Dau Schmidt Theory in Contract Management - Literature review Example

Name: Institution: Contract Management Introduction The primary purpose of this review is to enhance the understanding of contractual labor model, underlying management and the factors that underpin development of specialty contracts management function in the global labor market. Scholarly and literary contributions of Professor Kenneth Dau Schmidt and Timothy Sturgeon (Schmidt 2001) emerge as the cornerstones of the evolution of contracts management as is understood in the contemporary labor realm. Although contract management is relatively a recent development in the labor-business management, it is continually being deployed across the globe as the instrument for optimizing efficient delivery of contracted services. It is imperative that trade and technology continually shape the nature of the employment relationship, and also the crucial factors that influence labor and employment law (Eimaraghy 2009). Schmidt (Schmidt 2001) argues a post war industrial dispensation within which the advancement of the knowledge and uses of hazardous chemical compounds cultivated their increased use at the work place and the underlying regulations. Additionally, the mechanization, assembly-line technology, and improvements in communication and transportation encouraged policy regulated labor. Essentially, the changing trade environment and technology established a new class of employees with interests completely distinct from that of the employer: the basis for modern employment relationship. The evolution witnessed in trade and technology during the eve of the twenty first century, which have driven globalization and energized information and computer technology have greatly imparted change in the organizational structure and management techniques. Schmidt (2001) cited changes in trade and technology as the main factors underlying the disintegration of the traditional long-term employment relationship. Like Schmidt, Sturgeon continued the discourse of the prevalence of large dominant firms that were vital to economic development in the nineteenth century before descending to gradual incompetence due to the competition shift in the global market. Using the Modular Production Network (NPN) (Sturgeon 2002), Turgeon exonerates Schmidt’s view of the evolution of American industrial organization under managerial techniques that ratify contract management as the most feasible practice in the contemporary economic environment. Dau Schmidt Theory Schmidt’s theory extracts from the rationale that the evolution of American industrial organization from the post World War II traditions into the twenty first century status was underpinned by externalities not earlier conceived by the U.S. The theory rests on the concept of the deverticalization of the American industry, the re-orientation of management toward core capabilities, and the precedence occasioned by the spot markets in labor. Focus Schmidt’s focus on changes on industrial organization pointed at technology and developments in trade as crucial drivers of economic and managerial transitions in the United States of America. Initially, the transition to the industrialization revolution that saw intensive mechanization and increase in mass production established large and dominant firms that became new centers of wealth came not as a planned American scheme but an inevitable externality. According to Sturgeon (2002), the influence of the industrial revolution wave externally infiltrated the U.S. economy eventually shaping an economy anchored on large plant industrial corporations and industrial unions. Schmidt cited mechanization during the nineteenth century as another revolutionary force that extradited policy regulation in the labor market without prior internalized process summoning the need for the law. This is to emphasize the role or an increase in the frequency and severity of accidents at the work place, which called for high worker’s compensation movement as the external force that greatly influenced employment relations (Schmidt 2001). Schmidt drew immense focus on external factors as the main cultivators of industrial reorganization in the U.S. Improvements in transport and communication during the nineteenth century emerged the main drivers of policy regulated labor market. In this context, the emergence of mass production methods caused marked the beginning of new employment relations. Main Factors that Influenced Dau Schmidt Views Schmidt’s views are primarily anchored on conceptual understanding of globalization, technology, and the competitive economic scenarios that established during the post war period particularly between developing and developed countries. Schmidt emphasizes the rationale that industrial organization in the U.S. is often not a premeditated occurrence but a function of external elements that infiltrate and impart change. Important to note is that the elements bare consequential implications that influence the prevailing employment relationships. Globalization Globalization is adopted in this context to connote the spread of democracy in economic, trade, technology, and social realms. The globalization wave became apparent in the eve of the twentieth century as the U.S became more aware of the significance of international competition for its companies. Globalization thronged through the spread of the free trade ideology primarily through the innumerous international treaties that have amalgamated with industrialized regions like Europe and Japan and other emerging economies (Sturgeon 2002). As observed by Schmidt (2001), the globalizing elements have been the cause of the increased pressure on American firms precipitating from the international competition. The point to note in this context that extracts from Schmidt’s theory is that the increase in the American consumer demand for services has been a crucial impetus for the industrial transformation from manufacturing dominance into service oriented economy. One of the hallmarks of globalization has been the deregulation within trade realms witnessed across the globe, which put American firms under a business environment competitive than never before (Eimaraghy, 2009). Technology Technology especially the information communication has been a major cause of movement of factors of production among world countries, which has concurrently cultivated innovations in terms of organizational management techniques and streamlining of production that deliver the market to the firm (Schmidt 2001). Advancement in information technology played an instrumental role simplifying delivery of information and communication processing capabilities that allow investors to administer and monitor progress across frontier. Innovations in information technology not only allowed high mobility of factors of production but also imparted unprecedented influence on the employment relations. The