Remote working

A Northern Ireland finance firm, AKFP Group, closed its HQ for a full month in July for a ‘remote working initiative’

They found it boosted both staff morale and productivity

Staff were allowed to work from locations of their choice – the result was ‘they reaped the benefits of being able to change venues, eradicate long commutes into the office and, above all, increase the happiness of employees’

Potential setbacks to the workflow were minimised due to a cloud-based project management system that aided the effectiveness of remote working as staffers were able to access everything required from the cloud to service clients as normal

Calls into the office were shared or diverted to an allocated mobile and clients were made aware so that face-to-face appointments were scheduled the month prior as part of a planning phase

Group director Roger Kennedy said: “All our clients and the whole team were really supportive of the initiative – all client queries were dealt with efficiently and in line with our service levels – working remotely enabled my team to spend more time with their loved ones and get out on a summer’s day, providing they had completed their task list”

A staff member said: “There is a high level of trust in the office and it’s a great feeling to be given the flexibility to do this – we did have to visit the office occasionally to review post, but that wasn’t a problem”

Hence, the firm is planning to roll out the one-month initiative again next year

 

Tesco’s ‘Steering Wheel’

The blunt truth, according to Terry Leahy in an article he penned for The Times, is that if public services were exposed to more competition, their performance would improve

He strongly believes in competition after spending 33 years at Tesco during which time it rose from being a bit of a joke to the third largest retailer in the world

Leahy says competition makes organisations accountable to those they serve – if a company takes its finger off the customer’s pulse, it will eventually fail

Competition has already been introduced to some extent to the public sector – provision of back-office services, choice between schools

People can also see that more competition there does not mean privatisation of the services – they still remain ‘free at the point of delivery’ which is all most customers are bothered about

However, much more is needed – in particular, the public sector should:

  • Develop a simple means to communicate goals to everyone in the organisation
  • Ensure those goals are met

To do this, Tesco developed a tool they called their “Steering Wheel” – it was divided into four segments:

  • Customers
  • Operations
  • People
  • Finance
  • a fifth segment, ‘Community’, was added later

Each one measured some four or five activities so, in total, the wheel comprised some 20 measures

As you drilled down, each of these measures went into still more detail and eventually link to individual store targets and performances – and then further down to individual teams within each store

Hence, corporate targets were linked to the day-to-day work of thousands – all could see at a glance how well their store or operation was performing – the information was clear and transparent – every team had targets and accountability – initiatives were encouraged, not stifled – and all was driven by what customers wanted

In addition to the wheel, managers were required to experience the problems their customers and troops had to deal with each day

Managers can become bogged down by their workload, whether imagined or real – they learn little from making fleeting visits to the shop floor, say, so they cannot truly understand what challenges teams on the ground face, or how any new initiative might be panning out in practice

Hence senior management, including Leahy himself when CEO, would spend one week every year as a general assistant doing every job in a store – check-outs, shelf-filling, back room work, pricing, customer queries, working on counters etc.

He concludes that, if those who run our public services did the same, they would soon see what needs to be done which would be better for the public, and for them and their staff too

Regional commuter network needs development

Several top business leaders are now pushing for government development of the regions as the best way to get UK productivity out of the current doldrums, back on track and closing the gap with the rest of the G7

In particular, they focus on the need to greatly improve public transport within, not between, those regions – regional rebalancing is needed

The Manchester region, aka Jim O’Neill’s Northern Powerhouse, is a good example where the government has already promised a further £300m investment on rail there and an extra £100m on road improvements

Manchester is one of the top three UK cities but it’s quicker to travel from there to London than to cross from one side of it to the other

Equally, according to Philip Aldrick in The Times, London is closer to Paris by rail than Hull is to Liverpool

He says one reason for London’s greater productivity, and so wealth, is the sophistication of its commuter network

Studies have shown that people tolerate roughly an hour’s travel but much more than that and the pool of labour available to an employer shrinks

With such a shallow pool of talent in sites as stranded as Cheshire science park, businesses would have to think twice about putting down roots there

Conversely, getting transport links right could reap big rewards – big labour pool increases, many more companies moving to the area, regional productivity rising by 10% or more

The CBI reckons that if the North were better connected, this would create a metropolitan area of 16 million people within an hours commute of work – the equal of London

They claim the prize would be an extra £200 billion from improved national productivity

Hence one can only hope the government comes good on its promise to put the regions at the heart of its industrial strategy

 

Wages up, demand up, productivity up

Some say low productivity growth results in low GDP and wages growth – and productivity growth depends on new labour-saving inventions or new managemet practices that come along which allow companies to produce more output with fewer hours of work

But others question this – does low productivity cause low wages and growth, or vice versa? – it’s a ‘chicken and egg problem’

For example, J W Mason of the Roosevelt Institute, a think tank, argues that current ‘soft productivity growth’ (in the USA) is not due to some unlucky dearth of new innovations but rather a consequence of depressed demand for goods and services and a slack labour market that has depressed wages

He believes that, if the labour market were tighter and wages rising faster, it would induce companies to invest more heavily in new labour-saving innovations

This view overlaps with arguments made in a paper from the Hoover Institution and American Enterprise Institute which suggest the productivity drought has been caused by insufficient investment in capital equipment and software – but the good news is “it’s poised to rebound”

Marco Annunziata, chief economist of General Electric, argues that many of the technological innovations now coming to market, like 3D printing and the use of augmented reality glasses in industrial settings, really are generating huge productivity gains where they are deployed – however:

  • The investment that should be the most powerful in driving productivity for companies has been the weakest
  • This means that all these innovations are scaling – they’re only being implemented on an episodic basis, on a small scale
  • Companies are spending their capital budgets not on things that might cause a leap in their workers’ productivity, but on smaller projects to replace old machinery and software and make marginal efficiency gains

 

So what might change this?

Back to J W Mason: “If the labour market tightens and good workers are harder to find, and so wages rise, that will force companies to consider more of those big-ticket innovations that generate productivity growth”

For example:

  • A fast food shop might employ 10 people, each paid £10 an hour
  • The government then raises the minimum wage to £12 an hour
  • As a result, the shop owner might raise his prices, accept lower profits or close the place
  • Or he might invest in new machinery to replace some labour and so reduce overall labour costs – perhaps employing just five workers to meet current demand or six to meet expected growth in demand and profits needed

 

Thus higher productivity can enable faster economic growth and higher incomes for those who keep their jobs – and those higher incomes will generate even more demand for more and other goods and services and so further economic growth

Hence, most of the unlucky people who lose their jobs will usually find alternatives, often better suited to their skills or needs – and they will help generate even more growth – a virtuous cycle upwards

Such logic is used to justify any increases in wages, whether or not due to market forces (labour shortages) or minimum wage legislation – but who would take the first brave move and offer a major wage rise to his employees so that demand for his specific products as well as all those offered by the overall economy might rise? Indeed, nowadays, it takes a labour shortage or trade union threats of strikes, to coax much higher wages out of companies – and lucky wage earners only benefit in the short term for managers soon find ways to replace them when they become too expensive with more productive gear and methods

So what’s the best policy for wage levels?

According to J W Mason, some economists say ‘wages are low because robots are taking people’s jobs’ – others say ‘wages can’t rise because productivity growth is low’

“Both can’t be true” – (the former view is suspect)

He concludes that: “Instead of worrying about robots taking away jobs, we should worry more about wages being too low for the robots to even get a chance”

So let Garry Kasparov, the former world chess champion, have the last words here: “Romanticising the loss of jobs to technology is little better than complaining that antibiotics put too many gravediggers out of work”

 

 

 

Skills mismatches, training failures

A report by the IPPR – Institute of Public Policy Research – claims the number of  over-educated UK workers has increased by a third over the past decade – companies are failing to make use of their skills

There is also a mismatch between employees’ training and what employers find useful

And yet: “About a quarter of productivity growth is accounted for by skills and training – so this could contribute to another ten years of stalled productivity and falling wages”

This view is endorsed by Seamus Nevin of the IoD – Institute of Directors – “The UK has long lagged its competitors in adult skills and training – four in ten IoD members report the lack of appropriate skills in the workforce as their biggest barrier to growth”

Joe Dromey of the IPPR estimates that there are ‘five million UK workers with degrees, apprenticeships or other qualifications which they do not use at work’

In particular:

  • “Employers aren’t using their employees’ skills – nor are they investing in them enough” – the latter is said to be due to it being too easy for labour to leave, once trained, unlike in France or Germany
  • “Wages are (thus) lower than they were a decade ago and only one in four adults moves out of low pay over a decade”
  • “Workers who would benefit most from good focussed training – those with fewer qualifications, early school leavers and people from poorer backgrounds – are the least likely to tap into it”

 

Hence, the IPPR believes the government:

  • Should have a greater focus on skills with a minister made responsible for them
  • Should replace the apprenticeship levy with a productivity and skills levy set at 1% of payroll for larger companies, to fund training/ retraining of workers, especially the low-skilled and low-paid

 

Looking further ahead, PWC – Price Waterhouse Coopers, a management consultancy – say up to 30% of UK jobs could potentially be at high risk of automation by the early 2030s

For individual workers, their key risk factor is education

For those with just GCSE-level education or lower, the potential risk of automation is as high as 46%, but this falls to only around 12% for those with undergraduate degrees or higher

And according to a report by Dell Technologies and the IFTF – Institute for the Future – 85%  of the jobs that will exist in 2030 haven’t been invented yet

So workers entering the job market today need to be thinking about what they’ll be doing in the next ten, even five, years – not 30 years on

 

Pareto at large

If GDP measures are to be believed, some 80% of global GDP is generated by less than 20% of the global population

At global level, the top 20% of economies would appear to have productivity levels at least three to four times better than the rest, the other 80% – and this gap is widening – indeed, the G20 have been likened to super-yacht owners moored in Monte Carlo marina, each forever comparing their boat size with the others whilst ignoring the rest, the relative minnows nearby or the poor spectators gazing enviously from onshore

At national level, 80% of any productivity improvement is usually generated by just 20% of the sectors

And at sector level, the top 20% of organisations account for 80% of any productivity improvement in that sector – they are the ones that seek to continuously improve whilst the other 80% either indulge in tail-gating, are content with their current performance or are struggling to survive

In each case, the winners would appear to want to win far more than the losers and they put far more effort into becoming better still

One would have expected the laggard 80% to at least copy their vanguard betters and so rapidly close most current performance gaps – but quite the opposite seems to be happening

Why so?

  • Diffusion of transformational technology and/ or latest management thinking to most organisations always takes time, not least because most need proof of fitness for use and/ or cash is not available to buy it in and/ or local labour does not have the right skills
  • Most leading business schools and major consultancies ignore efforts to improve the productivity of non-top-20 nations – some 175 of them – instead, they focus their leading-edge wares on nations and organisations who can most afford them i.e. the relatively successful G7 and vanguard organisations within

 

The result is a huge productivity gap between G7 nations and the rest – and, within any nation, between vanguard organisations in any sector and the rest

So, whilst most in the G7 are well-off, albeit puzzled by their current lack of productivity growth, there’s huge scope to improve on offer everywhere:

  • In the ‘Rest of World’ 175 nations – through using modern ICT, the G7/ G20 can easily pass on best practice information and knowhow
  • In the G7 – via increased use of mobile technology, cloud services, artificial intelligence e.g. to aid doctors and lawyers, big data analytics for retail and drug discoveries, wearable sensors to monitor blood pressure, robots for surgery and eldercare, 3D printing for complex manufacturing like artificial hips or gas turbine blades, 5G wireless

 

It’s yet another example of Pareto’s Rule, this time applied to global, national and corporate jungles

At each level, the scope to improve is enormous

Mongrel, not pedigree, leaders needed now

Is there something rotten at the heart of UK (and G7/ EU) leadership quite apart from the lack of good measures and productivity knowhow with which they manage their economies?

Indeed, why are their economies apparently so sclerotic these days, especially the UK despite their track record for empire building, starting the Industrial Revolution and vibrant energy and creativity for producing vast numbers of useful ideas, inventions and innovations?

