December 1, 2016 Jonathan Woahn

Ampogee White Paper: The Key to Unleashing American Manufacturing

If US manufacturers want to be relevant and competitive on a global level, their primary focus must shift from technology to people – not just because it’s what they need to do, but it’s the best thing they can do

The Missing Element

In the world of manufacturing, there is a lot of talk these days about “game changing” technology. 3D printing, automation, robotics, the internet of things – these are the topics that are driving the conversations, and are heralded as inaugurating Industry 4.0. Let there be no doubt – these technologies will absolutely and completely change the face of manufacturing. Particularly as society moves towards a more “on-demand”, personalized approach to consumerism, these elements will be critical to making that happen. The companies that will thrive in that future state will be those that can most readily adapt to the needs of their customers and executively deliver ahead of their competition, and that is exactly what these technologies promise.

However, in all the conversations, there is a critical element missing that can, does, and will have an even bigger impact on the ability for a manufacturer to be competitive: the people. We believe there is no asset more powerful within any manufacturer than the people that it is comprised of. Yet many manufacturers treat people as if they are commodities – as a simple input that can be easily substituted –  and put little effort into truly understanding how to unleash the potential of their people, and what the impact of doing so can have.

Our purpose in writing this document is to raise awareness regarding an often overlooked aspect of manufacturing operations and highlight the opportunity associated with doing so. We will discuss the following:

  • Why it is imperative that manufacturers put their primary focus on developing their human resources
  • How manufacturers discourage focusing on people and how it could improve
  • The tremendous impact that comes from manufacturers focusing on people

The Imperative to Focus on People

US manufacturing is falling on hard times, and not due to a lack of opportunities – in fact it’s quite the contrary. The number one challenge cited in numerous industry surveys and interviews with top executives in manufacturing is a shortage of skills. This challenge will be solved by focusing on people in manufacturing, and not technology. Moreover, this challenge is not only of necessity, but the shifting dynamics of the workforce demand that the perception of people in manufacturing evolve. To understand why this is the case, we must first examine the bigger picture by looking at both the demand and supply of labor.

Labor Demand

First off, there is a perception that the technologies outlined earlier in this paper are eliminating jobs in manufacturing, which is potentially true. However, even if there are jobs that are going to be eliminated, there are many more that are set to be created. According to a Deloitte study in 2015, an estimated 700k manufacturing jobs are going to be created in the US by 2025 due to economic expansion, indicating that the human aspect of manufacturing will not be disappearing any time soon.

The second part of this story revolves around the shifting dynamics of the manufacturing workforce. In the current state, the natural replacement for the outgoing workforce, which is largely comprised of Baby Boomers, should be those from the Millennial generation. However, the proportion of Baby Boomers as a fraction of the total people in manufacturing has been steadily rising since 2010, while the proportion of Millennials is steadily decreasing. An expected 2.8 million Baby Boomers are expected to retire by 2025, and the impact of this is a talent vacuum in their wake, which is only increasing the total labor demand.

Of the 3.5 million jobs that will open up due to economic expansion and retiring baby boomers, it is estimated that at least 2 million of these positions will go unfilled. Classic economics suggest in the type of scenarios where demand for something far surpasses the supply, the reaction in a free marketplace would be that the price for labor (wages) would sky rocket, thus incentivizing entrants into the market and increasing the labor supply, consequently reducing demand, and bringing the overall market back to a relative state of equilibrium. However, let us now take a look at the supply of labor, for understanding it better suggests that the market may not behave as expected.

Labor Supply

The natural source of labor that would be expected to fill the vacancies in manufacturing, as stated previously, is Millenials. However, even as wages in manufacturing continue to increase and outpace other sectors of the economy, this alone has been insufficient to attract the requisite talent. In reality, we believe there are two main factors that are working against the ability of manufacturers to bring in new talent.

The first factor revolves around understanding what Millennials are looking for, because in reality, it’s not more money. What they’re looking for fundamentally boils down to a purpose – they want to know and feel like the work they’re doing has meaning. This can come in the form of a larger vision of their role within an organization, delivering a plan for their individual development, providing a higher level of autonomy in their professions, or a number of other ways. These are things that traditionally, many manufacturers do not provide, or if they do, it is not a clear part of their value proposition when recruiting new talent. Note that none of the suggested ways of promoting purpose has anything to do with earning more money – therefore, anticipating traditional laws of supply and demand to fix this problem is not a realistic expectation.

