Synopsis: Communication For Productivity
Letters written to some 7500 Workers / Managers /
Union Leaders, following a period of strike / Go slow / Murders (1979 -
1987), at Mumbai factory of Larsen & Toubro Ltd. This direct / open /
honest communication led to a remarkable atmosphere of trust between
Workers and Management, which, in turn, increased productivity at 3% per year
(ave).
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17 Nov 1986
Dear Friends
SUN RISES IN THE WEST !
As
children, we learned in Geography that the sun rises
in the East. It
first rises in
Japan, then in
India, thereafter in Europe and finally in America.
Europeans
are waking-up when we are almost
ready for lunch ! They are behind
us by 4-5 hours. We are ahead of them.
But not when
it comes to creating jobs.
When it comes to
creating new jobs, the sun
rises in the West!
I did not
believe myself until I read an article
"Europe starts to create Jobs" -
(Fortune - July 7, 1986).
It is a good
article, but it is difficult to understand.
So I decided to
'rewrite it in simple words which
you can understand.
With lots
of figures, the
article tries to
prove the following points:
POINT NO. 1
Using their collective-bargaining power. Unions manage
to get big wage-increases for workers, year-after-year. They also
manage to get
narrow, rigid job-classification ("This-is-not-my-job"
type of work-rules).
POINT NO. 2
Companies' costs
keep rising (due
to ever-increasing
employee-cost). So their product-cost rise, forcing them to raise selling-prices. In the
meantime, productivity keeps at same
level
- or even
drops - due
to rigid job-classification. This pushes-up product-cost still higher.
In the meantime, competitors are doing something smart (we will talk about this soon), to push-up their productivity -and keep
their costs down.
A high-cost company
starts losing orders. Sales and
production goes down but costs remain
high.
And if you
think this is true of Europe but not in India, I quote from Shri Rajiv Gandhi's inaugural
address at the National Conference on 'Productivity
in New Delhi on October 29, 1986.
"I
was told by an
industrialist from Bombay the other
day that the
lowest paid unskilled employee
in his industry gets Rs. 2300/-
a month. The demand
is to double the salary and reduce
the working days by 100 days a
year so that 25% more people
can be employed. The result is that he is going to shut down his factory in Bombay and
move out into a district
where such demands don't come about".
"The
unions must be more
responsible, they must work
for the rights of the
workers but the rights of the workers must be linked
with the increased productivity and efficiency of the worker".
POINT NO. 3.
Company's
profitability (profits as a
percentage of sale) goes down -
(as in our own
case. Do you
recollect my circular on Economy
(Co-operation) Drive - ECD - 3 of July
28, 1986, showing L&T's
falling profitability and rising wage bill ?). Sometimes even
profit amount goes down.
POINT NO. 4.
Companies
start one or all of the following actions
:
(d) Stop or
reduce sub-contracting (to keep
own employees busy, produce components at a much higher cost as
compared to
buying from outside. Although this is alright for
a short
time, if this is
continued for long, it further pushes-up the product-cost!).
(f) Invest, whatever little profits are there, in more and more
automatic machinery which
can work with
less number of operators.
(i) And finally - in a
country like ours - if law does
not permit you to
close down the
factory, let the government
take it over and run it for ever (using tax payers' money) at a loss !
(Some of these
points are mine -
not mentioned in FORTUNE article).
POINT NO. 5.
With factories
stopping recruitment or
retrenching or closing down. Union's influence
reduces. Less and less employees want to become members of
Unions.
Realising
that economy is slowing down and
unemployment is rising, the Government and the unions get worried.
So Government
passes laws which
makes it easier
for companies to "hire-and-fire" -
hire workers when business is good
and fire (lay off or retrench) when business
is bad. Adjust employee-strength according to business-condition.
Unions also
become more reasonable and agree to
remove rigid job-classification
and introduce flexible
and liberal work-rules.
POINT NO. 6.
Wage-increases granted
are less than
the inflation-rate (i.e. the rate at
which prices are rising in the market).
Wage-increase does not 100% neutralise the
rising prices. This means decrease in the purchasing power of the
workers.
POINT NO. 7
Decrease in
labour-cost, brings down
product-cost. Companies can
keep the selling-prices constant
for longer periods.
If at the same
time, labour-productivity
also goes up, a company can afford to actually reduce its selling prices .' This
can bring more orders.
POINT NO. 8
If a company
(or a country) can manage for 5/7 years,
(a) to keep wage-increase below the
inflation-rate
and
(b) to improve productivity by 5% each year, then there can be so many orders
that it can afford to,
( ii) put-up new factories;
( iv) share its prosperity with employees.
Now if
all of above-stated
points
sound so much
like fairy-tale, please do
challenge me to prove it
with facts and figures! Even if you don't, I will share with you
some harsh facts of today's industrial
life in the second part of this circular next week.
