Getting Prepared for Higher Profitability

Getting Prepared for Higher Profitability

To survive and prosper in a hyper-competitive market, executives must motivate employees at all levels to improve their performance, in order to withstand the increasing pressures to control costs, improve quality, and satisfy customers.

Over the past year or so a number of readers have contacted me about my article Meeting and Beating The Imported Competition, published in the March 2005 issue of Foundry Management & Technology. These readers phoned or e-mailed to say they were interested in starting a gainsharing program to improve their foundries productivity, lower their per-unit costs, and compete better against low-priced foreign competition but they did not know how to start such a program.

What is gainsharing?
Gainsharing describes a group pay-for-performance program in which employee performance (productivity, quality, safety) improvements over a pre-set threshold are quantified, and given a dollar value. The value, or gain, is split between the company and its employees. So, for every dollar paid out in bonuses, the company makes a similar gain in productivity, quality, and safety.

Gainsharing plans are one of the most effective programs for motivating blue collar and white collar clerical workforces to better performance. In a 1983 report, the General Accounting Office of the U.S. Congress conducted an investigation of programs designed to improve productivity and quality. That report cited gainsharing programs as the wave of the future, because they unite an organization's workforce toward the goal of boosting operational performance which, on the average, climbed by 17 to 22% annually.

It is no secret that many metalcasters Intermet, Wescast, Citation, and Howmet, for example have tied executive and managerial compensation to company performance in order to motivate those individuals to boost overall profitability. And, it is also no secret that a growing number of ferrous and nonferrous metalcasters have realized that what is good for one is good for all that rolling out similar pay for performance programs for lower-level employees is an effective way to motivate them to improve their performance, too.

Bonus programs, if properly designed and implemented, create a sense of urgency in workers. Frederick Taylor, the father of scientific management and the piecework system, said at the beginning of the last century, You cannot expect an extraordinary day's performance from a man receiving an ordinary day's pay.

Today, more than 4,000 American companies have gainsharing plans in place. They have come a long way since Joseph Scanlan, a unionized steelworker trying to help save his employer (and union jobs) from bankruptcy, developed the first one during the Great Depression. Today, gainsharing plans are sophisticated programs engineered to a specific company's cost structure, operating problems, and competitive strategy. There is no one-size-fits-all.

Not all gainsharing plans successful
The reason that some gainsharing plans produce excellent results were outlined in a 1989 American Management Association study, Gains and Losses From Gainsharing.

One of the reasons for poor gainsharing performance is that managers, eager for quick improvement, start their plans too quickly.

Many managers simply do not realize that only some organizations are ready for a gainsharing plan.

Some managers are eager for the results but have no effective communications practices, like sharing non-confidential operating performance statistics with workers. Many do not have a sound program for internal employee communications. And, not all supervisors are trained to listen to employees ideas to eliminate problems that limit productivity. They ignore workers suggestions for improving operating performance.

Starting a gainsharing plan in such an environment will almost surely lead to disappointment. Management credibility will suffer, dooming future programs. On the other hand, an honest attempt to include employees in the task of improving productivity and better bottom-line profitability will greatly increase the chances for later success.

Before you start your gainsharing plan, take a short quiz (see p. 24.) The answers, based on my experience engineering and implementing many gainsharing plans nationwide, will help foundry executives assess their readiness for a gainsharing program.

Your results
Score 65 - 100 points: Excellent. Go for it! A gainsharing program can be established with little delay, and productivity improvement will be seen quickly, most often measured as man-hours per ton of good castings produced. Using an outside expert will help to launch a program quickly. In such an environment, it takes only two to three months preparation to install a gainsharing program. Most of this time is taken reviewing foundry operating statistics in order to devise a fair and equitable formula by which employee performance can be measured. Also included in this time is the effort required to make allowances for the effects of future capital investment and the need for continuous improvement. (What foundry, especially those serving the automotive industry, has not had customers asking for price reductions?) The remainder of the prep time is devoted to the necessary orientation and training to acquaint all levels (executive, mid-management, and first-line supervisors) to their roles in an effective program. Since the organization is acclimated to participative management, supervisory acceptance of the training should be quick.

Score 45 to 60: Go slow! At least six months effort is needed to boost management credibility to the point that employees believe gainsharing will not become another program of the month, to be dropped as executives lose interest.

