Examining Worker Productivity (Part 1)

Kathryn Shaw's detailed research inside steel mills set a higher standard for how to evaluate the impact of management practices on worker productivity.

If you're a manager, you've heard it all before: Build teams, develop trust, empower your workforce, be proactive, etc., etc., etc. There's no shortage of management gurus and consultants to sell you expensive advice about how to make your workforce more productive. And no wonder. With the rise of globalization and an ultra-competitive economy, managers who don't understand the imperatives of increasing efficiency and productivity and, ultimately, shareholder value are quickly "pursuing other interests."

But how do managers know which of the many human resource practices currently being heralded as innovative really work? Human resource departments often propose that managers adopt new practices such as offering employees more flexible hours, job sharing, employment guarantees, and ongoing training. One study in 2000, for instance, found that 85 percent of 700 companies surveyed had implemented at least one of these relatively new HR practices.

Meanwhile, productivity has been on the rise since the mid-nineties. Is there a link between the two trends? Hard evidence that innovative HR practices boost employee productivity—much less the bottom line—is hard to find. And that's a problem for thoughtful managers. After all, you'd never spend money on a machine tool or computer unless you had good reason to think you could demonstrate a reasonable return on your investment.

In a series of groundbreaking studies, economist Kathryn Shaw, the Ernest C. Arbuckle Professor of Economics at the Business School, identified quantifiable links between imaginative HR practices and increased productivity. Characterized by deep analysis of individual plants and data collection across an entire industry, her work sets a new and higher standard for research in the developing subspecialty of personnel economics.

Shaw, who served on the Council of Economic Advisers during the Clinton administration, began her study of productivity while a member of the faculty at Pittsburgh's Carnegie Mellon University. Fittingly enough, her work focused on the steel industry, the historic heart of western Pennsylvania's economy.

Although she grew up in California's San Fernando Valley, Shaw was born in Youngstown, Ohio, and many of her relatives had a connection to the mills, as engineers or accountants or plumbers, or simply residents who knew the local economy depended upon Big Steel. When money became available to do research in the mills, she saw it as "a great opportunity to get inside firms and see how they improve performance."

"There is no business that is more interesting to visit—you can really 'see' what matters and what doesn't,” she says. "The mills are also a work of art—of color and drama and people—and, in fact, I have a collection of oils and original photographs of them." Shaw now works on productivity in high-tech companies where she sees people sitting at computer terminals—low key in comparison.

After months of observation of 36 integrated steel finishing lines, Shaw found that plants that used the most innovative human resource management system were rewarded with a gross annual payout of $2.24 million more annually per line than those with traditional systems.

More recently, Shaw examined the effect of new information technology and new human resource practices on another classic old-economy industry: valve production. "When people think of IT, they usually think of computers on desks," she says, "but in this case the technology was embedded into the machine tools."

Plants that combined the most advanced machinery with better training and development of better employee communication and teamwork skills were able to produce customized products, a significant competitive advantage over shops that could produce only standard valves, she says. Workers in the advanced plants need more than excellent mechanical skills. They must be trained to be flexible and to work on varied products at the same time, and to take more responsibility for solving problems as they arise.