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The secret to unlocking productivity in manufacturing

A set of simple management practices can help manufacturing companies outperform. WorldSkills/Flickr, CC BY-NC-ND

With major employers heading offshore and employment numbers decimated, what will emerge from the ashes of Australia’s manufacturing industry? And what role should manufacturing play in the federal government’s competitiveness agenda? In this Reinventing Manufacturing series, we look at the case for retaining the industry, and how it can transform itself into a high performance, advanced and productive sector.

International research is mounting on the case for a group of management tools – known as high performance work practices – for improving business performance. And the evidence is particularly compelling in manufacturing.

So why isn’t the Australian manufacturing industry abuzz with these practices?

We are not talking about millions of dollars of investment in R&D or capital. We are talking about a set of human resource practices that are focused on:

  1. improving employees’ knowledge, skills and abilities

  2. motivating employees to perform, and

  3. providing employees with the opportunity to contribute to how their work is done.

It presents quite a paradox: manufacturing businesses, on the whole, are not implementing a set of practices that will boost performance.

The Australian evidence

Small and medium sized manufacturers (companies with less than 200 employees) stand to gain significantly from high performance work practices - they have the labour and capital foundations yet are small enough to be responsive to changes in demand and new innovation developments.

A study of more than 1,000 manufacturing SMEs, commissioned by the Australian Government Department of Industry, has shown while most workplaces have at least some of the practices in place, there is still a long way to go before they are reaping the full benefits.

Research shows performance effects are amplified when bundles of high performance work practices under each of the three areas listed above are deployed as a system. However, only 37% of manufacturing SMEs were identified as having a “moderate” system in place, that is, at least four practices of each of the three types. More concerning was that we did not find a manufacturing SME in Australia that had a “strong” system in place.

This is despite the fact that the survey found for every additional high performance work practice that was used there was an increase in profits, quality of products and services, labour productivity, innovation, and customer satisfaction, as well as an improvement in relationships at the workplace.

What’s causing the low adoption

So what is behind this “performance paradox”? Why aren’t more manufacturing SMEs implementing some relatively simple practices to train, motivate, and involve their employees?

Adopters of high performance work practices are more likely to operate in growing or stable markets, compared to “non-adopters” that tend to be located in declining or turbulent markets.

These two groups also seem to face different business challenges. SMEs that have adopted a system of high performance work practices tend to face intense competition both nationally and internationally and have got into the practice of benchmarking themselves against their competitors. These businesses are also more concerned with the retention of their skilled workers and innovation.

On the other hand, non-adopters face lower levels of competition on a more localised basis. The managers in these businesses also seem to be more concerned with survival, the financial climate, and weak demand.

So it seems that SMEs that have adopted the practices have been forced to look outward and think inventively about their management practices. However, this does not exempt the non-adopters – if they were to adopt more of the practices they too could compete and perform at a higher level.

Secrets to success

Manufacturing SMEs could do with more information and support to assist with the adoption of high performance work practices. Businesses that had successfully adopted the practices were more likely to seek advice from professional bodies such as consultants and employer or industry associations.

But it’s important to note that the workplace managers we spoke to who had successfully operationalised the practices did not recognise their management practices as a “high performance work practices system”. Although some did recognise that their practices were mutually reinforcing and had multiple benefits for business performance.

An important success factor was that the take-up of the practices had been the result of a workplace champion, either a senior manager or business owner who had driven their adoption and continued to look for ways to improve.

But most importantly, we found that no one high performance work practices system looked the same. The way they are operationalised can differ significantly across workplace contexts. The practices can be tailored to the needs of individual workplaces.

But let me leave the last word to a team leader at Dowell Windows in Brisbane where there has been cost reductions and increases in productivity as a result of these practices:

“The employees, especially the new ones, are coming up with ideas that we haven’t thought of. We’ve done things a certain way for so long but now the employees are coming up with suggestions that we’re taking on board every day. It’s great”.

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