The opening of Australia's economy over the past 15 years or so has forced companies like Zip to become more internationally competitive. And such productivity gains spread across the whole economy have helped Australia sail through Asia's economic turmoil.

Measured in terms of total factor productivity, which takes into account innovation and capital investment, as well as increased labour, productivity in Australia has been growing at an average of two per cent a year in the 1990s, according to the Reserve Bank of Australia. That's double the rates of increaseduring previous economic expansions in the 1970s and 1980s, the central bank says. "This measure of productivity can't be increased simply by shedding labour and replacing it with capital," says Ian Macfarlane, Australia's central bank chief. "It can only be increased by using both labour and capital more productively."

One big factor in the increase, argues John Edwards, chief economist of HongkongBank of Australia Ltd., is a move to more labour-market flexibility. At many companies, wages are now set by productivity-based bargaining at each company, instead of having wages set across an industry nationwide. It has been a divisive change among Australia's once-powerful unions because it has signalled an end to such inefficient work practices as over-manning.

Technological advances certainly played a part in lifting productivity, but Edwards says they take a back seat to the impact of labour-market liberalisation. As evidence, he points to the US, where productivity grew at an annual average of 0.8 percent in the 1990s, while Australia's productivity grew at nearly three times that rate. Because both countries have benefited from similar kinds of technological gains over the years, that suggests "something unique to Australia" is responsible, Edwards says.

Indeed, Stephen Brewster, Zip's joint managing director, says changes in work practices on the factory floor, including training workers to do more than one job, have made the big difference at Zip. Today, for instance, the Sydney-based company can produce a water heater in about an hour from the time it receives a customer's order. That's a far cry from two years or so ago when Zip needed a lead time of about three weeks to produce the same heater and maintained expensive stock levels equivalent to an estimated four to six weeks orders.

"It's all very exciting," says Crouch, 66 years old, as he dashes around Zip's factory outside Sydney, past wooden crates of Zip products bound for Hong Kong, South Africa and New Zealand -- most of Zip's profitthese days comes from overseas markets. Pods of people are assembling various models of water heaters and water coolers.

The company has revolutionised the way it manages its approximately 130 workers in Australia, says Ray Massey, a joint managing director in charge of operations who has been at Zip since 1966. For a start, Massey says, "I'm not the boss anymore" on the factory floor. Rather, Massey says the company has fostered a culture of teamwork and given workers more authority.

These days, he says, former supervisors like him have become more like "support services to the production worker," making sure all the parts needed to make the various products are on hand. Zip's production force now is divided into self-directed, autonomous cells, or teams.

Restructuring a manufacturing process along these lines isn't "a magic bullet" for all industries, says James Root, a Hong Kong based partner at management consultants Bain & Co. For instance, he says it is hard to implement such a system in, say, achemical-processing plant or paper maker that is producing goods in bulk quantities. But the self-directed cell system has been highly successful over a range of industries, including computer making, provided that it is part of a "holistic view" the company takes of its manufacturing strategy, Root adds.

Other experts warn that the strategy isn't always trouble-free. For instance, finding a worker to serve as a successful team leader can sometimes cause companies headaches, and the need to buy more than one set of equipment that can't be shared among cells can add to costs. Moreover, making individual cells accountable for their respective bottomlines can create unproductive tension among workers if one team tries to excel at another's expense.

Still, says Eddie Anderson, a professor of operations management at the Australian Graduate School of Management in Sydney, generally "there aren't that many serious downsides" to the strategy, which isn't widespread in Australia but he thinks is particularlywell-suited to a company like Zip with its varied product line.

Zip started to reshape its corporate culture after the company acquired a small water-chiller business in 1991, says Brewster, a 20-year veteran who oversees Zip's marketing. The company used that new business line as a pilot program to shake up its production methods. First, it picked a special team of employees to produce the water chillers. That team then elected its own leader. Productivity soared, and the team was rewarded with "pats on the back" all around. Mostly, Brewster adds, the workers "felt more in control of their own destiny; that's the most important thing."

Meanwhile, in line with other Australian companies, Zip moved to base its pay scale more on the new productivity-linked agreements worked out between employees and management rather than the old centralised wage-fixing arrangement.

Zip spent about a year working out the kinks in its pilot program before gradually rolling the system out to other parts of the factory.There are now half-dozen autonomous teams divided mainly along product lines including hair dryers, 130 of which grace the toilets of Hong Kong's new airport. Within the next three to six months, Brewster says, Zip plans to make each team act like a minicompany, judged on its productivity, costs and the profit it generates. Worker groups will also be rewarded based on key performance indicators such as quality control and cooperation with other teams.

Essentially, Brewster says, the management changes are a blend of Japanese techniques including kan-ban, a system that controls the supply of inputs, and other bits and pieces Zip managers gleaned from studying manufacturing plants in the US, Britain and elsewhere.

Technology has also helped Zip, like many companies in Australia in the 1990s, to post big gains in productivity. During the past five years, the company has installed machines that can cut and shape parts in response to a computer instruction, and Brewster says the next step is to install robotsthat can take over some of the work done manually. The cost of labour to produce one Zip heater today is half the cost of just two years ago, Massey says.

And Zip now has a more highly skilled work force to use that technology. In a small room off the factory floor sits a pair of computers whose screens flash up three-dimensional illustrations of the guts of a Zip heater that is part of the company's never-ending quest to make a better water heater. Once a new design feature is finalised, the computer shoots the specifications to a machine in another part of the building that automatically alters the configuration of the metal part.

"The guys on the machines understand computers," says Crouch of the workers manning the metal-shaping equipment. "The old process worker wouldn't."