Those who have worked for a company that struggled during the recent financial crisis know the scenario all too well: The business lays off workers to shed costs. The surviving employees are grateful to keep their jobs and assume extra duties, helping companies significantly ramp up their production per hour worked.
Experts say the new pace can’t last forever.
“We’ve been running so lean for so long that it’s starting to hurt companies profitability-wise, morale-wise, culture-wise,” said Ron Rael, CPA, CGMA, founder of the High Road Institute leadership consulting firm. “And more importantly, employees are starting to get burned out.”
Indeed, there are ways for companies to continue to do more with less by leveraging technology, providing training to help workers become more efficient and making sure employees’ duties match their skills. But Rael said companies also need to increase staff. He foresees huge medical costs in the future to repair the bodies of weary employees who have worked too many 50-, 60- and 70-hour weeks.
Rael, an author whose published works include The Traits of Today’s CFO: A Handbook for Excelling in an Evolving Role, said productivity is bound to fall in the near future. He said many employees can’t physically sustain the pace at which they have been working during the downturn, and that many companies will need to address the problem. One answer might be more hiring, which could decrease per-person productivity in the short term, but would help prevent burnout in the ranks.
But with the global economy still sputtering, relief doesn’t appear to be in the forecast. Finance executives participating in the CGMA Global Economic Forecast survey for the third quarter predicted in aggregate a staffing level increase of just 0.7% over the 12 months following the survey.
Some companies are cutting rather than hiring. Ford Motor Co., Dow Chemical, Newell Rubbermaid, Advanced Micro Devices and DuPont all announced layoffs in October. UBS announced last week that it is downsizing.
And so fear of layoffs, not hiring, may continue to drive productivity trends in the near term. Studies show that workers continue to work while they are sick, partly out of fear of losing their jobs. But sick, anxious workers can be a drag on productivity and can negatively affect other workers’ health.
Nonetheless, the push for greater productivity continues. A KPMG report focusing on financial services firms says that, in a low-growth, capital-constrained business environment, continuous improvement in productivity is a strategic necessity.
“This may seem daunting,” Martin Blake, a partner with KPMG in Australia said in a statement. “But there is no realistic alternative.”
Mismatches … and an exodus?
In addition to worker illness and burnout, business leaders find themselves facing two conundrums with respect to their employees.
First, there is a mismatched labour pool. Cathy Sexton, owner of The Productivity Experts consulting firm, said that in addition to heaping more responsibilities on workers, layoffs often saddle employees with duties that do not match their skills, which previously were handled by their downsized colleagues.
“You’re going against what’s natural for you to do, and along with possibly not liking it, the employees are thinking, ‘I can’t lose my job. I’ll do whatever they want,’ ” Sexton said. “And you just can’t sustain that for a long period.”
Second, there is risk of a talent exodus. The economy has improved enough so that many high-performing workers can find new jobs. Companies that continue to try to squeeze every ounce of productivity out of employees risk losing them. Seventy-one per cent of executives said they had high or very high concern about retaining critical talent, according to a report released by Deloitte in January.
Workers are in a “wait-and-see” mode in an uncertain economy, said Robin Erickson, a human capital specialist at Deloitte. She predicted that those workers will be eager to leave their current jobs as soon as the economy improves. “As soon as people are once again feeling confident, they are going to be, like, ‘I don’t like how you treated me,’ or, ‘I can get a salary bump,’ ” Erickson said.
How to manage
This puts managers of businesses in a precarious position.
Hiring new employees to relieve overburdened workers can be difficult to justify because growth still seems uncertain for many businesses. After all, Europe still is battling its debt woes, the United States faces the fiscal cliff, and even China’s economic engines show signs of slowing.
So increasing productivity may be one of the few ways to raise profits, but weary workers, in many cases, have been giving maximum effort for far too long. So if a company is going to raise productivity, it needs to find other ways to do it. Experts suggest the following methods:
Leverage technology. Technology can help employees do more in less time, but only if the employees know how to use the tools properly. “The biggest [mistake] companies [make] is, ‘OK, let’s add in the new technology,’ but they don’t give the people the training that they need,” Sexton said.
Rael said tech-savvy young employees often are disappointed to see their workplaces using out-of-date tools. “They probably can come up with creative solutions on how to use technology better and look at the work we do in different ways,” Rael said. He tells CFOs and controllers to rely on these employees on implementation and change teams to find better ways to do things.
Match duties with skills. Downsizing has forced many employees to take over duties that were handled by colleagues who were laid off. “People took on jobs or portions of jobs that really didn’t fit them, don’t suit them, don’t fit what I call a ‘natural productivity style,’ ” Sexton said. Training and rearranging duties are two ways to align workers’ skills with their obligations.
Educate. Many firms cut back on employee development during the economic crisis, Sexton said. Productivity should increase if employees are better educated. “You have to constantly be feeding them new information, new techniques, new processes … not only from the [standpoint] of giving them new skills, but also just to keep on top of what they already know,” Sexton said.
Get lean. Much inefficiency already has been cut, but Rael said companies still can find more ways to implement the “lean” philosophy made popular by Toyota that advocates maximising value creation while minimising waste. “If a company made a commitment to digitise every single document and throw away the paper and put it in a database that’s retrievable, employees would save hours each day finding stuff instead of digging through filing cabinets,” Rael said.
Although these methods can help boost productivity, Rael said companies need to increase staff to be prepared to take advantage of opportunities. He said the most dedicated, valuable workers are the ones who suffer the most when companies try to do more with less.
When companies choose not to hire to save money, Rael said, they are deferring a cost.
“The cost is the impact on their existing employees,” Rael said. “And that cost is starting to catch up with them in terms of the toll on health, in terms of productivity and in terms of their employees’ willingness to seek out new ideas, embrace new technology [and] embrace new concepts like ‘lean.’ Because they don’t have the time or the interest to do it.”
—Ken Tysiac (email@example.com) is a CGMA Magazine senior editor.