Rotman Management Magazine - - FROM THE EDITOR -

on what you can do for your em­ploy­ees

come to THE VAST MA­JOR­ITY OF EM­PLOY­EES work to do a good job and do their best to add value in their as­signed roles. When they don’t — as em­i­nent scholar W. Ed­wards Dem­ing re­peat­edly pointed out — it is usu­ally due to a fail­ure of the man­age­ment sys­tem, not the peo­ple. Poorly de­signed pro­cesses and in­ad­e­quate (if not ac­tively harm­ful) man­age­ment sys­tems pre­vent work­ers from cre­at­ing the value that com­pa­nies need and cus­tomers ex­pect.

Nowhere is this truth more ev­i­dent than in the re­mark­able turn­around at NUMMI, the joint ven­ture be­tween Toy­ota and Gen­eral Mo­tors at GM’S Fre­mont plant in 1984. At the time, the Fre­mont work­force was con­sid­ered to be GM’S worst. Work­ers reg­u­larly went on strike; they spent more time fil­ing griev­ances than build­ing cars; they even in­ten­tion­ally sab­o­taged qual­ity. Ab­sen­teeism ran over 20 per cent. Al­co­hol, drugs — and even sex were for sale. Not sur­pris­ingly, the plant pro­duced some of the worst-qual­ity cars in the GM sys­tem — and to be the worst in GM’S sys­tem in the early 1980s meant qual­ity had to be shock­ingly low.

When it started NUMMI, Toy­ota made a sur­pris­ing de­ci­sion to keep 85 per cent of the Fre­mont work­force. With es­sen­tially the same em­ploy­ees, some­thing amaz­ing hap­pened: Ab­sen­teeism fell to two per cent; and in less than a year, qual­ity was the high­est in the en­tire GM sys­tem. If man­agers of­ten com­plain about ‘dead wood’ in their work- force, NUMMI is stun­ning proof that in many cases man­age­ment hires live wood — and kills it.

Con­se­quently, the key ques­tion to ask is not, ‘How can em­ploy­ees add value to a com­pany?’; rather, it’s ‘How can man­age­ment add value for work­ers?’ And lest this ques­tion smack of cor­po­rate pa­ter­nal­ism, the ev­i­dence from NUMMI — and the ex­am­ples to fol­low — is that adding value for work­ers yields fi­nan­cial re­wards for the or­ga­ni­za­tion. Fol­low­ing are three em­ployee value prin­ci­ples to live by.

PRIN­CI­PLE 1: FIRST AND FORE­MOST, SEND PEO­PLE HOME SAFELY. At the most ba­sic, fun­da­men­tal level, a com­pany must add value for em­ploy­ees by keep­ing them safe and healthy. The story of Paul O’neill’s ten­ure at Al­coa is leg­endary by now. In his first pub­lic speech as CEO, he told his au­di­ence that he wanted to talk about safety:

“I want to talk to you about worker safety. Ev­ery year, nu­mer­ous Al­coa work­ers are in­jured so badly that they miss a day of work. I in­tend to make Al­coa the safest com­pany in Amer­ica. I in­tend to go for zero in­juries.”

In­vestors were spooked. Af­ter years of poor per­for­mance and failed prod­uct lines, they ex­pected O’neill to talk about how he in­tended to right the fi­nan­cial ship. They wanted to hear about in­ven­to­ries and sales strate­gies. They didn’t want to hear about safety. One in­vestor re­calls how he called his

20 largest clients and told them to sell their Al­coa stock as soon as pos­si­ble.

O’neill wasn’t just per­form­ing for his in­vestor re­la­tions au­di­ence, how­ever. He told his man­age­ment team and plant man­agers that there was no longer a bud­get for safety: As soon as a haz­ard was iden­ti­fied, he wanted them to fix it im­me­di­ately, and let him fig­ure out how to pay for it later. He even gave union lead­ers his home phone num­ber and asked them to call if man­agers didn’t fix safety is­sues.

Send­ing peo­ple home with­out harm is the great­est form of value a com­pany can pro­vide to an em­ployee. Yet many com­pa­nies (and the fi­nan­cial mar­kets) take this re­spon­si­bil­ity far too lightly. In Al­coa’s case, the pur­suit of zero in­juries not only en­gen­dered fa­nat­i­cal loy­alty and com­mit­ment among work­ers, it led to daily im­prove­ments in core busi­ness pro­cesses that cas­caded through­out the com­pany and yielded im­pres­sive fi­nan­cial re­sults. Dur­ing O’neill’s ten­ure, Al­coa’s in­jury rate dropped from 1.86 lost work days per 100 work­ers to 0.2, even­tu­ally fall­ing to 0.125. One year af­ter his speech, the com­pany’s prof­its hit a record high, and the com­pany’s mar­ket cap­i­tal­iza­tion quin­tu­pled in five years.

