The Human Factors Advantage – Fixing Organizational Foundations.

There are far too many initiatives that are considered as one-step solution(s) to the numerous challenges that are facing most business organizations today. The problem is that no single theory is a panacea. It therefore follows that these single initiatives can only be applicable to a specific challenge in a specific scenario.

In the context of business efficiency, Human Factors (HF) is the most under-utilized process improvement discipline that is available in today’s business world. As an organizational leader, if you cannot predict, with confidence, how each one of your frontline employee’s (whether on the customer service desk, shop-floor production, or inside sales) will handle (a) challenging situation(s), then you are not utilizing a proper HF process in your organization. A negative experience for one of your customers will become your new business card for that customer, and this cannot be managed by hiding behind a policy document.

Every business process must be actioned by people. Yet, there are few organizations that can truly exploit this simple fact. Current globalized trends have enabled a “herd-mentality” with-respect-to the misuse of many popular process-improvement tools (i.e. Six Sigma). We now see a ‘race-to-the-bottom’ due to a myopic focus on management-by-cost-cutting.

There are two core items that combine to form the root cause of this. The first is that the concept of ‘efficiency’ has now been equated to ‘productivity’, and the subtle differences between the two have been effectively ignored. The second is that most business leaders have a very poor understanding of the term ‘strategy’, and that it cannot be defined without a very clear and detailed goal, or end-state, in mind. These have resulted in the Commoditisation of Labour, which is the root cause, and this has effectively neutered the knowledge-based advantage of the West.

Business leaders have lost the art of enabling efficiency.

In order to better see why HF is a core requirement for business, we must first achieve a simple understanding of how your business is linked to several ‘universal’ variables that are currently affecting the economic landscape.

Bank of Canada Governor, Mark Carney, was quoted in the March 10, 2010 edition of the Globe and Mail, as saying that the reluctance of Canadian Business to invest was the cause of this countries “abysmal” productivity record. Productivity is the term used to describe the output per hour worked. The issue at hand is that Canadian business leaders have enjoyed the benefit of corporate-friendly tax policy, yet have thus far “disappointed” when governments” have put in place conditions for productivity revival”.

These comments are newsworthy in the sense that by definition, productivity in Canadian business has historically increased during recession(s) since companies will strive to make do with fewer workers. Mr. Carney’s statement is a sweeping analysis that ties productivity to a single, universal variable. This would be the “lack of reinvestment” of assets that were realized through tax policy. However, by definition, a productivity increase would only be realized through a status-quo output with fewer workers, or an increased output with the same number of workers. New machinery will help, and reinvestment is required in order to capitalize on technological advancement. However with Mr. Carney, reinvestment is equated to productivity. Is this a valid cause and effect? What about simple efficiency in your process?

Economic / Strategic Landscape.

To achieve a better understanding of the global economic landscape, let’s use the simple analogy of a large ocean going oil-tanker. A one-degree change to the course may appear insignificant. Ships travelling the oceans must continually make small course corrections in response to currents, winds, etc.. A minor error of one-degree, by itself, is a routine occurrence. The cumulative effect of this minor error happening multiple times would force the crew into a significant course-correction, which could now present a real problem since large ships are not easy to steer due to their incredible momentum. The ship’s crew must therefore police the small corrections in order to avoid the large corrections. Watching the ships course presents a simple-enough task, and small course corrections are easily manageable. However, in the meantime the shipping industry has seen the rise of globalised ‘flags of convenience’ which are forcing many shipping companies into a position where they must reduce their cost in order to compete (due to foreign/national labour rules or differences in safety/sea-worthy requirements). Technology has also allowed for many of the navigation functions to become automated. But, automation must still be monitored by people.