The second factor is the way that people are perceived in manufacturing. Unfortunately, although manufacturing has evolved tremendously from the days of the sweatshops and the laborious human production lines, the stigma still remains. While there are many local and national initiatives taking place to help improve the image of manufacturing and build the talent pipeline, companies need to take this matter into their own hands – not only by participating in these initiatives, but actually changing the way they think about their people. This point is huge, as those that work in manufacturing may never have the public affirmation as other jobs requiring more preparatory training, but changing the perception of management in dealing with their manufacturing human resources is key.  Many organizations view the HR function as an afterthought – that talent management comes after a long list of higher priorities like state-of-the-art technology and customer satisfaction. However, as manufacturing becomes more and more technologically complex, the skills learned formally and informally by individuals on the job can no longer be regarded as easily substitutable. Without the right people to know how to utilize the technology, there will be no customer satisfaction to be had because there will be no deliverables because there will be no one to build it – the focus on people must come first.

To a generation of individuals who rank “purpose” as one of their top priorities in finding a job, throwing money at them will not be sufficient to overcome the desire to matter; to be more than just a cog in the corporate manufacturing machine. In reality, the opportunities exist abundantly in manufacturing to meet all of the criteria that Millennials are looking for, but manufacturers need to identify the ways in which they can help meet those criteria.

Shifting Paradigms

Millennials are quickly becoming the bell of the ball, and the suitors who are serious about courting them to their industries must rise to the occasion. Silicon Valley has stormed the scene with its sex-appeal of lavish perks and high salaries, which by many standards is initially very attractive. However, evidence suggests that these approaches don’t have lasting power, as they lack depth and purpose. Manufacturing has the necessary substance, but it has largely been sitting by in the shadows, out of the public eye. And the time has come for it to have its Cinderella moment.

Manufacturers serious about attracting and retaining new talent, out of necessity, need to start thinking differently about the way they approach attracting new talent. They need to closely examine their perception and their reality, and identify the differences between the Millennial mindset and their business practices. Addressing this will likely require a paradigm shift from a primary focus on processes and technology, and more towards building an environment that cultivates the human factor. What exactly does this mean? Excellent question.

Adopting a People Centered Focus in Manufacturing

During the Second Industrial Revolution around the 1870’s, manufacturers utilized a theory of motivation that was well suited for the environment – which is popularly known as the “stick-and-carrot” system. It worked well because many of the tasks assigned were highly repetitive, menial, and labor centric. Therefore, the idea of “the harder you work, the more you’ll make” made sense. Since the relative complexity of the products were low, regulations for human safety were almost non-existent, and quality control processes were in their infancy, there was little risk to incentivizing labor to focus purely on performance and output.

This theory of motivation is still widely seen throughout corporate America. Today it is known by terms such as “Performance based pay” or “Up or out” type promotion structures. Many manufacturers still utilize this theory of motivation as the basis for their compensation review processes or promotion practices. However, there is evidence to believe that just as manufacturing is now evolving into what is now being widely cited as the 4th Industrial Revolution, the management practices for motivating people need to evolve as well.

In Dan Pink’s 2009 book called “Drive”, he labels the “stick-and-carrot” theory of motivation, Motivation 2.0. Motivation 2.0, he claims, is well suited for “simple, not particularly interesting tasks”. He cites research conducted that proved that when it came to these types of simple tasks, pay for performance works extremely well. However, in scenarios that require some level of creative, conceptual thinking – pay for performance actually reduces performance.

The mismatch that occurs in manufacturing today is that it is no longer largely composed of “simple, not particularly interesting tasks”. In reality, it’s highly complex, and requires advanced skills that take time, practice and direct application to perfect. Yet, many companies are still using this theory of Motivation 2.0 to incentivize and motivate their people. This suggests that not only are they crippling their organization from a performance perspective, but it promotes the idea that the manufacturing industry hasn’t evolved to focus on the people the way that many other industries have.

Adopting a people centered focus requires building internal systems to motivate people in accordance with the type of motivation required to complete more complex tasks. Pink calls this theory Motivation 3.0, and bases it on the principles of “Autonomy, Mastery, and Purpose”. These principles curiously align perfectly with what Millennials are looking for in employment, and follow the ideology we propose that manufacturers need to adopt to remain competitive.

Promoting Autonomy

Perhaps when considering autonomy, one might think of a young child around the age of 3. They have a tremendously strong drive for personal independence – to do things “all by myself”. This young child is craving for the independence to demonstrate they are capable of accomplishing things on their own, and that they are no longer 100% reliant upon the parent. However, associated with the 3 year-old autonomy are the brash fits of unconstrained emotion, the tantrums, and all the drama. It’s a hard time of life.

