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HR's Push for Productivity

September 1, 2002
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Despite several seasons of economic turmoil, productivity growth in the United States is twice as high as it was in the early to mid 1990s. As budgets shrink, a major priority of organizations is to shift from recruiting new people to getting more out of existing employees. At the same time, technology is not only changing the way work is done, it is helping to reduce the number of people it takes to do a job.

    Researchers and business strategists who study the phenomenon say that, in large measure, HR initiatives drive worker productivity. “A big part of taking advantage of the computer and communications revolution involves the reorganization of individual businesses,” says Robert McGuckin, director of economic research at The Conference Board in New York. “That restructuring can’t take place without HR policies that deliver flexibility, training, and the right incentives to workers.”

    Management professor Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School, points out that as economies move from a recession to a gradual upswing, the time is ripe for productivity growth. “These are times when work has begun to pick up, but companies haven’t yet begun hiring,” he says. “These generally are periods when productivity takes great leaps forward. Some of these gains may be temporary—they result simply from people working harder. But other improvements are permanent because work processes change.”

    Long-term gains in productivity will depend on the ability of executives to act on several fronts, according to researchers at Aon Corporation, a global insurance brokerage and consulting company headquartered in Chicago. First, leaders must recognize the importance of aligning their technology and human resources goals. Second, organizations must implement measures to reduce the impact of absenteeism. Third, they must manage the impact of human factors such as family and work stress, depression, and overtime.

    There are plenty of horror stories about labor speed-ups. Sure, critics point out, productivity may be soaring. But at what cost? How long can productivity continue to rise if it means that employees are expected to clean three times the number of toilets they were expected to clean a decade ago, or to bone 20 more hams an hour?

    “What we know best is that giving workers an interest in the work they’re doing is the key,” Cappelli says. “The most important impediment to improving workforce productivity is where workers believe they will actually be hurt by improvements in productivity; for example, that improvements will lead to job loss or harder work and longer hours per person.”

Strategies behind the numbers
    In the past, productivity growth has declined during recessions. Since 1995, however, there has been an acceleration in productivity growth, McGuckin says. This is a result of a combination of technology and human nature. Generally, there’s a reluctance to lay off workers before an economic decline is certain, he says. When output falls, labor productivity falls. In this recession, growth has held up, which suggests that businesses are getting faster information and are able to react more quickly—with layoffs and with hirings.

    While it is true that organizational restructuring and new technologies are reasons for the productivity gains, Federal Reserve chairman Alan Greenspan has said repeatedly that high-performing companies create cultures in which productivity flourishes.

    Larry McMahan, vice president of human resources performance and support at FedEx Express headquarters in Memphis, says, “To create a culture where productivity can thrive involves integrating all elements of HR. It starts with having a realistic job match between the skills of the candidate and the requirements of the job.

    If you have a good match, the interest level and desire to be productive are already there.” In addition, companies should implement policies that encourage people to come to work and perform, as well as benefits that are fair, and strong orientation and training programs that enable individuals to excel at their jobs.

    FedEx, which ranked eighth on Fortune’s 2002 America’s Most Admired Companies list and also was named one of the publication’s 2002 100 Best Companies to Work For, is an example of an organization that has created an effective HR strategy that supports productivity and profitability. The corporation’s philosophy is that employees should be doing the kind of work they want to do.

    The Web site offers a career center www.fedex.com as a magnet for job-seekers. As a selling point, the center directs candidates to identify their ideal job (using drop-down lists, it prompts them to enter data about desires—location, type of work, etc.) and to describe their skills. When jobs open, these electronic résumés—about 500,000 to date—are sorted. Hiring managers have instant access to a database in which the employees have profiled themselves and specified what they want and can do.

    Surprisingly, even for hourly and manual-labor jobs, FedEx has found that using the Internet recruiting approach actually attracts candidates who are savvier and more intelligent. When a job opens, the appropriate candidates go through validated, basic skills testing for cognitive reasoning, literacy, and math. “We’ve found in all of our analysis that brighter people are better employees in every category, in every way,” McMahan says. “They’re safer, don’t take as much time off from work, and are better performers.”

    Following a physical-abilities test, a background check is conducted. Since there is usually an abundance of job-seekers, HR can choose from those who rank the highest.

    Even flawless hiring practices, however, won’t yield performance without good preparation and guidance. FedEx’s extensive training programs—which have won the company numerous awards—begin with a formal orientation program that may take up to a month, depending on the nature of the work.


The philosophy is that knowledge is power. And a better-informed person is going to be better at what they do.

    The training involves several steps: The employees learn about the company with the help of electronic materials, about their relationship to others in the company, and about their relationship to their bosses. A courier will go through three additional weeks of training, and a customer service rep, five weeks. Managers receive 6 to10 weeks of training during the first year and are required to have 40 hours of training each year thereafter.

    “The philosophy is that knowledge is power,” McMahan says, “and a better-informed person is going to be better at what they do.

