by Dean Prigelmeier, President of Proactive Technologies, Inc.
According to Ed Timmons, CEO of the National Association of Manufacturers, “our labor costs in the U.S. are still 20% too high.” If he means that employers may be paying too much for unused or unusable worker capacity, and they should seek methods to develop it, I can agree with that. If he means employers should focus on spending enormous amounts on finding alternatives to labor, or randomly cutting workers, or asking workers to work for less wages and less benefits, I would say “hold on a minute.”
Given the growing fear and discontent by workers who still haven’t recovered from the Crash of 2008 and now knocked down with the Covid-19 pandemic, they may want a seat at the discussion. These workers will be trying for some time to, once again, regain value in their 401K and other impacted assets and to rise to the wage level they once had for the talents they possess. Many have the perception, wrongly or rightly, that their employer and their shareholders built great profits while workers slid backward. Many families, today, are challenged by rising prices of nearly everything…against eroding wages. This preoccupation with driving down labor costs, while reporting to Wall Street record quarterly profits, may benefit shareholders in the short-run, but it is surely illusionary and self-destructive in the long-run as the Crash of 2008 should have demonstrated, but the Covid-19 pandemic might remind.
As reported in Industry Week, a group of CEOs from major U.S. corporations, The Business Roundtable, released a statement saying that shareholder value is no longer its primary focus – shifting their practices to line up with their new definition of the “purpose of a corporation.” The new vision emphasizes investing in employees, supporting communities, dealing ethically with suppliers and providing customers with value. “The group signed the Business Roundtable’s new Statement on the Purpose of a Corporation. It’s a sea change that moves companies away from the age-old philosophy that companies’ main goal is to look after shareholders.”
There is an effective, proven alternative to cutting labor costs through gutting organizational capacity.
Focusing solely on shareholder profits has stunted the long-term viability of many a thriving organization. Under the cover of “making the firm more efficient,” when more profits could not be derived from expanding the market and market penetration, some investors forced cuts on firms that determined the firm’s long-term capability to compete, take advantage of emerging market opportunities, and adapt to changing markets and turbulent economic forces.
After the Crash of 2008, deliberate worker training was one of the first to be eliminated. Perhaps under the assumption that the labor market was flooded with skilled labor, some companies hired back some of their previous workers – often at lower wage rates and benefits. But many skilled workers saw their valuable skills erode and technology change the landscape while they waited for the economy to come back – only to find that they could not support themselves and their family unless they take a 2nd, maybe 3rd, job. Those, that could, found new careers away from manufacturing.
For many companies, the focus of the Human Resources department was shifted from “human resource management” to hiring, benefits and labor cost management. Some firm’s saw their capacity erode through attrition and turnover as labor cost management became more of the focus. When output predictably declined, workers benefits had to be cut further, then wages…then workers themselves. When there were no more costs to be cut, shareholders moved on – often leaving a shell of a company if not just the assets to be sold.
The blowback from decades of stagnant worker wages and the shifting cost of benefits to the worker has weakened the workforce and, inevitably, society and we are seeing a growing movement of those affected to push back…hard. Whether this return to “pay for talent” – seemingly only applicable to sports figures, entertainers and CEOs – will be market driven or government mandated, this will impact all manufacturers and retailers as well as their suppliers.
Today, all hopes seem to rest on high school and community colleges to deliver “plug-n-play” workers, but classes alone are no guarantee of job mastery and work performance. Schools can, and should, only focus on developing candidates with a solid core skill base, and perhaps some industry general skills. It is not economically feasible or practical for schools to deliver the perfect candidate for every job, given the resources they have. The employer must train the workers to competently perform the tasks for which they are hired or all of the core skill development is wasted and employers have to deal with the consequences – larger skill gaps, higher training costs and/or higher turnover. For the employer this also translates into lower return on worker investment, unnecessarily high labor costs, higher turnover costs, lower worker productivity, increased scrap and rework, and lower organizational morale and effectiveness.
