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You are here: Home > Current Topics > Mind your Business > 22 March 2004 |
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Back in September 2003, the head of one of the UK's top technology retailers, John Caudwell, alerted his staff that the use of e-mail was to be abandoned amongst the 2500 staff at the high street retailer 'Phones 4U'. It would, he claimed, save the company around £1 million (€1.47 million or $1.8 million) every month. The savings come from the increased ability of staff to talk to each other, get things done and get away from their computers and talk to colleagues and customers about business rather than what appears in their inbox. The move was widely reported at the time, somewhat incredulously in some cases. Surely, this technology was now almost indispensable to modern day business communication? See what happens in any business if the 'system' is down and access to e-mail or the Internet is unavailable. Things almost grind to a halt! Other firms have also looked at restricting the use of e-mail. Merrill Lynch, the investment bank, banned the use of third party e-mail systems in the workplace last April. (Third party systems include personal e-mail accounts such as hotmail, Yahoo and so on). Their reasoning was that the business needs to retain integrity and scrupulous trading rules and such accounts could be damaging to that integrity but there was also a hint that such a ban would prevent time wasting in the business. The impact of the use of e-mail in the workplace for non-business purposes has been investigated by the Chartered Institute of Personnel and Development (CIPD). In their journal, 'People Management', the organisation reported that people receive an average of 64 e-mails each day with only around 50% of those received being useful or relevant to the business concerned. They estimate that the cost to the average business is around 21 days a year in lost productivity. The CIPD outlined 4 'e-mail personalities' in the workplace and suggest that managing e-mail policies can be an effective way to improve productivity and efficiency. 
View larger version. Source: Adapted from CIPD journal 'People Management', 29th January 2004 |
Productivity is the measure of output per factor of production per period of time. This can be measured as output per machine per period of time or output per worker and so on. It should not be confused with production. Production is a measure of total output rather than output per factor.
Productivity is a vitally important way in which any business can affect its profitability. It is easy to think this through if we look at the basic equation for profit:
Profit = Total Revenue - Total Cost
Imagine a situation where the firm has little or no control over its revenue stream. Maybe the country is experiencing a slow down in economic growth or perhaps its export orders are drying up because of the strength of the pound. What can it do to maintain its profits? Cutting costs is the obvious answer and shedding labour may be the first thought in this respect. In reality, firms may be reluctant to let its labour go, especially if it is skilled labour that it has spent many years training. To reduce its costs therefore it can seek to raise productivity - find someway of getting more out of its resources for the same amount of money. The example below should help to clear this up.
Productivity is calculated as follows:
Productivity = Total Output ÷ Quantity of the factor
If a firm produces 100,000 units per year employing 50 workers, productivity per worker is 2000 units per year. If each worker is paid a salary of £15,000, the total cost to the firm of the output is £750,000 per year. The cost per unit therefore is £7.50.
Now let us assume that the firm introduces a new system of working that leads to a rise in output per worker from 2000 to 2500 per year. It may not necessarily imply that the workers are working harder, it could be that they are working 'smarter'. Cell production for example, is one way in which waste can be reduced in terms of time spent moving units from one part of a factory to another and from one worker to another. It could be that the firm has invested in machinery that is more efficient or has reorganised the production line in some way. Of course, the workers might want extra money in return for these changing working practices so let us assume that they have been offered a pay rise of 5% taking their annual salary to £15,750 per year.
The total cost of labour is now 50 x £15,750 = £787,500. Output however has risen from 100,000 to 125,000. The cost per unit therefore is now £6.30. Even if the firm continues to sell its product at the same price as before it has increased its profit margin.
We suggested however that maybe the firm was facing a slowdown in sales in the domestic market and possibly the export market. By reducing its unit costs from £7.50 to £6.30, it can reduce the price to its customers thereby increasing its competitiveness.
The data section below gives some information about productivity levels in the UK car industry and other data from the economy as a whole.
Image: Computers can increase productivity by making routine tasks easy and quick to carry out and complete. Abuse of the technology however can lead to waste and a decrease in productivity and so has to be managed effectively and sensitively.
Title: Working at the office. Source: Nik Frey, stock xchng (http://www.sxc.hu)
Manufacturing productivity and unit wage costs, United Kingdom
Whole economy productivity and unit wage costs, United Kingdom
Source: The Labour Market in 2002 Crown Copyright, Reproduced under licence (http://www.statistics.gov.uk/cci/nscl.asp?ID=5006).
Source of data: World Markets Research Centre (http://www.wmrc.com/press_release/20020708-1.pdf)
1. In 1999, productivity at Rover's Longbridge plant in Birmingham stood at 30. Describe TWO ways in which Rover might have been able to improve productivity at the plant.
The clue to the answer to this question lies in the initial explanation in the 'news' section. Your response will have to do with the investment in capital, changes in working practices, or the organisation of the production system. You should try to be as specific as possible in your answer, just suggesting a move to cell production for example is not sufficient, you will need to develop your response a little more to try to demonstrate that you understand something of what this involves. Doing some research into what has happened at the Longbridge plant may well help you to answer this question.
2. What are the implications for the motor industry in the UK of the productivity figures in the table above?
The figures show a clear distinction between the likes of Nissan in Sunderland and manufacturers like GM. Your answer will have to consider the implications in terms of the likely differences in the unit costs for the different companies, the impact on the prices that can be charged, the likely profit margins that each firm could be making and the companies overall competitiveness, in what is a highly competitive market. You will have to make some comments about what type of marketing strategies the companies concerned might have to adopt given the differences in the productivity levels. The question is looking to see how far you are able to show an understanding between the various aspects of the productivity issue and the level of profitability.
3. Look at the data for the output per filled job and unit wage costs for the economy as a whole and in the manufacturing sector. What are the implications of the data for the competitiveness of the UK economy and the manufacturing sector?
This question is taking the points raised in Q2 above and transferring the information to a national scale. Before you can do that, you will have to be able to interpret the relationship between the changes in unit wage costs and productivity levels. In the example given in the theory section, the rise in wage costs was only 5% but the increase in output per worker was 25%. In reality the rise in productivity may not be anything like as high as that and you will have to think about the situation that will need to exist for the economy as a whole to gain an overall benefit. Think as well about the potential changes to productivity that may be occurring in other trading countries. You can get information on this data through the Office for National Statistics (ONS) (http://www.statistics.gov.uk).
4. Assess the strategies that a business could use to reduce the abuse of e-mail and technology use in the work place in terms of increasing productivity and efficiency.
This part of the assessment returns to the original story and asks you to consider what strategies a firm could put into place to prevent abuse of technology in the workplace that impact on productivity. Your answer will therefore touch on the human resources implications of imposing new working practices on people. The Phones 4U example quoted is one method - an outright ban on the use of e-mail. What you must think about in your answer is the likely impact on morale of workers and the effect on their motivation. How do you introduce the strategy - make an executive decision or do it through negotiation? Is a ban the best way or is education and training of staff better? If so, how useful is the 4 personalities model to you? How far should you monitor staff activities?
Some of the articles given in the research section above will help you to consider some of the issues that would have to be weighed up in considering your strategy. Remember that this question is assessing the higher order skills of analysis and evaluation so ensure that you think about how to present your argument and that judgements made are supported by some reference to the evidence.
