Idh mta overview note

Mid-term assessment of IDH Electronics Programme: overview note Report for IDH January 2015

Ergon Associates Limited 8 Coldbath Square London EC1R 5HL United Kingdom Tel: +44 20 7713 0386 www.ergonassociates.net This report should be used as only a source of information and analysis. It is not given, and should not be taken, as legal advice and the provider of the information will not be held liable for any direct or consequential loss arising from reliance on the information contained herein.

Mid-term assessment of IDH Electronics Program: overview note

Introduction IDH conducted a Mid-Term Assessment (MTA) of its Electronics Program in the latter half of 2014.

The MTA provided the opportunity to evaluate the intermediate progress of the Program through identifying emerging trends and impacts, how these might relate to business drivers and learning that could be applied during the Program’s remaining period and to its final evaluation.

The IDH Program is based on a theory of positive change in electronics factories, that investing in improved worker-management dialogue and better working conditions will improve both social outcomes for workers and business outcomes for owners. These outcomes may be most simply evident in lower rates of worker turnover (an endemic problem for Chinese manufacturers) related to improved worker satisfaction - and in higher product quality, both of which should result in business benefits. Using this model, the MTA assessment reviewed all information sources produced under the program so far in order to take stock of evidence of the IDH Program’s impact related to:     

Its diagnostic ability to identify problems at suppliers and to target trainings to address these The initial impact of IDH trainings A link between levels of worker-management dialogue and worker satisfaction A link between dialogue and satisfaction and worker turnover A link between worker turnover and product quality and/or other business outcomes

Key findings Entry point assessment (EPA) are a diagnostic tool that can identify challenges and target trainings

The Entry Point Assessment (including Entry Dialogue) process, conducted with all suppliers at the inception of the Program, provide a valuable diagnostic tool that can identify the most important areas for improvement at suppliers and an indication of root causes. Since the EPA is based on attitudinal surveys involving many workers, the EPAs provide a richer source of data on noncompliances (e.g. working hours) than the traditional social audits and also can reveal key worker priorities and problems of workplace organisation and relationships that contribute to problems in social compliance and overall worker satisfaction that will affect business outcomes. The data also provides a baseline that can be used to measure change as the Program progresses. Additionally the Dialogue element of the process starts to change attitudes, strengthens the dialogue skills of both management and workers, and provides the opportunity to go deeper into issues and verify points raised in surveys.

For these reasons, for brands, EPA data can be used to supplement or reduce the need for social audits while providing information that is more geared to worker and management concerns.

Trainings are starting to show impact at supplier level on some key indicators

There is emerging qualitative and anecdotal evidence at individual supplier level that training modules are having a positive impact on levels of worker satisfaction and worker-management dialogue. In particular, average worker satisfaction scores as measured in the Worker Satisfaction Index (a multidimensional index covering working relationships, perceptions of wage fairness, attitude to working hours, facilities, health & safety and personal development) are related to the degree to which suppliers have participated in a genuine and committed way.

At individual supplier level core curriculum reports, which record outcomes from supplier management training and support sessions, contain examples of improved constructive engagement between workers and management after delivery of trainings. There is also qualitative evidence from core curriculum reports that management responds better to employee concerns as a result of the training.

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Mid-term assessment of IDH Electronics Program: overview note

Evidence of linkages between aspects of worker satisfaction and worker management dialogue

Data from Entry Point Assessments demonstrate there is a relationship between worker attitudes related to the quality of their relationships with management and indicators of worker satisfaction. For example, there is a strong relationship between workers’ perception of income fairness (a strong component of overall worker satisfaction) and their levels of trust in management. This implies that actions that can build trust – including dialogue – will improve perceptions of wage fairness and satisfaction.

Evidence of the link between higher worker satisfaction and lower worker turnover

Both the Entry-Point Assessments and the Mid-Term Assessments provide evidence that lower worker satisfaction is linked to higher worker turnover, as measured by the proportion of workers expecting to resign within six months (an indicator of the likelihood of worker turnover).

This supports the view that efforts to improve worker satisfaction will have tangible business benefits for suppliers operating within a tighter Chinese labour market.

Indications of a link between worker turnover and quality

As the proportion of employees who state that they expect to leave within 6 months grows, employees tend to rework more frequently, demonstrating the impact of dissatisfaction on work quality.

Additionally, recorded worker turnover rates tracked on a monthly basis across the broad sample of suppliers show that there can be spikes in rework rates at times of high worker turnover.

Opportunities These relationships and the reasons for them can be explored in more detail through the remaining period of the Program by the collection of more frequent data, and through compiling case studies that focus on the particular circumstances of the supplier and the challenges they face, whether these are in terms of the labour market or their commercial situation. These case studies can also seek to quantify – where possible - the commercial benefits of participation in the Program in terms of higher quality and reduced labour turnover costs, set against any additional costs incurred e.g. training or through higher wages.

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Mid-term assessment of IDH Electronics Program: overview note

About this report The full MTA was conducted by the Program’s Implementing Partners in China – ELEVATE and the Economic Rights Institute (ERI) – and Ergon Associates. This note is based on the elements of the MTA performed by Ergon Associates.

It should be noted that although the MTA identified a number of emerging impacts, these are not yet definitive. The sample for the MTA comprised 13 suppliers, out of the 54 currently participating1.

Suppliers are at different stages within the Program and most suppliers have completed around 60% of the training programme on average so many impacts will be early-stage or are yet to be defined.

While care should be exercised in drawing general conclusions about the Program’s effectiveness at this stage, nevertheless the MTA identified some early evidence of positive change at individual supplier level, and emerging indications of more general trends that can be followed up in subsequent assessments.

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The suppliers were drawn from three distinct types of suppliers defined by a review of multiple KPIs . This selection process meant supplier experiences may be more suggestive of wider trends of the bigger group than a simple random selection, although further work is needed to confirm this,

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