A Potential Problem

(Brendan Coutts, 'Human Capital' - Jan/Feb 2004)

By taking a limited view of employees' value, many companies are failing to tap into their true potential. But engendering a receptive and supportive culture can have a huge impact on employee commitment and productivity - as well as the company's bottom line.

There is growing recognition that a company's people are vital to its sustainable performance. In the emerging 'new economy', company value is increasingly located in its intellectual capital - in other words it is employee's ability to apply knowledge and experience, to learn, to innovate, to build relationships and to develop and support systems and technology that provides a company with its competitive edge. As a result, there is greater awareness of the importance of optimising the contribution of the people in an organisation.

The Hawthorne Academy has found that in many workplaces, there is a limited view of the potential of the people in the company. Often, people are seen as being simply tools, who should perform tasks demanded of them. In these circumstances, all that is required of the people is their skills and time; any abilities, sentiments or ideas the worker might have outside this limited scope are regarded as irrelevant. Because of this, resentment and frustration can build, reducing motivation and performance.

A great amount of the potential in the human side of an enterprise is missed by this approach. Workers often have far more to offer than they are being allowed to contribute. Each person has a unique perspective on their work and workplace. When this can be accessed and appreciated, workers become more engaged with their work as they feel they are making a unique and valuable contribution.

The importance of the informal

When determining the optimisation of the workplace, rather than asking the question 'To what extent can we get the workers doing what we want?', an alternative question can be asked - 'To what extent are we able to get our workers to perform at their potential?' The second approach allows far greater scope for high performance.

Much of this potential lies in the way workers relate informally to their work, which always differs from the formal work structure. The formal workplace is in the job description, organizational structure, official programs and processes. For example, to make a decision about an issue, a business might decide to call a meeting between everyone involved. This is a formal process and could seem like good policy, but unless the informal side of the workplace is considered, this approach could lead to unexpected and misleading results.

The informal structure of a workplace is the way people relate and express themselves individually and socially. It involves sentiments, individuality and the quality of interpersonal relationships. If the hypothetical meeting was dominated by one person and other people felt excluded, the resulting decision might not have everyone's support. In fact, there could be active resentment about the decision. The results of the decision might be poor, but in the absence of any information about how people really felt about the process, the underlying reason for the poor results would not be clear. Formally, it would appear that everyone had been consulted and so the poor results must be due to other factors. When we are entirely dependent on formal information and don't understand the informal side of the workplace, our view of the workplace is severely limited.

The difference between formal and informal approaches to addressing workplace issues was graphically illustrated in the recent absenteeism article in Human Capital (November issue). It showed that where absenteeism is treated in a formal manner - as a purely budgetary concern and by introducing new programs, schemes and initiatives, the results had 'not been as good as hoped' and a range of financial incentives to discourage staff from taking unnecessary sick leave 'did not have a positive effect on attendance'. These formal techniques are often manipulative and can even lead to resentment among the workforce.

High absenteeism is actually a statement that workers are making about their workplace - but it is an informal statement. They are saying they don't like being at work. When management has no informal relationship with its workers, the statement goes unheard. Not surprisingly, in the same article it was shown that where the response to absenteeism was more informal - an attempt to improve communications with workers in some deep cultural way, and listen to them more - the results were significantly better.

Formal approaches speak only to a certain part of the worker. When an issue is informal, as high absenteeism clearly is, formal techniques will have minimal effect because they are seriously misplaced. The question to be asked in this case is not 'How can we make our workers come to work?', but 'Why do our workers not want to be here?' The first question is limited because it is aware of outcomes, but not causes. The second question is a much more powerful approach to the problem, because answering it points towards resolution of fundamental workplace problems.

Addressing the reasons people don't want to come to work has many benefits. One reason people are unhappy at work is that they are forced to comply with practices which they can see are inefficient. When the reasons for the dissatisfaction are investigated, the inefficiencies can be removed or reduced. When workers see that they are being listened to they feel valuable, they become more engaged with their work, take more pride in it. This results in ongoing improvement in service, quality, customer satisfaction and productivity. This is why there is such a strong relationship between low absenteeism and high profitability, as the same article revealed.

