Australia’s productivity will be the political issue to dominate 2012 in the lead up to next year’s election. Tony Abbott has flagged changes to the federal government's workplace laws if he were elected prime minister – without actually spelling out what he would change – and said that the Fair Work Act has caused productivity problems. Business leaders and the Council of Australian Governments want an overhaul of the national reform agenda to lift productivity.
But then, productivity is not about politics or industrial relations. As I pointed out in a piece last year (Productivity puzzle - it's the management stupid!, September 15, 2011), productivity is the responsibility of managers, not workers or politicians. Overhauling industrial relations might improve financial productivity but not labour productivity for each hour worked. Improving efficiency – producing more widgets, generating more customers and better service – is the productivity challenge for managers. Companies need to invest in changing the way they do things. It requires a discipline that sorts out the good managers from the careerists. Top managers have a relentless focus and employ techniques they normally wouldn’t use.
Some have turned to lean management tools, the kind used by companies like Toyota, Motorola and IBM. These tools include concepts like Six Sigma which uses data to eliminate defects. Others have turned to error and mistake proofing or lean visioning, where managers decide on goals and build a road map.
Management tools allow processes to be mapped and measured at every stage to see if they add value. Using these tools, everyone from foremen down can workshop ideas on ways to operate machinery or work more efficiently.
The lean approach to operations was a top priority for Boral chief Mark Selway when he introduced a new production system in 2010, consolidating divisions, eliminating silos to create a one-company approach, running scores on how different units perform, ranking divisions against each other and having higher performing divisions passing on their experiences so that others would lift their game.
Lombard Paper, the outfit that supplies paper cups, catering products and AFL supporter gear around the country, adopted DIFOT (delivered in-full, on-time) as a management tool measuring customer service. It looked at every order that went out and assessed how many reached the customer and how many got there on time. A customer might have ordered seven items and only two got there because the rest was out of stock.
Lombard time-stamped when the order was made and when it was delivered. No tick if something was delivered in full, but not on time. Invoices and inventory were reviewed. Purchasing, retail, customer service, credit and warehouse managers met weekly to discuss orders that failed and processes were put in place to make sure it didn’t happen again. Lombard national retail manager Andrew Kevill says the company looked at the best DIFOT levels in the world. It was 97 per cent and that became Lombard’s target. It is now at 90 per cent and getting there, a long way from where it started at 75 per cent when customers were not getting what they ordered in the scheduled time.
"The most important thing is to know what you’re doing and what your target is and then energise all the people that contribute to it to work towards it,’’ Kevill says. "It’s a new learning process about what drives the failures but as we learned more about how we were failing, it wasn’t that difficult to work towards improving it,” he says.
Sykes Racing, a Victorian company which supplies rowing boats for the Australian Olympic team and clients around the world, improved its productivity as part of its strategic shift when it switched from building boats from timber to composite materials and carbon fibre. It started measuring the time it took to build each boat and set up production time lines. Whereas once a craftsman would have worked on a timber boat from beginning to end, it brought in different teams with different skill sets to build a craft. It introduced time sheets and improved the skill sets of its workforce by bringing in people from other industries, from carpenters to engineers. The backlog of work has gone from six months to six weeks because they can now move products through quicker. Ten years ago, it would have taken 180 hours to build an entry-level boat for a school. It now takes 60.
Different companies, different techniques, but one methodology: bring in systems to change behaviour and drive productivity, then measure it.
Productivity specialists say companies need to think strategically. They need to work out their objectives, like Lombard, Boral and Sykes Racing, and communicate these down the line so that everyone understands. It’s about identifying what you need to improve, by how much and by when. It’s about clearly identifying how much you intend to reduce labour costs by.
Specialists say companies need to look at the value stream: all steps taken to deliver the product and service to the customer, from raw materials to finished goods. That requires people from different parts of the organisation working together which, as Boral showed, means breaking down silos.
It’s a tough challenge for all managers. They can’t look to whoever is in power in Canberra for help. Nor is it the responsibility of workers. It has to be done by the managers and executives. Productivity is about strategy, an unflinching focus and the ability to move everyone in the organisation closer to a compelling shared purpose.
There are companies cited here that have done it. If more Australian businesses get there, it will improve the quality of working life and the fabric of society. That is the greatest single challenge facing Australian managers today. Whether they are up to it remains to be seen.