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close this bookProductivity Management - A Practical Handbook (ILO, 1987, 312 p.)
close this folderPart II - Improving productivity
close this folderChapter 4 - Managing organisation effectiveness
close this folder4.1 General considerations
View the document(introduction...)
View the documentProductivity improvement strategy
View the documentThe basic structure of productivity improvement
View the documentMajor management responsibilities


Productivity improvement in an enterprise is a function and a result of management efficiency, synonymous with good management. It is a prime management objective and responsibility to increase productivity and maintain its growth. In fact, creating the conditions for higher performance is the essence of productivity management.

At the same time, productivity improvement is a process of change. To improve productivity it is therefore necessary to manage change; this means motivating, inducing and generating change. It is important to plan and co-ordinate the scale and speed of change in all major organisational elements, including people and manpower structure, attitudes and values, skills and education, technology and equipment, products and markets. These changes develop positive attitudes and an organisational culture which will be favourable towards productivity improvement as well as technological change.

There are situations where change has to be brought about in spite of resistance or reluctance. Programme managers should not hesitate to order change in such cases, using their executive authority. Such use of authority as a calculated risk is desirable even in the most democratic management styles and organisational cultures; the manager must of course be ready to face the consequences. We are far from recommending either a democratic or an autocratic style, because neither exists in its pure form. In reality, different management styles simply represent points on a continuum. Any particular style depends upon many specific circumstances, such as the character of the technology, the skill level of the workers, management education and training, economy of scale, the type of industry and the structure of the society.

A method of organising production which completely rejected human values in favour of organisational ones would not be effective: neither would the reverse. It is unrealistic to expect organisational objectives to be perfectly compatible with human values. A certain level of contradiction is normal and it is the task of management to strike the best balance between them in particular circumstances, for a specific task, and to change the balance as the need arises.

A systems approach to productivity management is based on two fundamental concepts: focus on output (the results of the system); and the integration of all the subsystems of the organisation into a whole. Introducing these two concepts into management practice helps to replace managers' orientation towards input or towards process by orientation towards results. Managers oriented towards input or process think mostly about documents, data, rules and instructions, but results-oriented managers are more concerned with adding new value to resources and achieving better final results. They are more flexible and are more ready for organisational changes which improve output. The ways in which they communicate with people and reward them are based on results and not procedures or directives. They encourage innovation and initiative in their subordinates.

Results-orientation is more appropriate for creating and running a productivity management system.

In a productivity improvement process there is a significant need to gain full human commitment to the changes. That is why managers of good productivity programmes use two main inter-related and mutually supportive groups of activities: motivational and technical.

Motivational activities create and sustain people's desire to improve; they educate and encourage people to find and use better ways of producing goods and services. Technical activities provide the analytical, behavioural, organisational and technical tools that people need when they are searching for and implementing solutions. A good productivity programme manager keeps these two groups of activities balanced and in constant use.

However, managers are often preoccupied with designing new products, buying new technology, running expensive marketing campaigns, etc. Most managers do not work at improving the performance of the human resource. There seems to be a fundamental preoccupation with the technical fix as the solution to all ills without the realisation that it is the way the technical fix is applied which determines the success or failure of a particular action.

Though everyone recognises that there are real gains to be made from more effective management of human resources, few organisations actually concentrate on this. Indeed, it is much more difficult to deal with people than with a simple process such as buying a new piece of plant. Improving human resources requires an ongoing commitment.

The most important strategy for productivity improvement is based on the fact that human productivity, both positive and negative, is determined by the attitudes of all those who work in the enterprise. Thus, to improve labour performance it is necessary to change attitudes. That is the theory - but the practice is much more difficult. The human resource, unlike other resources, has a will of its own; a will based on individual and cultural values, historical prejudice and perception of roles. In fact, a whole set of behavioural norms determines the individual's response.

In a management-subordinate relationship this is not so much based on what the manager actually does but on the subordinate's perception - what he thinks the manager is doing, which is conditioned by his experience. Managers themselves have natural in-built barriers to the major steps involved in setting up the performance improvement process. The necessary measurement and control are in direct conflict with the traditional needs, styles and attitudes of people in organisations. These barriers need to be overcome before the process of change can even begin.

All these considerations, especially technical fix and human behaviour and attitudes, call for a sound long-term productivity improvement strategy.

Productivity improvement strategy

A sound productivity improvement strategy calls for a systems approach to productivity improvement which recognises the inter-relationships between the elements of the system and their environment. It defines the performance of the system and maintains equilibrium while effecting change.

Guide-lines for a good strategic approach were given by Stephen Moss as follows:1

Translate competitive requirements into specific goals for operations in the light of the present and potential operating strengths and weaknesses of the company and its competitors.

