Why We Desperately Need a New Approach to Productivity Improvement and We Need it Now

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Organizational leadership has a variety of very important missions they absolutely must fulfill. Among them are things like planning, innovation, customer satisfaction, staff development, public responsibility, managing risks and motivating staff. Yet few of these responsibilities are more critical to the renewed health and long term success of every organization than finding and capitalizing on ways to improve productivity. And to make sure you and I are on the same page today, when I say “productivity” I am talking about the relationship between output (revenue) and input (cost) [productivity = output ÷ input] or “doing more with less.”

In times like these, when significant contraction in the numerator (revenue stream) is commonplace, effectively managing the input (denominator) is paramount. One of the risks of course is that efforts to whittle on the denominator can cause new problems. Specifically, I am thinking about the potentially unsettling affect that reductions in force (RIFs) tend to have on the morale of the survivors as well as on customer service levels. Handle a RIF incorrectly or take it too far and one can create a potentially nasty and irreversible downward spiral.

Nor is technology necessarily THE magic elixir. Bottom line, technology is an enabler or at least it’s supposed to be. However, new technology comes with its own price tag that extends far beyond the front-end investment. For instance, there are the inevitable implementation, integration, and training costs; ongoing maintenance; the all-too-soon technological obsolescence; plus a whole new set of complex risks that need time and money to manage. Can you say, “cyber-risk?”

Then there are the first-resort expense control and deferred spending/deferred maintenance initiatives that in tough times can help to trim the denominator. One just hopes it’s mostly fat that’s cut; but sometimes muscle is involved too. When that occurs there is the risk that plucking the traditional low-hanging fruit can sow the seeds of a future competitive disadvantage.

Having opened the door to the future let’s move beyond the current situation for a moment to a place and time where the excesses of the past cycle have worked their way through the system. At that time it will be just as is important that leaders remain attentive to working on both the numerator and the denominator in our formula. Otherwise, those competitors that do the better job of elevating productivity both now and at the start of the new cycle will enjoy a clear advantage.

That might strike you as a statement of the obvious but let me frame it with the following: By 2020, unless there is a radical change in our immigration policies or we convince a lot of older employees to stay around, there will be roughly twenty million fewer workers in the US labor pool compared to today as the baby boomers continue to age out. To put that into some perspective, total non-farm employment at its recent peak was 138 million so that’s about a fourteen percent shortfall. So the good news is unemployment will largely vanish within a few more years. The bad news is we are starring at both a manpower and an institutional memory drain with few options. Furthermore, if you think that 20,000,000 number is a tad scary, a demographer friend of mine tells me another statistic we should be worrying about is there will be only 1.6 workers for every 1 retired person in 2020. Ouch! Facts like these portend tremendous upward pressure on wages (more good news for those still in the workforce in a few years, but bad news for employers) as businesses are forced to compete for labor. And a dose of bad news for one-and-all is payroll taxes will take an ever increasing slice of the pie.

Put all this together and it says the denominator in our little equation is poised to rise, maybe sky-rocket. Accordingly, organizations that want to be successful going forward (let alone be around in a decade) absolutely must find ways to improve sales (increase the numerator) as well as go after new ways to enhance workforce productivity (constrain the denominator). That means leaders MUST get more, much more, from that remarkable reservoir of human capital so as to tap into every ounce of the creativity, wisdom, energy and spirit one can find there. The time for talking a good game is past. The time for new actions, a new strategy is here and now.

Need any more convincing of the urgency and need for a new approach? In the past forty or so years there have been a multitude of data dependent models and initiatives that target productivity by way of process efficiency and quality of the output – systems like Kaizen, Quality Circles, Value Analysis Teams, TQM, ISO/9000, Six Sigma, etc. All good steps in the right direction yet it seems they all have somehow fallen just a tad short when it comes to the best of the intangible human elements involved. Moreover, as good as these initiatives are, they’ve already worked their magic in a lot of organizations. So now a new all-hands-on-deck approach to productivity improvement is needed. We must unleash the brain power (problem solving ability and creative talent) that exists at every level of the organization. Make that happen and you will not only discover new avenues to increased productivity but you will also ignite a new and renewable source of energy throughout your organization.

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