Answers to the Competitive Challenge to Employee Productivity
As seen in the Chapman University Economic and Business Review, December 1991
by Mae Lon Ding, MBA, CCP
President, Personnel Systems Associates Inc.,
Anaheim Hills, California
THE COMPETITIVE CHALLENGE
It’s a tough world out there. From 1970 to 1987 the American share of the domestic market for phonographs went from 40% to 0%, the American share of the telephone manufacturing market went from 99% to 25%, the American share of the semi-conductor market went from 89% to 64%, and the American share of the color television market went from 90% to 1%. These are all products that we invented , but markets that the Japanese and other countries have taken away from us. Of the 10 most profitable companies in 1970, only three are still in business.
By the year 2000, as markets become more globalized, this competitive environment will become more extreme. Competitive survival is causing companies to turn more and more to examining the people side of the productivity equation. A small increase in employee productivity can add a lot of money to the bottom line. A simple calculation which shows the effect on profitability would be to take 5% of your company payroll and add it to the company’s annual profits. Companies are experimenting with new ways of organizing work and workers which are producing results far beyond this level of improvement. TRW’s Oil Well Division in Lawrence Kansas achieved an 80% productivity improvement in just 6 years by organizing their work and managing their work force in a way which most companies would find difficult to accept because of their radical break with tradition. However, most business experts and many business leaders, including people like Tom Peters (“In Search of Excellence”, “Thriving on Chaos”), Joseph H. Boyett and Henry P. Conn (“Workplace 2000”), Paul Fulton (President, Sara Lee Corporation), believe that willingness to break with tradition and be innovative in managing people will make a difference between those who barely survive and those who thrive in the year 2000. Companies like Motorola, General Mills, Honeywell, Dupont, Northern Telecom, Nucor Steel, Wal-Mart Stores, Motorola, Emery Air Freight, General Dynamics Corporation, and Miller Brewing have seen great results from innovations in employee management.
What percentage of your company employees would say that getting work done with high speed, efficiency, and quality is a high priority for them? If you could get an honest answer, most employees would not ascribe a high priority to such organization goals. A survey of 5000 workers across the U.S. conducted by the Wyatt Company (“Work America”) shows that only 39% of the respondents feel that employees where they work are committed to the company as “more than just a place to work”. Similarly when asked whether they would recommend their company to others as a good place to work, only half responded favorably. This survey and others show that management doesn’t expect enough and is too tolerant of poor performance, employees frequently aren’t clear about what is expected of them, employees see little connection between performance and rewards such as pay and promotions, and employees are dissatisfied with their pay and their promotional opportunities. It’s no wonder that there is a lack of employee commitment to the employer, to productivity, and to performance.
EIGHT STEP PROCESS FOR PRODUCTIVITY IMPROVEMENT
Following is an eight step process for improving employee productivity that every employer can and should follow. The concepts have come from the work of many respected authorities and many business organizations (including those people and organizations identified earlier in this article) who have demonstrated that they work. The concepts are reasonably simple. However, implementation can be more difficult than one might think because it requires change in how people do things. Change is threatening and habits are hard to break. As with most things which are worthwhile, this process requires management time and commitment.
I. CREATE A SENSE OF MISSION IN THE ORGANIZATION.
Employee commitment to organizational goals can only be attained when employees understand the organization’s goals. Employees need to know what the organization’s overall performance goals are in measurable terms. You start with the subjective goal – maybe that’s “providing the best service of any ski shop in your city”. Then you need to develop the measure of that success. Sample measures might be a “excellent service” rating on customer surveys, or it might be providing a 3 day turnaround on special orders when your competition usually takes 2 weeks. Many organizations use consultants to help them set forth their goals in a “mission statement” and help them to devise measures of success.
Communication about the organizations goals and how the company is doing relative to those goals needs to be frequent and timely. To use a metaphor, if you are shooting at a target, but you aren’t allowed to see the target and no one tells you how close you are to the target until you have shot all the bullets in your gun, then you aren’t going to do very well and you will have very little chance of increasing your accuracy. The more information you get about the location and characteristics of the target, and the more frequent and timely the information you get about how close you are to target, the better will be your chances of hitting it. Organizations can get help from consultants in developing an employee communications plan and communications programs which will make the target clear to employees and keep them informed about how the company is doing.
II. SET DEPARTMENT GOALS AND INDIVIDUAL PERFORMANCE STANDARDS.
Once the company’s mission and strategic objectives are determined., they need to be translated into division and then department performance objectives and standards. A top down approach should be utilized. Normally, the president (or top management) needs to work with department heads in a participative process to determine what departmental standards of performance need to be in order to reach overall corporate objectives. Department objectives can then be translated into individual performance standards and objectives.