The most important driver of performance at any level, organisational or national, is the quality of the top managers – the Boards of Directors, especially the CEO, or the cabinet of ministers, especially the Prime Minister

But where do these leaders come from:

  • In the UK, the Tory party is dominated by Oxbridge graduates and/ or the privately educated – the Labour party by either closet Marxists or claret drinking/ cigar smoking (behind closed doors) intellectuals
  • Most major companies and business organisations seem to be run by ex McKinsey consultants – again, a worthy source, but how come just that one?
  • Most professions also recruit by fishing in exclusive pools – the legal profession, for example, take outrageous amounts of time to complete many cases and even restrict numbers who can practise to maintain their high fee rates – the result is the great majority of the population cannot afford their services or cannot afford to wait – a ‘Big Bang’ as revolutionised the City is urgently needed here
  • Even many sports suffer the same way, the hoi polloi kept at bay by the cost of the gear and/ or animals needed or most free schools not even playing their games e.g. rugby, rowing, eventing or polo

 

All up, this means some 80% of the UK is being led by the other 20%, a heavily skewed and unrepresentative cross-section of the whole

The fact is that, whatever colour or gender we are, (apparently) we’re all descended from the same few people so nature means we all kick off with much the same brainpower and operating systems (instincts, subconscious etc.) – it’s the quality of nurture that’s seen as the differentiator between the ‘great and good’ and the rest

But, when leaders emerge from relatively small elitist pools, they end up living in their own bubbles, groupthink takes hold and debating halls become mere echo chambers – meanwhile, original thinking or devil’s advocacy gets frowned upon, even silenced, so change is off the agenda

Leaders that emerge then have limited views about what’s going on in the big wide world and what the people they lead are bothered about – hence the big surprise at Westminster when the UK voted for Brexit or the weasel words which followed the Grenfell Tower fire disaster given no person responsible for the residents there had ever visited the place

Leaders are paid and live well – they mix only with their own kind – inevitably, they end up with a rosy but blinkered view of the world outside yet they, and they alone, have the power to decide on all key matters which determine how well the rest live – the people whom they exclude from their ranks

The result is the nation denies itself a vast amount of fresh thinking, new ideas, exciting plans and energetic action – instead, we’re currently fed with a boring and repetitive diet of the same old dull and dry stuff

The remedy is to open up these closed shops and enable the full spectrum of the nation’s talent to join them – they’re not social clubs for a select few to enjoy but teams of the very best to enhance the well-being of everyone

This means they need major transfusions of new blood, and therein lies the rub – those in situ will and do resist for they have much to lose

Hence, we end up relying on a few maverick cage-rattlers who arise from our midst and break through these glass ceilings – people like Nigel Farage who led the splendid Brexit campaign – note how all major UK political parties despise him and are delighted that his UKIP now seems destined for the dustbin of history – likewise, President Donald Trump, another non-establishment figure who rocks many boats despite what his establishment colleagues recommend – but they’re rare exceptions, not the norm

Meanwhile, the UK and G7 economies stumble along, top business leaders lose sleep worrying about lack of demand and growth, top economists puzzle over the ‘productivity puzzle’ whilst government ministers offer little new and exciting which might energise their electorates

It’s the latest example of in-breeding writ large

Once, 1% of the nation – royalty, aristocracy and landed gentry – ruled over the other 99%, the peasant serfs – and look what in-breeding has done for them

Now, there’s a new royalty in charge – a select group of leaders (20%) who rule over the rest (80%), the followers

This trend is unstoppable as good communications and education become increasingly available to all – indeed, deference has already all but disappeared as people know to applaud merit rather than birth-right

Soon, it may well be that the majority 80% rule over and look after the minority 20%

All one can say, at this stage, is the sooner the better for most of us

 

Human targets are best

In his book ‘Happiness’, Richard Layard points out that: ” People care most about their income relative to that of other people” i.e. more than the total itself

He says most people would even be willing to accept a significant fall in their living standards as long as they could move up compared to other people

And when they do compare their income versus what they themselves have got used to, he says richer people always want/ need more than poorer people

Hence the greed we see exhibited by some at the top of trees

So it’s relativity that counts most

The importance of this is best demonstrated by human athletes – they invariably run harder when competing in races against others, not the clock or their PB (Personal Best)

And in Olympic races, Layard notes that bronze medallists usually look happier than silver medallists – the former compare themselves with people who got no medal, the latter believe they might have got gold

So the message for businessmen setting targets for their teams is:

  • Beware simply adding say 5% to last year’s target – that may well not be good enough
  • Instead, identify who are your main competitors, or beacon units if in the public sector
  • Establish their PBs in key performance areas which you need to beat/ emulate if you are to win
  • Tell your team about these PBs – and prove them if you can
  • Agree your own targets with your team
  • Closely monitor progress against these targets – and post the results on noticeboards so all your team can see them
  • Make sure publicity and medals of some sort are awarded to winners when they succeed

 

It’s not rocket science – but it’s effective

 

 

 

 

 

 

 

 

 

Can PLG plug a big productivity gap?

Whilst investment, innovation, competition and luck all play a significant part in the performance of any organisation, public as well as private, it is its management that has the most influence

The same applies at national level with government ministers

And if managers and ministers, whatever their level, are to do their jobs well they must first be armed with good performance measures and then the knowhow to be able to change things when and where necessary

That said, one would expect there to be a multitude of suppliers addressing these fundamental management needs

Not so!

One struggles to find a good business school or management consultancy which offers specific advice on performance measures needed and ways to make big productivity improvements:

  • None focus on productivity per se yet the ultimate aim of all they offer is productivity improvement (some don’t even realise that) – it’s as if the word productivity was tainted by its original association with blue-collared workers and dirty fingers and so is not upmarket enough to interest academic minds or justify high fee rates – shame on them if so
  • Instead, the top boys address strategic rather than tactical issues – others specialise in separate functions such as marketing, production or IT – others say they offer a ‘one-stop’ service – all focus on latest management thinking (aka fads) – virtually all ignore the need to first measure ALL of an organisation’s key result areas and prioritise where action is sorely needed before deciding the action to take when – and they usually ignore simple, common sense and relatively cheap solutions, many of which their own crews have suggested, like cutting waste or new ways to make better use of existing resources
  • If that were not blinkered enough, most also focus their leading-edge wares on leading-edge companies, the top 20% in any sector who don’t wince at their fee rates, when it’s the other 80%, the laggards per sector, who have most need
  • Hence the gap between leaders and laggards widens and overall national productivity growth rates appear to be sclerotic

 

So where can managers and government ministers turn for good practical support given their training usually covers how to run things, not change things?

Libraries are full of business books but they’re either highly specialised or ‘dry as dust’ and so unread – ditto the internet – none look at organisations, and nations, ‘in the round’ and give a clear steer on where and how to act

National management organisations like the UK’s CBI (Confederation of British Industry) and IoD (Institute of Directors) offer no useful productivity pages on their websites despite their leaders forever emphasising the prime importance of productivity to the nation – their role is to represent managers, not teach them

Hence, at national level, most developed nations have a well-supported NPC (National Productivity Centre) to coordinate and push productivity improvement activities ‘across the board’ – they believe the likes of the APQC in the USA make a big difference – however, the UK government closed down its own UKPC some 40 years ago, clearly considering it to be a waste of money, and nothing well-known and well-supported has replaced it ever since

At international level, organisations like the UN, IMF, World Bank and OECD all offer splendid headlines and words about national productivity trends, gaps and causes but nothing of note for nitty-gritty practical support to individual nations or organisations

But hope is stirring

The UK recently set up a PLG (Productivity Leadership Group), a group of top business leaders, albeit no trade union leaders, consultants or academics, whose output so far has been:

  • An announcement that ‘if a lot (?) of companies do just a little better (?) then it could add £130bn to the UK economy’ – at least this total reflects the enormity of our claim that the UK wastes over £300bn EVERY YEAR
  • The launch of a movement Be The Business which they claim: “Will enable businesses to improve (?) their own operational processes and commercial excellence through benchmarking, collaboration, better leadership and talent management” – benchmarking and collaboration are difficult in the private sector and essential in the public sector so we wish them well – better leadership and talent management are but two components of management overall, the most important driver of productivity improvement, so again we wish them well
  • A claim that they will: “Inspire leaders with actionable insights that help businesses to set goals and measure progress, providing modern tools that enable businesses to work out how good they are compared to others and share best practice” – these are worthy goals and the PLG team will deserve many gongs if they realise significant success here but we suspect they may be offering unspecified measures and general solutions to organisations’ specific problems – hopefully, we’re wrong
  • A further claim that they will: “Enable businesses to confidentially analyse their own organisation for digital maturity, talent management, leadership and future planning – the four key drivers of productivity’ (they say) – and access webinars, case studies, examples of best practice and training options” – to do this well will be a massive exercise, taking years to become effective, so no significant national productivity improvement can be expected soon from this initiative
  • En passant, we have to admit thinking there’s seems more than a hint of the BEM (Business Excellence Model) in the above – and what happened to that?

 

At the end of the launch, Charlie Mayfield, the PLG chairman, described the whole venture as being: “Open, inclusive and all about inspiration”

So, given the national clout that Charlie and his chums have, we wish them well and eagerly await news of big productivity improvements which are clearly down to them

However, this may take time, years even

In the meantime, most UK managers and government ministers must continue to operate largely on their own

Only a few of them have access to the measures and knowhow they need – only a few know about the rare consultancies who could help them make big quantifiable productivity improvements (n.b. we’ve already reported on two with which we have no connection) – even fewer, dear reader, know about this humble website but then, it’s early days for us too

 

 

 

Why only labour productivity?

Why do we measure just labour productivity when it’s the productivity of all costly input resources used together that matters most:

  • Because we always have done – it was relatively easy to count in the old manufacturing days?
  • Because if you produce more per worker, there’s more to share out to each worker – which has to be a good result
  • Because we still can?
  • Because we can’t measure the productivity of capital and other inputs in an equivalent, meaningful and useful way?

 

So we can’t assess the trade-offs between employing more and/ or better quality employees, say, versus injecting additional capital investment in a new computer system or machine

Instead, we pat ourselves on the back when we automate a process, at great cost, and our labour productivity numbers rise dramatically, even though the labour has probably input no extra time or effort – this is especially so at national level where huge investments are being made in IT hard and software, robotics and artificial intelligence but the focus is only on labour productivity results

The answer is to dig deeper and find a suite of measures, not just one all-embracing figure, which together paints a ‘true and fair’ picture of the productivity level being achieved

In addition: “Why focus on hours or numbers of people input when it’s the results they produce that matter most, regardless of their time inputs?”

Nowadays, there’s far too many people (apparently) working long hours in the office but producing little of value – conversely, there’s many others who do produce output of great value, some needing to work only a few hours per week to do so

Indeed, as work in general moves steadily away from being boring and repetitive to interesting, problem-solving and/ or creative, many organisations need to change how they measure their own productivity levels and review the office time inputs expected of their employees

Way back In the 50s, the Illinois Institute of Technology found that for scientist/ knowledge/ creative/ performing arts workers:

  • Output peaked when they put in between 10 and 20 hours per week
  • Those who worked 35 hours a week were half as productive as their colleagues who worked about half as much
  • Those who worked 60 hours or more were the least productive of all

 

However, most brainwork first requires lots of slogwork which takes time – time for research, fact finding, data collection and analysis, diagnosis and experimentation – but all such tasks are increasingly being covered by AI

That leaves the need to produce results – a number and quality of plans, diagnoses, decisions and ideas needed – and brainworkers can mull over problems 24/ 7, not just within eight hour slots per day – so why require and pay them for their time inputs alone

Maybe Illinois has it right and the brainwork productivity cliff looms soon after 10-20 hours input per week for most of us given it’s a mental economy now for many of us?

Indeed, the great Maynard Keynes no less foresaw a 15 hour week by 2030 i.e. much less than half the current average in the UK

The route to longer term human well-being and productivity success is surely to work less hours, not more

That has to be the right course to steer from now on for most if not all organisations

Happiness at work

Undoubtedly, productivity growth has made a huge difference to the quality of lives of billions of people, first by reducing work negatives – tasks that are dull, dirty, dangerous or difficult – and then increasing work positives by adding many more jobs which are interesting and fulfilling whilst also enhancing social lives with greatly improved communications and entertainment alternatives

As a result, many more people are no longer miserable – but are they happy instead?

According to Jeremy Bentham, English founder of modern utilitarianism: “The best society is one where the citizens are happiest” 

Buddhists also believe the aim of life is happiness and the avoidance of suffering

But happiness is a temporary, fleeting, ephemeral emotion – it never lasts long, nor can one actively seek it – better to target contentment and satisfaction with one’s lot, which can be long-lasting and the product of choices and effort, whilst occasionally being surprised by random happiness

Indeed, according to Richard Layard, an LSE economist, in his book ‘Happiness’: “Once subsistence income is guaranteed, making people happier is not easy”

In particular, he claims that:

  • If we really want to be happy, we need some concept of a common good, towards which we all contribute
  • When people become richer than other people, they become happier – but when whole societies become richer, they do not become happier – relative incomes thus matter much more than absolute incomes

However, the extra happiness provided by each extra £ of income declines steadily as a person gets richer:

  • It is said every extra $ up to about $75,000 a year improves happiness
  • After that, it’s not needed, except for ego and envy reasons where the need is to equal if not beat others in one’s peer group

Hence transparency of pay within any organisation will simply drive up pay overall, NOT reduce it – hence it increases costs – hence it should be resisted

And the reason so many people who have plenty of money are unhappy or depressed is boredom – they’ve elected for a life of comfort instead of stimulation – the latter could at least render them content, and possibly happy

Overall, there are just seven factors which affect our happiness, in order of importance:

  • Family relationships – single, married, divorced, widowed
  • Financial situation – family income
  • Work – employed or not, job security
  • Community & friends – trust in others, belonging to social organisations
  • Health
  • Personal freedom – rule of law, crime levels, public services, corruption, regulation
  • Personal values – status v helping others, religious beliefs

Quotes from J Maynard Keynes:

  • “To those who sweat for their daily bread, leisure is a longed-for sweet – until they get it” 
  • “We have been trained too long to strive and not to enjoy”

So, given a happy workforce is usually more productive than any other, organisations should take serious note of the above, especially the importance given to family life and the impact regular reorganisation and downsizing can have on job security – and workforce happiness

MGI assess productivity puzzle

The MGI (McKinsey Global Institute), the in-house think tank of the consulting giant McKinsey & Co, opened a recent ‘discussion paper’ on the productivity puzzle afflicting the USA and other developed economies by stating: “Now, as low birth rates slow the expansion of the labour force, increasing productivity, the output we get from every hour worked, is more crucial than ever to promote GDP growth”

One might ask about the impact of labour-saving gear which could produce more output per hour whilst labour relaxed on a beach watching their productivity rise at the same time – but not here!

