Most companies choose to lower cost in their service areas by using labor arbitrage and outsourcing and, in doing so, save an average of 20%. An alternative approach is to increase productivity; recently, some firms achieved 100-200% improvement in areas such as applications development and maintenance and other service areas. Clearly the potential offered by productivity improvements dwarfs the labor arbitrage route. So, why haven’t more companies focused on the productivity method and emphasized it over the outsourcing or labor arbitrage route?
Companies take an ineffective approach to improve productivity
Most organizations go down a path that will not yield significant results in productivity. The causes of this failure stem from two primary factors. The first is that most approaches focus on improving the activities that teams undertake to do their work. Organizations introduce benchmarks, backed up by methodologies that “tell” their workers how to do the jobs better. Often, large investments in new technology support these methodologies, which executives expect will deliver significant productivity through automation.
The fatal flaw in this approach is that it often fails to take into consideration the unique context of the work. Every organization is a unique combination of business plans, facilities, technologies, processes and many more variables. These well-intended methodologies, best practices and technologies may have validity; but their effectiveness is greatly diminished until leaders adapt them to the unique context of the organization. Many, if not most, organizations fail to make the necessary adjustments to accommodate the uniqueness of their operating environment.
The second reason for poor results in increasing productivity is that organizations fail to manage the required change. My observation is that real productivity gains are 80% change management and 20% everything else. Teams must want to change, and then they must change themselves.
All change is challenging and often painful. This ineffective approach to improving productivity causes the following unintended consequences:
- Pushback. Benchmarks and methodologies tell teams that they are doing something wrong, which naturally causes pushback and resistance.
- Necessary workarounds. Benchmarks and methodologies can point to the opportunity for improvements. But unless leaders apply the opportunities for improvement to their organization’s unique context, they only partially work; and the necessary workarounds often more than offset the advantages.
These unintended consequences rapidly undermine the original business case.
This ineffective approach results in overblown promises around productivity and automation, and organizations seldom achieve the hoped-for savings. No wonder organizations increasingly turned to outsourcing and labor arbitrage as a simpler and more reliable way to cut cost.
How to drive and measure results in productivity
Despite the difficulties in driving productivity, it is apparent that some organizations overcome the challenges I describe and push through to some spectacular results in service disciplines. At the heart of the success of these efforts is a surprisingly simple approach to dealing with these issues.
This approach starts with breaking the work down into teams and then developing objective metrics that measure the results or outcomes of the teams’ work. Leaders avoid measuring activities of the teams. They also take two other important steps:
- They ensure that the teams agree that the metrics measure what “good” looks like as far as the results are concerned.
- They give teams the opportunity to have input in developing the metrics to ensure that they represent “good.”
Organizations then turn these metrics into dashboards and review the data on a consistent basis, often monthly.
The second part of the approach is to challenge the teams to take responsibility to improve performance, as measured by the dashboards. Each month, leaders meet with the teams to review progress and sign off on new initiatives the team selects. They break down larger initiatives into monthly sprints, viewing success not as the completion of the initiatives but as the improvement in the metrics.
This approach creates a bottom-up momentum where teams take on the responsibility for improvement. Leaders learn to trust the teams as performance improves and they propose and accept more ambitious initiatives.
Four techniques for success in the teams-based approach
As simple and straightforward as this teams-based approach to productivity improvements sounds, it is not without challenges. Four techniques help drive this approach to even greater effectiveness.
- Developing metrics. Results-based metrics are not simple to devise and getting teams to embrace them is no simple challenge either. In many cases, organizations would be well advised to get assistance in this activity.
- Support. Executives need to ensure they support the teams as they seek to improve. This requires more than just periodic meetings to inspect results. Teams need a variety of support ranging from leaders’ willingness to fund initiatives to coaching and insight into how things can improve. As mentioned above, it is important to provide this support without overwhelming the teams. Executives must help the teams build the muscle of proactive accountability and the confidence to keep innovating.
- Best practices. The process of improving productivity is a journey of continuous improvement, not a destination created by methodologies and best practices. Best practices will emerge and spread across teams, but executives must keep in mind that they are only a means to an end.
- Accelerate progress. One way to accelerate the teams’ progress is to provide them ongoing access to research on what is important in increasing productivity, what techniques and approaches worked for others and what technology innovations proved fruitful in other organizations. Note that this is not the same as a benchmark or methodology driven by consultants; instead, it is access to ideas and data that are available as needed to the teams in their ongoing journey.
Everest Group’s studies on enterprise productivity show growing evidence that using these techniques can improve productivity dramatically. Moreover, instead of getting a one-time savings and one-time productivity improvement by shifting work to third-party services in low-cost locations, an enterprise can enjoy ongoing improvement in productivity several times for a long period as teams continually address the challenge to improve their metrics.
This approach has two other benefits:
- It is almost a universal trait that workers want to be effective. This approach helps them improve and thus avoids organizations having to let them go.
- This route to productivity improvement evolves as a business transforms and evolves.
Bottom-up approach wins
The activities-based approach to improving productivity is a top-down approach of making investments in technology to improve productivity, usually a one-time improvement. The teams-based approach is a bottom-up approach. It gives a company the ability to make astounding improvements of 100% or more in productivity over a relatively short time – within a year – and on a continual basis. The teams-based approach also marries well with the top-down approach of investments.
Interestingly, the bottom-up approach does not obviate the top-down investments in process and technology. Instead, it often appears to work in harmony, allowing larger investments to gain traction by easing adoption and ensuring that they work in the unique context of the organization. This also helps foster a culture of a learning organization, in which all employees embrace improvement.