Human Capital management for 21st Century Indian Manufacturing.
Indian Steel Industry produces about 75 Million MT of steel per year and looking to double that output within this decade. This article has been written for Steel Tech and focuses on management challenges facing Indian Steel Industry in the area of developing and enhancing its 'Human Capital'.
Part 1: Human Capital not just employees
The challenges facing the steel sector for achieving its targets are many. Rainy’s law of management says that, ‘A situation or trend is likely to remain the same unless acted upon by some innovation or management initiative’. Thus if we want different results we need to do things differently. The question then arises, what needs to be done differently?
All Organisational systems function based on three elements fused together as one. They are Hardware, Software and 'Humanware'.
The hardware includes the land, buildings, machinery and equipment etc. The software comprises the design of technical and management processes, the standards, and the operating procedures. Last but not the least is humanware, this essentially the people, their capabilities, skills, knowledge and attitudes etc. This is what we call as human capital and will address in this article. Human capital as it is the key transforming agent for the hardware and software.
Most organisations employ experts who help procure and set up the hardware. The capital expenditure represents the major part of the budget of setting up of any manufacturing venture. Action for improvement in Organisational performance by investing in hardware is almost always extremely expensive. Sometimes investments are essential, but this route should be the last choice of management.
The software comprising manufacturing and management process design and systems often receive insufficient attention, and are often parceled out /outsourced to various ERP software providers. This approach is accepted for want of a better approach. This aspect is not touched upon in this article. Often managements remain clueless on what they can do to get improvements using this route.
Traditionally owners and managements of organisations have been wary if not downright fearful of employees, particularly the workmen and their unions. Engagement is therefore kept to a minimum and a blend of carrot and stick is used to control employees.
Experiences of working with organisations large and tiny, experiencing both success and failure, I have learnt that most organisations do realize not more than 10% to 40% of their people's potential.
An analysis of almost all successful organisations clearly show that those organisations that have managed their human resources well stand head and shoulders over their contemporaries in almost all measures of performance. This is not magic it is simply good leadership and management. Almost everyone knows this, yet most organisations are unable to put this into practice.
It is proclaimed by wise leaders and repeated by the majority of owners and managers, that people are the greatest asset an organisation has. Yet employees are rarely treated as assets.
To make the organisation's human resources highly effective, there are many approaches that lie between two extreme positions,
1.Make people completely inconsequential
2.Make individuals and teams the greatest asset that the organisation possesses
The first approach works well in sweatshops where the work is so rudimentary that skill is of no consequence. This approach also works well when the work process design has resulted in deskilling of the tasks involved. Here the work is scientifically broken down into such small discrete steps that almost no knowledge or application of mind is needed except to use their body mechanically almost devoid of a brain or soul for accomplishing a task.
The second approach deploys the employee as both an individual and as part of teams to accomplish tasks and achieve missions while continuously improving and responding in a dynamic situation.
In early industrialization periods when people came to work in factories they had little or no formal education and majority of them were illiterate. Any work they found that would help address their poverty was a blessing.
Formal education was not considered necessary and these peasants who came from agrarian backgrounds were treated no more than human form of 'beast of burden'. Some form of education was begun a little later which focused on three simple objectives.
• To make workers obedient so that they learn to unquestioningly take orders from their masters/bosses.
• To tell time and so be punctual
• To count so that they could record what quantity of units they had produced
Subsequently two more rudimentary learning objectives were added,
• Ability to read instructions and notices
• To learn to write so that they could sign off on documents to make them official.
This formed the basis of the education system then and even now. Though now it is a little more sophisticated. Yet 36% of India remains completely illiterate and a further 22% are semi literate
The education is tilted towards regimentation and not to awakening and development of the students.
Illiteracy and backbreaking work without dignity often leads to a ticking time bomb. All it needs is someone to exploit the situation for genuine good or for political and financial gain. Surprisingly high literacy levels with little or no focus on outputs as in many government departments and monopolistic companies both in the public and private sectors also tend to be highly unionized. Both are driven by fear. The exploited worker fears further exploitation on the back of anger and injustice. The underworked employee fears that he will lose his cushy position and privileges when he is discovered to being unproductive or is frankly quite useless and therefore redundant. This second group also involves to a large extent staff and officer levels in organisations.
Most organisations are fearful of unions because they often become mobs. Mobs can be violent, unpredictable, and usually resort to blackmail. To be fair to most workmen and many trade unions, they have no choice other than to go on strike to draw management’s attention to their genuine demands. Unfortunately starting with genuine issues and concerns the leadership of unions often falls into the hands of men who have only their own interest rather than those of the workers.
