FOREWORD 

During the early phases of the interagency effort to 

measure and improve the productivity of Federal workers the 

major thrust of the program was on the development and use 

of productivity measurement systems. Substantial progress 

has been made and measures are now being used for about twothirds of the Federal civilian work force. Increasing attention is now being given, and properly so, to the development of comprehensive productivity programs and the management use of productivity data. 

For about three years the Joint Financial Management 

Improvement Program participated actively in this program. 

We issued three annual reports on productivity to the 

Presi,Jent and Congress, the last one in July 1976. During 

thi.s time we accumulated a great deal of information about 

productivity programs. We think we know some of the reasons 

for the successes that have been achieved. We also have some 

ideas on things that should be done differently or better. 

While our focus has been primarily on productivity in the 

Federal Government, we have had occasion to observe productivity programs of State and local governments and various 

private business firms. We have been impressed by the 

similarity of approaches used in the different sectors and 

by the great potential for useful interchange of ideas. 

The purpose of this booklet is to capture some of the 

lessons that have been learned about productivity programs. 

We have drawn heavily on the information presented at a 

January 1976 conference on "How to Implement a Procl.uctivity 

Program" which was sponsored by JFMIP and the National Center 

for Productivity an~ Quality of Working Life. We believe 

the ideas presented by the four business speakers at that 

conference have widespread applicability. Examples of successful productivity programs of government organizations 

may be found in the case studies included in JFMIP annual 

productivity reports. 

Additional relevant information may be obtained from the 

National Center for Productivity and Quality of Working Life, 

which now has leadership responsibility for national productivity efforts, including the work in the Federal sector. 

~.') C'.~- Donald C. Kull, Executive Director 

Joint Financial Management 

Improvement Program 

March 1977 
FOREWORD 

CHAPTER 

1 

2 

3 

4 

APPENDIXES 

A 

B 

c 

D 

IMPLEMENTING A PRODUCTIVITY PROGRAM: 

POINTS TO CONSIDER 

C 0 N T E N T S 

Introduction 

Organization and Content of 

Program 

Measurement Systems 

Management Use of Productivity Data 

Productivity at Xerox 

Productivity Improvement--The 

Travelers 

Productivity Measurements--

Today's Challenge to Management 

for Tomorrow's Survival 

So You Want to Do Something About 

Productivity ... ??? ... How to Get 

a Program Going in your 

Organization 

1 

4 

12 

20 

28 

39 

49 

58 
IMPLEMENTING A PRODUCTIVITY PROGRAM: 

POINTS TO CONSIDER 

CHAPTER 1 

INTRODUCTION 

Productivity may be defined as the rate of 

efficiency in producing goods or services, or the ratio 

between the units produced or services provided by an 

organizational unit (output) and the resources consumed 

in production (input) during a specified period of time. 

A productivity index measures the efficiency of the 

producing organization over a period of time by comparing 

the current output/input ratio with that of a previous 

base. A common way of expressing productivity is in 

terms of output per staff year. 

Productivity has long been recognized as important 

for a strong national economy. Large gains in productivity in agriculture and manufacturing industries have 

been major factors in the economic strength of the 

United States. As service oriented industries begin to 

account for an increasing share of the gross national 

product, there is increased recognition that productivity 

is important for service industries also. Most government activities fall in the area of service rather than 

the production of goods. 

Currently governments at all levels employ one out 

of every six American workers. The productivity of 

government workers thus is an important factor in the 

national economy. 

Improved productivity can be an in~ortant weapon 

against inflation. It can also be a means of helping 

to control the levels of government spending in a time 

when there is increasing pressure against tax increases 

and expanded government programs. 

Much progress has been made in recent years in 

finding ways to measure the productivity of government 

workers. Productivity measures are now being used for 

1 
about two-thirds of the Federal civilian work force. 

Many State and local governments are also beginning 

to measure the productivity of their workers. A 

productivity program, however, is much more than just 

a measurement system. While some government organizations 

are doing a good job of using productivity data in the 

management process, there is much work to be done in the 

development and use of comprehensive productivity programs. 

On January 29, 1976, the Joint Financial Management 

Improvement Program and the National Center for Productivity and Quality of Working Life conducted a conference 

on "How to Implement a Productivity Program." This 

program featured presentations by officials of four 

business firms which have effective productivity programs. 

In the belief that the experiences of those firms are 

highly relevant to other private and public organizations, 

the texts of the speeches are included as appendixes to 

this booklet. The four speakers and their subjects are: 

--Edward L. Maier, Vice President for Operations, 

Xerox Education Group - "Productivity at Xerox." 

(Appendix A) 

--Norman D. Edmonds, Director of Corporate 

Management Services, Travelers Insurance 

Company - "Productivity Improvement--The 

Travelers." (Appendix B) 

--A. J. Benes, General Auditor, The Detroit 

Edison Company - "Productivity Measurements -

Today's Challenge to Management for Tomorrow's 

Survival." (Appendix C) 

--Paul Elsen, Director of Human Resources, 

Honeywell Inc. - "So :You Want To Do 

Something About Productivity •.• ? ..• How TO 

Get A Program Going In Your Organization." 

(Appendix D) 

These appendixes are not the usual dry, statistical 

analyses often found in appendixes. They are lively 

descriptions of action programs which achieved significant 

gains in productivity. Even the titles of the people 

leading the programs for these companies call attention to 

the fact that there is no one "correct" way to organize 

a productivity program. There is considerable diversity 

in the approaches used by the different companies just 

as there is diversity in the approaches used by the 

2 
various government, and other organizations whose 

programs have been reported previously as case studies 

in JFMIP productivity reports. 

There are, however, certain common threads running 

through these successful programs. Some of the 

ingredients for a successful productivity program are: 

strong central leadership; meaningful involvement by top 

management; operational management, workers and unions; 

sound organizational and administrative arrangements; 

a measurement system, including provision for data 

collection and reporting; analytical capability; and 

motivation. 

These and other factors will be discussed in the 

succeeding chapters. 

3 
CHAPTER 2 

ORGANIZATION AND CONTENT OF PROGRAM 

RESPONSIBILITY 

The first step in developing a productivity program 

should be the establishment of a central focal point 

for leadership of the productivity effort. The central 

point should be near the top of the organization and 

the director of the productivity unit should have direct 

access to the head of the organization. This unit 

normally would not have line responsibility over the 

operating components of the organization. 

The productivity unit should have overall responsiblity for development and direction of the program. 

It should operate as a catalytic agent and a source 

of expertise for advising operating units. 

The top manager should use this productivity unit 

as a staff resource, not as a substitute for personal 

involvement. There is no substitute for. active leadership from the head of the agency. It should be made 

clear to all managers in the organization that productivity is a line management responsibility and that staff 

resources are available to assist in carrying out that 

line responsibility. 

The size of the productivity unit will vary with the 

size of the overall organization. It need not be a 

large group. It should, however, have the skills 

necessary to provide technical advice on measurement 

and data collection systems, analysis of productivity 

trends, and identification of opportunities for 

productivity improvement. The personnel in this unit 

should be of a sufficiently high level that they can 

gain the respect of and work effectively with managers 

at various levels throughout the organization. 

4 
In a large agency it may be appropriate to 

designate full-time productivity representatives in 

some of the larger component organizations. In other 

cases, liaison with the productivity unit may be a 

part-time responsibility. In all cases the operating 

managers should be involved. A productivity council 

or committee consisting of representatives from all 

parts of the organization may be useful. 

EMPLOYEE INVOLVEMENT 

The best way to motivate workers to improve their 

productivity is to make it clear to them that they have 

an opportunity to participate in the development and 

operation of productivity systems. Where employees are 

represented by unions, the unions should also have a 

meaningful voice in this process, starting at the 

planning stage. Labor-management productivity 

committees can be1an effective way of bringing about 

this involvement. 

Employees will be less inclined to be suspicious 

of the implications of a productivity improvement 

program if they are involved in its development and 

implementation. Furthermore, the basic knowledge of 

their jobs which employees have can be useful to 

managers in considering ways to improve productivity. 

Employees often can be motivated to improve their 

productivity if there is an opportunity for them to 

share in the benefits of increased productivity. This 

is often more difficult in Government than in the 

private section, but it is important that managers use 

their ingenuity, within existing systems, to reward 

those who improve productivity. Individual and group 

awards, within grade merit increases, special commendations and consideration of productivity in promotions 

are among the methods available to most Government 

managers. 

1 

The National Center for Productivity and Quality of 

Working life has issued a number of publications on 

labor-management committees, e.g., Labor-Management 

Productivity Committees in American Industry, 1975. 

5 
MEASUREMENT 

A system for measuring productivity, collecting 

the data in an orderly fashion, and reporting it to 

management is an obvious part of a productivity program. 

This will be dealt with in greater depth in a separate 

chapter. 

ANALYSIS 

As indicated earlier, the central productivity unit 

should have an analytical capability. The primary 

analysis of the data, however, should take place at the 

operating level. Line operating managers should receive 

the reports necessary for them to make their own analysis 

of productivity data. In many cases, they can take 

necessary corrective action without waiting for further 

review. In some cases, the operating manager may 

require the assistance of specialists such as industrial 

engineers or program analysts. 

The process of analysis can help to identify 

opportunities for improvement. In some cases operating 

officials can identify needed improvements. It often 

is useful, however, to have a separate industrial 

engineering or management analysis group which can 

bring some additional perspectives and help the operating 

managers in their task. 

It should be recognized that there are limitations 

to productivity measurement systems. The analysis 

function should not be limited to the analysis of 

measurement data. There is need for systematic use of 

other techniques such as special operational analyses, 

personnel management evaluation programs, operational 

or performance audits, and other forms of program evaluation. Such techniques can be useful, not only in assessing progress, but in identifying opportunities for 

improvement. 

PLANNING AND EXECUTION 

A very thorough planning process is needed whether 

an organization is developing an overall productivity 

program or developing plans for specific improvements. 

6 
The basic policies should be clearly established 

and documented. This should help all people in the 

organization understand why the program is being undertaken and the guidelines that will apply. Priorities 

and time schedules should be established. 

Productivity goals should be established jointly 

by managers and employees for each operating unit 

within the agency. Where there are employee unions 

they should also be involved. There should be timely 

reporting of the productivity results and the operating 

managers should be held accountable for achieving their 

productivity goals. Managers should also be rewarded 

for exceeding their goals. 

Front-end analysis is crucial before a specific 

improvement project is undertaken. This can help 

identify the primary targets for improvement and other 

areas with potential benefits which should be considered 

as the project progresses. It can also provide a basis 

for estimating the resources needed to do the job. It 

is important that adequate staff and other resources be 

provided. 

The need for training should be assessed and 

provision made for the necessary training. Different 

types of training may be needed for managers, technical 

staff directly involved in productivity improvement 

projects or analysis, and the general work force. Unions 

can be helpful in training programs. 

In some cases, improvements in productivity can be 

achieved by relatively minor modifications of operating 

procedures. In other cases more substantial changes 

may be necessary. If a significant investment of capital 

or other funds is required, there normally is a requirement for review by a higher management level. 

It is important that there be a mechanism for prompt 

consideration of proposals for productivity improvement. 

If the process is too long or cumbersome many people 

will not bother to suggest improvements. 

7 
It is important, h~wever, that there be firm 

standards for justification for proposed improvements. 

In the case of major changes, there should be an 

economic analysis showing the costs and benefits of 

the proposed change. Standard rules for performance 

of such analyses should be established to the maximum 

extent feasible. The process and time schedule for 

review should be firmly established. Persons making 

productivity improvement proposals should have access 

to expertise of the productivity unit and other staff 

resources. 

It is equally important that approved productivity 

improvement projects be initiated and carried out 

promptly so that the benefits can be realized as soon 

as possible. In some cases the projects will be 

administered by the line operating organizations. In 

other cases there may be need for involvement of other 

groups. In any event, the installation of new procedures 

or facilities must be coordinated with operational 

requirements so that disruption of current operations may 

be minimized. 

