Teamwork can keep EU firms ahead

Date: 16/05/1996

By Tim Jones

IF European companies do nothing else except cut costs to fend off US and Asian rivals, they will continue to lose markets and shed jobs.

That is the abiding fear of Tom Sommerlatte, managing director of Arthur D. Little Europe, the leading global industrial consultancy group.

“There is a danger of getting obsessed by it, as if cost-cutting is the only thing you can do to be competitive,” he warns.

“The challenge for European companies is to increase productivity and reduce costs, but not neglect - and indeed emphasise - innovation.”

The Arthur D. Little European Executive Council, which brings together more than 100 corporate executives from all over Europe, warns in its 1996 White Paper that industries will share the fate of the already weakened camera, video-recorder and office-systems sectors unless radical internal reforms are carried out.

Just looking to reduce costs can result in cut-backs on research and development spending “leaving companies with outdated products”, says 58-year-old Sommerlatte.

“Everyone realises that we have a cost disadvantage - and companies have done a lot to get costs down by as much as

20-30&percent; - but they will not go down further because the differentials in social, environmental and labour costs between Europe and Asia will not disappear.”

This means the opposition must be outsmarted. To achieve this, Sommerlatte is calling on European companies to import a key tenet of US business theory - 'organisational learning'.

“We make a distinction between individual learning - where an individual collects knowledge and experience and changes behaviour accordingly - and organisational learning,” he said.

Tests have shown that if ten people with IQ levels of 120 are put together, their performance as a team can earn them a score of just 100. “The learning of the group is not just the sum of the learning of individuals,” explains Sommerlatte. “It depends on exchanging views, sharing knowledge and combining different forms of intelligence.”

He believes that European companies have an unhealthy tradition of keeping technical, commercial and marketing staff separate. “It goes right back to university. There is a technical and engineering faculty, business administration and economics, and there is very little interaction. The old idea of the university which is universal has faded away,” he says, adding: “Exploiting the collective intelligence of companies has become much more important because the world is changing so fast. We cannot wait until this just happens on its own. It has to be organised.”

Many companies in the US now have a chief learning officer to complement their chief financial officer or chief technical officer.

“Experience shows that organisational learning has always worked better in Asian-Pacific firms. In their cultures, people talk to each other before they do something but, in Europe, people work in isolation and this has increased as companies have been downsized,” says Sommerlatte.

He argues that the group learning culture must begin at the top, with the board of directors, then filter down through the company as has happened at the Royal Dutch/Shell oil company.

Sommerlatte says this approach has worked wonders in several companies. Volvo, for example, has managed to fight off fierce price competition in the building equipment sector by outwitting its rivals' product innovation.

Similarly, Norwegian shipbuilder Kværner has made a success of a former East German shipyard right next door to the spectacular failures at Bremer Vulkan through consultation and intelligent teamwork.

Sommerlatte believes the EU has a role to play in encouraging this process.

“It can facilitate exchange between universities in the various countries, encourage movement of people within multinational companies and support life-long learning,” he says. “There is a tendency in Europe for people to say 'I've finished my degree, now I know everything and I don't need to read anymore'.”

Companies should also take advantage of their special knowledge of the various national European markets. “Europe is a single market, but it is segmented into very different markets in terms of culture, climate and behaviour,” says Sommerlatte.

“A European company could have a big competitive advantage in its own market by understanding it, while an American or Japanese competitor thinks Europe is Europe, which is completely wrong.”