Increase productivity to increase profit

Increase productivity to increase profit Increase productivity to increase profit

In companies aiming to last, people should count. Productivity can be improved by paying greater attention to worker’s job security, goals and need for involvement. Involvement means asking employees. Listening to them, recognising their contributions – perhaps with money – sharing information, letting them know about the future, letting them own a share in the business.

Efficiency measures if you are doing things right. Effectiveness concerns itself with whether you are doing the right thing

says C. Jackson Grayson, chairman of The American Productivity Center, Houston.

He contends that both must be measured if a worthwhile productivity picture is to be obtained. And he suggests that America’s lagging productivity growth is in part a consequence of reduced effectiveness.

Should we measure hospital productivity solely by such factors as the number of patients treated? Or is a more productive facility one that teaches people how to remain healthy, and thus treats fewer patients?

In the digital age shouldn’t productivity be measured not just on the lines of data produced but by whether that data is read and used or just left to gather dust?

He draws still another example from the manufacturing sector. American automakers, he observes, ran their assembly lines as efficiently as they could. But, he contends. “they didn’t produce the right cars. The Japanese did. The Japanese were both efficient and effective.”

Productivity, says Grayson, is made up of many things, and “to work on one aspect could be a mistake. There is no one answer. And we should not expect improvements to come quickly and easily.” But he does have many suggestions about the areas he considers as poorly understood.

In companies aiming to last, people should count. Productivity can be improved, he feels, by paying greater attention to worker’s job security, goals and need for involvement.

“Involvement means asking employees. Listening to them, recognising their contributions – perhaps with money – sharing information, letting them know about the future, letting them own a share in the business.”

Grayson, former dean of business schools at Tulane and Southern Methodist universities, left his post as President Nixon’s price commissioner convinced that inflation had roots beyond his reach, that it was based on a productivity slowdown. He wondered, how could we control the prices when production cost is increasing?

He was appalled to find that productivity data was unreliable. The government’s measure included labour’s contributions, in the form of output per person hour, but failed (and still does) to measure the impact of capital invested.

Raising $10 million in five years, he founded the business-supported centre to educate the public, produce more reliable measurements of output, and teach management and labour how to implement techniques known to increase efficiency and effectiveness.

He feels the first stage has succeeded. “Awareness is going up,” he said. But action, he laments, is lagging. Companies, he asserts, must recognise that productivity “is equally as important as profit”, which is to say that short-term profits can be squeezed from a company while weakening it in the long run by not budgeting for productivity improvements. In that sense, the bottom line can be: it can show profits today at the expense of tomorrow. The company could even die.

Few companies so far consider productivity improvements equal to immediate profits, but the centre’s managers, behavioural scientists, engineers and the like are working on them in factories and offices.

Grayson offers this example in the study of a plant for several months. Areas covered were employee involvement, communications, measurement, team building. “After several months the plant was setting production records, and grievances were nil. Six months after our efforts the plant is achieving a 35 percent rate of increase against a target of 17 percent. The company was contemplating closing the plant at one time.”

It’s that kind of result that Grayson’s relies on to sell the story of productivity improvement. When productivity Improvements show up in the bottom line, it’s a lesson that no business person can ignore.