May 9, 2006
Productivity, an economic bellwether, is predicted to slip from its recent highs in the coming months, largely because of job growth. Companies burned by the recent downturn need to continue to focus on achieving maximum productivity. This article addresses the labor component of productivity and how best to motivate employees to work at high levels.
Each month the U.S. Department of Labor's Bureau of Labor Statistics (BLS) reports the productivity and costs numbers. Why? Productivity is an economic barometer.
A measure of economic efficiency, productivity shows how effectively economic inputs—labor, materials, equipment—are converted into output—goods and services. According to a BLS fact sheet, advances in productivity—the ability to produce more with the same or less input—are a significant source of increased potential national income. The U.S. economy has been able to produce more goods and services over time, not by requiring a proportional increase of labor time, but by making production more efficient.
Table A. Productivity and Costs
|Real hourly compensation||Unit labor costs|
|Percent change from preceding quarter|
|Percent change from same quarter a year ago|
As the Newsweek article "End of the Miracle?" published on MSNBC.com stated, "[Productivity] effectively sets the speed limit for inflation-free growth, because the more each worker produces, the faster companies can grow without raising prices." The article reported that coming out of a downturn, such as the U.S. economy has experienced, companies make do for as long as possible with the staff they have on hand. Corporations have exercised unprecedented hiring restraint. The upside of the "jobless recovery" was that by producing more with fewer workers, companies drove up productivity. Inflation stayed low. U.S. growth outpaced Europe and Japan by a huge margin.
Companies now are beginning to hire. According to the Newsweek article, the growth in job openings is outpacing the growth in the number of people with jobs. Most U.S. citizens are applauding job growth and saying "It's about time!" Those who keep a close watch on productivity and its implications for the economy might be less enthusiastic.
Richard Berner, Morgan Stanley chief U.S. economist, has predicted that the U.S. productivity growth rate, which has been above 3 percent since the late 1990s, will slip back to about 2 percent this year and next. This slowdown could signal an end to the high growth/negligible inflation period the U.S. has enjoyed for nearly a decade.
Even though there may be a surge in hiring, employers have learned a hard lesson in recent years: Running a lean ship and squeezing every ounce of productivity out of each employee are critical to success.
An employer can put lean practices and state-of-the art, highly efficient equipment in place to optimize productivity. The one variable that is more difficult to control is the human factor. To achieve optimal productivity, motivating workers to be more productive is as important as knowing which materials, equipment, and processes to use.
A 2005 Microsoft® Corp. global survey found that workers average only three productive days per workweek. Worldwide, people work an average of 45 hours a week and consider about 17 of those hours unproductive. U.S. workers faired slightly better, working an average 45 hours and considering about 16 hours unproductive. What are the biggest time wasters? U.S. workers spend an average 5.5 hours in meetings that 71 percent feel are unproductive. Other productivity deterrents included technology issues, dealing with e-mail, unclear objectives, and lack of team communication.
Technology, including plant equipment, plays a major role in productivity. But even those companies that utilize the best technology and keep all software and hardware in optimum working order still must contend with different employee personalities, work habits, and motivational levels.
In 2000 Eugenio López-Ortega and Rita Saloma-Velazquez of the Institute of Engineering at the National University of Mexico (UNAM), Coyoacan, Mexico, presented their paper, "A worker productivity model" at a System Dynamics Society conference. The objectives were to obtain a model that identified how certain factors relate to yield a productivity level; how a worker's productivity in influenced by different actions, which would help companies improve worker treatment; and to help managers, directors, and supervisors learn how their decisions affect worker productivity.
The authors cited a 1978 James C. Hershauer and William A. Ruch model developed at the Arizona State University. Hershauer and Ruch reported that The Lincoln Electric Co. used the model as a training tool for supervisors at the production lines, and it proved to be valuable in explaining the complexity of the relations that determine a worker's productivity. However, the model never led to a program, nor was it used for simulation. According to López-Ortega and Saloma-Velazquez, Hershauer and Ruch considered it impossible to measure the factors of human behavior and business management in a quantitative manner to feed a simulator.
The López-Ortega and Saloma-Velazquez model takes into account four levels of influence over a worker's productivity:
Personal Factors. Among the personal factors that influence a worker's productivity are responsibility—the worker's commitment to the task at hand; learning capacity—the ability to learn, which is tied to the worker's education level and the willingness to learn; and satisfaction—a complex factor that motivates the worker's display of responsibility and learning capacity.
Work Group Factors. Leadership is important. Appropriate leadership helps create a satisfying work environment conducive to high productivity. Good relationships and organization within the work team provide a balance of effort—no one member shoulders an unfair load—and motivate team members to excel.
Technology Factors. Employees must receive adequate training. They also must work in an appropriate environment in terms of safety, comfort, and physical capabilities.
Organizational Factors. Incentives, both qualitative (nonmonetary, such as rewards and honors) and quantitative (monetary compensation based on performance and productivity), go a long way toward motivating workers to be more productive, and they increase job satisfaction. Measuring productivity and communicating with the employee about his or her performance are critical elements in achieving optimal productivity.
U.K.-based Accel-Team.com offers a productivity model explained in the Web site's section Employee Motivation, the Organizational Environment and Productivity. (The Web site also features a fascinating historical perspective of production management throughout the ages.)
According to Accel-Team.com, worker productivity will improve if employees are properly motivated, coached, receive the right information at the right time, use simple productivity improvement tools and techniques, and are rewarded in the appropriate way.
Both productivity models focus on the same factors: motivation, training, communication, tools, techniques, and rewards. Assuming the employee is a fit for the job, much of the responsibility for worker productivity rests with the employer. Organizations must look closely at the workplace culture for ways to incentivize and help workers, and ultimately the company, achieve optimal productivity.