Human Capital in Productivity

Sept. 1, 2004
MHM: Your study cites not only an increase in the use of technology, it indicates increased commitment to employee training and skill enhancement. Could

MHM: Your study cites not only an increase in the use of technology, it indicates increased commitment to employee training and skill enhancement. Could you expand on that?

Schwartz: We call that human capital, and here’s what we heard in the survey. We heard that a number of major companies in manufacturing countries around the world are increasing productivity substantially in the past year. It appears that most of the companies are growing, indicating a growth in the economy. The new twist, or message, we heard clearly is that there were two major reasons why productivity was improving. One was the use of technology -- which is not necessarily new. The second in that investing in people, training and continuos improvement efforts, in certain programs like lean manufacturing and Six Sigma, is also a significant factor in improving productivity.

And we saw this in all the countries, but more so in the U.S. It’s a strong message that we’re investing in our people and upgrading our skills and capabilities, and we believe in continuous improvement.

MHM: Is the training coming from within or with outside help?

Schwartz: the survey didn’t touch that question, but our experience would tell us that companies usually begin these efforts by bringing in outsiders [consultants] to help, then develop internal capability – and that’s what we recommend our clients to do. [Schwartz is also the managing director of his company’s LeanSigma Institute.] That’s the way to get the project off the ground, then establish an internal group of capable people, train them and have them internalize the process.

MHM: Where will the leaders of this process come from?

Schwartz: We always recommend companies staff these efforts internally. Select people with the right personalities and experience and skills that are complementary to the [Lean] efforts. Then train them in the things they don’t know. We like people who know the company, people and product and only need some skills to be competent in the area of lean manufacturing. Most of the time, companies will train internally. One caveat I might add is that sometimes companies bring in a catalyst from outside like a person who has deep experience in some area like Six Sigma, or they might bring in a Lean expert from the outside.

MHM: How receptive to new processes like these are people?

Schwartz: Well, it’s always difficult to learn new philosophies and, for companies that have not done Lean, Lean is counterintuitive. Some of the things we suggest don’t always make sense. Like, don’t make big batches of parts. Or, improve flow of material to improve efficiency, etc. Or, don’t work on a specific job efficiency, work on flow and you’ll improve overall labor productivity. These things come true when you do them; however, they run against what you’ve been taught and brought up to do. Typically it takes one or two years of training and implementation to be really competent at lean manufacturing. It takes four to six weeks of hard training and 10 to 12 weeks of implementation experience.

MHM: Can companies afford that much time?

Schwartz: Companies that wake up to the idea begin to feel they cannot afford not to do it. They don’t necessarily take a lot of people off line, but they do invest in the skills over time. It’s not all that contiguous. It’s a matter of doing some activity now and more later, and over 12 months they get some highly skilled people.

MHM: What can our readers learn from a study such as this?

Schwartz: There are a couple of messages. Others are doing it and you can, too, is one. Another is that Lean and Six Sigma are no longer leading-edge and new. They’ve become mainstream tools. Also, that they really seem to have legs. These are philosophies that have been around for a long time and are now highly accepted manufacturing philosophies that work. That’s an important message: These things work and if you’re not doing them you’re probably falling behind. And, again, this is a contrarian philosophy – [it used to be] if you want to improve productivity you have to invest capital in automation and technology. But these are not technology-oriented philosophies. They are investments in people and a new philosophy.

TBM’S 2004 Manufacturing Survey

The results of TBM’s second annual multi-national productivity survey conducted this year indicate that the majority of manufacturers in each of the five western manufacturing nations surveyed reported productivity gains in 2003, with 51.7% of U.S companies polled reporting improvement. The rise in productivity is consistent with the numbers released by the U.S. government and current media coverage from global business reporters. Produced in conjunction with The Manufacturer, Manufactura, Produktion and Grupo Lund publications, the TBM survey received more than 1,000 responses from executives of mid- to large-sized manufacturing firms in the U.S., UK Germany, Brazil and Mexico.

The Impact of technology on productivity gains

In this year’s survey, companies in all five countries report the increased use of both technology and human capital to drive productivity improvements. Of all productivity improvement methodologies, lean manufacturing continues to be the leader in companies surveyed (averaging 40%). Going forward, a majority of companies reported that they expect to increase use of both Lean principles and technology to drive productivity. An average of 63.8% of companies expected to focus on human capital to drive improvements, while 59.68% expected that technology will be used more in the next year to generate productivity. The implication is that more companies are using people-driven improvement processes, such as Lean, in conjunction with technology. This trend supports the thesis that innovation in manufacturing processes, as well as product design, will further stimulate competitiveness and growth in the year ahead.

Even though the level of industrialization varies in all five countries, the data suggests that regardless of commercial sophistication, all are committed to a technology-friendly approach in order to expand productivity. This inclination to increase technology hand-in-hand with human capital improvement efforts suggests that the manufacturing community understands the synergy that comes from combining creative process simplification with IT technology. This approach allows companies to eliminate wasteful non-value-added steps in manufacturing and business processes while simultaneously automating where appropriate to improve productivity.

Regarding the integration of technology as a productivity tool, it is generally agreed that technology:

• Should mirror physical flow and product transactions in plants and support waste elimination and process simplification efforts.

• Improves responsiveness, thereby assuring the agility manufacturers require to successfully service their global customers with reduced lead times

• Allows for the flexibility to adapt to customers’ needs so that production can meet demand and product can move through the value chain quickly.

• Can support efforts to reduce product development time to market for new products and services

The one-two punch of technology and lean

When asked to specify the productivity/quality improvement program they are currently using, “Lean” received a resounding endorsement in the U.S. and UK (71.2%), with Brazil coming in at 64.3%, Mexico at 62.7%, and Germany at 38.2%. The data suggests that Lean is driving productivity improvements in each country surveyed, where manufacturers are leveraging it for growth and innovation. As a result of removing waste from their systems, lean companies have become more flexible, closer to their customers and consumer demands and better prepared to take advantage of the next upturn.

The definitions of productivity

The survey also suggests that despite strong increases in productivity globally, there continues to be significant differences in how companies measure “productivity”. In the U.S., UK and Mexico, nearly one-half of all respondents cited “units per man-hour” as the delineation of productivity, while Germany and Brazil (nearly 60% and 70% respectively) favored “value added per employee.” In last year’s survey, the UK participants selected “value added per employee” as the defining trait by almost the same percentage as their alternative 2004 selection. Companies typically measure productivity in different ways within manufacturing and office process vs. globally across the enterprise. Units per man-hour tends to be an excellent process measure at ground level. However, companies trying to improve overall organizational productivity tend to use sales/employee or value added per employee as a global measure of productivity.

For more information on the survey, visit