Industrial policy

Productivity improvement: National Priority Project should be done in high tech style

The difficult current situation in the state economy pushes both the government and the industrial establishment to understand the relevance of the task of increasing productivity and no alternative to its solution. According to the decision taken by the "Improving labour productivity" project committee all regions of Russia will be the participants of the national project in the near future. The Ministry of Economic Development of the Russian Federation is studying the proposals of experts on measures to stimulate and adjust the methods of accounting for labor productivity.
3 march 2019

The interlocutor of Intelligent Manufacturing Journal is a member of the "Improving labour productivity" project committee, Vice-President and Head of the committee on efficient production and productivity "Opora Russia", Head of the expert group of the national project “Labour Productivity and employment support” of the State Duma of the Russian Federation, Dmitry Pischalnikov.

- Dmitry, in your article "How to boost productivity", published in the previous issue of Intelligent Manufacturing Journal, you mentioned that, according to The Central Bank of Russia, up to 90% of Russian companies are ineffective. This means not just low production per unit of time, but inadequate product quality, or lack of demand due to low technology or optional characteristics, obsolescence etc. Based on this, many experts have expressed reasonable doubts about the feasibility of performance enhancement in the production of such good.

- First of all, it is a question of understanding the essence of labour productivity. High productivity at the enterprise - it is a high quality of its production and low overheads. This means that it sells at an adequate price competitive (which today almost always means – innovative) product and receives a high profit. Thus, in principle, there can be no productivity without customer focus. Since the goods in stock – it is not necessary to anyone product, even if its production is very effective. And you will be able to sell the goods only on condition – it satisfied some need of the buyer. And this is very difficult in the current environment, in a highly competitive environment, due to the fact that we are in the WTO, in fact, in the open market, and in our case – too open.

- With regard to Russian goods, the output of their production to the industrial volume is also fundamental, since we can sell only what is produced in large batches and therefore competitive at cost. But at domestic producers it is traditionally a sore spot. They are quite well made unit unique, customized instances, go on a experienced of the party, but serial production is rarely obtaine

- Since the time of Cross-eyed Lefty, we know about our Russian ability to give a single piece of a unique product, but when it comes to scaling, we get very different results. Therefore, it is necessary to consider the productivity of labour and the potential of our production culture not only and not so much in scientific research - this is clear, our leadership in this sphere is obvious and it needs to be supported, strengthened and developed. But we should add a second indispensable component – to focus on production processes, on the growth of production volumes with a sharp multiple increases in quality and a decrease in the level of defects. The volumes of production are necessary for reducing costs. And in this sense, the effectiveness of the enterprise should be considered from the point of view of an effective corporate culture, or rather - a new cultural paradigm.

- This was also discussed in your article mentioned here. The key message of many responses to it was like: in theory it looks simple, but in practice – everything is very difficult and even hardly achievable.

- I saw these reviews on the website of the journal and in social networks. I agree: changing corporate culture is difficult. But for whom? For our Russian companies. Foreign companies have no problems with the Russian personnel of their local production. But ours to overcome this difficulty need finally to move away from the known extremes in the management perception. One of the stereotypes of its perception is, one say, "useless sophistry", the other extreme is the popular belief that management is very simple. It is time to realize that management is a science, that management processes require special knowledge. And that it is necessary to allocate enough time, money, resources and efforts to change the corporate culture within the organization. In our (Russian) case, "enough" is 24 hours a day, 365 days a year. The General Director and the owner of the enterprise should constantly think about increasing productivity, improving efficiency, applying innovations, upgrading equipment, improving all production processes, improving the skills of employees and increasing their salaries, improving quality and reducing costs, standardizing processes... Until such an approach is implemented, the corporate culture will not change. What do we see in practice? Director and owner delegate execution these tasks at the level of deputies, at the level of heads of departments, that is, at the level of performers.

- In the best case, the company creates a working group or business unit in the direction of – Lean Manufacturing, QMS etc.

- This is, of course, very good, but, as Confucius said, as long as the words do not correspond to the essence of things, things will not succeed. In practice, in most cases, these tasks are added to the functionality of the Production Director or Chief Engineer or even down to the level of HR-service and people begin to do it on a leftover principle. There is a technology that in any case cannot be neglected, it is necessary to strictly follow it. According to it, the first stage on the way to change the corporate culture in order for the changes to be permanent, the results become tangible, it is necessary to focus on increasing profits in practice. Profit in this case is a universal mathematical indicator of the company's efficiency. All our actions and efforts are aimed at improving efficiency within the organization, and we want to see its financial results. If there is no result – there will be no opportunity to modernize production, increase staff salaries, create and promote new products.

