Employee Partnerships for Increased Profits
An essential partnership for any company is that between the company and its employees. Companies are looking to develop productive, high-quality, loyal employees, and employees want an enjoyable place to work with the opportunity to grow, be challenged, and make more money. Both the company and its employees want to be respected and to benefit from their collective success.
Unfortunately, many companies focus almost exclusively on making the quarterly numbers and cut head count, benefits, and other employee-related expenses, and then wonder why morale is low. The old saying “The beatings will continue until morale improves” is all too true in some companies. I remember seeing on TV that a company executive announced to his employees that the plant was moving to Mexico and they were all going to lose their jobs and then asked them to join him in celebrating the company’s success in its new endeavors. What kind of partnership is that?
Many companies seek compliance rather than commitment. Recently I was talking to a VP, Operations, about his role in the organization and how to improve the company’s operations. He told me his role was to develop policies and procedures and monitor them for compliance. If compliance wasn’t forthcoming, he took action to change behavior, usually through training or discipline.
Can you imagine how excited his people must be about change, how engaged they are in process improvements? They are probably walking on eggshells every moment of the day. While rules should be followed—and there are some instances where compliance is critical, such as dangerous work environments or extremely precise processes—most companies that have a high-compliance culture find that people won’t take chances and are afraid to make mistakes. They don’t look for opportunities for improvement or cost reduction through problem solving or “do easy” approaches because they’re afraid of the discipline that might follow if they stray from established norms.
It’s much better to have a workforce committed to everyday improvements, to processes, to their own jobs, and to the business as a whole. Commitment to personal and organizational success creates an environment of excitement, success, and fun. A culture of commitment creates an empowered workforce that will work toward excellence in performance and customer service.
How to Get Employees to Care
For employees to be fully engaged and in partnership with management and others in the company, trust and relationship need to be strong. In many cases, lack of trust can lead to high turnover rates and unionization. On the other hand, strong trust and relationship can yield improved productivity and quality, a strong continuous improvement environment, great customer service, and a team-oriented culture.
It is up to management to set the stage for employee partnerships. The first step for getting employees to care is for you to care about them. Many people have asked me how we started the World Class transformation at Supra Products. To their great surprise, I tell them we painted the lunchroom. I am sure they were expecting me to say something like we conducted training, or we did 5S (a Lean workplace organization technique), or we did a pilot project, or something like that, but instead I had the lunchroom painted and we brought in a new refrigerator and microwave ovens.
When I first came to the company, the lunchroom was dark, dingy, and run-down. The refrigerators were dirty and several of the microwaves did not work. That certainly didn’t support the idea that management cared. The lunchroom makeover garnered an interesting reaction from the employees—sort of a “this is different” reaction. I had their attention.
Then I started what I called “a break with Rick.” For the afternoon break, I had my secretary randomly select five people from production and the warehouse to take their 15-minute break with me in my office. I brought in frozen yogurt and cookies and we sat around my table and talked. I asked them about themselves and told them about me. Then I asked what things were bugging them and what got in the way of them doing their work. The first group was very guarded, but as word got out that the meetings were fun, the yogurt and cookies were good, and I was very approachable, people started clamoring to take part. The feedback I got was invaluable, and the trust and relationship we established set a solid foundation for the changes ahead.
Then we started the Friday potlucks, when everyone was invited to bring in his or her favorite dish for lunch. We extended it from 30 minutes to one hour and everyone ate together. Eventually, we had to break it in two to accommodate our growth. The food was terrific, several people asked me to taste their contributions, and I soon found bags of cookies, tamales, pot stickers, and other delights on my desk. The team culture we wanted to form was firmly established and the sense of cooperation and trust was strong. Then we started training, doing pilot projects, and initial Lean activities.
The last keystone in the foundation was to foster open communication about the company’s financial performance. We were privately held, so the practice for over 30 years had been to keep financial results secret. Interestingly, there was a profit-sharing plan, but there were rarely profits to share and it became a joke: Sales are up, profits are down, sorry, no profit share this quarter. Not only was it not an incentive, but it eroded the employees’ trust in management.
As part of our transformation, we did two things: We shared more information with employees, and we taught them how to use it. We knew that most employees could not read a financial statement, so we reduced it to a few key points, which we presented monthly. The first time, we used Monopoly money and gave them an example of how it worked in the categories of revenue, cost of goods sold (materials and labor), overheads (rent, management, building, etc.), and profit. We started with $100 of revenue and ended up with a few dollars of profit. Then we talked about how we could increase profit and what specifically they could do to help.
We improved benefits and pay scales so that they would reap some reward on their efforts. In particular, we started a 401K with high match since management believed that social security alone would not be sufficient for anyone’s retirement, and we suspected that most employees were living paycheck to paycheck and weren’t saving for retirement. We held investing classes to explain the difference between stocks, bonds, and mutual funds and explained how, with the match, they could make a lot more money without greatly impacting their take-home pay. The 401K had a high participation rate, which kept our plan from being top-heavy, since most of our managers contributed regularly.