Improvement projects should be audited to determine 

whether the expected benefits are achieved. The entire 

productivity system should be subject to audit by the 

various responsible groups, e.g., GAO audits and CSC 

personnel management evaluations as well as internal 

controls. 

FINANCING OF CAPITAL IMPROVEMENTS 

One of the deterrents to productivity-enhancing 

capital investments in Government has been the difficulty 

of obtaining funds for the necessary investment. The 

long budget process and the requirement for line-item 

approval of individual items have often been cited as 

problems. 

The General Services Administration conducted a 

study on methods of enhancing productivity through 

improved acquisition and management of capital equipment. 

The major findings in the study report issued in 1975 

were: 

8 
--Few agencies have developed systematic 

programs designed to identify, evaluate, 

fund, and control available productivityenhancing capital investment opportunities. 

--Few agencies take full advantage of existing 

financial authority in funding low-cost 

investment projects. 

--For larger projects (over $250,000) a lack 

of financial flexibility within the existing 

Federal Budget process has limited efforts to 

achieve long-term capital efficiencies. 

One of the most effective devices has been the use 

of omnibus funds. The budget might include a specified 

amount to be used for productivity improvements meeting 

specified criteria in terms of programmatic urgency, 

payout period, etc. The justification could cite past 

experience with use of such funds and give examples of 

the types of projects which might be required in the 

budget year. There should be clear responsibility for 

audit of the use of such funds and reporting on such 

use. 

The knowledge that an omnibus fund is available 

can help stimulate efforts to identify good investment 

opportunities. 

INTEGRATION WITH OVERALL MANAGEMENT SYSTEMS 

A productivity program should be viewed not as an 

independent operation, but as an integral part of the 

overall management process. A close link with the 

personnel management program is essential. The development of productivity data collection and reporting 

systems must take into account the financial and other 

reporting systems already in operation. A productivity 

program could be a part of an overall program evaluation 

effort. Performance should be evaluated in terms of 

effectiveness and quality of the product or service 

delivered as well as efficiency or productivity. 

Interesting results are now being achieved in a 

series of demonstration projects on a concept called 

Total Performance Measurement. In this approach, 

measures of productivity and effectiveness are integrated 

9 
with information on employee attitudes and customer 

attitudes to provide a powerful diagnostic tool to aid 

operational managers in identifying and correcting 

problem areas.l 

COMMUNICATIONS 

For any program to be effective, the people throughout the organization must know about it and understand 

it. Special publicity e·fforts may be necessary when a 

productivity program is being established. Perhaps more 

importantly, there must be a regular mechanism for keeping 

people informed on how the program is progressing in 

addition to the basic plans and procedures. Employee 

newsletters and staff meetings can be useful communications mech~nisms. Perhaps one of the best approaches is 

publication of successful results and information about 

the people who make those results possible. Good 

communication of what is being done within an agency 

may help get wider application of successful results. 

There should also be a means for keeping informed of 

productivity developments and operating improvements 

in other organizations. 

Employee unions can be a vital link in the 

communications process. It is essential that union 

leaders have opportunity to participate in productivity 

planning and be fully informed of proposed management 

actions. Furthermore, the union organization is a 

logical vehicle for reaching the rank and file workers 

with information about productivity programs. 

QUALITY OF WORKING LIFE 

The National Center for Productivity and Quality 

of Working Life has recognized that one of its main 

responsibilities is to clarify the various meanings, 

objectives, applications, and results of the concept 

of quality of working life. The Work in America 

Institute also has a number of activities underway in 

this field. As further progress is made in this area, 

1 

Further information on Total Performance Measurement 

may be found in the JF.MIP report, Productivity Programs 

in the Federal Government, Volume I and Volume II, 

dated July 1976. 

10 
it is hoped that there will be a better understanding 

of the relationship of quality of working life to 

productivity. 

The drive for improved productivity should not be 

so strong that it ignores working conditions and the 

well-being of employees. Cooperation of labor and 

management leaders should lead to actions which lead 

to improved productivity and improved quality of working 

life. 

ADAPTABILITY 

No matter how good a program is, it needs to be 

subjected to continuing evaluation. Circumstances may 

change. There may be technological improvements or 

regulatory changes. If existing methods are not working 

well there should be a willingness to change, whether 

this involves change in the measurement systems or the 

way the productivity data is used in the management 

process. 

CAUTIONS 

There are several precautions which should be 

observed in organizing and carrying out a productivity 

program. Some of these are: 

1. Be realistic in expectations. 

2. Don't be deterred by temporary setbacks 

if progress toward ultimate goals is being 

achieved. 

3. Keep the program as simple as possible. 

Don't be abstract or technical. 

4. Productivity improvement involves some risk. 

5. A productivity program is not a "cure-all." 

6. Don't overlook quality and effectiveness. 

7. Avoid a program which employees may 

perceive as being threatening. 

8. Remember the importance of feedback. 

9. Be aware of the limitations of measurement 

systems. 

10. Don't underestimate the resources required. 

11 
CHAPTER 3 

MEASUREMENT SYSTEMS 

Many organizations which are just beginning a 

productivity program will find that their measurement 

needs can be met through use of a fairly simple productivity measurement system. In most such systems the 

ratio of output to input (usually staff years or staff 

hours) for a current time period would be compared to 

a specified base period. Some organizations, however, 

may wish to establish a more comprehensive work measurement system which defines and measures the detailed 

processes of an organization and compares current performance against standards. The standards used in such 

a system would take into account the past experience 

but might also reflect the results of engineering or 

other detailed analysis of what performance should be. 

STEPS IN DEVELOPING A MEASUREMENT SYSTEM 

There are certain basic steps which should be 

undertaken by any organization seeking to institute a 

productivity program. 

1. Analyze and document the mission, objectives 

and activities of the organization. 

Even if the organization has well-established 

written procedures, there should be a comprehensive and 

fresh look at the entire mission and operation of the 

organization. A good technique for doing this is the 

preparation of a series of flow charts covering all 

aspects of the operation. This should be a participative process involving people at all levels of the 

organization--not only the managers, but also the 

workers who are involved in the delivery of services. 

The resulting flow charts or other descriptive documents should reflect how the various programs of the 

organization really operate, not necessarily how they 

are described in existing manuals or how they are 

12 
perceived by the headquarters office only. This 

analytical process may lead to some changes in methods 

and procedures.l 

2. Determine what ought to be measured. 

To do this it is necessary first to determine 

what are the most significant aspects of the process 

for each organizational component. Then the points 

where management control is being exercised or should 

be exercised can be identified. 

3. Define the output measures. 

The output measures used should be those which will 

indicate, with reasonable accuracy, the information 

which managers at various levels need to evaluate the 

progress being made toward achievement of the organization's objective. The output measures should be related to the management control points. If the organization has only one major mission perhaps one output 

measure can be used for all employees of the organization. In most cases, however, some breakdown of outputs 

will be necessary. If measurable outputs cannot be 

defined for all phases of the operation, the system 

should start with those outputs which can be defined. 

The following tests may be helpful in defining 

output: 

--Mutually exclusive - Can the input required 

to produce the output item be readily 

identified? 

--Process definable - Are the same steps 

required to complete the operation each 

time? 

--Countable - Can the number of units produced 

or services provided be quantified? 

1 This approach was used successfully in cooperative 

projects for development of improved financial management programs in the Farmers Home Administration, the 

Department of Agriculture, and the Bureau of Alcohol, 

Tobacco, and Firearms, Department of the Treasury. 

13 
--Uniform over time - Will the nature of the 

product or service remain relatively stable 

over a reasonable period of time? 

--Mission oriented - Does the product or 

service represent all or a significant 

part of the mission of the activity being 

measured? 

--Quality definable - Is quality of the 

product relatively stable, or at least 

definable? Quality becomes a problem only 

when it changes, but definition is needed 

in order to determine if change has occurred. If changes have occurred, these can 

usually be factored in to adjust the productivity equation. 

--Data readily available - To what extent is 

data available from existing systems? 

--Directness of measure - Are the measures 

direct or, if proxy (indirect) measure~ are 

necessary, is there a rational relationship 

between the output and the measure? 

4. Identify measures of effectiveness and quality. 

While the major thrust of this document is productivity or efficiency, the process of developing a 

productivity measurement system provides an appropriate 

opportunity to consider measures of effectiveness and 

quality also. These measures are generally more complex 

and difficult to develop, but should not be ignored. 

The previously mentioned Total Performance Measurement 

concept can be useful in many cases. 

5. Determine the input measure to be used. 

As indicated earlier the simplest and most commonly 

used input measure is labor, generally expressed in 

terms of staff years or staff hours. This is generally 

a quite satisfactory method for organizations where 

salaries and wages, along with related benefits, constitute the major part of the cost of doing business. 

An option is to use total operating cost as the input 

measure. A special analysis of the historical relationship between labor input and total costs may be helpful 

14 
in making a decision as to the most appropriate input 

measure. 

6. Establish data collection system. 

Existing cost accounting and management information 

systems should be studied to determine whether they 

can provide the required data. This also provides an 

appropriate occasion for judging whether all of the 

data generated by the existing systems is really needed. 

Wherever possible existing data collection systems 

should be used with such modifications as necessary, in 

preference to developing an entirely new system. The 

data collection system used should be one which provides 

the required information on a timely basis with reasonable accuracy and in as simple a form as possible. 

CONSTRUCTING A PRODUCTIVITY INDEX 

Once the outputs and inputs are properly identified 

and defined, productivity indexes can be computed. 

For an organization producing a single uniform product 

or performing some single uniform service, the productivity index simply measures the change over time of 

the ratio of units produced to total direct and indirect 

staff years expended to produce the output. The following tables illustrate the procedure used to construct 

a productivity index when a single output is produced. 

Year 

1 

2 

3 

EXHIBIT 1 

BASIC DATA 

Output Quantity Produced 

4 

6 

8 

Direct and Indirect 

Staff Years Expended 

10 

12 

14 

The basic output and input data are indexed and 

then divided to obtain a productivity index. 

15 
EXHIBIT 2 

OUTPUT, INPUT, AND PRODUCTIVITY INDEXES 

Year Output Input Productivity 

1 100 100 100 

2 150 120 125 

3 200 140 143 

An index shows how a number has increased or 

decreased with respect to a comparable number in the 

base (or reference) period. Thus, the output index in 

year 2 is constructed by dividing 6 (year 2) by 4 

(year 1) and multiplying by 100 to convert the quotient 

to an index number. The input index is constructed in 

the same manner (i.e., 12 divided by 10 x 100 = 125). 

Since most organizations produce more than one 

output, the various outputs must be combined in some 

meaningful fashion. For labor productivity indexes 

this is accomplished through the use of base year, 

labor weights. The quantity of each product produced 

each year is weighted (i.e., multiplied) by the labor 

required to produce one unit of output in the base year. 

Thus, those products which required more unit labor 

time to produce in the base year will have more importance (or a greater weight) in the composite output 

measure.l 

PROBLEM AREAS 

Wherever possible, the output measures selected 

for an organization should reflect the final product or 

services, that is, the outputs that are consumed outside of the organization. The staff years or other 

input associated with intermediate outputs, that is, 

those produced and then consumed by the organization 

1 More detailed information on constructing productivity indexes may be found in the JFMIP report, 

Productivity Programs in the Federal Government, 

dated July 1976, in Volume I, Appendix F, or by 

consulting the staff of the Bureau of Labor 

Statistics. 

16 
itself, should be allocated to the final output. This 

is particularly important for productivity measures 

which are to be aggregated with measures from other 

organizations to form composite productivity indexes. 

For its own internal management purposes, an organization may wish to accumulate information on the various 

steps leading to the final output product. A heavy 

emphasis on final output, however, can be a very useful 

management mechanism for assuring that the detailed 

activities of an organization contribute to the end 

product. 

