Employers Just Don't Get It


Two years ago, a consultant colleague of mine was called by Pacific Brands to assess two of their plants. He concluded that they were so badly managed that within six months they could be returned to profit, and could almost certainly double productivity within 12 months.

The person who asked him to do the assessment took the results to top management with a view to regenerating the plants. He was told very clearly that nothing was to be done, as they were earmarked for removal to China. And they were.

This was incompetent and disgraceful management looking for the easy way out, and needs to be publicly exposed.

On another occasion a large food company decided to sack their maintenance crew and sub-contract the work. After the workers left, with a very good but costly redundancy package, the HR manager told me off the record that it was the wrong decision.

When the CEO had ordered him to sack the maintenance crew, he did his own homework and concluded that, given how highly skilled and knowledgeable the crew was, the company would save money by maintaining, rather than outsourcing them. When he brought this information to the attention of his CEO, he was told in no uncertain terms that he was to sack and outsource. He concluded that this had more to do with giving the CEO the appearance of cutting labour costs, than actually saving money.

As the Report of the Industry Taskforce on Leadership and Management Skills found in 1995, Australian employers/management are not very good. It concluded that, on the whole, Australian managers were poorly trained compared with international management, and did not provide effective leadership. Unfortunately, all that the report prescribed to fix this problem was new frontline management training and more MBAs.

We need a cultural revolution among our management class and fundamental change in the way work is organised, not more MBAs. The problem we have is systemic, and with very few exceptions, management see their employees as a cost instead of an asset.

A huge problem is that, despite the massive changes in production and technological systems in the past 50 years — particularly the move away from high volume, low cost production — most managements continue to be influenced by Frederick Taylor‘s
view that a manager’s role is to control absolutely everything, and the
slightest amount of thinking and innovation by the employee must be
eradicated. A trained monkey should be able to do the job.

This crazy division of labour between thinking/planning and doing,
creates rigid hierarchies where by definition the people at the bottom
have no say, skills or initiative, and the people above them have all
the brains and control.

Most managers see their control and power as more important than the
improvement of performance. I have seen some companies be very
successful by devolving decisions, upgrading skills, minimising
management via flat structures, and encouraging employee innovation —
only to see it all changed when a new owner or manager arrives, because
re-establishing their power and control is primary. In one case I
recall a company that was very successfully exporting their product
actually went broke and closed because the new owner reversed the very
successful system.

Australian employers/management and their boards, as represented by
most of the employer organisations (many of whom have never managed
anything), constantly blame other people for their problems, and rarely
examine their own performance. It’s always payroll tax, complex
regulations, company tax, not enough skills — they keep finding new
excuses outside their business. Yet when they’re in trouble (often of
their own making — for example, because of skills shortages), they look
to the government for help. 

Employers’ current big complaint is Fair Work, the new industrial relations laws that will replace WorkChoices. However, if they bothered to do some homework, they would find that a constructive industrial relations environment that facilitates dialogue between unions and management to solve problems — as the new laws go some of the way to providing — can actually improve business performance.

A World Bank report released in 2003, which examined over a hundred academic papers on collective bargaining, concluded that it was no barrier to productive improvement and, on balance, probably helped.

Furthermore, there have been various studies around the world which show that, within reason, increasing wages actually challenges management to find better ways of working and introducing new technology in order to cover the increased costs. By contrast, keeping wages low, outsourcing, or going off shore provides less incentive for management to be competent and innovative.

Importantly, direct labour costs for nearly all industries are only a fraction of overall costs, mostly 10 per cent or less. So even if direct labour is cut by 10 per cent, it only accounts for 1 per cent of overall costs.

As the famous management guru Edward Demming constantly pointed out: in manufacturing (and this would apply to most white collar work nowadays as they are more and more like manufacturing operations), the shop floor could only ever account for 15 per cent of overall cost. Most managements, however, concentrate on that, and forget about the 85 per cent where real improvements can be made. It just doesn’t make sense.

There are many areas of business management where huge savings can be made without resorting to keeping wages as low as possible. Downtime, absenteeism, and turnover are all very costly. But most companies don’t even measure these. If these were fixed to their optimum, the savings would dwarf those made in the effort to keep wages low.

ICI Botany in the early 1980s was a frightful place to work — huge amounts of overtime, many strikes, huge downtime, extraordinarily low employee morale and poor management. It was described by ICI’s CEO as the worst plant in its global empire.

Over a period of five or six years, thanks to management working constructively with employees and union shop stewards (especially in the maintenance and services departments) the plant was turned around to the point where, according to the CEO, it became just about the best in the world.

Breakdowns were a major problem, so working with the departments responsible, and via work teams and skills upgrades, they developed a program of no-breakdown maintenance, mainly driven and designed by the teams, which led to almost 100 per cent uptime.

This was done at the same time that employees were given decent wage increases, and not only was overtime virtually eradicated, but employees were often working less than 36 hours a week. Remarkably, the employees even got compensation for the wages lost because of less overtime. By solving the downtime problem, the savings were far greater than simply battling one another to keep wages low.

The employers and Opposition have strongly opposed the new Fair Work Australia laws. If they viewed industrial relations as an integral part of the total management strategy, instead of something that’s handled by the HR department, they would recognise the significant benefits the new laws provide.

In other words, employers and their organisations often don’t understand what is in their own best interests. 

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.