By focusing on things that made a real difference to our employees and by helping them develop a sense of trust and relationship with management, we enlisted their wholehearted support for the changes we needed to make to strengthen the company’s performance. The improvement was astounding. We grew from $13 million to over $55 million in about five years and went from breakeven (or worse) to over 20 percent profits, while providing our managers and employees with a fun place to work, good pay and benefits, and a sense of satisfaction in their jobs that was unmatched in the community.
Empowered Teams Still Need Direction
One of the legs of the three-legged stool of World Class Manufacturing was “Total Employee Empowerment.” The concept of the empowered team has been around since the mid-1980s when the Toyota Production System was experiencing a resurgence in U.S. companies. Teams are an important part of continuous improvement. There are five things you can do to strengthen the teams at your company:1
Hire for intrinsic traits
Provide clear objectives
Pay well
Give autonomy
Focus on progress and improvement
One company I worked with didn’t treat their employees as teams or internal partners. The company owners did all of the reviews and determined any raises. They sought only very cursory input from managers who had little or no role in the process. Some managers didn’t even know what their employees were paid. The resulting system provided no incentive and was perceived as very unfair. The employees did not know what to do to earn more and get better reviews. Morale was low and output did not meet the company’s needs.
Empowered teams are self-directed in the work they do on a day-to-day basis. They are empowered to make decisions about what and how to do their work. They solve problems, adjust schedules, make output-related decisions, and share some leadership responsibilities. Sometimes, they are even empowered to request (and fire, when necessary) temporary workers, as needed, to improve team performance.
The team leader is the key position on the team. In some companies, this position is rotated among the team members, while in other companies, the team leader is a position achieved through performance and promotion. It is a working leadership position and is not the same as that of a foreman or supervisor. The team leader’s role is to drive problem solving within the team.
If you have empowered teams, do you still need managers? Of course. Managers set the vision that the team works to achieve; they provide resources and help develop team leaders; they also set the overall goals and priorities for the teams; and they help resolve conflict between teams. The keywords for managers include support, advice, resolution, goal setting, and development.
One day, when I was VP, Operations, I overheard some strong words out on the shop floor between a production manager and several members of a work cell team. I decided to go and listen in. What I heard was “We are empowered and don’t need to listen to you!” Wrong. The issue was one of priorities across customer orders. I stepped in to re-explain the roles of the team and the manager. I made sure the team remained empowered in the areas for which they were responsible and that the manager was empowered in her areas. Once this was cleared up, the issue was resolved and everyone went back to work with a new understanding of how teams worked in our company and how managers set agendas and supported their teams. These sorts of clarifications are continuous in partnerships between managers and teams and build an even stronger culture for the organization.
One of the management’s duties is to establish the vision and objectives for the teams. The vision tells them where they are going (the future state) and, most importantly, why. Understanding why you’re doing things contextualizes the customer’s needs as well as the performance of the company, the team, and the individual. Even in the most difficult circumstances, such as a contentious union environment, understanding why management wants something goes a long way toward developing trust between the partners in the process.
Clarifying Expectations
There are four ways to build trust between the company and employees:
Strong leadership
Shared vision
Culture of openness and collaboration
Accountability
Trust is a keystone of partnerships, and without it, performance will always fall short of its potential. Lack of trust indicates that not everyone is working toward the same vision and objectives. Many companies think they have teams, but what they really have are committees; teams have common objectives and a shared vision, while committees have individual objectives that are not in alignment.
In my consulting work, I often interview managers and employees at all levels of the organization. One of my favorite questions is, “At the end of the day, how do you know you did a great job?” The person often looks into space and says something like “I don’t know” or “I didn’t get into trouble.” That is very illuminating but certainly not what I was hoping for. I want to hear, “I helped a customer,” “I helped solve a problem,” or “I helped a teammate” or something that helps the company meet its objectives.
The key here is that the employees need to know what the objectives are. Any strategy or change initiative starts with a clear vision, which management conveys to the employees. Like light passing through a prism, there is the possibility of refraction at the management level ( Figure 9.1), and it is incumbent upon managers to avoid this.
Figure 9.1 Management must convey the vision to employees and avoid refraction
Source: Alan Weiss, Summit Consulting, used with permission.
The vision that management develops should set a clear objective or “future state,” as Lean enthusiasts call it, that helps employees know not only where they are going but also why. Employees want to know the why so they can see how it relates to them. Often, the vision goes to middle managers who are busy doing their jobs and they fail to convey the objectives to their employees. When employees know where they are going and why, management’s expectations make sense.
Using key performance measures is an effective way to clarify expectations. The measures you use will be directly tied to your organization’s long- and mid-term goals. At Supra, we had several measures that never changed:
Shipped on time (percentage)
Labor as a percent of sales
Materials as a percent of sales
Scrap
Units shipped by day/week
Overtime
We tracked some things only until the problem went away:
Errors
Quality—first pass yield
Safety
Special project-related measures
Many companies track safety, but we found that as our program took hold, there were no lost time accidents, so tracking it became pointless. We did maintain an active safety team, and safety remained important to the organization.