But as any experienced caregiver would say, autonomy in this scenario is not about giving the child the complete freedom and independence to do whatever they want, when they want, all by themselves. It’s actually about providing options, so that they can have buy in to the desired outcome. “Yes, I know you want to go down the stairs all by yourself, but I also want you to be safe. So you can either hold my hand, or hold onto the railing – it’s your choice”. Autonomy is about acting with choice.

In the manufacturing environment, this translates into leadership creating systems that allow their teams to have greater control over the way that they do their work. The outcomes required within a work environment are defined by the nature of the business itself, and people have chosen of their own volition to work there. At this point, it’s about providing options on how they go about accomplishing their objectives – which are manifested in 4 aspects of work:

  • Tasks – The ability to choose what to work on
  • Time – The ability to choose when to work on it
  • Technique – The ability to choose how to do the work
  • Team – The ability to choose with whom to do it

Deliberately thinking through what each of these aspects look like in a particular environment is a critical step, since manufacturing is often a large, coordinated machine that requires precise timing of multiple interdependent functions in order to realize their overall objectives. Fortunately, promoting autonomy doesn’t mean addressing all 4 aspects simultaneous, but it can occur over time, and provide a graduated roadmap towards full autonomy. The key is finding opportunities that make the most sense in each environment that provide people with the opportunity to act deliberately with choice.

Building Mastery

“The opposite of autonomy is control. And since they sit at different poles of the behavioral compass, they point us toward different destinations. Control leads to compliance; autonomy leads to engagement. And this distinction leads to … mastery”

– Dan Pink

The natural progression from elevated engagement in an activity is a desire to get better at it – to seek mastery. For many people, mastery can be defined as the desire to get better, and get better at something that matters. Much research has been conducted around this idea of mastery and the desire for intellectual challenge, and has been found to be the best predictor of productivity. Thus, manufacturer’s intent on adopting a people centered focus should strive to provide opportunities for their people to build mastery.

These opportunities should be centered around finding “Goldilocks experiences” – those that are neither excessively challenging nor too easy. One of the biggest sources of frustration in the work environment comes from the dissonance between what a person is required to do and what they are equipped to do. If the requirement is beyond the individual’s skill level, it results in anxiety, and if it is below the person’s skill level, it results in boredom. The goal should be to provide opportunities for individual growth that are just right – causing them to stretch sufficiently that they can progress, but not so much that success is uncomfortably out of their reach.

In designing and providing these opportunities, manufacturers should be aware of the three laws behavioral scientists have suggested govern true mastery:

1. Mastery is a Mindset

Building mastery is not about providing a checklist of skills that need to be mastered, and then sequentially knocking them off. Fundamentally, building mastery is a mindset – one that says the pursuit of mastery is about learning and getting better, and not about arriving at some destination of success or accomplishment.

2. Mastery is a Pain

Mastery shouldn’t come easily. It should require significant effort, and personal sacrifice. Carol Dweck, a Psychology Professor at Stanford who has conducted much research around human motivation, said “Effort is one thing that gives meaning to life. Effort means you care about something, that something is important to you and you are willing to work for it. It would be an impoverished existence if you were not willing to value things and commit yourself to working toward them.”

3. Full Mastery is Impossible

To pursue mastery is to thoroughly understand that there is no final destination, and there is always opportunity for improvement. Thus, understanding that achieving full mastery is not possible helps promote the allure that the pursuit of mastery is more enticing than the actual realization thereof. This is one of the key components that drive people to continually pursue mastery.

Mastering Manufacturing

Adopting a people centered focus in manufacturing necessitates focusing on building mastery, and providing opportunities for people to do so. As stated previously in this paper, one of the top challenges in manufacturing is finding the right people with the right skills for the job. Providing opportunities to develop mastery will not only build a more engaged and motivated workforce, but it will also help employers to create a culture of continuous improvement.

Conveying Purpose

The third principle of engaging and motivating people provides context for the first two principles we have discussed. Understanding the purpose behind promoting autonomy and building mastery helps to give meaning for the reason behind objectives or actions, and connects an individual to an idea much larger than themselves. Autonomy and mastery can propel people to achieve at very high levels, but it pales in comparison to when they do so in the context of a greater purpose.

Consider salespeople. They act with a large degree of autonomy and mastery; they have a clear objective: sell; they are largely free to determine how they spend their time, when they do it, how they do it, and who they want to work with. A new salesperson often has a ramp up period before they become truly profitable to an organization, suggesting there is an element of mastery associated with the trade. And this is often done purely in pursuit of a commission. However, if you can unite this individual with a cause they truly believe in – their purpose-driven performance will far outpace what it would be without it.

