The experience it reflects also makes a fresh case for economic education through self interest and demonstrates once again the working partnership that employees and management can achieve through profit sharing and effective two way communications. And for those who are skeptical of the merits of profit sharing, it contains a specific answer to the question, "What happens when profits decline?"
Subjects of this example are Pitney Bowes, Inc., manufacturer of postage meters and business machines, and its 3,400 employees, of whom 1,400 are at the plant and home office in Stanford, Conn., and 2,000 are in 94 sales and service offices throughout the United States and Canada.
Pitney Bowes is known as a growth company with a steadily expanding business. But the impact of the excess profits tax and the cost problems of winding up suddenly canceled defense contracts following the Korean War brought some of the toughest problems the company ever had to face. Profit margins dwindled even though sales soared. Gross income rose from $22,000,000 in 1950 to $33,000,000 in 1953 (and $35,000,000 for 1954).
By the end of 1952, Pitney Bowes, in addition to dealing with the excess profits tax, had been caught in a squeeze between steadily rising costs and price ceilings, so that net profit for the year was reduced to 5.3 per cent. Ahead was a year of post Korea readjustment destined to cut profit before taxes to a low of 14.4 per cent and to keep net profit at a meager 5.5.
Confronting the problem as one to be solved internally, Pitney Bowes' management launched a company wide "profit improvement" program that enlisted all personnel and was to run two years before it turned the tide.
Every communications medium, from face to face meetings at section, department, and division levels to letters received at home, was brought to bear on the objective as management pulled all the stops to make employees aware of the problem and their own stake in it.
"Do your utmost to make this program a success in your own direct interest as well as that of the company as a whole," said Walter H. Wheeler, Jr., president, in announcing the campaign.
Stating the theme, Wheeler told his people that "operating profit profit before taxes, which is what our profit sharing is based on, has dropped sharply. Unless we turn the trend upward again, through cost savings and increased efficiency and productivity, wage and salary dividends are bound to be drastically reduced, and possibly might have to be eliminated entirely."
Pitney Bowes normally puts 25 per cent of each quarter's operating profit into two phases of profit sharing cash "wage and salary dividends" and a liberal, noncontributory retirement income plan. Cash profit sharing, which hit a low of 4.5 per cent of base pay for most employees in 1953, had previously run to nearly twice that percentage in most years.
The target given to employees in the "profit improvement" campaign was a three and a half point increase in the pretax profit margin, then running at about 14 per cent. This called for "savings and increased productivity to the tune of over $100,000 a month," they were told.
As part of the campaign, special task committees were set up in each division to "take a second hard look at all items of costs, eliminate all expenses that can't be justified in the present period, and improve methods and techniques in every possible way."
Asking for solid support of every phase of the program from all employees, Wheeler said: "For those of you not in the supervisor group, this means, for one thing, taking the fullest advantage of our suggestion system which, in addition to helping the company, will bring you a specific reward for every practical cost saving idea you suggest”.
"It also means that you should, during this critical time particularly, cooperate to the fullest extent with your supervisors in improving methods and techniques, and in general doing everything within your power to eliminate lost time and effort."
He emphasized that the goal could be reached through many small savings rather than just a few major ones.
Implementing the program from the start was the entire lineup of employee relations and communications devices at the company's disposal. Key in the "selling", as in all other internal relations of the company, was the regular schedule of employee management meetings of the Council of Personnel Relations, an in plant labor management organization which was a peacetime outgrowth of the labor management committees of World War II. These are held at section, department, branch, division, and "main council" levels. Under an established system of co chairmanship, these sessions were two way exchanges with employee elected and management appointed chairmen presiding in turn.
Other important person to person conferences were those regularly held by the special "profit improvement" committees and in the company's annual "job holders' meetings," employee counterpart of the annual stockholders' meeting, at which management reported to employees and answered questions about every phase of the business.
Supporting and stimulating the campaign of personal "selling," were all company forms of written communications, including bulletin board reports, monthly management newsletters, quarterly letters mailed to employees' homes, and the company's internal magazine.
First hints of the eventual success of the program came to employees in reports of the tally of the "profit improvement coordinator," who, within two months, had recorded estimated savings of $225,000 from the best of 303 cost cutting and efficiency ideas channeled into "P.I." committees. At the same time, the suggestion system produced a new list of profit improvement ideas and other suggestions which had won cash awards for 42 employees.
At this point, word of the program had reached outside and the financial dailies and local papers reported it as news. This publicity was reported back to employees as further stimulation.
"We must keep up the momentum," Wheeler said. "We've made good progress, but the impetus has to be maintained. It goes without saying that each added dollar of saving will come harder as we go along, but I'm confident we can do the job."
Tangible, money in the pocket results were announced to employees at the end of the first quarter of the campaign, when it could be reported that cost cutting and increased efficiency had inched employees' cash profit sharing up two percentage points over the previous period.
Of course, the long haul and its temporary reverses were still ahead, but the program and its theme, adapted to new developments, was kept alive by the same normal program of employee communications. After a year, with some new gains to point to, Wheeler restated "three main ways" to combat the problem and increase operating profit and profit sharing.
