Jan 17

Why do we still measure things in horsepower?

A thought-provoker by published on LiveScience

If you’re buying a car and have no experience with power measurements or vehicle stats, you may be baffled by one of the vehicle’s key capabilities: its horsepower. Based on that term, you may assume that a horse can produce around 1 horsepower. Linguistically, it makes perfect sense. In reality, however, it’s way off the mark.

A horse and carriage

A horse and carriage in New York City – Getty Images

So, how much horsepower can one horse produce? And how did this term get started, anyway?

 

The maximum output of a horse is actually much closer to 15 horsepower, according to the University of Calgary’s Energy Education website. In fact, a more befitting name for the unit might be “humanpower,” given that the average healthy person can produce just over 1 horsepower.

So where did the term come from, then?
It was first coined in the late 1700s by James Watt, a Scottish engineer remembered for his iconic, and incredibly efficient, steam engines. Seeking a way to advertise the contraptions, he invented a unit of measurement that would effectively showcase the superiority of his steam engines compared with something people were familiar with – horses.

 

Watt determined — from personal observation rather than rigorous scientific study — that a working horse could turn a mill wheel 144 times each hour. Using this number, he estimated that horses were capable of pushing 32,572 pounds 1 foot per minute, or about 14,774.41 kilograms 1 meter per minute. For convenience, he rounded this up to 33,000 pounds foot-pounds of work per minute (14,968.55 kilograms), and the “horsepower” unit was born, according to Encyclopedia Britannica.

Watt didn’t care much about the accuracy of the measurement, only that it highlighted the drastic productivity improvements buyers would experience if they purchased one of his steam engines. His machines were indeed far more powerful and reliable than horses, and as a result, very few people questioned — or cared about — the veracity of his calculations.

Watt was, by all accounts, an engineering genius, and was so revered by his peers that, in recognition of his pioneering deeds and endeavours, the “watt” unit of power was ultimately named after him in 1882. However, given that we now know a horse can exert far more than 1 horsepower, why do we still use a term Watt created as part of a marketing campaign?

“Because of the way language is always changing, there are more words that are estranged from their origins than people might realise,” said Eric Lacey, a senior lecturer in English language at the University of Winchester in the United Kingdom.

James Watt was a pioneering engineer who coined the term “horsepower.” (Image credit: Keith Lance via Getty Images)

“Sometimes, words don’t look right because they’re using older meanings,” Lacey told Live Science in an email. “There is nothing tall or high about a ‘highway’ — this word comes from an older meaning of ‘high’ which was ‘main,’ and so a ‘highway’ is just a ‘main road.’ We have the same sort of thing in the phrase the ‘high seas,’ which just meant ‘the main seas.'”

This type of confusion plagues many of our words for measurements.

“There are also a lot that just don’t make sense anymore because, as with ‘horsepower,’ they were based on estimations that could be variable or misguided,” Lacey said.

“The measurement of an ‘acre,’ for example, was roughly the unit of land which could be ploughed by one person with a single yoke of oxen in one day — roughly 4,426 square meters [47,641 square feet]. However, this could be higher or lower depending on the type of plough, the shape of the land and how demanding the overlord was.”

A word’s meaning can be corrupted or largely forgotten over time, but what makes a term stand the test of time? Why are some words consigned to the past while others, such as “horsepower,” become ubiquitous?

“This is the holy grail of linguistics! If we could accurately predict what words would be ingrained in people’s minds, we’d be earning a fortune providing them to the advertisement industry,” Lacey said. “The crucial thing to bear in mind here is that the words people use are guided by two things: individuals, and the way they interact.

Individuals may avoid words like slurs because they have problematic meanings or negative connotations, or may select words because they like their new meanings or how they sound, Lacey said.

“Secondly, individuals may select certain words because of the bigger picture of their various interactions — they might participate in social trends, or respond to cultural events or be trying to emulate the vocabulary of somebody they aspire to be like,” Lacey said. On a group level, people may use words to signal their identities and values, to show they are up-to-date or to mock something.

“Against this backdrop, we can see how a [culturally significant] word like ‘horsepower’ survived,” Lacey said. “If horses hadn’t been the most obvious sources of industrial energy in the early 19th century, it’s doubtful the term would have been as popular, but the fact that a single word could both convey the desired redundancy of the old and simultaneously usher in the new meant it ended up at the forefront of everybody’s minds.”

When asked if he would be supportive of rebranding “horsepower” to “humanpower,” Lacey said, “As a linguist, I’d be very happy with that!” It would be a neat example of a word actually telling people what it did and would be more meaningful as a unit of measurement, he added.

 

Jan 05

The rise of intangible capitalism

A report in the Jordan Times heralds the future for us all – indeed, it has already started – written by Eric Hazan, a managing partner at McKinsey & Company, Jonathan Haskel, Professor of Economics at Imperial College London. and Stian Westlake, Executive Director of Policy and Research at Nesta

 In a 2014 book, the Nobel laureate economist Joseph E. Stiglitz and Bruce C. Greenwald argued that the most important societal endowment is the ability to learn. Today, it is increasingly evident that the “learning society” has not only been created, but is starting to drive our economies.

From the nineteenth century until about 25 years ago, businesses largely invested in physical infrastructure and machinery, from railroads to vehicles.

But in the past quarter-century, investment in so-called intangible assets — such as intellectual property, research, software, and managerial and organisational skills — has soared.

Recent McKinsey Global Institute (MGI) research found that, by 2019, intangibles accounted for 40 per cent  of all investment in the United States and ten European economies, up 29 per cent from 1995. And intangibles investment appears to have surged again in 2020 as digitalisation accelerated in response to the COVID-19 pandemic.

We believe that this trend strongly hints at the emergence of a new model of capitalism, in which companies’ success will be measured more by their people and their capabilities than by their machines, products, or services. Moreover, we think there is no going back.

Firms such as Amazon, Apple, Facebook and Microsoft are clearly scaling up dramatically and achieving hypergrowth. Intangibles may well be driving this phenomenon. After all, there is certainly a correlation between investment in intangibles and higher productivity and growth.

MGI’s research found that companies in the top quartile for growth invest 2.6 times more in intangible assets than the bottom 50 per cent of firms. Similarly, economic sectors that have invested more than 12 per cent of their gross value added (GVA) in intangible assets grew 28 per cent faster than other sectors.

Economies in which intangible investment is increasing are also posting growth in total-factor productivity. (albeit a ‘magic-fairy-dust’ measure according to the BoE)

Notably, the only companies that were able to maintain 2019 rates of growth after the pandemic hit in early 2020 were those that had invested significantly in the full range of intangibles: innovation, data and analytics, and human and brand capital.

In a dematerialised, digitised, knowledge-driven world, corporate returns, productivity and economic growth will increasingly be tied to such assets. But unlocking their true value requires not only investing in them, but also developing the skills and managerial know-how, or human capital, needed to make effective use of them.

An MGI survey of more than 860 executives indicates that the major difference between fast-growing and slow-growing firms is that the former not only invest more in intangibles and appreciate their importance for boosting competitive advantage, but also focus on deploying them effectively.

The growing salience of intangibles thus makes the imperative of raising skills and capabilities even more acute. This emerging new form of capitalism is potentially marvelous for qualified people with highly portable skills, but somewhat scarier for the less skilled and less digitally savvy. Companies that lack the resources to make necessary investments in intangibles also could fall further behind.

The dematerialised economy, if not managed well, thus risks being a recipe for inequality.

 

 

Jan 02

Many ways to stuff up productivity

More good stuff from down under – with Ross Gittins, Economics editor of the Sydney Morning Herald, offering solutions to the current ‘productivity puzzle’ afflicting most G7 nations at least

A good New Year’s resolution for readers of the business pages would be to read more widely and think more broadly, so their thinking about economic problems and their solutions doesn’t get into a rut, returning repeatedly to the same old solutions to the same problems.

No reader of these pages needs to be told that the key to higher material living standards is improved productivity – the ability to create more outputs from the same quantity of inputs of land (raw materials), labour and physical and intangible capital.

Construction workers and engineers hard at work on a major infrastructure project.
Construction workers and engineers hard at work on a major infrastructure project. CREDIT:JAMES ALCOCK

Almost continuous productivity improvement over the past two centuries is the outstanding achievement of capitalist, market economies, the proof of capitalism’s superiority as a system of organising production and consumption.

It’s what’s made us so much more prosperous than our forebears were, with much of that prosperity spilling over from the owners of capital to the middle class and people near the bottom.