To achieve financial results, we must follow a clear sequence in the implementation of all measures to increase productivity. First of all, the business owner and General Director of the company should take as a given that without their direct participation there will be no result. In order to implement this concept in practice, it is necessary to create a special unit in the structure of the company, which should be called understandable to all: board of management (Department) for production efficiency and productivity. The main task of the employees of this department is to analyze each process in terms of efficiency. As soon as these two basic rules are implemented, the company will begin to change.

- Perhaps, only under the condition that the people who were forced to do this will be competent enough.

- You're right. But even if they read the book of Taylor, the works of Gastev and Deming and articles on scientific management at first, they will already be in principle clear what the question is. There are a lot of methods to increase productivity, skills can be improved over and over, the current level of inefficiency of organizations is such that the use of any, even the simplest methods of efficiency improving will very soon yield results. The skills of the specialists in this unit will begin to grow as they immerse themselves in the process. And it is very important that the owner and General Director of the company gave this unit almost unlimited powers. It will not work any other way. If we do not prioritize efficiency, productivity, change in all processes and people's thinking, we will not succeed.

- What other departments of the company, in addition to the created profile one, should be involved in the work on efficiency and productivity management?

- All services of the enterprise. And the first ally – directly working with the staff, HR-service. But the main thing is the involvement of an increasing number of employees in the processes of change.

Any HR will confirm to you that at each enterprise there are 2 – 4% of employees – almost ready agents of change. They are active, internally motivated, they are always ready to work hard and intensively, they always have suggestions for improvements, they sincerely worry about the results of the work of the whole company and perceive its successes and failures as their personal. These people know the whole team and, of course, HR-service and management of the company. Such people should first be involved in cooperation with the office for production efficiency. Because they are active in the field, the office has access to direct information from below. In Japanese companies, as is known, the system "Diamond" is widely used, when employees are paid extra for the detection of each problem and the identification of each case of defect. And domestic factory managers need to come to the understanding that any case of defect or non-standard situation in the workplace, deviations from technology – a signal that must be analyzed with the involvement of management of all participants in the situation. And with the mandatory involvement of quality commissioners from among the most concerned activists, which should be financially encouraged. The entire staff of the company should be notified about the establishment of the institute of quality commissioners with the short-term goal of at least one third of the company's employees become quality commissioners, that is, actively participated in solving problems, submitted rational proposals, generated all kinds of ideas for improvements, participated in their implementation and received extra allowance.

There is also a socio-psychological aspect. It is very important to provide agents of change with the opportunity to realize their potential – without this, the activity of workers turns into destructive, skepticism begins to manifest itself, resistance to change etc. After all, in our society there is still a strong stereotype of negative expectations, which, unfortunately, are most often made excuses: the crisis in the yard, inflation, taxes and prices are rising. And at the enterprises – workers all the time secretly wait for some force majeure. And if, for example, there was a defect of a large batch of products, the reaction of the team is often this: – "well, another proof that we cannot do anything, we will not make it!” To reverse this negative attitude, and this must be done, the situation must be managed through the appropriate institutions: departments for efficiency and empowered by the quality. Their activities must be highlighted with information – through corporate publications and Internet resources. If the company's management does not fill in the information field with a story about the company's potential, its competitors, its successes and problems, its market position and reputation, it will receive demotivating rumors, guesses and conjectures circulating around the enterprise. It is necessary to give correct, detailed, accurate, objective information, presented in an accessible form, and, of course, the main thing – to show the improvements made. People should have hope first, and then confidence that all the problems can be solved and a quality product can be produced. There are thousands and even millions of proofs. Our compatriots, and there are more than 20 million of them, over the past 25 years have gone abroad and found a job there, almost all have successfully adapted, and no one and nowhere complains about them as workers. They are valued and respected because our culture, our mentality is characterized by non-standard solutions, creativity, responsibility and many other valuable qualities.

- These are the carrot aspects of motivation. But, perhaps, one cannot do without the stick?