A solid but simple communications program (covered in What's Your ROI on Human Assets? , FM&T, April 2003) should be started. It should include quarterly state-of-the-business presentations by executives and monthly departmental meetings run by first-line supervisors, for example. Quite likely, some supervisory training and a modest executive indoctrination will be necessary.

Score 40 or less: Any gainsharing program should be deferred at least a year. No bridge was ever built before solid foundations were first installed. The first step for most foundries in this category is to conduct a modest employee audit (hourly, clerical, and first-line supervisory personnel) to determine the reality of employee and supervisory perceptions of what might be impeding them from top productivity. To deal with reality, first establish what the reality is.

The problems the audit uncovers should be corrected. That may include substantial supervisory and managerial training. The sub-stance of such training is reviewed in Molding Supervisors To Fit Your Profitability Pattern, (FM&T, April 2006.) A modest program of downward communication (management to employees) should be introduced. The first step in the communications process would be to inform hourly workers about plant-wide performance man-hours per ton of good castings, porosity and other quality problems, on-time delivery performance, etc. for at least six months. Upward communication efforts may begin in the second six months.

Departmental discussions of plant-wide problems may turn quickly into constructive sessions wherein employees input is obtained and their efforts incorporated in the problem-solving plan.

Why bother?
Foundries face intense competition, and it is getting more intense as the global economy develops. Competitors are not just in the next city or state: they are in Eastern Europe and the Pacific Rim, as castings buyers use online auctions to locate suppliers.

To survive and prosper competitive environment, a foundry executive must employees at all levels to help control costs, improve quality, satisfy customers. How is your company preparing for this environment?

Simple quiz assesses readiness for Gainsharing

These 10 questions based on broad experience of developing gainsharing programs will help foundry executives assess their readiness for a such a program. Each answer is weighted, with points to be totaled at the end: 10 points excellent; 5 points average; 0 points poor:

1. how many new programs for improving quality or productivity have you started in the past two years?
- Three or fewer (10 points.)
- Four to seven (5 points.)
- Eight or more (0 points.)
2. how many of those new programs started in the past two years are still in existence?
- Substantially all of them (10 points.)
- About half (5 points.)
- Virtually none (0 points.)
3. have you conducted any employee surveys or audits within the past two years?
- Yes, on a yearly basis (10 points.)
- Yes, every few years (5 points.)
- No surveys conducted (0 points.)
4. have your employees seen any changes in their day-to-day work environment because of these audits or surveys?
- Yes, vigorous follow-up of survey (10 points.)
- Some action taken, perhaps tardily (5 points.)
- Little or no action taken (0 points.)
5. are your employees informed on a regular basis about plant-wide operating statistics or performance (quality, defect rates, productivity, on-time delivery rates, etc.)?
- Yes, with frequent, periodic feedback and stats (10 points.)
- Occasional feedback, with some statistics (5 points.)
- No information given to hourly employees (0 points.)

6. do you give employees periodic state of the business addresses?
- Yes, several times a year, with statistics (10 points.)
- Yes, yearly, with a few statistics offered (5 points.)
- No state of the business addresses given (0 points.)

7. are your supervisors and middle managers rated on similar statistics for their performance?
- Yes, pay, bonuses tied to specific results (10 points.)
- Yes, pay, bonuses tied to overall results (5 points.)
- No, raises are subjective, not tied to such confidential information (0 points.)

8. are your first-line supervisors asked about their productivity and quality problems, and are their views and experiences solicited and used to solve the glitches?
- Yes, frequent/ periodic problem-solving meetings are held (10 points.)
- Their opinions are only occasionally solicited (5 points.)
- No, supervisors usually blamed for the problems (0 points.)
9. do your hourly employees have opportunities to offer suggestions to help solve operating problems?
- Yes, meetings are held at least once a month, and operational stats are reviewed, and employee improvement suggestions are solicited (10 points.)
- No regular/formal mechanisms for hearing suggestions, though occasionally a suggestion box or similar device may be referenced (5 points.)
- Hourly workers ideas are ignored (0 points.)
10. has your foundry started any type of employee involvement or participation program within the past year?
- Yes, a simple program with full management support and good employee feedback (10 points.)
- Yes, a complex program with irregular management support and little feedback to employees (5 points.)
- No programs (0 points.)

Woodruff Imberman, president of Imberman and DeForest Inc., Evanston, IL. For additional information on gainsharing, or on the ideas presented in the previous FM&T articles mention here, contact Dr. Imberman at [email protected], or by phone at 847-733-0071.

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