(FORTUNE Magazine) – MANY AMERICAN companies are discovering what may be the productivity breakthrough of the 1990s. Call the still-controversial innovation a self- managed team, a cross-functional team, a high-performance team, or, to coin a phrase, a superteam. Says Texas Instruments CEO Jerry Junkins: ''No matter what your business, these teams are the wave of the future.'' Corning CEO Jamie Houghton, whose company has 3,000 teams, echoes the sentiment: ''If you really believe in quality, when you cut through everything, it's empowering your people, and it's empowering your people that leads to teams. We're not talking here about the teamwork that's been praised at Rotary Club luncheons since time immemorial, or the quality circles so popular in the 1980s, where workers gathered once a week to save paper clips or bitch about the fluorescent lights. What makes superteams so controversial is that they ultimately force managers to do what they had only imagined in their most Boschian nightmares: give up control. Because if superteams are working right, mirabile dictu, they manage themselves. No boss required. A superteam arranges schedules, sets profit targets, and -- gulp -- may even know everyone's salary. It has a say in hiring and firing team members as well as managers. It orders material and equipment. It strokes customers, improves quality, and, in some cases, devises strategy. Superteams typically consist of between three and 30 workers -- sometimes blue collar, sometimes white collar, sometimes both. In a few cases, they have become a permanent part of the work force. In others, management assembles the team for a few months or years to develop a new product or solve a particular problem. Companies that use them -- and they work as well in service or finance businesses as they do in manufacturing -- usually see productivity rise dramatically. That's because teams composed of people with different skills, from different parts of the company, can swoop around bureaucratic obstacles and break through walls separating different functions to get a job done. Ten years ago there were practically no superteams. Only a handful of companies -- Procter & Gamble, Digital Equipment, TRW -- were experimenting with them. But a recent survey of 476 FORTUNE 1,000 companies, published by the American Productivity & Quality Center in Houston, shows that while only 7% of the work force is organized in self-managed teams, half the companies questioned say they will be relying significantly more on them in the years ahead. Those who have already taken the plunge have seen impressive results: -- At a General Mills cereal plant in Lodi, California, teams such as the one pictured on FORTUNE's cover schedule, operate, and maintain machinery so effectively that the factory runs with no managers present during the night shift. -- At a weekly meeting, a team of Federal Express clerks spotted -- and eventually solved -- a billing problem that was costing the company $2.1 million a year. -- A team of Chaparral Steel millworkers traveled the world to evaluate new production machinery. The machines they selected and installed have helped make their mill one of the world's most efficient. -- 3M turned around one division by creating cross-functional teams that tripled the number of new products. -- After organizing its home office operations into superteams, Aetna Life & Casualty reduced the ratio of middle managers to workers -- from 1 to 7 down to 1 to 30 -- all the while improving customer service. -- Teams of blue-collar workers at Johnsonville Foods of Sheboygan, Wisconsin, helped CEO Ralph Stayer make the decision to proceed with a major plant expansion. The workers told Stayer they could produce more sausage, faster than he would have ever dared to ask. Since 1986, productivity has risen at least 50%. Like latter-day Laocoons, the companies using superteams must struggle with serpentine problems. How do you keep a team from veering off track? How should it be rewarded for inventing new products or for saving money? How much spending authority should a team have? What happens to the opportunity for team members to advance as the corporate hierarchy flattens? How should disputes among its members be resolved? Answers vary from company to company. Read on to see how some organizations are coping. Superteams aren't for everyone. They make sense only if a job entails a high level of dependency among three or more people. Complex manufacturing processes common in the auto, chemical, paper, and high-tech industries can benefit from teams. So can complicated service jobs in insurance, banking, and telecommunications. But if the work consists of simple assembly line activity like stuffing pimentos into olives, teams probably don't make sense. Says Edward Lawler, a management professor at the University of Southern California: ''You have to ask, 'How complex is the work?' The more complex, the more suited it is for teams.'' Lawler is getting at the heart of what makes superteams tick: cross- functionalism, as the experts inelegantly put it. The superteam draws together people with different jobs or functions -- marketing, manufacturing, finance, and