Productivity Management - Traditional Management Function-wise Explanation
Planning for Productivity
The top management is to set productivity objectives and goals that are in line with and integrated into organisation’s long-term strategic plans. To ensure that these goals are met, key performance indicators and targets need to be identified and developed. The organisation’s productivity performance can be monitored against these targets.
Phase I – Diagnose
For any productivity intervention to be effective, management should have a thorough understanding of the organisation’s current situation. This can be done through a productivity diagnosis.
A productivity diagnosis covers a qualitative assessment of organisation’s performance in relation to the productivity levers and a quantitative assessment of organisation’s performance based on certain key indicators that are linked to the various productivity levers.
These assessments are undertaken specifically to:
Measure the gap between the current situation and the productivity goals set by the organisation in the past.
Identify organisation’s strengths and weaknesses in the area of productivity improvement.
Determine the underlying causes of the gaps (for the weak areas).
Determine areas for improvement.
Qualitative Assessment of Performance
The key levers that affect productivity can be identified.
Technology - Adoption on appropriate technology on a continuing basis
Machinery & Equipment - Selection of appropriate machinery and equipment and their replacement based on engineering economic analysis
Operators - Human effort engineering - Design manual activities incorporating motion studies, principles of motion economy and ergonomics
Reduction of Price and Reduction of External Failure of Products - Stimulate Demand providing market for increased productivity and economies of scale.
Productivity Innovations - Technology, Management - Processes, Policies, Programs, Rules, Human Effort
Productivity Standards Improvement
Productivity Control Effort
Productivity Knowledge Base Improvement
Increasing Skills of Operators and Managers - Productivity Training
Changing Attitudes of Operators and Managers
These levers are areas or actions that an organisation can focus on to improve productivity significantly.
Productivity levers do not operate in silos. Improvements made to one lever require complementary actions on some other levers, for it to be effective. For example, the adoption of new technology inevitably requires the complementary actions of training of employees and redesign of work processes. Similarly, weakness in one lever is likely to have an adverse effect on other levers.
Quantitative Assessment of Performance
There are 10 common indicators used to gauge an organisation’s productivity performance:
Sales per employee
Value added-to-sales ratio
Sales per dollar of capital
Labour cost competitiveness
Labour cost per employee
Profit-to-value added ratio
Along with an analysis of organisation’s overall performance, the performance of the operational units and functions also needs to be measured.
To know how well an organisation is faring in the area productivity, a comparison the organisation’s performance against some standard has to be made. This can be done across time and space, with external entities (e.g. benchmarks and organisations within the same industry) and within the organisation (e.g. between departments for setting departmental goals) . Such comparisons provide valuable information on the organisation’s relative standing vis-à-vis competitors and the best-in-class performers.
Organisations who want to assess themselves against their competitors can use the Inter-firm Comparison (IFC) tool. Some industry organizations conduct IFC studies involve comparing productivity ratios of organisations in the same industry. Their identities are kept confidential and summary results are circulated or sold as reports to the members of the industry organization.
Develop Road Map
After the diagnosis is completed, a productivity road map or action plan has to be developed. The road map indicates specific activities to achieve productivity goals in a coordinated and systematic manner.
A productivity road map addresses the following:
What affects productivity?
Identify the specific actions that need to be taken in relation to the findings from the diagnosis.
Spell out the key performance indicators, targets and deliverables for the actions to be taken.
Who affects productivity?
Identify the units or individuals who will carry out the actions.
Assign responsibilities and accountabilities to the parties identified.
When are the activities to be undertaken?
Set milestones and timelines for the actions to be taken.
The actions should then be taken and monitored according to the road map.
Organizing for Productivity
Establish Productivity Management Function
Establish A Productivity Management Structure
Good management of productivity requires commitment and focus from top management. A dedicated organisational structure must be set up to facilitate the productivity improvement effort. Depending on organisation’s policy decision, needs, size and characteristics, this structure may take the form of:a productivity management unit, headed by a Productivity Manager who reports directly to senior management; or
a cross-functional team comprising productivity coordinators appointed from the various operational units.
In engineering organizations, the best practice is to establish industrial engineering department to take care of productivity management because engineering products and processes have to be improved to improve productivity.