Connecting individuals to a purpose within an organization can occur across three different realms:

1. Meaningful Goals

Goals are all about tying actions into a larger purpose. There are two ways this can manifest itself within an organization. First, it’s about understanding what is important to the individual, what their personal goals are, and where they see themselves going. Then, as an organization, providing opportunities for that person to achieve their goals. This may come in the form of career opportunities, or expanded responsibilities within their current role – the important part is ensuring that the goals align with the individual’s’ personal priorities.

Second, organizations as a whole can adopt larger meaningful goals, and then use that as a rally cry to unite their people around that purpose. There is a growing trend where organizations are shifting away from a primary motive of increased profits, and moving more towards using profits to drive their purpose. For instance, a company may contribute a certain portion of their profits towards a charitable cause – the profit becomes a catalyst instead of the objective. Doing so allows the organization to attract individuals that share the same priorities and goals, and allows the people to unite behind the purpose of the organization with an elevated level of meaning.

2. Intentional Words

The words that people use to communicate matter, and management in particular needs to be very deliberate in the way they communicate with their teams. “The goals of management are usually described in words like ‘efficiency’, ‘advantage’, ‘value’, ‘superiority’, ’focus’ and ‘differentiation’. Important as these objectives are, they lack the power to rouse human hearts. [Business leaders] must find ways to infuse mundane business activities with deeper, soul-stirring ideals, such as honor, truth, love, justice, and beauty.”

Additionally, there needs to be a greater focus on the “why” in business, instead of the very common, uninspiring “how”. Organizations pour tremendous resources into developing very complex documents that explain to no small degree the “how” of a process or activity, and very little resources into explaining the “why” behind the activity. Research shows that a brief reminder of the purpose of work can have an incredible impact on overall performance. It is a simple way of helping to provide purpose for individuals.

3. Policies

The policies that an organization employs can greatly dictate the actions of their people, as the underlying policies often convey what the company values, and therefore governs an individual’s’ personal incentives. Having policies that people can identify with allows them to connect to an organization at a personal level – and makes it very clear how the company values their time and personal contributions. Organizations have exemplified this by doing things like formally dedicating a portion of their profits to charity, as has already been discussed, or deliberately allocating a portion of an individual’s time towards self directed activities.

The Impact of Focusing on People

Benefits that come from focusing on people are not only centered on performance. Much research has been conducted in this space, and it has been proven that organizations with highly engaged people deliver higher quality, higher safety, lower absenteeism/turnover, higher growth, higher customer satisfaction, and higher profit margins. Properly addressing the root factors of motivation will increase the sense of ownership and loyalty that individuals have towards the organization, and empower them to make the decisions that they believe are in the best interest of the business. And when people feel that they have this level of operational safety and confidence from their leadership, that’s when the true power becomes unleashed.

The case studies below highlight a number of operations based companies that have excelled in properly motivating their teams by utilizing the principles discussed thus far in this paper, and illustrate the impact that they can have.

Focus on Trusting People

Bill Hindle is the president of HindlePower, a manufacturer of constant voltage battery chargers. He has a unique approach to selling potential clients on his business: he lets his employees do the talking for him. Bill shares the company’s operational guidelines with the visitors, and then tells them to go to the factory floor and talk with his team members. And he says that it works, without fail. The visitors come back and say “I cannot believe the level of trust that your organization has with its employees. If that level of trust exists, I want my products coming out of that plant.”

The results speak loudly. The company has been growing at a consecutive rate of 12-14% for the last 10 years, and they win 100% of the business that they bid on. Their people are highly invested; to the point that the company doesn’t even track time anymore. If employees miss any time, they make it up on their own, which translates into the company averaging nearly 97-100% of the targeted 40 hour work weeks for all of its employees. Hindle says “[People] are important to the success of the organization and I tell them, ‘If we didn’t need you 40 hours a week we wouldn’t have hired you’”. His people feel that ownership, and they deliver.

“If you really want a great company, it’s all about the people, only about the people,” he says. “Take care of all their needs, and they’ll make sure the job is done.”

Focus on Empowering Autonomy

When the Walter brothers founded their business – Tasty Catering – it began as a hot dog stand. Over the years they grew into a full fledged catering service with 125 employees, and the natural management style that emerged was reflective of the style they grew up in – command-and-control. It is what their WWI veteran father used, and thus it came naturally to them. Unfortunately, it didn’t instil a lot of trust or promote much autonomy with their staff, and one day, two of their key employees walked into their offices and said “You have to change or we’re leaving”.