In the effort to reduce training and personnel cost, the sailor responsible for navigation only requires a simplified qualification in order to maintain the ships course. The training requirement becomes cheaper, and the lower qualification commands a lower wage. The other aspects of maritime seamanship will be accomplished by other positions, whose qualifications have been equally pared down. The sailors who are to perform the individual tasks need only to perform in their individual role, and, in accordance with policy, they are legislated out of expanded roles. The ship still has a Captain who is legally responsible for the overall operation of the ship.

The logic of this analogy strikes to the essence of modern management. The inherent problem with this actuarial cost-cutting is that software fails, automation breaks, captains misjudge currents, pirates love predictability, and those fully trained and experienced sailors (who make up the work-force) have just been de-linked from the overall safety and efficiency of the process. You are now vulnerable to risk that is presented from a “compartmentalized” process. If you are trying to flee a burning building, the greater the number of doors and walls that you must navigate will present a greater “compartmentalized” risk to successfully fleeing the building. When economic crisis hits (which arguably is inevitable), the more compartmentalized your process is, the greater is the risk to successfully weather the challenge.

So, how does all of this general theory apply to your business? Let’s start with two universal trends that we should already be well familiar with.

• Commoditisation of Labour

When a product becomes indistinguishable from others like it, and consumers buy on price alone, it becomes a commodity.

‘Flags of convenience’ are now evident in every aspect in the globalized economy. When manufacturing and labour become cheaper off-shore, profit and share-holder value can only be maintained by lowering the bar so-to-speak. For the western-based corporation, this becomes very difficult when the competition for a private-sector organization is driven by foreign governmental policy. This is the classic Wal-Mart Effect.

Any smaller retail business that has seen its business swallowed up by a new, proximate multinational box-store will know this lesson all too well. The fundamental point in this example is that foreign goods (i.e. China) are produced by labour that is working under governmental policy designed around longer-term strategic objectives (where time frame for success could be two generations into the future). Long-term strategic objectives support economic dominance, and offer a stark contrast against the average “Western” Corporation that is (right now) concerned about the next quarterly report (“...reducing cost supports our existing price-points, and keeps us competitive...”).

Since the quality of simple manufacturing is similar, and is usually the result of menial and repetitive activity, then the cheapest labour will win the contract.

This is the new reality, the issue is here to stay, and business leaders recognize this fact. This is why numerous initiatives that have arisen in the last decade, have been designed around the sole purpose of reducing cost. Many of these are presented under the guise of efficiency and process improvement. Six-Sigma and Kaizan are two that immediately come to mind. The former is designed to find the “pennies and nickels” in a large process, while the latter is designed to improve quality and efficiency. The problems will start to appear as soon as these programs are used as a panacea. This is because efficiency is not the true target; cost-cutting is. As well, these programs must be applied with absolute rigidity in order that their ‘targets’ are achieved.

When applied to labour cost, six-sigma will usually result in employee concessions. This could be in any number of forms such as a reduction in wages and benefits, redundancies, layoffs, and of course, outsourcing. The inevitable effect of all of this is to lower disposable income, albeit just a little. But we have Wal-Mart to shop in. The lower prices soften the resultant effect of a concessionary contract on the work-force, so we are at a zero-sum game, are we not?

• Governmental Policy

Most consumers would agree that their disposable income, even in the case where income has kept pace with the consumer price index (CPI), has become lower. Demographics have ensured that a smaller workforce (otherwise known as tax-payers) will need to support larger, national obligations (inclusive of infrastructure, pensions, public benefits, health care, etc.). Multinational Corporations have been able to shop around for Governments (national, provincial, or state) that will offer the most competitive incentives, which brings us back to the ‘flags of convenience’. The cumulative effect is that governments in the west have a shrinking tax base with which to support their obligations. So what do they do?

Well, there are a number of things that are immediately tangible. We can see privatized infrastructure, as well as new user fees (transportation, health, etc.). Our tax burden has not decreased as a result, and in fact, is ever increasing.

