THE LIMITS OF AUTONOMY: DEVOLUTION, LINE MANAGERS AND INDUSTRIAL RELATIONS IN PRIVATIZED COMPANIES

Journal of Management Studies 29:2 March 1992 0022-2380 $3.50

THE LIMITS O F AUTONOMY: DEVOLUTION, LINE MANAGERS AND INDUSTRIAL RELATIONS IN PRIVATIZED COMPANIES*

TREVOR COLLINC ANTHONY FERNER

University of Warwick

INTRODUCTION

Managerial decentralization has become a commonplace of the organizational literature of recent years. With large corporations operating in increasingly diversified markets and facing intensifying national and international competition, the classic Chandlerian M-form has been evolving into more variegated forms (Hill and Pickering, 1986). These, responding to the encroaching rigidities of the multidivisional structure, are generally characterized by the decentralization of decision-making power and accountability to lower organizational levels - the ‘strategic business unit’ or ‘profit centre’. Writers such as Goold and Campbell (1987; see also Goold, 1991) have charted the parallel evolution of forms of central control within which devolved managerial powers operate, from those based on the setting of broad ‘strategic’ goals such as market share, to tighter, shorter-term financial targets. Decentralization has also been a feature of more homogeneous companies operating primarily in one sector, as part of the search for more flexible, innovative and efficient organization. A parallel but distinct strand of writing concerned with the culture of organizational success has seen decentralization as a means of achieving innovative ‘entrepreneurship’ at lower managerial levels (the debate is summarized by Fulop, 1991).

One corollary of the devolution of authority has been the ‘revitalization of the line manager’ (Storey, 1987), who makes the transition from being ‘production’ oriented to being ‘business’ oriented (Storey, forthcoming). This in turn has consequences for the management of personnel and industrial relations. With greater responsibility for their unit’s performance, line managers increasingly have expected, or have been encouraged, to assume responsibility for areas that have a bearing on that performance. Thus there has been a devolution of control over personnel and industrial relations issues from the corporate personnel function. (See e.g., Cowan, 1986; Hill and Pickering, 1986, pp. 37, 47; IDS, 1991; Purcell and Gray, 1986; Marginson et af., 1988, ch. 7). The survey by Mackay and Torrington (1986, ch. 1 l ) , for example, shows line managers taking a greater role in work organization, training, recruitment, discipline and other areas. This tendency is likely to be furthered by the rise of ‘human resource management’ (HRM) models in

Addres~ J0r reptints: Trevor Colling, Industrial Relations Research Unit, University of War- wick, Coventry CV4 7AL, UK.

210 T. COLLING AND A. FERNER

which ‘HRM is vested in line management as business managers responsible for co-ordinating and directing all resources in the business unit in pursuit of bottom-line results’ (Legge, 1989, p. 28; also Guest, 1991).

This article examines the consequences for personnel and industrial relations of the process of decentralization currently occurring in the recently privatized network services in Britain: British Telecom (BT), British Gas, the water plcs, the electricity distributors, and the electrici? generators (privatized in 1984, 1986, 1989, 1990 and 1991 respectively).[ 1 More specifically, the article explores the tensions and uncertainties that arise from the decentralization of personnel and industrial relations issues. These mirror certain broader tensions inherent in relations between the centre and the operating unit.

Decentralization has always been an ambiguous notion, a ‘reconciliation of opposites’, as Sloan (1964) acknowledged in his description of ‘coordinated decentralization’ at General Motors. More recently, something of the same paradox has been captured in that classic modern cliche of the evangelists of organizational ‘culture’, the need for ‘loose-tight properties’, the ‘co- existence of firm central direction and maximum individual autonomy’ (Peters and Waterman, 1982, p. 318).

Much literature on decentralization points to the tensions that arise in achieving such a ‘co-existence’ of control and autonomy. Even in the most formally decentralized organizational forms, such as the ‘financial control’ of large diversified companies such as GEC or Hanson described by Goold and Campbell (1987, ch. 6), managers are under great pressure to meet unambi- guous financial targets, and those who fail to do so are quickly disposed of. The work of Brooke points to the constant struggle to shift the balance between central control and decentralized authority: poor performance of subsidiary units leads to a recentralization, even within a rhetoric of decentralized authority, then the stifling of initiative leads to greater unit autonomy, and so on (see Brooke, 1984; Brooke and Remmers, 1970, ch. 3). One underlying cause of the centralized/decentralized dynamic, and a major theme of the present article, is the conflict between individual unit objectives and corporate objectives.

An important mechanism in shaping the ambiguity of decentralization is the clash of interests between different groups and levels of managers. The ‘micropolitical’ relationships and gambits of organizational actors may promote or impede decentralization ( e g . , Brooke, 1984, pp. 210-20,293-4). From a different perspective, Kanter (1983) has written of the need to ‘empower’ middle managers by devolving organizational resources to them and offering support and ‘legitimacy’ for their activities; otherwise, their routinized behaviour is likely to serve as an obstacle to corporate change. The absence of a micropolitical dimension from some of the most influential texts of the ‘excellence’ .literature, notably the work of Peters and Waterman, has been said to account for its ‘unbridled optimism’ about the possibility of reconcil- ing control and autonomy (Fulop, 1991, p. 36).