Middle and junior levels of management are often unfairly tasked with delivering superior results while coping with a hostile atmosphere. They are trapped between militant and uncooperative workers on one hand, and a demanding, aggressive and unsupportive top management and owners on the other hand. The result is they simply stop trying and performance on productivity; quality and costs all take a hit.
This need not be the way.
The first thing to realise is that when you hire hands, the whole person comes along with the hands. People work not only for a living but also for a feeling of purpose in their existence. Giving employees lots of money and rights but with no purpose, is just as bad as giving people too little money or no rights.
When employees are considered to be unavoidable and a source of problems, management tries to control them. When employees are considered as an asset, management seeks to liberate and nurture them. Management works actively to enhance the value of their assets or what we can term as 'Human Capital'.
Reading articles like this one and attending courses or recruiting hotshot human resources manager etc. will not likely to make the situation any better, unless there is a basic respect for people. A holistic approach emanating from good and able people is necessary to build great organisations.
Like all other important initiatives the policy starts at the top. The owners, the leadership and top management must genuinely have the well being of their stakeholders at heart and as the most important criteria on their organisation's agenda. Good leadership is based on trust, openness, justice, cooperation and collaboration that form the basis of achieving great results.
Bad leadership is based on achieving results through use of fear, manipulation, injustice, and exploitation of people leading to bitterness and anger, which often erupts into conflict or in abandonment.
Being good does not mean being naive. All human relationships are based on a power hierarchy. If leaders are too kind without demanding performance, the workers will hijack the organisation's management and soon run it into the ground.
Leaders should treat their people within an organisation as their family. Everyone is cared for and continuously developed and each individual is required to do his or her duty. All families also have their ups and downs, but where there is caring and dignity, disagreements are quickly resolved which work in favour of the well being of both employees and organisation. What is good for the organisation has to be good for the shareholders.
Investment in people always delivers the biggest bang for the buck with greatest advantage for the money invested. The problem is that like all human relationships it needs time to bloom.
People say that times have changed; now people want only money. This is not entirely true. Employees chase money alone as long as they are in want. First management should give and then wait for the fruits of progress, justice and dignity to bear fruit.
Good leaders build human capital bad leaders cannot, but what is 'Human Capital'?
Every employee brings to his or her organisation a combination of knowledge, skills and attitudes, or what we can call as 'ASK' in short.
Most organisations never map the employees ASK. They also never map the ASK requirement of a task, or a work position. It is essential that ASK of employees and the task are matched as best as possible not only for current tasks but also for future tasks. This forms the basis of training in the Humanware of knowledge and skills.
I am often asked to help train people to change their attitude. Attitudes is the most challenging of the ASK elements. It cannot be taught, indoctrinated or inculcated. It can only be nourished to flower or oppressed into negativity.
Positive attitudes are like the ether, it simply radiates positivity, and creates a healthy environment.
Back to leadership.
True leadership lives by a value system or a code of ethics and beliefs. These are cast in steel and do not change. They enshrine noble virtues of equity, justice, respect, brotherhood, and commitment. This has to be articulated by the organisation's leadership and put into action.
Any person no matter how senior or powerful who does not believe in the beliefs and values laid down by the leadership must part ways with the organisation.
Once employees learn and experience that the organisation's value framework is robust and universal, they begin to respect the organisation and the leadership.
Most organisations fearing workmen and unions and the rigid and outdated labour laws, employ contract workers. Poorly trained and with low commitment levels they now comprise the majority of the workforce in even organized sector of industry. Such workers cannot deliver high quality, high productivity outputs over any reasonable length of time. Managements appear to be failing to see the value of investing skill and knowledge training in a contract worker (an outsider) and thus have no choice but to live with low productivity and poor quality, in addition to poor safety etc.
Managements may continue to use the contract worker but must train them as they would a regular employee and pay a premium to the contract worker to ensure retention on the job.
When Henry Ford historically quadrupled the wages of his workers one morning, it was not because he loved the workers. He was employing 50,000 employees to do the work of 10,000 employees so as to improve attendance and job retention.
The increased wages helped for quite a while, then the workers tried to start a union. Henry Ford was incensed and had to hire goons who would beat up and sometimes even kill unionized or politically active workers who were classified by Ford as ‘trouble makers’.
So bad had the condition of the Ford Motor Company become that the American government contemplated taking it over to get rid of Henry Ford and keep the war effort on track. The company almost went bankrupt and was turned around only after the exit of Henry Ford and the entry of his grandson, who introduced modern management and sound Human Capital policies.
Indian steel industry has one of the lowest labour costs for producing steel in the world, simply because of low labour wages, and not because of high labour productivity. India has one of the lowest labour productivity amongst major steel producing nations.