    “On a nationwide basis, one of the biggest contributors to non-productivity is the fact that people aren’t at work,” he adds. “In order to be productive, you have to have people on the job.” Thus, the way policies are written and the way employees are given incentives to come to work are important because they codify expectations and create a strong cultural mind-set.

    FedEx has made large strides in solving its absenteeism problem. Until recently, employees were paid for an unspecified amount of sick leave unless the individual was on short- or long-term disability. Today, employees receive five days. If the illness extends beyond that, they take time from their vacation hours. What’s unusual is that the company encourages people to come to work by paying them for any sick days that aren’t used during the year. Employees can earn an extra week’s salary if they don’t take any sick days.

    Since the new policy was implemented in June 2001, unscheduled medical absences have dropped by 32 percent. More than 40,000 employees (of 79,000 eligible) will receive an attendance bonus in August 2002.

    The company also prides itself on its human capital management program. Given the nature of its business, the firm has many jobs in which the likelihood of injury is higher than in other industries. Back injuries and knee strains aren’t uncommon. When someone becomes disabled, the program helps the employee coordinate medical benefits, follow up on a treatment regime, and understand how to navigate the health-care system.

    Employees are monitored and helped through the entire process so they return to work as quickly as possible. For those who are able to return on restricted medical releases, the organization tries to find them meaningful work until they have fully recovered. “It is a world-class program,” McMahan says. “It helps the employees get back to work more quickly and helps the company reduce absenteeism.” The program has reduced leave-of-absence days by 35 percent, average duration 26 percent, and the leave-of-absences returning to temporary or modified work by 68 percent.

An integrated approach makes high performance part of the culture
    FedEx illustrates that productivity is an outgrowth of motivated workers, supported by smart policies and given the tools they need to do the job. This is accomplished in a variety of ways. At Cisco Systems in Silicon Valley, productivity increased significantly in 2001 among the company’s 36,000 employees. Karen Horn, senior director of HR, says the goal “is to get to $750,000 of revenue per employee.” In quarters 1, 2 and 3, employee productivity increased from $470,000 to $518,000 to $530,000, respectively. “We obviously see increasing productivity as a bottom-line issue.”

    Cisco intends to meet its productivity goal by continually leveraging the Internet and looking for innovative ways to become more efficient. The company, which is listed as one of Fortune’s 2002 Best Companies to Work For, utilizes HR technology that streamlines and enhances every possible process, continually finding ways to make employees more self-sufficient, flexible, and productive. “And employees learn on day one that we make virtually everything a Web-enabled process,” Horn says. “They log on to the ‘New Hire’ main page and realize this is where they sign up for everything—benefits, filing expense reports, locating project information, and finding important metrics.”

    Using the Internet is simply part of the culture. It is used for a range of transactions. A manager might electronically transfer an employee or give a person a raise; an employee might go online if he wants to take a vacation, or initiate a performance appraisal, or leave the company. The system is transforming the workplace so that menial, repetitive, low-value tasks are accomplished by software instead of people.

    Digital performance evaluations are an example. Employees can receive information online that it’s time for a review, and can initiate the performance process with the supervisor. The manager receives the notice, and then can look at important data on the computer about the employee. An evaluation form explains what the expected behaviors, objectives, and activities are, and prompts the employee to fill in all the necessary information. The employee completes the form and sends it on to the manager, who receives an e-mail alert that information is available. For example, someone else in the company who has worked with the employee may also have to give feedback.

    The supervisor clicks on a “need-feedback-from-you” link and receives an e-mail form already filled out with the explanation and request for feedback. The manager simply fills in the specifics and waits for any other necessary input. When all of the information is in the system, the supervisor is notified, finishes the evaluation, and meets with the employee for a personal review.

    “I don’t waste any time figuring out what other input I need or what else is important to complete the review,” Horn says. “The system shows me what I need to evaluate and who else has to see it. All I have to do is focus on what I want to say.” In fact, she says it allows her to spend more time talking with an employee—a more important and productive element of her job.

    In order to reach the goal of greatest efficiency while enhancing service, every function uses technology. The corporate public relations department began news@cisco.com (part of the public Web site) as an effectiveness strategy for both staff and journalists trying to get information about the firm. The Web site receives approximately 165,000 unique visitors per month, and the public relations department has 16 employees. Not only would it be difficult for the staff to serve the vast number of inquiries, but Cisco also estimates that it costs $8 for a five-minute phone call with a journalist. One page view on the news site costs 22 cents.

Training cost savings
    Over the years, Cisco has won numerous awards for its e-learning initiatives. Each employee has a career-path plan and a curriculum related to the different steps involved in meeting goals. As employees complete courses, there’s a record of the tasks they have accomplished, and those that are outstanding. They can take many of the courses at their desks when they have time. Instead of traveling to workshops to learn about new products, salespeople can download e-learning modules onto a hand-held digital computer anywhere and at any time.

