(Who's to blame when workers can do better, but don't: the workers or management? Mary Barra, president of GM knew very little about why no action was taken to correct the safety defect in their cars' safety switches. The brass are the last to know, especially those at the top. Even in my small company I had no idea that my employees could do better if they were motivated to do so.)
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Our company was dead in the water. All growth plans were off. Our bottom line had been hovering around break even for two years. Worried that we might start sinking, we formed a MANAGING COLLECTIVE to ask ourselves: how can we run the company better, fatten the bottom line, improve individual performance, and provide more security? How, How, How?
The MANAGING COLLECTIVE consisted of a member from each Department that met each morning from 8:00 AM to 9:00AM before the phones started ringing. I would propose a company problem for discussion. During such meetings all of us were equal until the hour was over at which time we reverted to our earlier positions of authority. Each member of the COLLECTIVE came from the various departments and served for a month to be replaced by a new member. Management people however were regular attendees.
Here were some of the proposed ideas:
Introduce innovative methods and utilize better equipment, suggested our snappy Production VP. What specifically did he have in mind? Silence.
Our solicitous female office manager asked: aren’t human beings really at the core of a business’s success or failure?
The discussion was joined.
How do people get other people to do better?
Praise?
As a benevolent autocracy, we were already doing that by means of token awards and kudos posted on the bulletin board.
Better wages?
Though we were a nonunion company, our wages were deliberately close to those of our unionized competitors, and we offered more benefits.
An Incentive? (This one stuck,)
Maybe, but not the traditional meager Reward that most companies offer to motivate their people. How about something achievable, substantial, and immediate? Who could possibly resist, say, the possibility of increasing his or her paycheck by 20 to 25 percent each month—enough to pay the rent?
We focused on productivity. Because our workers’ productivity constituted the essence of our profitability, we devised their incentive plan first.
Any improvement in production would have to be directly measurable. To measure performance, we established a base line for comparison’s sake: the historical average hourly output per production line—specifically, the average number of Widgets we had produced per hour on a widget machine for the last five years. Because the rate was amazingly consistent, we knew our manufacturing cost per widget. Any increase in the production rate reduced that cost and generated a specific number of extra dollars, which we wouldn’t have made otherwise, to be divided between the company and the workers directly involved. A suitable ratio, we decided, would be one part to the worker, two parts to the company.
At month’s end, after calculating the difference between the improved rate and the historical rate, we posted each production line’s results on the cafeteria bulletin board. We included the bonus sum (arrived at by a simple formula) due each team. Thus, with monetary reward came recognition. The members of the top team were, at least for a month, the acknowledged pros.
The Team?
Several interdependent steps were necessary to produce a widget. Each required special skills in several departments and across all shifts. We defined a member of a particular team as anyone who was directly involved in a specific way with a particular production line, regardless of department or shift. Those departments that serviced all lines, shipping and receiving for example, or maintenance, received an incentive reward based on the average gain for all teams combined. Therefore, it was in those departments’ interest to contribute whatever they could to the efficiency of every line and every worker.
Because reward was given for team—not individual—effort, cooperation between workers superseded competition. An unanticipated benefit surfaced. The slackers, those who couldn’t or wouldn’t produce at the pace the team set, quit under intense social pressure. When the remaining team members asked that we not hire replacements for those who quit—because fewer members meant greater individual reward—we were skeptical. But the teams soon became so efficient and self-regulating that even supervision became unnecessary.
Some of our foremen and supervisors, finding themselves superfluous and bored, went for the money and became workers themselves. Others were transferred to our new Midwest satellite division. Not only had the incentive improved productivity, it also reduced portions of our fixed costs.
The effect on the bottom line was dramatic. In a few months we attained the 20 percent increase in production we had originally envisioned. But quality problems developed. Simply increasing the production of widgets wasn’t enough. They had to be perfect widgets accurately meeting customers’ specifications. But mistakes were bound to happen, and some defective widgets were produced. We had no complaint if this happened only once in a while and we keep it in the family. But the bad widgets better not get out the door and into customers’ hands.
Meet the negative incentive. Every widget could be traced to the team that made it through an ID (lot) number. The cost of restoring or replacing widgets returned by a customer would be deducted from the responsible team’s future reward. Quality improved, so that returns—once at a 1 percent level—became negligible.
We coasted for a few more months, pleased with ourselves. Then the worker member of our management collective revealed that we could expect still better performance, under one condition: that we not tamper with the original base line, the historical average we had established. Usually when performance improves, doesn’t management revise the norm as justification for eliminating or reducing the reward?
Astonished, we asked the worker whether our people had been taking it easy in previous years. The worker’s reply: They had never been given reason to produce more than management expected. Thus it had been a failure of management, not the workers. Immediately I had posted on the bulletin board, and in a notice placed in every pay envelope, my signed promise that under no circumstances (except for a change in equipment or process) would the base line be altered as long as I remained CEO. That’s all the teams needed to know.
At one point during the next two years, our roster of a hundred employees fell to only thirty-five. But they produced 50 percent more output than that of our pre-incentive era.
The team incentive demonstrated how powerful such a plan, unshackled from profits, could be. Therein lay the magic. We introduced a similar plan into every department (the office, lab, maintenance, shipping, even middle management) and went on to unprecedented profitability.
Can we conclude from this that American workers are apathetic and lazy? Or should we conclude that they’re merely reacting to management’s shortsighted greed and cynical unwillingness to reward?
