Anyone living on this planet knows that the Japanese system — if not broken — is in serious need of repair. The nenkojoretsu system (the literal translation is “years-merit-order”) channels millions of workers in an orderly, predictable way through the corporate system.
Examples of the nenkojoretsu system:
• Longevity determines a worker’s rank in the organization.
• Competence is equated with age.
• Experience counts more than expertise.
• Each spring, and with no explanation, workers receive slips of paper advising them of nearly identical raises.
• During the first 15 years with their respective company, workers receive promotions regardless of their ability.
• The best indication of high performance: Working long hours.
• Workers are never told where they stand; their performance is not measured. Workers must sense how they are doing by how they are treated in after-work drinking sessions with coworkers.
Result: Japanese payrolls are bloated with 2 million to five million under-utilized workers. Companies’ operating expenses are so high that they can no longer compete in a fast-changing world market that demands flexibility.
Of course, this is the same system that allowed Japan to rise from worst to first with respect to quality. But the system has run its course. The time has come for change.
We can change too.
North American companies may not have the specific name for our “system,” but many of the characteristics are practically identical to those found in Japan. It’s not at all unusual to visit large and seemingly progressive North American companies and find compensation systems in place that are heavily based on management discretion:
• No merit-based pay.
• No job descriptions.
• No measurements.
• No formal performance reviews.
• No minimum conditions of employment.
• No guidelines for overtime pay.
(In Japan, white-collar workers have been averaging 60 hours a month in overtime. Management ignored how much overtime was wasted, resulting in little additional productivity.)
Management has always been a tough job, but the most profitable firms I observe are managed by proactive men and women who are goal-oriented; they set strict standards and reward the employees who meet and exceed those standards. The most effective managers have the reputation for being tough, but fair. Employees who are just “holding on” are not tolerated.
Many of managers who are critical of our government entitlement programs are equally guilty of tolerating them within their own companies. Ask yourself these questions:
• How many of my employees who received raises this year actually deserved them?
• How many of the employees who are currently on my payroll have I given up on and should replace?
• How many of my current managers earned their promotion as a result of longevity rather than merit?
• How many of my current managers have plateaued?
Bloated payrolls will eventually lead to financial disaster in any industry. Performance standards of just five years ago are no longer adequate for most businesses to effectively compete, especially in large metro areas.
Remember the four-minute mile? For years, it was a barrier no one could imagine breaking. Then on May 6, 1954, a British runner, Roger Bannister, finally did it. He ran a mile in 3: 59.4 minutes. As soon as one man broke the four-minute barrier, just a few weeks later, Landy, a runner from Australia, broke Bannister’s record. Since that time, over 1,000 runners have run a mile in under four minutes. In 1958, in Baton Rouge, five runners did it in the same race.
How does the productivity of your people this year compare to their productivity five years ago?
What gross profit per payroll dollar are your people achieving this year versus five years ago?
The pressure is on. New productivity records are being set every day. The competition is heating up. These new productivity increases are putting increased pressure on gross margins. Companies that expect to earn satisfactory bottom lines have no choice but to attack operating expenses. And since in most organizations approximately 60% of total operating expenses reside in personnel-related expenses (salaries, group medical, workers’ comp, payroll taxes), payroll is the first place to concentrate.
Change is no longer a choice
If you’re not setting performance-based conditions of employment in your organization, you will soon find yourself unable to compete. The gross profit you are able to generate will simply be inadequate to cover your cost of doing business.
Bill Lee is author of 30 Ways Managers Shoot Themselves in the foot. $21.95 + $6 S&H. http://www.BillLeeOnline.com
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