Reduce the Units of Input Not Producing Output
Reduce units of Input (I) available but not producing Intermediate Cost Drivers (ICDs). This action makes Input levels more directly variable with the quantity of the ICD by reducing the amount of the available Input that is wasted or idle. For example, an employee (I) might produce one subassembly (ICD) per day. During that day, the employee spends a total of one hour waiting for parts for the subassembly. If the Company could eliminate that one lost hour of the employee's work day by providing parts in a more timely manner, the Company could reduce the number of employees (I) needed to produce the same subassembly (ICD) by 1/8th.
A. Assist Input in increasing ICDs.
Recognize efficiency. When people understand that the company is measuring efficiency, they pay more attention to what is measured.
Pay according to varying levels of efficiency
: Warnings and advice
|1||0||1986||Only about 5% of white-collar and service-sector employees are subject to some form of work measurement. These workers rarely exceed 60% efficiency, the norm being closer to 50%.|
|2||0||1988||Author says, for incentive plans to work, employees must know precisely what they have to do to receive incentive payment, they must believe they have some control over the measure of performance being used for the incentive plan, and payments must vary significantly based on performance.|
|3||0||1991||Deming argues that pay-for-performance compensation plans are ineffective. He says that performance cannot be measured. Performance differences may be caused by the system.|
|4||0||1993||Author finds that incentive plans succeed at securing only temporary compliance. They don't create an enduring commitment to any value or action.|
|5||0||1995||One way people err in applying Economic Value Analysis (EVA) is that, while calculating it, they don't make EVA a way of life. They should, for instance, tie compensation to changes in EVA.|
|6||0||1996||Author says that the new focus on business R&D will fade unless its priorities are reinforced by new performance measures and rewards for senior managers. Rewards should be linked to program milestones, not short-term results.|
|7||0||2001||Microsoft, Lucent, Enron, and EDS have all used forced ranking within their workforces. This method does solve a real problem and efficient workers are pleased when companies get strict on poor performers. 16% of workers say that their employers can't recognize the difference between stars and slackers.|
|8||0||2001||Badly constructed employee reward plans will hurt morale. "Incentives do not absolve management of the need to be good managers and the need to be objective." Companies should also avoid confusing incentive plans and bonuses.|
|9||0||2001||Good employee incentive plans include using worker input in design of the scheme, making sure employees understand the reward plan, having fair and objective criteria, and monitoring the results against profit targets.|
|10||0||2006||Companies are struggling to measure performance without hindering the team work and risk-taking necessary for innovation. For companies that don't have performance based cultures, the benefits of adopting a forced ranking system are likely to dissipate over the long term. A recent study by Drake University found that forced ranking, including the firing of the bottom 5% or 10%, results in an impressive 16% productivity improvement – but only over the first couple of years. After that, the gains drop off to basically 0% by year 10. Over time, the adopted system gets people focused on competing with each other rather than collaborating.|
|11||0||2008||Under-30 workers nowadays require a different style of management than before. To motivate them, offer incentives that they can earn every 30 days.|
|12||2000||2007||Unilever plans to refine its operations by laying off a significant portion of its workforce, including reducing the number of senior executives by half. Employees are ranked and evaluated according to the performance of their division and skills. Those who are underperforming will be offered mentoring and if they do not improve, they will be let go. Under the new system, employees are more likely to be moved from division to division according to their strengths, Unilever hopes that the process will make its workforce more mobile and efficient.|
|13||2800||2006||Companies are struggling to measure performance without hindering the team work and risk-taking necessary for innovation. Chemtura, a specialty chemicals company, recently decided to dump forced rankings altogether. The company found that the move demotivated its best performers since they met all average expectations but had no higher ones to work towards. Chemtura's new process still assigns grades, but to better motivate employees in the middle, labels such as "satisfactory" have been upgraded to phrases such as "successful performance."|
|14||5311||1989||When dept store Frederick & Nelson switched to commission sales & more stringent performance standards, staff turnover increased from 5% yr. to 18%.|
|15||8900||1990||Customer retention and employee retention tend to feed one another. If customers are satisfied, experienced employees are more likely to stay. Writer recommends that retention rates, which are unambiguous, can and should be easily linked to bonuses and other compensation.|
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