- We should discuss a carrot and stick approach in the aspect of management. Management is a science, and scientific principles, as we know, are common to all its spheres. For example, in physics, the system of carrot and stick in practice looks like this: if a person walking on the ice slipped, he will not fly up and down. And if, walking on the ice, you do not take into account that it is a slippery surface and did not take the necessary precautions, then almost with a hundred percent guarantee you will fall, at best, getting off with a bruise.

Moreover, it does not happen that you fell, and the bruise appeared in someone else. Therefore, the direct action of the law, in this case – the universal gravity, as well as the inevitability of the consequences of neglecting them and gives us the right behavior on a slippery road. We must implement the same principle when building an effective organizational system. The law of nature confirms that man is like a river that flows, curving and winding, although it would seem that the ideal trajectory for it is a straight line. But water always flows along the path of least resistance with minimal energy. Therefore, our task is to find such a way that the work performed with the maximum quality and was for us the path of least resistance. What about practice? When we ask an employee of an enterprise how it works, we usually hear in response: good. The next question: what, in his opinion, is his biggest problem? "I'm not appreciated, I'm not paid enough," most employees will answer. As you can see, the word "good" everyone interpreted in their own way, and in this regard, the task of company management – taking into account our culture and mentality to give the most accurate formulation of what it means to "work well". After all, the science of management should give accurate answers to questions. Then, based on the resulting formulation, it is necessary to optimally organize the work of each employee. In this area, only in the last hundred years of work, a lot of techniques for building an effective organizational structure and motivation systems were developed.

- And now there is also a new generation of effective tools for improvements like automation, digitalization of production etc.

- Digitalization worth a special mention. This is definitely a fashion trend. But what is digitalization in essence? It reflects all the processes that occur at the material level – at the level of the enterprise, shop, site, office etc. If you have chaos at the level of material processes, and you decide to automate production, you just automate chaos. In addition, we should not forget that digitalization is a very expensive pleasure. And most domestic enterprises do not have the opportunity to spend money on digitalization, expensive consulting services and many other processes. In this situation, they need to do what they can, with minimal cost and with the greatest benefit for themselves.

How to start acting? Starting from all the signals that the organization gives in the form of force majeure in any process (disrupted the timing of the order, did not come on time materials, there was a defect of a large batch of products, marketers worked inefficiently, labor discipline was faltering etc.), you begin to embroider these bottlenecks.

- But this is reactivity in its pure form!

- It's a step-by-step tactic. You have to start somewhere. When you take on everything at once, you do not succeed. So the departments of your company at this stage have two tasks. The first – you clearly and quickly react to incoming signals. At the same time, starting to improve the organization from any place, you will create a chain of consecutive tasks and see how changes in one area, solutions to local problems lead to changes in the organization as a whole. Signals in this case – it's like a symptom of an ill body, when the runny nose, aching joints and fever. Your task is to identify the causes of the problems and start treatment. And you will see that when one symptom is removed, it leads to better health in general.

- If we continue the analogy with the disease, then what symptom should we first pay attention to? That is, the question of priorities.

- I will refer to my own practical experience in the management of problem enterprises. Four such projects I myself led from and to, another 15 participated along with others. The results are the same everywhere, we go step by step. The first task, as I said, is to respond to the signals given by the organization. Of these, we identify those on which we can and should spend our energy – because our resources are limited - and in working with which we will get the greatest effect. The second task is to determine the strategic processes to which, even if they are not currently falling alarms, we must certainly switch attention. This can be, for example, the production of one of the products.

- Or purchase of a specific piece of equipment…

- But this is not. The purchase of new equipment is not for the first stage of improvements. In addition, it is entirely the prerogative of the owner and general director of the company. And at the first stage there is a rule: until we have built an effective organizational system, we have not created a new corporate culture – no expansion, increase in the range. Upgrade at this stage can only be those locations that are clearly in disrepair. All the forces at the first stage are directed to the implementation of the following strategy: what you are doing now – do well. And not just good, but the best in the world. You need to learn how to do without defects and get the most out of what feeds you today. And only when the limit of perfection is reached on the existing equipment, with the available working personnel, it is necessary to look what to do next. With the reduction of defects, improving the quality of products, we are growing gross profit and there are more resources that can be directed to three areas: to increase staff salaries, to reduce the price of the product and marketing. At this stage, our competitors are in the domestic market. As soon as we get the maximum effect on the existing equipment, we should think about new equipment and be sure to enter foreign markets. And the next stage is the expansion of the range, the possibility of switching to another type of product. And now we have set ourselves the task to compete with world leaders, that is, we must know exactly which company is the top in your segment, which follow it and how far behind and assess their current positions and future prospects in this picture.

