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Sun, Oct 30, 2005 - Page 12 News List

Productivity ills dragging down top companies

US giants GE and GM are prime examples of firms letting bad management and poor use of time drag down their bottom line

THE OBSERVER , LONDON

Jeff Immelt, chief executive of GE, laments that 40 percent of GE consists of unproductive administration and back office work. He wants to halve that in five years.

Management consultancy Proudfoot calculates that on average a whopping 37 per cent of all working time is wasted -- that's equivalent to 7.5 per cent of the UK's GDP. A Mercer-Gallup survey finds that while 73 percent of workers are "disengaged" from their organization, 19 percent would happily sabotage it.

GE rates as one of the best managed companies in the world (hang on to that for a minute). Many lesser firms are so cluttered with waste and bad feeling that they can barely move.

Take General Motors, which last week announced a net quarterly loss of US$1.9 billion. GM had already jettisoned its parts supplier, Delphi -- which has just gone into Chapter 11 and is demanding drastic pay reductions from its 33,000 US employees.

Now GM is selling a controlling stake in its finance arm, its sole profitable business. It has also negotiated a US$3 billion reduction in healthcare costs with the trade unions. But these can only win temporary respite. The truth is that both GM and Delphi are in a death spiral. Their real problem is not healthcare costs, the official excuse. It is a business model that ensures that for every car sold, GM realizes US$6,000 less in dollars than Toyota. In other words, even discounting health costs, GM is US$4,500 per car less effective than its Japanese rival.

The responses are another twist on the downward spiral. Who would want to work for an outfit that demands pay cuts on one side while setting aside 10 percent of its equity as a bonus for management when it emerges from Chapter 11, as Delphi has done? Whose only reaction is quarrelling with the union, like GM?

As an airline pilot noted with a malevolent grin when faced with similar cutbacks, "There's no way they can cut my wages faster than I can raise their costs."

The full-service airlines are also in a death spiral, and for much the same reasons. The fact is that the business model of GM, the legacy airlines, and indeed most of the world's large traditional companies, is played out, knackered.

Consider GE. GE, remember, is the most admired, best managed old-paradigm company in the world. Its training is legendary, its top managers exceptional, its commitment to good practice unquestioned, the pressure to perform so relentless that the lowest performers are culled each year. So if this paragon is only 60 percent productive, what hope is there for anyone else?

The Proudfoot 2005 international productivity report found that almost everyone was "busy doing the wrong things" to raise productivity. Thus, while executives (and ministers) think it is all a matter of capital investment, in fact it's much more important to get the most out of existing resources -- eliminating wasted time, for instance.

"The tendency to exaggerate the importance of new projects ... is also reflected in over-optimistic expectations of cost savings and productivity gains from offshoring [and outsourcing]," the report adds.

The source of the ills can be narrowed down further. According to Proudfoot, three-quarters of the wasted time is down to poorly planned and managed work and inadequate supervision. Supervisors, Proudfoot found, were spending more than half their time on administration and non-value-adding activities; all managers overestimate their effectiveness.

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