Manufacturing companies facing sagging productivity have an easy solution to their problem: Automate and get rid of the people.
That appears to be the conventional wisdom among some of the nation's manufacturers, according to a recent Grant Thornton survey of 250 mid-size manufacturing companies. More than two-thirds of the companies studied said they had a productivity problem, but more than half of those considered the problem a minor one because it was caused by people and the people could be replaced by machines.
"Manufacturers say they place more importance on investment in plant or equipment than on investment in people in their attempts to increase productivity," Grant Thornton concluded.
The results of the survey underscore a basic shift in national policy during the 1980s. Unlike all previous administrations since the start of the New Deal, the Reagan administration had no explicit policy on manpower. In fact, the prevailing manpower policy of the '80s was the change in the federal tax code known as the Accelerated Cost Recovery System (ACRS), or 10-5-3 as it was more commonly known in the business community when it was enacted as a critical part of the 1982 tax bill.
ACRS provided accelerated tax write-offs for businesses investing in plants and equipment. The new tax law was meant to help companies compete in a time of unprecedented global competition. But it had the unintended effect of encouraging manufacturers to shift from man to machine to boost productivity.
Michael Cantwell, chairman of Grant Thornton's National Manufacturing Industry Committee, said employers are misleading themselves if they believe they can solve their productivity problems merely by spending more on new machines. "A lot of manufacturing people feel they can solve problems just by investing in technology," Cantwell said, adding that there was "no question" this attitude has been encouraged by government policies.
"What our survey shows is that there are still too many manufacturers who are ignoring the people factor," he said.
But, Cantwell added that he was beginning to see some signs of change: "Companies are beginning to find out they still have productivity problems."
As an example, Cantwell said he recently visited one of his firm's manufacturing clients who complained that a new $500,000 computer system for resource planning wasn't working. But when he looked into the new system he found there was nothing wrong with the equipment; the problem was the people operating it. Cantwell said that in an apparent effort to save money, the company had decided not to pay the extra 2 percent or 3 percent cost the vendor wanted to charge for training company employees how to use the equipment.
Cantwell said that, as more and more employers are beginning to experience shortages in skilled workers, they are coming to appreciate the need for investing more in the people side of their businesses. As a result, he said, industry is beginning to pressure the government to invest more money in training.
But in the current era of tight federal budgets, Cantwell predicted many manufacturing employers will return to the old apprenticeship system where the employer hires people for their aptitude, rather than their immediate skills, and then gives them basic educational and on-the-job-training to get them up to speed.
Matt Coffey, president of the National Tooling and Machining Association, said there is a general lack of interest in training because of the way companies have to account for the costs and because of a general lack of interest on the part of parents in vocational training for their children.
In a paper prepared for the Hudson Institute, the group that authored the major Workforce 2000 studies, Coffey said that under generally accepted accounting principles employers have to treat training as an expense, not an investment. As a result, he said, "we are missing out on investing in the people who will make technology work." He said that under the current accounting system, the cost of training hurts a company's short-term profitability picture and is therefore often discouraged.
As for parents, Coffey said too little prestige is placed on having a child enter manufacturing training, a notion reinforced by the nation's school systems. As a result, it is getting harder and harder to get young people interested in learning such workplace skills.