Review and rethink the entire operating system from product design through service after sale. Consider the full range of inputs, and do not be constrained by conventional wisdom, always keep in mind the interdependencies within the system.

Assume ongoing change is both inevitable and desirable. New technologies become available, market requirements and resources change, and competitors act and react. Therefore, the system must be innovative and flexible so it can improve and adapt continually.

Thus, productivity strategy is the pattern of decisions in the enterprise that determine its objectives, procedures and principal policies and plans for achieving long-term productivity improvement goals. A good productivity improvement strategy should, as a minimum:

- develop a clear and easily communicated definition of the productivity improvement concept;
- explain why organisational improvement is important;
- evaluate current operating status and the reasons for the current status;
- develop models of excellence;
- develop improvement policies and plans.

Organisations with clear productivity concepts should identify clear goals and objectives.

The objective of productivity improvement should always be expressed in terms of organisational “improvement” in recognition of the past and current success of the divisions and subsidiaries within an organisation. Some of the objectives could be broad; for example, to improve the organisation's productivity by 8 per cent in two years, with detailed objectives for individual units in the organisation.

The overall goals and objectives should be supplemented by detailed action plans on how to improve productivity. In this connection it is useful to set the objectives for identifiable smaller groups so that performance can be assessed.

A productivity improvement plan is most effective if it is integrated into the organisation's strategy planning. It should assign priorities and must be written in order to ensure that it is on the record for follow up.

Below are some examples of questions which can indicate the state of this planning and which draw attention to potential areas of productivity improvement:

· Does the enterprise have written productivity objectives, goals and a productivity plan which covers the whole organisation?

· Are the objectives set for small, identifiable groups so that their performance can be assessed?

· Does the plan include the methods by which productivity improvement objectives can be reached?

· Are target dates set for the achievement of objectives?

· Are the objectives and actions set against labour costs and other costs?

Normally, productivity improvement plans should involve such management responsibilities as:

- promoting creativity and innovation, creating an environment which encourages new ideas;

- introducing a suggestion scheme and inviting suggestions on specific problems;

- setting up a permanent or temporary task force or study groups where necessary for multi-disciplinary study of problems;

- identifying research and development activities.

Another key aspect of productivity improvement plans covering an entire company is their integration into the long-term strategy and planning of the organisation as a whole. Managers should fully understand that concentrated efforts to improve productivity may lead to a chain of reactions among many of the operating and output variables. For example, if management intensifies efforts to control rising costs in one specific area of operations, it may hurt other cost areas badly.

Further, labour-saving innovations do result in cost reduction, but this may be offset by rising labour costs in the form of rewards for productivity gains. Another example of a chain reaction concerns reductions in costs. The dissemination of innovations bringing about savings in materials causes demand to fall, and falling demand results in falling prices.

To summarise briefly, a productivity improvement strategy should include:

- setting objectives, planning, co-ordinating and using industrial engineering techniques;
- getting staff involvement and commitment to productivity improvement;
- developing new skills among the staff and providing opportunities to use the skills;
- providing proper leadership and rewards;
- starting long-term productivity improvement programmes.

Obviously, it is necessary to make sure that the financial and social benefits of the productivity improvement strategy selected are greater than the implementation costs, in the long term.

The basic structure of productivity improvement

Alan Lawlor suggests four general stages of any productivity improvement process.2

(a) Recognition:

We have to recognise the need for change and improvement.

(b) Decision:

After convincing ourselves that we should improve, a decision must be made to act.

(c) Permission:

There must be opportunities to implement decisions.

(d) Action:

Actually implementing plans for productivity improvement, which should be the ultimate objective.

These general stages can be broken down and rewritten into the practical steps normally used in a successful productivity improvement process. They are:

Step 1: Identify and put into order of priority the objectives of the enterprise.

Agree on three or more most important goals to be achieved through productivity efforts.
Decide on priorities.

Step 2: Identify criteria for output within organisational limitations.

Quantify each of the goals.
Study all limitations with regard to capital, personnel, technology, or market, etc.

Step 3: Prepare an action plan.

Work out details of action items.
Design organisational changes.
Make assignments to individuals.
Finalise detailed activity lists showing implementation procedures.

Step 4: Eliminate known barriers to productivity.

Correct visible defects in the operations such as:

- capacity bottle-necks;

- wasteful repetitive work-elements and cost expenditure.

Step 5: Develop productivity measurement methods and systems.

Choose productivity measures for the set of goals.
Use them to calculate the base-period productivity indices.
Use them for comparisons in the future.

Step 6: Execute action plan.