Performance planning is often neglected at the individual level. Employees need to understand how they can contribute to meeting the company and department goals, and then need to have the opportunity to be involved in developing a plan for productivity improvement. Managers and supervisors need training on how to set objective, measurable, relevant, realistic, and challenging standards of performance for each subordinate’s job. Such training programs are typically 1 to 2 days in length and promote a participative process between supervisor and employees. If employees are to embrace these standards and objectives then they must be given the opportunity to give input to the process. Often no one knows the job better than the employee doing the work.
Supervisors and managers should meet with each subordinate on a regular basis to establish an ongoing dialogue about the employee’s performance, motivations, aspirations, and work related concerns. Once a year is not enough. Once a quarter is better and for salaried employees once a week is best. Not all of these meetings need to be long or formal. If the manager can make the employee feel comfortable in these meetings and generate trust, then the manager or supervisor can learn how to better motivate the employee, can identify the obstacles to improved performance, and devise an effective performance improvement plan for each employee. Supervisors may be reluctant to make time for intensive performance planning and review, but it takes this kind of effort to make big strides in productivity.
The employee should go away from performance planning and review meetings with greater clarity about the employer’s work expectations, a realistic assessment of how he/she is doing, the opportunity to express personal needs which affect work performance, and a plan of action for improving job skills/knowledge and improving performance. Typically this kind of planning, assessment, and feedback information is documented in a performance appraisal system. This documentation should serve as a tickler system for future performance review meetings, provides some structure for the types of items to be reviewed, provides a tool for top management and the personnel department to monitor performance review activities, and is necessary for keeping the company out of legal trouble when poor performance leads to a termination contested by the employee. The performance appraisal form should be simple, flexible, and structured. However, it should not be the limiting kind of checklist system so often seen which depends on nebulous definitions of quality and productivity. It also should not use criteria which are not directly related to results achieved in the job such as personality traits.
III. GET COMMITMENT.
Employee commitment comes through a demonstration of management commitment not only to the organizations success, but also to the employees. Employers need to offer a competitive pay and benefits package, a progressive disciplinary process, formal or informal on-the-job training, and visible advancement opportunities based on clear criteria. In addition, benefits programs need to reflect the changes in employee needs as the demographics of the workforce changes. Most important are the daily spoken and unspoken messages received from the supervisor which communicate the organization’s attitudes towards its employees and the productivity improvement program. Therefore, organizations must obtain the commitment of supervisors and managers to the process by taking the time to explain the need for change and the rational for the approach utilized. They need to be made aware of how their actions affect employee attitudes.
Management must also be ready to solicit and listen to employee input. Employees need to feel that they are part of a team. Management should use employee input to solve problems related to “working smarter”, not just harder, and to identify time and money wasters. This also means that management must be willing to share information with employees about how the business works, how it is doing, and about what factors are affecting success. The organization needs to be constantly vigilant to the messages it is sending to employees about how it values employee contributions and the messages it sends about commitment to goals. Communications must be frequent, clear, positive and must come from every level of management.
Commitment also comes from the employee perception that their efforts will be rewarded. The company must share the fruits of its success with the employees. Personnel Systems Associates has helped many companies to develop incentive pay and recognition programs which tie individual performance, group performance, and company performance to employee rewards.
Finally, commitment to goals is related to the pride that each employee takes in the job he or she is doing and in the pride that they have for the company. Pride can be instilled through fanfare – publicizing achievements and successes of the company and the contribution of individuals who made it possible.
IV. ASSESS WORK TEAM STRENGTHS AND WEAKNESSES.
Has the company been hiring the right kind of people? How do employees fit the company’s organizational culture, the department head’s managerial style, and the type of job assigned? U.S work population demographics have changed a lot in the last fifty years and are going to change even more by the year 2000. The influx of more women, more minorities, and more immigrants; the aging of the work force, and the change in worker values will all make these issues even more important. According to the Hudson Institute, by the year 2000, only 15% of the new entrants to the work force will be white males and over 50% of them will be age 40 or over (“Workforce 2000: Work and Workers for the 21st Century”).
Business approaches to dealing with these problems will have to be a combination of better screening and better methods for dealing with work force diversity. The better the company is at identifying the ideal profile for each job and for the employee work force overall, and the better the company is at screening potential employees for these factors, the fewer headaches it will have in managing employee performance. Interviews can be structured to screen for these factors. Tests are also available to determine employee work styles, work related values, and skill levels.
Reviewing the characteristics and skills of top performers and marginal performers will help the company in developing a profile for each job and for the company overall. Once profiles have been developed, the company should clearly communicate these expectations to employees. In addition, supervisors and managers need to be trained to understand cultural differences and how to deal effectively with them.