Similar tensions between central control and operational autonomy reside in the area of personnel and industrial relations management. Kinnie, for example, has argued that a ‘decentralization of structures is not necessarily

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associated with a devolution of genuine discretion’ (1990, p. 30; see also 1985), while the detailed survey evidence of Marginson et al. (1988, ch. 7) points to the different kinds of central control, ranging from instruction through guidance to consultation, which colour local management decisions on many industrial relations and personnel management issues. Purcell and his colleagues have explored some of the micropolitical tensions, arguing that decentralizing tendencies may be thwarted, even when corporate ideology preaches the devolution of authority to line managers, by the vested organizational interests of central personnel departments (e.g., Purcell, 1989a; Purcell and Ahlstrand, 1989). Conversely, a measure of decentralization may create ‘upward’ political pressures in the devolved business units, and a strong reaction against head office overhead charges and the imposition of central procedures and constraints.

The experiences of the privatized utilities should be able to throw light on these and wider questions about what decentralization really means in corporate practice. The privatization process has imposed very strong decentralizing pressures on management. Long criticized as monolithic and unre- sponsive, they are now supposedly being plunged by privatization into a new world of competitive markets and profit-centred behaviour. This requires dynamic, flexible, decentralized management. The article also examines the micropolitical factors that influence the possibilities for decentralization, especially the highly centralized personnel and industrial relations traditions of the former public enterprises, and the ability of line managers to exert ‘upward pressure’ on the centre. There have also been powerful ‘structural’ forces limiting the possibilities of devolved management, reflecting the nature of the utilities’ operations and the framework of regulation within which they operate. In particular, the integrated, systemic nature of the networks creates a problem when unit managers take the rhetoric of decentralization too literally. In such circumstances, innovative ‘entrepreneurial’ action by local managers may be seen as ‘maverick’ by the centre, leading to a tightening of central control. While privatization adds twists and complications of its own to the decentralization story, the utilities are therefore a source of understand- ing the general stresses of decentralization discussed above.

The first section describes how privatization has led the former public enterprises to change corporate ‘culture’ and management control systems in order to meet the perceived challenges of the new operating environment. It also looks at the implications for the role of senior line managers in the ‘operating units’. The central sections of the article then examine the tensions generated by the new role, particularly those engendered by the clash of a decentralizing rhetoric and centralizing reality. Two contrasting sets of stresses are considered. The first is the problem that line managers have in adapting to their new responsibilities, partly reflecting their immersion in earlier, more centralized public service cultures. The second is the consequ- ence of line managers ‘taking seriously’ the rhetoric of decentralization, leading to conflicts between the performance of the business unit and the interests of the corporation as a whole. These stresses are magnified by the special characteristics of the activities and operating environment of the privatized utilities. These make for what Marginson et al. (1988) have called


‘repercussive effects’ of local industrial relations issues, such as industrial conflict and work organization. Finally, the resulting recentralizing forces are discussed, and some broader conclusions for the decentralization debate are drawn.

PRIVATIZATION AND THE CHANGING ROLE OF LINE MANAGEMENT

Privatization has been seen as providing the opportunity to sweep away the old public service culture and to usher in a new one. This has been partly to cater to external audiences: the regulators concerned to restrict monopoly power, control prices and promote increases in efficiency; and the Conserva- tive government, whose commitment to privatization reflects a deeper ideolo- gical belief in the virtues of private provision compared with public. The privatization process thus carries strong symbolic overtones for the public utilities. It is a cultural ‘rite of passage’ from public service to private sector. Beyond the symbolic aspects, of course, is the desire by companies to adapt to real changes in the environment in which they operate. The logic of government ownership is replaced by an orientation to shareholders. In some cases, privatization has been accompanied by a change in market conditions, either through the gradual development of increasing competition, as in telecommunications and gas supply, or more dramatically as with the breakup of the CEGB into rival generators and the opening up of electricity generation to new market entrants.

The ‘old public service culture’ is characterized - and to an extent caricatured in the interests of promoting change - as having been centralized, bureaucratic and inflexible. I t discouraged innovation and risk-taking, and encouraged conformity. Management was ‘by committee and consensus’, with limited delegation of authority. Industrial relations also tended to be highly centralized and proceduralized, with national negotiation of the major terms and conditions of employment. The culture reflected the imperatives of public ownership: the utilities were geared to providing a basic public service very widely, often on the basis of statutory obligations (for example, that of the CEGB to ‘keep the lights on’ - the so-called ‘obligation to supply’). LManagement was subject to the accountabilities of public ownership - the need to stand up to public and parliamentary scrutiny, defend policies and performance, and demonstrate competence and effective working.