There are certain typical characteristics of highly engaged workplaces. In such places, workers feel accepted in that they are free to act as they please, without fear of punishment or discipline; they feel supported in that they have the power to influence their working conditions and environment; and they feel valued in that they are recognised and rewarded, not only for the work they do, but are also appreciated for who they are as people. Where these conditions exist in a workplace, there can be breakthrough performance which continues to increase with time. When this culture can be established, formal incentive schemes are actually far more effective, as the worker's goals become aligned with those of the company. This was found in the Hawthorne experiments in the 1930s, but it is becoming increasingly appreciated in the emerging knowledge economy, where more individual and informal attributes like innovation, service, commitment to quality, and ability to learn and adapt are of critical importance.

Following this reasoning, there is a need to reassess the way we look at the workforce. We need to look at how we can embrace the informal organisation and so not lose its critical value or worse, turn it against the business. Assessing the state of the informal workplace in a company becomes a critical issue. But just as lower absenteeism is not the only benefit to arise from embracing the informal side of the worker, it is also not the only indicator of the extent to which the full potential of the worker is being accessed.

Indications of informal workplace health can be given by things such as:

• Staff turnover (particularly that of quality staff, who tend to be more frustrated by workplace inefficiencies)
• Customer satisfaction
• Customer retention
• Quality of work and rework levels
• Level of debtors
• Quantity and quality of suggestions
• Extent of complaints made (a workplace where there are many complaints can be healthier than one where there are none. Where there are no complaints, it can be a sign that workers are scared, or have given up trying - i.e. they believe they will not be heard)
• Analysis of exit surveys
• Employee satisfaction surveys (although these can be misleading as many such surveys focus on what management believes a worker needs for motivation)
• The career success of people from the workplace (does the workplace produce successful people/careers?)
• Quality of relations with other workplaces, within or external to the company
• Extent of team spirit (the degree to which team results are considered more important than personal ones)
• Extent to which events are unexpected by management (does management hear about things some time later than they must have been known to workers?)

There are many others. In fact, indicators of the degree that workers are informally engaged with their work, rather than informally disengaged or opposed to their work, will vary between workplaces.

The power of potential

A thorough understanding of the health of the workplace, in terms of how close it is to operating at its real potential, can be gained through an audit which involves analysis of indicators such as those above, in conjunction with specialised surveying and interviewing of staff.

Such an audit should be run by someone external to the organisation (to ensure objectivity) and confidentially (to ensure the security of participants - this can be crucial to getting open and honest information). All the staff in the company should be seen as clients of the auditors and results should be reported to the entire workforce. The audit examines the extent that the workplace is performing to its potential, rather than to what degree it is achieving its limited, assigned goals.

Such an audit will not change the culture of a company, nor by itself will it release the untapped potential in the workforce. However, it can bring to light some of the workers' undiscovered ideas and, in particularly frustrated environments, provide momentary relief. And where management addresses the issues raised in the audit in an effective way, ongoing performance and morale benefits can result. The information the audit provides is central to the development of a more open, empowered and productive workplace. In this more transparent environment, there is a greatly reduced risk of unethical behaviour. When used in conjunction with formal and traditional assessments of business performance, this type of audit can also be a powerful tool for strategic planning and workplace design.

So, rather than limiting your staff with overly rigid expectations, it could be time to set them free. After all, you never know what talents could be lying undiscovered - and it is your business which will benefit if you find out.

Formal and Informal Performance Indicators

The relationship between formal (such as revenue, costs, and the resulting profit) and informal (in this case absenteeism) performance indicators often appears in ways similar to that shown in the graph. Problems in a business can be known by its people well before they appear in the formal numbers. Informal indicators often lead formal indicators.

By neglecting an awareness of the informal health of the workplace, and only paying attention to formal performance indicators, a business will get information later than it needs to. It also risks mistaking outcomes for causes and so can fail to address the correct issue altogether.

The power of the informal organisation

The extent to which the informal aspects of a workplace are embraced and brought into alignment strongly influences workplace performance.

Below is a graph showing the change in rate of output of seven workers in the Relay Assembly Test Room experiment, one of the Hawthorne experiments, which were conducted in the late 1920s and early 1930s in a Chicago factory.

While there were many changes made over the period shown, it was found that the major reason for the dramatic and ongoing increase in productivity was that their work became more meaningful to the workers. Management showed increased acceptance, appreciation and interest in the workers as people (not just their ability to produce output). The workers felt that they were listened to, free from the threat of discipline and that they had some degree of control over their workplace. Morale increased dramatically and the workers developed increasing pride in their achievements at work. In this environment, incentive schemes which had previously not been effective, had considerable effect.

Absenteeism which had previously run at nearly 5%, fell to about 1% over the period shown. One percent absenteeism is currently recognised as best practice.