technology-driven mobility of capital across the globe has been a primary cause for employees to compete with other workers from different countries because the employer has been granted the benefit of tapping skilled labor and talent from any corner of the world. Additionally, Schmidt (2001) argues that technological advancement in the collection and procession of information has transformed the contemporary organization management in that the firms have leaned their chain of command and devolved more managerial responsibilities to lower level staff. A worthy noting element presented by Schmidt (2001) is that advancement in information technology has enhanced the capacity of employers to gather and analyze information about competitors and potential suppliers that they can utilize to design performance assessing programs fro their employees. Consequently, technology has made it possible for international competition to infiltrate individual departments and operations centers within companies, which brings direct competition closer tan never before. Origins of the Elements and Consequences The elements of free globalization, technological advancement and economic competition at the global scale are traceable from the new trade-and-technology-driven economic environment. To transit the traditional industrial revolution trade norms, there needed to be a means to create, synthesize and communicate information, and democratization of the market place. Therefore, the new trade and technologies that emerged at last years of the nineteenth century established a new amalgam of economic components that made the business environment less hospitable to internal labor markets and lifelong employment (Schmidt 2001). The consequences of the revolutionizing elements were broad and succinct. Globalization, advancement in communication technology, and the incremental economic activities of developing economies increased the level of competition on which are individually or industrially confronted with. Consequently, the level of risk on investment on employee training and development rose, which caused corporations to device favorably flexible modes of production. Another consequence of the new elements that shaped the modern economic practices and trends is the competition-mediated re-orientation of firms toward emphasis on core competencies that leverage competitive advantage. Schmidt (2001) argues that the transition from large dominant firms that proved competitively unsustainable toward end of the nineteenth century cultivated the leaning of corporate operations units: core competency areas such as specialized skills and talent and reduction in the need for delving in highly risky undertakings. The increased competition extracting from the internationalized market economy has exposed bare the American firms, which predisposes them to sophisticated and complex market scenarios. Importantly, the U.S. firms no longer dictate the practices in the global markets but they have been coerced to follow the international market trends and remain flexible if they are to be able to react to the changes in demand (Schmidt 2001). The consequence inherent in this context is that the contemporary American firm does not condone the probability of absorbing the risk that employee skills will become obsolete, which deprives the essence of entering into a long-term employment relationship. The ultimate repercussion has been the disintegration of the traditional firm and emergence of the fragmented operations units in the name of subcontractors that equal specialty suppliers. Schmidt (2001) provides that in this context, sub-contracting orients the firm’s concern more toward the payment for the product; and dissipates the numerous operational units of the larger corporation that traditionally anchored the lifeline for long-term employment engagements. The imperative in the contemporary scenario is that flexibility and immediate orientation to market dictate the management and administrative practices. The Sturgeon’s Progress It is evident from the apparent similarities in the Sturgeon’s and Schmidt’s narratives that Sturgeon ideologically furthered the original Schmidt’s discourse. Like Schmidt, Sturgeon affirmed the inevitable need for the contemporary firm to shed the skeleton of the industrial revolution design and embrace the lean and market competition oriented fundamentals. Sturgeon’s case recognized the non sustainability of the modern large and dominant corporations witnessed in the U.S. during the post war era. This premise rests on the case’s submission that the massive firm’s size was a barrier rather than a benefit as regards the flexibility required to counter address competition matters (Sturgeon 2002). Sturgeon recognized the fact that the flexibility and underlying advantages extracting from smaller production models and anchored on turn-key statuses (Sturgeon 2002). The appreciation for the power of external economies and new internal corporate structures, which amounted into the production network model naturally, reflected Schmidt’s original rationality. Schmidt appreciated the inevitable movement of American firms from massive sizes with vertical production methods into highly flexible fragments limited to core areas only. This Schmidt thinking mirrors from Sturgeon’s modular production model that espoused outsourcing for increased performance and operations efficacy. Sturgeon (2002) argued that lean corporations built their portfolios based on core competence areas that underpinned the establishment of competitiveness. Deverticalization surfaces prominently in Sturgeon’s literature, which like Schmidt’s, advocates for the devolution of manufacturing functions to specialized suppliers to support all non-core functions. The divesting of non-core functions was essential for helping firms increase profitability from prevailing trade and technology status while spreading risks. The commonality in Schmidt Sturgeon production network concept reflects from the similar beliefs that the organization of firms or industries according ‘deverticalization’ improved competitiveness relative to contexts in which industrial systems thrived under vertically integrated Modern Corporation. To explain Sturgeon’s seemingly furtherance of Schmidt’s thought, it is important to recall the Schmidt exemplification of the Volkswagen sub-contracting case scenario at Resende in Brazil. In this case, Schmidt introduced the modular concept as exemplified by Volkswagen’s truck plant in Resende where four different subcontractors had been commissioned to build the same unit. Moreover, Sturgeon advanced Schmidt’s ideology that external economies cultivated the global market competition that was essential for development of trust and most importantly the transfer of technology. Eimaraghy (2009) argues that the rationales contemplated the prevalence of the incentive for learning reconfiguration of the functional areas