Improving productivity: Where to start?

What can managers change to improve productivity and gain a competitive edge – starting today?

Business groups have hit back today at claims by Treasury that managers are responsible for our nation’s falling productivity, saying the federal government’s industrial relations laws, red tape and the carbon tax are the real culprits, newspapers report today.

While the slanging match over our national productivity score makes great headlines, it doesn’t help leading companies grapple with the day-to-day challenges of lifting productivity in their own operations, a significant factor in improving profits and gaining an edge over rivals.

Productivity is far harder to measure and to define than the current headlines would suggest, but the author of a report last year on productivity, economist Saul Eslake, offers a clear definition at the corporate level: “Productivity, by definition, is a measure of the efficiency with which factors of production, such as labour and capital, are combined to produce goods and services,” Eslake told LeadingCompany recently.

So are managers responsible for our poor productivity? There is no question, in Eslake’s view, that they are responsible at the corporate level: “That is the job of management,” says Eslake, who is now the chief economist at Bank of America Merrill Lynch Australia.

However, in his productivity report for the Grattan Institute, Eslake explains the complexity of accurately measuring national productivity.

CEO of Hay Group, Henriette Rothschild, notes: “Productivity is a complex issue, and at the moment, people are making it to one-dimensional: it is management or it is government?

“The positive thing is that there are absolutely things that managers can do at a micro level; levers that are within their control. Our research suggests managers can improve organisational performance by as much as 28%.”

The first step to a productivity lift: Three experts comment

Our productivity problem is quite specific, according to Roy Green, dean of the Business School at University of Technology Sydney: We are good at operations management and bad at people management. In particular, we are bad at managing performance.

Green is the author of a substantial report on management, published last year, called Management Matters in Australia. In the report, Green sets out best and worst practice in managing people (See table below).

Three experts contacted by LeadingCompany today define the first step towards improving productivity:

1. Henriette Rothshild, CEO, Hay Group

Clarity of purpose is the first step for any leader wanting to improve the productivity and performance of their workforce, Rothschild says. “Any leader in business is responsible for absolute clarity of direction on what the organisation is there to do, its purpose and market,” she says. “That way, the organisation is aligned, and through that it can deploy capital and labour focused on that market.”

Hay Group applies a diagnostic for its clients to find out to what extend the company is geared up to its customers’ needs (not focused internally), the extent of its people’s discretionary effort, and the effectiveness of its recruitment and performance management practices. The company’s executive can then determine how clear their own sense of purpose is, and how clearly they convey this to their employees.

Without clarity, performance management is an ineffective tool, says Rothschild. Once the company’s purpose is clear, leader then set standards of accountability, and measure performance against the purpose and standards.

Without clarity, performance management become complicated and focused on form filling, rather than a conversation about performance. “Australian managers have an absolute reluctance to give negative feedback,” she says. “They want to create an engaged environment, but they confuse that with not giving constructive feedback. In fact, positive and constructive feedback creates more engagement.”

2. Dr Ian Williamson, Professor of human resource management, Melbourne Business School

Australia’s move towards a service economy puts more emphasis on the role of the manager to derive value from employees, Ian Williamson says. “The ability to identify the right talent, motivate that talent and convert that into outcomes is becoming the critical issue,” says Williamson. “The evidence is quite clear: if you have capability in staff management it generates returns, and if you are incompetent, it destroys value.”

The most effective ways to improve are to change hiring and performance management practices. “The reason I focus on these is because companies are already spending on these areas, so it is not new money, it is spending it more wisely,” he says.

Garbage in, garbage out. Once a poor performer is hired, there is little any manager can do to improve them, but more rigorous hiring does not mean expecting new staff to embody every capability. “Hire on things that are hard to train or change,” Williamson says. “Most companies I interact with want a perfect person, but I say you can’t afford them and you don’t need them. Managers must be very clear about what are the drivers of performance in their companies – technical or personal skills. And we find it is much easier to train technical skill than personal or soft skills.”

For those who think measuring soft skills is too hard, Williamson is succinct: “It is not true. We know how to do this: structured interviews, groups interviews, consistent questions. There are simple, procedural steps that will literally double the validity of the interview.

“You are twice as likely to hire the right person.”

3. Dr. Hilary Armstrong, Director of education, Institute of Executive Coaching

Leaders are promoted on their technical ability or ability to bring in clients, but once they are managing staff, the skill set is completely different, says Dr. Hilary Armstrong. “I agree that quality management and leadership does lead to quality results. The big problem for me is that we don’t value soft skills,” she says. “When you are climbing the ladder, your success depends on self-determination and self-discipline. But the success of leaders depends on the success of others.”

Conversation is the missing link, she says. Under current economic pressures, conversations have been reduced to bullet point exchanges in which neither side responds to what the other is saying.

When surveyed, Australian employees says their managers rarely listen to them, don’t involve them in decisions, show them up in front of other people, and never or rarely give them constructive feedback.

Armstrong says changing to a conversational style of communication need not take any longer than barking orders. “It is just means responding to each other,” she says.

The impact of changing communication can be measured in lower absenteeism, higher retention rates, higher productivity and “a spring in the step” of your workforce. “Your employees are wanting to come to work, not dreading it.”

People management – best and worst practice

Instilling a talent mindset

Best practice: Senior managers are evaluated and held accountable on the strength of the talent pool they actively build.

Worst practice: Senior management do not communicate that attracting, retaining, and developing talent is a top priority.

Rewarding top performance

Best practice: The firm provides ambitious stretch targets with clear performance-related accountability and rewards.

Worst practice: People within the firm are rewarded equally irrespective of performance level.

Addressing poor performance

Best practice: Poor performers are moved to less critical roles or out of the company as soon as weaknesses are identified.

Worst practice: Poor performers are rarely removed from their positions.

Promoting high performers

Best practice: Top performers are actively identified, developed, and promoted.

Worst practice: People are promoted primarily upon the basis of tenure.

Attracting high performers

Best practice: The firm provides a unique value proposition to encourage talented people to join the company instead of the competitors.

Worst practice: Competitors offer stronger reasons for talented people to join their companies.

Retaining high performers

Best practice: Managers do whatever it takes to retain top talent.

Worst practice: Managers do little to try and keep the top talent.

Source: Adapted from Management Matters in Australia: just how productive are we? by Roy Green.

This article first appeared on LeadingCompany.