But, as I’m sure you know, over the past decade or so the rate of productivity improvement in Australia and all advanced economies has slowed to a snail’s pace. Hence, all the talk about productivity and what we can do improve its rate of improvement.

So far, a decade of hand-wringing hasn’t got us anywhere. We need to think more broadly about the problem.

One new thought is to wonder if there is – or should be – more to the good life than economic growth and a higher material standard of living. If there are ways we could improve the quality of our lives even if they didn’t lead to us owning more and better toys.

A negative way to express the same thought is to wonder if being able to afford better houses and cars will be much consolation if we succeed in stuffing up our climate, with more heat waves, rainy summers, droughts, bushfires, floods, cyclones and a rising sea level.

But we’ll return to those thoughts another day, and descend now to the more prosaic. One rut we’ve got into is thinking it’s up to the government to lift our productivity by “reforming” this or that intervention in the economy.

This is model-blind thinking of the part of econocrats, hijacked by rent-seeking businesses and high income-earners wanting more power to limit the earnings of their employees and more of the tax burden shifted to other people in the name of improving “incentives”.

The same people show little interest in reforms that really would increase economic growth by increasing women’s participation in paid work, such as free childcare.

Another rut we’re in is thinking that we won’t get faster economic growth until we get back to faster productivity improvement.

This has much truth, but it misses the deeper truth that the relationship between economic growth and productivity can also run the other way: maybe we’re not getting faster productivity improvement because we’re not getting enough economic growth.

In practice, what does much to increase the productivity of labour is businesses – in mining, farming and manufacturing, but also the service industries – replacing old machines with the latest, most improved models.

But business investment has long been at historically low levels, making our weak productivity performance hardly surprising. And the dearth of new investment spending is also hardly surprising considering consumer spending has been so weak for so long.

Nor is weak consumer spending surprising when you remember how weak the growth in real wages has been. One reason wage growth has been so weak, as Reserve Bank governor Dr Philip Lowe has pointed out, is the present fashion of businesses using any and every means – legal or otherwise – to limit labour costs and so increase profits. There are other paths to profitability.

While we’re thinking unfamiliar thoughts on the possible causes of our productivity plateau, remember this one: when businesses have been investing strongly in new equipment in the past, it’s often been a time when labour costs have been rising rapidly, giving them a strong incentive to invest in labour-saving machines.

(Note, it’s precisely because this increases the productivity of labour, and thus increases real national income, that the pursuit of labour saving simply shifts the demand for labour from goods-producing industries to services-producing industries, leaving no decline in the demand for labour overall.)

Last year some economists at the International Monetary Fund wrote a blog post on yet another contributor to weak productivity improvement, which will certainly come as a surprise to “Brother Stu,” federal Education Minister Stuart Robert, who late last month sent a “letter of expectations” to the government’s Australian Research Council outlining the Morrison government’s desire to prioritise short-term research jobs that service the interests of commercial manufacturers.

It’s possible he and Scott Morrison merely wish to swing one for the Coalition’s generous business backers, but my guess is they imagined they were striking a blow for higher productivity. If so, they’ve been badly advised.

Research by the IMF economists finds that productivity improvement in the advanced economies has been declining despite steady increases in research and development, the best indicator we have on “innovation” effort, the thing so many business people give so many speeches about.

But get this: they find that what matters for economic growth is the composition of spending on R&D, with basic scientific research affecting more sectors for a longer time than applied research (commercially oriented R&D by companies).

“While applied research is important to bring innovations to market, basic research expands the knowledge base needed for breakthrough scientific progress,” they say.

“A striking example is the development of COVID-19 vaccines which, in addition to saving millions of lives, has helped bring forward the reopening of many economies . . . Like other major innovations, scientists drew on decades of accumulated knowledge in different fields to develop the mRNA vaccines.”

Which suggests the Morrison government has just jumped the wrong way in its latest intervention into the affairs of our universities. Should have done more R&D of their own before jumping.

 

Dec 21

Productivity down under

Large extracts follow from an interesting article by Judith Sloan, a leading economist and ex Commissioner of the Australian Productivity Commission, writing in ‘The Australian‘ – she makes many good points which other ‘experts’ tend to skim over, including recognition that current productivity measurement is seriously lacking – but she then goes on to base her conclusions on those same flawed measures, presumably because there’s nothing else  

Labour productivity grew at more than 2 per cent a year between 1992-94 and 1998-99 – but the growth in this century has been much lower. Picture: Zoe Phillips

Productivity is a dry economic topic to discuss (why do so many productivity ‘experts’ describe it so? – it’s complex, yes, but dry? – no!). Many people will equate productivity with workers being made to work harder and heartless managerialism (ugh!).

The cor­­relation between higher productivity and improved living standards is not widely appreciated.

The basic idea of productivity is straightforward enough: it’s the ratio of output to inputs. Economists differentiate between labour productivity, which is the ratio of output to hours of work, and multifactor productivity, the ratio of output to all inputs. (N.B. MFP was described by a Bank of England big-wig as ‘magic fairy dust’)

The much more difficult part of using productivity as an analytical device is its measurement.

For market-based activity, output can be fairly accurately measured by using the value of output. But a great deal of what happens in the economy does not occur in the market sector – it is entirely undertaken in the public sector or is funded by the public sector on an outsourced basis.

It’s always worth keeping these measurement issues in mind when working through the implications of trends in productivity. It is widely acknowledged that measurement prob­lems, including the inadequate treatment of quality improvements, are part of the explanation for what has happened to productivity.

There is also the shift towards investment in intangible assets rather than physical capital, which is itself a reflection of more services-dominated economies. Much of this former investment will be expensed and, as such, won’t show up in the capital figures.

Even so, it’s worth taking a look at the official productivity figures to see what has been going on. (Why, after all you’ve just said?)

While the pandemic has created havoc with productivity outcomes, it was clear well before last year that the growth in productivity, both labour and multifactor, was very sluggish. (iff official measures were a fair reflection of what actually happened with the nation’s standard of living)

If we take the five-year period ending in 2019-20, annual multifactor productivity grew at only 0.12 per cent (unconvincing accuracy) whereas annual labour productivity grew at 0.83 per cent. If we consider a longer time frame, there was clearly a purple patch for productivity in the 1990s – labour productivity grew at more than 2 per cent a year between 1992-94 and 1998-99, for instance – but the growth in this century has been much lower. (maybe growth of countables has stalled, but what if uncountables are now booming?)

It should be pointed out here that sluggish productivity growth is a feature of many developed economies. In the two decades ending in 2006, multifactor productivity growth  was strong in many economies including the US and Britain. By contrast, in the decade ending in 2016, multifactor productivity growth was negative in Japan, Canada, Germany, France, Britain, Italy and the US (just), among others. Whatever factors are at play (howzabout an educated guess?) they are unlikely to be specific to Australia, in the main.

One way of thinking about what has been happening to productivity is to consider the three components of efficiency: technical efficiency, allocative efficiency and dynamic efficiency. (a veil of management-speak to hide a void of understanding?)

Technical efficiency is where producers operate as close as possible to the maximum in terms of the ratio of output to inputs. (but how does one calculate the maximum capacity of a bank, management consultancy or hospital, say, let alone a nation, and so judge if they are ‘technically efficient’?)

Factors that are raised in the discussion of poor productivity growth include the presence of zombie firms (often sustained by government programs) (surely zombies are just the tail of a long tail?), slow take-up of technologies, particularly digital ones, and the relative decline in the number of firms entering particular industries. The net effect is to reduce the relative number of firms that can be deemed technically efficient.

When it comes to allocative efficiency, the key is whether a country is undertaking the range of activities best suited to its comparative advantages. Of course, some of these advantages are obvious; for example, agriculture and mining in Australia. But the role of governments is critical in boosting some activities at the expense of others.

This is a significant issue here and overseas as the size of government grows. With government payments as a percentage of gross domestic product at all-time highs and with slow reductions anticipated, the issue of the distortions in the composition of economic activity – think here the boost to (low productivity) healthcare and social assistance – becomes more important.

Dynamic efficiency refers to the capacity of firms to respond to new shocks and opportunities, particularly by way of innovation. Indeed, in some literature, productivity is essentially equated with innovation, assuming that technical and allocative efficiency have been achieved.

While we don’t fully understand the processes that underpin innovation – there are a myriad of possibilities – it is clear that, by and large, governments don’t drive it. (No – they play a major role in R&D – ask Bill Gates, Tim Berners-Lee). Moreover, there are unlikely to be any silver bullets such as larger tax concessions for research and development or higher spending on education (which has occurred in any case). Governments getting out of the way and ditching excessive regulations are likely to be helpful.

