[Note: this article was amended on 29/09/2015 to correct typing errors].
Professional journals and newspapers have been lamenting that rising wage costs are not matched by increases in productivity. Some writers have referred to this dilemma as the Productivity Enigma. Have we taken our eye of the ball? Productivity is a key concern of many senior managers as they seek to measure employment costs compared to outputs/outcomes. Yet productivity seems to have fallen out of favour. Many HR textbooks have no or scant reference to productivity. Instead they focus on performance management. The preoccupation with the latter led many managers to push productivity measures aside as they spent more time on performance management.
A relatively simple productivity measure of units of inputs compared to outputs provides a good view of what is going on in an organisation. As organisations have different purposes and markets, senior managers have to determine what productivity means for their organisation and how it should be measured.
Below are some points for senior managers to think about in their own context.
Reaction to a Single Productivity Measure
The reaction against productivity as the main indicator started many years ago as attention shifted to quality assurance, service delivery etc. The idea of a single performance measure was felt to be inappropriate as staff needed to have their attention focused on the key factors that led to increased organisational performance. The demise of productivity started when complicated measures were devised to capture wider aspects of organisation performance. Managers tinkered with productivity bonus schemes which resulted in them becoming too complicated and failing to motivate employees to work in more effective ways. Hence, productivity fell into disfavour and performance management became the focus.
Managers failed to assert that productivity was still a valid key measure and that, in addition, ways should be found to achieve and measure other key aspects of operational performance.
Are Service Organisations Suited to Productivity Measures?
It is more difficult in some service organisations to develop a productivity measure but that should not prevent managers developing cruder measures of inputs to outputs. Ask staff about ways to improve productivity and many examples will emerge as employees are not adverse to productivity but the way it is implemented can alienate both staff and managers.
Productivity is the Result of Effective Processes and Aware Employees
As noted above, employees are a valuable source for ideas on what can be improved. This was a driving force behind schemes such as productivity gainsharing. Such schemes gave a very good idea of productivity by focusing on the hours used to produce x output. Service quality was included by factoring in hours needed for correcting quality or other shortcomings in the organisation. It was relatively easy to apply to most contexts.
The added value of such schemes was the encouragement of staff to earn more by seeing a connection between what hours are used and the outcomes and improvements to the processes over which they had ownership. Explaining the links in increasing productivity between teams usually pays dividends as employees would participate as they see realistic opportunities to enhance their pay and performance.
Aware Employees Improve Productivity and Organisational Performance
A key to productivity is relatively simple – but hard work – as it requires managers to ensure employees understand why getting manufacturing or service operations right first time and seeking improvements is critical for the organisation and their future employment/rewards. Most employees and trade union representatives understand that organisations need to make profits and/or achieve service budget targets in order to survive and flourish. Some managers seem wary of discussing such subjects as being over the heads of staff or upsetting them but most staff in my experience are quite capable of contributing to such discussions.
The awareness of employees should not be confined to their own section. They need to understand how their performance and work quality affects the work of their colleagues in other sections. This was a key point of process improvement and quality assurance where products or services were provided via different teams.
Productivity bonus schemes often led to opportunities for employees to demonstrate their creativity as they sought to maximise their earnings without causing managers to reset standards/measures. However, instead of welcoming the use of initiative and creativity, managers would stifle it. Processes would be highly prescribed, which is reasonable where there are critical tolerances in service/manufacturing processes. However, over prescription occurs generally and neuters the use of initiative and consequently satisfaction and pride in the outcomes of work activities. Employees play the ‘who’s managing’ game by withholding their discretionary effort and so increases in productivity and ideas for improvement are often lost.
We do not seem to have absorbed the wisdom that emerged from many studies of what motivates employees and secures higher performance/productivity.
Skill Scarcity
Some commentators suggest that the productivity enigma has arisen because we have neglected developing the skills and adaptability of the workforce to deal with the issues that arise in the workplaces of today. Another factor is that we have lost our way on apprenticeships and other skill development programmes. Modern learning methods enable young people (and mature people) to learn easier but we seem to cheapen such programmes by dispensing apprenticeships like confetti. Although we have shortened apprenticeship periods, compared to the old style 4 or 5 year schemes, but we have failed to ensure that really useful skills and experience have been gained.
Performance Management and Productivity
Performance management was a response to the complexity of managing organisations. Initially it was a combination of many effective practices at raising productivity, service quality etc. and complemented productivity measures. However, it was often seen as the preserve of hr management and so schemes and initiatives appeared that have gradually diluted our focus on key measures of organisational health such as productivity. In the end performance management became a victim of performance appraisal schemes which in theory seemed a good idea but in practice became a paper millstone around the necks of managers and often a source of dissatisfaction amongst employees and managers. More organisations are now trying to extricate themselves from the effects of such schemes.
Productivity is a useful indicator and we should not be afraid to use such terms and measures provided we realise that multiple measures are needed in most organisations.
What is your view on the alleged productivity enigma in the UK? Add a comment to this article if you wish. Comments may be edited or deleted to discourage offensive or disrespectful words or phrases.
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