Increasing the output for business production and service sector organizations is an essential strategy that calls for the evaluation of the ability of a business to remain operational in the short and long term. Phusavat (2013) asserts that profit-making organizations deploy productivity levels as their performance measures. The standard approach to measuring productivity entails setting targets for the desired output and then measuring the actual yield against the goals.
The changes in productivity indicate the possible variations in organizational efficiency, especially in terms of labor and other inputs, including the conversion of raw materials into finished products. When output per worker increases, more products are available for sale. This observation suggests that productivity correlates directly with the profitability of an organization.
The analysis of a company’s profitability cannot be accomplished exhaustively through the discussion of productivity measurement in general organizations. Consequently, the paper limits its discussion to the specific efforts of increasing productivity in a specific organization, namely, McDonald’s.
The company stands out as one of the biggest global fast-food retailers offering its commodities in more than 119 countries around the globe. McDonald’s restaurants and franchises, which stand at about 33500, continue to grow as the organization penetrates new markets in Asia. McDonald’s immense success is attributed to a number of factors, among them, the company’s incredible emphasis on consumer engagement, appropriate leadership that fits well the business of the organization, and its exceptional investments of resources in enhancing its productivity.
Current Protocols to increase Productivity
Organizations deploy productivity as a means of prescribing their future direction to achieve specific outcomes. For example, McDonald’s deploys productivity improvement as the tool for establishing benchmarks and/or initiating the appropriate change that would guarantee continuous improvement in its service delivery. Productivity here refers to the ratio of the company’s outputs to inputs (Phusavat, 2013). Due to inefficiencies that are witnessed in production systems, it is incredibly difficult to translate all inputs into outputs. Hence, it is impossible to achieve a productivity of 100%. However, through productivity improvement initiatives, organizations such as McDonald’s can increase their output levels to values close to 1.
Productivity indicates the capacity of organizations to produce certain types of goods and services using specific inputs within a stipulated time. Organizational inputs remain fixed over a particular duration until the period of capacity expansion. Therefore, any effort to enhance productivity is accomplished with the current resource potential. Hence, McDonald’s main effort of improving productivity focuses on increasing the company’s output levels within the limits of the available human resources.
The main goal is to improve human resource output levels as the major strategy for increasing the organization’s productivity and, consequently, performance. In fact, productivity improvement efforts at McDonald’s emphasize enhancing the company’s human resource potential. In the bid to increase productivity through its human resource, McDonald’s management deploys various steps, which a manager can benchmark from to reduce turnover rates and/or any possibility of strike occurrence.
First, McDonald’s initiates its performance improvement efforts right from the time of its employee recruitment. During this staffing process, a consideration of the available resources to pay a given employee a maximum and appropriate offer in terms of benefits and compensation is important (Phusavat, 2013). In fact, the company is keen when it comes to allocating the wages and/or salaries that an employee of a given professional-caliber should take as start-up remuneration. At McDonald’s, wages and salaries form the basis of determining the possible future mechanisms for enhancing employee performance and motivation.
Secondly, via psychometric evaluation of the person being recruited, the organization identifies individuals who fit well into its line of business. Fitting into an organization implies the recruitment of a person who can work to deliver on his or her job requirements when paid according to the benefits and compensation packages offered by an organization (Xu, Choi, & Lv, 2014). Job requirements are developed consistently with desired organizational outputs both in the short and long term. A comparison of the desired targets and the actual output encompasses the measure of the company’s capacity to improve productivity.
Thirdly, McDonald’s understands that high performing organizations focus on mechanisms for creating wealth, which is then directed to the improvement of employees’ welfare. Phusavat (2013) observes how “People are always angered and frustrated by the perceived inequality in reward systems” (p. 88). In other words, if workers are managed in a manner that motivates them through reward systems, it is possible for organizations to advance their productivity levels. Hence, a direct relationship exists between salaries and welfare benefits awarded to employees and their productivity levels. In other words, a better reimbursement plan may result in improved companies’ productivity levels.
Measurement Metrics to assess Productivity Improvement
Organizational productivity may be measured from different metrics, which include financial performance and employees’ satisfaction with their jobs, as reflected in the turnover rates and customer service. One of the essential paradigms of measuring McDonald’s productivity is the company’s financial performance. Organizations have higher productivity when they make optimal profits analogous to the increased output within a specified amount of resources. Such profitability is witnessed when companies are able to reduce their cost of running a business. To this extent, one of the approaches deployed by McDonald’s to measure its financial productivity entails the capacity to reduce various indirect costs.