The bottom line is that while productivity may seem like an arcane concept, (an apt description) it is critical in driving higher living standards as well as assisting governments fund the services that the members of the public are keen to receive.

 

Judith Sloan

CONTRIBUTING ECONOMICS EDITOR
Judith Sloan is an economist and company director. She holds degrees from the University of Melbourne and the London School of Economics. She has held a number of government appointments, including Commissioner of the Productivity Commission; Commissioner of the Australian Fair Pay Commission; and Deputy Chairman of the Australian Broadcasting Corporation.

Dec 10

Billionaire investor warns inflation to curtail gains

Billionaire investor Ray Dalio sounded the alarm bell after inflation in the US surged to the highest level since 1990 and warned his social media followers that rising portfolio values do not necessarily signify increasing wealth.

“Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded,” Dalio wrote on LinkedIn. “The ones most hurt are those who have their money in cash.”

Dalio, the founder of Bridgewater Associates, has long been known for his view that there are better assets to hold than cash amid central bank money printing.

In periods of rising prices, he says that it is more important to look at what you can buy with that money.

“When a lot of money and credit are created, they go down in value, so having more money won’t necessarily give one more wealth or buying power,” Dalio wrote, adding that real wealth becomes a function of production capacity over time.

“Printing money and giving it away won’t make us wealthier if the money isn’t directed to raise productivity,” he wrote.

Dalio had a firm warning for the US and said it would be important to keep the implications from policy developments in mind.

“There isn’t an individual, organization, country, or empire that hasn’t failed when it lost its buying power,” he wrote. “The United States now is spending a lot more money than it’s earning and paying for it by printing money that is being devalued. To improve we have to raise productivity and cooperation. Right now we are on the wrong path.”

“At this time 1) the government is printing a lot more money, 2) people are getting a lot more money, and 3) that is producing a lot more buying that is producing a lot more inflation,” he wrote.

“Right now there is far more financial wealth than can ever be converted into real wealth so it has to be devalued. When you are seeing your financial wealth go up as is happening now don’t think you are gaining real wealth when your buying power is going down,” he wrote.

“Spending money on investment and infrastructure rather than on consumption tends to lead to greater productivity, so investment is a good leading indicator of prosperity. On the other hand printing money and distributing it without being productive won’t raise wealth,” he wrote.

Dec 03

Automation – friend or foe?

Robert Skidelsky, writing in the Guardian, points out that the growth of mechanisation brings many benefits, but vigilance is needed to keep it in check

A robot sitting at a conference table using a laptop

 

What the economic historian Aaron Benanav calls the “automation discourse” has been going ever since the luddites smashed textile machinery in Nottingham in 1811.

At issue is whether machines destroy or create jobs. The first case is easiest to understand. Machines are labour-saving; and labour saved means labour unemployed. Fear of unemployment has always been the dominant response of the workforce to the introduction of machinery.

The second case involves taking into account repercussions. The cheaper it is to produce something, the more demand there will be for it. This means more workers can be employed.

One can see then, how the spread of mechanisation to all branches of industry can multiply favourable effects: more people employed producing more and varied goods at higher wages for reduced effort. The fear of unemployment, say economists, is really a displaced fear of leisure.

With computer technology, not just physical work, but so-called “cognitive” work can be automated. Modern luddites foresee the growth of white-collar and service-sector unemployment. Again, say the optimists, they fail to notice the upside. The economic argument is straightforward: “Higher productivity implies faster economic growth, more consumer spending, increased labour demand, and thus greater job creation,” Christopher Pissarides and Jacques Bughin argued in their 2018 paper.

The problem is social: to ensure that the fruits of increased productivity are passed on to the mass of the people in the form of higher wages and non-work income. The political debate is about how much public intervention is needed to ensure that the wealth created by machines trickles down to all sections of the population.

The interesting question right now is: what effect will the Covid-19 lockdown have on this automation discourse? Three effects in particular are worth noticing. The first is the likely speed-up in automation; the second, the increase in automatic shopping; and the third, the growth of home working.

Despite all the hype, automation made little progress in the UK before the pandemic. According to the International Federation of Robotics in 2018, the UK had only 71 robots to 10,000 workers. The main reason, I think, was that cheap labour from abroad was an alternative to automation, especially for small- and medium-sized enterprises that could not afford the capital cost of installing machinery.

However, this supply has dried up, and will not be rapidly restored. We now have the paradoxical combination of a near-record adult employment rate together with the highest ever job vacancy count.

Covid-19 is almost certain to accelerate automation in line with the experience of past pandemics such as Sars in 2003, with the driving forces being economic recession and the need to cut labour costs, and the perceived increased risk of human contact. Jobs with higher levels of physical proximity, such as retail, hospitality, leisure and medical care, are the most likely to be automated post-pandemic.

Unless the government intervenes to subsidise investment (say, through a national investment bank) the financing of automation will be brought about through a further concentration of industry in large firms and the bankruptcy of many small and medium-sized enterprises.

The second source of automation will come from the consumer switch to remote shopping. This is the joint result of a change in habits forced by lockdown and fear of contamination. One symptom is the rise in cashierless stores. The first Amazon Fresh convenience store (with automated sensors to detect when items are taken from shelves and which automatically charge customers) opened in London in March, promising a more “frictionless” consumer experience. Many more are promised.

Finally, increased home working will demand increased use of surveillance technology. The proportion of working adults who did any work from home grew from 27% in 2019 to 37% last year on average, with Londoners the most likely to work remotely. Business sees a clear productivity gain in the reduction of time spent travelling and chatting in offices.

However, the realisation of such gains requires investment in surveillance technology. A recent report in the Financial Times highlighted the growth of electronic techniques for monitoring home working, including the installation of cameras and microphones in every house. This widens the discussion to the impact of technology not just on jobs but on freedom.

When Jeremy Bentham invented his panopticon for monitoring the movement of prisoners, he suggested that it might be fruitfully applied in schools and hospitals.

George Orwell carried this thought to its logical conclusion in his futurist novel Nineteen Eighty-Four. A two-way television screen in every flat ensured that “Big Brother is watching you” the whole time.

So on which side of the optimism-pessimism divide does the automation discourse now fall? Automation is not good in itself; it is only a means to an end. We need always to have in mind the question of what purposes it is designed to serve.

Unless this question is continually asked, and answered with action, we are destined to become slaves to the machines and those who control them. The luddites understood this.

 

Nov 23

Clusters to level up UK

YahooFinance reports that the best way for the government to deliver economic growth across the UK is by creating, or building on, clusters of economic activity in different parts of the country – something the Confederation of British Industry (CBI) is about to say – years ago, we strongly recommended the same in ‘Productivity Knowhow’, echoing the words of John Rose, CEO of Rolls Royce at the time, who asked : “Why does the UK not have something like France’s world competitive cluster in Toulouse?”

CBI director-general Tony Danker will say in a speech to a business audience that “growth in turn provides better paid jobs, skilled work, firm-level success and creates the kind of virtuous circle that helps a place to prosper”.

Combining these elements in economic clusters, where businesses co-locate to an area for mutual benefit, will greatly contribute to levelling up.

“For us, the answer is a clusters approach,” Danker will say. “Where you get a concentration of firms co-located. They compete, but also collaborate. They have the same skills needs. And supply needs. Their ideas and innovations spur each other on.

“It becomes an ecosystem, made up of start-ups and anchor institutions, colleges and universities. Thus, flows skills and expertise in turn generating innovation and ideas. Surprise, surprise — then finance, legal and professional services show up. And soon, adjacent sectors come to town.”

Economic clusters have already been adopted successfully in the UK and around the world, the CBI said.

“It’s not a new idea. We know London did it in finance; Aberdeen in oil and gas; Cambridge in science. It’s also enabling South Wales to emerge as a player in the world’s compound semiconductor market, which is projected to grow to over $300bn (£223bn) by 2030,” Danker will say.

“In the US, it’s cemented Massachusetts’ reputation as a global leader in biotech innovation (aka the Boston life-sciences cluster). And, in Germany, it’s helped Hamburg to become a world-leading civil aviation hub.”

In order for the cluster approach to work, the CBI said there are four key elements that are needed to lift productivity and allow more areas to prosper: high-value sectors; high-value firms; high-value skills; and higher business investment.

“There is a clear correlation between high-productivity sectors in a place and the economic outcomes for local people,” Danker will say.

“The truth is that in too many sectors, the UK now feels like a branch line economy. With the most productive parts of a sector, such as HQs, too often based in London and the South East, and the branch managers and the back-office based everywhere else.”

