The Wisdom of Chairman Ko

The team's wholesale review of the unit's management policies led to even more changes. An NCR policy that kept employees from claiming sick pay on days adjacent to holidays was scrapped. Reimbursements for educational expenses, formerly okayed for everything from language classes to ballet lessons, were granted only for courses that benefited the business. To put on the best face for a new array of Solectron customers visiting the plant, dress codes were tightened and cleanliness policies enforced.

Not everyone was happy with the new system. Wallace estimates that about 4% of the site's workforce quit in the wake of the changes, while another 2% failed to meet the new requirements and were fired. But he says that the vast majority of workers approved of the shift. "It boosted morale because the small number of people who abused the system couldn't do it anymore," says Wallace. "It weeded out the people who weren't willing to pull their own weight."

Meanwhile, those who remained knew exactly where they stood, and what they needed to do to succeed. Solectron's "variable pay" bonus program provided the cornerstone of the new system. NCR's annual bonus program had doled out cash totaling a percentage of workers' yearly pay -- but with an odd effect. "When it was awarded, no one knew what they had done to deserve it," says Bob Hawkins.

Solectron's bonus program, on the other hand, ties quarterly payments for both managers and line workers directly to dollars-and-cents objectives. Digital signs displayed on the walls alternately flash the day's production goals and quality yields for each production line. Results from weekly customer surveys (which influence 20% of the quarterly payment) include scores on five performance criteria and are prominently posted for each production worker to see. Meanwhile, "quality committees" dispatch teams of peer reviewers throughout the production facility to measure additional standards such as cleanliness and organization.

The rigorous, almost constant system of review is not without its critics. "Sometimes it's annoying," says Shameen Jackson, an eight-year veteran of the paperwork-processing group at the Duluth factory. Along with many workers, Jackson grumbled at first about new random cleanliness audits, rigid attendance policies, and rules mandating that all workers wear white smocks emblazoned with the Solectron logo. "At NCR, there was always an emphasis on quality," Jackson says. "But it's more strict here. NCR is our customer now, and we have to prove ourselves every day."

The transition from colleague to customer has put more pressure on managers like Wallace. "In the past, we used to say to members of NCR's product-development group, 'You can't do that,' or 'You can't have this production schedule,' " recalls Wallace. "But now they, as the customer, drive the decision making. We have to work much more closely with them in the planning process, because their input drives our forecasts and business results. And if our business results decline, our variable pay will decline."

Despite the added pressure and scrutiny, Wallace and Jackson ultimately say that they like the new way of measuring things. "We're graded on what we can control," Jackson says. "And we see the result in those quarterly checks."

"Get the job done for the customer, despite the rules."

For all the entrepreneurial spirit that Solectron's line-of-sight reward system engenders, such motivation could never have made the company into an industry juggernaut without considerable coordination and standardization of common processes -- a well-designed collection of companywide practices that ensure that ink-jet printers manufactured in Malaysia are exactly like the ones built in San Jose. That's especially critical in a thin-margin business like outsourcing, where volume is the key to growing profits and the only way to leverage buying power and efficiencies of scale.

More important, it's what customers demand. "As a customer, my biggest complaint about Solectron was that I felt as if I was buying from 10 different companies," says John Caltabiano, a former NCR materials buyer who contracted Solectron to supply printed circuit boards and other components before becoming the Duluth plant's materials director. "When I go to a supplier, I want the quote to look the same. I want the people to look the same. I want consistency, no matter which location I'm dealing with."

That puts Nishimura in the awkward position of trying to balance the need to standardize across the company with the need for individual empowerment that has helped make Solectron so successful. His aggressive "common processes" campaign to systematize everything from the ubiquitous white Solectron smocks to the combined purchase of approximately $6 billion in materials and equipment each year has helped the company present a single face to its customers and has leveraged Solectron's growing clout as one of the world's biggest buyers of printed circuit boards and semiconductors. "That clout not only helps us get the best price," says Caltabiano, "but it also helps when important components are in short supply. We're always the first in line. It makes us both more price competitive and a more reliable supplier in our customers' eyes."