Through enhancing job satisfaction among its employees, McDonald’s develops the competence to decrease costs that interfere with its financial performance, such as turnover expenses, absenteeism, overheads, and task-associated errors. These costs lower any company’s productivity. For example, all products discarded due to their failure to meet the prescribed quality standards are included in the total output during the calculation of an organization’s productivity. Strategies for increasing job satisfaction are important since employees’ contentment implies an excellent quality of life and good health. These factors are essential in enhancing business productivity (Tidd & Bessant, 2014). Consequently, measuring job retention rates and motivation is an important metric for assessing productivity improvement.
The main objective of measuring the performance of organizations from the perspective of their financial trends is to ensure continuous financial growth. McDonald’s expands its business through the franchises and the opening of company-owned stores in different parts of the world. For growth to occur, financial resources are expedited (Phusavat, 2013). Measuring the productivity of the organization from this approach gives an indication of McDonald’s anticipated growth levels. Assessing McDonald’s productivity from the perspective of its financial performance is anchored on the need to determine the effectiveness and efficiency of the organization, specifically in its conversion of inputs into outputs. Such endeavor calls for the expenditure of financial resources in the form of purchases such as raw materials and labor.
Managers can measure the effectiveness and efficiency in the conversion of inputs into outputs in terms of expenditures, as revealed in financial ratios such as ROI, ROE, liquidity ratio, and profitability ratios. For McDonald’s, this process is inspired by the argument that organizations must operate in a manner that ensures they are able to achieve their outcomes. Investors are interested in the capacity of an organization to deliver value in the form of returns on their investments (Phusavat, 2013). Hence, McDonald’s has a noble responsibility of investing the owners’ finances in a manner that guarantees profit maximization and a reduced cost of production. In fact, even if employees produce more products, but with escalated costs, organizational effectiveness suffers.
From the employees’ perspective, McDonald’s invests in human resource strategic efforts to increase its workers’ motivation and commitment. Indeed, the company operates in the hospitality industry, where low motivation can contribute to high labor turnover. For example, from 2001 to 2006, the hospitality and leisure industry in the United States had a high rate of turnover that stood at 74.6 percent. Kumar and Ravindranath (2012) observe that the fact that the leisure and hospitality industry requires less specialized skills compared to the industrial sector makes the former have a higher turnover.
However, this situation does not shield organizations in the hospitality industry from disadvantages associated with poor work motivation, satisfaction, and loyalty, especially in terms of the quality of service delivery. One of such disadvantages is reduced productivity due to the inexperience of new recruits who cannot do their work at ease. Therefore, measuring the capacity of how employees perform their duties at ease can indicate the level of an organization’s productivity.
Comparing the Efforts to the Concepts and Theories on Productivity
McDonald’s utilizes people as one of its most important sources of success in terms of delivering value to customers. In this quest, the organization ensures that it does not create situations, which give rise to employee-work conflicts and subsequently leading to high labor turnover. These concerns of the organization link well with the existing literature on the impact of work-life balance on employees’ performance.
When operating in a knowledge-based economy, organizations encounter the challenges of retaining employees as one of the major workforce management strategies. Addressing this challenge is essential in maintaining an organization’s competitive advantage (Cegarra-Leiva, Sa´nchez, & Cegarra-Navarro, 2012). In this effort, employees’ satisfaction through work-life balance (WLB) is essential. Without the creation and maintenance of WLB programs, organizations are exposed to the risk of employee conflicts. Such disagreements arise from the compromised family roles and the interrupted work-life atmosphere. The conflicts create incompatibilities between the employees’ individual life, family responsibilities, and work pressure. Personal conflicts related to WLB challenges create organizational and workforce psychological distress, which lower employees’ productivity across all organizations.
Cegarra-Leiva et al. (2012) examined whether employee work-life balance initiatives have a direct impact on worker retention in an organization. The authors wanted to examine whether such initiatives stimulated high work satisfaction among employees in SME settings. The study recommended the improvement of employees’ satisfaction in the effort to increase their retention. According to the findings, “The existence of a work-life balance culture in an organization increases job satisfaction and for that it is essential that the managerial team commits to supporting a person-friendly organization” (Cegarra-Leiva et al., 2012, p.103).