so on. The theory is that by putting their heads together, people with different perspectives on the business can solve a problem quickly and effectively. Contrast that to the Rube Goldberg approach a hierarchical organization would usually take. A person with a problem in one function might have to shoot it up two or three layers by memo to a vice president who tosses it laterally to a vice president of another function who then kicks it down to the person in his area who knows the answer. Then it's back up and down the ladder again. Whew. FEDERAL EXPRESS has been particularly successful using superteams in its back-office operations in Memphis. Two years ago, as part of a companywide push to convert to teams, Fedex organized its 1,000 clerical workers into superteams of five to ten people, and gave them the training and authority to manage themselves. With the help of its teams, the company cut service glitches, such as incorrect bills and lost packages, by 13% in 1989. At lunch with one team, this reporter sat impressed as entry-level workers, most with only high school educations, ate their chicken and dropped sophisticated management terms like kaizen, the Japanese art of continuous improvement, and pareto, a form of problem solving that requires workers to take a logical step-by-step approach. The team described how one day during a weekly meeting, a clerk from quality control pointed out a billing problem. The bigger a package, he explained, the more Fedex charges to deliver it. But the company's wildly busy delivery people sometimes forgot to check whether customers had properly marked the weight of packages on the air bill. That meant that Fedex, whose policy in such cases is to charge customers the lowest rate, was losing money. The team switched on its turbochargers. An employee in billing services found out which field offices in Fedex's labyrinthine 30,000-person courier network were forgetting to check the packages, and then explained the problem to the delivery people. Another worker in billing set up a system to examine the invoices and make sure the solution was working. Last year alone the team's ideas saved the company $2.1 million. In 1987, Rubbermaid began to develop a so-called auto office, a plastic, portable device that straps onto a car seat; it holds files, pens, and other articles and provides a writing surface. The company assembled a cross- functional team composed of, among others, engineers, designers, and marketers, who together went into the field to ask customers what features they wanted. Says Rubbermaid vice president Lud Huck: ''A designer, an engineer, and a marketer all approach research from a different point of view.'' Huck explains that while a marketer might ask potential customers about price, he'd never think to ask important design questions. With contributions from several different functions, Rubbermaid brought the new product to market last year. Sales are running 50% above projections. Companies making the move to superteams often discover middle managers who feel threatened, and refuse -- even for a millisecond -- to think outside their narrow functional specialties, or chimneys, as they're labeled at some companies. Understandable, since the managers probably made it to where they are by being marketing whizzes or masters of the bean-counting universe. Why help some poor slob in engineering? For superteams to work, functional chimneys must be broken down and middle managers persuaded to lend their time, people, and resources to other functions for the good of the entire corporation. Robert Hershock, a group vice president at 3M, is an expert chimney breaker. In 1985 he introduced teams to his division, which makes respirators and industrial safety equipment, because it was desperately in need of new products. The old boss had simply told his underlings what to develop. R&D would sketch it up and deliver the concept to sales for comment, leaving manufacturing and marketing scrambling to figure out how to make or position the new offering. Says Hershock: ''Every function acted as if it didn't need anyone else.'' He formed an operating team made up of himself and six top managers, each from a different function. With suggestions from all interested parties, he hoped to chart new-product strategies that everyone could get behind. Under the operating team he established ten self-managed ''action teams,'' each with eight to ten people, again from different functions. They were responsible for the day-to-day development of new products. It wasn't all sweetness and light. Hershock says one manager on the operating team dragged his feet all the way. ''He'd say he wasn't in favor of this or that,'' recalls Hershock. ''He'd say to his people, 'Meet with the action teams because Hershock said so, but don't commit to anything. Just report back to me what was said.' '' Hershock worked to convince the man of the benefits of the team approach, but to no avail. Eventually the manager went to Hershock and said, ''I didn't sleep all weekend. I'm upset.'' The manager found a good job in another division. ''You need to have a sense of who's not buying in and let the