THERE ARE no excellent companies. The old saw, "If it ain't broke, don't fix it," needs revision. I propose: "If it ain't broke, you just haven't looked hard enough. Fix it anyway."

No company is safe. IBM is declared dead in 1979, the best of the best in 1982, and dead again in 1986. People Express is the model "new look" firm, then flops 24 months later. In 1987, and for the foreseeable future, there is no such thing as a "solid," or even substantial, lead over one's competitiors. Too much is changing for anyone to be complacent. Moreover, the "champ-to-chump" cycles are growing ever shorter.

There are two ways to respond to the end of the era of sustainable excellence. One is frenzy: Buy and sell business in the brave hope of staying out in front of the growth industry curve. This is the General Electric idea: In the last six years, it has acquired over 325 businesses at a cost of over $12 billion, and dumped more than 225, getting $8 billion in return.

The second strategy is paradoxical -- meeting uncertainty by emphasizing a set of new basics: world-class quality and service; enhanced responsiveness through greatly increased flexibility and continuous, short-cycle innovation; and improvement aimed at creating new markets for both new and apparently mature products and services.

Five areas of management constitute the essence of "proactive" performance in our chaotic world: (1) an obsession with responsiveness to customers, (2) constant innovation in all areas of the firm, (3) partnership -- the wholesale participation of and gain-sharing with all people connected with the organization, (4) leadership that loves change instead of fighting it, and (5) control by means of simple support systems aimed at measuring the "right stuff" for today's environment.

Revolution and Control

The last category -- control -- will require radically new methods. Most traditional measurement methods are dangerously misleading. Take the standard cost-accounting system. It "allocates" overhead costs such as the accounting department, engineering, utilities, machinery and management to direct labor. That is, direct labor "hours" are the most readily counted indicator; all of the other expenses are appended to this one, visible expense. In fact, each typical "direct labor hour" may carry an overhead "burden," as the accountants call it, of as much as 1,000 percent. That's why, when a manager is pushed by higher-ups to cut costs, there is but one sensible target under this accounting regimen: to cut direct labor, which, on the books, includes that huge "burden." Thus, for accounting purposes, when he cuts a direct labor hour, he will usually be credited with the reduction in the "burden" as well, whether it actually occurs or not.

Suppose a manager decides to subcontract production of a labor-intensive part. He saves 100 hours of direct labor a month at $20 per hour ($2,000 in all). But on the books, he saves not only the direct labor costs, but the 1,000-percent burden as well -- for a credited monthly savings of $22,000. The subcontract to a smaller, low-overhead, perhaps offshore operation costs, say, $5,000 a month. The net "booked" savings, then, is $17,000. Much applause goes to the plant manager."

Unfortunately, the real story is different from the accounting story. In fact, actual factory overhead is not reduced much or at all by the act of subcontracting (you can't shut off the heat around one idle machine). Most likely, overhead is increased, because the plant manager has to negotiate and administer a contract with the new supplier and handle the incoming components. Not to mention the increased uncertainty of delivery and quality in the early days of dealing wth any supplier -- that also carries real costs. So the true net saving is the $2,000 saving in direct labor minus the $5,000 subcontract minus, say, $1,000 in real, added overhead -- or a loss of $4,000. Nonetheless, thanks to the miracle of modern accounting, the plant manager still takes a bow.

And there are sins of outright omission that are far worse. Our fixation with financial measures leads us to downplay or ignore less tangible nonfinancial measures such as product quality, customer satisfaction, order lead time, factory flexibility, the time it takes to launch a new product, and the accumulation of skills by labor over time. Yet these are increasingly the real drivers of corporate success over the middle to long term.

Treating Workers as Partners

In conjunction with new forms of measurement, future success requires a revolutionary realignment in employe relationships.

Keep performance evaluations and pay schemes simple and to the point. Appraisal must be constant, not focused primarily on the big annual "event." To ensure this, middle managers should evaluate first-level managers on the degree to which they give their people constant feedback, both good and bad. Appraisal is and should be very time-consuming, and it should involve a small number of performance categories and no forced ranking.