The MGI lists several possible reasons for the apparent decline in labour productivity growth over the last few years viz:

  • Significant under-measurement of productivity growth – many services which customers value highly are not even counted – some are offered free, such as mobile GPS, Google searches, Skype, smart-phone apps, cloud-based services – the same applies to a broad range of household activities – and the true value of many other services such as improvements in the quality of health care are not fully captured – this demonstrates the significant amount of actual GDP that is uncounted, uncountable or mis-measured
  • A shortage of demand and investment opportunities, plus weak investment – aka secular stagnation – weak demand, especially after 2008, is due to a propensity for consumers to save rather than spend or invest in a slow-growth economic environment plus an increasing share of total income going to high-income and/ or older households that are less likely to spend that extra income – weak investment due to businesses being hesitant, despite low interest rates, in the slow-growth climate:
    • Take the US auto industry – production fell 50% from 2007 to 2009 meaning the sector had tremendous excess capacity in the ensuing years even as the sector recovered
    • “Companies could fulfil a lot higher demand without having to make any new investments – typically the newest technology is implemented in the latest factories – people don’t upgrade a factory that can fulfil demand perfectly well” said Jaana Remes, a McKinsey partner
    • And when unemployment rates were at post crisis highs, employers could have their pick of good workers at relatively low prices – now, with jobless down to 4.1% in the US, good workers are harder to find
  • Today’s innovations are not as transformational as in the past – technological opportunities remain strong, especially in advanced manufacturing, energy and transportation plus large sectors such as education, health care, construction and government – nevertheless, a lack of incentives for change and institutional rigidity mean productivity has lagged in many sectors – or maybe it’s the Robert Solow paradox: “You can see the computer age everywhere but in the productivity statistics” where productivity gains from IT were not automatic and did not occur in all industries – big wins required significant changes to business processes – it was only when relatively large sectors in the economy, such as retail, made such changes that national productivity numbers ticked up noticeably
  • A shift in employment from high-productivity sectors like manufacturing to lower productivity sectors such as health care and administrative and support services
  • A lack of productivity-igniting sectors – different sectors have different productivity levels and growth patterns – sadly, nowadays, there is a distinct lack of accelerating sectors which are large employers too
  • Digitisation rates are uneven across sectors – digitisation includes hard/ soft/ firmware, data and data platforms, customer and supply chain interactions, business models, digitally-skilled workers and jobs:
    • The media, financial and professional services have been rapidly digitising – not so other sectors such as education and health care
    • The digitisation gap is thus widening
    • Overall, diffusion of new technology such as digitisation into everyday use is slow
    • “The time from commercial availability of new technology to 90% adoption ranges from about eight to 28 years – and most sectors in G7 nations have been slumbering for seven years at least
  • A lack of ‘best practice’ diffusion – the productivity gaps between high and low performing companies are widening – the OECD has found a growing divergence between the productivity levels of global frontier firms and the rest since 2001 – they interpret this as a symptom of slower productivity diffusion – frontier firms have continued to raise their productivity levels but the rest have not followed them

 

MGI Conclusions:

  • As the economies return to full employment, an outburst of faster growth in productivity, and hence economic growth, is a real possibility
  • For the past several years, a lack of demand and plenty of spare capacity of both workers and equipment made businesses complacent and unwilling to invest in new equipment, software or new ways of doing things that might allow more output per hour of labour
  • Now, with companies having a harder time finding qualified workers and with demand for their products rising, they’ll have no choice but to re-engineer how they work to try to increase productivity
  • Higher productivity will in turn make it easier to justify higher wages, creating a self-reinforcing cycle of higher economic growth

 

Our Conclusions:

  • The overriding need of all G7 nations, and others, remains – hard-nosed practical solutions to the current, apparent, productivity puzzle
  • The MGI’s start point when researching ‘what drives productivity’ appears to be that ‘more output and GDP growth is good’ and that, in this context, ageing populations are bad – we disagree:
    • In the G7, GDP is a seriously flawed measure and should be dumped – and it doesn’t measure output anyway
    • Again, in the G7, more output is no longer the main aim – better standards of living and quality of lives will, in future, derive from better mental factors, not more material goods and services
    • And, in the new mental world we are now entering, ageing populations are a massive positive, not negative – they bring additional, currently untapped riches to the party, all of which can be bracketed under the heading ‘wisdom’

 

 

National productivity measurement

Question: What is any manager at any level prompted to do when bombarded with the following:

  • From the ONS (Office for National Statistics): “UK productivity has grown by just 0.5% – it has taken a decade to deliver as much productivity growth as was previously achievable in a single year”
  • A media headline: “Britain has maintained its dismal productivity record since the financial crisis in 2008 compared with an average growth rate of 2% before”
  • (N.B. – In both cases, no ifs, no buts, no caveats – the basic data is the proof)

 

Answer: Absolutely nothing

Even if the above claims were accurate – and they’re not – they wouldn’t prompt where and when any action should be taken, nor by whom

All that happens is:

  • If the news is good and GDP and/ or national productivity rise, then the government of the day claims the success is down to them – conversely, if the news is bad, opposition political parties claim this is solely down to government failures
  • And, given bad news is always good news for the media, they invariably follow suit – the gloomier the headline the more readers, listeners or watchers they attract

 

Sadly, whilst government ministers and media editors might be excused for trusting official data, the same cannot apply to the expert economists who sing from the same hymn sheet viz:

  • Goldman Sachs announce: “Rich nation productivity has grown at an average pace of just 3/4% since 2008, down from 2% in the three decades before”
  • Dominic Konstam of Deutsche Bank claims: “All we know is that national productivity is really bad – nothing is clear – bad productivity might be due to over-employing versus too little investment taking place – and that might be due to employers expecting demand to improve, but it hasn’t

 

Most of such experts are aware that GDP and so national productivity measures are seriously flawed – nevertheless, they still cannot resist offering their weighty conclusions based solely on them – it’s as if they trot out their theories knowing full well they cannot be rubbished because there are no facts available to prove them wrong

But this is simply not good enough – every nation and every government needs much better information to navigate their economies safely – indeed, The Times leader was right to say: “Good public policy needs evidence more than dogma – policymakers operate with partial information and imperfect foresight, and it has been so for a sustained period”

What’s needed at national level is a set of performance measures – a balanced scorecard – which shows how well the overall economy is working – how well the private sector is generating wealth for jobs, dividends, R&D, reserves and taxes to fund public services – how well tax-payers’ money is being spent on public services, to what effect – and how well national assets are being used for the benefit of all – then government ministers would know how well their customers, the taxpaying and voting public, rated their efforts and how well they were using the nation’s resources – and be prompted to take appropriate action when needed

Having just one figure for national output and one for national productivity, both assembled once a quarter and both seriously flawed, means they cannot do that – indeed, we have already shown that just one productivity measure for one organisation would be meaningless given the variety of outputs and inputs usually involved – so aggregating all outputs and inputs at national level would be even more meaningless

Instead:

  • At organisation level, a set of partial productivity ratios is needed – with revenue broken down by type of output and then compared with the cost of each type of input used
  • At national level, GDP should be broken down by sector and compared with the cost of each main input resource used (e.g. employee costs, not employee numbers which ignores the quality of human capital employed)

 

At present, national labour productivity (i.e. GDP/ labour numbers) is taken to be a proxy for overall national productivity, enabling the ONS to claim: “We, the UK, lag France, Germany and the USA in both GDP and productivity levels”

Even if the base data for this claim was not flawed, some economists argue that the ONS’s method of calculation is also flawed – they say:

  • The government’s own contribution to GDP must be excluded from any productivity calculations as they are a drain on genuine production – the focus should be on wealth creators, not wealth consumers i.e. the private, not public, sectors
  • One must also exclude the unemployed to get the number employed in the private sector
  • Then, a calculation of GDP per private sector employee would show that the UK beats France but not Italy and Germany
  • And if, instead of private sector labour hours, one input total employment cost including all social security, employment costs and other employment benefits, the UK would come out top on an added value return per employee basis

 

But, again, how useful would knowing this be – and to whom?

Conclusions:

  • It’s absurd for the ONS to assume that one bald and flawed statistic for GDP and another for labour productivity, produced using disputed formulae just once every quarter, can accurately represent the productivity of the entire UK nation – yet these are the stars by which our leaders steer the economy, decide tax-take levels and formulate their national industrial strategies
  • Nations would be better off ignoring current GDP and national productivity measures and trends, which could induce false pessimism or optimism, and looking elsewhere to build a comprehensive set of credible national economic measures:
    • A set which establishes the population’s current standard of living and quality of lives
    • A set which shows where significant performance gaps lie and improvement is needed
  • Then, at last, we might be spared all the doom and gloom we have been getting recently and understand how lucky most of us are

 

 

Inequality is on the move

The proportion of rich to relatively poor keeps changing as more and more of any nation’s people benefit from the huge productivity gains made since the Agricultural and then Industrial Revolutions which started in the 1700s

Clearly, most of the poor in most developed G20 nations are a lot better off than their counterparts in the undeveloped RoW (Rest and World) nations but the same order of changes occurs once those nations start to climb the productivity improvement ladder viz:

  • 1% Rich: 99% Poor – Before 1700, all nations – For some 200,000 years, homo sapiens lived a poor life – a select few leaders (the aristocracy/ landowners) ruled over their follower flocks, the serfs, who mostly toiled in the fields to survive
  • 20% R : 80% P – 1700 on – Agricultural & Industrial Revolutions 1, 2, 3 & 4 – the rise of factory owners, managers and pay levels for some, and thus the creation of the middle classes via:
    • IR1 = Water/ steam power to mechanise production
    • IR2 = Electric power to create mass production
    • IR3 = Electronics/ IT to automate production
    • IR4 = Digital revolution to transform all industries
  • 40% R : 60% P – 1945 on – Service Revolution – the rise of professional classes, discretionary incomes to afford ‘extras’ and welfare states to provide minimum standards of living – initially, the manufacturing sector comprised over 80% of developed economies, now the services sector dominates, also at over 80%
  • 60% R : 40% P – 1990 on – Digital/ Knowledge Revolution – the rise of computers, internet and tertiary education – the replacement of materialism with mentalism and a redefinition of riches/ wealth that society values and admires most
  • 80% R : 20% P – 2030 on – Altruism Revolution? – the rise of leisure as a right and social responsibility made possible and affordable by AI meeting most basic human needs – the replacement of cash because all basic human needs will be met free
  • 99% R: 1% P – 2050 on – ‘Known Unknown’ Revolution? – the rise of ways of living and climbing ladders which are completely different to now – an age of hedonism where pleasure and hobbies dominate all lives?

 

It seems there is an inexorable march ongoing in the rise of the ‘relatively rich’ proportion of all nations, whether developed or not – there will be inequality between all those in that category but the better-off there will be defined only by the luxuries they can afford, at least until mental richness eventually takes over

But this should come as no surprise

All economies grow by better meeting man’s needs – the result has been that, in developed nations at least, most generations expect a better standard of living than their predecessors

Indeed, back in 1943, Abraham Maslow put forward his famous ‘hierarchy of personal needs‘ where, once one level is reached and satisfied, humans seek to climb to the next rung up viz:

  • POSITIVES of living:
    • Rung 5 = Potential = Better than before, fulfilment
    • Rung 4 = Ego = Feel good, status, respect
    • Rung 3 = Social = Belonging, giving, receiving
  • NEGATIVES of living:
    • Rung 2 = Safety = Defence, shelter
    • Rung 1 = Body = Hunger, thirst, sex

 

My guess is that, overall, the UK is somewhere between Rungs 3 & 4 whilst it focuses on closing gaps with its rich fellow G7 competitors

Meanwhile, far too many RoW nations remain struggling on Rungs 1 & 2 which has to be to the everlasting shame of the rich G7/ G20 whose foreign aid programmes amount to little more than crumbs from their tables – most of them have ‘enough’ already but ‘enough’ is not enough and most want more – much more – regardless of all others

Productivity sure aint ‘dull’

The following is a letter sent to the Sunday Times on 17 July, 2017 following an article by Andrew Marr, the broadcaster and journalist, which concludes that ‘productivity is dull’

Productivity has transformed the lives of most people in the UK

What were luxuries for a select few a mere 100 years ago, if they even existed, are now considered essentials by the many – cars, TVs, supermarkets, wine, iphones, computers, hip joints, universities, foreign holidays

Over this relatively short period, the agriculture, manufacturing and then service sectors all made giant productivity improvements offering increasing benefits to more and more of their customers, the general public – unit prices were decimated whilst innovations, supply, quality and service levels rose by quantum leaps

And, in the last 25 years, the IT revolution has taken hold – most of us are now able to afford, work and/ or play with computers and the internet which have radically improved office, professional and home work and also enhanced the quality of our social lives

On top of this, the digital revolution is already building up speed as Artificial Intelligence, Big Data analytics and the Internet of Things find applications in just about every corner of our lives – ergo, civilisation is embarking on yet another massive productivity improvement adventure

Overall, therefore, productivity improvement has enabled recent generations to enjoy far better standards of living than their predecessors and there is much more to come – productivity has both an exciting history and an exciting future

So Marr finishes his leading article yesterday with a plea for higher productivity – bravo him – but then ruins his message by adding: “What a dull thought to end on”

This throwaway line reflects an attitude widespread amongst too many of our leading lights

At a recent Tory conference, Philip Hammond, Chancellor of the Exchequer, started his speech with: “Before you switch off, I know that productivity doesn’t necessarily set pulses racing”

It’s a major reason for the UK not doing much better

 

AI becoming mainstream in Retail

Expert systems to aid human and plant maintenance and clever OR (Operations Research) computer models (aka apps) to find optimum solutions to complex business problems have been around for over 50 years now

AI (Artificial Intelligence) is just the latest moniker for much the same, albeit more powerful

Retail Week recently published an article about ‘helpful robots’ – in it, IBM’s retail industry director, Danny Bagge, claims really exciting opportunities lie in areas like merchandising where Watson, IBM’s supercomputer, is “opening up new horizons by allowing retailers to have a hyper-local view of what they should be stocking – we can now get down to the level of a store in, let’s say, Reading, and say this is exactly your profile of consumer, what’s going to happen with the weather and the footfall from your CCTV camera last week”

The aim, according to Bagge, is “not to replace the role of humans but to augment the intelligence of a human merchandiser or buyer – humans could do it, but it takes a long time – Watson can do it in the blink of an eye”

Bagge says “currently, we are only scratching the surface of the potential for AI to transform the way retailers work”

James Donkin, General Manager at Ocado Technology, is looking to use AI to solve their vehicle routing problems – “we have hundreds of delivery vehicles and tens of thousands of drop locations, so we need the optimal solution to deliver the most groceries in the shortest time using the least vans”

In the old days, we used OR and mathematical programming to do the same for  Bejam (now Iceland) – however, ‘AI driverless’ vans will achieve even further gains

Overall, Donkin says: “AI is about enhancing the productivity of the individual and freeing him up to do more of the interesting work and less of the grind work”

The Fourth Industrial Revolution

The following sweeping pearls of wisdom are 100% from Klaus Schwab, founder and executive chairman of the World Economic Forum

I could not, indeed would not dare, try to improve on them but they surely deserve to be widely read

We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before. We do not yet know just how it will unfold, but one thing is clear: the response to it must be integrated and comprehensive, involving all stakeholders of the global polity, from the public and private sectors to academia and civil society.

