Keeping productivity as an organizational focusAnthony Sobers
By Anthony Sobers | Wed, September 12, 2012 - 3:52 PM
WHEN LOOKING AT what makes an economy grow in the long run we can all agree that productivity growth is an important factor for economies as they seek to build competitiveness and to facilitate the expanding sale of products and services, and growth in national income for investment in education, health care, technology, research, innovation and creativity.
At the micro-level we recognize that to achieve productivity growth, there needs to be a partnership between human capital (labour) and investment capital. There can be no productivity growth if labour is not engaged and motivated in a meaningful way, therefore our human capital must be brought to the table and allowed to participate in strategy formulation and implementation for sustainability.
The quest for improved productive achievement of labour requires a focus on intellect (knowledge), innovation and creativity. The challenge is, how can management/leaders combine these attributes to deliver increasing levels of output?
Organizational performance has moved beyond keeping pace or outgrowing the rest of the business class to the use of intellectual capital to create uniqueness and difference.
Intellectual capital is the use of knowledge to create value-added for the organization. In effect, it is the ability to use the intellect and the economic concept of capital to drive the production of goods and services. Labour can be defined largely as intellectual capital consisting of skills and knowledge harboured within the environs of the company to produce goods or services.
It is critical to a company’s continued success since it is the aggregation of knowledge, skills, attitudes, competencies and one’s ability to think that will convert a strategy into competitive advantage.
A crude value of the intellectual capital within organizations can be calculated as the ratio of labour cost to value-added or gross sales. This indicates the value and importance of the intellect
In Barbados for the year 2010, the hotel industry average was 26 per cent, 32 per cent in construction, 24 per cent in the financial services sector, and 54 per cent and 20 per cent in the manufacturing and wholesale/retail sectors, respectively. In most cases the ratio proves to be significant and should be treated accordingly.
Organizational improvement often requires drastic reorganization of production processes, workflow and work groupings, reworking of human resource policies, and training and development in a wide range of other issues. Due to the significance of labour, managers should avoid making decisions without some level of dialogue with employees.
Since employees can often provide the best insight into what encourages or hinders performance in their divisions, it is vital to educate, gain buy-in and establish a foundation for feedback from these people, who will be ultimately affected by the changes, in order to minimize resistance and improve the opportunities for success.
Employees often discuss the things that would help them achieve higher performance among themselves. Offering them an opportunity to share these ideas with upper management can yield surprising results.
Productivity growth is a complex process that requires the correct level of intellectual maturity, trust and understanding. We often create a low level of trust, low commitment and incorrect attitude within the change process, which leads to little dedication and ultimately low productivity growth and ordinary performance levels.
We must be cognizant that productivity as a strategy can actually hinder competitive ability. Instead of inspiring and motivating employees, it can actually be sabotaged by those who see themselves as an appendage and not as a component of the strategy.
The roles of human resources (HR) and industrial relations (IR) practitioners within our companies are crucial. They must be able to harness the human skills, competencies and intellect to establish the organization’s human capital base for enhanced productivity growth.
Managing must consist of measures and the sharing of productivity information,supported by process analysis and improvement and continuous training for growth and change.
There is an exceptional amount of research showing that productivity gains are closely connected to employee relations. Scholarly experts such as Marlon Hanlon hold that there is a connection between a positive and friendly relationship between management and labour and productivity increases, whereas hostile relations are connected to production decreases.
It has therefore become critical for HR and IR practitioners to
• Include labour in all major decisions affecting productivity in order to build trust between management and labour, which is essential to increasing production and productivity targets.
• Promote the benefits of training labour in the latest technologies.
This is essential in order to maintain profitability and increase production. Labour must be included in these decisions as well (since often we are opposed to mechanization because we think that it leads to the loss of labour). It must be stressed that mechanization means that jobs are shifted, not eliminated. Training labour in the newest methods while also sharing information about production goals will serve to increase trust and increase production. Positive relations between labour and management and the creation of an innovation/technology-driven climate on the shop floor are directly correlated.
• Support performance-driven strategies with the appropriate policies where increases in production, use of creativity and innovation are met with substantial rewards, which can be financial or non-financial.
The basic message is that if labour assists the firm in meeting production goals, the firm will make employees’ working lives easier and more rewarding. Often shop-floor workers believe that any increase in productivity will come at their expense, so management must advertise the rewards and benefits that come with production increases.
• Let us seek to understand the knowledge management process. This approach sees labour as an intellectual component that transforms inputs through a business process to create value-added for the company. With knowledge management, integration becomes the key to increases in production. It builds constant connection and communication between workers and managers for high productivity growth
• Let us change the mindset that large profits must lead to large increases in base wages, and instead seek to establish appropriate increases that allow for greater flexibility (for example, increases based on inflation plus appropriate per cent of productivity growth) which includes a healthy performance bonus.
Let us understand that large increases in base pay will saddle the company with a high fixed-wage bill which will endanger maintaining the labour complement during economic downturns. The human resource is important and must share in the gains in a meaningful way.
Organizations should establish a set of core principles and values that address the management of intellectual capital and the inspiration levels of employees(employee satisfaction) so as to accomplish the company’s purpose and vision if the productivity drive is to make a difference.
• Anthony Sobers is chief economist, The Productivity Council.
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