Results should be tracked as trends and the graph trend line should go up when things are getting better and down if they’re getting worse. Sometimes we need to change the math so that the lines behave properly. For instance, for materials as a percent of sales to go up, you need to calculate a materials margin. Figure 9.2 is a sample graph.
In this case, the trend is going down, which is not good.
It’s also important to display these graphs where everyone can see them. A perfect place is on a wall between the workplace and the lunchroom where everyone walks by every day. Another good place is where the teams have their five-minute stand-ups every day.
At Supra, I made it a point to stop and look at the charts every day. I made sure that people saw me do it, and occasionally, I would ask people to explain to me what was going on with the numbers, which helped them to understand that the numbers are important and that they had better understand them. I also had managers discuss the numbers frequently during team meetings.
Figure 9.2 Materials margin % of gross sales
I also had regular all-hands meetings to express what was going on and to answer any questions. Not only did that reinforce trust, but it also nipped many rumors in the bud.
Can Everyone Win?
The good thing about partnerships is that they are true win/win relationships. For employees, partnerships offer the opportunity for them to
Enjoy their work and have fun
Understand clearly what is expected
Be fairly compensated for their work
Be empowered to improve their performance
Understand their personal contribution to the team and the company’s success
For the company, partnerships with the employees provide
A strong workforce
High employee loyalty and low turnover
Reduced costs of turnover and retraining
Highly productive, innovative teams with low costs as a percent of sales
Improved profit and growth
Reduced failure work and the costs associated with it
This win/win also applies to temporary employees. Everything we have talked about works with a workforce that is supplemented by temporary workers as well. Supra and many other companies have workforces made up of significant numbers of temps, up to 35 percent of the total workforce. Some companies treat the temps as outsiders, which makes it difficult to have a homogeneous workforce. When temps are included in all of the events and team meetings, they become part of the team and will be highly productive, produce high-quality product, and develop a loyalty that can be surprising. When we had to release temps during slower periods at Supra, many of them told their agency not to place them anywhere else so that they’d be available to be recalled.
We also had a unique policy that allowed our team members to fire temps. We were typically very slow to bring temps in and slow to release them because we believed it was fair to the temps and helped cement them as part of our teams. However, if they did not perform, our teams were completely empowered to fire them and request a replacement. Because of this, the teams felt responsible for the temps and tried to help them be successful while also holding them accountable for results.
The amazing part of all of this is that when I came to Supra, there were 61 people on the shop floor. Five years later at over four times the revenue, there were 62 people building essentially the same products. Our labor as a percent of sales (which includes temps and overtime) went from 13 percent to about 3 percent. Our average wage was significantly higher, and our benefits (which were included in our labor cost) were much better. Our labor productivity was greatly improved, which put 10 percent of sales to the bottom line. Talk about win/win!
Building Stairways to Success
Many companies use a pay for skills or job step approach to employee development. Many companies I’ve been involved with create a range and band approach in which there may be four or five levels of the same job that a person can advance through over the years, which provides a clear path to professional development and higher earnings.
For example, one company had five levels of assembly: Assemblers I through V. The levels were
Assembler I—on probation (90 to 120 days). Demonstrating the ability to do the basic job and uphold the basic expectations of an employee (arrive on time, cooperate, communicate, work as a team member)
Assembler II—able to do some of the team’s tasks. An active member of the team. Communicates and cooperates in a positive manner. Builds quality products at a rate that is acceptable to meet the team’s needs
Assembler III—able to do most of the team’s tasks and is very proficient in assembling a quality product quickly. Able to oversee temps. Occasionally takes on special assignments and participates actively in improvement projects
Assembler IV—performs all of the tasks at a high level and can teach others. May act as team leader and supports Assembler Vs in their duties. Measures and tracks key indicators
Assembler V—supervisor. Conducts performance reviews, schedules work, sets daily expectations, reports to the production manager, and leads improvement activities
In these systems, workers do not have to progress through the levels unless they want to. Pay is capped at the highest level for the band. Even though there is some overlap in the bands for compensation, eventually workers will “cap out” if they do not progress in their skills and value for the company. On the other hand (remember the partnership?) there is no need for a position to be “open” for a person to promote up to a IV. If you were lucky enough to have all IVs, you would be extremely productive and probably have a lower head count over time. It would be an all-star team. I’ve often wondered why companies cap the number of people in a band, when it can be structured to be positive for both the employee and the company.
This can apply to production, warehouse, engineers, buyers, customer service representatives, accountants, and more. I’ve seen welders, painters, software developers, and many others in a system like this, with dramatic results for the company and the employees. Isn’t that the essence of a partnership with employees?
1 Wellins, Byham, and Wilson (1991).
Reference
Wellins, R., W. Byham, and J. Wilson. 1991. Empowered Teams. San Francisco: Jossey-Bass.