Consulting on productivity and performance improvement

Development objectives provide information for designing organizational development (OD) programmes, while training objectives serve as a basis for training programmes. After both programmes have been implemented, the results are assessed and compared with the objective and/or company needs. The cycle can be repeated if necessary.

Such integration of business objectives with training and development helps to improve organizational performance by making people aware of the need to change and assisting them in solving strategic and operational problems.

An important condition for a successful productivity drive is a system for recognition and sharing of productivity gains. Gain-sharing, profit-sharing and payment by results or performance are generally positively related to corporate productivity provided the system is comprehensive, based at the appropriate level and developed with the involvement of the workforce. It is important that connections between bonuses and improvements in productivity are clearly understood by the personnel.

Partnership between employers and workers’ organizations, and trust and confidence between management and employees, are also important enabling factors of productivity improvement. Measures to promote such trust include secure employment, information-sharing, productivity gain-sharing, participative management, training, and fairness in relationships.

20.2 Productivity and performance measurement

Productivity measurement and analysis form the foundation of sound productivity improvement consulting. The success of productivity measurement and analysis depends largely on a clear understanding by all stakeholders of the relationship between productivity and the effectiveness and efficiency of the organization. Productivity measurement can stimulate operational improvement: the announcement, installation and operation of a measurement system can improve labour productivity, sometimes by 5 to 10 per cent, with no other organizational change or investment. Productivity indices also help to establish realistic targets and checkpoints for diagnostic activities during an organizational development process, pointing to bottlenecks and barriers to performance. They can also indicate where to look for opportunities to improve and show how well improvements are progressing. There can be no real improvement in industrial relations or proper links between productivity and compensation policies without a sound measurement system.

Shifts in productivity measurement approaches

The traditional approach is to measure productivity as the ratio of output to input, or products to resources used. This is not always relevant. Many companies today are more interested in measuring total productivity than only labour or capital productivity. Total productivity measures reflect the

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relationship between the total value added and the total input of an enterprise, as well as the quality of their interrelationships. In addition, there are other performance indicators, such as profitability, return on investment, quality, customer needs satisfaction, social climate, and environmental impact, that need to be assessed.

A survey of the most admired companies by Fortune in October 2000 stressed that they all focus on performance measurement.3 Though 80 per cent of them used profits as a measure of success, the best companies were much more likely to use return-based methods of measurement, such as assets, equity, capital, and shareholder value. When it came to charting their performance, these companies were more likely to focus on customerand employee-based measurements. Almost 60 per cent relied on customer indicators like satisfaction, loyalty, and market share. And 40 per cent charted employee retention, career development, and other employee-oriented measurements – almost three times the percentage among companies that did not make the list.

Many executives from the best companies report that these measures encourage cooperation and collaboration, and help companies to focus on growth, operational excellence, customer loyalty, human capital development, and other critical issues. They use these measurements to link performance with real rewards. The top organizations create performance measures that focus on all drivers of their businesses – financial performance, shareholder value, and employee and customer satisfaction. Productivity is just one of the most important sources of profit (see figure 20.3).

The recognition of customer focus as an important part of any competitiveness strategy has led many consultants to look for measures that are closely linked to both customer satisfaction and value creation. Indeed, the purpose of any business is to create and provide products and services that are of value to customers. In the long run, a business organization can produce shareholder value only if it first produces competitive customer value added (CVA). CVA can be expressed as the relationship between the degree of customer satisfaction with the product or services and the satisfaction with the price paid. An organization can also be said to create CVA when it provides products and services for customers that are of greater value (or worth) than those of competitors. CVA can be measured through market surveys of customer satisfaction and calculated as the ratio of the company performance relative to its competitors as follows:

CVA = Perceived value of the company offers / Perceived value of competitive offers

If the CVA ratio is below one, then the company has no competitive advantage in its offers. The higher above one the CVA ratio, the greater the competitive advantage of the company offers.

Improvement in productivity is the result of the combined efforts of many stakeholders with different objectives and perceptions about organizational effectiveness. No part of an organization is so simple that it can be measured adequately by one indicator, and a “family of measures” should therefore be used. By drawing together a set of measurements from the perspectives of its

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