On privatization, most of the utilities have been trying to change this culture (e.g., Colling, 1991; Ferner, 1990). An emphasis on cost-cutting, innovation, commercial awareness and adaptability to the market has been encouraged. In a more competitive and uncertain business environment, managers argue, change becomes the norm - ‘no company can stand still and expect to remain competitive’ in the words of one internal management document. Management style is expected to be dynamic and proactive and fast on its feet to meet business challenges. These changes have fed through into the role of line managers, who are seen as one of the main agents of change. They have become what Storey (forthcoming) calls the ‘delivery mechanism’ for the new culture, for example through their enhanced role in

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employee communications, as well as ‘designers and drivers’ of change (ibid.) . Local managers are encouraged to be on the look out for ‘new growth opportunities’, and ‘entrepreneurial’ attitudes and ‘intrapreneurship’ have been encouraged (e.g. Brunnen, 1989 on British Telecom), especially where companies are trying to diversify into new markets. Management control systems have been reformed to devolve much greater authority to the line. Operational managers were expected to develop a ‘business orientation’ rather than concern themselves primarily with the technicalities of production management. Some delegation of authority has also taken place in personnel and industrial relations areas such as recruitment, payroll, training, grievance settling, discipline and absence control. British Gas introduced local general management for the first time, replacing the functional management system of the old public corporation (Finam’al Times, 14 May 1990). In BT, where local general management had long been established, the powers of the district manager were (for a time - see below) strengthened as a way of ‘getting close to the customer’ in the dynamic and complex telecommunications market.

In telecommunications, as also in electricity generation, the devolution of responsibility to operating units was encapsulated in notions of the ‘profit centre’, either at business ‘division’ level (Norkett, 1986) or even at the level of individual operating units (Morley, 1986, p. 128). Whereas ‘cost centres’ had been widely introduced in the public enterprise sector, profit centres, putting the emphasis on maximizing the profit rather than minimizing the costs of the unit, were an innovation. In one privatizing company, early thinking produced the idea that every operating unit should be a profit centre, with transfer pricing to allocate costs of corporate services. Profit centre management would mean freedom for local managers to address the overriding objective of improving the unit’s profitability and avoid interference on the means of achieving it.

In practice, however, the differences with the past were more nuanced and profit centre managers were still having to make trade-offs between diverse objectives such as efficiency and equipment ‘availability’, and more to the point, they had little control over major elements of the ‘bottom line’. Revenue was determined by centrally devised pricing policies, and in the case of electricity generation, by contracts negotiated centrally. Power station managers had no power to influence revenue. There were also large areas of costs over which unit managers had no control, and in all the companies considered, pay determination continued to be very largely centralized at corporate (or even industry) level.

Such limitations led some managers, notably in the water industry and in electricity distribution: to stress the inappropriateness of the profit centre idea for integrated service industries. But even here, managers conceded that profit centres would be introduced in the long term. This suggests that profit centres and business units also fulfilled a strong symbolic role (cf. Singer, 1990) in the transition to private status. In one utility, senior managers spoke of the importance of ‘exaggerating for effect’ in creating new devolved operating units. Profit centre management was ‘a process which will cause us to think differently about how we are managed compared with when we were

.

214 T. COLLING AND A. FEIGNER

cost centre orientated’, according to one senior manager. In other words, profit centres sent a signal to line managers about breaking the mould of the old culture and doing things in new ways. The disparity between the decentralizing rhetoric and symbolism and the practical limitations on it was to be at the root of much of the tension and confusion in managerial behaviour at operating unit level.

DECENTRALIZATION TO THE LINE: FORCING LINE MANAGERS T O BE FREE

There seem to have been two conflicting tendencies at work in line managers’ responses to decentralization. On the one hand, there was a fear of- and lack of preparation for - freedom and responsibility; on the other a belief that all fetters on their actions had now been removed.

A common theme when the companies were privatized was the need for operational managers to move away from their traditional overriding concern with engineering and production values. Typical was the comment of a manager in a water plc that line managers’ orientation had to change ‘from simply operating and maintaining to balancing books and marketing’. Line managers also had the job of explaining to their staff why a new business culture, based on competitiveness and the generation of profit, was being implemented, and of leading and motivating them accordingly. On industrial relations, managers were expected to take the initiative and handle issues locally to a greater extent than before. They would also have to deal with the implications of direct communication with staff, which was bound to disturb relations between management and union representatives in local machineries of negotiation and consultation.

Line managers had to be prepared for this new role - or in Kanter’s terms, ‘empowered’. Their inhibitions partly reflected a certain distaste for the perceived abandonment of a public service culture that many profoundly believed in. More often they simply lacked the skills required. Companies responded by linking new devolved management structures to training prog- rammes (including training in team briefing and communication skills as well as more technical financial, budgeting and other business skills). Performance-based promotion replaced what one respondent called the old ‘dead men’s shoes, no black mark’ seniority-based promotion systems, allow- ing the so-called ‘dead wood’ to be swept away. Performance was encouraged by new incentives: in electricity, gas and telecommunications, managers in the operating units were offered personal contracts together with a performance-related pay element dependent on achieving targets for the unit.

Despite these initiatives, there were problems of adaptation, partly because of weaknesses in the infrastructure of management development and performance appraisal (a finding confirmed in another study covering telecommunications, Storey et al., 1991). There were also more fundamental obstacles. First, managers were having to learn new styles in a climate of change and uncertainty concerning their futures. As Fulop (1991, p. 40) writes in her survey of middle management entrepreneurship, ‘the massive rationalizations and mergers occurring in large corporations suggest that no matter what


middle managers do they will be the victims of these trends’. The most prominent example of managerial insecurity is that of BT, where in 1990 the board announced that, against the background of yet another organizational restructuring under ‘Project Sovereign’, swathes of middle managers would lose their jobs. In 1990-1 alone, more than 6000 managerial posts were cut (NCU J o u m l , June 1991, p. 1).

