Why does productivity decline? Maybe that’s the wrong question

Productivity metrics were essential a hundred years ago, during the manufacturing era. At the time, organizations measured success with metrics such as hours worked, revenue per employee, and machine output. But now inside the Fourth Industrial Revolutionthe next era of technology and innovationgrowth engines are people-oriented. To measure productivity, organizations need a new mindset that puts the spotlight on employee engagement.

The problem with productivity

According to Deloitte, despite technological advances in recent decades, labor productivity in the US, UK and Europe has declined. These statistics don’t seem to add up. Shouldn’t technology make us more productive? Yet the findings are correct. Even in the first quarter of 2023, US labor productivity fell by 2.1%, the lowest rate since 1871.

What’s the problem? It may be less about employee behavior and more about the metrics themselves. This is why:

  • Productivity metrics are designed for machines and production.
  • As a primary measure, they can be short-lived and limited, missing the bigger picture.
  • Higher production does not mean better results.
  • These statistics do not reveal the ‘why’ behind the numbers.
  • Emphasizing productivity can undermine rather than optimize output.
  • Employees may spend too much time on “performative work” that only seems productive. Deloitte’s research shows that 32% of employee time falls into this category.
  • Productivity data may exclude contractors, service providers, and other non-employee contributors.
  • These statistics do not take into account employee well-being and therefore do not take into account burnout or employee turnover issues.
  • Soft skills are ignored. This includes efforts in creativity, leadership and adaptability.
  • Today’s companies are judged through a lens of environmental and social impact, diversity and sustainability.

What’s wrong with this measurement photo?

Although quantitative productivity metrics track activity, they can overlook where much of it takes place. What if we automate repetitive tasks so people can solve problems? How can we measure that?

Furthermore, these measures say nothing about whether productivity actions are the right move, or whether they will generate revenue in the long run. Imagine, for example, that the numbers say we served 300 customers last month. But are they satisfied? Will they return?

Or what if we produced 3,000 units last month? This brings us to an important point about the role of production team leaders. What about the quality? Did quality decline because leaders focused primarily on volume goals? And what about the opportunity cost? Has the focus on production output suppressed a team leader’s idea for a new product that could have led to increased sales?

Focusing on quality and revenue-generating results requires committed, enthusiastic employees. For example, if the same production team leader had felt more valued, would she have worked harder to get approval for her idea instead of just meeting productivity goals? These types of questions are important to keep in mind. After all, motivated, committed employees are naturally more innovative and productive.

What must we do?

It’s time to move from strictly measuring productivity to a more holistic approach. Instead of focusing on production outcomes, we need to focus on human outcomes and measures of success. Employee involvement is a crucial part of this. Results are about value, quality and results. This includes customer retention figures or growth through innovations. Furthermore, the increasing emphasis on measuring environmental, social and governance impacts means that productive companies need to think differently.

In 2022, Microsoft analyzed surveys from more than 3 million employees at 200 companies. The results showed that companies with the most engaged employees outperformed the S&P 500. Notably, each additional point of engagement directly correlated with a $46,511 difference in market capitalization per employee.

Involving employees in the sustainability of the organization

But what is employee engagement, exactly? It is about the emotional involvement and connection that employees have with their work, team and organization. Involvement means enthusiasm, active contribution and doing your utmost. It can be characterized by job satisfaction, a sense of purpose and a desire to achieve business goals.

Especially for frontline employees, the relationship between engagement and business results is significant. Employees who interact directly with customers, products and services make up 80% of the global workforce. These frontline employees influence customer satisfaction, retention, product quality, innovation and reputation. So, improving the engagement of frontline employees can obviously improve business results and support growth. In fact, research shows that an engaged workforce can increase profitability by as much as 21%.

How to increase engagement

There are many ways to increase employee engagement. The most effective approaches typically include multi-faceted strategies and initiatives that respond to the diverse interests and needs of employees. Start here:

1. Adopt a people-oriented mentality

Engagement doesn’t happen without the right intention and environment. Research shows that more than 80% of employees want to be seen as a person rather than an employee. However, only 45% believe their company sees them this way. This is where a supportive culture can make a measurable difference. It is essential to treat employees as people and enable them to perform successfully.

2. Emphasize internal communications

Clear two-way communication is part of a people-centered workplace. Its importance cannot be underestimated. Open communication promotes engagement by creating a sense of connection, empowerment and shared business goals. It also tells employees that every voice matters and everyone is heard. Team meetings, feedback sessions, collaboration processes and idea-sharing platforms can make employees feel valued.

3. Cultivate an environment of community and recognition

Recognition and a sense of community go hand in hand. To build morale, recognition from leaders is essential, but recognition from peers can be just as powerful. When colleagues appreciate and recognize our hard work and contributions, we become even more motivated to perform well.

4. Invest in skills development and career growth

Most companies already offer employees opportunities to learn new skills and advance in their careers. However, professional development is even more important in today’s rapidly changing world. When employers invest in ongoing training, reskilling and individual growth, it demonstrates their commitment to everyone’s long-term success.

5. Empower leaders to serve as a guiding force

Leadership by example is essential in creating a culture of engagement. To achieve measurable organizational success, leaders must communicate, empower, inspire, advise, support, recognize and persevere with inclusive management practices and processes. This requires not only sufficient skills and capacity, but also a top-down commitment from the organization to help leaders make it work.

6. Use technology to improve human performance

Technology can improve the work of frontline workers. New technologies can automate repetitive tasks to reduce monotony, free up time for solving human problems and improve innovation. Easy-to-use tools and apps can reduce stress. Digital planning platforms, employee engagement platforms, mobile apps for workplace support and gamified training can all make work engaging, enjoyable, efficient and effective.

Frontline workers likely won’t be as concerned about technology replacing their role if they can take advantage of new tools that help them work better. Additionally, technology can help drive a culture of engagement that improves human outcomes.

7. Implement relevant frontline workforce metrics

While traditional productivity metrics may seem outdated, the concept of metrics remains relevant. However, today’s employers need metrics that can better assess the engagement of their frontline workforce by combining both qualitative and quantitative methods. It is also important to distinguish between employee engagement and satisfaction, recognizing that individuals can be satisfied without being fully engaged.

To accurately measure engagement, it helps to rely on a combination of observational and survey-based metrics. Useful survey-based metrics include employee satisfaction and net promoter scores. For viable observational metrics, consider tracking retention rates, employee turnover, absenteeism, and instances of peer recognition.

With this comprehensive approach, leaders can gain deeper insight into the dynamics of employee engagement and adjust strategies and management practices accordingly.

New benchmarks for business success

Productivity remains essential for every sector. However, we can achieve this more effectively by moving away from counting activities.

What’s the secret? Build a people-centered environment where employees feel welcome, equipped to solve problems, and empowered to do their best. Pursue a multi-faceted strategy based on leadership, communication and processes that encourage and celebrate participation and innovation. This can inspire the kind of engagement that is measurable both qualitatively and quantitatively.

Ideally, employee engagement should be part of a full suite of performance measures that drive operational success and long-term sustainability. These metrics include revenue and profit, targeted KPIs, customer satisfaction and market share. They should also include project and product ROI, cash flow and operating costs, productivity and engagement. In combination, this type of comprehensive analysis helps leaders make more informed decisions that improve frontline workforce engagement while driving better business results.

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