Stanford Business School on teamwork and manufacturing productivity

March 19, 2008

Those who work in the most complex manufacturing environments have the most to gain from the use of problem-solving teams, according to a recently published study. As the United States concentrates its manufacturing base, workers are more likely to be working on very high-quality products that require complex manufacturing steps.

Using data from steel minimills, the study shows that teams had the greatest impact if they tackled complex tasks in these environments, enjoyed meaningful incentives, and knew that management listened to them.

Steel mills traditionally have focused on the quality and quantity of goods produced rather than how workers interact, and managers often resist the idea of taking rank-and-file workers off the factory floor or paying them overtime for meetings so they can become collaborators. Yet during the five-year study, the number of mills using problem-solving teams more than tripled – and the practice became virtually universal on lines executing the most complex tasks.

“It’s not teams, per se,” said Kathryn Shaw, the Ernest C. Arbuckle Professor of Economics at the Stanford Graduate School of Business, one of the study’s authors. “It’s having an environment that supports teamwork. You need a group of experts coming together to solve a complex problem. You’re bringing people together because no one person can solve the problem as well as the group.”

Minimills operate 24 hours a day, so companies can’t increase yield by having people work longer. But rank-and-file employees can come up with ways to work smarter, from having more efficient training to reconfiguring production lines or finding faster ways to identify and reject unacceptable products.

Although this study focuses on a narrow aspect of one industry – “rolling mills” that reheat, roll, and cut steel to produce bar products such as rebar or I-bar – Shaw says strategic teams with appropriate incentives can have a widespread impact.

“I’ve visited so many companies in so many industries, and this really is the answer,” she said.

There is one caveat: The teams’ gains are significant only when they are addressing complex processes such as improving product quality or solving assembly line problems, not relatively simple tasks such as organizing shifts, Shaw said.

To measure productivity, the researchers used yield – the ratio of the number of tons produced that meet the quality standard divided by the number of tons that are loaded onto the production line (or the tons “charged” in the reheat furnace at the beginning of the line).

Workers can improve yield by finding ways to prevent material from jamming in the equipment and by reducing electrical and mechanical failures. They can also identify and address the causes of unacceptable steel quality before the minimill produces large amounts of it. If the bar of steel securing a seat belt is defective, for instance, the auto manufacturer will know which plant produced it – hurting that plant’s profitability. “Nowadays we have records of every lot of steel and where it came from,” said Shaw.

Companies rarely make capital investments without having detailed expectations about the potential return, she said, but most haven’t developed the same expertise about human resources policies. “That’s much harder to do with HR. But the returns to HR can be just as big.”

Shaw, who is also a research associate with the National Bureau of Economic Research, coauthored the study with Brent Boning of the Center for Naval Analyses, and Casey Ichniowski of Columbia University and the National Bureau of Economic Research. They sampled 34 production lines owned by 19 companies and conducted extensive interviews with workers, union leaders, managers, and human resources officials at the minimills. There were 2,355 total monthly observations of those production lines, compiling about five years of data on each line.

Although creating the teams does include such costs as overtime payments for meetings, consultants to develop the teams, and lost production during team meetings, the researchers doubt those costs were large enough to explain why only 12 percent of the lines at the beginning of the study had teams. In many mills, there was an institutional resistance to change.

For long-established mills, Shaw said, a sudden emphasis on teams can be scary and painful. “It really means changing the fabric of the environment and the skills of the individual,” Shaw said. Managers, for example, have to think of themselves as coaches, not bosses. In some cases, change occurs only when the situation is drastic. “What it’s taken is for companies to bottom out.” Or, often the mill is sold to a new owner who can rework the human resource practices.

Shaw said teams are much more accepted now. When Nucor Steel creates a mill on a previously undeveloped site, for example, it puts teams in place from the beginning.

Sometimes the opportunity for change presents itself when a company is sold. Shaw said that when Gerdau Ameristeel purchased Sheffield Steel in 2006, it had the chance to replace people at various levels with those who could better focus on Gerdau’s mission.

“You need to aim for workers who see the gains that working together often promises,” she said, and new managers can often do that more easily.

Source: Stanford Graduate School of Business