The CBI is calling for this to be replaced by an “economy of many hubs” made up of “high-value firms” that will be “the job-creators, the skills-builders, the innovators — a catalyst for growth in our local economies”.

Danker will also call on the government and businesses to focus on levelling up skills across the UK.

“When skills rise, so does economic growth. And that golden thread between skills and productivity only becomes more important over time,” he will say.

“In parts of central London, such as Wandsworth, Camden and the City, around three quarters of workers are educated to at least degree level. That’s a big part of the explanation why London has the highest productivity of anywhere in the UK. It’s a similar story elsewhere, with other prosperous places, such as Edinburgh, Bristol, Brighton and Hove having relatively high graduate shares too.

“But many of our other major city-regions have traditionally lagged behind — like Leeds, Birmingham, Manchester and Glasgow, despite being home to some of the UK’s leading universities.

“And we can guess why that might be — better prospects elsewhere. All of this, in turn, exacerbates local skills shortages. It’s an age-old problem, but it’s one we must crack if we’re to level up”.

The CBI also wants business investment to increase across the UK. “Business investment is something that needs tackling locally, but nationally too. That’s about tax and markets. And about regulation too, which we need to think about more holistically. We need UK regulators to pioneer pro-investment and pro-innovation regulation, alongside competition and consumer price,” Danker will say.

 

Nov 22

Having the power to put a spanner in the works pays very well

If your skills mean you can hold things up at work you’ll be rewarded far better than the easily replaceable”

Power matters. It’s central to international relations and politics, but doesn’t always feature prominently in economics. The power that does get attention, for example when thinking about who gets paid what, is often invisible market forces rather than people.

So a thought-provoking new paper putting power centre stage is rightly making waves. It asks why managers’ earnings vary with the productivity of their firms, while lower earners’ pay is largely unaffected.

It’s because the former have power, rooted in their ability to “hold up” production via quitting. Hold-up power is where a worker’s role is essential and they have specific skills so replacing them will take time. A waiter is essential but only the chef has hold-up power, given that a replacement will take time to learn recipes. Where those conditions exist, more productive firms that have more to lose from being held up pay above-market rates to stop us leaving.

The authors rather ghoulishly examined which roles were likely to have hold-up power by observing the hit to Danish firms when individuals in different roles died. They fell most for a manager at a high-productivity firm, an involuntary sign of hold-up power.

Men are more likely to be in roles with hold-up power. This also explains why superstar firms such as Apple choose to pay above-market rates, increasing inequality. So power matters and is getting more attention in our economics. Now it just needs to feature in our economic policymaking.

 

Nov 17

Weak investment, innovation and management hamper UK productivity

A study by researchers at the London School of Economics and Resolution Foundation think tank says low business investment was the clearest difference between Britain and higher-productivity nations.

Business capital investment in Britain was 10% of gross domestic product in 2019, compared with 13% on average in the United States, Germany and France. (but isn’t it what one does with capex that matters most – the efficiency and effectiveness of its use, not the initial costs?)

British business investment in research and development also lagged behind levels in other countries. (same question as for capex?)

Last month Prime Minister Boris Johnson highlighted Britain’s productivity problem (though few economists agreed with his diagnosis) that immigration of low-paid workers from the European Union bore much of the blame – that a ‘high-wage, high-skill, high-productivity’ economy comes from restricting immigration so that truck drivers, care-workers and other shortage occupations are paid more, levelling up the country – and that levelling up poorly performing companies or poorer regions will raise productivity significantly for the UK as a whole

The study claims that ‘output per hour worked’ in Britain is around 15% below that in the United States, Germany and France – though above that in Japan (which should cause pause for doubt about the validity of the base stats), Italy and Canada – and has barely grown since the financial crisis.

Bank of England policymaker Jonathan Haskel, speaking on a panel to discuss the report, said Brexit played a big role in depressing business investment since the 2016 referendum and would continue to do so:

  • “You might for political reasons support Brexit. That is perfectly okay. But from an economic point of view, all the uncertainty that led up to that, the series of cliff edges around the negotiation of the withdrawal agreement, were really bad for investment”
  • “A lack of access to finance – particularly for firms that rely heavily on ‘intangible’ investment such as in-house software development – was probably a bigger barrier”

A global survey of management practices suggested high-quality (how defined?) management was more common in the United States and Germany than in Britain, although not in France. 

But other commonly cited factors – such as Britain’s smaller manufacturing sector, big gaps between the most and least productive companies, or workers being stuck in ‘zombie’ firms – did not explain Britain’s underperformance. (not even partially?)

“Rather than focus on the UK’s long-tail of unproductive firms, we need to see economy-wide improvements to how firm invest and innovate, as well as how staff are managed and trained,” said Greg Thwaites, research director at the Resolution Foundation – (i.e we need to improve on all fronts?).

But then he adds: “It would be better if more work was done by stronger, more-efficient companies. This would involve quite a reallocation of work and the closure of many firms”.

(Sadly, that seems to be a non-starter conclusion for such an important study from such eminent economists)

Nov 14

Digital Solutions empower the employee experience

Enterprises are still adjusting to hybrid work. While many challenges still stand in the way of efficiency, new digital solutions are accelerating new channels of communication, new ways of networking, managing, and generally helping employees thrive – the following reads as an ad in disguise, but it’s still interesting

From wellbeing to productivity: Digital Solutions empower the employee experience

This is exactly where, in the past, digital solutions have come to bridge a gap in the organizational network. Spanning across industries, new software has been introduced to help both large and small enterprises stand up to new challenges.

Hilton Grand Vacations Club in Orlando, Florida, is one such example of a business that has had to navigate a number of challenges over the last year. While its operations were suspended indefinitely, the hotel looked at ways in which technology could better enable its operations and turned to Microsoft Teams to improve internal and external connectivity, and keep staff inspired and better connected.

As it slowly started to open its doors to guests again, Hilton Grand Vacations Club had found new ways to keep its team of frontline workers, including security, cleaning, maintenance, front desk and others connected throughout all its operations. The hotel staff not only interacts more efficiently, but even uses the platform to increase team member engagement, and learn better practices from the chain’s national network of connected employees.

Nurture over nature

Throughout 2020, companies had to constantly reconfigure their approach towards employee experience. The hybrid workflow has proven more than just doable, but a tool that the most innovative companies can use to their advantage.

According to Microsoft, enterprises should reduce the amount of importance placed on efficiency, and rather focus human productivity towards ingenuity, creativity, and innovation.

The transition to hybrid work highlighted the ‘nature vs. nurture’ aspect of corporate challenge and solution.

Leaving employees to the “nature” of remote work creates siloed teams who can become increasingly disconnected and disruptive to workflow (and not in a good way).

Rather, companies should look to the “nurture” side of a hybrid environment; improving networking channels, developing new collaboration tools, and putting the employee at the center, all facilitate a flexible and inclusive environment for both company and employee to thrive.

This is a big reason that companies look to leverage new and innovative technologies to help improve employee wellbeing.

Microsoft, understanding the potential of hybrid work, launched Microsoft Viva, an AI-powered employee experience platform (EXP) – ugh!!! –  that empowers teams and the individuals that make them to be the best they can be – it encompasses the full spectrum of employee experience from sharing professional knowledge and insight to forming new relationships and establishing stronger communities – these types of virtual engagement solutions help employees feel included, inspired, and important on their journey alongside their employer, who benefits from smarter (data-backed) and more aligned teams.

Since remote work became the new normal, Microsoft reports that close to 60% of people feel less connected to their teams, while almost 70% of employees have experienced an increase in stress levels, with 40% reporting a decrease in mental health.

Add all this to the lack of allocated time set for learning new skills, and employees desperately need support.

 

Nov 11

Busy but not productive?

HOUSTON

A new APQC study found that the average knowledge worker spends only 30 hours out of a 40-hour week on productive work, resulting in lower job satisfaction and greater likelihood of leaving their company. APQC’s research found that training, mentoring, and employee empowerment can help organizations navigate these productivity challenges.

APQC, which surveyed 982 full-time knowledge workers, found the biggest productivity drains relate to collaboration and information flow. Each week, knowledge workers estimate they spend:

  • 3.6 hours managing internal workplace communication,
  • 2.8 hours looking for or requesting needed information, and
  • 2.2 hours participating in unnecessary or unproductive meetings.

Other drains include creating/using workarounds for broken systems and processes; recreating information that already exists; and seeking out the right people to answer questions or provide expertise.

Lauren Trees, APQC’s principal research lead for Knowledge Management, said: “Companies that are doing nothing to address these productivity challenges are at great risk of a talent exodus, as nearly 60 percent of their employees express lower job satisfaction and 44 percent are more likely to jump ship. Fortunately, our research indicates a path forward.”

