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Integrating Man And Machine

Despite the billions spent on technology systems by business, CEOs are hard-pressed to show a payoff for their investment. In a survey of 475 CEOs, a pattern emerges revealing how market leaders integrate high-tech and human resources. Training is the key-even more than the technology itself.

Our CEO readers tell us that a trained, talented work force is their single most important competitive advantage.

People issues continuously surface as crucial in CE polls. In 1988, 60 percent of CEOs rated human resource development among their top three priorities over the next 10 years. In the same survey, 55 percent rated organizational development as a priority. In 1990, 73 percent of CEOs believed that U.S. businesses emphasize quality, and almost three-fourths had formal quality improvement programs in place. And just last year, in a study of global imperatives for excellence, 45 percent of respondents ranked “people” as the most crucial competitive resource.

But how best to deploy the human element within corporate systems and structures? What are the barriers to success and key management considerations of human integration? To answer these questions, we asked Coopers & Lybrand’s Management Consulting Services to analyze survey responses from our readers in the manufacturing and service arenas. Some 475 CEOs responded, representing a wide range of industries, including fabricated products, service, construction, agribusiness, and financial services. Demographically, 35 percent of respondents’ firms have annual revenues less than $50 million, and 52 percent have revenues between $50 million and $500 million. An additional 12 percent have revenues of more than $500 million.

Our key finding: The integration of people with processes is deemed important by chief executives, and it is commanding their support. Most companies plan for human integration, and many measure progress in this area. Overall, senior management is allocating more budget dollars to such people-oriented programs as process improvement teams, team building, and employee/peer recognition or reward systems. Even vendors and suppliers are involved, and the efforts are reaping rewards that include increased customer satisfaction, increased employee job satisfaction, and reduced errors or defects.

FOLLOWERS AND LEADERS

When we clustered the industries, we found a nearly even split between service and manufacturing. When asked to rate their ability to integrate human resources, responding chief executives generally gave their companies high marks. More than a third (36 percent) felt they were “leaders” or in the top quartile of the population. Another 32 percent felt themselves to be in the second quartile, which we described as “rapid followers.” Others comprised the remaining quartiles.

The demographic picture of the leaders is remarkably similar to that of our overall respondents, showing nearly an identical split between service and manufacturing; comparable revenues; a similar past rate of growth, but a more optimistic outlook for the next five years. Forty-eight percent of the leaders look for growth of 10-20 percent in revenues, while 43 percent of the responding population anticipates a similar growth. (Nearly half-46 percent-had compound annual growth rates of less than 10 percent over the past five years.)

More leaders have formal plans with consensus at all levels, and over two-thirds said their human integration strategy is part of the company’s business plan. Although CEOs were generally rated as supportive of human integration, leaders gave their CEOs even higher ratings, and CIOs were seen as more supportive among this group.

Leaders involve 75-100 percent of the work force in integration efforts. They are less concerned with cost issues, either as harriers to human integration or as outcomes of integration efforts. Their programs generate more results in the areas of customer satisfaction and employee esprit de corps.

“Companies that have been really successful have broken the code vis-a-vis employee involvement,” says Dave Carr, a Coopers & Lybrand partner who specializes in quality consulting. “They have viewed their people as assets and invested in them.” Carr notes that although a lot of CEOs rate themselves as leaders, C&L’s experience has shown that the true success stories are few and far between.

The following outlines some of the most important factors in successful human integration programs for both leaders and smaller companies:

Strategy. The vast majority of our survey respondents had integration plans. In most cases (40 percent), the plan was a written one with measurable objectives and milestones. Leaders linked their plans strongly to business plans, as did revenue growth. This link would seem to be critical. “As critical corporate assets, human resources ought to be considered in strategic business planning,” says Carr. “Companies that don’t do that are only paying lip service to their human resource component.”

Supportive senior management. Top management (CEOs and COOS) were generally seen as highly supportive of human integration (see Exhibit II). COOs got particularly high ratings among manufacturing companies. CIOs, on the other hand, were rated most supportive by only 41 percent of respondents, though they fared a hit better among leaders.