The old exPRINCIPLE 2: TEACH PEO­PLE HOW TO SOLVE PROB­LEMS. pres­sion that com­pa­nies of­ten ask em­ploy­ees to ‘check their brains at the door’ may be a bit of an ex­ag­ger­a­tion, but it’s cer­tainly true that most com­pa­nies don’t teach their em­ploy­ees the ba­sics of sci­en­tific think­ing and rig­or­ous, struc­tured prob­lem solv­ing.

In most or­ga­ni­za­tions, prob­lems are dealt with in a never-end­ing se­ries of fire­fights—ex­cept, pos­si­bly, by the com­pany’s engi­neers, who are pro­fes­sion­ally trained in sci­en­tific prob­lem solv­ing. Front-line em­ploy­ees ad­dress symp­toms with work­arounds and band-aids. But when a com­pany in­vests time, money and en­ergy in teach­ing all of its em­ploy­ees how to solve prob­lems, the ben­e­fits to both the in­di­vid­ual and the busi­ness are dra­matic.

Mike Rother’s ‘Toy­ota Kata’ ap­proach has been used by hun­dreds of or­ga­ni­za­tions since 2009, with im­pres­sive re­sults. For ex­am­ple, Bap­tist Me­mo­rial Health Care used this ap­proach to re­duce pa­tient falls with harm by 60 per cent, and cut op­er­at­ing-room turn­around time by twothirds. At Cor­ner­stone Hospi­tal of South­west Louisiana, which re­lies upon re­fer­rals from gen­eral hos­pi­tals for its busi­ness, the mar­ket­ing team in­creased pa­tient vol­ume by 25 per cent by im­ple­ment­ing the Kata ap­proach to im­prove its pipe­line of busi­ness — the num­ber of con­tacts, re­fer­rals and ul­ti­mately, the num­ber of ad­mis­sions.

By learn­ing how to per­form root-cause prob­lem solv­ing through Toy­ota Kata, the em­ploy­ees of Bi­amp Sys­tems, a maker of hard­ware and soft­ware for the pro­fes­sional AV mar­ket, re­duced lead time in one de­part­ment by two-thirds with­out any in­crease in di­rect labour costs. An­other firm — a mid-sized cus­tom busi­ness fur­ni­ture com­pany — re­duced the time re­quired to close its books at month end from 10 days to one, the time to ac­cess in­for­ma­tion on its data­base from 20 min­utes to 20 sec­onds and, on the shop floor, com­pletely elim­i­nated the need for a sec­ond shift.

Whether you use Toy­ota Kata or some other method, teach­ing work­ers how to solve prob­lems means em­pow­er­ing em­ploy­ees to a) iden­tify ar­eas where op­por­tu­ni­ties for im­prove­ment

ex­ist; and b) im­ple­ment those changes.

In­vest­ing in the in­tel­lec­tual de­vel­op­ment of em­ploy­ees yields bet­ter qual­ity, higher en­gage­ment and morale.

This kind of em­pow­er­ment cre­ates a vir­tu­ous cir­cle, lead­ing to in­creased em­ployee con­fi­dence as well as a greater abil­ity to solve the in­creas­ingly com­plex prob­lems that are crit­i­cal to a firm’s per­for­mance.

Pro­vid­ing this kind of train­ing is an in­vest­ment in em­ploy­ees’ in­tel­lec­tual de­vel­op­ment. From a tra­di­tional fi­nance and ac­count­ing per­spec­tive, it might be seen as a waste of money, be­cause it doesn’t nec­es­sar­ily help the com­pany de­liver prod­ucts and ser­vices to cus­tomers to­day; but as these ex­am­ples demon­strate, that is a false choice. In­vest­ing in the in­tel­lec­tual de­vel­op­ment of em­ploy­ees yields bet­ter qual­ity, higher en­gage­ment and morale, and lower costs. As the old man­age­ment joke goes:

Q: What if we train peo­ple and they leave?

A: What if we don’t train them, and they stay?

Al­though PRIN­CI­PLE 3: MAKE YOUR EM­PLOY­EES BET­TER CIT­I­ZENS. com­pa­nies typ­i­cally fo­cus ex­clu­sively on max­i­miz­ing what work­ers con­trib­ute dur­ing their eight hours on the job, there are enor­mous ben­e­fits to be reaped by think­ing of your em­ploy­ees as mem­bers of their com­mu­ni­ties and cit­i­zens of the world.