We are also seeing the effects of inflation that result from deficit budgets at every level of government. Deficit is the polite term that governments use when they simply print money (i.e. quantitative easing, industry bailouts, etc.). Diluting the money supply will reduce the purchasing power of one’s net income, which has the same effect as increased taxation. The bottom line is that labour (read middle class) in the west is being squeezed.

How does the Western Business Leader lead an organization that exists in an environment with such global trends? The first item on the agenda would be to fix the fail points.

Fail Point - Systemic Failure

Failure in, of, or relating to a system or part of a system.

The main fail point in Western business is that we have started to play into the fact that labour is a commodity that must be squeezed in order to promote efficiency. This statement represents the failed cause-and-effect analysis that is prevalent in the West. “If we can streamline the cost, then the process that we have is now economical”.
Instead, the priority should be to improve the process, and then streamline the costs. This requires an organization to embrace the variables before counting the nickels. In order to do this, one simply needs to re-orientate their vantage point, as well as take stock of their resources. Our most under-rated resource is our people.
Policy Puzzle

Every organization will be subject to some level of policy that is a result of regulatory oversight. It will also need to establish some internal policy that serves to guide repetitive functions. However, the genesis of many problems will occur at the instant when the administration of a specific policy becomes the raison d’etre of the daily existence.

Just like the technology that enables automated navigation of the ocean tanker, technology and software have now enabled a type of ‘automation’ that supports new policy. With a computer watching, policy is now supportable 100% of the time, and attention is now diverted to software management. This has the effect of reducing personnel vigilance over the process, since your people can now relax slightly, and rely on the technology. With the exception of IT personnel, this has lead to a situation where qualifications for a given position are reduced since the software only requires a functionary to watch it. Therefore, technology inevitably encourages the creation of inflexible obedience to policy. A policy that is perfect has not yet been invented.

This brings us back to organizations that are solely focussed on cost-cutting. If your six-sigma black-belt has identified 15 cents per function, the policy that ensures the 15cents is realized on each and every transaction must be applied each and every time.

This rigid application of one policy will facilitate ‘application creep’ into other types of policy in that organization. This leads to a policy trap where managers are now more concerned with policy enforcement vice efficiency. Should this happen to your organization, there is a good chance that your organization will suffer from stifled innovation, inefficiency, employee politics, and apathy. It will require an extremely talented group of managers to avoid this trap.

You may gauge whether you are already in this policy trap through several indicators that can be easily mitigated through Human Factors. These indicators can be found through a simple audit of the daily process. Pick two performance metrics such as communication and personnel attitude regarding their role(s). If the daily experience in an organization is governed by personnel that are mostly talking and not listening, and by those motivated through fear of reprimand and not through ownership of the brand (organization, goal, etc.), then your organization is stifled from the effects of compartmentalisation that have resulted from the policy trap.

Structure or System?

In order to avoid this policy trap, your organization must transform itself from a structure, and into a system.

You will know that your organization is now a system when your appraisal process takes the focus away from how departments function individually, and puts the focus on how departments function in relation to one another. Many larger corporations that are involved in cost control have adopted the entirely wrong approach when they pit separate departments against one another in a competition for production and/or concessions. The winner gets to keep the work (for now), while the loser may face the threat of some downsizing.

The existing structure of most business organizations will render them ill-equipped to truly assess their potential. It is the fact that most organizations will evolve into a centralized management structure that leaves them susceptible to these globalized challenges. Every nickel may be track-able, but a centralized control of rigid policy that reduces your labour to a commodity will create a burden that leads to ‘the usual suspects’, namely ineffective communication and prolonged inefficiency.

This concept can be seen in a typical organization chart where your organization’s reporting hierarchy is tabled in a flowchart. This type of reporting chain panders to the human nature of information control for non-strategic purposes. It is this type of control that leads to the formation of informal links and coalitions which at best will only inhibit efficiency in the execution of your process. At the worst, it can lead to blunders in your strategic decision making, as well as your process execution. The root cause of this kind of personnel inefficiency will usually originate from the very top through the executive’s tendency to promote in their own image. It is usually much easier to promote a subordinate that is more agreeable than one who is not. Hello office politics!

