Would you like to double your profits? Outrageous as that goal might seem, there's a fast way for most businesses to dramatically increase profitability: Just tweak worker productivity. Little gains in productivity turn into big profits fast, says Jack Zenger, chairman of Times Mirror Training Inc., the world's largest group of employee training companies (among them: Zenger Miller and Learning International). "Increasing productivity by only 5 percent can increase profits by 50 percent," promises Zenger.
Here's how Zenger's arithmetic works: In most companies, costs associated with labor comprise half or more of total expenditures. "Assuming the business has a 5 percent return on sales, a 10 percent increase in productivity will double profitability," says Zenger.
That's a realistic goal, too, because productivity in the United States has been flat for a quarter century. While experts debate why American productivity can't seem to overcome its plateau, Zenger has no doubt that easy, cheap strategies can translate into higher productivity for your company.
The only hitch? To get the big productivity jumps, you must ask your workers how they can do their jobs better. "That may be the big secret of improved productivity," says Zenger, author of several books, including Not Just for CEOs (Irwin Professional Publications). "Productivity is the most important issue facing us today," he adds. "But there are ways to get big gains, fast."
Entrepreneur:Why do you say productivity is the most important issue our country faces?
Jack Zenger: For the nation, productivity gains have been flat since 1970. If our productivity gain since 1970 had been as high as in the decades before, our standard of living would be 25 percent better than it is. From a competitive point of view, America still is the most productive nation on earth. But there is reason for real concern about the United States' lag in productivity gains--while other nations such as Japan have continued to enjoy productivity increases.
Entrepreneur:Just how poorly have we been faring?
Zenger: Prior to 1970, productivity increased by 2.8 percent to 3.5 percent per year. But since 1970, we have averaged a 1.2 percent annual productivity gain for the economy as a whole. In some sectors, there have been significant gains--manufacturing productivity has increased 3 percent to 3.5 percent for the past five years, for instance. But elsewhere--the service sector, for example--there has been essentially no gain. And office productivity is actually down 2 percent.
Entrepreneur:Are there companies that can't raise productivity?
Zenger: No. And our experience is that the more an organization focuses on improving productivity, the more gains it will see.
Entrepreneur:A key productivity improvement idea you put forth is that we can measure how we do just about any task and use those measures to enhance efficiency. Is that widely accepted?
Zenger: All the evidence shows one reason people aren't productive is that they don't know what's expected of them--they just don't know what winning on the job means. But measures tell them how they are doing and let them see where and when they are improving.
Can any job be measured? Years ago, I worked at a large pharmaceutical company on developing measures that would help people know how well they were doing their jobs. We had successfully implemented a variety of measures, but when we came to the [company's] research and development department, those executives told me there just was no way to measure their performance.
Finally, in exasperation, I said, "Fine. If you don't want to help find ways to measure your performance, we won't include you in our executive compensation plans." The R&D people said, "Hold on. We can come up with measures." And they did.
The moral is: Measures can be developed for any job, and once measures are established, usually we can also find ways to do the jobs better.
Entrepreneur:What's the key to a good productivity measure?
Zenger: What gets measured depends on the job. Don't measure something just because it's easy to measure. That's like looking for your watch where the light is instead of where you lost it. Aim for measures that will help produce real workplace improvements, and keep in mind that everything we do is a candidate for cycle time reductions.
In one company, for instance, the time it took to repair circuit boards dropped from 11 days to five. That's what happens when we begin to measure the steps that collectively make up our work.
Entrepreneur:Who should develop performance measures?
Zenger: The people doing the jobs. I strongly believe this, for two reasons: They are closer to the actual activity than management is and, therefore, really know what to measure. Second, they feel a lot better about being measured when they have had a voice in selecting the measures rather than having measures imposed on them.
Entrepreneur:A tip you offer for boosting productivity is to make a video of yourself throughout the workday. What's the benefit?
Zenger: Of course, this technique is taken from sports, but it has applications in many jobs. Most of us simply get used to our daily routine and stop noticing things that need improving; a video can give us a fresh look at what we're doing.
Do you know how businesses started using this technique? There was a researcher at Kodak who advocated work simplification--eliminating superfluous steps in how tasks are done. Because he worked for Kodak, he had ready access to cameras and film, and it occurred to him to ask supervisors if they minded whether he filmed workers. Later, in watching the film, supervisors invariably would say "This can't be. Clearly, the process we're using is wrong."
A conclusion of this research was that it isn't necessary to go over the video with a worker or supervisor. Just let them watch it, and they'll see what needs to be re-engineered and where new steps could achieve better results.
The larger point is, learn to look at jobs from an outsider's perspective. Take nothing for granted. Bring a fresh point of view, and suddenly, you'll see places where improvements can be swiftly made.
Entrepreneur:You're saying that workers--without any management input--will find ways to do their jobs better?
Zenger: The historical idea was that managers think and workers do. But that concept no longer holds true in today's workplace. Often the only step that's needed to get good ideas from workers is to simply ask for them. If you can convey to them that you value their input, they will give it.