teams kick people off who aren't carrying their weight,'' Hershock concludes. Today his division is one of 3M's most innovative and fastest growing. IT'S EASIER to build superteams into a new office or factory than to convert an old one to them. When an operation is just starting up, a company can screen people carefully for educational skills and the capacity to work on a team, and can train them without worrying about bad old work habits like the ''it's not my problem'' syndrome. Nonetheless, General Mills is organizing superteams in all its existing factories. Randy Darcy, director of manufacturing, says transforming an old plant can take several years, vs. only a year to 18 months for a new plant. Says Darcy: ''It costs you up front, but you have to look at it as a capital project. If you consider the productivity gains, you can justify it on ROE.'' Can you ever. General Mills says productivity in its plants that use self- managed teams is as much as 40% higher than at its traditional factories. One reason is that the plants need fewer middle managers. At one of General Mills' cereal plants in Lodi, workers on the night shift take care of everything from scheduling to maintenance. The company has also found that superteams sometimes set higher productivity goals than management does. At its Carlisle, Pennsylvania, plant, which makes Squeezit juice, superteams changed some equipment and squeezed out a 5% production increase in a plant management thought was already running at full capacity. But you will never get large productivity gains unless you give your teams real authority to act. This is a theme that Johnsonville's Stayer, who teaches a case on teams at the Harvard business school, preaches with messianic zeal. ''The strategic decision,'' he explains, ''is who makes the decision. There's a lot of talk about teamwork in this country, but we're not set up to generate it. Most quality circles don't give workers responsibility. They even make things worse. People in circles point out problems, and it's someone else's problem to fix.'' In 1986 a major food company asked Johnsonville to manufacture sausage under a private label. Stayer's initial reaction was to say no, because he thought the additional volume would overload his plant and force his people to work grueling hours. But before declining, he assembled his 200 production workers, who are organized in teams of five to 20, and asked them to decide whether they wanted to take on the heavier workload. Stayer discussed the pros: Through economies of scale, the extra business would lower costs and thus boost profits; since everyone's bonus was based on profitability, everyone would make more money. And the cons: long hours, strained machinery, and the possibility of declining quality. After the teams deliberated for ten days, they came back with an answer: ''We can do it. We'll have to work seven days a week at first, but then the work will level off.'' The teams decided how much new machinery they would need and how many new people; they also made a schedule of how much to produce per day. Since Johnsonville took on the new project, productivity has risen over 50% in the factory. Says Stayer: ''If I had tried to implement it from above, we would have lost the whole business.'' Some large organizations still feel a need to exercise oversight of superteams' activities. What to do with a team that louses up quality or orders the wrong machinery? James Watson, a vice president of Texas Instruments' semiconductor group, may have the answer. At one of TI's chip factories in Texas, Watson helped create a hierarchy of teams that, like a shadow government, works within the existing hierarchy. On top is a steering team consisting of the plant manager and his heads of manufacturing, finance, engineering, and human resources. They set strategy and approve large projects. Beneath the steering team, TI has three other teams: corrective-action teams, quality-improvement teams, and effectiveness teams. The first two are cross-functional and consist mainly of middle managers and professionals like engineers and accountants. Corrective-action teams form to tackle short-lived problems and then disband. They're great for those times when, as the technophantasmic novelist Thomas Pynchon writes, there's fecoventilatory collision: the s---- hits the fan. By contrast, TI's quality-improvement teams work on long-term projects, such as streamlining the manufacturing process. The corrective-action and quality- improvement teams guide and check effectiveness teams, which consist of blue-collar employees who do day-to-day production work, and professional workers. What's to keep this arrangement from becoming just another hierarchy? ''You have to keep changing and be flexible as business conditions dictate,'' says Watson. He contends that one of the steering team's most important responsibilities is to show a keen interest in the teams beneath it. ''The worst thing you can do to a team is to leave it alone in the dark. I guarantee that if you come across someone who says teams didn't work at his company, it's because management didn't take interest in them.'' Watson suggests that