You Can Teach This Old Company New Tricks

Outside a big factory in the small Mexican town of Tuxtepec, workers from PIPSA, one of the country's leading paper manufacturers, are swapping ideas and plans. An accountant unveils a strategy to improve product quality. A team discusses relations with a key supplier. A manager describes a $5 million investment program to double production and break even in 17 months.

No surprises thus far. Companies around the world are responding to the same message: do more with less. What's different here is the medium. This meeting doesn't use fancy overheads or computer printouts. Instead, it relies on a grupo musical -- eight PIPSA workers who communicate with their colleagues through song. Five play guitar, one sings, one plays a harp, one plays the teeth of a donkey skull like a washboard.

Welcome to the learning organization, Mexican-style. PIPSA (Producer and Importer of Paper S.A.) is a 62-year-old government-owned company that is moving quickly into the new world of business. It has no choice. PIPSA's monopoly in newsprint, its only product for 60 years, was abolished in 1990, creating tons of competition. Meanwhile, the Mexican government has announced plans to privatize the company. PIPSA's response: cutting-edge change tempered by old-world traditions.

"We're competing with companies 10 times our size," says CEO Rene Villarreal, 50, a Yale PhD who spent four years as a high-ranking government official under President Miguel de la Madrid. "These companies have more money and equipment than we do, so the only way for us to compete is with knowledge. The old paradigm of Mexico as a place for cheap labor is no longer true: our advantage is productive labor."

Villarreal's new paradigm is paying off. In 1989, its last year as a monopoly, PIPSA's annual revenues were $80 million. As recently as 1994, they were just $78 million. Last year, sales were $179 million, and Villarreal has announced plans to double annual capacity over the next five years.

Part of PIPSA's growth comes from reclaiming lost markets. Its market share in newsprint, which plunged from 100% to as low as 52%, is back to 79%. And part of its growth comes from entering new markets. Last year, PIPSA began making paper for telephone directories and bond paper for office use. Today 35% of Mexico's phone books are printed on the company's paper, and it's striking alliances with U.S. companies to enter the office-paper market.

How has PIPSA moved so far so fast? According to Villarreal, it all comes down to learning -- specifically, a new unit of organization called a "learning cell." More than 65% of the company's 2,000 employees belong to one or more of the company's 110 learning cells, each with 8 to 40 members. About 90 of these cells meet weekly and address functional issues (marketing, quality, finance) inside individual plants. An additional 17 cells meet monthly and focus on process issues that develop between plants. Most workers belong to two cells (one functional and one process), and each cell has its own mission and personality -- including a name, logo, and T-shirt.

Learning cells are more than just discussion groups. Recently, a 30-member cell from Tuxtepec solved three quality problems on the new bond-paper line. It figured out how to reduce wrinkling levels from 7% to 3%; slash paper-strength problems from 8% to 1%; and completely eliminate holes in the paper. Such grounded insights are what give learning cells their value.

Insights become even more valuable when they're shared. So each week teams record their ideas in a libro blanco, or "white book." Instructors from the company's Center for the Development of Learning and Productive Knowledge collate the ideas into a master book. This fall the company plans to post the master book on its intranet.

Each of PIPSA's learning cells agrees to embrace three basic learning principles. The first is to focus on productive knowledge. Villarreal says productive knowledge helps the company achieve one of four goals: increase market share, reduce costs, increase product quality, enhance service quality.

The second principle is to respect different ways of expressing and collecting knowledge. Villarreal and his top lieutenants are globe-trotting executives, but most of PIPSA's factory workers have little formal education. Many have grown up with Mexican traditions of oral storytelling. That's why it's not unusual for learning cells to end a meeting with a song by the grupo musical or a "report" from a repentista (roughly translated as "impromptu singer"). The CEO is perfectly comfortable with such old-world traditions. "Creating knowledge workers is easy if you're a software company filled with PhDs," he says. "It's more difficult in a company of manual laborers."