By REY ELBO on October 17, 2017 Business Columns

REY ELBO

THE CEO of one medium-sized enterprise woke up one morning to a serious management issue. Without
taking his breakfast at home, he rushed to the office and convened a meeting with his department heads.
His number one concern: labor productivity a basic issue often ignored by corporations that are
earning a lot of money.

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Why bother when our gross revenue is at its highest? Our customers cant resist buying our products,
even in cash, the managers nervously chorused with a wink. But the CEO is not convinced. Yes, the
organization is earning tons of money, but at the end of the day, the expenses come close to choking the
net revenue, leaving the organization with little profit.

The CEO is bent on improving their labor productivity, which to his mind is the easiest to tackle. With no
choice, the managers countered with an innocent question: Really, how do we define productivity?

Forget about its technical definition. Let me offer a simple idea productivity is doing more, with less
company resources. And when we talk about labor productivity, it means producing more products or
rendering efficient service, with the least number of workers. Labor productivity is different from Total
Factor Productivity, which covers all areas of production, such as manpower, machine, material and
method, among others.

Many organizations cheat by hiring endo workers and would consider only regular workers as the basic
component when they compute labor productivity. The cheat sheet in most companies includes having a
ratio of temps and regular workers at around 90 percent to 10 percent. But with the current
administrations thrust against contractualization, how do you propose to perpetuate this so-called
improved labor productivity with endo workers?

Not many people know there are two basic approaches, classified here as either the American or Japanese
style of management. Imagine doing the American style of labor productivity, which is very common not
only in Western countries, but in the Philippines as well. Suppose the CEO in our story directs his
managers to increase the labor productivity of the company by at least 20 percent? Then how are they
going to do it, given this simple and easy to understand scenario: Lets say with a company producing 100
electric fans a month with the help of 10 regular workers.

If that company opts to use the American approach of improving labor productivity, its management
would simply dismiss two workers and require the surviving eight to make the same amount of 100 units
a month. Easy does it! The result is 20 percent productivity improvement. Indeed, its a no-brainer.
How about the Japanese style of improving labor productivity? The solution is a socially accepted
approach. First of all, management should commit to a no-firing policy. Instead, the 10 workers will be
required to produce 120 units of electric fans a month, or even top that. Thats also a 20 percent labor
productivity improvement.

The Japanese style is the better strategy. Knowing that management would not resort to indiscriminate
firing, the workers would be more than cooperative to comply with the management directive, making
them more productive and loyal to the organization in the long term.

Related to the Japanese style of management, and if it cant be helped, theres no other way but to reduce
the number of temps. For the regulars, they must be transferred to other areas within the same company,
where they are best needed, if not trained in other tasks. In extreme cases, they are assigned temporarily
(or seconded) to the suppliers, subcontractors, even their customers who are requested to pay for the
workers pay and perks, because they will benefit from the expertise.

The basic principle in common-sense management is this: the fewer employees on the line, the higher
labor productivity. More than this, it minimizes quality issues, since fewer hands present fewer
opportunities to make mistakes or defects according to my former boss, Masaaki Imai the Kaizen guru,
who advocates the non-firing of employees as a result of any continual improvement activities in any
organization.

Productivity is never an accident. It is always the result of a commitment to excellence, intelligent

planning, and focused effort, says Paul Meyer in launchyourgenius.com. To do this, you have to measure
labor productivity. If you cant measure it, you cant manage it. Without labor productivity measures in
particular, you will never know if management efforts actually contribute to increased productivity.

And thats where one should use the following formula: total number of working hours divided by the
total output, equals the total labor productivity. For example, if a worker has 40 hours a week with total
output valued at P30,000, then his productivity is P750 per hour in a week. But what if that worker is
earning P1,000 per hour? Then, youll readily know where the problem lies, and management can quickly
understand what to focus on.

If management doesnt know how to compute this, at best, it may only be rocking the chair without any
foreseeable result, other than a good afternoon siesta for granny.

Now, whats the Filipino style of improving labor productivity?

Rey Elbo is a business consultant on human resources and total quality management as a fused interest.
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