The First Industrial Revolution used water and steam power to mechanise production.

The Second used electric power to create mass production.

The Third used electronics and information technology to automate production.

Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterised by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

Already, artificial intelligence is all around us, from self-driving cars and drones to virtual assistants and software that translate or invest. Impressive progress has been made in AI in recent years, driven by exponential increases in computing power and by the availability of vast amounts of data, from software used to discover new drugs to algorithms used to predict our cultural interests. Digital fabrication technologies, meanwhile, are interacting with the biological world on a daily basis. Engineers, designers, and architects are combining computational design, additive manufacturing, materials engineering, and synthetic biology to pioneer a symbiosis between micro-organisms, our bodies, the products we consume, and even the buildings we inhabit.

Challenges and opportunities

Like the revolutions that preceded it, the Fourth Industrial Revolution has the potential to raise global income levels and improve the quality of life for populations around the world. To date, those who have gained the most from it have been consumers able to afford and access the digital world; technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game—any of these can now be done remotely.

In the future, technological innovation will also lead to a supply-side miracle, with long-term gains in efficiency and productivity. Transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.

At the same time, as the economists Erik Brynjolfsson and Andrew McAfee have pointed out, the revolution could yield greater inequality, particularly in its potential to disrupt labour markets. As automation substitutes for labour across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labour. On the other hand, it is also possible that the displacement of workers by technology will, in aggregate, result in a net increase in safe and rewarding jobs.

We cannot foresee at this point which scenario is likely to emerge, and history suggests that the outcome is likely to be some combination of the two. However, I am convinced of one thing—that in the future, talent, more than capital, will represent the critical factor of production. This will give rise to a job market increasingly segregated into “low-skill/low-pay” and “high-skill/high-pay” segments, which in turn will lead to an increase in social tensions.

In addition to being a key economic concern, inequality represents the greatest societal concern associated with the Fourth Industrial Revolution. The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital—the innovators, shareholders, and investors—which explains the rising gap in wealth between those dependent on capital versus labour. Technology is therefore one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries: the demand for highly skilled workers has increased while the demand for workers with less education and lower skills has decreased. The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle.

This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate. It also helps explain why middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness. A winner-takes-all economy that offers only limited access to the middle class is a recipe for democratic malaise and dereliction.

Discontent can also be fuelled by the pervasiveness of digital technologies and the dynamics of information sharing typified by social media. More than 30 percent of the global population now uses social media platforms to connect, learn, and share information. In an ideal world, these interactions would provide an opportunity for cross-cultural understanding and cohesion. However, they can also create and propagate unrealistic expectations as to what constitutes success for an individual or a group, as well as offer opportunities for extreme ideas and ideologies to spread.

The impact on business

An underlying theme in my conversations with global CEOs and senior business executives is that the acceleration of innovation and the velocity of disruption are hard to comprehend or anticipate and that these drivers constitute a source of constant surprise, even for the best connected and most well informed. Indeed, across all industries, there is clear evidence that the technologies that underpin the Fourth Industrial Revolution are having a major impact on businesses.

On the supply side, many industries are seeing the introduction of new technologies that create entirely new ways of serving existing needs and significantly disrupt existing industry value chains. Disruption is also flowing from agile, innovative competitors who, thanks to access to global digital platforms for research, development, marketing, sales, and distribution, can oust well-established incumbents faster than ever by improving the quality, speed, or price at which value is delivered.

Major shifts on the demand side are also occurring, as growing transparency, consumer engagement, and new patterns of consumer behaviour (increasingly built upon access to mobile networks and data) force companies to adapt the way they design, market, and deliver products and services.

A key trend is the development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the “sharing” or “on demand” economy. These technology platforms, rendered easy to use by the smartphone, convene people, assets, and data—thus creating entirely new ways of consuming goods and services in the process. In addition, they lower the barriers for businesses and individuals to create wealth, altering the personal and professional environments of workers. These new platform businesses are rapidly multiplying into many new services, ranging from laundry to shopping, from chores to parking, from massages to travel.

On the whole, there are four main effects that the Fourth Industrial Revolution has on business—on customer expectations, on product enhancement, on collaborative innovation, and on organisational forms. Whether consumers or businesses, customers are increasingly at the epicentre of the economy, which is all about improving how customers are served. Physical products and services, moreover, can now be enhanced with digital capabilities that increase their value. New technologies make assets more durable and resilient, while data and analytics are transforming how they are maintained. A world of customer experiences, data-based services, and asset performance through analytics, meanwhile, requires new forms of collaboration, particularly given the speed at which innovation and disruption are taking place. And the emergence of global platforms and other new business models, finally, means that talent, culture, and organisational forms will have to be rethought.

Overall, the inexorable shift from simple digitisation (the Third Industrial Revolution) to innovation based on combinations of technologies (the Fourth Industrial Revolution) is forcing companies to re-examine the way they do business. The bottom line, however, is the same: business leaders and senior executives need to understand their changing environment, challenge the assumptions of their operating teams, and relentlessly and continuously innovate.

The impact on government

As the physical, digital, and biological worlds continue to converge, new technologies and platforms will increasingly enable citizens to engage with governments, voice their opinions, coordinate their efforts, and even circumvent the supervision of public authorities. Simultaneously, governments will gain new technological powers to increase their control over populations, based on pervasive surveillance systems and the ability to control digital infrastructure. On the whole, however, governments will increasingly face pressure to change their current approach to public engagement and policy-making, as their central role of conducting policy diminishes owing to new sources of competition and the redistribution and decentralisation of power that new technologies make possible.

Ultimately, the ability of government systems and public authorities to adapt will determine their survival. If they prove capable of embracing a world of disruptive change, subjecting their structures to the levels of transparency and efficiency that will enable them to maintain their competitive edge, they will endure. If they cannot evolve, they will face increasing trouble.

This will be particularly true in the realm of regulation. Current systems of public policy and decision-making evolved alongside the Second Industrial Revolution, when decision-makers had time to study a specific issue and develop the necessary response or appropriate regulatory framework. The whole process was designed to be linear and mechanistic, following a strict “top down” approach.

But such an approach is no longer feasible. Given the Fourth Industrial Revolution’s rapid pace of change and broad impacts, legislators and regulators are being challenged to an unprecedented degree and for the most part are proving unable to cope.

How, then, can they preserve the interest of the consumers and the public at large while continuing to support innovation and technological development? By embracing “agile” governance, just as the private sector has increasingly adopted agile responses to software development and business operations more generally. This means regulators must continuously adapt to a new, fast-changing environment, reinventing themselves so they can truly understand what it is they are regulating. To do so, governments and regulatory agencies will need to collaborate closely with business and civil society.

The Fourth Industrial Revolution will also profoundly impact the nature of national and international security, affecting both the probability and the nature of conflict. The history of warfare and international security is the history of technological innovation, and today is no exception. Modern conflicts involving states are increasingly “hybrid” in nature, combining traditional battlefield techniques with elements previously associated with non-state actors. The distinction between war and peace, combatant and non-combatant, and even violence and non-violence (think cyberwarfare) is becoming uncomfortably blurry.

As this process takes place and new technologies such as autonomous or biological weapons become easier to use, individuals and small groups will increasingly join states in being capable of causing mass harm. This new vulnerability will lead to new fears. But at the same time, advances in technology will create the potential to reduce the scale or impact of violence, through the development of new modes of protection, for example, or greater precision in targeting.

The impact on people

The Fourth Industrial Revolution, finally, will change not only what we do but also who we are. It will affect our identity and all the issues associated with it: our sense of privacy, our notions of ownership, our consumption patterns, the time we devote to work and leisure, and how we develop our careers, cultivate our skills, meet people, and nurture relationships. It is already changing our health and leading to a “quantified” self, and sooner than we think it may lead to human augmentation. The list is endless because it is bound only by our imagination.

I am a great enthusiast and early adopter of technology, but sometimes I wonder whether the inexorable integration of technology in our lives could diminish some of our quintessential human capacities, such as compassion and cooperation. Our relationship with our smartphones is a case in point. Constant connection may deprive us of one of life’s most important assets: the time to pause, reflect, and engage in meaningful conversation.

One of the greatest individual challenges posed by new information technologies is privacy. We instinctively understand why it is so essential, yet the tracking and sharing of information about us is a crucial part of the new connectivity. Debates about fundamental issues such as the impact on our inner lives of the loss of control over our data will only intensify in the years ahead. Similarly, the revolutions occurring in biotechnology and AI, which are redefining what it means to be human by pushing back the current thresholds of life span, health, cognition, and capabilities, will compel us to redefine our moral and ethical boundaries.

Shaping the future

Neither technology nor the disruption that comes with it is an exogenous force over which humans have no control. All of us are responsible for guiding its evolution, in the decisions we make on a daily basis as citizens, consumers, and investors. We should thus grasp the opportunity and power we have to shape the Fourth Industrial Revolution and direct it toward a future that reflects our common objectives and values.

To do this, however, we must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. There has never been a time of greater promise, or one of greater potential peril. Today’s decision-makers, however, are too often trapped in traditional, linear thinking, or too absorbed by the multiple crises demanding their attention, to think strategically about the forces of disruption and innovation shaping our future.

In the end, it all comes down to people and values. We need to shape a future that works for all of us by putting people first and empowering them. In its most pessimistic, dehumanised form, the Fourth Industrial Revolution may indeed have the potential to “robotise” humanity and thus to deprive us of our heart and soul. But as a complement to the best parts of human nature—creativity, empathy, stewardship—it can also lift humanity into a new collective and moral consciousness based on a shared sense of destiny. It is incumbent on us all to make sure the latter prevails.

This article was first published in Foreign Affairs

Digital investment benefits need time

An interesting article from IoT Agenda explores why digital investment in increasingly capable devices/ things/ solutions are empowering businesses to transform their processes and workflows but not yet showing up in real productivity gains

One theory is ‘the metrics used are suspect’ – however, the author sides with another

The rapid evolution in transformative technologies (e.g. Cloud, IoT, Big Data analytics) is resulting in too much change and complexity for the users – it’s the ‘rough edge of digital transformation’ – it’s preventing them from doing what they want and need to do – it has become ‘a barrier to productivity’, not an enabler

Education example – Universities are investing in on-line education to reach more students or interact more effectively with on-site students – however, teachers lack confidence and are uncomfortable with their technical ability – they feel burdened with having to learn the intricacies of all the technology required – for example, how to:

  • Support/ troubleshoot lecture capture solutions
  • Operate audio and video hardware
  • Monitor social engagement
  • Manage the movement of digital content into and out of learning management systems

 

Healthcare example – Digitisation of patient records is seen as a way to improve healthcare with consistent records following patients across different providers – but clinicians complain of interfacing too much with their computers and not enough with patients when the opposite was the goal – the result is doctors are now seeing fewer patients per day than they did before digitisation of the records

Both these examples smack of the perennial problem with software development and, nowadays, apps – too many are designed by geeks without reference to or testing by their ultimate customers, the users, before being launched

Five forces to reshape civilisation by 2030

Peter Morici, economics professor at the Smith School of Business, University of Maryland, USA, recently published some interesting views on changes he expects world-wide by 2030:

  1. A reworking of democracy – Democratic societies outperformed all others in the 20th century – however, recent populism (ideas which appeal to ordinary people) has led their governments to hamstring businesses and redistribute income in ways that discourage investment in new technologies and the skills needed to use them – meanwhile China’s state-directed capitalism and autocratic government has proven better able to nurture new industries (versus copy existing?) and inspire a strong work ethic – western democracies have reached a watershed moment in their development and need to better manage welfare versus efficiency to re-establish robust growth
  2. Artificial Intelligence (AI) – Automation is mostly good as it makes workers more productive – tractors replaced horses enabling farmers to farm 400 acres rather than 40, with those made redundant moving to cities to work in factories and stores, and most earning far more per week – the same has applied to clerical work, with the computer replacing the typewriter, and professional ranks with spreadsheets balancing accounts, ‘Big Data’ analysed to monitor shoppers’ preferences and doctors supported when diagnosing illnesses and deciding treatments – overall, however, this will widen the gap between folks with skills, learning and high-pay and the rest stuck in low-paid service jobs such as restaurants and dry-cleaners – increasing unrest is inevitable if this is not tackled
  3. Blending machines and human beings – ‘AI will never fully replace the human mind because electronic devices are only as good as the information that we let them access’ (an optimistic claim, methinks) – however, he foresees tiny chips and processors attached to human brains being commonplace, enabling us to be permanently on-line with access to information, analytics and communication – hence, a much more intelligent human race will become a reality
  4. Immigration – With birth rates falling below replacement rates in most developed nations, their need is for more immigration, not less, but those same societies lack adequate mechanisms for assimilating newcomers – however, without immigration, their economies ‘face stagnation and eventual collapse’ (what if machines cover for people shortages?) so, if their politicians don’t bite this bullet, democratic capitalism is under threat
  5. Climate change – With rising atmospheric temperatures, all nations are compelled to address global warming and jointly seek solutions – otherwise Darwinian competition among societies for hospitable places to live could set back humanity as did the black plague or collapse of Rome (this assumes places made inhospitable were not replaced by others, currently inhospitable, becoming hospitable)