Require that a manager and each subordinate jointly and literally sign off on a one-to-two-page written "contract." It should be drafted initially by the subordinate and include one or two objectives for each of the following: (a) annual or semiannual goals; (b) personal/group/team growth or career-enhancement; (c) skill improvement in deficit areas; and (d) the group's overarching strategy. Innovation and superior performance should result in frequent, visible awards.

Make pay decisions public. In the absence of disclosure, speculation is rife, and the picture it paints usually distorts or darkens the truth. Public disclosure causes embarrassment only if there truly is an inequity -- about which, regardless of its convoluted historical basis, you should be embarrassed.

Scrap job descriptions. Who would fight "you gotta know what you're supposed to do"? No one, until the job description starts to constrict options -- which is almost inevitable. It is imperative today that managers and nonmanagers be induced to cross "uncrossable" boundaries as a matter of course, day after day. Standing on the formality of a written job description (as an excuse for inaction, or the reason you have to "check up -- and up and up -- the line") is a guaranteed strategy for disaster.

Decentralize information, authority and strategic planning. There are few greater liberating force than the sharing of information. It provides critical confirmation that the firm sees the worker as a partner and problem solver. It is the only basis for effective day-to-day problem solving. It inhibits the upper-level power-game playing that is the prime enemy of flexibility and moving fast. It stirs the competitive juices and begets more useful information. Time and again, new measures are invented by groups close to a machine or process who have finally been let in on its secrets.

Post the quality, scrap rate and efficiency statistics. Let the whole factory team know -- and visiting customers and vendors too. First Chicago, a bank with $40 billion in assets, worked with customers to develop some 700 performance measures. Weekly reviews depict progress, or lack thereof, on each measure in terms of a stringent goal. The reviews, with dirty and clean linen alike aired, are always attended by customers and suppliers. The bank's executives believe that being publicly "on report" is a great spur to performance.

Give staff at all levels higher spending authority. Low authority is demeaning and demoralizing. We "trust" people to take the initiative and "make things happen," but give them no authority to do so. Speed of execution depends not only big leaps, but on a million tiny actions taking a fraction of the time they used to. These in turn are driven by the ability to buy a roll of tape, a $100 tool off the shelf from Sears (rather than spending six weeks and $300 to "procure" it through channels), to take a $1,000 visit to a remote site at a moment's notice to speed up a project. This does not entail lack of control. To the contrary, it begets more control of the most powerful sort: self-control. Low spending authority leads to shenanigans -- avoid a $1,000 limit by making an endless stream of $999.95 requisitions. High spending authority says to the worker or unit boss, "I take you seriously."

Set conservative goals and enforce them. In too many firms, budget drills, though nominally bottom-up, are in fact top-down. Targets are sent down and you sign up -- or else. So you do, and some succeed. Many more fall short, and given the generally unrealistic nature of three estimates, you can't punish those who fail -- 70 percent of all managers. Budgets, revenue projections, milestones and objectives should be simplified, and should be: (1) prepared at the bottom and passed up, (2) believed in, (3) publicly committed to, and (4) subject to severe discipline if missed. To support the integrity of goal setting, there must be a geniuine, not phony or "paper only" opportunity for a manager to appeal any {over-ambitious} objective shoved down his or her throat.

Demand total integrity -- of the Boy Scout/Girl Scout "squeaky clean" sort -- in all dealings with people and systems inside the firm and out. Eliminate Mickey Mouse rules and regulations that induce cheating and game-playing. Engendering wholesale commitment from everyone involves making "deals" (compacts) and living up to them. Chief among the "deals" is a commitment to lifetime employment. It is inconsistent to ask people to "step out and take risks" (speak up, change things, blow the whistle on poor quality or service) and then confront them with a capricious, nickel-and-dime pattern of layoffs or force reductions.

