / Subcontracting, outsourcing, freelance work
Sources: (Atkinson/Meager 1986; Huws 2006; Wickham 2005; Monastiriotis 2003; Goudswaard/De Nanteuil 2000)
Strategies to reach flexibility are linked with value chain restructuring in various ways. In the labour process perspective, outsourcing has mostly been associated with the externalisation of flexibility to smaller, lower-cost or peripheral companies (Rainnie 1991) which are likely to use more precarious labour and shift additional pressures and risks onto these employees. This appears to be especially the case in the outsourcing of service functions (Arzbächer et al. 2002; Lehndorff/Voss-Dahm 2005).Similarly, from a more managerial perspective, in Atkinson’s ( 1984) flexible firm model outsourcing was located in the periphery of the firm providing it with numerical flexibility. Functional flexibility was supposed to be located in the core of permanently employed workers within the firm. In both perspectives, outsourcing hasmostly been seen as increasing only numerical and temporal flexibility. Recent investigations of the service sector have also revealed a negative impact of outsourcing on the standardisation and regimentation of work(Batt et al. 2009; Holman et al. 2009), and on the erosion of interest representation (Doellgast et al. 2009).In this context, interorganisational arrangements are not only interesting at the formal level of outsourcing projects or supply contracts or in term of transaction cost. Flexibility strategies also depend on the actual power relations between the organisations. More powerful organisations may gain the option to pass on the risk of capacity utilisation to their suppliers and service providers. This means that organisations’ strategies to reach external flexibility in turn intensify the pressure for flexibilisation within service and supplier organisations (Arzbächer et al. 2002; Lehndorff/Voss-Dahm 2005). Such subcontractors may operate under different labour regulations which allows them to shift flexibility and risks to their employees. ‘Business to business contracting may act to place very strict constraints on the subcontracting organisations in terms of wage levels, work organisation and even working time arrangements. (…) However, at the same time the dilemma between cooperation and control may mean that the external contracting is not as “hands off” as assumed in the flexible firm models; instead of the contracted out work being treated as a market rather than an employment relationship (…), the end result may be (…) that the labour process becomes subject to the control of both the employer and the client organization.’ (Rubery 2006).
A different perspective has been provided by discussions on flexible specialisation (Piore/Sabel 1984; Sabel 2001; Thompson 2005) and innovation networks (Powell 1990; Tuomi 2002). These studies show how external functional flexibility can be important for the access to knowledge and innovation and its circulation. They rarely show an adverse impact on the quality of jobs but focus on increased labour market options for workers. However, this literature tends to present networks as a silver bullet that automatically enhances functional flexibility and is necessarily based on long-term, trusting relationships both between companies and between capital and labour.
Either stream of the discussion thus has a somewhat linear bias and from both point of views it is risky to generalise. It is worth looking at the cognitive and systemic tradition in organisational theory which conceives of flexibility as a response to an inherent dilemma for organisations. The aim to increase responsiveness to changing and volatile environments, or devote resources to uncertain ends such as innovation is at odds with the aims of efficiency and complexity reduction (Kühl 1995; Luhmann 2000; Carlsson 1989).Responsiveness and innovation thus inevitably require organisational slack (Thompson 1967; Rammert 1988) – in contrast with the business process reengineering view that seeks to reduce or externalise that slack as much as possible.
3.The WORKS project
The WORKS project has investigated the ongoing changes in the organisation of work in the context of economic globalisation and rapid technological change. Specifically we looked at the global restructuring of value chains which entails a simultaneous decomposition and recomposition of sectors, organisations, labour processes and skills. Value chains mostly are investigated under a governance perspective that looks at the distribution of power and the co-ordination of production on the level of companies and relationships between them (Gereffi et al. 2005; Faust et al. 2004). WORKS explored the impacts of such restructuring on workers, the quality of work, and on social institutions and. The project was funded by the European Commission in 2005 under its 6th Framework Programme. With partners in 17 different institutions in 14 EU Member States, it has combined theoretical work and a detailed analysis of a wide range of statistics with in-depth case studies.
This paper is chiefly based on the case study research conducted in WORKS. Cases constituted business functions in selected sectors rather than organisations or organisational units. The selection of sectors reflected the emergence of global value chains in different historical stages: sectors where vertical disintegration and internationalisation have been constitutive from the beginning and sectors where these have developed only very recently. We selected the clothing and food industry as „classic“ instances of value chain restructuring, and software, the public sector and post and railway services as sectors in which vertical disintegration has occurred more recently. For business functions we selected R&D in the software industry and fashion design in clothing to cover innovation, production in the food, clothing and software industry, i.e. software development, logistics in food and clothing, customer service in the public sector, post and railway services, and IT services in the public sector.
Each business function located in a particular sector was studied in a range of countries with diverse employment and welfare regimes (liberal, conservative, socio-democratic, etc.). This made it possible to analyse the influence of institutional frameworks on the consequences of restructuring. Overall, 58case studies were conducted in fourteen countries. The following overview shows the distribution of case studies.