This recommendation is essential in establishing the reason behind McDonald’s increased focus on ensuring that employees are satisfied with their jobs. This emphasis has been the secret behind its stunning productivity. For example, over the last decade, the Chinese hotel industry experienced a rapid growth averaging at about 9.3% each year. This situation has led to the $ 47.7 billion industry growth in terms of revenue generation (Xu et al., 2014). It employs about 2.3 million people. Sustaining this growth requires a team of dedicated employees to attain optimal productivity.
An effort to increase productivity through enhanced people’s performance is consistent with the existing evidence on the role of HR in enhancing organizational profitability (Kramar & Syed, 2012). For example, Lambert (2013) argues that effective HR practices “help to foster the employees’ quality of life and, as a consequence, workers will be more satisfied, motivated, and committed to a firm” (p.13). Satisfied employees are more likely to execute their role within an organization perfectly relative to those who are dissatisfied. Indeed, job satisfaction relates to the employee motivation. The two issues are both essential components of enhancing organizational productivity (Lambert, 2013).
Employees in an organization constitute one of the most important resources utilizable in achieving the desired outcomes. In the context of increasing the financial performance of an organization, all costs encountered in the bid to enhance employee motivation and commitment to the objectives and functions of an organization have to be minimized to guarantee optimal productivity (Herman & Renz, 2012,).
Therefore, McDonald’s effort of measuring its extent of financial performance by evaluating its degree of compromise for various variables that need to be combined in the right proportions to achieve financial growth is consistent with the literature on continuous productivity improvement, which is also known as kaizen. These variables include the cost of input, processing, and employees’ welfare benefits. While the argument that organizations should not principally focus on increasing financial effectiveness and efficiency at the expense of their employees’ welfare benefits and gains is valid, it is important to note that such paybacks are funded using financial resources (Herman & Renz, 2012). Such resources would be increased by augmenting an organization’s profit levels. This finding underlies the reason why McDonald’s is incredibly interested in measuring its productivity to determine its capacity to increase its financial performance.
Innovating products and services that have a low cost of creating is essential in helping an organization to gain a competitive advantage in the future. Hence, companies can only succeed in the global frontier if they can reduce their cost of production while improving operational methods to attain continuous productivity improvement. Measuring aspects that affect employees’ motivation to their work indicates their commitment to converting inputs into outputs.
With all factors held constant, increased financial performance indicates that an organization must have converted more inputs into outputs. This possibility has been examined in the paper in the context of McDonald’s as a case example of the approaches that managers can emulate to measure and improve their productivity. Hence, with other inputs held invariably, it holds that that any changes in the outcome of financial productivity metrics reflect variations in the productivity improvement parameters.
A situation where an organization records a high financial performance with a constant cost of input, including labor, implies improved productivity that results from increased employees’ capacity to convert inputs into outputs. This outcome may emanate from increased job satisfaction, excellent WLB programs, motivation, and organizational loyalty among other factors that influence employees’ productivity and consequently companies’ profitability.
Cegarra-Leiva, D., Sa´nchez, V., & Cegarra-Navarro, G. (2012). Work-life balance and the retention of managers in Spanish SMEs. The International Journal of Human Resource Management, 23(1), 91-108.
Herman, R., & Renz, D. (2012). Advancing organizational effectiveness research and theory. Management & Leadership, 18(4), 399-415.
Kramar, R., & Syed, J., (2012). Human resource management in a global context. London, England: Palgrave Macmillan.
Lambert, J. (2013). Added benefits: The link between work-life benefits and organizational citizenship behavior. The Academy of Management Journal, 2(1), 7-32.
Phusavat, K. (2013). Productivity management in an organization: Measurement and analysis. Bangkok, Thailand: To Know Press.
Tidd, J., & Bessant, J. (2014). Managing innovation: Integrating technological, market and organizational change. The International Journal of Educational Management, 21(1), 6-25.
Xu, S., Choi, Y., & Lv, Q. (2014). Subjective well-being, work motivation and organizational commitment of Chinese hotel frontline employees: A moderated mediation study. Journal of Tourism Research and Hospitality, 3(2), 1-9.