IE Focus - Improving productivity as a formula for beating the crisisIE Focus, March 2009 | By Jorge Diezhandino. MBA part-time 2005,  IE Business School;  Senior Consultant at Alfa Consulting
There are no magic bullets here. The only cure for the virus that has infected the economy consists of reinventing companies so that they produce more using the same resources.
Except for the odd diehard optimist, nobody has any doubts now that the present financial crisis affects all of us to a greater or lesser extent. The banking sector, the construction sector and the car industry all show signs of the effect it has had on their bottom-line results and, in turn, on their workers´ pockets. Furthermore, the effect is spreading and many are now making disastrous forecasts for the ancillary and services sectors.

According to José María O’Kean, Professor of Economic Environment at IE Business School, “there are elements in Spain that can help mitigate the immediate crisis, such as tourism and, to a certain extent, exports, but the model is still one of low-level productivity”. Indeed, as far as the present situation is concerned, replacing the construction sector with the tourist sector and support from exports is logical, but maintaining such a low-productivity model means not only failing to improve our business sector’s competitiveness, but also increasing the difference with those who, in this environment of change, are doing just that. Consequently, only the businesses that successfully assume the change required for improving their productivity will successfully overcome the crisis and come out strengthened at a time when, more than ever, it is essential to reduce costs on the value chain.Information systems are often proposed as guarantees for the desired improvements to productivity. Although they are indeed a necessary element of the current and future value chain, they are not the actual differentiating element. For most businesses, the real change needs to take place in three more essential internal areas: processes, management systems and organisational design.

When improving processes, we need to consider the complete flow of each area that is to be analysed within the proposed scope in order to know exactly how the work needs to be carried out and where the inefficiency is located. That is when we can start to redesign processes and make them more efficient. There are various techniques for improving process flows, but they are basically down to common sense: eliminating duplicity and stages that have no value added, simplifying those that have become excessively complex and setting control points to avoid unnecessary loops, etc.

The second crucial element for improving productivity lies in optimising operative management systems. Once we know which process we are interested in, it is essential to clearly establish how it is monitored. Those of us who learned (and understood) with Pascual Montañés are well aware that one essential source of leverage in organisations is to measure the activity correctly and transmit information appropriately. A well-designed management system offers clear benefits. On the one hand, it provides objectiveness for the assessment of the day-to-day work and enables the detection of problems and, therefore, the taking of decisions. It is also a basic communication element, making communication more fluent, more consistent and more target-oriented.

Accordingly, it increases employee motivation, since it increases the visibility of the work being carried out. Management systems should be structured around four pillars: activity forecasts; activity planning; execution and monitoring and assessment of the work. These four pillars are what the targets the company has set are built on. We will then be able to define the information systems that best suit our needs and, therefore, extract the highest possible benefit from them so that, as O’Kean puts it, we can “increase the value of what we produce”.

Finally, we have to consider the changes we need to make to the organisational structure. Not only is a clear description of the functions and responsibilities of each post necessary, but also, and most importantly, we need an exact definition of how the resources needed to carry out the daily activities should be structured.

As an element of cohesion that guarantees progress, quality and continuity to the design that is obtained, personalised training must be carried out in parallel and at different levels to focus the skills and abilities necessary for each post. Only then will we be able to ensure the continuous improvement of the work carried out by every employee.

Once productivity has been improved, it is then up to us to find the best way to capitalise on it. There is a wide variety of options and they depend on each specific sector, but they can be summarised as doing more with the same resources or, although it may sound politically incorrect, doing the same with fewer resources. Previously subcontracted services can be assumed by internal resources, commercial activity can be increased by simplifying processes, customer service can be improved and, therefore, a wider range of options can be offered and existing portfolios can be extended. Furthermore, more commercial or service undertakings can be assumed, activities such as purchasing can be focused appropriately to reduce costs by saving, and there is an endless array of options which, once again, will depend on the environment in which the corresponding changes are applied.

In short, the only valid formula for dealing with challenges as daunting as the current crisis necessarily include “reinventing” organisations to generate greater value each day. As professionals, we are responsible for turning the present threats into opportunities, for regeneration and future growth.

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