Entrepreneur:Aren't workers sometimes reluctant to offer ideas for improvement?
Zenger: You have to send a clear signal: We want your ideas, and we value them. We all know organizations where, for many years, workers who offered their ideas were in effect slapped and told to get back to work. And those workers naturally stopped coming up with ideas.
The Japanese have taught us huge lessons in terms of getting employee suggestions. For many years, Japanese companies got hundreds of suggestions from their workers for every one suggestion we got. Why? Japanese management encouraged worker ideas, listened to them, and implemented many of them.
Entrepreneur:Haven't we also gone astray by looking only for big ideas, while Japanese companies continued to steadily improve work processes by implementing literally hundreds of small ideas?
Zenger: That's exactly right. Of course we want breakthrough, audacious ideas. But we also need small, incremental ideas for making things better. To win a baseball game, you want both home runs and singles--but often, with enough singles, you can still win. The Japanese have not had a lot of home runs, but they have had many singles--and their productivity keeps improving.
Entrepreneur:Company mission and vision statements nowadays are commonly mocked--but you strongly endorse using them. Why?
Zenger: "Dilbert" has poked a lot of fun at them, and certainly there are many businesses that write high-sounding words but do nothing about them. But I find that people really do want to work for an organization that has a clear direction; plus, most of us want to be involved in a worthwhile cause that we can grab hold of. And a huge deterrent to high performance is when people don't understand where the company is going, why it exists and what it believes in. The evidence is that mission and vision statements that clearly state what we believe in and how we will operate remain very valuable.
Entrepreneur:What types of mission statements work?
Zenger: The best mission and vision statements aren't created out of thin air. They state what already exists. They must describe what really is happening in the business--that's the mission. And what the people in the business truly cherish, as well as where the business is heading--that's the vision. These statements could be written on butcher paper and taped to the wall, but they would still have impact. That's because they bring clarity and coherence to the company's purposes by focusing diffuse ideas into a laser beam that gives people the direction they need and want.
Entrepreneur:Do you track your own productivity?
Zenger: [laughs] It's been a few years since I rigorously looked at it, but certainly, I have set goals to keep improving. For instance, I set a goal to do my regular job plus write Not Just for CEOs. When that book was done, I set a goal to write a second book, Making 2 + 2 = 5 [Irwin Professional Publications], for managers who want to get more productivity from their staffs.
Entrepreneur:What's the secret to making two plus two equal five?
Zenger: There's no one secret--and maybe that's the real secret. No one step will get you all the productivity gains you want. But my research is clear: There are steps a leader can take to get people performing at a higher level.
Zenger: Leadership is not about knowledge, about being the smartest. It's about results. What distinguishes great leaders is their ability to get superlative results. What's behind that is, yes, a certain amount of learning. But they need to be doing certain things that get results. There are several key steps:
- The leader accepts personal responsibility for the performance of his or her workers. He steps up and says "I won't blame anyone else or anything in the outside world--not the government, not the economy. I am responsible."
- The leader banishes bureaucracy and builds a culture that is highly responsive and adaptive. Where necessary, he or she restructures work processes for greater efficiency and productivity.
- The leader then raises the bar and says "What we are doing now is not good enough." The leader sets new standards. He or she might benchmark performance against other organizations or simply set internal goals to, say, cut cycle times by one-quarter or one-half.
- The leader finds out who the top performers are and teaches others to behave more like them.
- The leader gives employees tools to help them excel. For instance, he or she makes sure workers get necessary training and implements performance feedback systems that give people real-time input on how they are doing and where they can improve.
- Then the leader's job becomes a matter of keeping the plates spinning--and that will move the organization to the next level by continually setting new standards and changing internal processes for higher efficiency.
Entrepreneur:While large corporations are spending increasing sums on employee training, small businesses are lagging behind. Does this pose a competitive handicap for small business?
Zenger: There is more training going on in small businesses than might initially meet the eye. What often happens is that small businesses send their people to off-site, one-day seminars--sponsored by organizations like the American Management Association and local colleges.
That said, there is still no question that big companies are doing a much better job of training and developing their people. But small businesses have an advantage: Many good workers are attracted to them because in a small business, they can use a wider range of their abilities and see the results of their efforts.
There are cynics who say that 80 percent to 90 percent of training has little impact--not because the training is no good but because the organization isn't ready for it and does nothing to ensure that what's learned gets used. That's not likely to happen in a small business. When a small business invests in training, it really wants its employees to come back and do things differently.
Entrepreneur:Is formal training mandatory for developing workers?
Zenger: I have spent my life in training, but I don't for a minute believe that all good training takes place inside a classroom. Some does. But in every company, a great deal of training takes place casually, informally. Small businesses can get good training results if they just think about it.
I know an entrepreneur who owns a little company in the Silicon Valley that makes labels for high-tech equipment. This entrepreneur sees his job as a trainer of his people, and every morning he conducts a class for them that runs maybe a half-hour.
There are lots of ways to develop your people, and the real leaders are always looking for ways to make their people better, more productive workers.