Introduce changes which promise a substantial increase in productivity in the existing projects.
Focus attention on priority action items with quick potential results.
Concentrate on short, visible, urgent, and easily achieveable activities and goals (the level of effort should be in proportion to anticipated returns).
Start step-by-step periodic measurement and reporting.

Step 7: Motivate workers and managers to achieve higher productivity.

Train workers in identifying constraints and in problem-solving.
Reduce fear of change through planning, advance training and education.
Give appropriate recognition to workers and supervisors for the best group results.
Keep full workload for workers during the day.
Encourage workers' participation in the productivity drive (productivity and quality circles, consultative committees, etc.).

Step 8: Maintain the momentum of productivity efforts.

Never allow relaxation after completing a project.
Be ready to start new productivity projects one after the other.

Step 9: Keep monitoring the organisational climate.

Provide for mutual trust between workers and their supervisors.
Maintain high quality of measurement procedures.
Generate regular reports on costs and quality of production.
Provide continued interest and support to operating managers and staff specialists in productivity efforts.
Never attempt to accomplish several major productivity projects simultaneously.
Do not ignore the perpetual need for training of workers and supervisors.

These steps are to be considered only as a kind of check-list, which could and should be expanded or reduced depending upon specific tasks and circumstances.

All productivity programmes operate in organisations, and to run them a productivity programme manager must be able to suggest processes that managers and workers can use to identify problems, to work out and implement solutions. The in-enterprise productivity processes include suggestion systems, quality circles, task forces, action teams, productivity committees and steering committees. These should all be fully understood and used by the productivity programme manager.

Major management responsibilities

The main management responsibilities in a productivity drive are to identify the objectives, to set up a productivity improvement programme and to establish a productivity measurement system.

(a) Identifying the objectives

To start any productivity improvement programme, management has to identify the area where improvement is necessary and achieveable, and also identify the specific elements of productivity that are critical to the enterprise's operation - quantity, quality, customer satisfaction, or other elements.

(b) Setting up a productivity improvement programme

The structure of the organisation must be carefully examined in order to identify the changes to be aimed at by the productivity improvement programme. In spite of the differences in enterprise goals and approaches, a general check-list for establishing a productivity improvement programme can be suggested:

1. Top management has a key role in determining the need for a programme and initiating it, in the development and adoption of a productivity improvement policy.

2. A team which includes all parties concerned has to be formed. Outside consultants may be called in.

3. Depending on the size of the enterprise, a small unit can be established to carry on a productivity programme. A special co-ordinator can be named from functional or top management staff.

4. Educating management and supervisors in productivity improvement is crucial. The key people involved in implementing the programme will need training sessions covering the concept of productivity, how to measure it, and the tools and techniques for improving it.

5. Personnel at all levels should be involved through group meetings and informal discussions at the plant, departmental or office level. Joint labour-management committees can be established. Continuous communication through existing information channels is essential.

6. The programme should provide for periodic review and evaluation of results. This requires the establishment of measures and goals for each organisational unit. Immediate visible goals can be set, such as improving quality, reducing scrap, saving energy, increasing output, increasing safety, reducing tardiness, turnover and absenteeism, and giving rewards. Periodic reports must be provided to identify units with below-standard performance so as to serve as a basis for rewarding improved achievement.

7. It is vital to raise the awareness level within the organisation of all the factors that will influence productivity and of the system for improving it.

(c) Establishing a productivity measurement system

One of the important steps in productivity improvement is establishing a productivity measurement system within the enterprise. This in itself brings some improvement in performance by making people more aware of the meaning of productivity. The following advice could be useful in setting up the measurement system:

· Determine the elements of the enterprise that most need to be monitored.

· Determine the types of measure to be used.

· Select preferred concepts and units of measurement for the output and input of the company as a whole, and for the critical sub-activities.

· Ascertain the availability of data and make necessary compromises.

· Select a pilot activity, section or group within the organisation, and test the measurement system to obtain periodic feedback on the results.

· Assess the system's value, make any modifications and conduct a new pilot activity if the modifications completely change the original system design.

A measurement system must consider cost effectiveness, the limitations of productivity measurement and whether total factor measurement is necessary; in other words, it must determine the range and terms of the measurement system tasks. It must be easy to use and serve to identify the reasons for the organisational changes.

These general considerations on productivity management help us to identify the so-called organisational meta-structure of a productivity improvement process. Every given method of productivity improvement covers:

- organisational forms of productivity improvement;
- productivity improvement areas;
- productivity improvement techniques.

The rest of this chapter is devoted to a consideration of the forms, areas and techniques of these three most important structural elements of the productivity improvement process.