The typical scope of work of a Productivity Manager is given under a separate topic. The scope relevant to a particular organisation can defined depending on the structure and complexity of the productivity management function in an organisation.
Staffing Productivity Department
Productivity department requires productivity coaches and study experts. The norms for productivity department personnel may have to be established. Let us say each engineering and production manager requires one industrial engineer to support him in engineering organizations.
Productivity department may need a laboratory of its own or a work area where they can try out alternative ways of doing work.
Directing Productivity Effort
Garner Participation and Commitment
A harmonious and open corporate culture is essential to continuous productivity improvement. This can be achieved through the following:
Commitment from Top Management
Top management sets the direction of an organisation. For any productivity plan to succeed, senior leadership must be fully committed to the cause. This commitment can be expressed through direct communication with employees on your productivity goals and strategies, as well as allocation of resources for productivity improvement. A senior employee could also be put in charge of the organisation’s productivity efforts.
Communication and Creation of Awareness
Employees must have a clear understanding of productivity concepts, the organisation’s productivity goals and how these goals will benefit them as well as the organisation. They then need to be armed with the right tools to improve their productivity and know how they can play a part in the productivity journey.
It is, therefore, important to set up open communication channels between departments, staff and management to facilitate exchange of ideas and information, create trust and engage employees.
Mobilisation of Employees
Employees should be involved in each stage of the productivity effort — from the setting of targets and development of initiatives, to the measurement and management of productivity performance. Their involvement helps to foster commitment and provides them with a sense of ownership.
Control of Productivity Improvement
Implement Measurement System
Importance of Productivity Measures
Productivity improvement initiatives must be complemented by a sound measurement system, which forms an integral part of an organisation’s management information system.
Productivity measures can be used to:
- Evaluate the effectiveness of action plans
- Monitor performance
- Set targets and formulate strategies
- Account to various stakeholders – customers, investors, employees, suppliers and funding agencies
- Link effort and reward for employees
Since productivity is the relationship between output and the input used to produce that output, there are various ratios you can use to measure the performance of different operational units within your organisation. By adopting an integrated approach to productivity measurement, you can learn how each of your departments affects your organisation’s overall performance.
Key management indicators at the top are broad indicators that provide management with information related to productivity and profitability. They are then broken down into activity indicators and operational indicators.
Activity indicators provide a snapshot of costs, activity levels and resource utilisation rates, which are particularly useful for middle and higher management.
Operational indicators are usually physical ratios that address the operational aspects that need to be monitored and controlled.
You should consider the following points in selecting productivity ratios:
- Ratios should measure something significant.
- Only elements that have an important impact on the business performance should be measured.
- Ratios should be meaningful and action-oriented.
- Ratios used must be relevant to the objectives and operations of your organisation.
- They should explain the pattern of performance and preferably signal a course of action.
- Component parts of the ratios should be reasonably related.
- The numerator and the denominator should correspond with each other. For example, it would not be appropriate to relate sales with the number of employees in the human resources department as they are not directly responsible for sales.
Implement Performance Management System
Productivity measurement tells an organisation how it is performing and why, and what it should do in view of its performance. The next step is to use these measures to manage productivity performance.
Performance management covers two main areas: (a) activities to monitor performance; and (b) activities to reinforce performance and motivate employees.
Activities to Monitor Performance
Productivity Level and Growth
An organisation’s productivity performance can be monitored in terms of the productivity level measured by the various productivity ratios, or the change in productivity level over time. Productivity level represents the efficiency and effectiveness of resource utilization achieved at a given point in time. Comparison of productivity levels must be made between similar entities. For example, the management of a restaurant chain may compare the labor productivity of outlet A against that of outlet B.
The change in productivity level over time is expressed as a percentage. It indicates dynamism and the potential for achieving higher productivity levels. An organisation with a consistently high productivity growth rate may overtake another with a negative growth rate, even if its current productivity level is lower.
Comparison of Performance
Within the organisation, comparisons can be made against its productivity goals and targets to evaluate the effectiveness of the productivity efforts; and against its past performance for trend analysis. Comparisons can also be made across different operational units and different employees for performance appraisals.
Review and Feedback Mechanism
Information on any organisation’s productivity performance is rendered useless if it does not lead to further improvements. It is therefore important to put in place a review and feedback mechanism to gather valuable information for strategic planning and training purposes. The information should be made readily available to all employees to improve the performance of the organisation or the unit that they are in.