Second, managers were used to operating within a very centralized industrial relations framework, with well-established local machinery closely articu- lated with higher levels by ‘reference up’ procedures. Traditionally, this had been a way of defusing contentious issues. The machineries continued to be centralized after privatization. Even in the case of water, where the national industry machinery was broken up in the period before privatization, the determination of pay and conditions was still heavily centralized at corporate level, rather than being devolved to units. Operating after privatization within essentially unchanged industrial relations structures, many managers were unable or unwilling to use them in a new and more proactive manner, especially in the face of staff resistance, to get change in areas like the employment of contractors, the reduction of the workforce, or the introduction of more flexible working patterns. Many lacked the skills to negotiate with local union representatives. Top level management complained that unit managers hid behind the supposed constraints imposed by central industrial relations machinery. They were seen as really wanting the best of both worlds - a move from joint central determination of pay and conditions to unilateral local management determination; they were looking for ‘a panacea enforcing management’s right to manage’, in the words of one corporate personnel manager.

Corporate personnel saw one of its jobs as being to remove ‘excuses’ from line managers and to extend the bounds of the possible within existing structures and national agreements. There was thus an emphasis on using the local industrial relations machinery in new ways, as a tool for improving the performance of the local operating unit, and as a channel for fostering ‘cultural, organizational and technical change’. Local managers were also encouraged to treat existing agreements ‘flexibly’. For example, a leaked training document for a group of BT district managers urged them to take advantage of ‘BT’s current power position’ by distinguishing between those national agreements which were ‘for corporate political reasons regarded as sacrosanct’ and those that managers could ‘take action on’ (NCU Journal, March 1986, p. 33). (In this case, however, management claimed that the leak did not represent corporate policy.) Finally, senior management thinking on national bargaining tended to stress the need for simple ‘framework’ or ‘enabling’ agreements that would leave local managers free to come to a detailed agreement locally with the unions, within broad national guidelines. This was used in British Telecom in the negotiation of work ‘repatterning’ for the engineering grades, and was being floated in electricity generation and distribution. One might say, in short, that line managers had to be forced to be free, by ‘downward’ pressure from the centre.


THE STRUCTURAL AND MICROPOLITICAL CONSTRAINTS ON DECENTRALIZATION

In addition, however, there was another, converse problem seen from the perspective of the corporate centre: that the line managers would take the rhetoric of devolution at face value and misunderstand the limitations on their autonomy. In the words of a senior personnel manager, ‘having been subject to strait-jackets, the poor managers are now with privatization going to the other extreme with the perception that the [business unit] manager can tell everyone to piss off. At the moment there’s a very strong “let’s be free from all constraints” attitude’.

hiore enterprising local managers, operating in a new culture of semi- autonomy, found central intervention frustrating. Moreover, as they found themselves having to squeeze controllable costs to meet their unit targets, they began to exert pressures for greater control over areas that were not under their control, including elements of pay such as bonus schemes. Line managers’ desire for greater authority also reflected their need for flexibility to meet local patterns of customer demand, for example through more flexible grading or working hours agreements, and to ease local labour market problems of staff recruitment and retention.

As suggested earlier, despite the rhetoric, line managers usually lacked control over major items affecting their unit’s performance. Pay rates and many aspects of working arrangements continued to be centrally negotiated. In addition, unit managers were not left free to meet ‘bottom-line’ financial targets as best they could, but were also given budget targets, not only for labour cost reductions but for staffing levels and often for gradings, overtime and absence as well. Moreover, even where line managers had formal authority, central control and involvement was often greater than appeared. At a basic level, as might be expected, devolution often went hand-in-hand with close central co-ordination. More sophisticated information systems allowed the head office to control target-setting and to ‘ratchet up’ performance of the business units to the level of the best. For example, central management in one company estimated that staffing levels in one kind of operating unit could be reduced by 25 per cent by bringing all units up to the practices of the most efficient. Data on best practice in working arrangements could thus be used to narrow down the range of targets for the units. Rivalry and emulation between the units were encouraged by a ‘league table’ approach to performance measures.

This tension between what line management wanted to do and what it was allowed to do reflected a number of constraints. First, groups at the centre had their own interests and agenda, and fought to keep control of issues that might have been decentralized. Second, there were ‘structural’ limits to decentralization, arising from the nature of the utilities as ‘network’ industries, and the implications of regulation. Such constraints led inevitably to pressures for recentralization.

