STEPS IN MEASURING AND INCREASING PRODUCTIVITY
In its simplest terms, productivity is the ratio between the quantity of goods and services produced and the quantity of resources used to produce them. Economists have come up with a number of intricate ways to measure productivity, but any business owner knows that if he or she is producing more of a product with the same number of resources, productivity has gone up. Of course, the opposite is true if fewer products are being produced.
Worker productivity is one of the key issues for any business, but for small businesses with limited resources, getting the most out of the least is an essential element in establishing and maintaining competitiveness. Small businesses need to have tools in place to measure productivity and must combine increased productivity with a commitment to quality and efficiency. Innovative goal setting, planning, and organizing are essential to improving productivity.
Some of the major threats to productivity include an ineffective use of technology and lack of worker training and support, in addition to an aging workforce, a declining labor supply, a lack of qualified workers, and a rising wage and benefit costs.
Measuring and Increasing Productivity
The first step in improving productivity is putting meaningful methodologies of measurement in place to evaluate and monitor the performance of a business operation. To be meaningful, productivity measurements must show a linkage with profitability; after all, it is the bottom line that is the ultimate barometer of a company’s success. Measurements should clearly demonstrate how efficiently (or inefficiently) a company is using its resources to produce quality goods and services.
Another tool to increase productivity is to improve communications between workers and management. This may be easier in a small firm than a large one since the total number of employees is lower. Managers must sell employees on their obligations to make things work better at the company, both in the work environment and the work product. By gathering input from more and more workers, that job can be made easier.
A business owner or CEO can begin gathering input from workers by starting at the top and letting the process filter down. Offsite retreats with top management to discuss the company’s values and goals are a good place to start. From there, those values and goals can be communicated to the whole workforce at the same time it is conveyed to them that their input matters and that direct communication is valued throughout the organization.
If something goes wrong, any employee should feel safe in stepping forward and identifying the problem without fear of reprisals. If one person has a conflict with another employee, they should be encouraged to go directly to the other person instead of ignoring the problem or complaining about it to people who cannot solve it. A high-level manager, or even the CEO or owner, can step in to solve disputes if there is still a conflict after communications have been initiated.
This improved and open communication eases tension in the workplace and fosters a cooperative, growth oriented atmosphere. Employees feel that their problems will be listened to and that their suggestions will be taken seriously, which means that they are more likely to work harder and to think creatively when initiating production improvements.
Improved communication can also lead to another step known to enhance productivity in small businesses enabling workforce. Once communication channels are open, upper management may find that employees are as committed to improving the business as they are. They also realize that frontline employees are quite often the best source of ideas on how to improve productivity and the best source of implementing those ideas.
In small businesses, employees are often forced to perform a greater variety of tasks than employees at larger firms; it is up to small business owners to take advantage of that fact by empowering employees. Empowerment in the small business environment enables employees and management to learn and implement new ways of working, thus improving business operations for increased profits and productivity.
True empowerment also requires employers to provide their workers with the skills and knowledge to perform their jobs, as well as the unquestioned support of management. Upper management must provide ongoing training and skills development, while managers should act as coaches and leaders who make needed resources available. Finally, a mutual trust and caring must develop between associates and managers. Such trust is essential if positive changes are to occur.
Increasing Productivity Through Incentives
Another way to get employees to work harder and improve productivity apart from commitment to quality and efficiency, innovative goal setting, planning, and organizing, is to let them share in any gains that result from the productivity improvements.
Gain sharing, and programs like it, has become successful because they increase employee awareness of the company’s bottom line and their ability to have an impact on the firm’s financial fortunes. From the employer’s standpoint, gain sharing is a “win/win” proposition since employees work harder, feel more committed to the business, and profits (or some other measurable goal) improve.
How does a business institute a gain sharing program?
First, keep things simple. Pick no more than five key business indicators that are important to the business’s success. For example, a sales staff might focus on accounts growth, market penetration, and customer retention. Selecting more than five objectives complicates the issue and makes it harder for employees to understand. Likewise, it is important to select objectives that the employees have direct control over. Meeting goals that require actions outside their sphere of influence demoralizes employees and makes it far less likely that any improvements will be seen. The plan should be written in language that is easy to understand, with the bottom line goal clearly stated.
Once goals are determined, they have to be measured. Choose a realistic means of measuring progress, and, more importantly, choose realistic goals and performance targets that can be reached through productivity improvements. Employees have no problem spotting and ignoring unrealistic goals that they know they have no hopes of attaining. Goals should be both short-term (monthly) and long-range (annual). Also, it is important to note that goals will almost certainly change over time as employees become more efficient and meet the original goals.
Communication is an important part of gain sharing process. Once management starts measuring productivity, it needs to share the data it gathers with employees so they can see the progress (or lack thereof) being made. This step (sharing financial or production data that was once considered confidential) might be new for many companies, but it must occur so that employees can make good decisions and sharpen their problem solving skills.
Communication should continue throughout the life of the program; business consultants counsel clients to use tools such as newsletter or memos to tell employees about success stories throughout the company. This lets employees know that their actions matter and provides other employees with examples of how to make improvements. Very visible means of communication such as large charts tracking progress against the goal are also very effective.
In addition to sharing information, management must enable employees to make decisions and act on them without too many layers of approval. Employees are the best source of ideas for improving productivity, and making them feel that they are in control of the program is a key part of making it work. Employees are sure to rebel against any program that they feel is being forced on them by upper management or by an outside consulting firm. One of the best ways to ensure employee buy in is to form a cross functional group made up of employees throughout the company to help design and administer the plan.
Eventually, each department should come up with its own set of goals, but the initial plan must be a companywide one with a big picture goal. Once that goal is stated, each department can look at its own operations and come up with a set of smaller goals that are all designed to help meet the larger goal. Departments should not set their smaller goals in a vacuum. Quite often, the performance of one department is directly dependent on the performance of another department, so it is important that those two departments work together in establishing goals.
Once all the goals are set, the reward needs to be determined. The biggest caution that experts offer is to make sure the reward is worth the employee’s efforts. If the incentive is too small, the plan might fail because employees simply do not care if they make the improvements needed to get what they view as inconsequential rewards. Experts recommend that employees be able to earn between four and eight percent of their annual salary as a reward for meeting gain sharing goals. Rewards can be paid as an increase in annual salary, or as a onetime bonus.
It should be noted that gain sharing can be an especially successful tool for a business that is about to grow beyond the owner/several employees stage. When the company consists of the owner and just a few employees, the owner can control all operations and can reward employees as he or she sees fit. As the company grows and is slit into departments with managers who report to the owner, control is decentralized. The owner may step away from the day to day managerial responsibilities and therefore lose touch with the workflow. It is at that point that gain sharing can be an important tool to pull employees together and keep them working towards a common goal.
Finally, one note of caution about gain sharing or incentive based pay. Managers must make sure that employees do not become so focused on the targets needed to achieve gain sharing that they neglect other parts of their work or let quality slip. This is the most common criticism of gain sharing, and it is one of the most important reasons that short-term goals must be combined with long-range goals if the plan is to work. That way, workers will be able to see that if they commit too much effort to the short-term goal, the long-term goal may be lost.
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