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Applying lean manufacturing in China

• With so many manufacturers pouring into China,
companies must now look beyond its inexpensive
workforce to gain a competitive advantage.
• Lean-manufacturing techniques are the best way to
eliminate rampant factory waste. But in the rush to
expand, few companies have bothered with them.
• The rigid hierarchies of China's factories and the
rudimentary skills of many Chinese workers and
managers pose big hurdles to implementing lean
techniques.
• Companies must lay the groundwork by improving
their performance and the skills of their workers.

Brains abroad

Foreign-born workers now make up 20 percent of all employees

in the US information technology sector—a boon for the United
States as the global war for talent heats up but a hardship for
poor countries, from which many of these workers emigrated.
This talent drain could have lasting economic repercussions for
the developing world, depriving it not only of the skills of these
workers but also of their influence on the productivity of others.

The take-away
For most countries, tackling the fundamental cause of the
talent drain will take years. Comprehensive economic reform is
needed in place of the hodgepodge of regulatory and fiscal
incentives emerging markets have generally offered to lure emigrants back home. Meanwhile, a strategy that
encourages the participation of emigrants in the economic development of their home countries can mitigate the
effects of today's brain drain.

Mapping the value of employee collaboration

• Falling communications costs, globalization, and the increasing
specialization of knowledge-based work are making collaboration within
and among organizations increasingly important.
• Yet few companies understand or know how to manage the
intracompany networks in which collaboration typically occurs.
• A few leading companies are beginning to map their networks of
relationships, to analyze the economic costs and benefits that key
interactions create, and to identify value-creating interventions.
• Successful interventions help companies to reduce complexity, redefine
roles, and allocate financial, physical, and human resources more
efficiently.
This article contains the following exhibits:
• Exhibit 1: A network map illustrates relationships.
• Exhibit 2: A network perspective can identify the hidden barriers to
collaboration.
 • Exhibit 3: Employees' interaction times can be converted into an average monthly cost of collaboration
per employee.
• Exhibit 4: Network analysis can identify those employees who would benefit from personalized coaching.

Meeting the demand for improved public services

• In every developed country, people want higher standards and better customer service, but not higher
taxes. Governments therefore face a productivity imperative.
• There are three models for meeting this challenge: command and control, quasi-markets, and combining
devolution and transparency.
• Whichever model of reform prevails, public-service professionals must have the mind-set and ability not
just to lead radical change but also to manage transformed services.
The link between management and productivity
• A study of 700-plus manufacturers in France,
Germany, the United Kingdom, and the United
States has confirmed the link between good
management and superior performance.
• Companies that successfully apply a critical mass of
proven management techniques—setting goals,
tracking performance, energizing the shop floor, and
nurturing talent—perform better, on average, than
competitors that use such tools sporadically.
•
Advanced management techniques are linked not
only to solid returns for investors but also to a
positive work-life balance for employees and managers.
• Although government policy and the industrial sector where companies operate can influence their
productivity and financial strength, management decisions have a greater impact, the study found.

This article includes the following exhibits:

• Exhibit 1: Management practices have more impact on a company's success.
• Exhibit 2: Management practices and performance are highly correlated.
• Exhibit 3: Some countries excel in certain areas.
• Exhibit 4: The quality of management practices varies.

Has pay for performance had its day?

Pay for performance has become one of the mantras of

modern management, yet most rewards are based on current
business, not exploration. To ensure profitability in the future,
companies should balance their incentives so that they reward
both success at the moment and innovation for the future, as
well as group or company rather than individual achievement.
In addition, employers should foster a culture of commitment
to reassure employees that their long-term interests are
aligned with those of the companies they serve.

The take-away
Companies that offer lower incentives for current
performance and balance them with incentives for work on long-term projects do better at both.
Turkey’s quest for stable growth

Turkey has liberalized its economy over the past 20 years, but its bid to join the
European Union will likely hinge on its ability to make further gains in productivity. A
McKinsey Global Institute study of 11 sectors of the Turkish economy found that
they are achieving only half of their potential. Closing the gap would mean that
Turkey could create six million jobs by 2015 and raise its GDP by 8.5 percent—a
feat that would greatly improve the living standards of its 70 million people and
substantially improve its chances for EU membership. This article gives an overview
of Turkey's challenges and takes a closer look at the automotive, confectionery, and
energy industries.

The take-away
Subpar productivity in Turkey generally stems from three problems: a
large informal economy, macroeconomic and political instability, and
government ownership. Reformers should focus their efforts on these
three large arenas.

The new metrics of corporate performance: Profit per employee

• Today's approach to measuring financial performance is geared excessively
to the capital-intensive operating styles of 20th-century industrial
companies. It doesn’t sufficiently account for factors such as the
contributions of talented employees that, more and more, are the basic
source of wealth.
• Financial performance—observed through balance sheets, cash flow
reports, and income statements—is and always will be the principal metric
for evaluating a company and its managers. But greater attention should be
paid to the role of intangible capital and the ways of accounting for it.
• The superior performance of some of the largest and most successful
companies over the past decade demonstrates the value of intangible
assets.
• Companies can redesign the internal financial performance approach and
set goals for the return on intangibles by paying greater attention to profit
per employee and the number of employees rather than putting all of the
focus on returns on invested capital.

This article contains the following exhibits:

• Exhibit 1: From 1995 to 2005, the 30 largest companies (by market capitalization) have seen their profits
per employee increase dramatically.
• Exhibit 2: Companies can create wealth either by increasing profit per employee, by increasing the
number of employees earning such profits, or both.
• Exhibit 3: The correlation of market capitalization to net income can be viewed in relation to returns on
invested capital (ROIC) . . .
• Exhibit 4: . . . or in relation to return on talent.
Moving energy-intensive industries to the Gulf
• New research from the McKinsey Global Institute (MGI) reveals that
global energy demand is on a path to grow by 2.2 percent a year over the
next 15 years.
• Soaring energy prices in the West have made the Gulf an attractive
location for multinational producers of energy-intensive commodities
such as aluminum and petrochemicals.
• But as homegrown companies improve their skills and technology and
national leaders seek business partners that can help develop the
economy and create jobs, many multinationals are failing to gain entry to
the region.
• To succeed, multinational companies must fully understand the needs of
governments and other stakeholders in the Gulf and manage
relationships with them during a potentially complex deal-making
process.
• Multinationals must then structure broad deals that offer value to all the
government and business partners involved.

This article contains the following exhibits:

• Exhibit 1: The GCC states account for nearly a quarter of worldwide announced capacity expansions
planned over the next five years.
• Exhibit 2: Natural gas costs much less in the Gulf region than in other markets.
• Exhibit 3: Structural advantages make aluminum production 30 percent cheaper in the Gulf than in China
or Western Europe.
Improving productivity in product services
• Product companies are struggling to reduce the cost
of the services operations that support and maintain
their product lines.
• Unlike manufacturers, which can optimize
controllable processes, services organizations have to
manage many variables, including unique requests,
challenging environments, and differing levels of
employee motivation.
• Still, companies can improve the productivity of their
services by reducing the demand for service work,
assigning the least costly resources to tasks, and boosting labor output.
• Contrary to many executives' fears, improving productivity in these ways usually raises rather than
lowers customer satisfaction.

Pull down
.A Making a market in talent
.B The people problem in talent management
.C Creation nets: Getting the most from open innovation
.D Measuring performance in services
.E The link between management and productivity
.F Competitive advantage from better interactions
.G Creating a knowledge culture
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