 

Food for thought indeed

Dismal productivity trends need not continue

The OECD – Organisation of Economic and Cultural Development – recently painted a dismal G7 economic picture claiming  ‘slowing rates of productivity growth’ in advanced nations over the last ten years or so

Other data suggests the same trend is underway in many less affluent nations according to an article by Marc Levinson – his gloomy forecast is ‘the outlook across most of the world is sluggish economic growth that will raise wages and improve living standards only slowly over the longer term – and this will lead to festering discontent among the many who are falling behind’:

  • In the short term, a business cycle rebound, large government deficits, very low interest rates and healthier banks have combined to boost economic growth and raise many incomes
  • In the longer term, however, the rate at which living standards improve depends almost entirely on the (labour) productivity growth rate – and governments everywhere have poor records with this – their spending, tax and monetary policies cannot do much to help

 

Since the Industrial Revolution (labour) productivity growth:

  • First grew slowly, then faster in the late 19th century, sluggish in the early 20th century, and strongly (~ 5% p.a.) post-WW2 encouraging the development of welfare states and many entitlements to state healthcare, pensions and other social benefits
  • Then a slowdown at the end of the 20th century led to stagnant wages as welfare states became more burdensome despite a spurt in the late 90s as business re-organised around the internet

 

Overall, billions of people experienced unimaginable improvements in their quality of lives as a result

Now, however, labour productivity growth has flat-lined in just about every advanced national economy, being less than 1% per annum for most – this has led to wages stagnating, real spending power falling and inequality looming ever larger

Populations had got used to ever-rising incomes and generations always being richer than their parents but that has all come to a juddering halt

Some top businessmen now say: “Life is unfair so most people had better get used to it”

Equally, some government ministers offer no hope and just bemoan the fact that: “There’s no magic-money-tree to pay for public sector pay rises and our (inefficient) welfare state”

But that’s simply not good enough

We need leaders with energy, ambition, creativity and courage coursing through their veins – people who genuinely strive to improve the lot of their fellow-men and women

For  a start, different governments can each make a significant difference by comprehensive planning and coordinated investment in:

  • Education creating labour-forces capable of handling more complicated and value-adding work
  • Infrastructure, enabling truckers to move freight longer distances more quickly and allowing employers to recruit from wider labour pools
  • Research into areas like agriculture which can lead to higher crop yields per acre
  • International trade deals, not only to lower tariffs and increase trade volumes but also increase competition amongst suppliers to be more efficient and innovative

 

But most national performance improvement potential – revenue, wealth and wages growth – lies in the hands of private sector managers, especially the 80% of laggard companies that exist in every sector they have

All such businesses have huge potential to improve their productivity levels and results – indeed, most of their managers may well be working hard, doing their best and believing they could do little more – and, without good performance measures and ‘productivity knowhow’, they’re probably right

But the measures they need are already known and there’s plenty of new/ better ideas, technology, business methods, products or services, customers and markets at home and abroad for them to choose from which would make a big difference

Businesses just need the right people on the bridge – not mere watchkeepers whose only order is ‘steady as you go’ because they can’t see the opportunities, or rocks, ahead and wouldn’t know what to do even if they could

Cheap labour slows productivity growth

A nation’s mix of sectors largely determines its overall productivity and prosperity levels

And some sectors are much more productive than others

For example, the UK has some highly productive sectors such as manufacturing which are continually improving their (labour) productivity levels by investing in latest technology such as robotics, automation, IoTand AI

Japan is also a good example of this

The problem is, once these high-productivity sectors really get going, their workers rightly seek a share in the winnings they’ve helped produce via higher wages and enhanced employment benefits – however, there comes a point when employment costs become so high that management are forced to consider labour-substitute possibilities

Some then outplace labour, including skilled labour, and they have to find another job or join the ranks of the unemployed – if they do find another job, it’s more often than not in less productive service sectors where skills needed are less and there’s a plentiful supply of labour willing to work for much less pay

The result is many of the outplaced, especially the relatively skilled, that do find another job are often underemployed and/ or underpaid versus before – this breeds job dissatisfaction and attitudes which lower overall corporate morale – it also widens pay gaps and increases national feelings of inequality

Indeed, much of the productivity puzzle currently afflicting most developed nations is caused by this growth of employment in low productivity sectors

It’s these service sectors that have done least with the productivity-improving technology now on offer to them, much because of the relatively cheap labour available to them

And this is despite all-time low interest rates and plenty of investment capital being available to them

The fact is that, whilst plentiful cheap labour continues to be available to many service sectors, wages can be kept low putting a brake on overall consumer demand

And this ensures national productivity growth will remain tepid

It’s a vicious circle indeed!

Greatest AI value needs new business models

In the 60s and 70s, most firms invested in mainframe computers, then minis, to improve service, not output, and because everyone else seemed to be doing so – they were not investing in IT to improve productivity – and these IT investments were all focussed on supporting existing business models

Josh Sutton, CEO of Agorai, an AI marketplace, says it wasn’t until the late 90s that we began to see significant new business  models being created – “the businesses that won weren’t necessarily the ones who implemented systems the best but those who took a ‘digital first’ mindset to imagine completely new business  models

Josh cites the entertainment industry – not the limted value gained using digital technology to revolutionise distribution by going on-line but the paradigm shift to re-imagining storytelling and optimising the experience for binge watching

“Digital technology focused companies on their customers – when switching costs are greatly reduced, you have to make sure your customers are being really well served – value shifted to who could create the best experience”

So, while many companies today are attempting to leverage AI to provide similar service more cheaply, the really smart players are exploring how AI can empower employees to provide a much better service or even to imaging something that never existed before

That said, it was interesting to read a detailed assessment of the current and future use of AI and its economic impact on new jobs and new products from PWC – Price Waterhouse Coopers, a big four accountancy firm – who say the biggest potential for AI impact lies in eight sectors viz:

  • Healthcare – via data driven diagnostic support, pandemic identification, imaging diagnostics (radiology, pathology)
  • Automotive – via autonomous fleets for ride sharing, smart cars/driver assist, predictive and autonomous maintenance
  • Financial services – via personalised financial planning, fraud detection and anti-money laundering, transaction automation
  • Retail – via personalised design and production, customer insights generation, inventory and delivery management
  • Technology, communications and entertainment – via media archiving and search, content creation (marketing, film, music etc.), personalised marketing and advertising
  • Manufacturing – via enhanced monitoring and auto-correction, supply chain and production optimisation, on-demand production
  • Energy – via smart metering, more efficient grid operation and storage, intelligent infrastructure maintenance
  • Transport and logistics – via autonomous trucking and delivery, traffic control and reduced congestion, enhanced security

One’s first reaction is that much of the above concerns existing processes, yet so much of AI’s potential lies with applications nobody has even thought of as yet

Even so, if PWC are right, then the economic impact of AI may eventually rank alongside that of other GPTs – General Purpose Technologies – such as electricity and the internal combustion engine

Overall, the upsides for AI already appear enormous so the sooner all businesses, not just in the above eight sectors, realise the benefits AI offers, the better it will be for both them and their home nations

Baumol’s disease

Professor William Baumol of Princeton University recently died aged 95

‘Baumol’s disease’ is thought by some to explain the current productivity puzzle afflicting most developed nation’s economies, especially their labour-intensive service industries e.g. healthcare, education, performing arts

Quoting from an article by George Will in The Washington Post, Senator Daniel Moynihan explained this disease:

“The number of players, the number of instruments, the amount of time it takes to produce a Mozart quartet in the 18th century will not have changed one whit two centuries later – to play the ‘Minute Waltz’ in 50 seconds leaves something to be desired – true of first violinists, kindergarten children, beat cops, sculptors and so through a great repertoire of occupations”

His corollary from this was: “activities with Baumol’s disease migrate to the public sector”

At a Senate Finance Committee hearing, Chairman Moynihan asked a medical dean: “At a (famous) hospital founded in the 1880s, how long did it take a professor of medicine to make his morning rounds, and how many interns would he take along with him?”

Dean: “Oh, about an hour, and say 12 interns”

Moynihan: “And today?”

Dean: “Got it”

The article’s author, George Will, reinforced this view by enlisting John Maynard Keynes and his lament that the ‘encroachment of ideas’ in public policy usually is gradual because politicians and government officials are rarely influenced by new ideas after age 30, so they apply to current events ideas that “are not likely to be the newest.”

Today, however, he claims improved productivity is increasingly imperative as an ageing workforce retires into the expensive embrace of the entitlement state

Such intriguing thoughts have been bounced around ever since Baumol formulated them way back in the 60s, but to no avail – they only apply to certain tasks, not whole processes, and those tasks are usually but a small part of the whole processes

So Baumol’s claims that there’s not much that can be done to improve productivity in many service industries, especially public sector industries, ends up being nonsense

 

 

 

BA put customers last

BABritish Airways – was once state-owned and nicknamed ‘Bloody Awful’

Then, in the 80s under Lord King and Colin Marshall, it transformed itself into the ‘World’s Favourite Airline’, not least by delivering the now-famous PPF (Putting People First) course to all staff, some 200 at a time, who assembled at upmarket venues such as the ‘Rose Room’ at Twickenham rugby ground to consider:

  • The importance of putting their external and internal customers first
  • The expectations of those customers
  • Ways to improve the quality and service levels offered them

 

The great majority of employees found the day useful and enjoyable – they liked being able to question their bosses direct, and to have their views listened to – it was not the norm – and the culture change sought undoubtedly followed, plus many years of success

Sadly, decades later, BA have allowed their favoured status with customers to slip back and, according to John Arlidge in the Sunday Times, their choice is now ABBA – ‘Anyone But BA’

Why?

Arlidge says:

  • Luggage is lost more frequently
  • Staff are increasingly unhelpful, grumpy and distant
  • Free food and drink on short-haul flights have been scrapped
  • Most planes are old and more crowded than competitors as they try to squeeze more bums on seats
  • Economy seats have less legroom than even RyanAir
  • Business class has become worse than most competitors – typically eight seats across versus four on Singapore Airlines, say

 

The result?

BA is now thought to have returned to its previous ‘Bloody Awful’ status:

  • According to the Skytrax World Airline Awards, BA has slumped to 40th, seven slots below Virgin Atlantic and 10 slots below Aeroflot
  • BA even admits its own surveys show a mere 45% of passengers are satisfied with the service they receive

 

How so?

Arlidge says it’s through perpetual cost-cutting despite continuing to make major annual profits

Hence, one was not too surprised when BA recently suffered a catastrophic breakdown of its computer operating system bringing all its flights to a standstill – weddings were ruined, family reunions scrapped, holidays cancelled, sports fixtures postponed

BA management were accused of reacting badly by failing to keep their thousands of stranded passengers informed about what was going on – even their front-line staff were also kept in the dark yet left to deal with all those frustrated customers whilst managers apparently did nothing – clearly, BA have many questions to answer on how such a core system could so easily breakdown completely, with no instant back-up

Staff cuts and underinvestment in vital IT systems were blamed:

  • There had been three large-scale IT crashes in the 12 months before the meltdown
  • Nevertheless, one technician employee said: “Our systems are old and fragmented – inadequately tested for disasters and business-continuity”
  • Fights with the unions, bitter strikes and loss of perks hadn’t helped either

 

According to The Times, the IT failure itself was ‘inexcusable’ – the failure to keep customers and staff  informed was ‘lamentable’ – ‘the airline’s reputation, so carelessly lost, will not be easy to recover’

CEO Alex Cruz’s big idea to regain its top billing is to split BA in two, offering a premium airline at the front and a budget one at the back – a focus on quality and service when you turn left, cheap price when you turn right as you fly to the best and best-located airports via the biggest route network

But this policy will have no chance of succeeding unless ‘he wins back the loyalty of his staff and their love for the airline’

Hence, he might well consider investing in a re-run of the PPF campaign – new food, wine and planes will not deliver results needed if staff remain ‘as grumpy as they are now’

 

If productivity so vital, why not measured?

Capita surveyed 250 managers and 250 workers across a range of UK industries including retail, logistics and construction

They found a ‘huge disconnect’ between the number of managers who feel productivity is important and those who actually measure it

Key findings were:

  • Only 32% of bosses feel their business is very productive yet 71% do not measure productivity (and if they don’t measure it well, they can’t manage it well, so no surprises there)
  • Nevertheless, 87% of managers and 75% of workers feel they have high (personal) levels of productivity at work (most feel they’re working efficiently, for their business as a whole – what of effectively?)
  • 90% of managers feel they motivate their employees (and 90% usually never ask them)
  • 66% of employees admit they waste at least an hour a day at work – 75% of managers feel their employees waste at least two hours a day (both are significant under-estimates of the waste of time in most organisations – it’s their biggest productivity killer when restricted to using existing resources only)
  • Only 23% of employees and 25% of managers cite ‘bad management’ as a major cause of low productivity (it should be 100% in both cases)

It’s yet more proof that it’s not the top 20% of businesses and managers that have a productivity problem

It’s the rest 

Political parties’ productivity plans

Productivity is the biggest peacetime issue facing all UK political parties

Annual improvements are vital if living standards and average earnings are to be raised – so what did their recent manifestos say about it?

