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Productivity improvement: changing values, beliefs and assumptions.

In the last two decades, the decline in productivity has been one of the most alarming trends in the United States (Buehler, & Shetty, 1981). Some have described the productivity performance of U.S. companies as dismal (e.g., Blinder, 1990). From 1973 to 1988, output per worker-hour in U.S. companies was approximately one third of the growth rate (2.96%) that the U.S. enjoyed from 1947 to 1973 (Blinder, 1990). With other nations' productivity growing faster than that of the United States, some fear that America might slip into the second tier of nations in terms of income and wealth (e.g., Blinder, 1990).

How can this be? There have been numerous productivity improvement programs in U.S. companies, ranging from quality circles to statistical quality control, yet overall productivity in U.S. firms remains questionable. This article will briefly review the measurement of productivity, and then argue that while "people-centered" strategies, such as training, incentives, participation, and so on have contributed to improving the productivity of individuals and groups, their effect on overall company productivity has been short-lived. To improve company productivity, there must be less emphasis on programs, techniques, and methods and more emphasis on values, beliefs and philosophies; in other words, organizational culture.

Productivity Measurement

The measurement of Productivity has always been somewhat elusive: it is both an art and a science (Boy, 1986) and it cannot be measured directly (Kendrick, 1984). Most authors agree, however, that productivity can be measured indirectly as a ratio of outputs (goods and services) to inputs (labor, capital, land, energy, material, etc.) (Blinder, 1990; Boy, 1986; Brinkerhoff, & Dressler, 1990; Campbell, & Campbell, 1988; Kendrick, 1984). The productivity ratio (outputs/inputs) of a single point in time is meaningless. The ratio should be used to compare firms producing similar goods and services either over a period of time or within the same industry (Kendrick, 1984).

Productivity measures can be categorized in two basic ways: total factor productivity and partial productivity. Total factor productivity is calculated by dividing total measured outputs by total measured inputs, whereas partial productivity is calculated by dividing total measured outputs by each factor input. Obtaining both measures provides a fuller understanding of a company's productivity (Brinkerhoff, & Dressler, 1990; Kendrick, 1984).

There are many ways for a company to improve productivity including increased investment in plant and equipment, research and development, new methods of production, and new technologies. However, the largest unexplored opportunity for increasing productivity is through a more effective use of people. There is a positive relationship between using employee-centered strategies and superior financial performance (Schuster, 1986). Organizational climate, which addresses how effectively the organization is mobilizing its human resources is definitely related to a company's success (Gordon, & Cummins, 1979). The following paragraphs review the success of the major strategies used to increase the productivity of people and illustrate how focusing on one strategy or technique will have only minimal or short-lived effects on company productivity.


Recruitment and selection, usually the first step in working with an employee, is an important one in matching worker characteristics and job requirements. Optimal recruitment, selection, and classification systems can increase individual productivity without major costs and without requiring major changes in structures and process (Burke, 1988). Recent research on recruitment has focused on workers recruited with realistic previews of jobs versus those without such previews. By summarizing numerous studies, Guzzo (1988) found the effect of realistic job previews and performance to be small. The greater effect of these types of previews, however, was on subsequent turnover. Estimating the effects of selection and placement on productivity vary greatly and are often quite conjectural (Guzzo, 1988). The problem stems from a lack of systematic studies and with the measurement of productivity. Burke (1988) contends that if the appropriate employee selection is made, productivity can be increased. However, this improvement may be temporary. After being hired, many other factors can influence an employee's productivity, such as group dynamics, company morale, reward systems, and involvement in decision making.


Employee participation in company activities is a concept that spans a wide range of areas. Much of the literature on participation focuses on three major areas: sharing the profits, sharing the decision making, and sharing the ownership. Some common experiments in participation include quality circles, employee stock ownership plans, team production techniques, employee representatives on company boards of directors, gain-sharing, and decision-making rights (Levine, & Tyson, 1990). * Quality Circles

Quality circles (QC's) consist of small groups of employees who get together periodically to identify and generate solutions for problems in their work environment (Ledford, Lawler, & Mohrman, 1988). The practitioner literature on quality circles reports that they are effective. This literature, however, is not comprehensive and has many shortcomings. For example, it is doubtful that quality circle failures would be published. The empirical literature, on the other hand, shows little evidence that QC's are effective. However, these studies are often methodologically flawed and possibly even misleading. The conclusion is that studies measuring performance show no clear trend for or against the productivity effect of quality circles. Consequently, until research studies are improved, no determination on QC's effectiveness can be made (Ledford, et al., 1988). * Employee Ownership

Employee ownership programs can vary widely in kind and degree. In the corporate world, employee stock-ownership plans (ESOP's) tend to be the most prevalent. Levine and Tyson (1990) in looking at the empirical literature conclude that ESOP's involve little or no employee participation and have no measurable effects on productivity. A study by the U.S. General Accounting Office (1987) reveals that ESOP firms that let employees participate in decision-making processes tend to perform better than firms that do not offer such opportunities. The participative firms that allow decision making to be closest to the shop floor have shown larger productivity effects than the firms using stock-voting rights or employee representation (Levine, & Tyson, 1990).

Since the level of participation is often difficult to determine, the literature on participation and its effects on productivity is not clear. Levine and Tyson (1990) conclude that participation never has a negative effect, may have no effect but usually has a positive effect. * Monetary Rewards

Using individual or group monetary incentives to motivate workers is not a new concept. Piece-rates, profit sharing, and gain sharing trace their roots back to the 19th century (Blinder, 1990). These plans can be organized into incentive plans and profit sharing plans. Although data with information on pay and human resource practices has been scarce, Mitchell, Lewin, and Lawler (1990) conclude the following:

1. Incentive workers are consistently paid

more than time-workers. They suggest that

this is due to greater productivity or some

form of cost saving. They do not consider

that incentive plans might attract a certain

type of worker instead of increasing the

productivity of existing employees.

