The Value of People

How can some companies not only survive, but thrive when operating in “high cost labor” areas, while others are struggling even as they are busy chasing the lowest possible costs?

I would like to suggest that one key difference is the attitude toward people. On the one hand is the “people as cost” model. This model usually has a couple of built-in assumptions.

  • The number of people required to do a particular task is fixed, often against some kind of earned-hours standard.
  • The cost driver is wages, salaries and benefits.

On the other hand is the (seemingly) rare organization that truly believes that people are their strength, or the well worn out “our greatest asset.”

The assumptions which are required for this belief are:

  1. People’s net productivity can always be improved.
  2. The cost driver is the amount of time wasted coping with all of the small problems that keep things from going perfectly.

The above assumptions, of course, are anchored in a faith-based position that perfection is possible. (see “Chatter as Signal“)

So… what kinds of actions to each of these two models drive?

The first one – people are cost – says to find the cheapest possible labor and hire it. Since factory wages in China are (right now) running about 1/12 or less of those in the USA or Europe, that seems a logical choice. Here’s the rub.

You can outsource the entire job to another company – give the work to the lowest bidder. Now, if you truly believe that the amount of labor is fixed, and that only lower wages can change cost, then this is the obvious choice. You are relying on your superior supply chain management system to ensure you select a supplier that can maintain, and maybe even improve, the quality they deliver, plus hold the line against increases in materials, energy, and their own labor costs. In short, you are looking for a supplier who believes the opposite of what you do. Your ideal supplier knows they can bid aggressively, get your work, and then improve their profit position by applying continuous improvement.

Or you can export the production and set up your own operation in a “low wage area.” You are shifting your core beliefs about people to another culture, and another language. Communication (believe me!!) is a major issue, even if the managers work for you.

AND.. if “labor is cheap” then the solution to problems is to throw people at them. The cost differential you actually get almost NEVER reaches the advantage of a 1:1 substitution. Oh – and you just added 3-4 weeks to your lead / response times.

If, on the other hand, you take the attitude that the most precious resource in your operation is people’s time – no matter what you pay them, and take the attitude that to deliberately waste anyone’s time is to show great disrespect, then I would suggest that even in high-wage areas you can drive levels of improvement in productivity, quality and response to your customers that would be difficult to beat anywhere.

So – before you reflexively outsource or relocate to a “low wage area” please check your attitude about people. What are your expectations, and why is it that you don’t believe your own people are capable of delivering a 10x improvement?

Who are your competitors? What do they do?
What would you do if you had to compete with Toyota? or Komatsu? (to name two that come to mind) They are building product in your back yard, why can’t you?

Afterthought: Some companies end up outsourcing the skills they need to improve their own products and systems. They no longer understand the technology they sell, they no longer know how to make what they sell. I remember a time when I reminded an (arrogant) procurement executive that it was possible to outsource the entire procurement process just as easily. Another team had outsourced all of their direct labor management… they contracted the labor and the first level supervisors into their factory. Where did they really believe this was leading?

Chatter in an ISO Process

I have been in, or encountered, a number of organizations which had (or were working on) ISO-900x quality registrations. While I am fully aware of the intent of the ISO requirements, in the cases I have seen, the effect seems to fall well short of the goal.

On the surface, the types of processes mandated by ISO 9001 seem quite reasonable. They require knowing what your processes are, having documentation for them, and having systems that address problems to root cause.

The requirements are not a lot different from what I mentioned a couple of posts ago in Chatter as Signal. The example of the U.S. Navy’s nuclear propulsion operations would certainly meet the criteria (and then some).

So the question is:
What is fundamentally different about an organization with a “paper only” ISO certification that struggles with chaos every day vs. one which is truly process driven (whether they have an ISO certification or not)?

Chatter as noise.
Chatter as signal.

Hidden Negative Consequences

“Stop the line if there is a problem” is a common mantra of lean manufacturing. But it is harder than first imagined to actually implement.

The management mindset that “production must continue, no matter what” is usually the first obstacle. But even when that is overcome, I have seen two independent cases where peer social pressure between the workers discouraged anyone from signaling a problem. The result was that only problems that could not be ignored would come to anyone’s attention – exactly the opposite of the intention.

Both of these operations had calculated takt time using every available minute in the day. (Shift Length – Breaks etc.) Further, they had a fairly primitive implementation of andon and escalation: The line stop time would usually be tacked onto the end of the shift as overtime. (The alternative, in these instances, is to fall behind on production, and it has to be made up sometime.)

So why were people reluctant to call for help? Peer pressure. Anyone engaging the system was forcing overtime for everyone else.


On an automobile line, the initial help call does not stop the line immediately. The Team Leader has a limited time to clear the problem and keep the line from stopping. If the problem is not cleared in time, the problem stops the line, not the person who called attention to it. This is subtle, but important. And it gives everyone an incentive to work fast to understand and clear the problem – especially if they know it takes longer to clear the problem if it escapes down-line and more parts get added on top.

There are a number of ways to organize your problem escalation process, but try to remember that the primary issue is human psychology, not technology.

Be Sure: What Are You Trying To Accomplish?

And how will you know you have accomplished it?

This article on Tech Republic is about defense against a hacker strategy called “Social Engineering” wherein the hacker uses a ruse to gain someone’s trust. The goal (for the hacker) is to leverage human nature and get information or access.

So what does this have to do with lean thinking?

It emphasizes the nature of policies with unintended consequences. I have seen all kinds of environments where a Team Member would suffer negative consequences for doing the very thing required to assure safety, quality, delivery or reduce costs. Never happens in your company, right? The examples in the article are mainly in items (2), (3), and (4).

I especially like (4) where the hacker poses as a person in power and simply intimidates the Team Member into giving him the information he wants. What is the countermeasure?

Strict policies and procedures created to discourage this kind of bullying. If it’s allowed from management, someone engaging in social engineering will be able to employ it.

Think about it. If someone abusing his authority is normal behavior, then your Team Member will not be able to detect this condition something out of the ordinary.

In another context, if a Team Member is routinely told “We’ll fix it in inspection” or to otherwise ignore a defect and allow it to pass on, then he will quickly stop reporting them.

Think through the behavior you want people to exhibit. Then, study (stand in the chalk circle again) and see for yourself what the actual behavior is. If it is different than what you expect or what you want, start asking the 5 Why’s. What people do every day is the norm of your organization. It is the path of least resistance. If you want people to do something different, then you must make the right way the easiest way.

This accomplished by a combination of mistake-proofing, policies and procedures that support people who do the right thing, and continuous two-level checking by leaders to reinforce and encourage.

In Item (2) in the article, the author talks about the “I don’t want to get in trouble” excuse. In his example, there is a negative consequence for reporting a lost or misplaced ID badge, so everyone works to avoid reporting the problem. Perhaps the intent was to have people pay more attention. As Deming said, you must drive out fear, and this isn’t the way to do it.

Remember: The right process will produce the right results. Think:

What results are you trying to accomplish? How will you know you have accomplished them? (How will you check or verify your results?)

The more clear you are on the target condition, the better equipped you are to think through how you will achieve it. When dealing with people, it is easier than you think to build negative consequences for the very thing you want them to do.