of production according to the continual emergence of new markets and the rapid transformation of the requirements for products. Original Motives Sturgeon’s explanation of the primary precursors for the adoption of modular construction traces from the last two decades of the twentieth century industrial organization. It is during this period that large American firms started outsourcing non-core functions to smaller regional contractors in different continents. Furthermore, the complexity of managing a multiplicity of relationships with suppliers in different geographical locations warranted mainstreaming through internationalization of the contactors. The factors that drove the impetus for modular contractors are innumerous. For example, the firms from Asia, Europe, and America lowered the esteem of manufacturing in their corporate functional ranking and transferred their functions to contract manufacturers. The most important motivation for reason for outsourcing to contract manufacturers was to concentrate corporate resources to the most vital functions and raise revenues. Accordingly, modular contractors gained relevance as the market vitality became an apparent economic factor to consider in order stemming competitive advantage. This is because the modular contractors leveraged the production flexibility that guaranteed cost effectiveness under differing production scenarios (Sturgeon 2002). Although the factors are many as aforementioned, notable is the role of technological shift in crucial manufacturing processes that transformed the production efficiency and capacity. It is thus imperative that the pressure for firms to acquire expensive technologically enhanced equipment drove them toward market oriented services of contract manufacturers (Sturgeon 2002). The drastic shift capacitated the incentive for contract manufacturers to invest extensively on automated equipment that leveraged high quality services and guaranteed high returns on investment. Consequences Drawn from Sturgeon’s Work Sturgeon’s work has been instrumental in curving a new approach to the theoretical analysis of the industrial organization perspectives. The work has implicitly demonstrated the unparalleled capability and willingness of the U.S. to organize industrially in tandem with market change, and to leverage industrial leadership at a global scale. While Schmidt appeared skeptical about the capability of the U.S to evolve into industrial resilience amidst massive changes, Sturgeon’s work revitalized apparent confidence extracting from the innovation advantage that characterizes American firms. Sturgeon (2002) narrowed down on the capability of the U.S. industry to locate core manufacturing areas that it continually targets to manifest unrivaled competitive advantage compared to the labor intensive economies. The consequences of the work are grounded on the renewed synergies of U.S. industrial competitiveness underpinned by innovativeness that leverages quick and early adaptation to trade and technology changes in the global market. Essentially, Sturgeon has been able to dissipate earlier theoretical assertions that predicted doom for the American firms because of the impending inability to evolve resilience owing to market dynamics over time. The work resolved an existing dilemma grounded on earlier belief that innovations cultivated increased profiteering that drove greater investments to productive capacity motivated by desire to beat competitors (Biagi, Blanpain & Weiss 2003). The repercussions of this precedent were that such investment trends encouraged barriers to new market entrance because of the capital intensiveness and overconcentration of market structures over time. However, this work introduced as different and viable discourse instilled with flexibility and market resilience. Sturgeon explored and explained the working of a dynamic system in which innovation can radically delink market share from increases in firm-specific capital investments (Sturgeon 2002). The rationale has been that through active innovation, an industry can flex its production patterns through modular manufacturing without necessarily risking progress as is in the case of accumulated internal capacity. The work has consequentially demonstrated a new thinking in that as competitive external economies arise in an industry, the traditional association of innovativeness and organizational size and scope disintegrates. It has been demonstrated in a case by case approach that in an industry where outsourcing of manufacturing is the norm, the financial and administrative burdens associated with production are shelved. Accordingly, modular manufacturing has been a great source of industrial innovativeness in the U.S. in that it gives firms more time to dedicate to research and allows for organizational and geographical flexibility. Relevance of Schmidt’s and Sturgeon’s Works It cannot be overemphasized that Schmidt and Sturgeon have contributed immensely in the explanation of the contemporary industrial arrangement and underlying drivers. The work succinctly explains the dramatic transition from the industrial and modern practices into the dynamics of the contemporary economic trends founded on new trade and technology influences. The writers have established a new theoretical approach to diffuse potential conflicts with earlier industrial theories that had shackled themselves over the interdependence of capital investments with product innovativeness. The contemporary modular manufacturing has emerged as the most effective and sustainable approach for explaining prevailing new trade and technology practices underlying the global market. Conclusion This review explored the dynamics underlying the new trade and technology in the context of global economy. Schmidt presented work that revolutionized the common thought about the evolution of industrial dispensations. The increased competition instigated by external economies emerged as the main source of pressures that cultivated the disintegration of custom American industrial structure. It has emerged from Schmidt and Sturgeon’s work that innovation can sustainably separate dependence on capital assets to create, penetrate and protect market interests. American modular manufacturing has surfaced as the most performance and cost effective industrial approach in the twenty contemporary global economies. References Biagi, M., Blanpain, R & Weiss, M (eds) 2003, Changing industrial relations and modernization of labor law, Kluwer Law international, New York, NY. Eimaraghy, HA, 2009, Changeable and reconfigurable manufacturing systems, Springer, Santa Barbara, CA. Schmidt, KG 2001, ‘Employment in the new age of trade and technology: implications for labor and employment law’, Indiana Law Journal, Vol.76, No.1, pp. 1-28. Sturgeon, TJ 2002, ‘Modular production networks: a new American model of industrial organization’, MIT Working Paper IPC-02-003. Read More