Service Parts Operations (SPO) is the 12,350-employee division of General Motors Corp. (GM) that makes sure GM dealers, AC Delco distributors and retailers have "the right part at the right time at the right price." The division works this mantra through 30 warehousing facilities around the world. It has a tradition of achieving productivity improvements in its operations through changes in systems and processes, and has been quite successful in doing so—the division is reporting strong financial performance and productivity gains.
But division managers—including Bill Lovejoy who became the division’s new general manager in 1992—didn’t believe his division’s employees were reaching their full productivity potential. He was right. When he invited three major customers in for a heart-to-heart talk about business, he discovered that SPO wasn’t meeting its customers’ needs. In addition, a survey that SPO participated in for warehousing and parts supplier companies, showed the GM unit came in 10th place out of 10 companies surveyed. These dismal results were contrary to data being analyzed from internal performance measures. There clearly was room for improvement.
Lovejoy believed that to reach the next level of productivity, some of the softer, human-capital issues of leadership style and supervisory skill would have to be addressed.
SPO leaders hired Design Dimensions International (DDI), a training and development consulting firm based in Pittsburgh, to assess desired management competencies, including personal leadership characteristics, business direction, communication and implementation (ability to execute); to conduct the training; to address shortcomings; and to provide individual coaching.
Rod Driggett, a director in the GM Service Parts Operations world headquarters in Grand Blanc, Michigan, says: "We wanted to make these changes in the entire division, but only after the changes were successful at pilot locations. We decided to do a pilot, and at about the same time, [staff in] one of our corporate research activities were looking for a test-bed for evaluating the business impact of HR initiatives." Adds Driggett: "We wanted a better sense of how valuable these changes would be, and they wanted to focus on measuring [their investment] value. It was a natural match."
SPO leaders engaged us (the measurement team) to determine if all the effort and expense was worthwhile—to see if a statistical basis exists for a linkage along an employee-customer-profit chain.
The leadership training effort got the ball rolling. The leadership training was done in 1995 at the pilot facility. All senior leaders attended the two-day assessment per a directive of the general manager. An assessment center "in-box" exercise was used to identify strengths and weaknesses of the desired supervisory competencies.
All managers in the organization participated in the assessment, including clerks, supervisors, superintendents and the plant manager. Approximately 90 employees went through the assessment onsite. And another 10 people, the plant staff, attended a two-day assessment at DDI’s center in Pittsburgh.
Based on individual performance in the assessment center, each supervisor developed an individualized development plan with his or her DDI consulting coaches and immediate supervisors. The supervisory training included a variety of management simulations and focused on skills in coaching, developing accountability, promoting teamwork, quality, safety, communication and customer relations.
Follow-up and consultation on these skills is ongoing. In addition, the new plant manager brought a leadership style to the organization that supported the culture that divisional leadership desired. He had earned a reputation for providing resources and empowering the workforce along with a strong focus on individual and team accountability. GM leaders wanted to make these leadership characteristics stick throughout the division and wanted to measure their impact on the business.
Measuring the change. These leadership changes made the pilot location ideal for designing an experiment that would answer the following four questions:
- Did the culture of the leadership team change at the location?
- Did performance change in the same direction?
- Were the two connected? What other factors might account for the performance improvement, and how much of the benefit should be attributed to the management intervention?
- Did the performance change enough to make it worth all the costs, including management time, consulting fees and expenses, and so on?
As the measurement team, we decided to answer these questions with a classic experimental design and data-gathering approach. Data were collected at the pilot location before and after the leadership development intervention was implemented to see what changes occurred. A control group of four similar facilities was examined on the same parameters to isolate the effect of the changes from other environmental factors. Each plant in the study had approximately 100 supervisory employees.
The design is similar to that of a drug-efficacy experiment—one group got the "medicine" while another didn’t, which helps distinguish the drug’s effect. Division leaders suggested using measurement tools already in use for analyzing organizational culture. The measures of culture were developed by using results from an annual all-employee survey called the Employee Environmental Assessment Survey (EEA). The EEA was distributed just before the changes and again as the last major changes were being made.
Again, because there was a decision to use existing measurements, Ron Goins, divisional manager for operations effectiveness, provided performance data both before and after the management-development intervention. The team focused on performance measures that division leaders felt were solely influenced (or nearly so) by the operating unit.
The results are dramatic. In 1994, before implementing the management development intervention, the pilot location had unfavorable culture ratings, compared with the control group facilities, on each of these dimensions. By 1996, the pilot location had improved dramatically, while the control group facilities’ culture ratings actually declined. Furthermore, the change in culture (as recorded by the EEA) could be attributed to changes in answers to a few key questions on the survey. The following questions showed the greatest change in employee response from 1994 to 1996:
- Continuous improvement is emphasized in my organization.
- I have the resources I need to do my job.
- Different departments in my organization cooperate with each other to get the job done.
- I receive the support I need to do an effective job.
- Teamwork is demonstrated by top management in my organization.