Imagine over the next decade if labour productivity was quadrupled in terms of MT per employee and net labour costs doubled what will be the impact? Both owners and employees would gain handsomely. What if the skill and knowledge levels of the workmen are improved significantly then Indian steel industry can truly become world leaders.
Part 2: Motivated employees deliver more than twice of ordinary employees.
As mentioned earlier in this article most employees in Indian manufacturing deliver no more than 10%to 40% of their normal capacity. Employees can be motivated by two extremes, an extra reward or what might be called an incentive for crossing an upper threshold or a punishment for performance dropping below a certain minimum level.
High output driven by incentives is often unsustainable, plus leads to all sorts of problems of bad quality, production of unwanted products, generation of dead stocks, corruption by way of fudging of records, etc. In addition people cannot work at 125% of their capacity all the time over a period of time.
Between the two extremes of reward and punishment in a broad band lie employee’s normal outputs, called 'Employee Discretionary Potential' or EDP in short. It is found that well motivated employees work nearer to the upper end of their EDP levels. The employees deliver higher productivity and workmanship, produce higher quality products and services and continuously improve as individuals and as teams.
Case Example on winning hearts and minds
Founded in I968 by two brothers, Manoman Engineering* was a company manufacturing steel fabrication components. Hardworking and passionate they braved many odds and challenges to build their small-scale unit.
Combative by nature their technical and commercial success was remarkable. However their trading background did not so easily adapt to industrial behaviour and dealing with militant unions. Hence their success was marred by frequent labour problems and strikes that resulted in the factory remaining nonoperational for an average of 4 months in a year.
Exhausted after 13 years of continuous hard work, the leadership was passed on to their sons in the year 1981. The sales turnover was Rs 80 lacs in that year.
The thing about entrepreneurial families is that they live and breathe business. The sons, during their childhood had spent most of their holidays and weekends at the factory and office. They took to business like ducks take to water.
The youngsters took up their responsibilities with great zest. Soon production and turnover started increasing rapidly. Then towards the end of the year there was a huge and violent conflict between the management and the workers, which lasted nearly 17 months.
The management broke the strike by bringing outside workers and the union won the case in the labour court.
In a rare and unprecedented move the workers union representatives convinced workers that conflict was undesirable reached out and offered its cooperation to repair relations and rebuild the organisation. Dignified in victory, the union demonstrated that they wanted a fair and equitable relationship.
Chastened by the experience the management learnt many lessons and the workmen and their union began a new chapter of cooperation.
For the next 20 years there was not a single man-day lost due to strikes or lockouts or any form of industrial strife.
The company by 1997 had achieved a turnover of Rs 640 Cr, and was characterized by the following features.
· It was the number one or two suppliers in all its market segments.
· It was the preferred supplier for most of its customers.
· The best performing company in its industry with above average growth rates in turnover and profitability.
· The highest paymaster in the industry and yet having the lowest employee costs.
· The quality of products and services of the company were considered to be either very good or excellent. The defect rate was a fraction of the industry average.
· The time taken by the company to introduce new products and services was a third of the time taken by the industry average.
The employees considered the organisation as their own and were intoxicated with the feeling that they were part of history, in building a great company and institution.
The phenomenal growth was achieved by amongst other initiatives, the unleashing of the latent energy and capacity and following many of the suggestions made in the above article.
Manoman Engineering became a sick unit after the recession period from 1994 to 1999 because of is aggressive expansion had resulted in it facing a severe liquidity crisis. Even when the operations were suspended the 5,400 employees all left the organisation with no ill feelings, protests or litigation. They expressed just sadness that the management had not been able to maintain the world-class company that they had together built.
This article is not meant to provide a magic mantra to address employee performance concerns. Nor do I seek to show the reader a way to resolve problems, in fact it would be fair to say that the probability of problems arising is greatly reduced.
If people are treated as commodities they will treat the organisation as an entity to be ruthlessly and shamelessly exploited. However if organisations want to become world-class they will have to shift from human resources management to Human capital development and enhancement.
Good human capital focus alone is not a substitute for a sound strategy, good planning and excellent execution. However it will result in comparatively significant superior outputs as compared to the competition.
Many people rush to implement EDP enhancement plans and are too quickly disillusioned.
The greatest barrier in management - employee relationship and cooperation is the credibility of management. They feel managements cannot be trusted.
Just because management has changed its approach does not mean people will lap it up. Unfortunately perception lasts longer than fact. It will take a long while before employees will believe in the 'new' management. There is no choice but to invest in your human capital.
The philosophy in action of the management of the environment (political, social, and preserving of our green heritage) is not discussed in this article.
The author Gurvinder Singh is, CEO of Ampav Education and Consulting Pvt. Ltd.
*Manoman Engineering is an adopted name for a real life case study. This has become necessary because owners and management have requested that we do not share confidential information or disclose their names.