APQC’s research found that process and knowledge management programs—along with related activities such as simplifying/streamlining processes and documenting critical knowledge—significantly improve employee outlook on these issues.

Technology solutions, such as enterprise search capabilities, are critical for improving productivity and reducing organizational risk by ensuring knowledge is documented and easily accessible. However, APQC found the most tangible productivity gains come from hands-on approaches to educate people about potential tactical improvements and encouraging them to act, such as:

  • Training and mentoring help streamline information exchanges, so employees waste less time supplying duplicate information and answers.
  • Mentoring helps strengthen employees’ networks, thus reducing time spent recreating already existing information or seeking out experts.
  • Empowering employees to suggest improvements helps limit busy work as front-line workers often know what processes can be streamlined.

All three of these interventions equate to less time spent in unproductive meetings, as employees will know better how to limit meetings or suggest alternative approaches.

Holly Lyke-Ho-Gland, APQC’s principal research lead for Process and Performance Management and the study’s co-author, added: “Many of the best productivity improvements come from employees themselves, if given the opportunity. Such initiatives should not happen to people, but with people as they identify pain points and co-develop solutions.”

APQC is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. Learn more at www.apqc.org.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211109005449/en/

Contacts

Ross Coulter
214-394-5538
ross@mpdventures.com

Nov 09

Entrepreneurs – Naturally More Productive

According to John Hall for Entrepreneur United States: “Being an entrepreneur isn’t for the faint of heart. While it’s true that there’s some luck involved, not only do you need a big idea, you also have to have the courage and tenacity to see it through. As a result, this means putting in long days for little to show for it.”

It’s because of the entrepreneur stereotype you can assume that entrepreneurs seem to be naturally more productive. And, because of the following ten traits that they possess, that assessment seems spot on.

1. Autonomy.

Running your own business drives happiness and motivation. In turn, this boosts productivity? While not exactly surprising, why is this the case?

It boils down to autonomy.

“Basically, autonomy is having a job where you at least have some control over your job,” explains Deanna Ritchie in a previous article.

“While more businesses are starting to offer this type of independence, running your own business achieves independence, adds Deanna. “You’re determining when and where you work, as well as are the final decision maker, and this helps.”

“Autonomy, however, is more than just being the head honcho,” she states. There has been evidence that independence leads to higher levels of job satisfaction and engagement.

In addition to lowering negative emotions, controlling your circumstances and your career has health benefits, such as reducing heart disease.

But don’t just take Deanna’s word on this. According to a survey from Cox Business, independence, satisfaction, and flexibility are the top reasons people want to become their own boss.

2. Creativity.

Regardless of what you call it, creativity is the key aspect of entrepreneurial success. Just ask Simon Sinek, who insists that entrepreneurs are problem solvers at heart. Or, Tina Seelig, a professor at Stanford University, promotes teaching creative problem-solving to business students.

Additionally, Entrepreneur’s Leadership Network member John Boitnott has creative thinking at the top of his list of entrepreneurial qualities. Using creativity to make valuable connections, he believes, will improve your creativity and productivity.

3. Focused.

“Don’t get distracted. Never tell yourself that you need to be the biggest brand in the whole world. Start by working on what you need at the present moment and then what you need to do tomorrow. So, set yourself manageable targets.” — Jas Bagniewski, Co-Founder of Eve Sleep

Let’s be honest, distractions are inevitable. But, entrepreneurs have the ability not to get sidetracked by tasks that could be delegated or obsess over what can’t be controlled. Instead, possessing this superpower allows them to laser-focus on what truly matters.

4. Decisiveness.

“To be successful, an entrepreneur has to make difficult decisions and stand by them,” Kelsey Miller writes for Harvard Business School Online. “As a leader, they’re responsible for guiding the trajectory of their business, including every aspect from funding and strategy to resource allocation.”

“Being decisive doesn’t always mean having all the answers,” adds Miller. It takes confidence to take on challenging decisions and see them through if you want to be an entrepreneur. The decision to take corrective action is equally important if the outcome is less than favorable.

5. Harder, better, faster, stronger.

Entrepreneurs are well aware that they need to take care of themselves if they want to be their best. I mean, if you stay up all night partying and stop by McDonald’s on the way to work, how productive are you going to be? As such, successful entrepreneurs know that they need to get enough sleep, exercise, and eat a balanced diet.

They also make time to address their mental health. And, entrepreneurs also are constantly learning new skills or information to become more well-rounded.

6. Challenging the status quo.

“When an entrepreneur becomes successful, they don’t stop there,” writes Micheal Gilmore over at MoneyMiniBlog. “For them, taking the path of least minimum resistance is never the right option.”

“Entrepreneurs are progressive,” he adds. When they observe a situation, they consider how they can improve it. As a result, they constantly step outside of their comfort zone and challenge the way things have been done — which can help improve their output.

7. Meditate.

Meditation has been found to increase creativity and improve leadership skills. And, it can also make you more productive.

Regular meditation can help meditators stay focused and on task without getting distracted for longer periods of time. Having discovered the benefits of meditation, Vishen Lakhiani founded Mindvalley. Most days, he meditates between 10 and 30 minutes per day. Additionally, he teaches his methodology through Mindvalley’s meditation quests.

“We looked at the science of meditation, and we created six unique exercises that are stacked together that create the most transformative impact on your mind and your body and your soul in 20 to 25 minutes a day,” he says.

8. It’s not all about work.

Elon Musk once infamously said it’s impossible to achieve great things without hard work. “There are way easier places to work, but nobody ever changed the world on 40 hours a week,” he said concerning his companies Tesla and SpaceX.

Sure. Entrepreneurs are all about rolling up their sleeves and busting their tails; they also know they need time off. “The right measure is not how many hours you chip in,” entrepreneur and CEO of Fishbrain Johan Attby told Forbes. You need sleep; you need food, and you need a healthy relationship if you have a family and friends.”

Moreover, entrepreneurs have pursuits outside of their work. Whether it’s writing, martial arts, yoga, video games, or playing a musical instrument, hobbies keep entrepreneurs in peak condition.

9. Focus on strengths and supplement weaknesses.

A successful entrepreneur focuses on what they do best while outsourcing everything else. Some calculate their rate per hour so they can avoid activities below that level. By doing so, they achieve meaningful results. Moreover, they recognize that developing popular software or starting a business differs significantly from being an effective leader and will also develop those skills.

Also, they realize that they don’t need to have all the answers. So instead, entrepreneurs surround themselves with people who can supplement their weaknesses.

10. Passion.

Passion should be the index card of every entrepreneur, as necessity is to the inventor. You cannot envision solving a problem or selling your idea to investors if you don’t believe in what you’re doing. Moreover, passion helps maintain focus and motivation — even after startup failure.

According to a psychological study of entrepreneurial behavior within organizations, passion isn’t just another personality characteristic. For those who are passionate, everything else flows. Individuals are no different. After all, creativity, tenacity, and salesmanship are all driven by passion.

Oct 28

The British Government’s approach to the economy’s productivity problem needs a rethink

 Derek du Preez, writing  for diginomica.com, claims that the British Government has a tendency to focus on sector specific issues whilst failing to recognize that productivity is an economy-wide problem that is highly interconnected

It is widely acknowledged that the UK has a productivity problem. After decades of growth, the financial crisis of 2008 led to productivity flatlining for years to come. Whilst employment has continued to grow just as strongly as before the financial crisis hit, GDP growth has slowed to approximately 1.5 percentage points less than the decade before 2008.

It is also widely accepted that increases in productivity – achieving more output from less input – is what drives prosperity. This is why the ‘productivity problem’ has been a central focus of government policy and investment in recent years. However, it’s become even more critical in recent months as a result of the challenges facing the UK in the face of Brexit and the COVID-19 pandemic.

Prime Minister Boris Johnson has made clear that in his mind the key to solving this challenge is prioritizing sectors that are highly skilled and high growth – such as science, technology and the green economy. Johnson has made comments about turning the UK into a ‘scientific powerhouse’ and a key part of the government’s agenda has been to ‘level up’ all parts of the country.

We’ve seen sector specific deals carried out – including in fields such as AI – and there has been a number of innovation policy investments announced.

However, a new report out this week released by think tank Institute for Government (IfG) provides some interesting food for thought – at a top level, IfG debunks the myth that a decline in manufacturing investment is the source of the UK’s productivity pain, pulling data that suggests that even if the UK had kept up with Germany’s growth in manufacturing, that it would only account for a fraction of productivity growth.

