Work Style Reform and Improved Productivity: Employees' Understanding Directly Affects Performance

TSURU Kotaro
Program Director and Faculty Fellow, RIETI

The Nihon Keizai Shimbun Group has promoted the Nikkei Smart Work project since 2017, with the aim of encouraging corporations to improve their productivity by implementing more diverse and flexible work styles and facilitating innovation. As part of this, the Smart Work Practices Study Group, which was organized with participation by academic experts, published its final report titled "Work Style Reform: the Course of Evolution" in July 2019.

In its interim report published in June 2018 (and referred to in this column on July 2, 2018), the Group explored and analyzed what would be necessary to achieve a good balance between the work style reform and productivity improvement and stressed that it would be entirely feasible to achieve the balance. In the final report, which was intended to deepen the understanding of the findings from the interim report, the Group considered what initiatives would be effective in improving corporate performance from the three perspectives below.

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The first perspective consists of an analysis that focuses on the causal relationship between the two. While the interim report referred to correlations between corporate performance and their human resource utilization practices and measures, its exploration of causal relationships was not necessarily sufficient due to data constraints. To address this, the final report used a new approach in the second chapter to estimate the causal relationships and demonstrated examples of human resource utilization and work style reform measures that could improve corporate performance.

Specifically, the report estimated the impact of implementing or not implementing work style measures (in particular, those related to human resource utilization) on business performance (productivity and margin rate) targeting companies that responded to the Smart Work Practices Survey in the past two years, using a difference-in-differences (DID) analysis approach and a model capable of assessing company-specific impacts.

As a result, it was found that the introduction of limited-duty full-time and flextime work arrangements have positive effects on hourly labor productivity. Full-time employees' diverse and flexible work styles contribute to the improvement of labor productivity per hour.

It was also shown that measures related to the participation of women and the elderly have positive effects on the return on assets (ROA) and the return on equity (ROE). However, as pointed out in some preceding studies, this result may partly reflect the effect of a higher profit margin achieved through labor cost savings. On the other hand, it was found that, while specific effect-producing measures differ depending on the definition of profit margin, measures implemented to improve work-life balance (e.g. work hour optimization measures) and those implemented to facilitate personnel mobility have the effect of increasing profit margins.

The second perspective implies that, in order to improve corporate performance through a work style reform, individual employees must understand the aim of the reform and be provided with a workplace environment where they can find job satisfaction. As the work style reform gains wider acceptance, more attention is paid to employee job satisfaction, work engagement (energy, enthusiasm, devotion to work), and well-being (a concept that encompasses both of the above; as a term, it refers to positive physical, mental, and social conditions).

The third chapter of the report focused on measures aimed at improving employee well-being, using the results of an employee-level survey conducted in 2018 for 10,000 business persons. Specifically, we analyzed how well-being indices (such as job satisfaction, willingness to stay at a company, and work engagement) would be changed by the following three measures: 1) promotion of (personnel) diversity; 2) flexible work style; and 3) health and productivity management. As a result, it was suggested that work style reforms in the private sector would have an effect of improving the level of employee well-being through the creation of more employee-friendly workplace, etc. (The time required to produce the effect differs depending on the organization.)

Even if a company does actively implement various measures, they will not necessarily bring a deep sense of satisfaction on the part of employees or lead to stronger business performance if the employees do not understand the aim of the implementation or notice such measures in the first place. In the analysis, a widespread pattern was seen across a variety of measures—the greater the difference in the perception of measures between the company management and its employees, the lower the labor productivity per hour.

More specifically, labor productivity per hour was significantly low in cases where employers said that they had implemented or adopted in the area of performance appraisal criteria (promoting appointment of women to managerial positions, support for recruitment of more female employees and continued employment of them, provision of support for skill and career development to each job class, promotion of participation by part-time employees, fair and objective personnel evaluation, and improvement of employee motivation), while employees said no such criteria had been implemented or used.

The third perspective relates to the use of new technologies such as information and communication technology (ICT), robotic process automation (RPA), and artificial intelligence (AI). Considering the magnitude of potential impact on work style reform and productivity improvement, it is important to understand specifically what impact these new technologies would have on the company and employees. The fourth chapter analyzed how new technologies were used in the private sector, what impact they had on employees (work hours and well-being), and to what extent telework was adopted as the most representative example of the use of new technologies.

First, we estimated what impact the adoption of new technologies had on changes in work hours during the period from 2016 to 2017. As a result, we found that the greater the number of new technologies adopted, the greater the significant decrease in work hours, whether the estimate was based on corporate data or employee data. We also found significant relationships between certain technologies and reductions in work hours (see the table) and that employees working in technologically advanced workplaces tended to have significantly high scores for all well-being criteria.

Note: Circles indicate technologies that have a statistically significant impact on the reduction of work hours.
Source: Yamamoto, Isamu, Professor of Keio University (2019), "Impact of Introduction of New Technologies on Employees" (Chapter 4, Section 2 of the Final Report issued by the Smart Work Practices Study Group)

Telework is attracting attention as a way of working that improves productivity by using new technologies. While a number of companies—particularly leading players—are themselves engaged in the development of teleworking environments, the percentage of users remains at a low level. In searching for a way to promote telework, we analyzed what type of employees were participating in a teleworking program.

The results showed that the more willing a company was to establish a system for introducing new technologies, the larger the number of employees participating in a teleworking program, illustrating the importance for a company to improve its workplace environment. In terms of job types, planning, marketing, or creative positions and those engaged in customer development or with a goal of achieving a higher level of added value are more likely to have teleworking employees. This result indicates that telework is more suitable to job types that require concentration and creativity. Considering the fact that teleworking is effective for a wide range of jobs and responsibilities, it would be essential to introduce a system that can be used by all employees.

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In summary, in order to advance to the next stage of work style reform, companies should not only implement work style reform in a steady manner but also actively introduce new technologies that perform a complementary role in the reform, ensure employees' better understanding and higher awareness of the reform as well as improvement in their well-being that the reform provides. In particular, it is important to create an environment in which business performance is improved through measures that promote diverse and flexible work styles (such as limited-duty full-time working and flextime working) and personnel mobilization.

>> Original text in Japanese

* Translated by RIETI.

July 5, 2019 Nihon Keizai Shimbun

September 30, 2019