Even for lucrative high-tech firms productivity can be a problem
Boston — Each year Analog Devices Inc., which designs and makes integrated circuits in Norwood, Mass., brings in record profits and further expands its domestic and overseas operations. Like other high-technology firms, Analog is on the cutting edge of technological developments.
Even so, there's still a problem.
''Our productivity is not anywhere near what it has to be, and should be, to compete in the long term,'' says company president Ray Stata.
Nationwide, big productivity gains from the recovery are over, and growth is moving along at a steady, slower pace.
Bureau of Labor Statistics figures, released yesterday, show an annual productivity growth rate of 2.6 percent during the business sector's first quarter. That's slightly below the last quarter's rate, but indicates consistent improvement in the volume of goods and services produced for every man-hour worked.
But for leaders of high-tech companies, such as Mr. Stata, long-term productivity is a nagging concern. At a recent press conference, Stata pointed to a discouragingly flat graph that showed the history of Analog's productivity growth, adjusted for inflation.
''Our progress in real terms has been zero,'' he stated. This is why, says Stata, productivity and quality will be ''the next frontier'' at Analog. He does not want to be caught 10 years from now in the same bind that squeezed Detroit's auto industry.
It's taken Analog Devices a while to discover this frontier, he says. As in much of the industry, strong demand for products masked needed improvements.
''In the late '70s and early '80s, (electronics) companies were a little too busy expanding capacity to worry about productivity. And frankly, that was probably all right,'' says Carl Thor, vice-president of the American Productivity Center in Houston. ''If you have a real barn-burner going, you had better produce. But when things started slowing down, it became clear things had to change.''
They will need to. Mr. Thor says the Japanese productivity level in the electronics business is not only ahead of the US but is also growing faster. The American Productivity Center's most recent study of Japan was in 1980. For that year, it showed Japan's productivity in the electronics sector (measuring the value of output to the number of labor hours put into that value) was 30 percent higher than US productivity in that sector.
Comparison with Japan, as well as major quality problems in the US semiconductor industry, ''brought the need (for improvement) into focus,'' says John Baumeister, vice-president of management programs for the American Electronics Association.
Last fall, this major trade group set up its own resource center for productivity and quality. It has enlisted top executives in the field - John Akers, president of IBM, and John Young, president of Hewlett-Packard - to speak at seminars. These meetings have mostly focused on top management's role in the quality push, but seminars scheduled for a nationwide circuit later this year will deal with specific tools for productivity and quality improvement.
Hewlett-Packard has no specific productivity program, but it tackles that issue through quality improvements. ''With not as many defects on the floor, you don't have to spend as much time with them on the floor,'' explains Gaylan Larson, manager of HP's manufacturing productivity division.
''Today we would probably require $200 million of additional inventory. . . . Inventory used to be 21 percent of sales, today it's 15,'' he says. HP also pushes quality improvement in all divisions - including accounting and marketing.
Automation is a major part of productivity improvement, and high-tech companies are working hard to get as much as they can. But such improvement goes beyond automation, says Analog's Ray Stata. Educating employees is a big part of it. Analog has launched ''a massive'' education program in quality and productivity improvement. But, he says, the challenge is convincing employees who work for a profitable, high-growth company, like theirs, that these are real issues.
''The auto companies are making progress because their backs are against the wall,'' he says. ''Here, we're competing against ourselves.''