The Micropolitics of Decentralization It was suggested in the introduction that changes in the balance between centralization and decentralization, in this case triggered by privatization,


unleash ‘political energies’ (Pettigrew, 1985) in the organization as groups struggle to preserve or enlarge their power by defining the changes in terms of their own interests. Central functions, for example, may resist pressures for decentralization arising out of changes in business structure and style. It was certainly the perception of a number of line managers in the privatized utilities that the centre was frustrating local initiatives by clinging on to power. A water industry manager complained that despite being encouraged to be entrepreneurial, he did not have the authority to set up a plumbing services unit without going to the centre. Line managers also saw the corporate personnel function as concerned with protecting its own power base. A line manager in the water industry accused central personnel of not having followed through the chief executive’s desire to change industrial relations procedures: ‘Personnel is there to support the line function, not the unions. Line managers are furious about [the personnel manager’s] role. . . . In future they will identifir agreements and procedures that get in their way and his role will be to remove them.’ I n this respect, corporate groups may have been acting from ‘defensive’ motives. Many central personnel and industrial relations managers were still imbued with the public enterprise traditions of centralized, formalized industrial relations, in which they played the classic ‘contracts manager’ role (Tyson and Fell, 1986); and they were uneasy with the more detached, free-ranging, albeit more strategic, perspective that decentralization demanded. But just as important, the changes brought about by privatization provided the grounds for different corporate groups to stake new claims to influence and expand the definition of what it was legitimate for the centre to intervene in on a company-wide basis. Thus, a case study of electricity generation (Ferner, 1990) shows the corporate personnel function trying to hitch itself to the process of strategic change by defining its role in terms of promoting the new corporate culture.

The centre, for its part, often saw line managers as in need of protection from themselves. Corporate personnel managers believed, for example, that line managers often underestimated the strength of local union representatives, overestimated their own negotiating powers, and could not handle incidents such as strikes effectively. As Fairbrother (1991) has noted in the case of the civil service, when local management has greater initiative, there is greater scope for local unions to challenge the exercise of managerial preroga- tive. The excuse that a manager has to refer a matter to higher levels of the organization is no longer appropriate. One corporate personnel manager in the electricity industry spoke of becoming involved in ‘firefighting’ when line management ‘goes ofT at half cock’ through incompetence in negotiating. There was therefore a need to rein in excesses and to prevent local situations from getting out of control. In one case, for example, local unit managers tried to introduce a new arrangement on multiskilling and flexibility. But it ‘went wrong’ because, in the eyes of central personnel, managers failed to take the local union officers with them. As a result, central personnel stepped in, using its ‘strong bargaining relationships’ with national union officers to impose a solution.

As this suggests, the centralizing behaviour of corporate personnel has partly been a response to the centralizing tendencies of another set of actors, the unions. Unions have tended to see decentralization as an attempt by


management to bypass union influence by devolving decision-making to a level where they have traditionally been weaker. They have been concerned about ‘macho’ management forcing unsatisfactory agreements on local unions, creating ‘downward emulation’ pressure from management; about losing control of local industrial action once responsibility is devolved to local managers; and about the increasingly severe strain placed on their limited resources by more decentralized decision-making. It is possible to argue, against the orthodox view that union structure follows management organization, that where unions have, as a result of these pressures, attempted to ensure national co-ordination, corporate personnel management has been forced to do the same. This could vitiate the impact of the framework agreements that, as mentioned earlier, have been touted as a way of giving local management more freedom within central guidelines. According to one union officer, the BT enabling agreement ‘didn’t achieve the variations sought because the union coordinated its policies and approaches negotiated at different districts’. This, i t was claimed, led BT to co-ordinate negotiations centrally: ‘One could see the same policy being pursued across districts, e.g. over grading of certain work.. . . There were occasions when districts were restrained by BT from conceding too liberal agreements.’

In some ways, as the perceptions of line managers suggest, central personnel and senior union officials seem to be locked into a mutual dependence which leads them to lend support to each other in tacit ad hoc alliances against line management. On occasions, unions would rally round to dig personnel out of a hole, in order to preserve the central relationship rather than let it be undermined by line managers. One example, from the electricity industry, concerned the closure of an operating unit. This was decided by the operations function without telling the personnel department. Senior personnel managers had an uncomfortable meeting with union leaders in which they were told, ‘it’s not a personal thing, we believe you didn’t know, it’s just that you guys have no credibility, you just don’t know what’s going on’ (fieldnotes). Subsequently, the unions wrote to the chief executive demanding, and getting, an assurance that when the personnel director talked to them about industrial relations, he did so with the backing of the board. This, according to a senior personnel manager, was ‘manna from heaven’. In the words of one national union official, ‘because of the unions’ reaction, Personnel has been able to re-establish its influence’ - something that is clearly seen as being in the unions’ interest.

But it was not only the power interests of corporate personnel and national unions that thwarted the implementation of more decentralized, line-driven policies. There were also corporate-level strategic concerns in the field of personnel and industrial relations. The centre, particularly the central personnel function, had strategic objectives for workforce reductions, overtime levels, the use of contractors and so on which could be jeopardized by the individualized action of business units pursuing their own targets. Exploding overtime levels might be seen, for example, as evidence of a loss of ‘management control’ in the organization, and the centre would therefore intervene to set corporate target levels of overtime. But meeting these could clash locally


with the need to provide satisfactory customer service. Conversely, should the business units decide to undertake an offensive on, say, overtime levels, the centre would wish to be in control, in case an uncontrolled and unco- ordinated blitz by local managers compromised corporate objectives. For example, in one company, local managers were concerned to meet their manpower targets by abandoning the ‘custom and practice’ of retirement at 70 and strictly enforcing the national agreed retirement age 0f6O. The central personnel function intervened because of concerns that the broader industrial relations ramifications of such an emotive issue could lead to a company-wide strike. In another company the strategic priority for corporate management at one point was to get the generalized use of contractors accepted as a ‘cultural norm’ by the workforce. This intervention could well interfere with local managers’ autonomy to decide on the basis of cost and customer service whether to use contractors or their own permanent staff. I t could also mean higher levels of overtime than local managers would like (because - particularly in the electricity industry - management often had to concede artificially high overtime to get employees and unions to accept more use of contractors on site).