Figure2Sample of case studies
R&D, design / production / logistics / Customer service / ITTextiles/clothing / BE, FR, DE, PT, IT / BE, IT, PT, HU, GR / FR, DE, NL, PT, HU
Food / GR, BG, IT, NO, DK, UK / BE, NO, BG, GR, UK
Software / DE, AT, UK, BE, FR, NO / DE, AT, HU, BG, SE
Public sector administration / AT, BE, BG, HU, IT, UK, SE / BE, NL, UK, FR, DE, NO, SE, PT
Post and rail / DE, AT, SE, NL, GR
For each case study, 8 – 10 interviews with management, key employees, and shop stewards (in the selected business functions) were conducted. The interviews were complemented by an analysis company documents and other material that made it possible to produce a comprehensive picture. Researchers in the respective countries synthesised the individual case studies from the interview data. On the basis of the individual case study reports, comprehensive comparative analyses were carried out to analyse value chain restructuring in the respective industries and functions (Flecker et al. 2008a)and along the lines of a range of research questions.We are deeply indebted to the researchers who carried out the case studies in the various countries and to the respondents who devoted their time to our research and helped us to understand the developments in their companies and sectors. For the presentation in this paper, all company names have been changed to assure anonymity.
4.Flexibility and value chain restructuring
When restructuring value chains, companies investigated in the WORKS case studies pursue flexibility for a range of reasons that are highly sector-specific. The most general finding of the case studies is an overall speed-up of all business activities. Otherwise, the aim to increase responsiveness to market demands and opportunities takes various shapes, and strategies to reach flexibility in the context of value chain restructuring have different goals. They are contingent upon the competition on product or service markets, the characteristics of the product or service, on customers’ or client companies’ demands for flexibility, on demands by shareholders to increase return on investment and on public policies. However, motives and outcomes of outsourcing are related recursively: Outsourcing strategies may enhance or limit flexibility even where this is not intended, and their outcomes may require further measures and provide further opportunities. Specifically, the standardisation or modularisation of products, services and procedures is both a prerequisite and an outcome of outsourcing and makes further outsourcing easier, as organisations gain practice and knowledge in the use of such standardisations.
4.1Externalising flexibility
First, outsourcing or relocation indeed help companies to cope with variations in capacity utilisation in a cost-effective way. To be able to use suppliers or service providers to cover excess demand or to deal with fluctuating volumes of output makes it possible to keep fixed costs low and to save on overtime of the internal workforce. This is mostly the case in production of food and clothing, the more routine parts of software development, and in customer service, that is, in the more operative and standardised functions. In customer service, value chain restructuring may be used additionally to improve the availability of services, to extend opening hours and to enhance temporal flexibility at comparably low costs. A typical example of this is the outsourcing of customer service activities to call centre companies with lower employment standards and therefore lower costs of flexibility(Schönauer 2008). Second, flexibility has the meaning of responsiveness, adaptability, swift workflows and increased variation and changeability of procedures, products and services (Carlsson 1989). This mostly plays a part in the more knowledge-intensive functions. External knowledge and capacities are used for example in software R&D, in software development or in clothing design.
Overall, strategies to reach flexibility through externalisation often mean that risks and pressures for flexibility are passed down the value chain with adverse consequences for the quality of work at supplier and service provider companies. Some of the case studies actually read like textbook examples in which the devil takes the hindmost. For example, at the IT multinational Domainsoft, CEE subsidiaries compete with West European locations, among others, on the basis of greater flexibility, longer working hours and willingness to work week-ends. Hence, they accept fluctuating workloads and tight deadlines (Makó et al. 2007). In Italy, the clothing company Green S.p.a. benefits from outsourcing to a range of small companies that in Italy are exempt from some employment protection and capable of further putting out work to homeworkers (Pedaci 2007).
However, this picture should not be generalised. First, not all suppliers and service providers are in a dependent position and provide low-cost input. In IT services, for example, big international service provider companies may be well-positioned to set the terms of the cooperation. Second, power distribution also depends on the professional groups that are affected. Highly skilled workers in the IT industry, for example, can also be in a rather strong bargaining position and thus are able to influence the terms of flexibility even if they are positioned further down the value chain. In this sense, there are also examples that contrast with the situation in the owned subsidiaries of Domainsoft (see4.5).
4.2Flexible employment
The externalisation of flexibility requirements suggests the use of more flexible employment. In Europe in general, atypical employment and specifically temporary work is increasing which indicates that companies build up their external-numerical flexibility and make use of the options national labour market regulations and their liberalisation provide (Fernández-Macías/Hurley 2008). The way in which employment becomes more flexible depends to a great extent on the institutional context of a country and on sector-specific traditions – and with present data resources can only rarely be directly linked to value chain restructuring. We thus see different degrees to which providers of outsourced services may pass on the flexibility requirements of their clients on to their employees in the form of non-standard contracts (Arzbächer et al. 2002; Shire et al. 2009) or, conversely, degrees to which external flexibility of organisations relies on the internal flexibility of suppliers and service providers (Lehndorff/Voss-Dahm 2005). In the business function of customer service, in the Italian and Portuguese clothing industry and partly in IT services the WORKS case studies have shown that the externalisation of pressures for flexibility actually translate into more flexible forms of employment or casual labour on the part of suppliers or service providers. In contrast, other business functions and sectors rather indicate that outsourcing relationships involve an extension of working time and flexible working hours on the side of suppliers and service providers, i.e. forms of internal-numerical flexibility.