Equally, it rightly notes that productivity can’t be tackled on a sector by sector basis. So many of the challenges associated with improving productivity are interconnected and economy-wide, and policy intervention should instead focus on agendas that cut through all aspects of the UK’s economy.

And whilst the government appears to want to be at the center of technology creation, it would do better to focus on technology adoption and structural changes within sectors to drive productivity. In addition, focusing on improving skills across the UK would have a greater impact than being the country that cracks the next big high-tech innovation.

It’s complicated

IfG notes that it must be tempting for government and policy makers to place the blame for a decline in productivity on the UK’s failure to nurture high-productivity sectors, favouring a growth in service-led sectors.

Hence we see the Treasury, for instance, making calls to focus on “high-growth, innovative sectors” – the implication being that these are the ‘right’ sectors for the UK’s future. But in reality it’s not so black and white. Sectors such as retail and hospitality actually have the potential to deliver high levels of productivity gains, which has been helped by the shock of the COVID-19 pandemic and the adoption of new tech and business models.

Equally, the research shows that this is an international trend and whilst some of the UK’s peers may have outperformed in certain areas, when you look at the totality of the impact on productivity, the likes of the US, Germany and Italy are facing the same problems. The IfG report notes:

Moreover, the country’s shift towards services should not be portrayed as a productivity-sapping strategic mistake. The shift was seen across many countries and is natural during the evolution of advanced economies which, as they age, spend more on services. The government should treat it as an invitation to take services – even the traditionally low value-adding ones – more seriously as a potential source of growth. Differing sectoral shapes are not sufficient to explain the regional gaps in productivity that preoccupy policy makers. Although the UK has shifted employment away from manufacturing to some lower-value services, the timing of this shift does not match the worst spell of productivity weakness that began after 2008. Even if the UK could have stemmed the erosion of its manufacturing share, as Germany has managed to do, most or all the past decade’s weakness would remain.

Sector boundaries are not the key

The IfG’s sector analysis shows that the shortfall in productivity growth that occurred post-2008 was skewed towards a few industries, such as ICT and professional and business services, as well as the financial sector. But weaker performance was seen right across the economy – most employees worked in a sector that grew less in the 10 years after 2008 than in the 10 before – and, as such, economy-wide perspectives are needed.

IfG states that sector boundaries are “often arbitrary” and the sectors themselves are interdependent. It adds:

A narrow sector-by-sector examination risks focusing upon individual economic areas to the detriment of macroeconomic insight – to ‘miss the wood for the trees’. The state of aggregate demand is one variable that might be overlooked. A broad productivity crisis hit many developed countries at the same time as the financial crisis damaged global demand and confidence. Sharp movements in aggregate demand land unevenly across sectors and are often highly correlated with shifts in productivity. The persistence of these effects must be considered before the performance of any sector is accorded a purely sectoral diagnosis.

The report goes on to say that whilst Johnson’s government puts a heavy emphasis on innovation policy as a tool for driving economic progress, the sector-level relationships between technology, innovation, productivity and livelihoods are far from straightforward.

In essence, it states, more technology does not always lead to a large market, more pay or higher jobs. You only have to look at the US economy which has generated $6 trillion of extra equity value in just four giant digital tech companies.

What’s the solution?

If a sector by sector approach isn’t what’s needed, how should policy makers be thinking about improving productivity? The key message to take away is that productivity cannot be solved by focusing on certain sectors, such as high technology. The efforts need to be much broader in scope.

The objectives also need to be considered. For instance, the report adds:

It is also a mistake to see growth or productivity as the only objective for innovation. Energy sector innovation is a clear example; this is going to be vital for the transition to net carbon zero and, done well, will have a positive effect on myriad other parts of the economy. But it might do this without having any direct perceptible effect on the GDP figures, as lower CO2 emissions do not count towards GDP.

Some of the things the government is currently doing will likely have a greater impact on productivity than its sector-specific deals and investments, and these should be scaled up. For instance, the government’s ‘Help to Grow’ scheme, which is aimed at improving management skills, or its policy interventions to encourage the adoption of digital tools across all businesses – these are far more strategic in achieving higher productivity gains. Again, it’s the *use* of technology that will make the most fundamental difference, not its creation.

As noted above, we’ve seen drastic changes in recent months across the economy as a result of the COVID-19 pandemic – the changes happening in retail and office spaces would have likely taken years to occur without the ‘shock’, but could well have positive impacts on productivity.

Oct 21

How can technological innovation mitigate climate change?

Stephen Carson  and Harald Edquist, in an article published by ericsson.com, claim technological progress has the power to transform lives, but it’s often come at a high cost – they outline how technological innovation, specifically ICT, can play a leading role in addressing the challenges of climate change. In effect, the more ICT employed, the less CO2 emitted. a planet-saving productivity inversion you might say!

 

technological innovation climate change
When the subject of the Industrial Revolution is raised, what images come to mind? You might think of the steam engine, the expansion of the railways or electrification literally illuminating the world. For many, it’s a period that also sparks visceral reactions, with thoughts of living in a city such as Manchester, Birmingham or London in the nineteenth century, with factories spewing smog and soot into the air and dumping pollutants directly into rivers and streams.
Regardless of your feelings, it’s clear that the Industrial Revolution enabled massive productivity gains and improved the standard of living for millions of people. But the gains were largely powered by the carbon-based fuels that are now destabilizing our climate.
In the time of the Industrial Revolution, machines took the place of manual workers as production moved from cottages and workshops to factories. The resulting productivity gains were from relentless improvements in efficiency—or increasing outputs from the same or fewer inputs. The same process had similar effects in agriculture, transport and electrical distribution. Underlying most of these industries was coal, and then petroleum-related fuels.

Technological progress and the ‘Jevons paradox’

Productivity gains have rebound effects as higher productivity leads to lower prices and increased demand. In 1865, the economist William Stanley Jevons observed that deploying innovations which increased the efficiency of coal-use did not result in less coal being consumed. As less coal was needed per unit of work, the demand for coal increased—a phenomenon known as the Jevons paradox. He argued that contrary to common intuition, technological progress could not be relied upon to reduce consumption.
This effect can be clearly seen today as improved productivity in the manufacturing of consumer electronics leads to lower prices and more demand for both consumer electronics and other products, resulting in a rebound effect: higher CO2 emissions.
ICT has contributed considerably – at least 15% – to world GDP growth in the last decade. We are in the midst of a digital revolution, but carbon-based fuels remain integral to the economy.  ICT has the potential to break the pattern of productivity linked to fuel consumption. It can be a key source for how to reduce our dependence on fossil fuels and work proactively to fight climate change across economic, social and environmental domains.
technological innovation climate change
Figure 1. Sources of carbon emissions (million tonnes per year) in the world between 1750–2019. Source: Our World in Data (2021).
However, the level of rebound also depends on the policy framework in effect including carbon pricing and should not be seen as an argument against productivity and efficiency per se. With policies such as subsidies on electric cars, rebound effects could be positive for the environment as more consumers shift to electric cars. Moreover, the total spending on ICT products has increased and this could lead to an inverted rebound effect as less is consumed of other products and services in a process of dematerialization.

Moving together towards a low-carbon era

Many developing countries are at levels of consumption lower than more advanced economies, and are working hard to reduce poverty and improve living conditions. As productivity gains reduce costs, it is not unreasonable to expect significant increases in consumption due to rebound effects.  Meanwhile, in the more advanced economies, dematerialization is increasingly evident, implying that the more advanced an economy becomes, the fewer of the world’s resources will be used to maintain consumption if rebound effects are under control.
Developed countries will need to aid developing countries to jump into the low-carbon era, compressing or even skipping the lag between innovation and economic impact. This will be possible as technologically advanced countries work through the myriad of improvements to general-purpose technologies, allowing the developing world to leapfrog whole generations of technology.
The current CO2 situation should be viewed as a gigantic market failure. In many countries the cost of emitting CO2 has been negligible for a long period of time. If CO2 emissions had a tangible cost attached at an earlier stage, it is probable that many more innovations would have been focused on reducing emissions.
Nevertheless, it is evident that the consumption of coal, oil and gas will have to be reduced.
technological innovation climate change
Figure 2: Annual production-based carbon emissions (million tonnes per year) in the world between 1750–2019. Source: Our World in Data (2020).

