Friday, April 28, 2006

Completing the Bridge

Of course, growth and managed change don’t happen in a vacuum. Individual employees perform the work that eventually adds value to the organization but to fully capture the benefits of motivated individuals it is necessary to provide the appropriate support and resources. Working as a group or in teams, employees can make a greater contribution than as individuals. Teams, working in a culture of cooperation and in an environment where the systems and processes enhance work accomplishment can make a greater contribution to value.
That’s why HR professionals speak of incentive pay as a sociotechnical bridge. It can act as a bridge to link the social (human resources) to the technical (non-human resources) in such a way as to maximize the return on investment in these resources.
Financial management is essential in putting together the merger and/or running the business. However, experience and the data show that by developing a strategic plan to engage the people in the business plan via the company’s processes and systems, a company can realize a substantial increase in value.
Real value is the result of three elements: a strong history of earnings growth, a focused and dedicated workforce, and a leadership team that can run the business. Incentive pay is an essential element in creating this value but it is only one element. Other elements are People, and how they interact, Processes, and how they contribute to achieving the goals, and financial management. When you get all four in alignment you experience phenomenal improvement in value and, if it’s a merger, you actually realize the benefits promised by the financial analyst.

Case History
A Midwestern manufacturer was suffering from margin pressures caused by overseas competition. Their product, a commodity, could be produced in China and shipped to the United States at a cost that was less than the cost at which they produced. The answer was to engage the workforce in the business to increase productivity and quality and reduce costs. The foundation of this effort was an incentive plan.
They identified the value drivers of the business and designed a ScoreCard™ for each department based on the value drivers they affected. Once the employees understood they could earn more pay by their value drivers, they began to ask questions such as “What do you mean by productivity?”, “How do we measure Quality?”, and the best question; “What can we do to improve results?”
The incentive plan became the foundation on which the company developed a communication and education campaign. Managers held regularly scheduled meetings to discuss how to get a better score on the incentive pay systems known as ScoreCard™. These meetings became discussion-based learning opportunities and the employees began to evolve from hired-hands into business partners. The results speak for themselves.

Profit Margin (pre tax)
Peer Companies: 1.6%
Case History: 4.1%

Return on Assets (pre tax)
Peer Companies: 3.4%
Case History: 3.7%

Direct Labor
Peer Companies: 18.7%
Case History: 12.9%

Ave Collection Period (days)
Peer Companies: 42.4
Case History: 37.0

Inventory Turnover (times)
Peer Companies: 7.6%
Case History: 20.9%

Sales/Employee
Peer Companies: $ 93,658
Case History: $138,053

Gross Margin/Employee
Peer Companies: $ 26,716
Case History$ 41,852