Productivity

The term “productivity” is used a lot when discussing or reporting business results.  It’s an easy concept to understand when you realize it is reported in some form of revenue divided by an increment of effort, such as dollars per man-hour.  “Profit” over “labor,” if you will.  And this is the crux of the productivity problem.

America enjoyed a steady gain in productivity in both the manufacturing and agricultural sectors over the last century.  There are a lot of reasons behind this.  Automation, quality improvements, “design for manufacture ” and worker focused systems like “Self Directed Work Teams .”  This was fine as demand grew.  Not just American demand, but global demand.  In fact, demand grew so fast we found that we needed as much help as we could get to keep up.  And that came in handy, as it is a lot easier for many people to accept diversity when there is enough work for anybody will to do it.

But then two things happened.  First, profits began to take on unprecedented importance as a measurement of business success – especially against a backdrop of a global economic lull.

And there lies the second problem.  As demand flattened or even fell, we didn’t need all that output. But businesses did feel the pressure to prop up profits.  To keep the equation of profit over labor in balance, we had to get rid of some increment on the “effort” line.  The robots weren’t going anywhere.  We aren’t going to start hiring the middle managers and supervisors it would take to put a “command and control” management system in place.  And we weren’t going to roll back quality.  So production labor gets let go.  Many for good.  And those finding their way back into the business of adding value through honest labor are faced with the fact that their new jobs pay much less than their old careers.

Years ago I worked for a company that had its European headquarters in Denmark.  They ran a great operation.  Staffed with really smart, hardworking people.  During my visits, I came to the conclusion that it was one of the best atmospheres I have ever experienced in a workplace.  One little problem -  they never made money.

Like clockwork, our Danish operation finished every year within a few Kroner of break even.  One year up a little up, one a little down.  It was a conundrum for the American management, who saw the same positive things I did.

The secret was finally cracked when I began to delve a little bit into the Danish language.  It’s not an easy task, because it’s not just words you have to translate – it’s often whole concepts.  And that’s where the light bulb went on for me.  The Danish word for “profit” loosely translates to “the money you kept from your business partners over and above what you needed.”  What this meant is that the Danes could express good intentions of a “profit” in budget meetings,  but when it came to executing day to day business it became an impossible task in the “win – win” world that is Denmark.

The productivity concept is also at the root of the current debate over whether or not Michigan should become a “Right to Work ” state.  Under this designation, workplaces may organize, but individual membership in the bargaining unit is not required.

Many might believe the union debate has its focus on the factory floor.  The fact is the most energetic supporters of “Right to Work” are large construction contractors and those who would like to reduce the strength of the teacher’s union.  The ability to hire a larger percentage of non-union labor offers the chance to reduce their labor costs.  In practice this often is consummated by hiring a larger proportion of recent immigrants, many of them aren’t here legally, and almost all of which are willing to work for less than their peers.

A recent study called Michigan 10.0 , conducted by the Booth Newspaper Group summarized the “Right to Work” debate as a trade off – “more jobs at lower pay .”  That’s management’s offer here.  They are offering the possibility of expanding the number of people employed, as long as it doesn’t increase labor cost.  So down go wages.  It’s as cynical as “let them eat cake” in the history of labor relations.

The math of productivity is pretty straightforward.  The more profit grows and the more the cost of the necessary efforts decrease, the higher resultant productivity.  That’s the basic principle of our current system.  Profit over labor equals success.  It’s impossible to for the profit line to be “too much” and equally unimaginable for the labor line to be “too little.”  How does that sound to you?  It makes me wish we had imported a little more than a breakfast pastry from the Danish.