Some manufacturers have given up on “system thinking” that served them well when it comes to worker development. Perhaps someone is making decisions for them who is unaware of the importance of “best practices,” and not directly aware of the precarious position workers find themselves placed. The effect on worker’s lives can be traumatic at best or destructive at worst. Workers in these firms can become resentful and suspicious of management no matter where they work – reluctant to unpack once hired. This trust will be hard to rebuild and it may take a long time for the experiences of the last 2 decades to be forgotten.
Have manufacturers given up on the concept of “maximizing resources” (of which human resources are one), as well? Profits can either be increased by maximizing the efficient use of resources for long-term sustainability, vitality and flexibility or by short-term cuts in labor costs that may improve the balance sheet for the moment but will degrade capacity for years to come. One approach makes the enterprise stronger, the other eats at capacity, quality, long-term productivity, viability, and sustainability.
Quickly driving each worker to “full job mastery” and maintaining that level should be a goal of every firm. It makes little business sense to expend the resources to go through the search and selection process, then develop that worker by coincidence and pay them as if fully functional. Most employers believe their firm must have some training process in place for once a new-hire is brought on-board; work somehow gets done. But one needs only to follow the human resource development path to reveal the weakness and inefficiency. Putting two people together and “hoping for the best,” although common, is not a strategy.
W. Edwards Deming, a renowned expert in organizational efficiency and quality control, once said, “If you can’t describe what you are doing as a process, you don’t know what you’re doing.” And if there isn’t a process, it is difficult, if not impossible, to train someone to perform it – not to mention that it is nearly impossible to measure, standardize, improve and maximize performance. Consequently, where there isn’t a deliberate, structured on-the-job training program that trains each worker – to, in effect, replicate the resident expert no matter which trainer, which shift – the employer may be unnecessarily paying more for the labor and associated inefficiencies than the value derived.
There are three major factors by which these unstructured training process costs can be magnified. First, how quickly it takes for a worker to reach full job mastery if at all; second, the lack of definition of what constitutes full job mastery; and third, the lack of structure and guidance to drive each worker and cross-trainee toward full job mastery, manage and measure performance and quickly integrate changes in the work into mastered performance.
There are enormous costs (direct and opportunity) and risks for having no, or very little, structure to the worker development process. Taking inventory of incumbent workers – once the job is analyzed for critical tasks – often reveals startling gaps in what part of the overall job classification have been mastered as well as stark deficiencies and inconsistencies in how tasks are understood to be performed. Structured on-the-job training eliminates all of these symptoms as all workers are driven to full job mastery of standardized, best practice task performance – process driven or not.
Each worker’s full job mastery leads to much higher organizational capacity and adds to the company’s agility in responding to changes in markets and economic conditions. More efficiencies of higher capacity organization can preclude the need for non-specific cost-cutting, which is sure to have unwanted consequences and collateral damage that lives on.
The investment to set-up and operate a structured on-the-job training program is far less than one might think, especially when compared to the costs to the organization of not having one in place. This type of training does not bring the recurring “seat time” costs associated with classroom and online training, and is delivered while a worker is performing work. Structuring the unstructured, informal and ad hoc task training that is going to happen regardless makes the most economic and business sense. And, many projects have received reimbursement from state grant programs to defray 50 – 100% of the investment!
Proactive Technologies, Inc. has a method proven over 35 years of experience for the accelerated transfer of expertiseTM – designed for manufacturers and employers of any kind. It works for any type job – hourly or salary; in any type industry. If you recognize these challenges and have shed your fear of even looking at solutions, check out Proactive Technologies’ structured on-the-job training system approach to see how it might work at your firm, your family of facilities or your region.
Contact a Proactive Technologies representative today to schedule a GoToMeeting videoconference briefing to your computer. This can be followed up with an onsite presentation for you and your colleagues. A 13-minute promo briefing is available at the Proactive Technologies website and provides an overview to get you started and to help you explain it to your staff. As always, onsite presentations are available as well.
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