Well it’s here. On the 1st April, approximately 1.8 million of Britain’s low-wage workers got a pay rise as the legal wage jumped from £6.70 to £7.20 for all those aged 25 and over. More importantly the Living Wage is planned to be increased year on year until at least 2020. This will place increasing long term pressures on all parts of the FMCG sector to adapt and change.
There are a number of approaches reportedly being adopted by industry in general including some FMCGers.
- Pay the Living wage, but reduce staff hours
- Reduce other staff benefits including overtime rates
- Large capital investment in automation to reduce labour
- Absorb the cost increase but lower profit margins
There is another option – but only for the brave
What are the successful businesses doing? How are they dealing with labour cost increase? After all, the National Living Wage is only one example of staff cost increase, and it’s not confined to the low income bracket. Some organisations take the brave road:
PAY MORE, EXPECT MUCH MORE
The Chicken and Egg question
Let’s face it, the most successful organisations are often ranking as both the best place to work, and the best paid. So the question is what came first, success that affords benefits, or benefits that afford success? I believe the latter. Most organisations will chant that their biggest asset is their people, but how many organisations back this up with hard cash?
Don’t get me wrong, I don’t support rising costs that reduce profits, but rising costs that support rising profits is different. The key here is productivity lift – people output increase that is greater than their cost increase. Here is a perfect opportunity for a call to action.
It starts with the WHY
Any change that involves large numbers of people requires a strong change management framework and approach. In turn, a strong change management approach starts with “why”. Why must the organisation become more productive? Why do we need to change the way we do things? Why must we continuously improve? Without a compelling reason (the why), the outcome will be lame. Chanting “we must be more productive” will fall on deaf ears. BUT, now we have a compelling reason for change, something we can articulate and rally the organisation with. We could choose to say the following:
“We are not like most organisations. We will not give with one hand and take from another. We will not cut your hours or cut overtime rates. You will go home with more money than before. Together, we will make this happen, but it needs your input”
Follow with the HOW
The above is all well and good, but how do we actually go about this process? Here’s the steps:
- Start with the WHY for change (as above). Don’t email it or issue a memo – be a leader and tell the workforce directly.
- Calculate the difference between inflationary price increase and the National Living Wage, and set that as the productivity lift target.
- Talk to the Union. Explain that you are not taking the easy route like other organisations – you will NOT be:
- Reducing people’s working hours
- Reducing overtime rates
- Making people redundant
Explain that you WILL be:
- Expecting their support
- Improving the worker’s day and pay
- Communicate to the organisation what you will and will not do – make it clear and make a commitment to them. Give examples of what lesser organisations are doing.
- Use science over emotion. The average Value Add content we find in a living wage worker’s day is <50%. Lifting this to a modest average of 60% will give you the opportunity to reduce direct staff by 10% – more than enough to off-set The National Living Wage
- Lifting the Value Add content of the worker’s day – Use Lean tools and principles strategically to achieve no less than you need, but no more than you need.
- Remove temporary staff if you have them – only by the required amount. If all staff are permanents, then side line the “cream of the crop” – avoid the temptation to side line your under performers. Definitely do not make redundancies.
- Develop your side lined people and make them internal lean champions– train them and put them on improvement projects. Make their cost of employment be the minimum target for cost improvement initiatives.
- Performance manage your under performers – those that fail to improve must be exited from the business.
- Backfill natural attrition leavers from the side lined pool, but move people around in roles to allow these people into personal development roles, or promotions.
The benefits of off-setting the national living wage
- Sustain and grow profit margin
- Retain low cost labour in FMCG
- Create a platform for further employee engagement
- Human flexibility over expensive automation CAPEX
Remember, this process is not a theory, it is proven. The only choice is which path to follow.
LMAC can help you accelerate this process.