Two interesting differences appeared: CIOs were the only group that a significant number of respondents (30 percent) rated as “neutral.” Engineering VPs got higher ratings from larger companies than others.

Budgets. More budgetary dollars are going toward quality improvement and employee training, especially among leaders (see Exhibit I). A significantly high 70 percent of respondents said their budgets increased. Most said their budgets increased by 10-25 percent. Only 20 percent said budgets decreased, and the one industry with a noticeable decrease in budget allocations was banking.

“Although these results may seem too optimistic, they can be better understood if seen in a broader context,” says Carr. “A Citicorp study, for example, has shown that leaders in customer service make major investments of 1-2 percent of gross sales in training. And Bill Band, a Canadian C&L partner who is known for his work in customer satisfaction, predicts that training budgets of 3-5 percent of sales will be necessary to create and maintain superior work forces in today’s competitive marketplace.”

For a comparative context, we looked at other data. According to the American Society for Training and Development, corporate America spends an average of 1.4 percent of payroll on formal training. The dollar figure equals some $30 billion. According to the Manufacturers Association of North America, product-focused training has fallen substantially. However, says ASTD, training focused on Total Quality Manufacturing-especially that devoted to team building or customer service-remains in the spotlight. A recent survey in Training Magazine showed that, while total spending has dropped in the current recession, of those companies that have cut budgets, only 15 percent cut quality-related types of training.

Royal Bank of Canada slashed its transaction costs by encouraging customers to use its giant fleet of ATMs. A training program helps branch personnel to sell customers on electronic banking, says the bank’s CEO, Allan Taylor (see cover story).

“Even in a tough economy, CEOs know that the secret to competitive advantage lies in investing in people,” says Carr.

Perceived barriers and success factors. Overall, the three factors cited most frequently as barriers to human integration were “attitudes or culture,” “inertia or apathy,” and “need for education or training.” These held true across the board, by industry, size, and even among “leaders.” It is curious to note that costs didn’t make the top three citations. A similar consistency appears among those factors listed as key for success. These were “training,” “motivation or commitment,” and “goals or vision.”

Techniques. The same techniques were used across the board (see Exhibit III). These include “process improvement teams,” “employee peer recognition or reward systems,” and “team building.”

Many more leaders use self-managing teams than do other groups, and the companies with high growth projections use significantly more quality circles than do others. Also worth noting, 75 percent of the overall respondents involve suppliers or vendors in their human integration efforts, usually in new product development or in compliance with quality standards.

“These findings reinforce our view that the concept of partnership is taking hold among forward-thinking companies,” says Carr. -There are fewer ‘favored vendors’ now and more business partners.”

Results. Here, too, there was very little difference between groups (see Exhibit IV). The most frequently cited results were “increased customer satisfaction,” “increased employee job satisfaction,” and “reduced error or defect ratio.” Results with direct cost correlations were cited less often. However, when respondents rated the importance of the results, “increased profit” placed second and, among those companies with high projected revenue increases, “reduced unit cost” also made the top three list.

Overall, results were rated in importance as follows: “increased customer satisfaction,” “increased profit,” “increased employee job satisfaction,” and “reduced unit cost.”

Carr notes a discrepancy with this data: -The results of human integration efforts do track to long-term profitability, but it seems that the way they feed into bottom-line profitability has yet to be explored.”

CONCLUSIONS

The challenge for our CEOs is to make the link between cause and effect, between human integration and corporate profits. Flat organizations with deeply delegated decision making work best with well-trained work forces.

CEOs agree that quality and human integration can pave the way for U.S. firms in the global marketplace. Research needs to continue so that corporate America understands the critical relationship between people and profits.

Recently, these points were underscored by participants in a Chief Executive roundtable on human integrated manufacturing (CE: July/August 1992). CEO attendees emphasized that quality initiatives depend upon work force training. Otherwise performance doesn’t show in the bottom line.

“Human integration improves profitability,” says James Todd, CEO of Birmingham Steel. “That’s what I get paid to do.”

“A lot of people think these changes comprise a social program-a do-good approach to running a business,” adds Skip LeFauve, president of Saturn Corp., a subsidiary of General Motors. “But these initiatives produce superior results for the investor. That’s the only reason we take them.”

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