Major failings of productivity measures

All managers need to know they’re getting the most out of all costly input resources employed:

  • In the private sector, to beat their competition, minimise unit costs and maximise sales and profit margins
  • In the public sector, to optimise the number and quality of services on offer

However, most managers do not measure productivity well – they have plenty of financial productivity measures but little else – the result is most are far from getting the most out of their existing input resources

What’s going wrong – why is a simple productivity ratio of outputs divided by inputs not measured by all?

Survey after survey produce the same results – managers think productivity is too difficult to measure, ‘not a boardroom issue’, not the main determinant of their financial success or relevant only to the shop-floor – ‘it’s someone else’s problem’

At the same time, management organisations like the CBI and leading business schools ignore the subject on their websites – a sure indicator of the importance they attach to the subject

So, given this paucity of measures and support for them, is it any wonder current productivity growth in most organisations and nations is flat-lining

A sudden change in management attitudes is urgently needed

And, if this were to happen, there are six major failings of productivity measures they would need to consider:

  1. A partial, not total, productivity picture painted:
  • Important outputs nowadays are not just sales volumes of cars or insurance policies, say, but also quality and service level outcomes associated with those sales – yet the latter are ignored by most productivity ratios that do exist
  • Important costly inputs include labour, materials and/ or capital (i.e. plant, equipment, offices) but labour volumes are the only ones measured – labour quality (i.e. the variation in skills, experience, education levels, qualifications), which can make a big difference to productivity levels, is also ignored
  • Hence, most productivity ratios quoted offer only a fraction of the ‘big picture’ needed – so many productivity problems and opportunities pass by unseen

2. Lack of useful benchmarks:

  • External best practice information is only sought by better private sector companies – and rarely by any public sector unit, even though the information should be in the public domain and readily available to them
  • Most organisations have no idea what their overall capacity is because of the variety of goods and/ or services they offer – so they don’t know how much more they could be doing with the resources they’ve already got

3. Lack of regular, timely measures:

  • Important performance information is often produced quarterly or later when a manager needs it weekly, say

4. Few links down or up to lower/ higher levels of management:

  • Managers cannot drill down to identify problem causes – nor up and across to check on the impact changes made might have on others
  • Different levels use different measures, so don’t talk the same language, so don’t understand each others’ problems

5. Too short a time horizon is sometimes used:

  • One input may be cheapest at first but most expensive in the long term e.g. the quality of a hip replacement used in an operation
  • Some companies have to invest heavily upfront (e.g. oil wells, coal mines), make big money with stuff that’s easy to extract, then less with the following more difficult stuff until all peters out – in such cases, whole-life productivity measures are needed

6. Too much aggregation destroys the value of performance information:

  • One cannot have a mix of quite different outputs and inputs and compare the two unless all are can be converted into cash
  • This aggregation problem increases the higher one goes in any organisation
  • It’s even worse at national level where productivity measures have been described as ‘pointless and unusable – they spread misinformation, not knowledge’

Conclusions:

  • Overall, productivity must be measured well if it is to be managed well – at present, very few managers do this well – they’re ‘flying blind’ – they’re not in good control
  • At national level, expert economists, politicians and the media forever moan about the lack of productivity improvement and stagnant living standards – but they’re mostly spectators and their views are based on seriously flawed national measures – hence, most can be ignored
  • It’s at organisation level where most (80%?) national productivity improvement potential lies – and it’s the managers of those organisations, public and private, who alone have the power and so potential to make the changes necessary
  • They just need to know where, when and how – then most will surely act

NHS targets have had their day

Lord Prior of Brampton is reported by The Times as saying: “NHS staff suffer from learned helplessness in a dysfunctional system”

So what prompted this mystifying statement?

A&E units are currently reporting their worst numbers of patients waiting longer than four hours, many on trolleys as no beds were available – the NHS Confederation of Managers says the system is “buckling under the strain of rising patient numbers”

Prior claims this is because targets, competition and a reliance on inspectors have led to a ‘disjointed system and demoralised staff’ – breaking up the NHS into autonomous hospitals has made ‘ driving an integrated strategy across the service almost impossible – you could not have designed something that had at its heart more dysfunction’

Chaotic organisation and overuse of targets has led to ‘a disempowered culture, a learned helplessness culture, a top-down looking upwards culture, a very hierarchical culture’ – targets which once worked well when waiting times were unacceptable ‘have had their day’

At present, hospital bosses are under such enormous pressure to hit their targets that there is now ‘widespread gaming of the system’ – frantic efforts are made to get patients out after three hours and 55 minutes waiting, but care stops once the target is missed

Hence, Prior seeks ways to address these cultural issues and bring back the vocation he remembers doctors and nurses once had viz:

  • Junior doctors would say ‘at the end of our day when we’re about to go home, we’d always walk back to A&E to lend a hand if there was a problem – now we go home’
  • When GPs and nurses qualified for their maximum pension, most would stay on for at least another two years – now they simply say: “I’m going”