There was another important discovery as our measurement team looked at the initial data runs. Management and employee satisfaction showed a greater improvement at the pilot location than among the control group. The measure of employee satisfaction was a composite response to the following three questions in the EEA:
- Considering everything, how satisfied are you with your job?
- How would you rate GM as a company to work for compared with other companies?
- Considering everything, how would you rate your overall satisfaction with GM at the present time?
Using employee satisfaction as the dependent variable, we performed a regression analysis with the responses to the other questions in the survey. The regression analysis results revealed a strong link between employee enthusiasm and people development. Nearly 90 percent of the explained variation in employee enthusiasm at the pilot location was attributed to survey questions that focused on people-development behaviors by managers. For example, scores for questions about role clarity and personal authority, availability of resources, utilization of personal skills and recognition had a favorable improvement by employees in the survey after the leadership development intervention. This finding wasn’t a surprise to the measurement team or to division leaders because of the heavy emphasis on training.
It was apparent that the leadership changes and skills taught by the management training were having a strong impact on the way employees perceived the culture. The culture was clearly changing in the direction intended by management, and division leaders believed the leadership-development strategy was responsible for the positive change, because the change was more successful at the pilot location than the control group facilities.
Impact on the bottom line. At the same time we were evaluating the culture change, we also tracked business performance. In 1994, the pilot location had mostly unfavorable performance measures, compared with the control group. The pilot location’s performance was 15 percent less overall than the control group facilities’.
By 1996, the performance at the pilot location was better than the control group facilities’ in five key areas: schedule attainment, quality (errors per order line), productivity (lines shipped per hour), health and safety (recordable injuries per 200,000 hours worked) and absenteeism.
Finally, as the measurement team, we normalized and equally weighted the performance measures to help determine the relationship between the improving culture and improved performance. The pilot location was the only facility that improved both culture and business performance during the period of time the leadership development intervention was being implemented. Division leaders feel this fact strengthens the argument that there’s a direct relationship between the desired culture and performance, and because of this, they’ve decided to expand implementation of the management development strategy and continue the measurement study in the coming year.
The benefit outweighed the cost. Our measurement team started with four specific questions. Two of the questions were clearly answered just from the data on culture and performance and the remaining required some management decision making. Division leaders and the measurement team were unequivocal on positive answers to the following questions—the data clearly indicate that both answers are "yes":
- Did the leadership culture change at the location?
- Did performance change in the same direction?
The tougher questions revolved around the cause-and-effect relationship between the culture change and business performance change. In a series of meetings, GM’s SPO leaders and plant managers considered the other possibilities for the change in performance. They tried to eliminate causes that applied to all locations (the control group facilities helped isolate those things that affected all facilities in the study). Additionally, these groups were asked to assign weights to the possible explanations for the change.
Aubrey Woodfolk, plant manager for the pilot location, provides additional insight: "The real benefit of this intervention is that it accelerated our performance-improvement plans. Our supervisory development efforts helped us focus the expertise of our management team on our business opportunities and achieving the full potential of all employees in our organization." This was key information to the measurement team and divisional leadership in answering what was probably the most interesting question of all—was it worth it financially?
To address this issue, we examined the expenses associated with the management-development intervention. Expense items included in calculating the total cost of the intervention were consulting fees and expenses and training materials. Because employee wages are an ongoing expense, training and coaching time weren’t included in the cost of the intervention.
The benefits of the culture change and management development intervention were a little more challenging to agree on. A 21 percent productivity improvement at the pilot location resulted in nearly a $4.4 million savings to its operating budget. SPO division leaders were willing to assign 30 percent of the performance improvement at the pilot location specifically to the leadership/culture change initiative. They could have just as easily assigned a percentage much higher or lower. However, a claim of only 7 percent is required to deem this intervention worthwhile financially.
We didn’t calculate the dollar savings for the other measures (quality, health and safety, schedule attainment and absenteeism) which could be significant.
The final conclusion was that the leadership development intervention to bring about cultural change at the pilot location led to a performance improvement of greater value than its cost. This finding created the go-ahead for implementing the leadership development and environmental change intervention at other locations in the division.
Division leaders and our measurement team also discussed how the methodology of the study could be refined to provide better understanding of the relationship between culture and performance. Of particular interest is the effect of the dimensions of culture that are the foundation of the GM Service Parts Operation leadership model which include business direction, implementation, communication, personal leadership characteristics, people development and teamwork.
As more units are added to the study, it will also be possible to conduct a causal path analysis assessment to better understand these relationships. Additional readings this year may reveal that the full performance gains have only begun to occur at the time of the second measurement observation. It’s also possible that performance could deteriorate if people were to return to their earlier behaviors. It may also be that as more locations are added to the study, the data will point out anomalies that lead to investigations that uncover other causes for performance improvement. Whatever future studies reveal, there’s one inescapable conclusion—measuring culture change and performance change simultaneously gives organizations powerful insight into the impact that human resources investments have on the bottom line.
Workforce, April 1998, Vol. 77, No. 4, pp. 62-68.