- The approach, frankly speaking, today is quite atypical for most domestic companies!

- And in vain! It is a very big mistake to limit yourself to competition with the neighboring plant. Since the situation in Russian companies is about the same, and the goals set, including the national project – the growth of labour productivity by 3 – 5% – is a very low ambitious goal, because the growth potential we have is about 300 – 400%. And each organization can achieve this within five to eight years. In the course of my long-term management practice, I single out several stages in the implementation of improvement projects. More precisely, it is four two-year cycles. And for the first four years, as a rule, the company has the most rapid growth in productivity, the next two two-year cycles are the consolidation of success and further qualitative change of the organization. Changes in people's behavior, changes in both internal and external conditions. I see how the organization and the quality of products change, how the attitude to it changes.

- And what is the dropout rate of employees in the course of these transformations?

- Minimum. I do not believe that somewhere you can find some ideal employees – there are simply no such. Take the average employee of a foreign corporation – this is an ordinary person, but he perfectly performs his functions, but this function was previously perfectly done, and each employee was maximally prepared for its implementation.

Over the past hundred years, the science of management has developed to such a level that the construction of an effective organizational system can reduce the qualification requirements and focus on the current narrow segments. In general, any employee with a regular education can achieve very good results. But to do this, you need to set a task for him, to train him – you cannot ask anything from the employee without first preparing him, as well as provide all the necessary materials, equipment and create comfortable working conditions. And, of course, to pay a good salary, which can only afford an effective labour enterprise. The whole world is on this path, and we will have to follow it. More than 90% of Russian companies can increase productivity in times – this means that they will be able to reduce the price of their products, increase production, become innovative, and there is already close to digitalization.

- Kaizen center, one of the founders of which you are, regularly conducts practical training seminars on the introduction of Lean Production tools, the development of other practices of improvements. How do you assess their effectiveness? As it often happens: during the study, the audience's eyes are burning, they gush with creative ideas, but as soon as the speakers-experts have left, the interest in what they gave fades.

- All right. Therefore, the organization must maintain this interest within itself. How? Efforts of the owner, the head and special division about which we spoke. This interest will always be suppressed by routine. Listen to the coach and show the result – this is the point at which the company should come, but the way to this point is through a lot of work, correct and scientific work. This is again to the question that many business executives believe that management is nonsense. By the way, among them there are a lot of those who tried to apply various methods of improvements at their enterprises, but then stopped at different stages – someone in three months, someone in six months. And someone stopped after five years, deciding that reached the limit of the results. I have a question: have world leaders stopped developing? No, they are constantly solving this problem. And at this micro level is the difference between foreign companies and ours and at the macro level – is the difference in the formation of economic policy. If today the budget of the Russian Federation is formed in the expenditure part, based on the price per barrel of oil, everywhere in the world, and certainly – in developed countries, the budget is formed on the basis of the value added per employee per hour. Therefore, advanced economies are focused on increasing productivity, as it affects the income of citizens, the amount of social benefits, the purchasing power of the currency, the wages of officials…

- And ultimately – the sovereignty of the country.

- Absolutely! Regardless of how much our country will have units of modern weapons, if we are not able to produce competitive products, the sovereignty will be lost. Because defense is also based on science, which, in turn, requires a real embodiment. After all, why do many talented scientists leave the country? Because it is often impossible to implement their inventions at local enterprises. The general director of a typical Russian enterprise, as a rule, is simply not up to innovation: he constantly extinguishes fires and patches holes, that is, he is fully loaded with the solution of local current problems. And the enterprise at it most often low-profitable, not having sufficient funds for introduction of innovations. As a result, scientists, on the development of which the state spends money here, then go abroad, and make products there. This is objective: until we create the environment and conditions for creating competitive products here, everything will be as it is.

- The national project to improving labour productivity is designed to solve these problems.

- The very launch of a project with such goals is welcome. And, I stress, this project is the only one in the total number of national projects that increases budget revenues, the remaining national projects are the expenditure part of the budget. And at the same time it is obviously deprived of financing.