The issue is how to regain that engaged spirit ‘which would take care of so many of the NHS’s other problems’

But Taj Hassan, president of the Royal College of Emergency Medicine, offers a cautionary note – “If policymakers and governments choose to scrap these targets, they must be held accountable for any impact on patient safety and the added risk of harm or avoidable death”

Conclusions:

Targets still have a role to play in the NHS – the issue is not whether they’re needed (some are, some are not) but how the important few are used

A wholesale NHS management culture change is indeed needed – targets should never be imposed from ‘on-high’ and managers told to ‘get on with it (or else)’ – they need to agree their targets first, taking account of the resources available to them, and then be left alone to figure out how best to meet them – words like challenge, reward, empowerment and accountability should replace the current central control, hit-squads, penalties and micro-meddling that many hospital bosses fear at present

Zipf’s Law

Zipf’s law is a mysterious, empirical law – it’s also linked to Pareto’s rule:

  • It suggests limits on the size of companies and their share of markets
  • According to Annalee Newitz, the editor of i09, in 1949 linguist George Zipf noticed that people used a very small number of words most of the time – we minimise what we need to convey our messages
  • In particular, Zipf found that a pattern emerges – the most popular word is used twice as often as the second most popular, three times as often as the third, and so on
  • A mere 135 words cover 50% of all the words we ever use on a regular basis
  • The most popular three words are:
    • The = 7% of occurrences
    • And = 3.5%
    • Of = 2.3%
  • Zipf’s law must surely offer a clue as to how Alan Turing and his Bletchley Park team were able to break the Enigma code – although I’m guessing here
  • Zipf then found his law also applied elsewhere:
    • To income and wealth distributions in any given country, where the richest have twice as much money as the next, and so on – much as Pareto observed many years before him
    • To the size of cities, where the city with the largest population in any country is generally twice as large as the next biggest, etc. – this only applies where cities are economically integrated, with common language, laws and institutions, as in any nation – it does not apply to any group of nations like the EU
    • To the size of firms in any sector – the biggest firm is twice the size of the next one, three times the size of the next, and so on – hence, it’s inevitable to end up with a group of Big 4, 5 or 6 companies in any sector
  • Other interesting applications include:
    • Books borrowed from libraries
    • Web sites visited
    • Earthquake sizes
  • Quite why the pattern is followed so closely is not understood
  • However, it offers useful predictability for economists and businessmen alike

Wealth gains and distribution

US Fed Chairman Jerome Powell believes our two greatest challenges for the next decade are ‘the widening wealth gap and sluggish productivity’

But Lawrence Fuller, in an article for Seeking Alpha, claims the Fed’s attempts to create a wealth effect by inflating the value of financial assets has mostly benefited the top 10%, and even more so, the top 1% of the population

New found wealth has not trickled down to the middle classes in the form of wage gains – according to data from the Congressional Budget Office, income gains since 1980 are as follows:

  • 242% – Top 1%
  • 79% – Next 19%
  • 78% – Middle 60%
  • 46% – Bottom 20%

Given the above, one might have thought a surge in investment in plant, equipment and employees would follow

Not so

Instead, corporations have returned capital to shareholders via stock buybacks and dividends – some even took advantage of very low interest rates to borrow capital to fund them

This simply filled the pockets of managers and shareholders but did little for productivity improvement and employees’ wages and their quality of living – it also reduced the latter’s demand for more goods and services and so the revenue and earnings of those same corporations

Hence the wealth moat between the very wealthy and the rest has been widening over the last few decades

However, Fuller expects ‘wealth disparity and income inequality to revert to the mean’ over the coming decade:

  • Current trends are not sustainable 
  • Economies should work for everyone
  • Strong headwinds are expected as capital shifts from the ownership to working class

“Our economy cannot be considered healthy when 40% of adults can’t come up with $400 in the case of an emergency”

4 day weeks to boost productivity

new report by Autonomy – a thinktank focusing on the future of work – argues that a shorter working week should be a central pillar of our economic future.

They say calls for a shorter working week have gathered pace in recent years, with the TUC, the Green partylarge and small unions and now the shadow chancellor, John McDonnelljoining the chorus.

Why so?

Because we are working longer days but for stagnant wages and receding state pensions – and some of the most productive economies in the world work far fewer hours collectively than the average UK worker.

They say productivity relies not just on the sheer number of hours put in but on the wellbeing of the workforce – as well as investment in labour-saving technology.

At present, they claim heavy workloads, work-related stress and anxiety are costing millions each year, with one in four sick days being lost as a direct result of workload pressures – shorter working weeks and greater worker control over working time would mean fewer sick absences, fewer in-work accidents and higher motivation on the job – all of which would be good for business too.

Hence the Wellcome Trust has just announced plans to trial a four-day week without a loss in pay this year, possibly making it the largest company to do so anywhere.