Productivity trends are intended to reflect the 

changes in efficiency in producing specified products 

or services, assuming no change in the quality of those 

products or services. Definitions of changes in quality 

of output are somewhat ambiguous. For purposes of 

labor productivity measurement, changes in output 

quality refer to changes in the characteristics of the 

output which reflect an altered production process 

with different base period labor requirements for producing the output. Where such changes are significant, 

the output measures should be adjusted. 

Another problem encountered in measuring productivity is that of quantifying outputs in sufficient detail 

to adjust for shifts in mix of the output. If the 

output units represented by one output indicator are 

not homogeneous and if over a period of time the proportion changes between those units that are more labor 

intensive and those that are less labor intensive, the 

resulting output per staff year measure will reflect 

this change as well as true productivity changes. 

Where there are separate outputs which are known to 

have widely varying labor requirements, usually it is 

necessary to divide the output into two or more line 

items. 

Measurement problems are also encountered where 

there are outputs which take many months or, in some 

cases, years to complete. Recording the outputs only 

in the year they are completed in such circumstances 

could produce inaccurate and erratic indexes. For 

example, if five years are required to build a ship it 

would be improper to report the production of one ship 

17 
in the fifth year and zero production in the first 

through fourth year. In order to obtain a meaningful 

measure, organizations must either estimate what 

proportions of these long-term outputs were produced 

in each year or break the outputs down into component 

parts, each of which is completed in a relatively short 

time. 

Questions are frequently raised about the degree 

of detail that is needed and the degree of precision 

or accuracy in the measure. A general rule is to begin 

with rather broad or gross measures. Then, after some 

experience is available, the measures can be subdivided 

if it seems necessary or desirable to provide needed 

management information. The degree of accuracy of 

precision required will depend largely on the use made 

of the data. A high degree of precision is not necessary for analysis of long-term trends. On the other 

hand, if a measurement system is being used to compare 

the performance of subunits within an organization, 

measures should be precise enough to avoid actual or 

perceived inequities among the units. 

If an organization has had little experience with 

measurement systems and if there is some apprehension 

about the usefulness of such systems, it may be well 

to start out on a small scale. Perhaps one subunit or 

one function could be selected for a pilot operation. 

This provides an opportunity for debugging a system and 

for identifying changes which can be made prior to 

instituting the system throughout the organization. 

Wherever possible the measures of output should be 

direct measures. In the case of some service activities, however, this may be rather difficult. In some 

cases it may be necessary to use proxy or indirect 

measures such as the number of people served. 

Productivity measures are usually used to measure 

the productivity of an organization or a function. 

In some cases, however, they may be used to measure the 

specific performance of individuals. It is important 

to define at the outset which approach is being used. 

It is important, also, that employees clearly understand which approach is being used. 

18 
Some productivity measurement and work measurement 

systems have evolved over the years into exceedingly 

complex systems. In some large organizations where 

highly technical staffs are available there may be a 

tendency to be overly critical of the measurement system and to continually make refinements and "improvements." There is a danger in such cases that perfection of the system may be viewed as an end rather than 

a means to an end. There is a danger also that 

managers and workers may have difficulty fully understanding the complex system and thus will not be 

motivated to use it. 

19 
CHAPTER 4 

MANAGEMENT USE OF PRODUCTIVITY DATA 

Some organizations, both public and private, have 

made significant progress in demonstrating how productivity measurement can be used in both the operational 

management process and the budget process. The study 

of several successful programs has been helpful in 

identifying some of the ways that productivity data 

can be used in the management process. Among the 

management areas where productivity measures are useful 

are the following: 

1. Setting goals. 

2. Estimating resource requirements. 

3. Budget justifications. 

4. Cost reduction. 

5. Organizational improvements. 

6. Control of operations. 

7. Reallocation of resources. 

8. Accountability. 

9. Motivation for improvement. 

SETTING GOALS 

Whether they use formal management-by-objective 

programs or other means, most organizations are accustomed to establishing goals for their current and 

future operations. Too often, however, these goals 

are general in nature and difficult to assess in terms 

of accomplishment. A productivity measurement system 

can be a means of making the goals more specific and 

meaningful. It should be recognized, of course, that 

not all goals are readily quantifiable. 

Productivity goals should be set for the overall 

organization and also for component units. To be 

meaningful, productivity goals should be specific to 

the organization. They should be based on the specific 

potential for productivity improvement in that organization during the specified time period and take into 

account the plans for capital improvements or other 

changes. One should be cautious about establishing 

identical percentage targets applicable uniformly of a 

number of different organizations and programs. Often 

the variances in organizational goals and circumstances 

make this unrealistic. 

20 
The potential for improvement in any particular 

organization depends in varying degrees on the importance of untapped past opportunities as well as on new 

opportunities that may arise either from within the 

organization or externally. 

The availability of productivity data, no matter 

how refined, cannot reduce the setting of productivity 

goals to an automatic process but it may help to make 

that process simpler and more effective. When the 

productivity data is generally accepted by an organization or individual, then a frame of reference is 

established concerning the efficiency of the organization. 

With the development of a productivity measurement 

system and productivity goals, the next step is to 

integrate the measures and goals into the budget process. 

ESTIMATING RESOURCE REQUIREMENTS 

Operating managers at all levels are constantly 

seeking better ways to define the resource requirements for their program. First, of course, it is 

necessary to establish basic program plans and assumptions. Then comes the more difficult task of pricing 

out the program. 

Analysis of past productivity trends provides a 

helpful starting point. If workload is projected to 

be at about the past year's level the main problem may 

be to identify the extent to which operating improvements may make possible productivity gains and, thus, 

lower work force requirements. Whether this also leads 

to lower total costs and lower unit costs will depend 

upon such factors as salary levels and other price 

changes. If workloads vary substantially either up 

or down, there may be significant variations in unit 

costs and output per staff year. In such cases the 

computation of the estimates requires analysis of such 

factors as economies of scale and the effect of shutting 

down some plants or starting up new ones with an 

attendent learning curve. In any event, the availability of good productivity data can minimize the situations where reliance must be placed on general judgment. 

21 
BUDGET JUSTIFICATIONS 

For many years there has been a requirement that 

Federal agencies submit productivity data in support 

of the annual budget estimates. For a number of 

reasons, compliance with this requirement has been 

rather spotty. Some agencies have simply not had the 

basic data required. In other cases there has been a 

reluctance to use it in the budget because of concern 

that it might be misused in the budget review process. 

To the maximum extent practicable, productivity 

goals should be incorporated in the budget process. 

Budget justification should include information on 

past productivity trends and set forth clearly the 

various factors expected to affect the level of productivity during the coming year. Presentation of meaningful productivity data and clear statements of assumptions on which goals are based can lessen the possibility that the productivity improvement goals and trend 

information will be used in an arbitrary or uninformed 

manner. 

Projections of resource requirements also must be 

based on specific assumptions about the projected 

output, i.e., the total volume, the proportion of the 

various individual outputs and explanation of factors 

affecting quality of the services rendered or the 

products produced. Assumptions on changes in prices 

of resources should also be clearly stated. 

Where capital projects are expected to increase 

productivity, the justifications can be strengthened 

by inclusion of information on the expected productivity 

gains to be achieved by the proposed equipment or 

facilities. The submitting agency, of course, must be 

prepared later to show the extent to which the projected savings were achieved. The existence of a 

system for measuring productivity changes can lend 

credibility to proposals. 

COST REDUCTIONS 

The greatest immediate value of productivity 

measurement is its potential for contributing to 

improvements in productivity and hence savings of 

manpower and money. Productivity data may be helpful 

22 
in at least two ways. First, it provides a history of 

what actually happened to productivity under a variety 

of conditions. This information may be drawn upon in 

formulating plans for increasing efficiency in the 

future. Second, measures of productivity may be used 

as a follow-up device to determine how well the goals 

for productivity improvements are actually being 

achieved. 

Analysis of productivity data can make possible 

more informed judgments about the effects on productivity of various actions or events such as introduction of a new type of equipment, centralization of 

operations, changes in legislation or changes in systems or procedures. 

ORGANIZATIONAL IMPROVEMENT 

The benefits of increases in productivity can 

readily be seen. However, careful analysis of declining trends is also important. A downward productivity 

trend can alert the manager to a need for careful 

review of the organization and operating methods. A 

productivity measurement system can be useful in evaluating the extent to which improvement efforts really 

pay off in actual improvements. 

CONTROL OF OPERATIONS 

A functioning management system containing one or 

several measures of productivity will provide periodic 

reporting on the efficiency of the organization and 

will bring to the attention of management any departures 

from the planned goals, or from the pattern of change 

in comparable organizations. 

Productivity measures for large organizations may 

not be designed to reflect all of the details necessary 

to monitor day-to-day operation. In some cases productivity systems should be supplemented by more detailed 

work measurement systems dealing with intermediate 

outputs for smaller organizational units. 

One type of analysis that often is useful is a 

comparison of productivity using direct labor, indirect 

labor, and total labor resources. This tends to focus 

management's attention on the contribution of each 

23 
segment of the resources used in producing an output. 

Analysis of the indirect labor area may show unexpected 

increases. This could suggest need for study of 

overhead staffs. 

Combination of productivity measures and financial 

data can indicate the actual cost of products and 

services produced and changes in the unit costs. Some 

systems permit analysis of changes for the various 

major components of input and output. 

REALLOCATION OF RESOURCES 

The need for reallocating resources occurs at 

various times during the budget review process. A 

system of productivity measurement and unit cost 

analysis can enable managers to assess the impact of 

different funding levels and to respond on a timely 

basis to questions or challenges to the estimates. 

After funds have been received and operations are 

being conducted there are frequent occasions for reallocation of resources in many large organizations. 

Often there may be unforeseen changes in workload or 

costs for some parts of a program. The availability 

of a productivity system will help the manager in 

determining whether it is possible to make reductions 

in some activities to offset workload increases in 

others. If there just is not enough total money to 

meet all the needs, an analysis of productivity can 

help determine which activities are most deserving of 

priority consideration. 

ACCOUNTABILITY 

A productivity measurement system fosters accountability on the part of managers. Productivity measures 

the rate of change in efficiency. It measures the 

change in the relationship of products or services 

produced to resources used. It gives visibility in 

terms of specific numbers as to the change in the 

efficiency of program operations and makes managers 

accountable for performance. It forces managers to 

explain poor performance and provides a vehicle for 

documenting good performance. 

24 
A productivity system can also help counteract 

allegations about inefficiencies in Government operations by providing factual data to Congress and the 

public. 

To maintain its credibility, of course, a productivity system must be able to stand the tests of the 

audit process. This can also be a means of identifying 

needed changes in the system. 

MOTIVATION FOR IMPROVEMENT 

If productivity is to be improved, it is necessary 

that there be motivation for both managers and workers. 

A productivity measurement system provides documentation of the results of efforts of managers and workers 

to improve operations and productivity, thus, becoming 

a basis for recognition of good performance. Both the 

prospects for favorable recognition and the knowledge 

that poor performance will be documented can be 

motivational factors. 

Both managers and workers should have opportunity 

to share in the benefits of productivity gains. If 

the only result of productivity gains is a budget reduction, a manager has little incentive to seek further 

improvement. Incentive can be provided by permitting 

a portion of the gain to be used for program activities 

which are important but which might otherwise have had 

to be deferred for budget reasons. One agency which 

has used this approach successfully is the Internal 

Revenue Service. 

Workers can share in productivity gains through 

special recognition, individual and group incentive 

awards, within-grade salary increases, and consideration of productivity in promotions. 

A person, whatever his place in the organization, 

will generally be more motivated to increase productivity if he or she has a meaningful opportunity to 

participate in planning the work. There should be 

widespread participation in the establishment of 

productivity goals. There should be an open environment where ideas are welcome. 

25 
Some organizations have had good results with job 

enrichment programs, use of flexible work schedules, 

redesign of jobs, and other efforts to increase 

worker job satisfaction. In many cases there is positive evidence of improved productivity through such 

programs. 