Corporate Transparency

The mitigation to this quandary can be found in the concept of transparency. We are not talking about a regulatory requirement to open the books, publishing your long-term corporate strategy, relinquishing a technological patent, or decision by vote. The transparency requirement that organizations must work to achieve involves the promulgation of three core items; the over-all or big picture, the ultimate goal or desired end-state, and the basic means of achievement. These core items need to be communicated on a repetitive basis to everyone involved in the process, but only to an appropriate degree of detail. Promoting the big picture while controlling the specifics will allow for management to maintain control of sensitive information, all the while promoting a sense of belonging amongst your rank and file. This sense of belonging gives purpose, and is the genesis of a sense of ownership amongst your people.

A more transparent organizational structure will promote a sense of fairness amongst your people. It will also become easier to identify your true ‘stars’ through their performance vice their ‘campaign’. Newly promoted managers will enjoy a slightly easier transition into their new role since sentiment should agree that they are the right person for the job. Everyone is still on-board so-to-speak.

Personnel Ownership.

This brings us back to the ownership that is created through transparency. This ownership will facilitate several compounding benefits in your process execution.
The first benefit from this transparency is the incremental increase in process scrutiny, organization-wide. Instead of placing sole-reliance on a single individual or department for quality assurance (reporting chain flowchart), every person in your organization will now be able to, at some level, judge the efficacy of the process that they are involved in. Your organization has just realized a measurable increase in quality control, and it has just now become slightly more difficult for inefficiency to exist.

The second benefit from this transparency may be less tangible, but is exponentially more powerful with regard to improving the efficiency of your organization. An organization whose personnel have a sense of ownership through awareness of their purpose will enjoy the benefit of personnel communication outside of the traditional lines of hierarchy. Your personnel will be more apt to highlight areas where they see a problem. This will create communication links across traditional boundaries. You now have inter-departmental support/scrutiny without having had to publish another policy document. This simple improvement ‘metric’ starts to raise the bar.

An organization that now has an employee force that holds a sense of ownership over what they are producing, while having a sense of how their actions play-out in the bigger picture, and that is willing to push communication across traditional inter-company boundaries is the genesis of that organization whose versatility will allow them to function in the new global reality.

Just like the human body, every area in your organization has a purpose, but it must also function in relation to the other parts in order to be healthy. This simple transparency will also lead to one more extremely important, yet quantifiable benefit. As the executive leader, you will notice that in addition to data, you are now receiving information through this organizational transparency.

As an example, if you are the Operations Manager of a new-home builder in North America, do you want your site supervisors to act in the role of disciplinarian over their trade’s people who are actually building the product? This would mean that your ultimate business card (ie. quality reputation) is dependent on your lowest paid labour that is working under a culture of fear. Would it not be far more beneficial if your site supervisors used every ounce of their creativity and leadership skills in order to facilitate their charges in achieving a higher quality product, while minimizing errors? This is achievable if you can in-still a sense of (corporate) personal ownership amongst your people.

Human Factors

Ownership, communication, and pride are all intensely human variables. These are the dynamic variables that have been effectively neutered by any management policy that reduces human involvement down to a simple commodity. Many are the leaders that promote team building, or ownership, or any feel-good concept with statements that will ultimately ring hollow. The average person will have an innate ability to make a simple judgment regarding the sincerity of motivational statements from above. Many leaders will talk highly about their organizational culture and not be aware that their words may contradict the tangible experience of the target audience.

In addition to these issues, many organizations will also suffer from a basic misunderstanding of the term ‘strategy’. The core issue is that many strategic decisions do not support the attainment of a specific goal, or end-state. All successful companies need to make a profit, but profit is not a specific goal. A successful strategy will serve to achieve a goal that is identifiable, as well as quantifiable. In other words, you must be able to identify when you have reached your goal since that is the precise point when your strategy must change to sustainment vice attainment.

