Manufacturing Profit and Performance at Urania
A Brief Example of the Linkages Between Human Resource Systems and Firm Perfomance
I. Overview of Urania
Urania is a small part of a larger conglomerate that manufactures visual devices such as television and computer monitors for domestic UK distribution. Urania is organised into three distinctly different functional areas of sales & marketing, product design & development, and manufacturing. The manufacturing process is currently utilising assembly lines with each worker performing a different task. These employees are paid hourly and do not have any system of performance feedback and no formal training. Most of their work could be better classified as “assembly” rather than “production” as, for the most part, their work consists of putting preassembled component together to make a function whole unit.
II. Framing the Issue
As technology changes with the times, so too is Urania product mix changing to reflect the changing consumer demand of increasing high-quality flat panel displays as well as products such as DVD recorders and middle price range hi-fidelity audio systems. This overall change creates forces assembly line workers to change products, tools and processes to meeting a changing market. In addition, focusing on more short-term issues, the work process for any particular employee may have to change based upon the issues that bear upon daily staffing such as illness, injury, or other sources of absenteeism. These factors combine to form the foundation for excess variance in measures of productivity such as production rate (units per hour, etc.), defect rate (defects per million, etc.) and rework rate (units per million, etc.), and an inflexible workforce, reluctant to rapidly adapt to changes in technology and demand. Together, these factors create increases in labour costs thereby increasing product costs and decreasing overall profitability for the firm.
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III. The Problems… Cause and Causation
Perhaps surprisingly, the essential nature of the problem is that the current human resource management system at Urania is working perfectly. In short, the behaviours that are being elicited are the ones that continue to be rewarded or, at least, facilitated by either the direct or indirect action (or inaction) of management. For example, a cursory application of behavioural psychology would explain the growing defect rate by calling attention to the fact that workers selected to fix defects receive a 10% bonus. Logically, if there were more defects, more bonus pay is possible. Though the workers are likely not consciously making errors, they are at least not working diligently to avoid them and quite possibly, it is a nice reward for a job that has no demands of ‘keeping up with the line’.
A second source of the problem is that of outdated or inaccurate job standards that result in candidates with a poorer fit for the type of work, the conditions or other factors that contribute to meeting performance standards which in turn create undesirable levels of turnover. A key function of human resources, as a department, is the selection and retention of appropriate talent (Gubman 2004, p.15). Clearly, the nature of the work is shifting to more diverse demands and increasing technology. The can be contrasted with the admission of the firm that, “potential employees are assessed against long-established job descriptions.” Such a practices increases the degree to which luck must play a significant role in successful employee selection… What firm would wish to base its success or failure on chance? Rather, there exist specific remedies by which valid selection criteria can be established, thereby decreasing the variance in the process and creating predictable consequences.
A combined third and fourth “people” issue that merits addressing are both the lack of a formal training program and as, intimated earlier by utilizing motivation or behavioural paradigms, the overall compensation system. As stated, most of the defects were produced through issues such as faulty soldering or poor assembly process. The source of these problems is either the employee are insufficiently skilled or insufficiently motivated to produce quality work. Additionally, the value of an appropriately installed compensation program should not be overlooked. Great things can be accomplished by rather ordinary persons when they are properly motivated. Conversely, it is important to recognize that monetary compensation is only a [significant] portion of why people work well. Just as important are issues such as Herzberg’s ubiquitous classic, “One More Time, How Do You Motivate Employees” (2003) in which “hygiene factors” are posited as significant motivational influences. Hygiene factors, by definition, do not cause satisfaction but rather, by their presence, create the corollary measure of dissatisfaction (Delery 2002).
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IV. Moving Forward… Recommended Solutions
To address the issues at Urania, a key component the presentation of an integrated human resources system in which the various components are aligned and work together to create a value that is greater that the sum of the individual parts. A piecemeal system will not work, partly because of internally conflicting goals and partly because employees seem to be particularly clever about catching insecurity on the part of management. Such management insecurity is often evidenced by stabs at generating short term results with no real significant enduring change.