There have been several attempts to overcome the 

obstacles inherent in monetary awards for productivity 

improvement. One approach has been a concept called 

"productivity bargaining." This is a joint method of 

negotiating pay increases for employees based on 

increases in productivity. Productivity bargaining 

means that employees share directly in the savings 

realized through joint labor/management productivity 

.efforts. Several local governments are trying this 

approach. In addition, the Bureau of Engravinq and 

Printing is exploring a "Scanlon Plan" approach where 

Federal employees would share in productivity savings. 

The key to any of these approaches is that a suitable 

productivity measurement system must first be developed. 

The setting of productivity goals within the framework of an MBO system will help motivate managers to 

take an interest in productivity. Once goals are 

established there is accountability, commitment and 

involvement on the part of managers. However, the MBO 

system must be used by top management in reviewing 

organizational performance if managers are to be 

motivated to reach their productivity goals. 

Institution of a productivity program could meet 

with opposition, or at least lack of enthusiasm, by 

some middle managers. They may feel threatened by the 

more exacting performance reports that are part of a 

productivity system. In some cases this may result 

from feelings of inadequacy. On the other hand, it 

may be due to insufficient attention to communications 

and training during the implementation of the productivity program. 

The process by which mediocre or poorly performing 

managers are replaced is often a long one. An organization which is installing a productivity program must 

give careful attention to its techniques for selecting 

future managers so as to assure compatibility with the 

26 
demands and nature of a continuing productivity effort. 

Some organizations have used special assessment techniques to measure a candidate's receptivity to exacting 

performance measurement as well as the ability to 

manage in a productivity improvement environment. 

CONCLUSION 

It is both possible and practicable to measure the 

productivity of many governmental operations. The data 

from productivity measurement systems can be extremely 

useful in the management of government programs. If 

the potential benefits are to be achieved a high degree 

of leadership and management skill must be applied to 

the development, operation and use of a comprehensive 

productivity program. 

27 
APPENDIX A APPENDIX A 

PRODUCTIVITY AT XEROXl 

Productivity in Xerox--What is it, how is it measured, 

how can it be improved. I will discuss a specific program, 

but first let me set the stage with a few general comments. 

1. Productivity for us is simply output versus 

input. 

2. We measure it in a number of ways, some of 

which are: 

Units Produced/Employee, 

Revenue/Employee, 

Profit/Employee, 

Investment/Employee, 

Operating Cost/Employee. 

Notice, however, a common denominator: 

The Employee. 

Now the question is, how can productivity be improved? 

I will discuss how we have done it in a particular function 

in our Education Division, namely clerical. 

The potential for productivity exists almost everywhere. The trick is to identify it, implement it, and 

get the best out of it. 

Our clerical productivity program is a small part 

of the overall Corporate program on productivity which 

includes manufacturing and distribution. My discussion, 

however, will cover clerical and related editorial 

development work. 

The clerical program involves paper-handling activities for customer interfaces such as order receipt, order 

response, customer correspondence, invoicing, and mailing; 

as well as editorial functions for our published products. 

Our objective in establishing this program was to reduce 

the number of times paper is handled, thereby reducing 

1 

NOTE: Speech given by Mr. Edward L. Maier, Vice President 

for Operations, Xerox Education Group on January 29, 1976, 

in Washington, DC for a JFMIP Conference "How To Implement A Productivity Program." 

28 
APPENDIX A APPENDIX A 

errors, speeding up the process, limiting redundancy, 

and finally, providing job enrichment opportunities for 

the employees involved. 

THE EDUCATION DIVISION 

So that you might understand the magnitude of this 

program, let me describe the Education Division yery 

briefly. We have approximately 3,500 employees in some 

30 locations worldwide. The bulk of these employees, 

approximately 3,00~ are in about 25 U.S. locations. This 

talk is aimed at the domestic operations involving these 

3,000 employees. The table below shows the breakdown by 

category; this talk concerns two of them, namely, the 

clerical and the editorial groups of approximately 1,000 

people. 

EMPLOYMENT BY ACTIVITY PERCENT OF 

TOTAL PAYROLL 

--Editorial/Development 

--Sales & Marketing 

--Fulfillment . Clerical 

• Distribution 

--Manufacturing 

--Finance & Control 

--All Other 

THE PROBLEM 

20% 

20% 

15% 

13% 

13% 

6% 

13% 

Our paperwork connected with receiving and servicing 

customer orders had been mounting in both volume and 

cost. Statistics concerning this activity are: 

SELECTED STATISTICS 

--Annual Orders 

--Annual Labels & Invoices 

--Annual Correspondence 

--Individual Order Values 

--Average Order Value 

--Cost Per Transaction 

7,100,000 

63,600,000 

8,700,000 

$10 - $500,000 

$25 - $30 

$ 1 - $11 

As you can see, we handle lots of paper for some pretty 

small orders. So we must ~ee? our costs down. 

29 
APPENDIX A APPENDIX A 

Clerical functions performed on fulfillment include 

the following: 

CLERICAL FUNCTIONS 

--Mail opening and sorting --Label creation 

--Batching and logging --Reject analysis 

--Order analysis --Invoicing 

--Correspondence review --Credit and collections 

--Order or data entry --Adjustments 

--Correspondence preparation --Freight calculation 

--Filing and retrieval 

As our product lines became more diverse and complicated, we were finding that our clerical employees' 

productivity was dropping, that is, pieces of correspondence per employee, such as customer orders, customer 

responses, and invoices. We were experiencing rising 

costs, declining employee morale and a sense of frustration of the supervisors in their relationship with the 

employees. The latter two points became evident from a 

series of attitude surveys we administered throughout 

this division. 

At the same time our costs for product development 

were increasing significantly. Coupled with this was 

the feeling that our programs were taking too long to 

bring to the marketplace. We saw a relation between the 

paper handling costs and time, and the editorial costs 

which we felt could be attacked by productivity improvements. 

THE PROGRAM 

The need for an attack on the problem became more 

and more obvious. Consequently, we embarked on a program 

to identify and resolve the problems. 

We established a task force to evaluate our situation 

and to propose solutions. The task force consisted of 

line department representatives, systems people, personnel 

employees, and functional experts from the respective 

organizations. We determined that user involvement was 

necessary, and subsequent events indicated that this was 

one of the more important aspects of the entire program. 

The task force, after studying a number of alternatives, decided to introduce a new approach including new 

processes, methods, and orocedures to handle the increasing load. We made this decision for the following 

reasons: 

30 
APPENDIX A 

1. Employee turmoil and relocation could 

be minimized. 

2. An opportunity was provided to enrich 

the job of employees. 

APPENDIX A 

3. We saw more lucrative longer-term cost 

reduction opportunities. 

4. The possibility for significant speedup and 

turnaround improvements leading to increased 

customer satisfaction and swifter product 

development became evident, and finally, 

5. The proposed solution provided continuity, 

that is, it did not lead to major interruption of the business. 

The clerical productivity program selected involved 

the elimination of a number of manual operations which 

handled customer paper from the -receipt of the order to 

the final invoicing and shipment. These operations were 

changed to mechanical ones using the computer. Likewise 

the editorial productivity program permitted change from 

typing and retyping to computer text editing capturing 

the tests and processes on computer. We took the myriad 

of manual operations, computerized them on line, converting our clerical and editing people to decision makers 

while eliminating non-productive operations. 

The solution allowed us to handle clerical activitie~ 

and text editing as few times as possible while making 

routine jobs, such as searching and filing and retyping, 

obsolete. 

Our program included a number of significant element~ 

of productivity, namely, 

PRODUCTIVITY ELEMENTS IN THE 

RECOMMENDED ALTERNATIVE 

--Application of technology 

--Labor saving devices (more investment per worker) 

--Upgrading the worker (training) 

--Better allocation of labor 

--Economies of scale 

31 
APPENDIX A APPENDIX A 

We have a good deal of seasonal activity in our 

business with dramatic peaks three or four times a year 

for periods of up to 1 month. During these peaks we had 

in the past hired large numbers of temporaries whom we 

then trained to perform routine tasks. These temporary 

employees caused major employee dissatisfaction and 

disruption, and many supervisory difficulties. In 

addition, these temporary employees were expensive to 

train. Our clerical and editorial productivity program 

largely eliminated this group of temporary employees. 

We were able to reduce temporary manpower needs through 

the elimination of activities such as: 

--Redundant batching 

--Overlapping data search and input 

--Continual checking 

--Cross-over mail 

-~Transaction rejects 

--Extensive indoctrination 

We aimed at eliminating the lost motion work through 

our computerized system, freeing the individual to make 

the more important decisions regarding customers and orders 

and eliminating the drudgery. 

THE PLAN 

After we had identified the problem and its symptoms, 

evaluated a number of alternatives, and selected a 

solution, we then created a plan to solve the problem. 

We spent a good deal of time in this planning phase and 

this is the area which cannot be too carefully carried out. 

The plan included the following: 

a. The procedures, targets, and objectives were 

all established. 

b. The responsibilities and authorities were 

delineated. 

c. A timetable was agreed to. 

d. A startup group entirely separated from the 

day-to-day operations but interwoven with 

them was created. 

e. A parallel running period was set up. 

32 
APPENDIX A APPENDIX A 

f. Checkpoints or measurements were defined, 

and finally, 

g. Careful cost estimates and benefits were 

set down. 

One of the very critical elements in the plan and 

its implementation is user involvement. This must be 

planned for and insisted on. 

We established a training program for the familiarization of all participants--management, supervisors, and 

workers. We consider this essential because thorough 

knowledge by everyone-~-those implementing, those interfacing, and those affected by the program--would help make 

the transformation progress more smoothly, because people 

could understand the impacts only if thoroughly versed 

in them. 

_IMPLEMENTATION 

After we had created the plan and completed the 

preliminary steps including thorough training, we began 

the implementation process. This process included: 

--Creating and documenting the systems and 

procedures 

--Parallel running 

--Debugging and shakeout 

--Live operations 

--Phaseout or old process 

Critical to the implementation were, in my opinion, 

management knowledge and understanding which included 

frequent status reports. Equally important is management 

awareness of the need for flexibility, that is, the need 

to change a procedure without destroying confidence in 

the program. 

Finally, any program must include a post-auditing 

procedure to evaluate the program and to validate the 

assumptions including as a minimum: 

a. The time assumptions, 

b. Manpower needs, 

c. Costs, 

d. Desired results both from an internal standpoint 

as well as those from a customer service standpoint. 

33 
APPENDIX A APPENDIX A 

User involvement, mentioned earlier, was one of 

the most frequent sources of problems when the user 

either had little or no knowledge of the program or had 

not felt that he was involved in the action. In this 

program, we felt that the user had to make the following 

commitments: 

The user must: 

a. Agree that there is a need for improvement. 

b. Support the alternatives selected or, 

put more forcefully, be committed to the 

program. 

c. Define the needs of the program. 

d. Bear ultimate responsibility for the 

success or failure once the needs are 

defined and steps for solutions are 

implemented, and 

e. Fund the program on a self-liquidating or 

cost-effective basis, if this is at all 

possible. 

I cannot overemphasize how critical this user involvement is to the success of a program. 

WHAT DID WE LEARN--THE 

DO'S AND THE DON'TS 

Hindsight is an excellent teacher. We made many 

mistakes. However, we soon learned the importance of 

flexibility. The program is performirig very well. The 

following are some of the things that we learned. 

The Do's: 

a. Plan and evaluate carefully. 

The value of very thorough upfront planning 

cannot be overemphasized. False starts 

and false leads are costly and time consuming, and they can undermine confidence in 

the program. 

34 
APPENDIX A APPENDIX A 

b. Clearly define targets and goals. 

In this regard, define the '~needs, " not the 

"wants." Most people will create a shopping 

list of what they want, which includes too 

many extraneous functions. Look only at 

the needs and implement accordingly. 

c. Involve the peopl~ responsible for 

implementation--the user. 

Without full commitment on the part of the 

user, no program on productivity can 

succeed. 

d. Train and familiarize. 