Conservative party manifesto – essentially ‘to grow the national wealth pie’:

  • Introduce a National Productivity Investment Fund – spend £23 bn by the end of the next parliament on housing, research and development, infrastructure and skills
  • In particular, by the end of 2020, invest:
    • £740m on things like broadband
    • £1.1 bn on local transport
    • More on railways
    • £250 m on training
  • But detail is lacking
  • And there’s no mention of any sector or national targets for closing apparent productivity gaps, nor any government accountability for making such things happen
  • Nor any specific support enabling private and public sector organisations to improve given they determine some 80% of total UK productivity – for example:
    • Re-establishing a UK Productivity Centre of Excellence
    • Setting up a National Best Practices database
    • Introducing good productivity and waste measures at all levels in all organisations so they at least know where they are now 

 

Labour party manifesto – essentially ‘to slice the national wealth pie differently’:

  • By 2030, i.e. well beyond when the present leadership have retired:
    • Generate 60% of energy from zero carbon or renewable sources
    • Develop the highest proportion of high-skilled jobs among OECD countries – promote skills through a National Education Service
    • Spend 3% of GDP on R&D
    • Invest £250 bn on infrastructure
  • But, again, detail is lacking
  • And, on top of this, they say many more police, firemen, nurses and doctors are to be recruited and existing public sector workers given significant pay rises to compensate for those they have been denied during the austerity years
  • Labour assume that simply pouring more resources and cash into struggling public services will solve their current problems when there’s huge waste in most of them – and often it’s method changes, not input volume increases, that’s needed
  • And there’s no mention of specific support/ incentives for private sector organisations and entrepreneurs to create the wealth to pay for all the above – they seem to think taxing ‘fat cats’ more heavily will produce the funds needed

 

Liberal Democratic party manifesto:

  • They make no specific mention of productivity
  • However, they do promise to invest in the above areas viz:
    • Build 300,000 homes a year by 2022
    • Put £5bn into a new British Housing and Infrastructure Development Bank
    • Set up a major capital investment programme across all UK
    • Invest in road and rail infrastructure
    • Bring more private investment into renewable energy

 

Green party manifesto:

  • Again, no mention of productivity
  • Introduce a four-day working week up to a maximum of 35 hours – they’ve spotted that ‘when people are exhausted, their productivity goes down’
  • Ensure a living wage for all
  • Introduction of a universal basic income

 

Meanwhile, many months ago, the Tory Government set up special inquiries into ‘better ways of measuring productivity’ and a PLG (Productivity Leadership Group) but we have yet to learn what difference such initiatives have made to improving the nation’s productivity

Conclusion:

Overall, one gets the impression that words about productivity issued by all UK political parties flow easily and superficially but serious practical action is lacking – the same as at board level in most organisations

 

National productivity positions built on sand

I read an article about Chinese productivity posted by Bloomberg journalist Michael Schuman and sent him the following email:

Michael,

I read your article about Chinese productivity with great interest

The first step in any major productivity improvement drive is indeed to establish the current position – where are you now?

Most ‘expert’ commentators try to do this but are forced to use flawed GDP and so flawed national productivity statistics – then they offer a wide variety of broad solutions based on that flawed data which, in their view, will close apparent productivity gaps

Meanwhile, lowly managers on the front-line are left with little practical advice on what they could and should do at their level – yet it’s only at their level where some 80% of any national productivity improvement can be made

Given this ‘productivity support vacuum’ affecting all nations, you and China may be interested in my website – www.productivityknowhow.com – which offers free advice on productivity improvement for all managers at all levels in all sectors, public and private

If I can be of any further help, do please let me know

Cheers

DS

————————————————————————————————

Michael replied the same day, from Peking:

Thanks for reading.

Yes, the data isn’t perfect but at least you can get a sense of trends in productivity – i.e. is it going up or down, or how countries compare.

Best,

Michael

CEOs rate potential of new technology ‘very low’!

A new Gartner survey of 388 CEOs/ senior executives found they rated as “very low” the potential for productivity improvement from new breakthrough technologies such as IoT, AI, blockchain (secure databases) and 3D printing

In particular, when asked for their ‘top enabling technology for improving productivity’:

  • Only 2% chose IoT – and only 1% picked either AI, blockchain or 3D printing
  • Whereas 10% chose ERP, 7% the cloud or data analytics, 4% CRM, and 3% mobiles or marketing tools

 

However, about half expected IoT would have a major impact on business changes to come, a third said the same about AI, and a quarter for blockchain and 3D printing

Gartner thus suggests ‘it may be too early in the game for CEOs to fully appreciate the benefits of these four general purpose technologies (GPTs)” – “CEOs are still largely judging productivity based on management theory from the industrial manufacturing era” – “they need ways to judge the value of such new technologies such as increases in customer approval ratings rather than, or instead of, using just revenue”

At present, according to Jack Gold, an analyst: “Most companies have no idea how to get the most out of all the new technology piling-up, nor how to measure return on its investment and the competitive advantage it might give them” – hence most use “seat of the pants guessing”

New measures and methods for employing these new GPTs are thus needed urgently

 

Vanguard lead way for big improvements

  • Productivity is the most important peacetime issue facing any nation or organisation – therefore, one would expect all governments and major business schools, management organisations and consultancies to focus on it 
  • Not so
  • For example:
    • The UK has no well-known, well-supported productivity ‘centre of excellence’ e.g. a UK Productivity Centre – HMG might occasionally set up study groups to evolve better measures of economic performance or advise on ways to improve national productivity but nothing much ever results
    • Major UK business schools offer no courses on the subject
    • The CBI and IoD offer no useful help or comment about productivity on their websites
    • Major consultancies offer their expensive advice on anything but – the one exception being McKinseys who delve into the subject, albeit only at the macro/ global level 
  • So, for all the huffing and puffing about productivity being ‘almost everything’ and ‘the guts of capitalism’, managers and ministers are left with all sorts of productivity experts forever trotting out their groupthink wisdom about dismal ‘productivity gaps’ followed by widely different theories but little good practical help on how to close them – hence, most productivity gaps persist 
  • However, hope is at hand 
  • One management consultancy has emerged which already has a successful track record in obtaining BIG quantifiable productivity improvements for organisations in both public and private sectors – namely:
    • Vanguard Consulting
    • N.B. I have no connection with them and only a limited understanding of their approaches but I do like what little I know of them 
  • Vanguard, led by John Seddon, has cut through all the highfalutin fads and TLAs on offer to identify HUGE improvement potential available in most organisations, much from cutting waste caused by what they call ‘failure demand’ or which arises within most processes
  • Their approach is based on the thinking of Taiichi Ohno, his revolutionary TPS (Toyota Production System) and his focus on ‘removing the non-value adding wastes that occur in all OCTs (Order Cycle Times)’ 
  •  Overall, “all power to Vanguard” in their efforts to improve the performance of others
  • They seem to offer what most organisations desperately need i.e. practical solutions for big quantifiable productivity improvements and quick paybacks

By George, ‘every company is dying’

According to Sir George Buckley, a top quality UK export from the North of England to the USA and now Chairman of Stanley Black & Decker and Smiths Group,  the ‘basic building blocks are the same in all companies’

George says:

  • ‘At the 30,000ft level, every company needs:
    • A dream
    • To know what it wants to be when it grows up
    • Good people
    • Relentless execution’
  • ‘At the 10,000ft level, senior executives have only five levers to pull:
    • Sales growth
    • Margin expansion
    • Working capital for improvement
    • Tax rate
    • P/E multiple’

That said, he claims many executives ‘do not know’ the above

Indeed, ‘the core of every company in the world is dying because of competitive attacks, the end of life of its products and maybe even cannibalisation of its own products’ – the trick is calculating how fast you are dying and then working out how much more stuff you need to put in at the top to counteract what is leaking out at the bottom’

‘If you only focus on short term results and not on replacing that core or expanding your capabilities, then you die’

He then claims there are only three ways to make new money in the Adam Smith sense of the phrase – via Manufacturing, Minerals and Extraction, and Agriculture – Banking does not make new money, nor Insurance, nor Tourism – they take money – they might expand the UK economy but they do not create new wealth

Reference the UK, his diagnosis of our deficiencies is mainly lack of skills:

  • ‘People should be encouraged to study/ work in STEM subjects – Science, Technology, Engineering & Mathematics
  • And charging people to study them – via student loans – is short-sighted’

Overall, the UK government ‘should foster innovation, support manufacturing and ensure that the education system lubricates the flow of skills that the UK needs’

George, despite having a degree and PhD, claims he gained most of his business knowhow in the ‘School of hard knocks’ where he found out ‘what works’

Most managers, and ministers, would do well to heed what he says

 

EU to become USE?

Since the euro-based austerity crises visited on Greece, Spain, Portugal and Italy – followed by the refugee crises causing Schengen alarm bells to ring loudly across most EU states – then Brexit – and now elections in France and Germany raising increasingly important national sovereignty issues there – the likelihood is the EU, as constituted, will not last much longer

Add to this mix the sclerotic performance of most EU economies, their lack of agreement over foreign and defence policies, the niggling irritation with the power and expenses of unelected powerbrokers in Brussels or judges meddling in matters which have nothing to do with ‘level-playing-field’ markets and you have a recipe for widespread disillusion with the EU

Radical EU reform has thus become a ‘must’ for at least 50% of the overall population but no alternative visions have been proposed/ publicised to date – and most of the current top players have too much vested interest to seek major change

Hence, it’s for outsiders to propose a new acceptable-to-all EU format i.e. a USE – a United States of Europe – a federation of independent states which the majority in the UK would also be keen to join – one where each member state might:

  • Regain its national sovereignty
  • Determine its own laws, foreign and defence policies
  • Drop the euro and re-establish its own currency
  • Control its own borders and immigration levels
  • Agree new trading rules for a ‘common market’ whilst not discouraging access for undeveloped nations nor competition from the rest of the world
  • Collaborate in such public service areas as social security, health. education, defence, transport and R&D – to improve lives everywhere

 

It’s surely only a matter of time before such a USE is formed

And if one seems ‘on the cards’ before 2020, Brexit negotiations most probably would be halted and the UK willingly become a member state instead

 

 

Passports to productivity Improvement?

Some say the ‘Productivity Puzzle’ is the result of a storm of problems affecting both supply and demand in G7 developed nations viz:

  • Supply: In the past, major technological advances (aka Schumpeter discontinuities) enabled quantum leaps in productivity levels – G7 nations would all adopt them and improve at about the same rate – now, without more significant advances (as Robert Gordon, US economist, suggests) and much of what does add value being offered for free, GDP and so national productivity levels have flattened out – most goods and services have kept on improving in quality but are being offered at the same or less unit prices
  • Demand: G7 populations have stopped growing significantly, some even falling, so demand for most goods and services has also stalled – also, most people in the G7 already have enough of the goods and services they need – they don’t want more cars, TVs or iphones but simply to replace them when better quality and latest versions are on offer – hence consumer demand has apparently stopped growing

 

Overall, therefore, it’s no surprise that G7 GDP and productivity growth are both suffering ‘secular stagnation’ according to Larry Summers, Harvard economics professor and ex US Treasury Secretary – and this is likely to persist for many more years

So, if G7 nations are to increase demand (i.e. GDP) as before, they must export more – sales directors and government ministers must dust down their passports and go find the extra demand needed from outside their home borders i.e. from the two thirds of the world that, so far, has been left trailing far behind

At the same time, their companies must keep the pressure on productivity improvement to ensure their unit costs and prices are at levels the nations abroad can afford

 

IoT to transform many processes

“The IoT (Internet of Things) can help businesses be more productive and efficient” says Phil Goldstein, web editor for BizTech – “but they need a plan to integrate disparate technologies whilst addressing protection needs against malicious actors”

Steve Darrah, Director of National Solutions at Intel, says that “IoT can be used to improve efficiency and profitability, drive safety and increase worker productivity”

For example:.

  • Retailers can use radio frequency identification tags to track inventory
  • Healthcare providers can use wearables to track the vital signs of seniors in long-term care and predict if a person is going to suffer a heart attack

 

Link Simpson of CDW, an international IT company, notes that IoT technologies work in combination with other systems e.g. in the event of a fire, an office with IoT sensors can:

  • Call the fire service
  • Shut down elevators
  • Take control of digital signage in the office
  • Turn on video cameras to find workers and feed the images to the firemen on site
  • And lock or unlock doors to direct traffic out of the building

 

However, Simpson cautioned about one major hurdle to afflict the IT revolution ever since it began mid last century – different technologies running on different protocols and programming languages often cannot talk to each other

But the good news is that this can now be accomplished using ‘modern network gateway technologies’

He concluded: “IoT is really no longer just about the data and the information you can pick up from sensors – it’s about transforming your business processes”

 

Diageo appoints a CPO

Many companies employ inspectors and quality controllers in an effort to minimise waste and boost good output volumes

Very few indeed  have anyone specifically in charge of productivity or widespread employment of best practices, whether from internal or external sources

Now, at long last, a major company has appointed a Chief Productivity Officer (CPO) – at least it’s the first one we’ve read about

Diageo have clearly recognised the importance of productivity improvement to their long term success and elevated their previous CIO, Brian Franz, to this new position

IT is indeed important, but it’s only one of the tools/ skills needed for productivity improvement

In his new role as CPO Franz says he is: “Helping to lead a targeted drive across our entire cost base and plans to save £500m in the next three years, two-thirds of which will be reinvested in growth”

He adds: “Productivity savings are often wrongly associated with cutting costs – we want to put the consumer at the heart of what we’re doing and drive top-line growth through productivity-focused activities”

One can only hope all other FTSE 100 companies, indeed,all UK SMEs, follow suit

Then, at long last, we might see a breakout in the apparent sclerotic UK productivity growth rate

 

Pareto analyses

Pareto, a 19th century Italian economist, spotted that “80% of effects arise from only 20% of possible causes” – apply this rule to national productivity levels and just the top quintile of companies determine whether improvements are made – and it has been ever thus

In other words, the great majority of companies are doing little or nothing to improve their productivity – not only do they lag far behind the vanguard companies but the productivity gap between them could even be widening, especially when patenting and intellectual property rights restrict the spreading of new ideas and better ways of doing things

Andy Haldane, chief economist at the Bank of England, recently supported this view by arguing that, if UK firms in the three least productive quartiles were able to improve at the same rate as companies in the top quartile, overall UK productivity would rise by 13% – whilst we might question the veracity of the data he used, we fully agree with his view that most companies have enormous scope for improvement

So, given such a distribution of companies applies to most nations, not just the UK, a two-pronged national productivity improvement effort is needed by all viz:

  1. Incentivise the 80% of companies/ organisations that lag behind leaders in their sectors to improve productivity levels:
    1. First, offer them good measures that clearly establish their current productivity levels and scope to improve relative to others – otherwise most will assume they’re at least average, have little to worry about and so need do little to change
    2. Also, provide education/ help in how to cut waste and make best use of existing costly resources – most will have the opportunity for at least a 20% improvement from these actions alone
    3. Then, after successfully completing the above, have them consider using latest best practices and major investment in new resources and systems – and so will need advice/ support to do this
  2. At the same time, encourage the vanguard 20% of organisations in each sector to at least continue to improve as before, not least by offering more financial incentives for more ‘open research’ and ‘market creating innovations’

 

For too long, productivity improvement has been ignored by most organisations despite it being more important than just about any other business issue

And, if and when it does appear on the national radar, the focus is usually on progress made by vanguard organisations in the manufacturing sector i.e. the 20% of a sector that comprises only some 15% of any developed nation’s GDP i.e. a mere 3% of its economy!