Losing these two individuals was not an option for the Walter brothers, and so they embarked on a journey to reinvent themselves. They wanted to create an environment that could be generated and maintained by the employees, and was also attractive to Millennials.

They started by seeking input from their entire staff regarding what they thought the company values should be, and then used that input to define the company’s core values. Defining the values in this way created deep buy-in from their whole team, and served as the basis to help keep employees focused as well as distribute decision making power throughout the team. “All of our people know that as long as they stay within the parameters of the core values, they are free to make decisions and implement efficiencies without going up the ladder,” Tom Walter said. “As a result, the company basically runs itself”.

What does running itself mean? Last year, of the 10,000 events they served, there were only 81 errors. If an error happens, employees have the power to make decisions on the fly. For example, drivers are called “Brand Ambassadors”, and if they show up and the order is not right, they have the power to say “There will be no charge”. This autonomy has created an extremely high level of satisfaction. Gallup has national average employee engagement at 32%, with 68% being considered very good. Tasty Catering is at 98%, with <2% turnover every year, in an industry where the average is >50%.

Walter said “We now have employee owners, and my brothers and I have become servant leaders. Employees just come to us for advice.

Focus on Building Mastery

Drew Greenblatt purchased Marlin Steel, a machine shop, in the early 2000’s. At the time they were making bagel baskets in bulk. However, due to a downturn in the economy, their business dropped greatly and Drew was faced with some tough decisions on how to respond.

Determined to not let the economic downturn close his business, the company decided to switch to building custom fabricated parts for industrial customers. It was a huge risk for the company, as historically they had truly only specialized in providing a single product.

In order to combat the risk, Drew recognized that the number one potential pitfall this change in strategy could have was that his team wouldn’t be able to deliver according to the needs of their customers, and thus he made a critical decision that changed the fate of his company. He started to invest heavily in his people. They began spending 5% of their direct labor budget on training for all the team members, and invested in new equipment to help them do their jobs better. A matrix of all the skills required to run the machinery in the shop was created and prioritized according to difficulty, and each team member had a level of mastery over every skill. Compensation incentives were tied to learning every skill, which promoted cross-training for all the team members.

The result? The company grew from $800k in mid 2000’s to over $5 million in 2012, it has been on the Inc. 5000 for 2 consecutive years, Right First Time hovers just below 100%, and the people are more invested than ever. Salaries are up to $110k annually, every employee has a 401k plan which the company matches up to 4%, and the company is agile and nimble: fulfilling original requests and complex projects within 24 hours.  According to Drew, “people are [his] key asset.

Focus on Instilling Purpose

In 2011, BASF Wyandotte, a large chemical company, had 5 of its 7 manufacturing plants in the red. Their company had been around since 1963, and a large portion of their employees had been around for decades, and didn’t understand the dire situation that their company was in. Within this context, their internal OpEx team identified 43 projects that would deliver an estimated $6.6 million in savings over 3 years. There was a high degree of complacency and resistance to the improvement efforts, and many didn’t understand the need or purpose for a change – they needed a new approach. So they hired some consultants to come in and build a transformation program to help clarify the purpose.

With help from the consultants, Wyandotte’s leadership team decided to focus on addressing the mindsets and behaviors of their people, and take a people-centered approach to their transformation. This included creating a unified message and purpose behind the transformation, changing the way they communicated, specifically around on the type of language they used, as well as creating strong recognition programs, and rewarding specific change agents for their contributions.

The change was contagious – everyone adopted the need for change – from the leadership to the workers at each plant. Internal resistance melted away as the organization adopted a mindset to change the culture, and the impact was clear. By instilling the sense of purpose to the transformation through the organization, no longer were improvement projects the sole responsibility of the OpEx team, but of the entire organization. The opportunities identified grew to over 525, and over the course of the next 5 years they were able to complete over 360 of them. In total, these projects realized over $50 million in savings, and brought all 7 of the manufacturing plants into the black. Additionally, Wyandotte was able to invest over $100 million back into their plants, and grow their workforce by >25%.

Summary

Manufacturing holds a commanding presence in the US economy. It accounts for $2.1 trillion of the GDP – if it were a country, it would be the 9th largest economy in the world. It employs over 12.3 million people – which accounts for nearly 10% of the workforce. For every $1 spent in manufacturing, it returns $1.40 back to the economy – the highest of any economic sector. Thus far, it has risen to this position of dominance by maintaining a strong focus on technology, processes and equipment, without a primary focus on the people. While the enormous impact of US manufacturing is currently almost incomprehensible, imagine what will happen once they learn how to truly unleash their people.

America, we’re ready when you are.

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