Structural and Macropolitical Constraints These strategic concerns of corporate personnel reflected a more structural set of features favouring more centralized control, to do with the nature of the activities and the environment in which they operated. These, as we discuss below, affected the nature of the possible ‘repercussive’ effects of decentralization.

The privatized companies studied were ‘network’ industries with closely integrated activities in which events in one part of the operations could have a ‘knock-on’ effect elsewhere. The different parts of the system were dependent on centrally planned technology and research and development, with change in one part of the system highly dependent on developments in other parts. In most cases, there was a ‘core’ product, whether gas, electricity, water supply or telephone services. There were, therefore, strongly concentrated, unified product markets. This suggested the need for a single unified corporate culture, with the danger that devolved management would interfere with ‘company awareness’. Common technologies and products meant that skills were common across the organization, and in many cases, unique to the organization; this encouraged the development of. unified corporate internal labour markets both for managerial and other staff. According to Purcell (1989b, p. 54), such characteristics of an integrated system point in the direction of a centralized corporate personnel and industrial relations strategy, at least as regards to collective bargaining.

A second structural feature of the companies was the framework of regulation of price, quality and competition that they faced after privatization. It is argued at length elsewhere (Femer and Colling, 1991) that regulation exerts a strong centralizing influence, since corporate management is aware of the damaging effects of variations in quality of service on public perceptions and on the attitude of the regulator, in the context of licence renewal, revision of

220 T. COLLING AND A. F E W E R

pricing formulae, or considerations over the future competitive structure of the industry (as in the recent ‘duopoly review’ in telecommunications).

In addition, in the period between the announcement of privatization plans and the flotation, industrial relations issues became particularly sensitive. The government was anxious to avoid disruption of its privatization timetable and institutional advisers were concerned to optimize the corporate image presented to potential investors. The centre therefore kept a tight rein on industrial relations initiatives by local line managers, especially where they could lead to ‘aggravation’ with the unions. In one case, for example, a divisional-level personnel manager encouraged unit managers to implement changes in work organization without worrying too much about union agreement. The national repercussions with union leaderships led to firm intervention by central personnel to repudiate the actions of management in the businesses (see Ferner, 1990).

More difficult to assess is the impact of the need to satisfy the capital markets and investors. There is some evidence (Ferner and Colling, 1991) that corporate management has felt additional pressure to send signals about its intentions to the stock market by, for example, reducing labour costs. This could be one factor behind centrally driven policies referred to earlier for reducing the number of employees or, relatedly, increasing the number of activities that were contracted out. In the words of one manager, ‘the City. . . is not giving [the company] the time for investment to get in and bear fruit, so people are saying cosmetically, “let’s get rid of, for example, catering”, but it is only cosmetic and not cheaper than doing it ourselves’ (fieldnotes).

Decentralization and the Fear of ‘Repercussive Effects’ The structural features of the industries meant that, to the extent that decentralization was real, it heightened the dangers of ‘repercussive effects’ of events in one part of the system on other parts: in industrial relations, said one senior operations manager, ‘there is no such thing as a “local situation” ’. In some respects, the changes brought about by privatization have increased the potential risks from uncontrolled local situations. For example, the new electricity generating companies would now be more vulnerable to localized industrial action, since the shutdown of a large station would affect a greater percentage of their income, and competitors could step in to provide the shortfall.

At the same time,, the likelihood of ‘aberrant’ behaviour was considerably increased by decentralization. First, the assimilation of the rhetoric of devolution could encourage management to overestimate the extent of their autonomy and to be more aggressive in industrial relations, thus making local conflicts more likely. With the safety valve of reference up to higher levels of the machinery being curtailed, as in electricity, contentious issues had to be handled at unit level and the possibility of flash points was greater. Second, devolution of responsibility could lead to a stress on the performance of the business unit, in isolation from its impact on the corporation as a whole. Such behaviour is likely to be encouraged, as Brooke (1984, p. 217) has pointed out, by reward systems designed to maximize aspects of the unit’s performance.


(As noted earlier, there has been a widespread move to transfer unit managers from fixed grade-based salaries onto performance-related systems, often linked to personal contracts.) One manager gave the example of poaching of senior technical staff from another location in order to achieve one’s own targets, even though this might not be the most effective use of resources from a corporate perspective. Managers might be tempted to achieve their financial or output targets by making concessions on working practices, use of overtime or general ‘ad hoc-ery’ that might go against what the corporation regarded as ‘sound industrial relations practices’.