V. TRAINING AND DEVELOPMENT.
Training and development is an area that we have mentioned throughout this article. A program of productivity oriented training can translate directly into bottom line results. Productivity oriented training should focus on the following areas:
- setting performance standards and objectives (for all employees)
- leader facilitation of group problem solving
- supervisory training in performance review and feedback
- job knowledge and skills development
- English as a second language for companies with large immigrant populations
To maximize learning and operational impact training should be specifically tailored to your industry, your jobs, and your organizational culture. Manager’s should be held accountable for providing on-the-job training plans for each subordinate in addition to classroom training. It is not unusual, for managers to interpret training as simply sending an employee to an outside commercial program offered by the local college or the American Management Association. While these programs may provide useful information, they are not enough.
VI. TRACK PERFORMANCE.
If you can’t measure an activity then you can’t manage it. Therefore, any activity in the organization that is important should be measured. Managers sometimes resist measurement of results because it focuses top management attention on accomplishment of outcomes rather than on an appearance of “working hard”. In fact, good performance measurement may reward those who “work smart” and work normal hours as much or more than those who work hard, but not smart.
A good performance measurement system should ideally meet the following criteria:
- provide frequent and timely reporting
- simple to maintain and utilize (although it may be complex and time consuming to set up)
- focus on results achieved more than on activity required to achieve results
- should not ignore important performance areas just because they are difficult to measure
- provided and publicized to employees whose performance is being measured
VII. TIE REWARDS TO PERFORMANCE AND GIVE REWARDS THAT MAKE A DIFFERENCE.
The challenge for every organization and every manager in the organization is to tie the organizational goals to each employee’s personal needs:
- the need to belong (involvement)
- the need for recognition (feedback and rewards)
- the need to achieve life style objectives
- the need for security and predictability
- the need to achieve and to make a difference
- the need for growth
Most organizations lack effective incentive systems. The greatest motivational impact can be achieved when rewards are frequent, immediate, can be related to individual contribution, and are of significant value to the employee. Typical profit sharing plans and merit salary increase plans are ineffective as employee motivators because they often fall short in all of these areas. They may pay out only once a year. In the case of profit sharing plans the dollars may not become available to the employee until retirement or termination. The employee may have great difficulty in seeing the link between the amount of the payout and his/her work performance, and the payout may be too small to be of significant value.
In most organizations, merit increases given to superior performers vary by only one or two percent from those increases given to average performers. This is a more symbolic than real recognition of the difference in skill and effort required to achieve high levels of performance. Often there are few measurable performance standards and objectives related to merit increases. Increases may be linked more to appearances of working hard rather than results achieved. All this may lead to an employee perception of “merit increases” as entitlements or cost of living increases rather than as incentives for performance.
We suggest the development of group and/or individual incentive plans in which the individual can more easily see his or her impact on results achieved and rewards received. Such plans may also have links to overall company performance. These programs can be funded by splitting the value of productivity increases between the company and the employee. We have set up these plans in service firms as well as manufacturing firms.
It is also important to fully exploit nonmonetary forms of rewards. We know of one firm which distributed a list to all its supervisors of 150 different kinds of rewards that an employee could be given, and not one of them was money. Recognition, immediacy, and sincerity in giving the reward is a key to effectiveness with nonmonetary rewards.
A variety of other innovative compensation techniques such as “pay for knowledge”, lump sum increases, employee phantom stock plans, etc. are being used and studied. However, we believe that these techniques do not suit every organization and in fact may be useful in only limited situations. It is important to let the operational strategy of the business drive compensation systems, and not the reverse.
VIII. SHOW THE EMPLOYEE THAT “YOU MEAN BUSINESS”
People change slowly. They will often test your commitment to your avowed goals and objectives. No matter how important you say something is, if you don’t measure it, employees will quickly realize that it is not very important. In addition, every employee will say “What’s in it for me?”. The organization must communicate the answer to this question clearly and regularly. Then management must follow through 	in terms of rewards for meeting or exceeding standards/objectives and in terms of consequences for poor performance.
Making pronouncements will not be enough. A performance improvement plan must be developed with detailed steps, goals, and implementation timetables. We normally help our clients to prepare plans that stretch over several years. A haphazard approach will create poor results. Productivity and performance management and improvement is a continual process – there is a beginning, but there should be no end. Dedication and persistence are required for success.
Generally, this eight step productivity improvement process needs to be driven by top management in order to maximize its effectiveness. In today’s competitive environment, your company’s leadership may already be considering the change needed to make employees more productive. However, if top management thinking has not advanced to this point, the personnel professional can be the catalyst in the thinking of the company’s management group by sharing thoughts and findings with them, educating them, and by asking questions which make management examine the status quo. Sometimes it is useful to bring in an outside consultant to discuss the issues with top management. Once they are ready for change, we can help to lead them down the right path and provide a suggested plan of action. Personnel professionals are sometimes reluctant to promise measurable results to management, but measurable results can be attained from the performance management program described here, and it is the promise of measurable results that will grab management attention.