If the word "excellence" is to be applicable in the future, it requires wholesale redefinition. Perhaps: "Excellent firms don't believe in excellence -- only in constant improvement and constant change." That is, excellent firms of tomorrow will cherish impermanence -- and thrive on chaos.

What Government Can Do

Certain public policies could help immeasurably in speeding the necessary transformation:

Promote more, not less, competition. First, pass no protectionist legislation. Protect an industry, ancient and recent history alike suggest, and it gets sloppier, or at least fails to improve at an acceptable rate. We should utilize existing trade management legislation, which is fully adequate, and not add more. The objective is to get better and different, not to try to hide from a newly energized world economy. (In this regard, the trade bill which will likely pass in 1987 -- the most restrictive since Smoot-Hawley in 1930 -- is a giant step backwards.)

Second, don't tie the corporate raiders' hands. Raiders are no altruists, and their acts cause much unnecessary pain. And, to be sure, some of the moves corporations make to forestall raiders are dysfunctional -- for example, making inappropriate mergers so as to create a balance sheet that scares a raider off, or shuttling jobs offshore in a crash, but ultimately misguided, effort to slash costs. But on balance, the raiders are, along with the Japanese, the most effective force now terrorizing corporate managements into making at least some of the moves, such as downsizing, that should have been made years ago.

Third, get rid of the entire capital-gains tax after a certain holding period passes. The start-up firms are a breath of fresh air in the economy -- we encouraged them with the 1981 capital-gains tax break, and have now discouraged them with the omnibus tax act of 1986. In general, support financial incentives that favor start-ups and spin-offs/divestitures such as leveraged buy-outs.

Retool and involve the work force. The work force must become the prime source of value added. We need to give employers the incentive to hire people and constantly upgrade skills. First, provide a special tax incentive for all funds, including employee wage costs, spent on training and pay-for-knowledge programs. Provide a further tax incentive for wage increases that result directly from skill upgrading. Provide general tax deductibility for employe off-the-job skill upgrading, whether or not it's related to the current job.

A second, sweeping plank is aimed at giving employers an even higher incentive to hire and involve employees. Inspired, in particular, by the ideas discussed by Martin Weizman in "The Share Economy," I propose, for employers, that a major, old-fashioned investment tax credit plan be allowed on wages distributed as bonuses via profit-distributing plans and quality- and productivity-based gain-sharing plans. For employes, I suggest a big tax exemption, possibly with limits, for all income from profit-distribution and productivity-based gain-sharing plans.

Stop the mindless offshore job drift. The loss of jobs per se may be less significant than the loss of control of our destiny, as certain manufacturing activities migrate offshore. I propose a new form of domestic content legislation. The term is usually applied to the percentage of domestic content in imports. My alternative is to provide some tax credit for domestic products, based upon the percentage of domestic content, up to, say, 50 percent. A particularly thorny subset of this issue is start-ups -- for instance, high-tech firms -- that never do establish their own manufacturing operations. The capital-gains tax formula for start-ups could be a sliding one, depending on the percent of value added by onshore manufacturing.

Push internationalism. We need to shed our lingering isolationism. Concepts I support include (a) a value-added tax (VAT) to pay for the programs I have proposed here, but excluding goods sold for export, (b) tax benefits favorable to Americans working abroad, (c) provision of more readily available financing sources for smaller or mid-sized firms seeking export markets, and (d) educational incentives to induce much more foreign-language education.

Support expanded research and development. The R&D tax credit and the basic-research credit which supports business and university linkages will both be phased out by the end of 1988, thanks to the 1986 tax act. At the least, they should be restored. Support for high levels of basic research, especially in non-defense areas, is a must. Additionally, we might provide special tax breaks to firms that bring university researchers on board, or that support cooperative education programs, especially in engineering and science.

This brief sketch, not meant to be exhaustive, flies in the face of the basic intention of tax reform -- less use of the tax code to manipulate firms' outcomes. While I acknowledge the adverse consequences of thousands of special-interest loopholes, I think this is precisely the wrong time to turn our back on the most effective weapon to aid rapid industrial transformation: tax policy.