Is it any wonder most managers and ministers don’t ‘get it’ and national productivity improvement staggers from year to year

They’re all focussed on other ‘key result areas’ i.e. areas of less importance

They need to understand Pareto’s Rule and its relevance to productivity

The capitalist’s dilemma

N.B. The following are extracts from an article published in the Harvard Business Review in June, 2014 – it remains highly relevant today

Professor Clayton Christensen and Derek van Bever of Harvard Business School  have embarked on a fascinating study into what may be holding back growth in the USA and elsewhere given ‘corporations are sitting on mountains of cash but failing to invest in innovations which might foster growth’

They identify three different types of investment in innovation which have quite different impacts on the growth of jobs and prosperity:

  • Performance improving innovations which upgrade old products or services with new and better – these create few extra jobs as customers simply buy the new versions instead of the old
  • Efficiency innovations which help companies make and sell existing offerings at lower prices – they can even reduce jobs – they can also release capital for other more-productive uses
  • Market creating innovations which create whole new classes of customers, even sectors e.g. computers – the moves from mainframes to minis to PCs to smartphones – at the start, only a rich few could afford a computer – 50 years on, just about everyone can – such innovations usually generate many new jobs, both internally to meet the increased demand and externally in supply chains

 

Key features of these market creating innovations are also:

  • They have an enabling technology that drives down costs as volume grows
  • They reach many new customers who were unable to afford the first offerings e.g. Ford’s Model T

 

The problem is that companies invest mostly in efficiency innovations which often eliminate jobs, some invest in performance improving innovations which tend to maintain the status quo, and few invest in market creating innovations which generate most new jobs and so growth

Why so?

Because the financial measures and norms used to determine the attractiveness of investments are seriously flawed – RoCE, RoNA, IRR, DCF etc. all make market creating innovations appear much less attractive because they bear fruit in five to ten years and are risky whereas efficiency and upgrade investments usually pay off in one or two years and shoulder much less risk – and most venture capitalists prefer safe bets, not adventurous punts

Indeed, the average shareholding period for external investors is only about 10 months, which pressurises executives to maximise short-term returns (or else!)

However, one might expect longer-term investors, like Pension Funds, to press for more market creating investments to secure their longer-term returns needed

Not so

Most now suffer from depressed returns, unfunded commitments and longer life expectancies – their funds are not growing fast enough to meet their obligations, so they also look for quick payoffs

Hence the capitalist’s dilemma:

‘Doing the right thing for long term prosperity is the wrong thing for most investors’

The authors put forward some worthy suggestions on changes needed:

  • Tax financial transactions to reduce high frequency trading
  • Introduce rewards for shareholder loyalty
  • Wake up business schools to teach finance and strategy together, not separately as now
  • Establish measures/ tools to analyse innovation pipelines and identify opportunities for long-term growth creating investments

 

They sign off by quoting Peter Drucker: “The point of a business is to create a customer” and ask for contributions to help devise solutions to this dilemma ‘for the long-term prosperity of us all’

Over to you

 

 

Wolf explains UK productivity gap

The great financial journalist Martin Wolf of the FT recently opined about the current state of UK productivity – disappointingly, his words offered no new insights and were simply a regurgitation of current groupthink.

He kicked off with the now well-worn cliche from Paul Krugman about productivity being ‘almost everything’ – and then trotted out a bunch of statistics about population and productivity growth, the two factors which indeed determine national prosperity levels:

  • The working-age population stats could well be reasonably accurate, and show the UK has little potential for significant growth from that quarter
  • But the national productivity stats (GDP/ labour inputs) about the UK’s relative position versus other nations are seriously flawed – nevertheless, like most important commentators, he ignores this widely accepted fact and proceeds to draw conclusions based on them

 

He rightly points out that there are big differences between the performance of ‘the best and the rest’ in all UK sectors, and that such differences appear to be growing – “a slowdown in the diffusion of knowhow and slower elimination of zombie competitors” being the received wisdom – however, this does not explain why the UK is so much worse than most others

So what’s his ‘big aha’?

By simply comparing the UK with its international competitors (using more spurious data) he spots two fundamental UK weaknesses which explain most of the prevailing productivity gaps:

  • Lack of investment in capex – “physical investment in machines, buildings, ICT and R &D, is very low” – but how much more would be needed to close any gaps (£10bn, 100bn, 1000bn?) – and what of Robert Gordon’s claims that the days of major new productivity-improvement inventions are over?
  • Lack of investment in human capital – “skills overall remain highly deficient” – there is indeed a serious mismatch between the skills organisations need and what kids now study but nobody knows the size of these gaps, nor the potential % GDP and productivity benefits if they were closed, nor the amounts to be invested by whom – all we do know is too many kids (50% was the target) sally off for a very-expensive three year stint at university to graduate in subjects many employers don’t want

 

The biggest problem facing all organisations, and nations, is not lack of investment but lack of good performance measures and the knowhow to find and implement solutions to productivity problems and opportunities highlighted

At present:

  • Most have only some 20% of the performance measures they need – and they’re mostly financial
  • Most could improve productivity by at least 20%, some over 50%, either by upping output/ sales and/ or reducing inputs/ costs
  • Most do not need any major investment to get these results – instead, they should first focus on cutting existing waste and then optimising use of their existing resources, both of which could involve only modest extra investment in human capital and new systems
  • Only then should they consider any major investment in best practices and/ or new technology

 

The fact is most UK organisations (80% = ‘the rest’) perform well below their potential – they could make giant productivity improvement strides if only they had the right measures and knowhow – but such a message is the biggest elephant in the productivity room

 

MIRACLE solution to productivity puzzle

The US is worried about the puzzle of their flat output/ GDP and productivity growth following the 2008 financial crisis, yet employment has risen

Likewise the UK and other G7 nations

They had all expected growth to ‘revert to trend’ by now and be at least 2% per annum, not approach zero as seems to be happening

Interestingly, all G7 nations are suffering in much the same way which must offer a clue as to what’s going on

Explanations offered by a variety of experts include:

  • M = Mismeasurement of GDP, a seriously flawed statistic:
    • GDP doesn’t count many of the things we value in life – things that make life worthwhile e.g. free internet services, digital assets (the cloud, IoT), growth in intangibles
    • And it counts incomes realised by financial and oil companies before allowing for associated costs later
  • I = Innovation – Major technological innovations may have peaked:
    • Artificial Intelligence, driverless cars and Twitter are seen as no match for the gains made from electricity, the internal combustion engine and telephones – at least, not yet
    • But productivity can even dip upfront as new innovations are introduced but returns are slow to build – there can be a time lag between invention, trial and error, prototypes and launch through to widespread adoption as people learn how best to use them and acquire new skills e.g. electric motors and light bulbs had little impact over the period 1890 to 1920
  • R = The Rest – Vanguard firms continue to improve, the rest do not
    • Either there’s a lack of diffusion of transformational (digital) technologies from the best to the rest in all/ most sectors – it always takes time, often many years
    • If it’s truly general purpose like electricity or computers, most other organisations need time to be convinced and seek demonstrable proof before they ‘jump on the bandwagon’ – then they take the plunge which can mean re-structuring and re-training of staff
    • The long-tail of poorly performing companies, including zombies, comprise some 80% in all sectors – most do little to try and catch up, not least because current very low interest rates put little pressure on them to become more profitable, even enabling some to stay alive rather than letting creative destruction do its work
  • A = Administration – Government/ EU red-tape regulations have been mushrooming:
    • Some say they’re stifling corporate efforts to improve
    • Others say well-intentioned social welfare programmes are keeping people from moving to better jobs
  • C = Capex – A slowdown in productivity-enhancing investments, much due to the corporate hangover still being suffered following the financial crisis of 2008 as banks restricted lending whilst they shored up their balance sheets and companies were concerned about uncertain economic outlooks, Brexit included
  • L = Labour – An influx of cheap labour has deterred many companies from investing in productivity-enhancing equipment and systems – people are easier to shed – others have indulged in ‘labour hoarding’ to avoid high outplacement costs and in expectation of imminent demand rises – overall, when unemployment is low, even relatively unproductive workers are employed so productivity again declines
  • E = Exports – Outside the EU and G7 there is a huge ‘Rest of World’ market waiting to be developed and itching to catch up rather than fall further behind – but exports still only account for a small percentage of total output

Each of the above probably has some impact on apparent national productivity levels, especially GDP mis-measurement, but none explain why there has been a dramatic slowdown ‘across the board’

As ever, as soon as there’s more than one (credible) explanatory variable for an issue, and no clear understanding about their interactions and effects, then it’s open season for all sorts of forecasts and explanations

Hence we get so many conflicting views from so many learned commentators

Basic steps to big improvements

There are various acronyms on offer for how to go about improvement projects viz:

  • PDCA from TQM – Plan, Do, Check, Amend
  • DMAIC from Six Sigma – Define, Measure, Analyse, Improve, Control
  • SREDIM from Work Study – Setup, Record, Examine, Develop, Implement, Maintain

 

All boil down to much the same process

Managers, whatever their level and team size, need to take just five basic steps to make big productivity improvements viz

1. Produce punchy corporate plans i.e. one page summaries for all employees – if they exist, they’re not seen or understood by most managers, never mind employees – most lie unused, gathering dust on shelves once written

2. Instal a set of performance measures – most managers have lots of measures but lack 80% of the measures they need

3. Analyse the potential to improve – most managers don’t know how to do this, not least because they don’t have good measures to start with

4. Run special improvement projects – again, most managers don’t know how to do this – and, if any projects are started by in-house teams, most run out of stamina to finish the course well before big improvements are achieved

5. Employ CI – Continuous improvement – most in the West ignore the huge benefits possible from seeking to improve any and everywhere, on a daily basis

It’s little wonder productivity improvement is slow at best, whatever the organisation – or nation

 

s

Why do national productivity gaps persist?

Philip Hammond, UK Chancellor of the Exchequer, is forever saying: “It takes a German worker four days to produce what a UK worker makes in five”

Others say much the same about French workers

But such claims are not new, they’ve been made over the last 30 years at least

We already know the ONS data on which such claims are based are seriously flawe:

  • Whole sections of the economy are ignored, such as household activities or the consumer surplus obtained from freebies offered via the likes of iPhones
  • Other sections are difficult to measure such as public sector outputs so assumptions are made that their costs can be thought equivalent
  • And other sections take time to collect and verify all quarterly data so estimates are made which can involve significant errors

 

That said, many economists still think the ONS data is worthy of use, at least to indicate the order of productivity gaps and basic trends

Not so anyone else in the UK or G7 however, particularly managers who together are most responsible for a nation’s collective productivity performance

Hence, big national changes are never made, and apparent 20% productivity gaps are never closed – instead, G7 economies just continue to chug along at the same speed as before whilst their experts mutter about the need for ‘more capital intensity and greater investment in R&D’ to close any gaps

Shame on those managers, unaware and unconcerned about their individual productivity performance, never mind their nation’s

One things is for sure – it’s not their workers who are to blame – given the same working methods and gear, each nation’s workers are about as productive as each other, whatever the sector

It’s the mix of sectors in the different economies and the overall unemployment rate that makes the big difference between the UK and both France and Germany, say:

  • If one nation has more and bigger high-productivity sectors than another then the overall productivity of the former will seem much better than the latter
  • And if one nation has a lower unemployment rate (UK = 4.3%) than another (France = over 10%), if this percentage falls, previously unemployed workers (usually less skilled, less productive) will be mopped up by the market but this will lower the nation’s overall productivity level

 

It’s why Japan apparently has a much worse national productivity level than the UK, despite the many world-class manufacturers in their midst

Conclusions:

  • The apparent big productivity gaps between the UK and some G7 nations can be mostly explained by their different mix of sectors
  • Such mixes cannot be radically changed overnight – that will take decades if such changes are desirable, which might explain the persistence of the apparent UK 20% productivity gap
  • As long as the mix in each nation plays to its strengths, then productivity improvements may well be needed within each of their sectors, particularly in the long tail of companies usually found in each one
  • Huge opportunities to improve productivity would seem to lie everywhere

Low Australia productivity affects all, not just a few

New Reserve Bank governor, Philip Lowe, says boosting productivity is essential if Australia is to maintain the living standards it has enjoyed in recent years

He warns: “Australia’s remarkable boom times are over and the best way to maintain our standard of living is to have a laser-like focus on productivity”.

In his first appearance before the House of Representatives Standing Committee on Economics, he said:

  • The confluence of factors that boosted living standards in recent decades will not happen again
  • Australians enjoyed real income growth per person of three per cent on average for 15 years until the global financial crisis in 2007
  • Incomes and living standards grew solidly because of strong productivity growth, large numbers of young people entering the workforce and the global commodity price boom

 

But he warned that the situation has changed today, with tepid productivity growth, an ageing population and falling terms of trade cutting into standards:

  • “It was a remarkable kind of a period and I think many of us started to think that was the normal state of affairs – it would have been nice if it was”
  • “That period now looks like it’s behind us.”

