Problem-Solving Teams Created 1.5 Workers

A lot of philosophy classes are on my college transcript, taken with the incomparable Rick Miller, a Columbia Univ. Ph.D. incongruously teaching  for decades at N.C. School of the Arts. From those and Zen writings I can provide a plethora of moral and ethical reasons nearly every organization should create true teams with their own charters, goals, procedures, and improvement plans. But some managers will only be motivated to change by one reason: Money.

They want to know, “How is the time and hassle going to help my bottom line?”

Fortunately, I can make that argument as well. My Web page on “The Importance of Teamwork” has plenty of quantified examples. The most recent comes from a study in which researchers tracked machine operators in a light manufacturing plant for three years. At the start of that period, the anonymous company the authors called “PARTS” introduced improvement teams similar to quality circles. QCs are thought of as a Japanese innovation, but were introduced to that country after World War II by American consultants like J. Edwards Deming to help it rebuild. In the PARTS version, teams of volunteers from different work groups were empowered to identify and correct “plant-wide issues and the specific problems that confront individual team members.” Thus says the study article by the researchers, economics professors Derek Jones at Hamilton College and Takao Kato at Colgate Univ.

One goal of the teams was “problem-solving, or devising a concrete solution to a specific problem that will result in quality improvement and productivity gains.” But interviews with the CEO and human resources leaders showed that a second goal was just as important: “providing production workers with an opportunity to participate in workplace decision-making.”

The teams met once a week for 30 to 45 minutes. Here’s the first interesting tidbit: Members’ nonproductive time only went down 15 minutes per week. The company tracked labor time tightly, including breaks, preparation and clean-up, sick time, etc. Right off the bat, the company got back a third to a half of the time it gave people to work on solving problems. The explanation may be as simple as survey results in which members reported that they worked harder after joining the teams.

Meanwhile, the machines they worked on recorded daily output, and all workers’ parts were randomly audited against technical requirements. “Though products would not be classified as ‘hi tech,’” Jones and Kato say, “customers demand high quality…” The nature of the work was such that large variations in quantity and quality were easily possible between workers using the same machines to create similar parts.

Workers on the teams increased their output by 3% on average and improved quality, as measured by rate of rejected parts, a whopping 27% compared to non-members. The researchers looked for other possible explanations besides team membership, but no other major changes took place at the plant or in the market to explain the difference (details here). You might be thinking people who volunteered were good performers already, so gains were easy. Actually, a number of poor performers were asked to join also. The authors think managers did that in hopes participation would improve the performance of those workers, which it did.

The key means of improvement appeared to be the learning shared between the machine operators and with the one engineer on each team. “During these meetings, team members learn valuable lessons, and they become more motivated, inventive, and ‘smarter’ workers with a clearer awareness of the importance of quality control,” Jones and Kato write. Improved self-image, social connections, information- and knowledge-sharing, and understanding of the impact of productivity on the plant’s success also may have contributed, the authors say.

There were other benefits to the company of 225 people. Plant-wide productivity and quality seemed to go up, though the researchers did not look closely at that. In surveys, team members reported higher:

• Job satisfaction.
• Commitment to the company.
• Trust in management.
• Belief in their own skills.
• Empowerment.
• Levels of communication with managers and people outside their work groups.

Not one person who got on a team quit.

Let’s do the math on this program. A total of 54 machine operators averaging $7.64 per hour eventually served on teams. Using the standard labor year of 2,078 hours, that’s total base pay of $857,300 per year. A 3% increase in productivity equals $25,719. The net cost of 0.6% downtime is $5,144, leaving a net gain of $20,575. Maybe $20,000 hardly seems worth the effort to you, but how many initiatives in your company provide a 500% net return on investment (ROI)? In this low-wage company, that was the equivalent of adding 1.5 full-time employees at a cost of 5 grand. And these figures are only for one year. The gains slowly dropped over time, such that other actions would be needed to maintain them, but at a rate that would take nearly three years to go away. The article doesn’t include enough information to calculate the cost savings from a 27% increase in quality, or from the apparent improvements among people not on teams.

This was not a progressive firm. It had no profit-sharing or stock ownership plans, and no worklife-enhancing HR policies like job rotation. The monthly “all-hands” meeting was the standard “we-talk-about-nothing-major, you-listen” waste of time. A small 401(k) contribution was technically a bonus, but so routine that workers and managers had come to expect it, wiping out the motivational value. Imagine the financial impacts if the company had turned the functional work groups into empowered teams; allowed people to cross-train and do different jobs; or introduced a goal-and-rewards system!

The effort obviously had top-level support given that the CEO hired “a full-time consultant with long experience in the introduction of teams at other firms.” Most case studies of failed change efforts point to a lack of engagement by top management as a principal cause, as did the authors of the leadership book I reviewed last week. If you’re not the Big Boss and PARTS has convinced you to look at teams as a tool for improving your operations, I suggest using the numbers above to make the argument.

Maybe I’m missing something, but how could anyone turn down a 500% ROI?

Action Item: Consider if there is any valid reason not to try problem-solving teams like those used at PARTS in your organization. If not, create a step-by-step action plan in the next week for getting support for them.

Source: Jones, D., and T. Kato (2011), “The Impact of Teams on Output, Quality, and Downtime: An Empirical Analysis using Individual Panel Data,” Industrial and Labor Relations Review 64(2):215.