Time spent on this activity, although it can 

sometimes be considered unproductive and 

costly, if carried out carefully, pays 

dividends later. 

e. Measure results, both while carrying out the 

program and after the program has been 

fully implemented. 

f. Feedback is important to each additional 

step in a project as well as for obtaining 

valuable experience for similar projects in 

the future. 

g. Parallel procedures, both the old and the 

new, as long as is necessary. This parallel 

period allows bugs to be worked out while 

permitting people to become familiar with 

the program before it must stand on its own. 

A base case as a reference point should be 

established as part of this procedure. 

h. Continue to look for additional benefits 

once the system is installed. Methods 

analysis can be particularly useful in 

this regard. 

35 
APPENDIX A APPENDIX A 

The Don'ts: 

a. Don't underestimate the resources required: 

Time, manpower, and costs. Once these 

resources are exceeded during implementation, the program is in danger of losing 

favor. 

b. Don't expect immediate results. Bugs take 

time to work out. 

c. Don't rush into a program just because you 

have problems. Take time thinking it 

through. 

d. Don't underestimate the interest and 

ingenuity of the people. Solicit the.ir 

ideas and get their inputs throughout the 

program including planning, implementation 

and post-audit periods. 

e. Don't be satisfied with obtaining only the 

defined improvement_. After the program is 

installed, continue to look for any actions 

that might eliminate unneeded activities 

which crop up after the program is installed 

or with which the program interfaces, i.e., 

another area such as manufacturing. 

f. Do not confine productivity improvements to 

the elimination or change of activities. 

Productivity should be ongoing in any 

operation and to associate productivity 

with introduction of new procedures or 

elimination of old procedures would be 

shortchanging potential benefits. Look at 

all existing operations to see how they might 

be combined, streamlined or improved. Do 

this on a planning ongoing basis. Make it 

a part of performance targets. 

g. Avoid complexity. The simpler the procedures, the better the results. Attempt to 

create productivity programs that build on 

simple basic steps which can be added or 

removed. 

36 
APPENDIX A APPENDIX A 

LESSONS LEARNED 

We underestimated the short-term resources required, 

namely, time, manpower and costs, and we were too 

optimistic on the short-term results; that is, the 

immediate expectations were too high. However, on the 

longer term expectations we were too conservative. After 

we had been in the program for 6 months, we found many 

additional benefits which could be implemented and which 

added to the overall attractiveness of the program 

exceeding our original expections. 

The costs of the program as established by our postaudi ts showed a direct relation to preplanning. The better 

the preplanning, the more accurate the costs and resources 

required. In those segments of the program where we 

skimped on planning, we had the most surprises. 

We found early that the requirement to be flexible 

was essential. We found it important to be J;eady to 

try something different--a different approach, for example, 

to an individual problem if in the implementation snags 

develop. 

It is essential that everyone involved in a project 

from top management on down be committed to the prooram. 

For any productivity program to succeed there must not be 

an "I told you so" attitude or a "standing on the sidelines" by any participants. Everyone must be enthusiastic 

and onboard and contributing. You must sell the ?rogram; 

not force it into use. 

We had to avoid being discouraged by setbacks. A 

particular aspect which became a problem was isolated and 

our best resources applied to overcome the problem. We 

had to establish a firm resolution to plow ahead and 

circumvent the short-term problems. 

Although vendors and consultants can be helpful in 

a productivity program which introduces new procedures and 

practices, there is no substitute for your own in-house 

expertise and knowledge. One way or the other the buck 

stops with the "users." 

THE BENEFITS 

Of course, first and foremost as a benefit was the 

cost reduction and savings resulting to our division from 

the labor savings and associated costs. 

37 
APPENDIX A APPENDIX A 

Improvements in employee morale were significant. 

Our new procedures provided job enrichment, and 

eliminated the confusion and resentments from the large 

temporary workforces which we previously had used. 

Additionally, employees were introduced to new procedures 

requiring them to make decisions. 

Each employee became a center for decision. An 

employee handled all the service problems associated with 

a particular customer. Finally, these changes in employee 

attitude and morale were shown in a greatly reduced 

employee turnover. 

Customer service and satisfaction improved dramatically

There was a speedup in handling orders and responding to 

customers. 

As a part of our program, reduced recordkeeoing was 

a significant benefit. The masses of files that we 

previously had, disappeared. The duplication of records, 

lost records, redundant manuscripts, and physical filing 

were reduced or eliminated. 

Finally, the increase in productivity, that is, faster 

processing, faster response led to increased revenues. A 

disgruntled customer will not reorder. We found as we 

introduced this program and we handled our customers 

efficiently and quickly that we could expect reorders 

shortly thereafter. Along the same line swifter introduction of our new products through more rapid development 

allowed us to begin earning a return sooner on our development dollars. 

38 
APPENDIX B APPENDIX B 

PRODUCTIVITY IMPROVEMENT--THE TRAVELERSl 

We are one of the largest multiple line insurance 

companies in the world and are organized around lines 

of insurance, that is to say, we operate with departmental autonomy within our Group, Casualty, Property, 

and Life Departments. Each of these major functions has 

its own specific departmental budget. Once that budget 

is established at the corporate level, department heads 

are generally free to allocate those funds as they see fit 

when considering their organizational mission and objectives. This departmental autonomy carries over to our 

Field Off ice structure in that each Field Office manager 

reports to his respective Home Office Department regarding expenses, profitability, underwriting practices, and 

so forth. In a large Field Office, for example, we could 

have as many as six managers who would form a Management 

Committee to run the administrative affairs of the Field 

Office. Beyond that, however, there is little or no 

inter-relationship on a product or marketing basis. We 

have 32,000 employees across the United States in approximately 120 locations, with 10,000 of those employees 

housed in our Home Office in Hartford. Our annual premium 

income runs about $4.7 billion and the company has assets 

of about $11.2 billion. 

Travelers has what could be called typical problems 

for a large highly decentralized organization. For 

instance, you could correctly assume that it is a very 

difficult organization to control from many points of 

view, expenses being one of them. We also have problems 

that are present in any organization that must take 

widely varying geographic consideration into its planning 

efforts. Communications can also be difficult particularly in the area of possible confusion between expense reduction versus profit improvement. This causes conflict 

in terms of desired organizational emphasis. Last, being 

a labor intensive business our problems are compounded 

by the fact that much of our output is directly related 

to the effective use and management of human resources. 

1 NOTE: Speech given by Mr. Norman D. Edmonds, Director 

of Corporate Management Services, Travelers 

Insurance Co. on January 29, 1976, at Washington, 

D.C., for a JFMIP Conference "How to Implement 

a Productivity Program." 

39 
APPENDIX B APPENDIX B 

CORPORATE PRODUCTIVITY PROGRAM 

In this overall organization lies the Management 

Services Division of which I am a member. This organization has about 50 professionals. We perform as internal 

consultants to the corporation in the areas of expense 

reduction, and operations and profit enhancement. 

Recently, we became involved in a Corporate Program to 

analyze both our organization and our pattern of expense 

allocation. This program has two major components. 

The first is a measurement component. We measure 

inputs as well as outputs in our measurement activity. 

With regard to the input measurement, we deal with work 

measurement and negotiated standards. We find that production goals that are set for people by someone else are 

not likely to be as well received as goals that they participate in setting for themselves. Consequently, when 

dealing with the activity or input portion of our measurement program we use very simple measurement techniques 

and negotiate with supervision as to whether or not the 

resulting performance standards represent what an average 

worker could do during the course of a work day or during 

the course of a single work cycle. This type of work 

measurement is then included into standards which are 

applied across the organization and served primarily as 

staffing guides. 

The second part of our measurement activity deals 

with outputs or productivity measurement. We are attempting to identify, measure, and monitor productivity variables, which will then lead to planning and control 

mechanisms for the operating departments. In this effort 

we attempt to separate activities from outputs. For 

instance, in a claim operation you may find that there 

are many activities, such as setting up a claim file, 

establishing pending files, examining first notices of 

loss, and other such things which go into the successful 

settlement of claims. Those activities are measured 

through our work measurement program. The final output 

of that organization is the number of claims that are 

settled on a timely basis as well as the average amount 

of claim dollars paid. Our productivity measurement 

system allows us to segregate these outputs and develop 

what is called a Final Output Index which leads us to a 

cost per staff-hour for claim settlement. 

The second part of our Corporate Productivity Program 

deals with the identification of change alternative. This 

part of the program also has two segments. 

40 
APPENDIX B APPENDIX B 

The first is an examination of our workflow. Essentially we are looking for ways to alter the means that 

are used to produce our required outputs. We examine 

where the work comes from, how it's handled, where it 

goes, how many steps are involved, and what level of 

personnel are involved in handling the various types of 

work. 

Second, we look at the organization and how it has 

been designed to process that workflow. The organization 

is initially examined from the macro point leading down 

to the micro point of view. We also look for formal and 

informal organizational structures. Very often what is 

on the formal organization chart is disregarded by people 

operating in the system, because the formal organization 

does not complement what they perceive to be their work 

output requirements. 

Our job is to examine what needs to be done, compare 

that to the organization designed to do those things, 

and make adjustments either to the workflow or the organization. Our objective is to process our business more 

effectively and efficiently. 

An important part of this productivity program is that 

we rely heavily on management implementation. Our objective is to assist our managers and supervisors in improving 

our organization's effectiveness. For example, our work 

measurement standards are not emphasized as a means of 

controlling managers and supervisors as much as it is 

used as a tool to develop alternatives and a guide for staf

fing to meet desired work output levels. We also help 

managers assess and develop their own internal capabilities 

with respect to making organization and workflow changes 

that will result in improved output. We try to assess the 

work and production pressures on these people when consider

ing their ability to implement change alternatives. 

For instance, management by objectives has long 

been seen as an effective tool for operating managers. 

However, MBO is too often external to what must go on in 

the organization each day. My boss and I once agreed 

that the development of objectives for my function would 

be a desirable thing. We discussed it and set up timetables for the development of objectives. Some time later 

he came to see me and asked if I had completed them. I 

replied that I hadn't. When he asked me why, I said, 

41 
APPENDIX B APPENDIX B 

"Each time I get started on them something important to 

do comes along." We recognized that the people that we 

work with are under the same kind of pressure. Therefore, 

one of our major functions is to make sure that our inputs 

are relevant, timely, and directly related to what he is 

trying to accomplish in his organization on a daily basis. 

IMPLEMENTING A PRODUCTIVITY 

IMPROVEMENT PROGRAM 

The first step in implementing a productivity improvement program in an organization as diversified as 

ours is to recognize that there are many types of productivity which apply. Financial and cash management, use 

of capital equipment (primarily data processing equipment), 

marketing productivity, procedural considerations, and 

human factors are all important in terms of productivity 

evaluation and improvement. At The Travelers many different organizations are concerned with these productivity 

issues. We have a Systems Division which deals with 

automation, programming, and EDP capital equipment expense. 

Our Corporate Actuarial and Control Area as well as our 

Investment Department deals with cash flow management 

productivity. Our Administration Department deals with 

salary administration, supply conservation, and other 

such administrative productivity factors. Our line departments are also active in areas related to procedures, 

new marketing thrusts, and monitoring and controlling our 

loss ratio. 

The job of the Management Services Division is to 

complement not duplicate these productivity efforts. We 

must be concerned with providing synergism not competition. 

In order to achieve this objective it was necessary for 

us to develop some sort of strategy. One way to describe 

this strategy is to discuss how we view the difference 

between training versus structural intervention by internal 

consultants. 

There is a popular notion that has been around for 

years implying that if productivity problems are present 

in an organization the obvious solution is to improve your 

training so that your staff can perform at a higher level. 

The theory is that proper training will lead to an improvement in worker attitude, resulting in a more desirable 

on-the-job behavior and productivity improvement will 

result. This premise assumes that if workers are more 

sure of how to do what it is they must do, then they will 

in fact do it better and more quickly. 

