Finding a new competetive edge

By John Kirby

BRUSSELS, May 31, 2010 (RISI) - The face of our industry is almost unrecognizable from just a decade ago. In Europe's maturing markets, the traditional capital expenditure route to increasing efficiency is becoming a difficult option. Attracting capital to build a new mill or machine has become impossible, or at the very least, is an act of great courage.

So where should we look to find that competitive edge?

The answer our people

Looking at Table 1, the startling truth, if we did not already suspect it, is our people are not giving everything. It is impossible to expect 100% productive input, but rates above 80% are being recorded.

The result for each country is closely aligned to its investment levels, the more investment the greater the productivity. The recent lower investment levels are expected to result in less productive time inputs.

The industry works hard on its efficiency levels, yet we accept this level of efficiency from our people. Within these figures there are some companies that are achieving significantly better productivity levels than the average. So what are they doing differently to benefit from this productive effort?

Where should we be looking?

In general our people give productive effort in two ways.

The contractual requirement: We describe the duties, build the major demands into the contract and sit back to enjoy the results. If required we enforce this requirement through incentives (pay, bonus, promotion hopes) and discipline and coercion (dismissals, financial penalties, demotion, exhortations to work harder).

Contractual effort is prescribed, it will contribute to a certain minimum acceptable level of performance, a level which is decided upon in some sort of performance review - either formal or informal.

Discretionary effort: An area that is often neglected, yet offers significant benefit, is the willingness of employees to give more to the business. Why? Because they wish to.

There are three areas that influence whether or not your employees give beyond the minimum expectation. These are: The feelings, attitudes and beliefs of the employee.

If these can be positively influenced then some surprising results are on offer (Fig. 1).

Influencing discretionary effort in a positive manner can yield significant benefit to your business. Imagine if everyone in your organization or work team were to give you just 5% more productive effort, you cannot fail to see an impact, an impact which if channelled correctly will be seen on the bottom line.

Don't forget: This effort is within the salary - it's already paid for.

Recently published research is throwing up some impressive evidence revealing how the top performing businesses have a management style that manages to tap the latent discretionary effort and outperform the more traditionally led businesses.

A US survey of 24 publicly traded corporations with over 250,000 employees conducted over five years found that the share prices of the 11 companies with the highest employee morale increased by an average of 19.4% whilst those of other companies in the same industries increased by only 8% - a margin difference of 240%. (Sirota survey intelligence 2006.)

A Watson Wyatt study of 115 companies (2006 to 2008), asserts that a company with highly engaged employees typically achieves a financial performance four times greater than a company with poor employee attitudes. Moreover, high job and organizational commitment, which are affected significantly by the levels of engagement, also lead to reduced absenteeism and labour turnover.

A survey conducted by Towers Perrin (2005) of more than 85,000 employees working for large and mid sized organizations in 16 different countries on four continents, found that companies with high employee engagement levels also experienced a higher operating margin- up to 19%, whilst net profit margin, revenue growth and earnings per share were up to 28% higher than companies with low employee engagement.

There is a common feature in these research findings: High employee engagement levels.

The people working for the best performing companies are engaged in that business, they are contributing more as a result. Discretionary effort is higher.

Figure 1 - Improving discretionary performance

What's changed in the world of leadership?

Why are traditional leadership models, based on heroic and or dictatorship styles failing to give the best results? What has changed?

The ever increasing pressures on our decision makers brought about by, time pressure, communication deluge, information overload, fewer people to do the work, results time spans shortening, and so on.

Our employees have changed. They no longer accept orders without question if they feel their interests are not being served. They demand to know the justification for strategies that affect their careers. They appreciate being a part of that strategy and of course the delivery of it.

They chose not to show deference simply because it is demanded from them.

Just a few reasons why singular leadership styles are failing to deliver top results.

The organizational leadership of the top performing businesses is no longer the domain of the few, but is distributed more widely, at the same time tapping into the latent knowledge bank of talent within the company.

The secret here is to manage people using a more inclusive leadership style.

The creation and establishment this culture however, requires careful thought, planning and skill. Here are a few of the steps along the route to improving your organizational efficiency without huge capital expenditure:

• Establish the important factors for your business to succeed.
• Learn how to engage and release latent potential within your people.
• Develop an inclusive, results focused strategy that will deliver the success.
• Build and share a model/plan.
• Simultaneously engage your stakeholders, i.e. employees, shareholders, suppliers, customers in their part of the plan.
• Communicate with regularity, honesty and integrity.
• Train managers and supervisors into enablers and facilitators, not dictators.
• Be available to listen - not just hear.
• Stimulate the need for energy, action and results.
• Reward achieved success.

The old Japanese story of breaking sticks over your knee illustrates the results you can release. If your mill or organization is characterized by everyone putting their effort into a shared objective, together and in harmony, then the chances of surviving, growing and thriving are far higher than those choosing led by hero's and acting as lone decision makers. "Breaking one stick over your knee is easy, but 100 is impossible".

The message is simple

If you tap this latent potential, using an inclusive leadership style, you will find your people pulling together in the same direction, the direction you and your mill require, with enthusiasm and passion. They will give you more effort because they want to.

The results can only improve.

John Kirby is operations director for Buffin Leadership International Ltd. www.buffin.com

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