Productivity in a New Century

Productivity – it’s a word that has a very mid-20 th-century ring to it. You can almost hear widgets coming off the line. Containing the word “product,” it also has a cool and concrete feel, something businesses should be able to gauge with clear-cut calculations of work per worker per hour.
In the 21 st century, things are trickier. “Products” are not just widgets but services, designs, research, brands, software and sometimes knowledge itself. It’s often harder to gauge the efficiency with which an individual or even an organization generates its products.

Yet, this doesn’t mean that the concept of productivity is passé. Indeed, for several reasons, productivity is likely to become an even higher priority in years ahead. First, the populations of many developed nations are growing slowly, if at all. In those nations, the only way to significantly boost GDP is via higher rates of productivity. Japan’s population, for example, is expected to decline over the next several decades, so its government is already taking steps – through deregulation and other policy shifts – to boost the productivity of its less-efficient industries (Moffett, 2006).

Second, the capabilities of many companies in the so-called developing world are rising fast, cutting into the productivity advantages of today’s more established organizations. Privately owned technology firms in China, for instance, have seen huge gains in productivity in recent years, managing to nearly match the levels of their foreign competitors operating in that nation.

The Wall Street Journal, reporting on a survey conducted by McKinsey & Co. and Tsinghua University, noted, “Among tech companies with annual revenue of at least 10 billion yuan, or roughly $1.25 billion, private Chinese companies averaged revenue of 421,000 yuan per worker in 2005, while their foreign counterparts in China averaged 439,000 yuan per worker.” That’s a remarkable rise from just four years earlier, when foreign organizations were twice as productive as their domestic Chinese competitors. Ingo Beyer von Morgenstern of McKinsey states, “This is a major wake-up call for multinationals” (Dean, 2006)

A third reason productivity is likely to become more important to businesses – especially those based in the U.S. – is that they can no longer assume that the boom of recent years is going to continue. Over the last four reported quarters, U.S. productivity growth has been just 1.4%, after averaging a little more than 3% over the previous six years and about 2.8% during the 10 years leading up to 2005 (Nothaft et al., 2006; Samuelson, 2007).

It’s far too soon to know whether the recent data is a temporary blip or the start of a longer-term decline, but some economists see challenges ahead. Moody’s Economy.com projects that productivity growth will slow to a mere 1.4% annual rate from 2005 to 2035, largely due to low business investments in equipment and infrastructure (Samuelson, 2007).

Others are more optimistic, attributing the recent slowdown to a temporary decline in housing output (“Productivity,” 2006). Some experts also point to massive business investments in intangibles, investments that could pay off in the future. BusinessWeek reports that the U.S. Bureau of Economic Analysis has “no way of tracking the billions of dollars companies spend each year on innovation and product design, brand-building, employee training or any of the other intangible investments required to compete in today’s global economy” (Mandel, Hamm, & Farrell, 2006).

The fourth reason that productivity could grow into an even higher priority in coming years is that employers will increasingly want to measure and manage the efficiency of their knowledge workers. “In an information-centric work world,” writes Susan Conway (2007) of Microsoft Consulting Services, “the definition of productivity has expanded to include not only the one-dimensional, industrial-age measurement of inputs and outputs, but also the intangible value of information, knowledge, business processes, and practices, all enabled by IT.”

In a book titled The Think Factory, Conway details a measurement scheme for gauging the productivity of what she terms information work. She creates a “productivity-impact framework,” which is partly guided by the Lean Six Sigma process and which looks at factors such as quality, timing, and delivery velocity.
Conway’s work indicates that the concept of productivity itself could be evolving. Indeed, it seems likely that new technologies, occupations and work processes will continue to drive this evolution as businesses adapt to the shifting work realities of the 21 st century.


For More Information:
For more information on U.S. productivity trends, click here.

For more information on productivity figures in the third quarter of 2006, click here.


Documents used in the preparation of this TrendWatcher
include the following:


Conway, Susan. “Keeping the Think Factory Humming: Just as with Output in Traditional Factories, the Productivity of Knowledge Workers Can Be Measured and Tracked.” Optimize. ProQuest. January 2007.

Dean, Jason. “China Tech Firms Gain Ground.” Wall Street Journal. ProQuest. December 1, 2006.

Mandel, Michael, Steve Hamm, and Christopher Farrell. “Why the Economy Is a Lot Stronger than You Think.” BusinessWeek. ProQuest. February 13, 2006.

Moffett, Sebastian. “Politics & Economics: Japan Sees Greater Productivity as Answer to Falling Population.” Wall Street Journal. ProQuest. December 12, 2006.

Nothaft, Frank, Amy Crews Cutts, Calvin Schnure, and Nela Richardson. “The Unemployment-Inflation Tradeoff.” Economic & Housing Outlook. Freddie Mac. November 8, 2006.

“Productivity Rise Less than Expected.” Analyst Wire. ProQuest. December 5, 2006.

Samuelson, Robert J. “The Economic Mega-Worry.” Newsweek. ProQuest. January 8, 2007.