Staying one step ahead: How 5G can help reduce emissions

Today, we have an advantage over the inventors of the Industrial Revolution era: we know that carbon-based fuels have an important long-lived effect on climate change. The increase of CO2 emissions leading to higher average global temperatures is a threat to the stability of our societies and of the economic system, not to mention the planet itself.
Technological innovation plays an important role in addressing the challenges of global climate change. To leverage market forces in this process, policies must increasingly support regulations and treaties using bonus-malus mechanisms. Increasing subsidies on goods and services reducing greenhouse gas emissions balanced with costs tied to such emissions, are needed to secure the transition towards a decarbonized economy.
5G is likely to have large impact on productivity for the next decade. It can be viewed as a flexible innovation platform that can meet diverse user needs both for consumers and industries. Some use cases will be based on improved mobile broadband, fixed wireless and massive and critical IoT. This will likely have a direct effect on GDP.

Oct 10

Low-paid migrants are no answer to labor shortages

The Wall Street Journal reports on a speech to Boris Johnson’s supporters where the U.K. prime minister talks of a new economic model but meets criticism from some traditional party backers

British Prime Minister Boris Johnson said he would press ahead with his government’s pledge to end the influx of low-paid migrant workers despite the country’s labor shortages, describing it as a radical change for the British economy.

Speaking at the Conservative Party’s annual conference, Mr. Johnson looked to turn the page on over a decade of his own party’s rule, calling an end to high immigration, which he said had depressed wages and productivity.

“We are embarking now on the change of direction that has been long overdue in the U.K. economy,” he said. “We are not going back to the same old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration.”

The approach sets up a clash with some traditional Conservative supporters in business, agriculture and among proponents of free markets.

Britain is in the midst of an unusual economic experiment: explicitly shutting down the flow of foreign labor as demand for workers soars. Britain tightened immigration rules after it quit the European Union last year, ending the automatic right of EU citizens to live and work in the country. The pandemic, meanwhile, prompted hundreds of thousands of European workers to leave the U.K.

Now as the economy rapidly reopens after Covid-19 lockdowns, some business associations are urging the government to temporarily loosen visa restrictions in some sectors. Mr. Johnson is saying no, telling businesses to attract staff with better pay or invest in ways to boost existing worker productivity.

Across the world, Covid-19 has sparked worker shortages. However, the situation is particularly acute in the U.K. after the country cut ties with the EU—its largest trading partner and for years a vast reservoir of workers.

Currently, the military is delivering fuel to gas stations in parts of the U.K. following a shortage of tanker drivers. Farmers have begun culling healthy pigs because there aren’t enough abattoir workers or butchers to process them. Protesters from the farming industry stood dressed as pigs outside the gates of the Manchester conference, chanting for government help.

Tony Danker, the director general of the Confederation of British Industry, warned that ambition on wages “needs to be backed up by action on skills, on investment and productivity.”

The move is a further break with Conservative Party pro-business, pro-market orthodoxy. The pandemic has accelerated a shift away from the small state, low-tax model championed by former Conservative leader Margaret Thatcher.

Matthew Lesh, head of research at the pro-market Adam Smith Institute, said Mr. Johnson had described an agenda for a “centrally planned, high-tax, low-productivity economy.”

The prime minister led the party to electoral victory in 2019, winning over blue-collar workers, many of whom had never voted for the Conservatives before. Now Mr. Johnson said his approach would boost the fortunes of these newly acquired voters through higher wages and more investment outside London.

“Yes, it will take time and yes it will sometimes be difficult but that was the change that people voted for in 2016,” Mr. Johnson said, referring to the year of the Brexit referendum, in a speech with no new major policy proposals.

One risk is that the labor constraints will push up inflation faster than wage growth. Inflation is due to rise above 4% by the end of the year, according to the Bank of England, largely due to a rise in energy costs.

The Office for National Statistics said that in August median monthly pay had risen 5.3% compared with a year earlier, though the agency warned it might be overestimating wage growth because earnings fell during the year-earlier period and many low-paid jobs were lost during the pandemic.

Nor is it clear that cutting immigration will spur productivity. “It wasn’t the fact that we had a high level of immigration that was responsible for employers not training their workforces,” says Kathleen Henehan, a senior analyst at the Resolution Foundation, a think tank.

The government, meanwhile, has wound down its Covid-19 jobs-support program and is removing a boost to benefit payments for the poorest people put in place during the pandemic. It will leave social-benefits payments at their lowest level in real terms since the 1990s, according to the Resolution Foundation.

The government recently announced increases in both corporate and payroll taxes to bolster the country’s state-run health service. Treasury chief Rishi Sunak said Tuesday that the size of the state will in coming years be at a “historically high level for us.”

Despite the shortages and tax raises, public opinion for Mr. Johnson’s government has broadly held up. The pandemic means that people still feel that the prime minister has been dealt a tough hand, pollsters say.

Oct 07

How to boost productivity with ‘Autonomous Motivation’

Some interesting thoughts from Dr Marc Nickell, a Forbes Business Council member and co-founder of Rocket Station – he is ‘obsessed with the pursuit of better practices’ – extracts from a recent article follow

Let’s start with the premise that your employees want to be successful in their work as much as you want to be successful in your business. Creating a work environment where employees are easily motivated to succeed, which then contributes to your success, is building a win-win situation for both you and your employees.

What Is Autonomous Motivation?

Autonomous motivation is  based on the idea that humans are best motivated to do tasks by intrinsic factors instead of extrinsic rewards – a feeling of independence drives people to do their best work and is at the heart of autonomous motivation – the more autonomy a person feels, the more motivated they become.

Extrinsic versus Intrinsic

Extrinsic is an outside factor that plays on a human being. Intrinsic is an internal factor that plays within a human being. The culture of an organization is built within.

Autonomous motivation activates these intrinsic factors. Employees have an inner drive to do their work and do it well.

Intrinsic values touch on how a person feels about their work and not just how much compensation they receive. Being paid fairly is important, but being paid more does not always correlate with being more productive. Money is not the only factor that motivates people to complete tasks. Other factors are at play encouraging workers to be successfully productive and will create a better culture within the organization.

Intrinsic definition

Intrinsic is an internal factor that affects human behavior. These factors are psychological in nature and come from within a person.

Common intrinsic motivations in the workplace include:

• Pride in work.

• Feeling respected and trusted.

• Personal growth and learning.

• Feeling work is enjoyable.

• A sense of accomplishment.

• Expanding competence and contribution.

• Feeling a part of a productive team.

• Choice in work projects.

 

How Do You Activate This Internal Drive?

As human beings, our desire to be independent begins from a very young age. If you have ever watched a baby working hard to pull up on furniture, take those first few steps or even say those first few words, you are witnessing intrinsic motivation. This type of motivation doesn’t stop once you know how to walk and talk. Your desire to be independent continues throughout your life. As a leader, you want to activate this independent drive within the work environment you set up.

 

How To Enhance Autonomy In The Work Environment 

There are three fundamental ways to develop autonomy in your office: fostering relevance, providing choice and allowing for criticism and independent thinking.

Fostering Relevance

When something is relevant to us as human beings, it means that it is important to us. We care about it. We want to achieve it. We have a reason to do it. Fostering relevance allows each employee to contribute to the success of your organization in a way that is important to each of them.

For example, it can be difficult for an employee to get excited about implementing a new process when its importance does not feel relevant to what the employee contributes. Not all employees do the same job, so each will see the importance of the new process in a different way.

As a leader, it’s valuable to create an environment where relevance is fostered for each employee. A place where an employee sees the new process as important to what they do as an individual and is tied to their personal achievement.

Providing Choice

Promoting a feeling of choice in your work environment can encourage autonomy within your employees, especially if their choices are tied to their personal growth and success. None of us likes to feel that we have no choice, especially in something as important as the work we do. We all want to perform tasks at work we find interesting.

This is not to say that every employee in your business gets to choose only the tasks they enjoy. There will always be the “not-so-enjoyable” tasks that need to be completed no matter the workplace or the job, but providing even small choices for each employee within the parameters of their job gives them a feeling of control. This feeling of control supports a feeling of autonomy.

Allowing For Criticism And Independent Thinking

This last way of developing autonomy in your office is two-fold. The core is for you as a leader to listen and accept criticism from your employees. It is not always the easiest of tasks, but it is important. An employee that feels safe expressing feedback on a colleague or problems they are encountering with you as a leader is an employee that also feels safe to think independently.

Fear of repercussions not only shuts an employee down to express criticism but also shuts them down when expressing solutions to problems that hold your organization back from success. Allowing space for criticism also allows for creative and innovative thinking. Feelings of autonomy grow in an employee who feels they can think independently on the job.