 

Dr Lowe said as it was hard to control demographics and impossible to control the terms of trade:

  • “The only way we can go back to anything like the previous rate of growth in our living standards is focusing on productivity growth”
  • “That’s not just a concern for the Reserve Bank, it should be a concern for the parliament and the whole 24 million people in our country – what do we do to get the productivity growth up again to get the living standards rising.”

 

He also warned of the limits of monetary policy with the key interest rate at 1.5 per cent, the lowest since Federation.

So he urged “some entity” or government to use low interest rates to invest, using their balance sheets to facilitate infrastructure spending.

It’s the rest, not the best, that’s the problem

The Brooking Institute’s Martin Neil Baily and Nicholas Montalbano considered the causes of the current global productivity puzzle recently

“The most promising sign for future growth is that the most productive firms are growing faster than the rest – the frontier is still moving out – but the diffusion of best practices is not pulling the rest of industry along”

Of the many reasons on offer, this could well be the most likely explanation of the so-called ‘productivity puzzle’ afflicting most developed nations at present

Lack of cash and/ or confidence and knowhow to improve productivity is preventing some 80% of organisations in any sector and 80% of sectors in any economy from doing the needful to keep up with the best

There’s no doubt that huge (> 20%) productivity improvements could be made if laggards per sector upped their game, for the benefit of all their employees and home nations

They just need help to show them the way and the rewards on offer

However, naysayers believe there’s some hidden law of large populations, as per the normal distribution, which says there will always be a 20% vanguard in any sector and the laggard 80% rest will always perform at significant levels below them

It’s a fact of life that some are more talented, motivated and fitter than others

Fortunately, it’s human instinct to want to climb ladders and do better – and global competition keeps most G7/ G20 private sector managers on their toes

So most in the laggard 80% will not be standing still most of the time

It’s just some people are more ambitious than others

Broad action needed post Brexit

In the Guardian, Katie Allen recommended ways Prime Minister Theresa May could ‘lift the UK economy’s post-Brexit’ blues – via:

  • Tax cuts – especially VAT
  • More infrastructure spending – traffic jams and delivery delays waste a huge amount of time, adding to unit costs and reducing national productivity
  • Encouraging huge increases in housebuilding across the nation, prioritising brownfield sites and speeding up planning permission processes – thus increasing labour mobility to skilled workers more inclined to move to where needed
  • Delaying the planned apprenticeship levy
  • Boosting productivity via investment in innovation, education and infrastructure
  • Reducing planned rises to the national living wage
  • Dropping ‘helicopter money’ on all – echoing Ben Bernanke’s thoughts for the USA some years back
  • Firming up many more trade deals

 

But this is mere tinkering at the edges when the whole economy is considered

On the demand side, Brexit may well cause short-term problems with our exports to our current biggest and closest customer, the EU, but the great majority of their member nations’ economies are going nowhere and have been doing so for many a year

Meanwhile, there are over 165 other nations out there, most with huge potential to grow or develop further – most are also keen for many of the more upmarket goods and services we produce

Currently, EU rules restrict what and how we can sell with the latter – worse, they protect EU companies by restricting many third-world nations from exporting what they’re good at to the EU which curtails both their development and productivity improvement within the EU – Brexit should remove such shackles on competition and trade for the UK

On the supply side, Allen ignores the huge one-off opportunity staring the UK in the face i.e. the scope to boost productivity and earnings simply by ensuring all organisations, large or small from public and private sectors, make a concerted effort to cut their waste and optimise their use of existing costly resources

At present, at least 80% of them waste at least 20% – for many, it’s over 50% – yet few realise they suffer this way!

This means the UK alone is wasting some £300 billion each and every year

Conclusion – It’s not sophisticated macro-economics needed to boost the UK economy – it’s good performance measures and then business common sense on both the demand and supply sides of the national productivity ratio

Wage levels versus Productivity

President John F. Kennedy believed that “a rising tide lifts all boats” but many question if that remains true today in the business world

They point to data showing that productivity has risen sharply since the end of WW2 whilst wages have stagnated and conclude that productivity-driven economic growth does not necessarily benefit USA workers on average viz:

  • Productivity in the USA up by 243%
  • Wages up 109%

 

The most productive firms are thriving but the least productive ones are failing to keep up – and as firms grow apart in productivity, they also become more unequal in how much they pay their workers:

  • Economics professor Giuseppe Berlingieri (et alia) says: “Such productivity gaps are growing both within countries, between sectors, but also within sectors in the same country – it’s not just what sector you work in but which company you work for”
  • And increasing income inequality is the result – one that is now becoming a major issue in many G7 nations

 

Nations that attempt to shield workers and firms during tough economic times should experience less inequality, both in terms of wages and firm productivity, but this will make it harder for resources to flow from less to more productive firms

What’s beneficial in the short term may be detrimental over time and slow overall productivity growth, also trapping workers in low-paying firms rather than giving them the opportunity to earn higher wages elsewhere

MIT economist David Autor, when asked about the causes of inequality, said: “There are many moving parts here – one of them has clearly been IT – another has been international trade – but I also think the decline of unionisation has mattered a great deal”

However, James Sherk of the Heritage Organisation has a different slant on this issue: “Inequality claims rest on misinterpreted economic statistics – they juxtapose productivity and pay data that cannot be directly compared, leading to inaccurate conclusions”

In particular, he questions whether pay has actually lagged far behind productivity growth because:

  • Average wage growth is calculated, not total compensation which includes other rapidly growing benefits such as health insurance, tuition fees, pension contributions, holiday entitlements
  • Different price indices are used to adjust pay and productivity for inflation
  • Faster depreciation is omitted yet it reduces net income but not gross productivity
  • Known measurement errors in BLS (Bureau of Labor Statistics) data are ignored

 

More careful comparisons show that measured productivity has increased 100 % and average compensation 77 % over the past 40 years – and issues inflating productivity measurements account for most of the 23% difference

Sherk thus believes an apples-to-apples comparison would show employee compensation continues to follow productivity closely, with workers earning more as they become more productive

If so, this has important implications:

  • Many policy-makers mistakenly believe that employees are no longer destined to enjoy the fruits of their labour, even if the economy attains full employment – such fruits are for capitalist shareholders and their lieutenant CEOs mostly
  • Hence, they’ve turned their attention to redistributive economic policies to compensate
  • Better policies would focus on measures that enable Americans to become more productive and command higher pay, such as reducing the cost of higher education or regulatory costs that slow the economic recovery and labour compensation

 

It’s another example of official statistics generating not only opposing views from ‘experts’ but also flawed policies from those in power

Pin factory productivity

Adam Smith illustrated how the division of labour could improve productivity in the famous small pin factory example he used in his tome ‘Wealth of Nations’, 1776, viz:

  • 10 workers, each specialising in a different aspect of the work , could produce over 48,000 pins a day
  • However, if each of these ten workers had made the entire pin on his own, they might not have made even one pin a day, and certainly not more than 20
  • Hence, one must never focus on the task alone when seeking to improve – always look at the process as a whole

 

Bertrand Russell, the famous mathematician, wrote the following many years later in response:

In praise of idleness

  • Suppose that, at a given moment, a certain number of people are engaged in the manufacture of pins – they make as many pins as the world needs, working eight hours a day
  • Someone then makes an invention by which the same number of men can make twice as many pins as before
  • But the world does not need twice as many pins – pins are already so cheap that hardly any more will be bought at a lower price
  • In a sensible world, everybody concerned in the manufacture of the pins would take to working four hours instead of eight each day, and everything else would go on as before
  • But in the actual world this would be thought demoralising
  • The men still work eight hours, there are thus too many pins, some employers go bankrupt, and half the men previously concerned in making pins are thrown out of work
  • There is, in the end, just as much leisure as on the other plan, but half the men are totally idle while half are still overworked
  • In this way it is ensured that the unavoidable leisure shall cause misery all round instead of being a universal source of happiness
  • Can anything more insane be imagined?

 

Conclusions:

  • When qualified workers are in short supply, or increasingly expensive to employ, it makes sense to seek to automate their work
  • At present, and despite low unemployment, UK firms can exploit cheap foreign workers, either immigrants or via outsourcing to the Far East for cheap labour and land or India for English speaking call-centres
  • Come Brexit, however, the former cheap labour source may well dry up whilst, already, the weaknesses of the latter outsourcing route have curtailed much demand
  • So the inevitable pressures on UK management will be to invest in new and better processes and technology
  • Thus a significant uptick in UK productivity growth can be expected in the next year or so

Full AI impact may take time

Erik Brynjolfson, an MIT economics professor, says:

  • “We are optimistic about the ultimate productivity growth fuelled by AI and complementary technologies
  • The real issue is that it takes time to implement changes in processes, skills and organisational structures to fully harness AI’s potential as a GPT (General Purpose Technology)”

 

Benefits from specific applications are already being realised but broader economic effects from widespread adoption have yet to gain momentum so we await many more applications, steady improvements and the spawning of complementary innovations

And this could take years, even decades

Professor Rodney Brooks, MIT emeritus professor of robotics, says:

  • “Having the ideas about AI is easy
  • Turning them into reality is hard
  • Deploying them at scale is even harder
  • Realising the benefits of AI is not automatic, nor is it fast
  • It will require great effort and entrepreneurship to develop the needed complements and adaptability at individual organisational and social levels
  • Major adjustments to business processes, capital infrastructure and job design will be needed to realise their full economic value”

 

Conclusion: The coming economic resurgence due to AI could be as big or bigger than any of the others seen in the past

GE announces ‘Big Data’ productivity gains

A new report from GE – General Electric, USA – found that the Industrial Internet  could add €2.2 trn to European GDP by 2030, boost productivity and spur economic expansion.

The report, called The Industrial Internet – Pushing the Boundaries of Minds and Machines: A European Perspective, says that a mere 1 % increase in efficiency in healthcare, aviation, transportation and energy could yield savings close to €40 billion.

By adopting the technologies of Big Data and intelligent machines, the report’s authors claim Europe could “recover the productivity gains missed in the first round of the internet revolution and compound them with new ones, catching and moving ahead of the curve”

Good examples include:

  • AI to aid doctors and lawyers
  • Big Data analytics for retail and drug discoveries
  • Wearable sensors to monitor blood pressure and health conditions
  • Robots for surgery and eldercare
  • 3D printing for complex manufacturing such as bespoke hip joints or gas turbine blades

 

But such claims are NOT new

‘Expert systems’ to help diagnose faults and maintain human bodies or machines were being built back in the 60s – but they were too simplistic and didn’t catch on

However, with AI, IoT technology and enormous modern computer power, GE’s expectations may well be realised

Myths about productivity?

An interesting set of views and counter claims about productivity were found on Google:

  • It leads to higher wages:
    • It doesn’t
    • It needs collective bargaining, but unions have mostly lost their influence
  • It doesn’t result in fewer jobs:
    • In an ideal world, it would lead to increased output, increased market share and even increased number of jobs
    • It rarely works out that way
    • Most improvements are justified by labour-saving which is much easier and faster than penetrating new markets
  • It leads to better quality jobs:
    • The opposite is true
    • The staff that remain have to do the work of those laid off, and for the same pay
  • It stifles competition:
    • The UK, for instance, needs large capital expenditure to set up new productivity-competitive businesses
    • China does not, able to use cheap labour instead
  • It stifles innovation:
    • Retooling production lines can be very expensive
  • It freezes capital:
    • Capital which could be used for vital infrastructure say

 

You might ask which side of the fence you’re on with each claim

UK public sector wastes £120bn – every year!

A new report from the Taxpayers’ Alliance claims that the UK public sector wastes £120 billion each and every year

And this is despite claims of tightening belts and being forced to close libraries or fire lollipop ladies.

It’s equivalent to a cost of some £4,500 for every British family.

They say: “A relentless war on public sector waste is needed”

But what do those in charge, our political leaders, do?

They can’t be seen to be cutting public services – it loses them many votes

On the other hand, it’s a vote-winner if they’re seen clamouring for more resources to be poured into such cherished national assets as the NHS – National Health Service – or schools or police forces

Few question what percentage of existing resources allocated to the public sector services are being wasted or whether operating methods they use are as good as they could be – staff are all seen to be working hard, resources fully utilised, so the obvious conclusion is ‘more is needed’

And none dare admit that, on a like-for-like basis, public sector staff are better paid, have longer holidays and receive better pensions than their private sector counterparts

But, if they would only dig a little deeper, they might well find the waste of time and resources is at least 30% across the board – with much more waste on top due to the inefficiency of methods being used

Sadly, no such numbers exist

If they did, one might well find that no extra funding is needed to remove most queues in the NHS, say, or and make a huge improvement to the current poor police record in clearing-up crimes of all types, especially serious crime

Some public sector review body is needed to conduct a regular, two-pronged study of all public services:

  • Prong 1 should review the specific services each public sector should offer ‘free at the point of delivery’ having regard to what the public is willing to fund – the nation must cut its cloth to what it can afford
  • Prong 2 should review the efficiency levels of each public service unit, compare them with best practice, make changes needed and continuously improve

 

At present, neither seems to be happening other than on an occasional, piecemeal basis

Hence Amber Rudd, UK Home Secretary, said:

  • “Police chief constables need to concentrate on cutting crime – the public do not want to hear about disappointments over funding”
  • To bleats that police forces cannot sustain further substantial cuts: “Greater efficiencies have been shown to be available”

 

But who was then charged with doing what?

Chief constables were unlikely to change their tune

Meanwhile, Sara Thornton, Chair of the National Police Chiefs’ Council, pointed out that: “Offences involving knives, guns and serious violence have increased significantly”