Fast­cap is a mid-sized com­pany that makes tools for the ama­teur and pro­fes­sional wood­worker. Its prod­ucts are sold in over 40 coun­tries, and the com­pany has grown steadily over the past 20 years. At its daily 15-60 minute staff

meet­ing, em­ploy­ees cover es­sen­tial busi­ness is­sues, re­view core prin­ci­ples of lean and in­spect the pre­vi­ous day’s process im­prove­ments. No sur­prises there. But they also dis­cuss his­tory, cur­rent events, bi­og­ra­phy and the U.S. con­sti­tu­tion. Each day’s meet­ing is led by a dif­fer­ent em­ployee, so that ev­ery­one can grow more com­fort­able with pub­lic speak­ing, pre­sen­ta­tion and teach­ing. Fast­cap Pres­i­dent Paul Ak­ers says that ‘grow­ing peo­ple’ is the most pow­er­ful thing lead­ers can do:

“If we have peo­ple who are en­gaged in world af­fairs and who un­der­stand his­tor­i­cal prin­ci­ples, those peo­ple can make good and sound de­ci­sions on a daily ba­sis. And they make a much greater con­tri­bu­tion to the out­put of the com­pany as a re­sult. So we ‘in­put’ into peo­ple. Some peo­ple ask me, ‘How can you spend that much time and money on these morn­ing meet­ings?’ My re­sponse is, ‘How can I af­ford not to?’”

The re­sults back up Ak­ers’s be­lief: Fast­cap is grow­ing at 12 per cent an­nu­ally — a rate that is even more im­pres­sive when you con­sider that it doesn’t ac­tu­ally have a sales or mar­ket­ing team. The com­pany’s CFO says that its fi­nan­cials would make a For­tune 100 com­pany blush. More­over, the com­pany could be grow­ing even faster, but Ak­ers is un­will­ing to over­bur­den his team with large spikes in new prod­uct de­vel­op­ment and man­u­fac­tur­ing. He wants to avoid em­ployee burnout and en­sure that his peo­ple stay with the com­pany for the long term.

Bob Chap­man, the CEO of Barry-wehmiller, a man­u­fac­turer of in­dus­trial ma­chin­ery, has the same mind­set. An in­dus­trial ma­chin­ery maker is the kind of com­pany where you ex­pect to see old-school, fi­nance-fo­cused think­ing drive or­ga­ni­za­tional de­ci­sions. And yet, noth­ing could be fur­ther from the truth. Chap­man is cer­tainly con­cerned about the bot­tom line, but that’s not what drives his de­ci­sions. Rather, the com­pany’s ‘Liv­ing Le­gacy of Lead­er­ship’, which, among other things, em­pha­sizes re­spect for em­ploy­ees, is cen­tral to his think­ing. He be­lieves that a com­pany is re­spon­si­ble for the lives of its work­ers — not just their pay­cheques. And the way those em­ploy­ees are treated di­rectly ef­fects so­ci­ety at large:

“When some­body comes into our or­ga­ni­za­tion and agrees to join us, when we in­vite them into our or­gani- za­tion, we be­come ste­wards of that life. And the way we treat that per­son will pro­foundly af­fect that per­son’s mar­riage and the way that per­son raises their chil­dren and in­ter­acts with our com­mu­nity.”

Chap­man was once asked what the re­turn on in­vest­ment is of his ap­proach to lead­er­ship. He re­sponded:

“Why would I try to cal­cu­late the re­turn on in­vest­ment of be­ing a good stew­ard of the lives en­trusted to me? I never even ask my ac­coun­tants about this. This is a fun­da­men­tal be­lief.”

His com­mit­ment to adding value to his em­ploy­ees’ lives has cer­tainly added value to his bot­tom line: The com­pany has grown — prof­itably — to more than $2 bil­lion in global sales.

In clos­ing

Man­age­ment’s tra­di­tional view that em­ploy­ees are mere in­puts — a vari­able cost — that go into the de­liv­ery of a prod­uct or ser­vice is short-sighted. This view leads to the one-sided be­lief that the ex­change of value be­tween an or­ga­ni­za­tion and its work­ers flows in only one di­rec­tion: from the em­ploy­ees to the firm. But the ex­am­ples dis­cussed here are proof that the re­la­tion­ship be­tween em­ployer and em­ployee should re­ally be a two-way ex­change of value: The more value an or­ga­ni­za­tion in­vests in its em­ploy­ees, the more value it is able to pro­vide in re­turn.

In­deed, when an or­ga­ni­za­tion in­vests in its em­ploy­ees — when it cre­ates hap­pier, smarter and more com­pe­tent cit­i­zens — the larger com­mu­nity is the real win­ner. Cre­at­ing value for your em­ploy­ees is one of the best pos­si­ble ways to cre­ate value for so­ci­ety.

Dan Markovitz is the founder of Markovitz Con­sult­ing and au­thor of Build­ing the Fit Oga­ni­za­tion (Mcgraw-hill Ed­u­ca­tion, 2015). His clients in­clude Pfizer, Me­mo­rial Sloan Ket­ter­ing Cancer Cen­tre, Mi­crosoft and In­tel.

Gene Sherman, founder of Vo­cademy in River­side, Cal­i­for­nia, makes Prin­ci­ple 3 a re­al­lity.

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