Activities to Reinforce Performance and Motivate Employees
To sustain the productivity drive, a clear link between rewards and achievements must be established. The wealth generated by the organisation should be distributed back to those who have contributed to the production process.
Productivity incentive schemes can take different forms:
1. Recognition Schemes
Awards can be given out to individuals or teams to encourage continuous productivity improvements.
2. Productivity Gain-Sharing Schemes
The value added created by the organisation is shared with employees, based on a formula agreed upon by both management and employees.
3. Staff Performance Appraisal Linked to Productivity Improvements
Employees’ contributions to productivity efforts are recognised in their performance appraisals. Good performers should be rewarded with higher bonuses or salary increments.
Scope of Work of a Productivity Manager
The duties of a productivity manager include planning, coordinating, controlling and monitoring of productivity programmes within an organisation. The productivity manager is also responsible for getting cooperation from all management levels to achieve the productivity goals and objectives that have been set.
Attributes of a Productivity Manager
• Well-versed in productivity concepts, frameworks and tools
• Prior knowledge or relevant experience in the organisation’s sector of work
Abilities & skills
• Good people management and negotiation skills
• Strategic view of the organisation’s productivity objectives
Key Responsibilities of a Productivity Manager
• Establish productivity management structure, responsibilities and accountabilities
• Mobilise employees to participate in the productivity drive
• Manage and facilitate actions taken to improve productivity
• Establish productivity measurement system and performance management system Establish structure, responsibilities and accountabilities
• Review current reporting structure and assess if it is suitable for productivity management accountability
• Assess need for a productivity management committee or unit within the organisation
• Establish productivity accountability at different management levels
• Decide process of setting overall productivity goals
• Educate employees on:
i. Meaning and scope of productivity, its benefits and how it can be improved and measured
ii. Role of every employee and how to adopt a positive mindset towards productivity initiatives
• Communicate to employees on:
i. Organisational objectives in productivity
ii. Organisation’s targets and overall direction and strategy to achieve its productivity objectives
• Involve employees at different levels in the productivity drive by:
i. Engaging them throughout the whole productivity journey - planning, development of measures and implementation of initiatives
ii. Showing them the impact of their efforts in improving productivity and the consequent benefits
Manage and facilitate productivity improvements
i. Assess performance in relation to the key productivity levers
ii. Identify areas for improvement and productivity levers to address
• Develop road map
i. Work out action plan to address findings from diagnosis
ii. Set targets and assign responsibilities
iii. Monitor progress of actions taken
Establish productivity measurement system and performance management system
• Identify and implement measures to track productivity performance against targets and benchmarks
• Identify and implement employee incentive schemes to motivate employees
Productivity Improvement - Principles - Sumanth - 1984
David J Sumanth in his book Productivity Engineering and Management, published by McGraw Hill in 1984 listed the following principles in the chapter Productivity Improvement Concepts.
1. Microprocessor Principle
Whenever and wherever possible, design products and processes with microprocessor control.
2. Global-Market Principle
Design and manufacture products for global markets.
3. Learning Curve Principle
Wherever possible, plan productivity levels and product costs on a learning curve.
Productivity improvement strategies that are novel when compared to the competitors must be kept secret.
5. Product-Mix Principle
Develop a product mix that consistently shows the largest gains in total market productivity and market share.
6. Emulation Principle
Take the best of at least three competitors' technologies in product design, development and production
7. Productivity Gain-Sharing Principle
Always, share the gains in productivity improvements with everyone directly or indirectly responsible for it, particularly employees and customers.
8. Leading Competitor Principle
Be the leading competitor for as many products/services as possible.
9. Harmony Principle
Seek harmony in human relations at all levels of management from the topmost executive down to the production/operations level employee.
10. International Outlook Principle
Keep an international perspective in management activities related to planning, research and development, marketing, operations/production,and technology transfer.
11. Cooperative Research Principle
Work closely with universities and generic research establishments to bring in ideas for productivity improvement.
12. Productivity Process Principle
Productivity improvement must be an ongoing, day-to-day process and not a one-time program or project
Updated 21 April 2018, 6 February 2017, 25 November 2016