42 
APPENDIX B APPENDIX B 

Our intervention strategy is based on another 

principle. We feel that the common denominator is change 

in the structure through which work gets done. Structural 

change (properly implemented) will force a behavioral 

alteration. Once people are behaving differently a change 

in attitude about their work generally occurs. This in 

turn leads to the desired productivity improvements. We 

are not saying that training is irrelevant; however, training must be placed in perspective and must support structural changes. 

DJAGNOSTIC TECHNIQUE 

The key to determining what sort of structural 

changes are required in order to alter behavior, attitude, 

and productivity lies in effective diagnosis of the 

organization before any changes are suggested. I would 

like to take a moment to give you an overview of our 

diagnostic technique. Essentially it involves interviewing in a planned manner, cross sections of those 

people who work in the organization at all levels and with 

various amounts of experience. We observe the work process, examine historical records as well as the methods 

used to report on output. The data gathered through this 

approach is then examined from a number of perspectives. 

First, we examine it from the point of view of organizational purpose. What is the organizational component 

there to achieve? Second, how well does it execute its 

purpose? Third, what are the developmental and human utilization considerations in the organization? Last, what 

environment does this organization operate in? This 

information is then compared to what the organization does 

when conditions are normal, what it does when conditions 

are deviant, and then what it does when conditions are 

extraordinary. Often we find that extraordinary conditions 

cause procedural changes designed to alleviate temporary 

problems and these procedural changes of ten wind up as 

normal behavior of the organization. 

Our objective is to get management to recognize this 

potential problem and to place its perspectives and conditions in the proper order to maximize on its productivity 

capability. 

We have found that our form of productivity and work 

measurement provides the structure we are looking for 

in order to begin to effect behavior change. Volume 

counting and control of staffing is a useful tool to get 

managers and workers thinking about what their productivity is. We attempt to provide feedback to them on 

43 
APPENDIX B APPENDIX B 

staffing levels and work output levels in a way that is 

non-threatening, constructive, and seen as possibly 

developing change alternatives. Once they have a better 

handle on the resources used to produce their output they 

begin to develop a new attitude which creates a readiness 

for change. 

Over the past 7 years we have developed our procedure for productivity improvement through a series of 

events. In 1968 we began our work measurement effort 

which was aimed at improved efficiency and proper staffing levels. It was admittedly activity oriented and 

designed to measure what was currently being done. In 

1970 we began experimentation with work design and skills 

development strategies, and in 1972 we began working on 

productivity measurement systems. This was the identification and quantification of outputs as opposed to 

activities. Diagnosis, activity measurement, job design, 

workflow analysis, and output measurement are the major 

components of our Productivity Improvement Program. 

The corporate program, which I mentioned previously, 

came into being because of a need to integrate these 

techniques across departmental lines. The program relies 

heavily on communication to line management of our intent 

as well as methods. A key part of this program involves 

the selection and training of representatives from major 

departments to work with our internal consulting group 

on the implementation of the program. It is designed 

not to do things to organizations but with them. 

In the course of implementing our Productivity 

Improvement Program we have observed many do's and don'ts. 

Do's: 

1. Internal consultants need to maintain a low 

profile in the organization. Too often 

this type of staff group is more interested 

in getting credit for its work than it is 

in seeing that the desired changes are 

made. 

2. Determine who your client is. It's often 

very easy to sell your products or services 

at the highest level in the organization 

and then implement at lower levels. This 

very seldom works. People who are involved 

in productivity improvement programs need 

to know what's in it for them; therefore, 

the identification of your true client and 

44 
APPENDIX B APPENDIX B 

what you are doing to help that client is 

quite important. 

3. As I mentioned previously, you need to 

determine needs early through an effective 

diagnosis of the organization you are 

working with. 

4. As opposed to your deciding what an organization needs, be certain to listen to 

your client's expression of his problems. 

5. Recognize that your productivity improvement program probably arose from a crisis 

of some sort or other. This crisis situation will not always exist. Consequently, 

you must take advantage of the crisis to 

sell your services on a long-term basis 

related more to organizational improvement 

then solving a crisis problem. 

6. Keep people informed all through the process. There is a regrettable tendency to 

gather data from the rank and file workers 

to develop your solution alternatives on 

your own. After these alternatives have 

been formulated the rank and file workers 

are left out of the implementation process. 

If they are not kept informed as to what 

conclusions were drawn, they can very easily sabotaqe your efforts. They are the 

source of your ideas, they are the people 

through which your ideas will be implemented--they need to be kept informed. 

Don'ts: 

1. Try never to be abstract or theoretical 

in terms of explaining yourself to your 

client organization. Theories come and go 

but work is always here. Rather than try 

to confuse your client with a theory, take 

what you know and make it as practical and 

as related to his work as possible. 

2. Never design or apply your program rigidly 

or unevenly across the organization. The 

communications between various off ices are 

much better than internal consultants 

usually assume they are. Rigid or uneven 

45 
APPENDIX B APPENDIX B 

treatment will be quickly passed along 

to your future clients. 

3. Try not to diffuse your efforts along 

many lines of change. In most instances 

there are generally only one or two major 

changes that can be absorbed, accepted 

and used by an organization. 

4. Do not simply measure without providing 

your client with some method of using the 

measurement results. A measurement system 

without assistance in how that system 

should be used is a useless device. 

5. With all due respect to auditors, the 

internal consultant is not an auditor. 

Your support should be based on your knowledge and skill and not the authority you 

have been able to accrue by edict. 

6. Never be trapped into selling at one level 

in the organization while implementing at 

another. Programs that are sold to the 

President become just that--the President's 

programs. As soon as a client feels that 

the attention from the top is diverted, 

your program will be doomed to failure. 

LESSONS LEARNED 

What have we learned while implementing this program? 

First we've learned that we should focus on reporting 

organizational productivity more than individual productivity. Reporting on individuals can be easily construed 

as a speed-up, a push-out, or attempting to get two for 

the price of one. Organizational productivity focus is 

particularly important if there are union involvements 

where you are working. The threat of layoffs becomes 

lessened. Second, we have learned that the program should 

be adapted to individual departments and individual 

managers while maintaining corporate vision. It can be 

individualized and stylized and still relate to the 

achievement of objectives at the corporate level. Lastly, 

we have learned that strategy must always be emphasized 

above tactics. If you are manipulative with your client, 

simply to get implemented what you want implemented, you 

will generally find short-term success and long-term 

46 
APPENDIX B APPENDIX B 

failure to be the result. You should accept a few minor 

defeats as long as those defeats fit into your strategy 

of long-range productivity improvements. Going for the 

long haul is the best p~ocedure. 

BENEFITS 

I would like to enumerate just a few of the benefits 

that we see coming out of our approach to productivity 

improvement. The first and most obvious benefit is 

expense reduction. We have hard evidence that this approach to productivity improvement can significantly 

reduce expense while keeping the organization intact during the process. Second, increased budget control and 

an awareness of the fact that control is the responsibility of the operating management. We were surprised to 

find that many of our managers did not feel that they 

could control their budget at their level. Improved 

response and turnaround time was another benefit which 

came about through job redesign, a need that was identified by work measurement. Once an employee has greater 

control and greater autonomy in terms of deciding just 

how service will be rendered, service generally improves. 

We also think we are moving toward a simpler, more flexible organization than we had before the program. The 

possibility for alteration or compression of unnecessary 

hierarchy is one indication of that. 

A clarification of organizational purpose and processes is another result. Because of the size of our 

company, a knowledge of purpose and the process you are 

going to go through to reach that purpose is often dim 

in the eyes of many. Assuming that people know the 

significance of their role in an organization is a very 

dangerous mistake. We have alse identified the management practices that are being used and what the management development needs of our organization are. Last, 

we have found that productivity improvements are not always related to expense reduction. Quite often the 

reallocation of expense dollars to areas of need tends 

to have greater influence on productivity improvement 

than expense reduction. We have been able to develop 

methods through which this reallocation of expense dollars can be achieved in a controlled manner and tracked 

as to its effect on productivity improvements in the 

organization. 

In concluding, we do not feel as though we are 

completely where we should be in terms of productivity 

47 
APPENDIX B APPENDIX B 

improvement programs, but we are a long way from where 

we used to be. It is important for you to note that it 

has taken us from 1968 to the present to get where we 

are. We are not selling any sort of instant oatmeal in 

our company. What we are selling is a systematic, businesslike approach to analyzing what our problems are and 

bringing solutions to those problems--solutions that 

are not as much theoretical as they are related to what 

our organization is here to accomplish. 

48 
APPENDIX C APPENDIX C 

PRODUCTIVITY MEASUREMENTS--

TODAY'S CHALLENGE TO MANAGEMENT FOR TOMORROW'S SURVIVALl 

Detroit Edison has 9,700 employees, down 1,600 in the 

last 4 years by attrition. We cover approximately 7,600 

square miles, and we serve over half the people in the 

State of Michigan with electric power. Our plant investment approaches $3-1/2 billion, and our yearly revenues 

are a little over a billion. Obviously not in the ball 

park when compared to the digits that you people have to 

place after your numbers, but it does mean that Detroit 

Edison is probably the sixth or seventh largest investorowned public utility in the country. For many years we 

enjoyed a very fine reputation with our customers and with 

our local regulatory commissioners. For approximately 

25 years we never asked for a rate increase, and in fact 

three or four rate decreases took effect during that 

period. It was truly a good example of the economy of 

scale being passed directly on through to the customer. 

But did our low rates and excellent service endear 

us to anyone--even our customers? It appears not. 

us ... 

You are aware of public and community opinion of 

Cost-plus mentality. 

Fat cats with automatic profits and no 

risks. 

We yell for help instead of getting our 

ship in order. 

The only improvement action we take is 

when we're forced into it. 

Only outside consultants can tell us 

how to properly run our utility 

business. 

At Detroit Edison we believe the criticism harsh 

and unwarranted, but we recognize there was and is room 

for improvement. I would like to illustrate Detroit 

Edison's management efforts to improve individual and 

overall performance by implementing productivity measurements. 

1NOTE: Speech given by Mr. A. J. Benes, General Auditor, 

The Detroit Edison Company on January 29, 1976, 

at Washington, D.C., for a JFMIP Conference "How 

to Implement a Productivity Program." 

49 
APPENDIX C APPENDIX C 

We decided that the only consultants we could afford 

now were our approximately 65 department heads, who ought 

to know how to run their particular areas better than any

one else. We developed a new sense of urgency about the 

supervisor's job--at all levels. 

ACTION PROGRAM--PLANNING 

AND PREPARATION PHASES 

We designed and launched our ACTION Program ... All 

Committed !O !mproving Qperations NOW. 

In a meeting with 450 management officers, our 

President, Bill Meese, said in part: 

" ... let me stress one very important point 

that is often misunderstood ... accountability. 

It is my intent to delegate decision making 

to those who have responsibility for action. 

As we delegate more responsibility and 

authority for decision making down the line, 

we must make certain with this delegation 

goes accountability .... 

"Accountability will be looked upon favorably 

by supervisors who make things happen. It 

will not be welcomed by those who are accustomed to watching things happen .... we will 

evaluate and assist supervisors to assure 

desired results are attained. I believe 

the pairing of accountability with responsibility and authority will make us more 

responsive to the Company's needs .... " 

Bill then met with each functional group to explain 

what he expects from their future performance, and as an 

integral part of our program, we planned three conference 

units on the Company's financial picture, customer relations, and effective supervision was designed for supervisors only. This conference highlighted the following 

points: 

How the Effective ACTION 

Supervisor Works 

The effective ACTION supervisor of the 70's is one 

who: 

50 
APPENDIX C APPENDIX C 

1. Knows the job, boss, employees, and others he 

works with. 

2. Makes things happen. 

--Plans for deliberate change. 

--Acts - just doesn't react. 

--Accepts improvement. 

3. Helps the boss make better decisions. 

--Provides accurate information. 

--Is problem-solving oriented. 

4. Builds an ACTION team. 

--Defines each job, gets undertakings and 

effective performance. 

--Establishes objectives, keeps score, lets 

individuals know how they are doing. 

--Provides recognition and correction. 

--Goes to bat for his employees. 