A straightforward place to start that also likely has the added benefit of sending a very important message to employees is the compensation system. The system short ideally be created with some element of genuine employee involvement. This could be through survey or through an ad hoc committee that ultimately sat down literally and figuratively “side-by-side” with management to create mutually aligned and agreeable goals. Such early cooperation would also have the effect of potentially keeping unionization efforts out. Though not necessarily associated with low performance, such activity is generally an administrative bane to management. In addition, such sincere action would have the added benefit of creating an employment environment more aligned with “high-commitment” (vs. a “high-control”) environment. These practices are highly associated with increased firm profitability to the validated extent to which it is a wonder that companies do not embrace such systems (Pfeffer 1998, pp.5-13). With this in mind, the desired outcome of these meetings should be steered towards a system that recognizes and rewards high performance and error-free (or below a certain threshold) work. Certainly, such a plan would eliminate the bonuses awarded for either producing or working on re-work. This rework should be relegated to either new employees for training purposes or to those whose performance is less than desirable.
Once a workable compensation plan is in place, work on better employee acquisition can begin. In this case, sequence is likely to be an important consideration in that a firm’s compensation plan squarely addresses such implicit questions as, “What does this firm value?... Attendance? Knowledge? Tenure? Speed? Accuracy? Political- or social savvy?”. Additionally, a detailed job analysis is recommended in order to reconcile the long-standing job description with current job demands. Ideally, this analysis could yield information that would serve as basic criteria for selection efforts. Information that the position requires bona-fide occupation qualifications such as the ability to perform repetitive tasks, lift a load of a certain weight, be able to stand for periods of 7-8 hours, or similar would help enhance the ability to both attract proper applicants and, similar to Herzberg’s 2-factor theory mentioned earlier, discourage those who are unfit. Such activities help the firm by strategically getting better applicants and operationally by increasing the yields on recruitment efforts. Imagine, for example, the efficiency and administrative cost reduction of the HR function by being able to sort through 100 application of mostly well-qualified candidates as opposed to having to sort through 350, the majority of which are not qualified or genuinely interested.
In additional to behavioural considerations to actively decrease the error rate and compensation systems that actively increase or promote desired behaviours, the job analysis is also likely to identify areas in which a formal training program can be established to build the skills necessary for successful job performance. This program should ideally contain a component for new employees to gain new skills or refine existing abilities to meet Urania standards. Such as program could be administered by a combination of long-tenured and high-performing employees. By conducting it in this manner, one could take advantage of intrinsic motivation of pride while simultaneously providing a positive role model of performance and tenure for newer employees to emulate.
A formal training program would also present the advantage through regular periodic sessions of keeping the work force up to date on the latest technology and any particular methods or processes needed to ensure satisfactory performance. As stated in the case, it is not unusual for the product mix to change and this fluctuation in process could be much better addressed through the attainment of a flexible work force, a product of both better hiring and better training.
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As explicitly stated earlier, all HR system components should be integrated to work together. One very salient example of this is a training wage during an initial training and work orientation phase. Upon ‘graduation’, the employee is ushered into a new classification in which expectations and performance would corelationally increase. A further recommendation is that employees successfully complete periodic retraining or ‘training checks’ which would required to maintain a certain wage position. A failure to do so would be accompanied by an opportunity to retest within a short time frame (i.e., a week) or to take and successfully complete a retraining workshop.
V. And they all live happily ever after…?
It goes almost without mention the obvious fact that Urania is a participant in a comparatively high-technology assembly industry that is highly competitive on a global scale. The wages of Urania employees are likely far higher that the potentially outsourced function would be in China or India. These competitive pressures only serve to make clearer the case for change. The object of this business transformation is the business itself, a business comprised of people and the imposed rewards, punishments and operational constraints common to any business. That any business must change is undeniable. Markets are a dynamic entity and they demand businesses that adapt or perish. As organizations are organized people and processes, these are the fundamental units of change. With this in mind, for Urania to continue to exist, much less prosper, it must reinvent its process and energize it’s people in an effort to realign process, performance and people for the mutual goal of corporate and individual profit.
- Delery, J. (2004, November). [Lecture notes]. Leading High Performance Organizations. MBA coursework, Sam M. Walton College of Business, University of Arkansas, Fayetteville, Arkansas, USA.
- Gubman, E. (2004). “HR Strategy and Planning: From Birth to Business Results”. Human Resource Planning, (27), 1, pp.13-23.
- Herzberg, F. (2003, January [2nd reprint, original 1968]). “One More Time: How Do You Motivate Employees?”. Harvard Business Review, (81), 1, pp.87-96.
- Pfeffer, J. (1998). The Human Equation. Harvard Business School Press: Boston, Massachusetts.