Faster's O.K. -- Smarter's Better

Dec. 21, 2004

If you can get more work done in the same amount of time, you're being more productive in your job. It may mean you're working harder. Or, it could be that you've found a way to work smarter. By using a new process or better equipment, you're able to achieve the same or greater end result. Most manufacturers today are more productive than they were a decade ago. Some industries, such as steel, have been forced by the competition to become more productive, both through modernization and reductions in workforce. For integrated steel companies, achieving productivity gains is a matter of survival. Weirton Steel Corp., for example, in the late 1960s installed a basic-oxygen furnace, replacing more than a dozen open-hearth furnaces, technology that had been used to make steel for more than a century. Then in the late 1980s, the employee-owned firm invested $750 million to modernize the mill, installing a computerized information system in the process. Called the integrated manufacturing-information system, it enabled operators to track production and monitor each order as it moved through the mill and generally be more responsive to customers. Improved equipment and better information systems have enabled Weirton, if not to thrive, at least to survive in a very tough market. Last year the company shipped 2.6 million tons of steel. Admittedly, this represented a 7.2% drop from the 2.8 million tons the company shipped a decade earlier. However, Weirton achieved last year's results with about half as many workers. Another measure of productivity from a business-management standpoint is sales per employee. At Caterpillar Inc., sales per employee in 1989 were $185,000. By the end of last year, the "big yellow machine" had boosted the sales-to-employee ratio to $319,000. In Caterpillar's case, several factors contributed to the improvement, including process changes, new technology, and new ventures. In many cases, the benefits of information technology cannot be measured easily. As an example, a new software program from Maxager Technology Inc. is helping Minneapolis-based Tool Products Inc.'s New Hope, Minn., foundry to work "smarter" by detailing the costs and profits related to each product. "The Maxager System helps us uncover new ways to identify the true break-even point of each part number, by machine and by customer," says Rick Kulla, plant manager. "It provides us with a better understanding of the total cost of services for our customers. " Believe it or not, productivity improvement is even visiting the enterprise-software industry, in the form of packaged software that can be installed a lot faster than the two-plus years many companies have come to expect. FileTek Inc. was able to get Oracle Corp.'s Release 11 financial-management system up and running in 24 business days. Part of the Redwood Shores, Calif., software firm's Fast Forward family of software for medium-sized companies introduced last September, the package includes general ledger, receivables, payables, purchasing, and fixed-asset management. FileTek elected to save time by doing a "balance-forward" implementation, eschewing the need for converting historical financial data. The software package came fully configured and included a year's support, on-site training for users, and implementation through Oracle or a consulting partner. Oracle promises a 60-day installation for accounting, 90 days for manufacturing. Although skepticism -- some of it warranted -- about the value of IT remains, many economists believe IT is a big-time contributor to the nation's productivity growth. Federal Reserve Chairman Alan Greenspan remarked recently that new technology had played a major role in keeping inflation quiescent by increasing productivity. Labor productivity, which had averaged less than a 1% increase per year in the early 1990s, expanded at about a 3% rate in the four quarters ended Mar. 31. If some CEOs remain wary of IT, it's because computers and software often have failed to live up to their hype. In a worldwide survey of 650 CEOs and CFOs conducted by the research firm Compass America, Reston, Va., and the London School of Economics, 31% of those responding expected IT to make a great contribution to improving business performance, but only 12% said it delivered. As a CEO of a Canadian firm remarked, "The value of IT has been greatly exaggerated." That's true, but information technology remains one of the best bets in town when it comes to productivity.

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