This reflected a general problem in the privatized or privatizing companies - the difficulty of allocating costs in such a way as to make business unit decisions reflect the true cost to the organization. One practical example arose when a privatizing company introduced a programme of reductions in employment. The main problem for central personnel was the unseemly haste with which business unit managers hustled redundant employees out of their units in order to meet their financial targets; the heavy costs of redundancy being borne by the centre rather than by the units. Another prominent example of diverging costs was that of quality of service in BT’s telecommunications districts. Senior BT managers partly attributed the service problems of mid-1987 to the district general managers’ neglect of services such as public call boxes that were relatively unprofitable, yet vital for the public image and standing of BT as a whole (see Ferner and Colling, 1991).

The clash between a rhetoric of devolution and the continuing need for centralized control encouraged moves in some companies for a recen tralization of power and authority. Some of these were covert, in the sense that they came into operation even as the ideology of decentralization was being promulgated. For example, in one company, the centre was able to increase its control over the operating units’ investment decisions because it controlled centrally the ordering of equipment from the manufacturers, and could choose to slow down the processing of orders from the units.

In some of the privatizing companies, overt recentralizing policies began to be introduced. BT was the foremost example, most recently with its moves to abolish the district as the basis of management organization and to restruc- ture its activities around market segments (principally domestic and business services). In many cases, the growing awareness of system ‘interdependen- cies’ has led to the profit centre idea being toned down, or in the case of BT, to its abandonment (at local level) before it could be properly introduced. Companies like BT also became more aware of the ‘system’ component of sensitive issues like quality of service and revised their earlier view that customer needs could best be judged and met through local management initiative.

Senior managers acknowledged that the disparity between the decentralizing rhetoric and symbolism and the practical limitations on it gave rise to confused signals for line managers. The centre had encouraged unit managers to ‘believe that they were more autonomous than they could ever be in reality’ on the grounds that ‘the old system could never have been broken down if they hadn’t caused an upsurge of “entrepreneurial behaviour” ’ (fieldnotes).


SUMMARY AND CONCLUSIONS

Privatization has triggered changes in management control systems and the devolution of greater responsibility and authority to the operational units. The process has posed two contrary problems for line managers. First they have had to throw off the old inhibitions about taking initiative and responsibility. Second, though, they have found new shackles placed on their supposed freedom. In many cases it has proved illusory, leading to confusion, cynicism and uncertainty as to where the limits of devolved autonomy actually lie.

The limits basically reflect the structural limitations on devolved power in large, integrated, overwhelmingly ‘single product’ industries. By contrast, the devolution of managerial authority, within tight financial control systems, has reached its apogee in diversified companies operating in a variety of product markets which impinge relatively little on each other. In addition, the privatized public utilities face the special environment of regulation and continuing political sensitivity which gives more impetus to the need for strategic management of issues - especially overall quality - that might otherwise be devolved to line managers in business units. Under these conditions, the classic conflict between the goals of the devolved business unit and those of the corporation is intensified.

The central corporate actors have to mediate between the contradictory demands of privatization: their problem is to tread the delicate balance between unlocking commercially-oriented initiative and responsibility in the business unit, and discouraging actions that might have repercussive effects throughout the system. For companies in the process of privatization, the difficulty is compounded, since the political pressure to avoid industrial relations flare-ups in the approach to flotation is intense, but at the same time, successful privatization partly depends on sending the right signals about changing corporate culture. If ‘maverick’ behaviour by unit managers is made both more likely and more dangerous by privatization and by the devolution of responsibility within the structural constraints outlined above, it is not surprising that the centre has acted to reassert control over aspects of line managers’ operations.

In this process, the interests of corporate actors in strengthening their position may come into play. Central groups may thus try to define the impact of structural imperatives in such a way as to m a g n i ~ their own role. Once an issue has been defined as of strategic corporate concern, action by line managers that impinges on it may be labelled as ‘maverick’ or dangerous. Many of the arguments deployed, for example about the relative strengths of management and unions at different levels of the organization, have to be seen in the light of this wider micropolitical struggle.

One of the wider implications of the research concerns the role of the corporate personnel and industrial relations function. The new culture has not prevented personnel from displaying continued vitality. The pressures for decentralization have provided it with an opportunity to unburden itself on the routine, administrative aspects of personnel work and to shape a more strategic role, linked to the corporate objectives of the post-privatization era.


However, even while trying to establish such a role, it may be forced, by concern for ‘repercussive’ effects, to intervene in the detail of decision-making by line managers. There was evidence in more than one company of senior corporate managers getting dragged into local conflicts or potential conflicts for fears of the wider impact on strategic concerns. This tends to undermine the centre’s claim to a high-flying strategy role, reinforces the belief that i t is principally a ‘firefighter’, and gives credence to the frequent claims by line managers that they were being frustrated by corporate personnel. Another dilemma for personnel is created by the rhetoric of devolution and the ideology of line as ‘king’. The decentralization of responsibility has created pressures for corporate functions to be treated as services provided for line managers as ‘clients’. Yet if the personnel function was to be ‘demand- driven’, how could i t play its strategic, proactive role with conviction?