--Becomes a person builder. 

--Earns the respect of his team. 

We considered it important that better supervision 

results when the supervisor is to establish objectives 

for himself and his group, and to keep score. 

In addition, there were suggestions about better 

communication and taking action in unpleasant situations. 

The second phase of our ACTION Program was launched 

in 1973. As with most companies, we had objectives 

through the years. However, we are making our objectives 

specific, measurable, and reportable, with a feedback 

system. Our program calls for specific corporate objectives and also each department has specific operational 

objectives. For example, the Production Department has 

objectives and feedback meetings monthly to discuss availability, heat rate, responsibility budget, and other 

indicators. When deviations on planned objectives occur, 

superintendents must identify and initiate corrective 

action. 

The next integral part of our ACTION Program was 

Phase III, which covered productivity analysis. We have 

adopted these simple definitions for the term productivity: 

Getting more output from resources, or getting the same 

output from fewer resources. 

51 
APPENDIX C APPENDIX C 

IMPLEMENTATION 

The first step in implementing our ACTION Program 

was to establish the functions of our Productivity Committee. The functions included: 

1. Determine the potential for increased 

productivity in Company operations through 

improved methods, standards, and controls 

in clerical, technical, and field operations. 

2. Recommend organization and staffing for 

support services to achieve increased productivity through improved methods, standards, 

and controls. 

3. Evaluate services of professional consultants 

for advice or installation of systems for 

improving productivity. 

4. Recommend programs which have potential 

for increasing productivity and decreasing 

costs in the Company. 

The principal criterion for appointing the task force 

was that the entire corporation had to be represented. 

We also wanted a results-oriented committee, so its membership had to include people with individual accomplishment. 

The auditor was chosen to be chairman of the committee. The first thing an auditor thinks of is to take an 

inventory. So, the first phase of our committee's plan 

was to take a survey (an inventory) of the corporation. 

Sixty-five department heads were asked to respond to our 

initial survey in which we asked: 

--What is the present situation: 

. Formalized measurements used . 

. Jobs that are being formally measured 

presently . 

. Jobs that are not being measured . 

. Views on effectiveness of ongoing 

programs. 

--Plans for extension of formalized measurement 

in your area of responsibility. 

52 
APPENDIX C 

--Assistance desired or required: 

. Corporate staff assistance . 

. Development of expertise. 

APPENDIX C 

At our department reviews on the survey, the department head himself was asked to make the presentation. 

Thus, he had to become acquainted with and committed to 

some formal measurement system. He realized that measurement was an important part of his responsibility. Here 

are some facts we uncovered: 

--50 percent of the corporation was using some 

form of measuring performance. 

--Many stated "our jobs are different--unique--and 

can't be measured." 

--Some said "you tell us." 

--Difficulty in answering question: 

"How many employees do you actually 

need to carry out your assigned 

responsibility?" 

Our initial findings were reviewed with our senior 

management. We explained that many departments were measuring performance--that approximately 50 percent of our 

total work force was being measured, which was consistent 

with our findings elsewhere in the country. It was 

decided, on a corporate level, that our long-range objective would be to increase our present level of measurement from 50 percent to about 75 percent for 1974. 

To assist departments in establishing productivity 

measurements we held a seminar in March 1974, which consisted of individual workshop sessions of selected departments where we felt meaningful measurements had been 

developed. Among the selected departments were Real 

Estate and Rights of Way, and Engineering. 

A significant part of this March seminar was to 

invite an outside "appraisal." We asked Leon Skan, the 

5th Regional Representative of the President's National 

Commission on Productivity and Work Quality to be our 

keynote speaker and give us his appraisal. We wanted to 

share our experience and receive a candid opinion of our 

results, and suggestions for future improvement. 

53 
APPENDIX C APPENDIX C 

It was gratifying to hear Leon Skan say that of all 

the companies he had reviewed, Detroit Edison's effort 

in this regard was second only to the Honeywell Corporation. When Mr. Skan realized that we had printed his 

remarks in our Company newspaper, he called to apologize 

for placing us second, adding that he could have said 

first. Of course we are pleased with second--it makes 

us want to try harder. 

As you know, inspection is vital to the success of 

any program. In October 1974 we held another progress 

review with all our department heads, reminding them of 

the importance of this corporate objective. We asked 

for a current inventory of what measures were being used--

we wanted to identify particularly changes made since the 

last formal report in March 1973, and we wanted to identify unsuccessful attempts to measure certain jobs. 

RESULTS 

Now let's take a look at some of our results. Any 

recognition for our accomplishments must go to our total 

management effort. 

In the construction area, particularly underground 

lines, there was a perennial claim that each job was 

different and therefore could not be measured. Now we 

have identified approximately 1,500 specific work units. 

Each job will be estimated in work units, including time 

and material as standard time measurements. Work units 

will give great flexibility to management in measuring 

all facets of general construction and underground lines 

work. 

A most important side benefit of the serious work 

done in this area was the development of a computer software package which has potential applications elsewhere 

in the corporation. 

A most creative measurement system was developed for 

the Real Estate and Rights of Way Department. Essentially, the Real Estate and Rights of Way Department stratified the types of work they do in degrees of complexity. 

For instance, a street light permit has a base complexity 

factor of 1 compared to obtaining property for a substation with complexity of 75. These complexity factors 

were developed jointly and agreed to by all affected 

employees.· This cooperative system permits the department 

to get a handle on total workload thus enabling supervisors to better allocate manpower. Another benefit of 

54 
APPENDIX C APPENDIX C 

this system is that work performance comparisons can be 

done between employees. Employee comparisons, incidentally, are the guts of any meaningful measurement system. 

The illustration here is that the top man in the 

department had 11 points per working day; the low man 

in the department had 3.75 points per working day. The 

low performer claimed his low performance resulted from 

driving 16,844 miles during the period. The high performer actually drove 40 miles more. In reviewing the 

statistics with the low performer, department management 

was able to determine that the man's work habits were 

poor. Corrective action was taken. 

It was gratifying to note the significant movement 

some departments made in developing standards. For 

instance, the Meter Department at the first review in 

1973 reported measuring 43 percent of its total manpower. 

In our October review, the department reported that 83 

percent of the manpower was being measured. Equally 

important is the positive attitude of the department 

management toward our productivity work. 

For instance, the Meter Department says that by more 

effective procedures timekeeping costs have been reduced 

by $7,500. They are experiencing difficulty with some 

supervisors in accepting the new system, but we have 

found training must not be overlooked in implementing 

this type program. It is indeed encouraging that the 

union has not objected to the new system. 

Another example is in the Insurance Department. In 

1965 the department had 16 employees, and using an index 

of 100, it was able to issue 1,690 checks per employee 

per year. The insurance Department now has 20 employees. 

However, it is issuing 3,470 checks per employee per year 

with far more complex insurance claims. 

The Director of Accounts Payable Department reported 

significant advantages to the overall productivity program. 

Results of his program to date shows that the program: 

--Has led to specific management objectives. 

--Has pointed out training needs, bottlenecks, 

improved procedures, and increased accountability. 

55 
APPENDIX C APPENDIX C 

--Has maximized scheduling. 

--Has reduced errors. 

--Has increased throughput. 

--Has leveled and equalized workload. 

--Is used as part of individual job performance 

review and salary administration. 

It is counterproductive to pressure our employees to 

improve productivity and allow contractors to waste our 

investors' money by inefficiency and mismanagement. Thus, 

through our project management organization, we are asking 

our contractors to prove to us that they will prudently 

manage the millions of dollars entrusted to them. 

We fully intend that complete monitoring controls 

be implemented and maintained over all construction 

dollars. 

SUMMARY 

To summarize the overall results of our efforts, we 

have progressed from approximately 50 percent of our 

employees being measured by a work unit measurement system 

to 90 percent today. Our measurements cover all classifications of employees. 

Decisive management action has reduced total employees by more than 1,600 and this reduction was accomplished 

through attrition. Also, our labor cost declined. 

Our overall purpose again is to: 

--Improve overall performance. 

--Accomplish this through use of internal 

management team (no outside consultants). 

--Cover all facets of corporation. 

We are convinced that our management team is now 

better equipped to manage the vital resource of labor. 

We will continue to seek ways to improve individual and 

overall management performance. Planned improvement 

through productivity measurement will be a way of life at 

56 
APPENDIX C APPENDIX C 

Detroit Edison. As internal auditor, I am especially 

pleased to have played a role in implementing this program 

at Detroit Edison. It is not an unusual subject matter 

for the internal auditor to become involved in, but rather 

falls under our basic charge of protecting the Company 

assets from loss of any kind. 
APPENDIX D APPENDIX D 

SO YOU WANT TO DO SOMETHING ABOUT PRODUCTIVITY ... ??? 

... HOW TO GET A PROGRAM GOING IN YOUR ORGANIZATIONl 

"Productivity Improvement"--Everybody says we ought to 

have it--but, how do we get it? Where do we start? 

As a result of efforts begun several years ago and the 

conscious and continuing top management commitment to do 

something about productivity, Honeywell has developed an 

organized, total company productivity improvement effort 

that contains what we believe to be the key elements of a 

successful Productivity Improvement Program. 

Here's what it takes to get a complete program going: 

1. - TOP MANAGEMENT SUPPORT 

A company productivity improvement program starts with 

commitment from the senior executives. These people must 

be dedicated to the premise that a viable, visible, disciplined, and organized approach to productivity improvement 

throughout the organization is desirable and necessary for 

attaining the key operating goals, such as profit, return 

on assets, service level or growth. Further, top management 

must recognize and communicate the importance that the 

effective development and use of human resources plays in 

improving productivity. As Honeywell President Edson Spencer 

puts it, " ... Increasing productive use of the Company's 

resources and particularly its human resources in a prime 

motive governing management actions." 

Top management support--without it a company program 

at best can be no more than a collection of partial programs 

oftentimes counter-productive to each other. 

2. - PRODUCTIVITY STEERING COMMITTEE 

Establishing a Productivity Steering Committee is 

recommended. This is the behind-the-scenes policy body--

the overall guiding force for the program. Key line and 

lNOTE: Speech given by Mr. Paul Elsen, Director of Human 

Resources, Honeywell Inc. on January 29, 1976, at 

Washington, D.C. for a JFMIP conference "How to 

Implement a Productivity Program." Original paper 

written by John McClure, Manager, Productivity 

Improvement Programs, Honeywell Inc. 

58 
APPENDIX D APPENDIX D 

staff executives serve on the Committee and advise top 

management on productivity matters and at the same time 

ensure that the company position on productivity gets 

transmitted on down through the organization. The Steering 

Committee can examine any area of productivity including 

human resources, technology, capital, or systems at any 

level. The Committee can direct the implementation of 

changes or revisions to the company program. 

The primary role of the Productivity Steering Committee 

is twofold: 

(1) It serves as a forum for exchanging ideas 

and getting programs going. 

(2) It monitors company policy to ensure that 

changes create positive productivity in the 

long run. 

3. - PRODUCTIVITY COORDINATORS 

Primary responsibility for productivity improvement 

rests with top line executives and the leaders of key 

staff organizations. Line executives are responsible for 

ensuring that an organized and disciplined program supported 

by goals, objectives, and measures is in effect in their 

respective units. 

The effectiveness of a company program can be greatly 

enhanced by using productivity coordinators throughout 

the organization. 

At the Corporate level, we have found it useful to 

assign a staff specialist to give full attention to the 

productivity improvement program. This person, called the 

Corporate Productivity Administrator, reports to a member 

of the top management team. The Productivity Administrator 

communicates with Division Managers on productivity questions, conducts meetings and seminars on the subject, 

prepares and disseminates productivity improvement materials 

and ideas, establishes and coordinates the work of Division 

productivity councils and prepares studies of productivity 

trends throughout industry and in the company. 

The Productivity Administrator acts as a consultant, 

instructor, auditor and researcher. This person works 

with Division General Managers and their plans and progress 

in improving productivity. Regularly, he or she works with 

a wide variety of middle managers on specific techniques 

which are or might be used to boost productivity. 