At a recent meeting in the Ministry of Economic Development, I was asked about what, in my opinion, is necessary in the first place to increase productivity. Many things are necessary: training of personnel, increase of salaries, technical re-equipment of production, updating of engineering networks of the enterprises etc. And here it is necessary to begin with statement of tasks. And in the private case, there will be no changes at the enterprise until the owner and the manager are interested in them, and in the general case, that is, on a national scale – until the President and the Prime Minister take this project under personal control, there will be no productivity growth in the country. But I, addressing to the interested owners and managers of the companies, responsibly declare: any domestic enterprise and without any national project can increase productivity.

- In your recent comments on the Internet resources, you noted the increased interest of the Russian Federation federal executive authorities in expert opinions and proposals on the content and emphasis of the national project and ways of its implementation.

- Yes, obviously the change of attitude to the problem on the part of the relevant Department – the Ministry of Economic Development. And us experts. In my opinion, there was a realization that the problem is very difficult. And at the same time it is not even quite economic, but socio-cultural economy. During meetings at the Ministry, we said that the expert community in this area in Russia is not numerous, and today the level of payment for such specialists is very low compared to their foreign colleagues. For example, the salary of a highly qualified Japanese specialist in the field of labour productivity is an average of 30 thousand dollars per month, and this reflects how Japan assesses this problem for itself. But our industrial companies, which need the services of such professionals, do not have such money. So we have to go the other way. Our expert group has a solution: we have prepared an alternative program to increase productivity, which we propose to implement as a pilot in two or three regions. There must be competition between the regions.

And in its current form, the national project is a compromise between the existing system of public administration and the position of expert practitioners with a noticeable bias towards the conditions of the state. That is, it is a project that is trying to transform or integrate into the existing system of public administration. But such a complex case cannot be moved in such a way. We need to create special conditions for the implementation of this national project and apply a scientific approach to its management. It should be a scientific project, because this task within the existing conditions in the state does not have a solution. Neither the Tax Code, nor the system of public administration, nor the system of control has been adapted for this purpose. There are too many contradictions between departments, too many control points.

- Let's remind the readers of Intelligent Manufacturing Journal about the main ideas of the expert community related to the national project.

In our alternative version, the national project should contain four large blocks. And for each of them clearly defined range of responsible structures, their powers and responsibilities, calculated the necessary resources. Implementation should be carried out at minimal cost by the state and with minimal control on its part. It's called a self-regulating system, it's called high technology. Or, speaking modernly - high-tech.

Now let’s take a brief look at the blocks themselves. The first block is accounting of labour. The main objective of accounting policy is to separate the developing enterprises from those that stagnate. The first is to help modernize, learn new methods of production, raise wages etc, that is, to become even stronger.

The second block is stimulation. Direct incentives to ensure that enterprises earn on increasing productivity and can invest in improving production processes. Someone needs to repair the roof of the shop; someone needs to build a new building. If the state tries to regulate it, it will need to create a huge number of institutions, inspection structures but there will not be any result.

The third very important block is the training of employees. Today it is clearly visible how haphazardly companies, even passing free training on the initiative of the state, direct to study their managers and specialists. For example, one group of specialists is sent to study the Nissan production system, the other – the Toyota production system and the third – on the production system of Rosatom. As a result, people have learned basically the same thing, but in different coordinate systems, different glossaries of terms and they do not understand each other. It leads to conflicts within the organization between the advocates of different schools. Output – from the state should be offered a basic course for factory managers of all levels under the conditional name "Modern scientific organization of labour: approaches, methods, technologies." And only then, having trained on this course of the people, any company, depending on the territorial and branch features, chooses the system most suitable for it and independently develops and improves. After all, today all systems are essentially aimed at the same thing – the scientific organization of labour. And they give the same result.

- And they have almost the same techniques, with some nuances in the accents…

- That is true! Today it is necessary to make final clarity on the issue of what is productivity – to define it for the framework of the national project. After all, as you know, any scientific theory operates only within the limits. And in the process of implementing the national project to increase productivity, it is necessary to act in a scientific way, compromises are impossible if we want to get a result, and we have no other options. So we need to set ambitious goals: not to raise productivity by 3 – 5%, but to ensure its multiple growth, allowing us to reduce the gap from advanced economies. If we set ourselves such a task, it will be a breakthrough. I think we will solve this problem, the external and internal situation pushes us to it.