Appreciating the Value of Labor
by Dean Prigelmeier, President of Proactive Technologies, Inc. For expanding and improving businesses that have the capital for the investment in new equipment or processes, attempting to become or remain competitive, the level of investment is not as important as the return on that investment. This consistent practice of determining where to best place capital for the highest return should apply to labor. What is “paid” for labor is not as relevant as the value it adds to the operation and, ultimately, profit; the return on worker investment.
The lack of appreciation for the difference in “training cost” and “training investment”
is understandable because it is rarely contrasted. The college textbook entitled Financial Accounting: An Introduction to Concepts, Methods and Uses, defines “direct labor cost” as the “Cost of labor (material) applied and assigned directly to a product; contrast this with indirect labor cost.” Indirect labor cost” is defined as, “An indirect cost of labor (material) such as supervisors (supplies).” There is no mention of an expected return on investment. Generations of cost accountants have been taught that there is no good that comes for higher labor costs, which to them is determined by the level of staffing and wage levels. There is no differentiation between strategic labor costs and uncontrolled labor costs.
The profit from, and value of, most worker’s labor comes from task-based work, so all inputs that drive workers to high-performance, high-capacity output are investments.
As discussed in many articles in past issues of the Proactive Technologies Report, although labor costs are considered direct costs from an accounting standpoint, they should be more importantly considered as an investment in the operation’s overall level of competitiveness. Operations may vary as to the level of return on investment from labor, but each worker’s cumulative expertise gained while employed becomes an asset to the operation akin to intellectual property and, therefore, wages and compensation paid to develop a worker is an investment.
As many operation managers have found out, drastic moves like reducing the wage rates by 20%, 30% or more, while expecting to maintain the same output quantity and quality, chases off the workers with the gained technical expertise…because they can leave. The investment is lost and so are any returns. Furthermore, it is difficult to find new candidates who are willing and able to “hit the ground running” for an unreasonably low wage rate. And if a good candidate for employment is found and selected, bringing their productive capacity up may be delayed or hindered by the fact that the remaining “subject matter experts” are not as capable of transferring expertise as the technical experts that were driven away. Read More
Who is Responsible for the Shortage of Skilled Labor?
by Dean Prigelmeier, President of Proactive Technologies, Inc.
Some critics say that employers have repeated the phrase, “we just can’t find skilled workers” to ease their guilt from outsourcing good paying jobs to lower wage labor markets. Some say they say this to justify low wages in the U.S., and some say it is to make the case to congress that the worker visa programs need to be opened up to allow technically skilled foreign workers who are willing to work for a reduced wage enter the labor market. While all of these may be true or could have been true at one time, no one doubts that the affects of the past few decades have greatly disrupted the continuity of a strong U.S. labor force and its ability to advance.
In an article written by Michael Collins for Industry Week last year entitled “Why America Has a Shortage of Skilled Workers
,” the author makes a convincing argument that the so-called shortage was in large part self-inflicted. This article should be on every manufacturing operation manager’s, every accounting department manager’s and every corporate executive’s reading list.
“Year after year, the large corporations have invested in more automation and complex machinery to eliminate labor, but do not seem to want to invest in the comprehensive training programs that will increase the skill levels of employees to maintain, troubleshoot and repair what they have installed.”
In an example of the misunderstanding of the value of labor he notes that, “Year after year, the large corporations have invested in more automation and complex machinery to eliminate labor, but do not seem to want to invest in the comprehensive training programs that will increase the skill levels of employees to maintain, troubleshoot and repair what they have installed.” I would add “operate” to that list. Read More
“Realistic Job Previews” Can be a Useful Tool for Measuring a Prospective Employee’s Transferable Task-based Skills
by Stacey Lett, Regional Manager – Eastern U.S. Proactive Technologies, Inc.
The hiring process can be difficult for both the employer and the prospective employee. A wrong decision can cost each party a lot of time, money and opportunity. An unwanted outcome based on the employer not providing an accurate picture of the job, work environment and work expected to be performed can be avoided with a “Realistic Job Preview.” (“RJP”).
Wikipedia points out that “Empirical research suggests a fairly small effect size, even for properly designed RJPs (d = .12), with estimates that they can improve job survival rates ranging from 3–10%. For large organizations in retail or transportation that do mass hiring and experience new hire turnover above 200% in a large population, a 3–10% difference can translate to significant monetary savings. Some experts (e.g., Roth; Martin, 1996) estimate that RJPs screen out between 15% and 36% of applicants.
When RJPs are less effective, “According to researchers there are four issues that challenge RJP: Read More
A Simple Solution to Skill Gaps – New-Hires and Incumbents
by Dean Prigelmeier, President of Proactive Technologies, Inc.
Proactive Technologies, Inc.
has worked with many employers over the years, establishing cost-effective, task-based structured on-the-job training programs. For each employer, every effort is made to tailor the worker training system to accommodate the employer’s budget, job classifications (even unique training programs for each job classification in each department), business goals and manage the system through all types of change. Unlike some products or services that require the employer to change practices that work in order to utilize them, the PROTECH© system of managed human resource development
is built around what is working for the employer, incorporating established information such as work processes and specifications, safety standards, quality standards, etc. This approach minimizes the need for the employer’s culture to drastically change what
There is no doubt this approach is effective. After all, what is better: unstructured and haphazard worker training that cannot be explained, measured, improved or understood, or structured on-the-job training for all workers that is easily measured, implemented, improved and explained to auditors?
works for them, focusing instead on improvements in an area of weakness.The main steps used to build an employer-based structured workforce development system starts with understanding the desired outcome first:
- Determine the Employer’s Need and Agree on Strategy: How has the client been (or not been) training workers until now; what are the current and projected staffing levels for incumbents and new-hires along with attrition rate; is the culture supportive of training workers and see it as vital to competitiveness; are any task-based documents available and are they in use (e.g. work processes, quality standards, safety standards); which jobs are targeted and why; is the company following any quality mandates, such as ISO/TS/AS and do they have any quality programs underway such as LEAN, Six Sigma; what is the budget for setting up the structured on-the-job training program and implementation. A strategy encompassing all of these points is prepared for the employer before an agreement and timetable is confirmed. Read More
Read the full May 2016 newsletter, including linked industry articles and online presentation schedules.