the steering team periodically review everyone's work, and adds, ''It doesn't have to be a big dog-and-pony show. Just walk around and ask, 'How are you doing?' '' Last spring a group of executives from a FORTUNE 500 manufacturer traveled to Midlothian, Texas, to learn how Chaparral Steel managed its teams. Efficient superteams have helped make Chaparral one of the world's most productive steel companies. During the tour, one executive asked a Chaparral manager, ''How do you schedule coffee breaks in the plant?'' ''The workers decide when they want a cup of coffee,'' came the reply. ''Yes, but who tells them when it's okay to leave the machines?'' the executive persisted. Looking back on the exchange, the Chaparral manager reflects, ''The guy left and still didn't get it.'' Why do Chaparral workers know when to take a coffee break? Because they're trained to understand how the whole business operates. Earl Engelhardt, who runs the company's educational program, teaches mill hands ''The Chaparral Process,'' a course that not only describes what happens to a piece of steel as it moves through the company, but also covers the roles of finance, accounting, and sales. Once trained, a worker understands how his job relates to the welfare of the entire organization. At team meetings, many of which are held in the company's modest boardroom, talk is of backlogs and man-hours per ton. Financial statements are posted monthly in the mill, including a chart tracking operating profits before taxes -- the key measure for profit sharing. In the early 1980s the company sent a team leader and three millworkers, all of whom had been through ''The Chaparral Process,'' to Europe, Asia, and South America to evaluate new mill stands. These large, expensive pieces of equipment flatten and shape hot steel as it passes through the mill, much as the rollers on old washing machines used to wring clothes. After team members returned from their first trip, they discussed the advantages and disadvantages of various mill stands with other workers and with top management. Then they narrowed the field and flew off again. Eventually the team agreed on the best mill stand -- in this case a West German model -- and top management gave its blessing. The team then ordered the mill stands and oversaw their installation, even down to negotiating the contracts for the work involved. At other companies it can take as long as several years to buy and install such a complicated piece of equipment. The Chaparral team got the job done in a year. Perhaps even more amazing, the mill stands -- notoriously finicky pieces of machinery -- worked as soon as they were turned on. There remains considerable debate among employees, managers, and consultants over the best way to compensate team members. Most companies pay a flat salary. And instead of handing out automatic annual raises, they often use a pay-for-skills system that bases any increase not on seniority but on what an employee has learned. If, say, a steelworker learns how to run a new piece of equipment, he might get a 5% raise. WHILE THE YOUNG and eager tend to do well with pay-for-skills, some old- school blue-collar workers like Chaparral Steel's Neil Parker criticize aspects of the system. Says he: ''New guys come in who are aggressive, take all the courses, and get promoted ahead of guys who have been here years longer and who showed up for overtime when the company really needed us. It's not fair.'' As Parker suggests, pay-for-skills does set up a somewhat Darwinian environment at the mill, but that's just the way Chaparral's management likes it.

When teams develop a hot new product, like Rubbermaid's auto office, or save money, like the Federal Express team that caught $2.1 million in billing errors, you would think they would clamor for rewards. Not necessarily. In many cases, surprisingly, a little recognition is reward enough. The Fedex team members seem perfectly content with a gold quality award pin and their picture in the company newsletter. Says one: ''We learn more in teams, and it's more fun to work in teams. It's a good feeling to know someone is using your ideas.'' In his book Managing New Products, Thomas Kuczmarski, a consultant to many of the FORTUNE 500 industrials, argues that recognition isn't enough. ''In most companies multidisciplinary teams are just lip service because companies don't provide the right motivation and incentive. Most top managers think people should just find 20% more time to work on a new team project. It's a very naive and narrow-minded approach.'' His modest proposals: If a new product generates $1 million in profits, give each of the five team members $100,000 the first year. Or have each member write a check for $10,000 in return for 2% of the equity in the new product. If it flies they're rich; if it flops they lose their money. Kuczmarski admits that no major corporation has adopted his provocative system, although he says a few are on the verge of doing so. One objection: Jack Okey, a Honeywell team manager, flatly states that it would be bad for morale to have, say, a junior engineer making more than a division vice president. ''If you want to be