A second set of issues concerns the interaction between different corporate environments and the decentralization dynamic. While the focus of the article has been on broad patterns relating to the imperatives of privatized operation, there were also differences between the companies studied. A major variable was the nature of the product market. Some companies, such as British Gas, were faced with stable, even stolid, markets for their core services - they saw themselves as ‘boring old utilities’, and could afford to introduce gradual change in the balance between the centre and the operating units. But in BT, faced with the conflicting pressures of its rapidly evolving, technologically complex market, the tensions between decentralizing and centralizing forces were particularly noticeable. On the one hand, the need to be innovative, flexible, to ‘get close to the customer’, implied devolution of authority and the minimizing of central constraints. But on the other hand, the context of regulation and the political sensitivity of privatization meant that localized quality-of-service problems could have wider consequences. This, together with the requirements of big corporate customers, encouraged greater central control. In other words, BT was caught between different competitive strategies of ‘quality enhancement’ and ‘innovation’, to use Schuler’s terms (1989), with conflicting implications for organizational structure. As this suggests, there were also differences between the companies according to their political sensitivity. Again, BT had a high profile, not only because it was a ‘leading edge’ industry but also because it was the first major public corporation to be privatized and was the ‘flagship’ of the government’s programme; at the same time, its strategic importance made it into a political football, with Labour planning to buy back a controlling stake and use the company to further its industrial strategies. By contrast, while electricity and water were sensitive as industries, they were not dominated by a single monolith such as BT, so that there was less sensitivity at the level of the individual companies and thus fewer constraints on management’s options. Electricity generation was different again. There was no great scope for local initiative and innovation, given the centralized control of fuel purchasing and of electricity supply contracts. In these circumstances, devolution was more to do with cost control, and with ‘signalling’ corporate intentions to investors. Nonetheless, as has been argued, the rhetoric itself was bound to have real effects on the perceptions of local managers.


A third broad set of issues thrown up by the case studies concerns the wider decentralization debate. First, there is often a divergence between the rhetoric and the reality of devolution, reflecting the fact that powerful external forces can create contradictory pressures on organizations. Thus the privatization process both impels the utilities towards devolving power to the line and at the same time sets limits to the possibilities of such devolution. Even where formally devolved management structures exist, the practical reality will depend on how the procedures are used by the centre and by line managers. It has often been remarked that central monitoring depends on the quality of information, and that operational managers can conceal or massage data. But equally, the centre can tighten the screws even when it has no formal authority. Conversely, the centre may choose to let formal powers lie dor- mant, invoking them only when it needs to tighten the reins of control. This may occur on a cyclical basis with upswings and downturns in the economic climate. Second, the case studies raise a question mark over the significance of devolved management structures in other organizations. Two Warwick sur- veys of multi-establishment enterprises report that four-fifths or more of the establishments covered were ‘profit centres’ (Edwards, 1987, p. 107; Margin- son et al., 1988, pp. 32-3). The survey by Marginson et al. also finds that establishments designated as profit centres do not have a significantly different degree of autonomy from those that are not profit centres (p. 219). This suggests that, as in the privatized utilities, there may be structural or micropolitical limits to unit autonomy and that ‘profit centre’ is a label that conceals as much as it reveals. One may only get at the reality underlying it by detailed and careful case study analysis of the changing relations between the corporate centre and the business units.

Finally, the observations of this article on the limits of devolution are paralleled in current debate, in which a revitalized strategic corporate role even in diversified companies is being advocated. It has been argued that the devolution of financial control may lead to a neglect of innovation and market development. The point, made by Williams (1983) in respect of GEC, is echoed in a recent IDS report (1991) on decentralization and the role of personnel, and in the McKinsey report for NED0 on the British electronic industry. This last argues that decentralization is an obstacle to growth in global markets: ‘the limited role of the centre in many U.K. companies has meant that the potential synergies and scale benefits of a large company . . . have not been achieved’ (McKinsey, 1988, p. 49). In the same vein, Prahalad and Hamer (1990) talk of the ‘tyranny of the business unit’ where the devolution of responsibility for ‘bottom line’ results causes a loss of corporate control over the ‘core competences’ essential for longer-term competitive strength.

In short, the present wave of rethinking is likely to lead to a greater concern for the ‘repercussive’ effects of unit autonomy, and to renewed attempts by corporate centres to define new areas of policy and behaviour and to claw back devolved authority from business units.


NOTES

* This article is based on research funded by the Economic and Social Research Council. We would like to thank managers and union officers in the companies studied for their help and co-operation, though the interpretation is our own. We are also grateful to our colleagues at the Industrial Relations Research Unit for their helpful comments, particularly Paul Edwards, Paul Marginson and Keith Sisson; and to Karen Legge and anonymous JMS referees.

[ 13 As part of a broader study of the industrial relations implications of privatization, detailed case studies of electricity generation and distribution and of the water industries were conducted between January 1989 and August 1990. Shorter studies were also carried out in gas and telecommunications. The research involved approximately 80 in-depth interviews with personnel and line management at both headquarters and operating levels, and with national and regional union officers. Issues of changes in organizational structure and ‘culture’, including the changing relationship between the central personnel function and operations line management, were pursued in depth. Extensive use was also made of primary documents including internal memoranda, minutes, and reports, particularly in one company where it proved possible to follow in considerable detail the development of organizational debates concerning the respective roles of personnel and unit managers. For obvious reasons of confiden- tiality, such material has had to be used with discretion.

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THE LIMITS OF AUTONOMY: DEVOLUTION, LINE MANAGERS AND INDUSTRIAL RELATIONS IN PRIVATIZED COMPANIES

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