If your organization is reliant on (a) policy that does not support a strategy that is leading to an identifiable point of achievement, then you are probably in the process of dealing with some aspect of restructuring, refinancing, or simply trying to pick up the pieces after a recessionary cycle. A quick audit will probably also conclude that there are few hallmarks of a functioning system within your organization’s structure.
This is why the science of Human Factors is one of the most under-utilized process improvement tools that is not used today. Human Resources, while very important, invariably support policy.

The ability for employees to function under stress, communicate effectively, avoid, trap, or mitigate error (because mistakes are a fact of life), or to effectively lead others, all require dedicated training. Understanding where and under what circumstances that people are prone to error, how the concept of voluntary reporting can quantifiably prevent error, and then how to make all of these skills part of your organizational culture are the game changers that western business must embrace. The global market place will move ahead, and organizations must be properly conditioned in order to compete.

This concept was almost perfectly captured in a rhetorical question from Mr. Warren Evans, past president of the Service Excellence Group Inc., when speaking about one of his former clients. He asked if the McDonalds Corporation was ‘merely lucky’ when they found the only 500,000 to 750,000 North American teen-agers who were able to successfully execute the corporate business plan in thousands of restaurants all over North America ( and now the world). Somehow, the corporate leaders of McDonalds were able to ensure that their frontline employees would protect their corporate brand on a daily basis. They also managed to do this with an identifiable group of employees (i.e. “teenagers”) that arguably presented the greatest number of personnel variables imaginable. This was an application of Human Factors.

This is an extensive subject, where individual industries have developed specialized HF programs. Aviation lives by Crew Resource Management. Canadian health insurers have facilitated the development of the MORE Ob (Managing Obstetrical Risk Effectively) for Labour & Delivery practice in Canadian hospitals. If you are in the Nuclear Power sector, you will be more than familiar with James Reason’s “Swiss Cheese Model”. If you are a 14 year-old new-hire at the local McDonald’s restaurant, you know that the proper response, and first response to each communication from a co-worker is ‘thank-you’. Each one of these initiatives will not only improve efficiency and safety, but also improve the financial bottom line.

For any business that relies on people, there are the core competencies of Leadership, Communication, Situational Awareness, Decision Making, and Conflict Resolution that should be part of a recurrent training program. Each one of these competencies represents an in-depth field of study that most likely needs some kind of specific tailoring for your current organization. Many corporations however, will only scratch the surface when they arrange for a motivational speaker, or a single team-building event or seminar. HR departments will often use these terms in personnel evaluation without any real substance or objective criteria behind them. The message behind the feel-good motivational presentation will fade over a short time. At the very minimum, your people require basic training in communication, leadership, and conflict resolution. This minimum requirement becomes even more pertinent when we consider modern social trends that carry labels such as “Generation of Entitlement”, and “Texting Illiteracy”.

Human Factors will take each of these skills, and show how they are actually measurable in the context of your organization. Supported by quantifiable criteria, you now have a starting point from which to measure your personnel performance, as well as a means of maintaining cultural consistency in the midst of personnel turnover. You also have quantifiable standards that you can train to, and maintain currency with.
Why Human Factors?

The science of Social Psychology continues to improve our understanding of people. However, the evolution of business is reducing the role of people to a simple commodity. This is the fundamental disconnect that must be addressed.

Policy is still required, but, it must be developed in order to support efficiency vice enforcement. HF will promote the efficiency that is required for policy development.
An objective look at how your personnel are deployed, managed, and how they interact, will serve as a simple and effective analysis of your organizational efficiency. Improve your efficiency, and your productivity will increase, and all of this may happen without the need for that capital reinvestment that was opined by Mr. Carney.

Joseph Mahoney is Managing Director of AeroSpike Professional Development Training