59 
APPENDIX D APPENDIX D 

At the Division or Department level, Productivity 

Coordinators should be appointed to serve as the productivity program focal point locally. Typically, the appointment should be based on the such criteria as: 

1. Awareness and interest in productivity 

concepts. 

2. Willingness to work hard. 

3. Communications skills. 

4. Being able to work with different levels 

of people across all functions. 

No particular background is preferred. In fact, Divisional 

coordinators throughout Honeywell range from key staff 

people to managers and directors and come from finance, 

personnel, manufacturing, marketing, quality, production 

control, industrial engineering, and legal. 

In short, the Divisional Productivity Coordinator performs a function similar to that of the Corporate Productivity Administrator only at the divisional level. 

The efforts of the productivity coordinators are tied 

together via a company Productivity Council. The Productivity Council includes coordinators/representatives from 

each of the operating divisions, components, and key staff 

groups and is cqaired by the Corporate Productivity Administrator. The Productivity Council concerns itself with: 

l· Productivity improvement ideas. 

2· Exchange of best practices. 

3. Specific goals, plans, programs, results 

and problems. 

4. The Corporate position on productivity. 

s. The efforts of divisions, and components 

to assure consistency of effort. 

The Corporate Productivity Steering Committee serves as 

the advisory and approval body for the activities of the 

Productivity Council. 

60 
APPENDIX D 

4. - MEANINGFUL AND REALISTIC 

DEFINITIONS OF PRODUCTIVITY 

APPENDIX D 

The term PRODUCTIVITY is a fairly straightforward concept. Briefly stated, productivity is a comparison between 

the quantity of goods and services produced and the 

quantity of resources used to produce those goods or 

services. In other words, OUTPUT. 

INPUT 

How you define productivity locally depends on what 

inputs and outputs you are working with. For example, the 

definition of people productivity for the company as a 

whole might be 

SALES 

EMPLOYEE 

or SALES 

PAY 

but in the accounting department a more meaningful measure 

might be 

ACCOUNTS HANDLED 

CREDIT EMPLOYEE 

In summary, productivity definitions (measures) must 

be developed in all areas and at all levels and they must 

reflect local productivity concerns. Productivity improvement developed in all subareas of the company theoretically 

will add up to.greater overall company productivity improvement. 

One final note--key goals of profit, growth, service 

level or return on assets should out-weigh productivity 

goals. Productivity improvement can provide a significant 

impact relative to attaining these operating goals. 

5. - TOP DOWN PROGRAM OF 

STIMULATION AND AWARENESS 

A total company productivity program should have the 

backing and enthusiastic support of all managers and 

supervisors starting at the top. There must be a genuine 

willingness to challenge traditions and what the internal 

culture of the organization has defined as acceptable 

behavior. 

If people do not feel that all levels of management 

are behind the program, then they will not be committed. 

Our best advice is proceed slowly, level by level, moving 

61 
APPENDIX D APPENDIX D 

down through the organization only as acceptance and 

understanding are achieved. Once top management is on 

board, move into middle management gaining commitment as 

you go, etc. 

6. - EFFECTIVE COMMUNICATIONS 

This--far and away--is the most dif~icult and challenging aspect of getting a company productivity program going. 

People will generally agree that every organization ought 

to become more productive. But before real improvement car. 

happen, people need to know what the problems are and what 

they are supposed to do. 

P~oductivity can have hidden meanings; productivity is 

seen by many as a code word for speed-ups, layoffs, and a 

reduction in security. 

If a positive communications program is not carried out 

people will tend to perceive productivity improvement as 

benefiting only the company, followed by a "what's-in-itfor-me?" attitude. 

Managers, supervisors, and each employee need to know 

why an organization has a productivity improvement program. 

The reasons are straightforward: 

1. To increase the possibility of corporate 

success. 

2. To generate more earnings and make investing 

in the company more attractive to shareholders. 

3. To improve profits so as to finance the 

business. 

4. To provide better service and products to 

customers. 

5. To increase market share. 

6. To grow. 

It has to be accepted that in the long run gains for 

individual employees can follow only after improvements in 

company produqtivity are realized. People need to know 

more about "WHY" things are done. They need to feel they 

belong to an organization before they will support its 

systems and programs. 

62 
APPENDIX D APPENDIX D 

Some techniques for productivity communication are: 

l· The company newspaper. 

2· An in-house productivity newsletter. 

3. Talks by management. 

4· Employee listening sessions. 

5· Small group meetings to instill a feeling 

of teamwork and mutual responsibility. 

6· Follow-up questionnaires periodically circulated 

to employees to gain reaction to management 

meetings or communications. 

Here are some things to watch out for in your productivity communications program: 

1. Employees may resent emphasis on productivity 

without some tie-in to self interest. 

2. Some communications backfire because they 

are silly or demeaning. 

3. Use discretion during periods of layoff or 

reduction in force. 

4. Communications alone can't do the job. Communications programs must coordinate with 

other line and staff efforts to change work 

habits and attitudes of all. 

The key to a successful program is timely and effective 

corrununication.. A defined and planned productivity communications program should include newsletters, brochures, 

management-employee meetings, complaint systems, etc., and 

a genuine effort of managers and supervisors to keep all 

employees, and each other, informed. 

7. - SEMINARS AND TRAINING 

FOR SUPERVISORS 

In many organizations, managers and supervisors have 

not been trained in productivity improvement tools. These 

tools include effective supervision, crew loading, automation, work simplification and measurement, job enlargement 

or redesign, motivation, incentives, systems analysis and 

design, and human resource management. 

63 
APPENDIX D APPENDIX D 

Factories have traditionally had well-established ways 

of tackling productivity problems. However, over the years 

even industrial companies are now finding themselves with 

a greater proportion of employees in non-factory support 

areas (sales, engineering, clerical, and administrative 

departments). Productivity training programs are needed 

for all areas of company operations. 

A productivity training program should: 

1. Provide managers and supervisors with an 

understanding of productivity and the part 

it plays in industry and the company. 

2. Describe the major factors affecting productivity. 

3. Cover the tools, measures, and techniques 

for improving productivity. 

4. Instill in all a desire to apply productivity 

thinking to on-the-job concerns. 

8. - PARTICIPATION OF 

ALL EMPLOYEES 

Inspiration has to come from the top, but often the 

best ideas come from the bottom up. Nobody knows the work 

better than the people doing it. The involvement of people 

including managers and supervisors, to want to improve, to 

want to do a better job, will help to ensure a successful 

productivity improvement program. 

The following programs and techniques, if properly 

administered, will get employees involved, make jobs more 

interesting, and provide a participative atmosphere for 

productivity improvement: 

--Employee suggestion programs 

--Work simplification 

--Job rotation 

--Employee teams 

--Employee surveys and listening sessions 

--Attendance recognition 

--Cost reduction 

--Employee/Foreman/Supervisor of the month/ 

quarter/year programs 

--Incentives 

--Flexible working hours 

64 
APPENDIX D APPENDIX D 

9. - GOALS AND OBJECTIVES 

To be successful a serious productivity improvement 

effort must include productivity goals. Our advice: Try 

some goals even if you're not sure they are right; make 

corrections later. 

Here's a simple six-step technique for productivity 

goal setting: 

1. Collect your productivity data 

2. Decide what to measure 

3, Set goals 

4. Build plans 

5. Implement productivity improvements 

6. Monitor progress 

Once you have decided on the OUTPUT ratios which best fit 

INPUT 

your work, set improvement targets for the next week, month, 

or year. 

10. - A SYSTEM FOR MEASURING, 

MONITORING, AND REPORTING 

As with any program having goals and objectives, there 

must be some way to measure, monitor, and report performance 

against goals. The productivity measurement system can be 

simple or sophisticated, modest or ambitious. Keep it 

simple at first. Numbers far from perfect can serve as 

the foundation for a system which tracks individual, group, 

and company productivity. 

We've seen many company productivity efforts break 

down over measuring, monitoring, and reporting. Managers 

become so involved with unnecessary methodology (modeling, 

simulation, probabilities) they never get around to doing 

anything about the improvements! 

Keep your measurement system simple and let it grow 

with the rest of the productivity improvement program. A 

productivity measure is a ratio (output divided by input). 

The absolute value is somewhat important, but from a productivity standpoint the rate of improvement is more important. 

Whatever you are measuring and monitoring, be consistent and report the numbers regularly. The simple 

concept of a "productivity balance sheet" can be effective 

in getting started on a program to measure, monitor, and 

report company productivity. The table below presents a 

65 
APPENDIX D APPENDIX D 

simple format which enables an organization to effectively 

track "people productivity" as measured, for example by 

sales per employee and sales per pay dollar. 

XYZ COMPANY 

1976 PRODUCTIVITY 

Jan. Feb. Mar. Apr .... ETC. 

1. Sales 

2. Average No. of Employees 

3. Sales/Employee (1 divided by 2) 

4. Wages and Salaries 

5. Sales to Pay (1 divided by 4) 

If over time, your "people measures" are in fact moving 

in the right direction, yet profit goals still are not beins 

met, you can conclude that people productivity is not your 

problem. From here you might take a look at make/buy 

decisions, procedures, capital acquisition philosophy and 

the like, to find where the real cause of a decline in 

profit lies. 

Remember that productivity measures are measures of the 

efficiency with which you use your resources to generate 

output. Productivity ratios must be placed in a framework 

of economic and social objectives and compared with other 

measures. Achievement of formal company goals and department goals is primary. Productivity measures can keep 

you apprised of status and trends as you move toward attainment of these goals. 

11. - INFORMATION RESOURCES 

Finally, take stock of the resources already available 

and lean on the experiences of others to help get a productivity program going in your company. Following is a list 

of organizations and publications highly regarded by 

Honeywell as having meaningful input for any company productivity improvement programs. 

66 
APPENDIX D 

Organizations 

National Center for Productivity 

and Quality of Working Life 

2000 M Street, NW. 

Washington, DC 20036 

Joint Financial Management 

Improvement Program 

666 11th Street, NW., Suite 705 

Washington, DC 20001 

The Improvement Institute 

P. O. Box 6245 

Cleveland, Ohio 44101 

Books and Periodicals 

APPENDIX D 

-----, "Improving Productivity, a Description of 

Selected Company Programs," National Center for 

Productivity and Quality of Working Life, 2000 M 

Street, NW., Washington, DC 20036, December 1975. 

-----, "Situation Report" (Productivity Series), U.S. 

Department of Commerce, Office of the Ombudsman 

for Business, Washington, DC 20230. 

Hickey, James J., Employee Productivity; How to Improve 

and Measure Your Company's Performance, Institute 

for the Advancement of Scientific Management and 

Control, 88 Lindsley Place, Stratford, CT. 

Jacobs, Herman S., with Katherine Jillson, "Executive 

Productivity," (American Management Assns. AMA 

Survey Report), AMACOM, 135 West 50th Street, 

New York, NY 10020, c.1974. 

Katzell, Mildred E., "Productivity: The Measure and 

the Myth," (American Management Assns., AMA Survey 

Report), AMACOM, 135 West 50th Street, New York, 

NY 10020, c.1975. 

Mager, Robert F. and Peter Pipe, Analyzing Performance 

Problems, Fearon Publishers/Lea~ Siegler, Inc., 

Belmont, CA, c.1970. 

McBeath, Gordon, Productivity Through People, A Halsted 

Press Book, John Wiley and Sons, Inc., New York, 

c.1974. 

67 
APPENDIX D APPENDIX D 

Schleicher, William F., editor, "National Productivity 

Report" (biweekly), William F. Schleicher and Associates, 

1110 Greenwood Road, Wheaton, IL 60187. 

Sutermeister, Robert A., People and Productivity, 2nd ed., 

McGraw-Hill Book Co., New York, c.1969. 

Vough, Clair F. with Bernard Asbell, Tapping the Human 

Resource, A Strategy for Productivity, AMACOM, 135 West 

50th St., New York, NY 10020, c.1975. 

68