    Cisco estimates it has saved $42 million in training. It estimates that its total savings company-wide on all HR initiatives is $1.7 billion. The training figure is based on the number of salespeople who didn’t have to travel to conferences and the number of employees who took courses online.

Creating performance feedback
    Three years ago, executives at Extreme Logic, Inc., an Atlanta-based software company with 200 employees, asked its staff: “What can we do to improve your experience and achieve maximum potential?”

   The employees said they appreciated the company’s encouragement to give feedback and felt that the firm allowed them sufficient autonomy to act on many of their own instincts with customers, says Mike Williams, chief people officer. But they wanted even more control in making decisions, and more peer feedback. This input was important to them when interacting with customers, and also provided guidance about what personal skills to work on.

    Williams and an employee focus group determined that they wanted answers to two questions. First, how do employees actually know what they’re supposed to excel at? And second, was there a way to provide employees with information about customer perceptions and manager feedback more quickly? They said that waiting until performance reviews meant that it was too late to put critiques into action.

    What they came up with is called Extreme Evaluator, an interactive Web application that allows HR to insert any number of attributes that would predict success for an unlimited number of jobs. Every job is mapped out with the expected performance levels for each of those attributes. For example, a person who has a position in training or sales will have specific behaviors that match the job description, as well as corresponding performance levels to be met. Employees are judged on behavioral characteristics such as innovation and creativity. They are also critiqued on process traits. An attribute for a project manager, for example, might be “owns and drives the schedule and budget for the project.”

    Everyone receives a scorecard that they can access on the company intranet. Immediate feedback is available. The system sends employees outcomes so they can see where they’re performing well and where they need to improve. HR’s next step, which was introduced in the fall of 2000, was to integrate this feedback process into the performance-management system. This enables an employee to receive unsolicited feedback, midyear and annual performance-appraisals information, and team project reviews.

    “For the first time, no one feels that the manager has something that they don’t have,” Williams says. “Everyone has the same information.” The feedback is relevant and enables employees to focus on behaviors with positive customer outcome. Immediately after the rollout, there was an 88 percent completion rate for performance appraisals. Before 2000, performance appraisals were ongoing, ad hoc discussions that weren’t quantifiable.

    “The feedback is wonderful, and people realize that it is very predictive and valid for them, so the use is going up,” Williams says. Another key advantage is that the company has collected all the feedback and can document on a real-time basis where skill gaps are. It gives HR a better understanding of where to invest time and talent from a training-dollar perspective.

Absenteeism and the effects of stress
    Ironic as it may seem, as productivity growth rates are increasing, the costs of absenteeism and stress are also on the rise. According to the 2001 CCH Unscheduled Absence Survey (conducted by Harris Interactive), the annual cost per employee from absenteeism rose significantly, from $610 in 2000 to $755 in 2001. The direct costs of unscheduled absences increased 24 percent.

    HR, of course, also has an impact on non-health-related absences. In the survey, personal illness still accounted for the most frequent absences—32 percent; but 21 percent of employees were not at work because of family issues, 19 percent because of stress, and 11 percent because of other personal needs.

    “Every year we say the stress is greater and greater, but this year, with 9/11, the impact of stress has spread its wings even further,” says Dr. L. G. Shoner, health services vice president for Lucent Technologies in Murray Hill, New Jersey. “Stress and depression have a major impact on the productivity of the workforce.”

    While the costs of absenteeism are immense, stress and depression are other huge factors affecting costs and productivity. “All across America, people are being asked to work harder and, in many cases, longer hours, and people are stretched,” Shoner says. “We see a loss of balance in their lives, which can result in sleeplessness, inability to concentrate, and irritability.”

    People may be spending more hours at work, but they may also be accomplishing less because their ability to think clearly suffers. Nancy Kaylor, a workplace analyst for CCH, says people feel tapped out because they are being asked to work longer hours and juggle more personal responsibilities.

    But there are signs that organizations are paying attention to employee needs. “Companies are starting to realize that it does make a difference in the overall health of the person and their ability to function in the organization if the person is not able to effectively manage their personal lives and their work,” says Karol Rose, managing director of Workforce Effectiveness at Life Care, Inc., in Westport, Connecticut.

    As organizations search for solutions to these problems, many are looking closely at work-life balance and absence-control programs. According to CCH, alternative work arrangements, telecommuting, and compressed workweeks are common solutions.

    To achieve long-term productivity gains, those closest to the issue agree that addressing the problems of stress, depression, and family pressures is a prime objective. But, they warn, companies really are expecting people to work harder. At a time of economic uncertainty and layoffs, employees are capitulating. The question that HR professionals are asking is this: How long will employees maintain their good cheer? They may work harder and longer because they feel stuck now, but they might not be as sanguine as the job market heats up. As Professor Cappelli says, for productivity rates to continue to shoot up, employees have to believe they won’t be hurt by the very improvements they created.

Workforce, August 2002, pp. 28-32 -- Subscribe Now!

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