Have
you ever been sipping coffee in a reception area
trying to distance yourself from the buzz of activity
all around you? To the casual observer, this whirlwind
of activity may indicate a highly productive business.
Upon further investigation, however, you might be
surprised to learn that the owners and management
team do not share this sentiment at all. In fact,
many businesses today are concerned about their
level of productivity despite the appearance of
an active staff.
The first thing to understand is that activity alone
does not necessarily equate to productivity. Often,
this activity, which could easily be the result
of confusion or busy-work, is misinterpreted. Productivity,
on the other hand, has been defined in many different
ways. By formal definition, it is the measure of
a unit of output per unit of input. The government
defines it in terms of revenue per hour worked.
Some businesses define it based on revenues, while
others base it on profits. Almost all non-governmental
definitions incorporate the dollars invested in
capital assets such as plants and equipment. This
is known in most business circles as total factor
productivity (TFP). By paraphrasing the many definitions,
one might conclude that TFP is best defined as the
output units of goods and services per input unit
of capital and labor. Remember, no matter
how you choose to measure productivity, you must
have a consistent definition and process to
accurately assess changes from year to year.
So, what factors
impact TFP? Productivity increases or decreases
may result from such factors as pricing, volume,
quality control, technological advances, time management,
employee training, employee moral, etc. A small
improvement in one or more of these factors may
result in a substantial gain in the business’s overall
profitability. In much the same manner as borrowed
capital may be judiciously used to leverage and
improve profitability, increasing TFP will result
in similar but more powerful leveraging. This is
because there is no downside from additional debt.
In other words, productivity growth doesn’t cost
" it pays.
What should your business do to improve productivity?
There are two basic courses of action; (1) increase
output with no increase in input, or (2) hold output
constant while decreasing input. In either case,
people are the key ingredient for success. Management
and employees, working together as a team, must
jointly tap into the internal resources of human
creativity, passion, and energy to bring about meaningful
productivity growth. Therefore, it is incumbent
on management to set goals and to provide an atmosphere
whereby each employee feels challenged and motivated
to contribute to the team effort, all the while
knowing that rewards are within his or her reach.
One technique
that has proven to be particularly useful in growing
productivity is the old-fashioned "brainstorming
session." This usually involves a selected
group of employees who meet periodically to discuss
problems regarding quality, production, and other
timely issues. Many seemingly impossible problems
have been resolved when uninhibited minds begin
to explore the "what-ifs." Following
are some specific ideas for improving productivity:
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Identify
the organization’s purpose and mission (a
business plan);
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Communicate
business goals to employees;
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Integrate
business goals with the goals of individual
employees;
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Plan
daily activities with these goals in mind;
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Implement
new technologies where feasible;
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Increase
employee participation in decision making
and problem solving; and
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Provide
incentives to recognize individuals for a
job well done. |
Many larger businesses
today employ the Six Sigma technique. This highly-defined
process helps you focus on developing and delivering
near-perfect products and services. By studying
the defects in your processes, you can systematically
figure out how to eliminate them, thereby improving
productivity. General Electric is one business
that utilizes the Six Sigma technique. Jack Welch,
the recently retired CEO of GE, may have exposed
some of his managerial genius when he said, "growing
productivity must be the foundation of everything
we do."
The productivity
growth driven by new technologies over the past
20 years has allowed businesses to greatly increase
the production capacities of their capital assets.
However, the benefits provided by this new technology
can never match the ongoing reliability and potential
of an organization’s motivated human resources.
The bottom line is that without people, there
would be no technology, no productivity, and no
profits. Your human resources are your most important
asset. So, the next time you walk through the
reception area in your own place of business,
pay attention. Are you witnessing productivity
or activity?
Pay
for performance programs can help generate more
productivity. If you are interested in learning
more about productivity improvements that will
increase your bottom line, contact us today: we
can put the power of productivity to work for
you.
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