an entrepreneur, there are plenty of entrepreneurial opportunities outside the company. You can have entrepreneurial spirit without entrepreneurial pay.'' PERHAPS. Awards dinners and plaques for jobs well done are common in the world of teams, but Texas Instruments vice president James Watson thinks more can be done. He cites the example from Japan, where there is a nationwide competition among manufacturers' teams. Sponsored by the Union of Japanese Scientists and Engineers, the competition pits teams selected by their companies against one another. Once a year the teams travel to Tokyo to make presentations before judges, who decide which performs best at everything from solving quality problems to continuously improving a manufacturing process. The winners get showered with prizes and media coverage. Sometimes, despite everyone's best efforts, teams get hung up. Leonard Greenhalgh, a professor of management at Dartmouth's Tuck School, says the most common problem is the failure by team members to understand the feelings and needs of their co-workers. At GTE's training center in Connecticut, Greenhalgh had middle managers do role-playing to bring out how such problems can creep up. In a fictionalized case, a team of six pretended they were Porsche managers who had to set next year's production schedule. Each was given a different function and agenda. The Porsche sales manager, for instance, wanted to manufacture more of the popular Carrera convertibles, but the general counsel thought it a bad idea because of the liability problems generally associated with convertibles. The GTE managers spent several hours arriving at a consensus. Says Greenhalgh: ''Typically, a team lacks skills to build a strong consensus. One coalition tries to outvote the other or browbeat the dissenters.'' To make sure everyone is on board, says Greenhalgh, it's important that each team member feel comfortable airing his opinions. But that can take some training for all group members in how to respond. For instance, the GTE managers learned it's better not to blurt out an intimidating, ''I disagree,'' but rather, ''That's an interesting way to look at it; what about this?'' Companies using teams sometimes run into another problem: With fewer middle- manager positions around, there's less opportunity for advancement. The experts say they need to emphasize that because team members have more responsibility, their work is more rewarding and challenging. Harvard business school professor Anne Donnellon, who is doing a major new study of teams, sees this approach already working at some FORTUNE 500 companies: ''People are adjusting to career-ladder shortening. If a team is operating well, I hear less talk about no opportunity for promotion and more about the product and the competition. They're focusing on getting the work done. After all, people want rewarding work.'' If you've done all you can think of, and your team is still running on only three cylinders, you might consider something as prosaic as changing the office furniture. Aetna Life recently reorganized its home office operations into self-managed teams -- combining clerks, technical writers, underwriters, and financial analysts -- to handle customer requests and complaints. To facilitate teamwork, Aetna is using a new line of ''team'' furniture designed by Steelcase. The furniture establishes small areas that the folks at Steelcase call neighborhoods. A central work area with a table lets teams meet when they need to, while nearby desks provide privacy. Says William Watson, an Aetna senior vice president: ''I can't tell you how great it is. Everyone sits together, and the person responsible for accounting knows who prepares the bills and who puts the policy information in the computers to pay the claims. You don't need to run around the building to get something done.'' The most important thing to remember about teams is that organizing them is a long, hard process, not a quick fix that can change your company in a few weeks. Says Johnsonville's Stayer: ''When I started this business of teams, I was anxious to get it done and get back to my real job. Then I realized that, hey, this is my real job'' -- letting the teams loose. For those up to the challenge, there will be real results as well.

BOX: CHEERING ON THE TEAM

If Harvard awarded MBAs to factory workers for their expertise, this team at a General Mills cereal plant in Lodi, California, would graduate with honors. They do just about everything middle managers do, and do it well: Since General Mills introduced teams to the plant, productivity has risen up to 40%. Carmen Gomez, Ruby Liptack, and Bill Gerstner (extreme left to right) operate machinery to make cereal (that's Oatmeal Crisp). Denny Perak (in the middle) is a manager, but he doesn't supervise in the traditional sense. He coaches the team on management techniques and serves as their link with headquarters. Donald Owen and William Walker (on the right) help maintain the machinery, which Irma Hills operates. Team members like the added responsibility, but also feel more pressure. Says Owen: ''I work a lot harder than I used to. You have to worry about the numbers.''