2. The use of profit sharing does not seem to

substitute for other forms of pay. This

point seems almost self-evident. First,

workers are putting more of their pay at

risk; and second, they have less control

over the final payout since the profit

depends on everyone's performance.

3. The use of profit sharing was associated

with both higher productivity and company

performance. Weitzman and Kruse (1990)

having performed an exhaustive survey of

the empirical literature suggest that

although the connection between profit

sharing and productivity is not definite, it

tends to be a positive link. The only

question is in regard to the magnitude of

the link.

Gain sharing, which is a form of profit sharing, also correlates positively with improved company performance. However, the success of these and profit sharing plans depends on the condition under which they are implemented (Weitzman, & Kruse, 1990). One can argue that gain sharing programs tend to change aspects of the corporate culture. However, the positive effects of the plans tend to be one-shot associated with their adoption. There is little presumption that these plans lead to long-run, sustained changes in productivity growth (Weitzman, & Kruse, 1990). * Training

There is little doubt that job training has a significant impact on productivity (Campbell, 1988), but exactly how and to what extent training affects productivity is difficult to quantify. Are the marginal costs equal to the marginal benefits? Since questions of this nature are difficult to answer, qualitative questions become interesting. For example, has a specific training program resulted in improved job performance? Even here numerous problems can arise when deciding how to isolate the variable; the improved performance may be due to factors other than training. It is clear that training and development can influence performance, but the effects are several steps removed from productivity (Campbell, 1988).

Job Characteristics

Conclusions derived from literature reviews on the job characteristic-performance relationship are tenuous. Job enrichment which has been used to improve performance assumes that individuals will be more motivated because they anticipate greater satisfaction of their "higher order" needs. Salancik and Pfeffer (1977) state that the link between satisfaction and performance is illusive. Satisfaction is often unrelated to performance (Berlinger, 1988). After reviewing the aforementioned strategies, it becomes clear that there is no conclusive evidence regarding their success.

One trend that seems clear, however, is that many strategies are implemented in isolation, one at a time. This type of approach accentuates the perception that these strategies will eventually end. Managers who are benefitting from the status quo will hope that the programs will pass without causing too much disruption.

A company needs to focus on its beliefs, values and assumptions. What is the "normal" operating procedure? How do things get done? By addressing these types of questions, a company begins to analyze its culture.

Productivity Through Organizational Culture

All productivity improvement programs, worker participation, reward systems, "Japanese Management," statistical quality control, just-in-time inventory and so on are mediated by human behavior. For example, some quality circles have become dysfunctional by focusing on employee complaints and personal agendas. Or, in using Statistical Process Control employees may collect data without much care and continue to produce "as usual" (Brinkerhoff, & Dressler, 1990).

However, productivity improvement is no longer just methods and programs--it is a state of mind (Hallett, 1989). This state of mind is supported by a set of organizational beliefs which establish what the organization does and does not value. In other words, the focus must shift from single programs and methods to the organization's culture, which might inhibit or nurture the productivity improvement effort. The focus must be on the values, beliefs, and philosophies that guide the functioning of an organization--how the business handles people, takes risks, makes decisions, introduces products, and competes. These values shape the development of skills, people, leadership, and business practices. "Slow productivity growth is in reality a failure of organizational morale and a reflection of how managers and workers regard the organization" (McTague, 1989). By focusing on organizational culture, the productivity improvement efforts will address not only individuals and groups, but the entire firm.

Most productivity programs have failed because (1) they have been viewed as a short-term "fix"; (2) there has been little honest commitment to organizational goals; (3) the organizational culture and leadership have often not supported such a commitment to goals; and primarily, (4) because of excessive reliance on techniques and methods without a corresponding reliance on beliefs and values (McTague, 1989).

Excellent companies are characterized by "strong" cultures, ones that give employees a sense of mission (Soeters, 1986). J. Barney (1986) writes that firms able to sustain competitive financial performance have strong core cultural values. Three of these attributes are extremely important: the culture must value and behave in ways that foster financially valuable activities; the culture must be unusual, with attributes not readily found in other firms; and the culture cannot be easily imitated by other firms.

Charles O'Reilly (1989) suggests four mechanisms for developing or changing cultures: (1) participation -- encourages involvement

and signifies the importance of people; (2) management as a symbolic action -- clear,

visible actions that support cultural values; (3) information from others -- creating

information flows that minimize

contradictory interpretations; (4) comprehensive reward systems -- not only

monetary, but systems that focus on

recognition and approval.

Ralph Kilmann (1984) points out five leverage points that can affect performance and morale: (1) company culture; 2) manager's problem-solving skills; 3) group decision making and group actions; 4) strategic and structural choices; and 5) reward systems. He also suggests that culture, assumptions and psyches can influence the categories. In essence, he is indicating that culture (i.e., assumptions, beliefs, and values) is the underlying connective tissue.

These past examples describe the importance of investigating, managing, and developing the organization's corporate culture. Without a focus on culture and beliefs, by focusing only on programs and techniques, any increase in company productivity will be short-lived.


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Brookings Institution. Mr. Bernard J. Putz,San Carlos, California who is completing his doctorate in organizational psychology at the California School of Professional Psychology, has worked as a consultant for Deloitte & Touche.
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Author:Putz, Bernard J.
Publication:SAM Advanced Management Journal
Date:Sep 22, 1991
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