In this same vein, at the recent World Economic Forum (WEF) in Davos, Gitura Mwaura says the world was urged to embrace the four-day working week, busting the notion that long working hours lead to more productivity – a shorter working week not only improves productivity by some 20% but has an overall effect on the well-being and work satisfaction of employees

Examples put forward include:

  • South Korea which ranks near the bottom of OECD (Organisation for Economic Co-operation and Development) countries for labour productivity despite having a culture of working very long hours
  • Greece which has one of the longest working weeks but comes out bottom in the OECD’s measure of GDP per hour worked
  • And Japan which also has a culture of long working hours but emerges bottom of any G7 productivity list – hence, they are now deliberately cutting down on working hours, including overtime, to alter this position

However, other studies show there to be no correlation between long working hours and productivity — Germany is said to be more productive but works fewer hours on average than the UK

And in Sweden the WEF observes that “although employees report an improved quality of life, with less stress and more time to spend with their families, it can also be an expensive experiment for some businesses which have to hire extra workers to make up for the shortfall in hours”

Aidan Harper, the Autonomy report’s editor, concludes:

  • The past century has shown us that automation technologies have more often than not been introduced by employers as a way of simply maximising productivity without sharing the surplus time and/ or the profits with employees
  • The proceeds of automation should be shared evenly — in the form of a working time reduction
  • Machines should liberate us from work, not subject us to ever-increasing inequality
  • But few suggest workers should enjoy any of the benefits

This mindset clearly cannot continue

Companies would do well to consider a report by Minda Zetlin, co-author of The Geek, in an article for Inc. magazine on a company moving to a much shorter working week

Could you run your company just as well if employees worked a five-hour workday instead of an eightt-hour one?

If Australian financial services company Collins SBA is anything to go by, you probably could. And you’d benefit from better work-life balance, higher employee morale, and improved recruiting and retention. Your staff would take fewer sick days, and productivity would likely rise.

It may all sound too good to be true, but Collins SBA has been offering its 35 employees the opportunity to quit work between 1 and 2 p.m. for two years now, and it’s been a resounding success, managing director Jonathan Elliot told TNW. The shortened workday came about because the company, like all companies, was struggling to recruit the talent it needed in a very tight labor market. At the same time, Collins’s wife became ill with cancer. She needed surgery and chemotherapy and went through a long recovery process. The couple also had a 6-month-old daughter, which meant that Elliot needed to spend much more time at home taking care of them both than he ever had before.

He learned to be incredibly efficient. He stopped spending time chit-chatting with colleagues at work. He cut out unnecessary meetings. “I just focused on work and got home in time to look after my family,” he said. 

When his wife got better, Elliot was free to go back to working longer hours. That’s when it struck him that he didn’t really need to. By working shorter hours more efficiently and cutting out meetings and lunches, he’d been able to get the same amount of work done that he’d previously been doing during a full workday. And so, partly inspired by Tower Paddle Boards, which cut its workday to five hours without sacrificing any productivity, Elliot pitched his colleagues and shareholders on trying out the new schedule throughout the company. They agreed.

Elliot didn’t simply declare that everyone could now work five-hour days. The new workday came with a few new rules. First, employees must arrive between 8 and 9 a.m. if they want to leave between 1 and 2. Second, their work responsibilities remain the same, and they must get their work done, even if it takes more than five hours. Third, unless specifically approved, they can’t have any personal appointments during their workday. And finally–of course–they shouldn’t go out for coffee or lunch. Instead, Collins SBA provides coffee and healthy snacks in the office. The company also now holds no one-hour meetings unless there’s absolutely no choice. And all employees have gotten training to help them manage their email more efficiently.

Can Collins SBA employees really get done in five hours everything that they were previously doing in eight? Well, no. Most employees have some workdays that last five hours and others that last six or seven, Elliot told TNW. But they don’t often work 40-hour weeks, or even 38 hours as specified in their contracts. In the end, what Collins SBA offers employees is really a flexible work schedule and the opportunity to leave work after five hours if they’ve finished their tasks for the day. In essence, it’s a powerful motivator to be more efficient, and to home in on the 20 percent of effort that yields 80 percent of results, as the Pareto Principle says. There has also been a 12 percent reduction in sick leave.

Not everyone loves the new schedule. Some employees left because of it. Elliot says the idea has proven surprisingly polarizing. And while most clients have supported the idea, a few have blamed the shorter workday when they were unhappy over other issues. However, this didn’t happen until the change had been widely reported in the press–before that, clients hadn’t noticed it. That in itself proves the new workday is a success, Elliot said. “If we can implement this covertly, we are doing it right.”

As you might expect, those same press accounts caught the attention of prospective employees. Elliot says the company’s candidate pool is bigger than it was, and some candidates are contacting the company to inquire about working there even when they weren’t responding to a specific ad for a job.

It’s also helping the company screen out some candidates who would likely make unproductive employees. “If a job candidate brings up our five-hour workday very early on, that’s a red flag,” Elliot says.