 

The Work Environment In Your Organization

Your office and employees are unique. Learning about your employees and what stirs them intrinsically can go a long way in creating a win-win environment. A place where your employees succeed in their work and you succeed in growing your company. Autonomous motivation can boost your employees’ productivity and, in turn, boost the success of your business.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders.

Oct 01

Who Will Win and Lose in the Post-Covid Economy?

A wise, balanced article on national economic options which lie immediately ahead, post pandemic – published by the HBR, written  by Philipp Carlsson-Szlezak, Paul Swartz and Martin Reeves of Boston Consulting Group

As an extraordinary recovery is underway, it won’t be long before business leaders face a perennial political economy question: With wages rising and workers’ claim on economic output growing, will firms’ profits come under pressure?

With tight economic conditions all but guaranteed, there are multiple scenarios of how output will be shared between workers and firms in the post-Covid expansion. The policymakers who have placed the big stimulus bet also will have to negotiate the path ahead.

We’ve identified a small number of plausible scenarios that sketch the interaction of wage growth, productivity growth, and policy management. While workers and policymakers can live with several of the scenarios, only one will be truly appealing for firms.

The Ongoing Stimulus Bet

Fiscal stimulus was both enormous and necessary when the Covid crisis hit last year, and it successfully prevented the structural damage that weighs down recoveries. But even as the economy was on a better-than-expected rebound, the government opted for an additional stimulus package, in the hope of delivering a booming economy that will boost workers’ fortunes in the post-Covid economy. The downside to this stimulus bet is the risk of imbalances, such as inflation or asset bubbles, as the economy “overshoots.”

We summarize four ways in which this bet may play out — and who wins and loses.

1. Win-win: Wage gains are paid for by firm productivity growth.

The Goldilocks scenario is where workers, firms, and policy makers all win in the post-Covid cycle. Firms don’t lose out from higher wages if they’re paid for by productivity growth. And policy makers prefer this dynamic because there are no current or latent inflationary pressures as the potential of the economy expands.

However, this combination of wage and productivity growth is not a given. The period that most resembles this scenario was the late 1990s. Wage growth was very strong, but so was productivity growth, which muted the impact on corporate margins. Companies were happy to ride the wave of strong economic growth, itself driven by strong wage growth in a virtuous cycle.

In the post-Covid world there is a credible expectation of some higher productivity growth but whether it can be enough to meaningfully offset wage pressures remains to be seen.

 

2. Win-lose: Workers gain at the expense of firms — reversing a longstanding trend.

If productivity growth falls behind wage growth in the post-Covid world, firms will be faced with cost pressures. If they’re unable to pass them on to consumers, their margins will be compressed and workers’ share of economic output would grow at firms’ expense, reversing a multi-decade trend.

Across recent business cycles we have seen strong wage growth when the labor market is tight and firms’ margins fall.

Keep in mind that firms’ profits may continue to grow in this scenario, as the strong economy drives top-line growth that can offset margin pressures. But it’s a less attractive scenario than the first one because we don’t see as much overall economic growth.

Policy makers would approve of this scenario, not only because of their policy objective to raise wages but also because firms’ absorbing wage pressures in margins means less inflationary pressure. However, their approval would be qualified, as rising wages cannot be sustainably absorbed in firm margins indefinitely, eventually leading to inflation.

3. Lose-lose: Inflation threatens the cycle as policy makers deal with a losing bet.

If wage pressures are not offset by productivity growth, and firms have the pricing power to pass them on to consumers, then inflation will result.

If this occurs at a modest pace (say 2%) policy makers may be satisfied. But if it drives inflation sharply higher for some time, policy makers will have lost their stimulus bet. Faced with too much inflation, they would have to raise interest rates and risk a recession — a lose-lose all around.

Such a “policy error” occurs when the Fed/ BoE has to move faster and stronger than anticipated to catch up with realized inflation. While an error, it remains the desirable course of action, because ignoring emerging pressures has the potential to deliver far worse than a cyclical downturn.

4. Lose, then lose again: Policy makers double down on a losing bet, leading to disaster.

The disastrous scenario is that monetary policy makers don’t raise interest rates even when prices are rising faster, and lawmakers push for even more fiscal stimulus in a quest to extend the cycle.

The ugliness in this scenario is that cyclical pressures can break the structural foundations of the inflation regime when pressure is high and sustained. Such a “regime break” is a higher bar and takes more time than just a few quarters or even years. But it can happen, and it has happened before — last time in the late 1960s, leading to a period known as “the Great Inflation.”

If this scenario happens, the outlook wouldn’t just be a single short recession, but more frequent recessions, low asset valuations, higher rates, and a painful process of re-anchoring inflation expectations.

Which Scenario Is Most Likely?

While scenarios are a necessarily stylized version of the future (not the messy reality), there are reasons to be optimistic.

With wage pressures almost certainly building, the good news is that productivity growth is likely to absorb some of it  — as the Covid crisis has facilitated new business learnings — but not all, so margins will be pressured to absorb some of it. If there is enough of these two outcomes, monetary policy makers can raise interest rates slowly without killing the cycle — a relatively good outcome for workers, firms, and policy makers.

If price pressures are passed through and too-high inflation does result on a sustained basis — which we view as less likely — policy makers stand a chance to avoid a recession, even though that window could be quite narrow. An early and well-balanced policy intervention can deliver a “soft landing,” where the economy cools down just enough, but not enough to push it into recession.

Only if inflation starts a fire that needs to be put out rapidly and policy makers deliver a recession is it a clear lose-lose bet. (Although conditions could change, we view this as unlikely.) Yet, this remains preferable to the structural inflation break (very unlikely in the near term) where policy doubles down on a losing bet and undermines the inflation regime.

What It Means for Firms — and What They Can Do

Stakeholders in the macro economy have different interests in the scenarios we laid out above. Workers are fine with scenario 1 or 2, and some politicians might even prefer scenario 2 where labor’s share most clearly rises. Policy makers would prefer scenario 1, but they would be satisfied with scenario 2 as well. They may also be willing to push the cycle if that scenario develops.

Firms, on the other hand, will strongly prefer scenario 1 and that means they have to deliver higher productivity growth in the post-Covid cycle.

It’s difficult to overstate the importance of productivity growth to firms. Passing on wage pressures to protect margins is only a winning strategy if other firms can’t do the same. If all firms can and do so, the inflationary outcome will drive up interest rates and thus be a headwind to growth. In aggregate, therefore, for firms to win they must deliver on productivity growth.

So, what are firms to do? Productivity growth, in essence, is about producing more with existing inputs, or producing the same with fewer inputs. That almost always is easier said than done, particularly when the pandemic has already put enormous strain on the workforce, but here are some key levers to do so sustainably:

  • Seize on the specific learnings from the crisis. Covid has forced many firms to survive and adapt to new realities, often by exploring new, digital, and often more efficient processes and channels.
  • Institutionalize the learning process from the crisis. Covid also forced firms to try things they wouldn’t have otherwise tried, often at surprisingly little cost. Now is the time to build processes that generate these learnings in more normal environments.
  • Understand that the old playbook of plugging gaps by hiring the next worker will be hard. Thus focus must shift to improving existing worker productivity through new technologies. In particular, the ongoing “digital transformation” of incumbent businesses has at worst the potential to increase the cost of doing business, and at best could drive both growth and productivity. In this respect, the biggest gains will be if business models are reimagined in the context of new needs and new possibilities, rather than merely incrementally enhanced.
  • Yet don’t ignore existing technologies. Often their use can be deepened today since previously the tradeoff between incremental labor or capital investment was less favorable.
  • And lead effectively. Leadership that gets everyone pushing in the same direction (ranging from the operational to the inspirational type) can unlock productivity gains as well.

 

Avoiding paying higher wages in the post-Covid cycle will be a losing strategy. Instead, making your firm more productive so that workers’ additional value creation pays for their higher remuneration is how firms can turn the post-Covid cycle into a win-win scenario.

 

Sep 21

Why Computers Didn’t Improve Productivity

A ‘sad but true’ article in many respects by Steve Denning just published by Forbes.com – it reflects much of my own experience, starting with only getting access to a mainframe IBM 1401 overnight, and alone, to develop a computer simulation programme for redesigning the electric arc steelplant – the computer was busy all day printing out payslips and invoices, with its minimal computing power hardly even used

“You can see computers everywhere but in the productivity statistics,” wrote Nobel-Prize-winning economist Robert Solow in 1987. His dictum spawned several decades of economic research aimed at solving the mystery that has become known as the ‘Solow Paradox’: massive investment in computers but no net gain in productivity.

A key to solving the Solow Paradox lies in recognizing that bureaucracy and computers are a marriage made in hell: computers generate a great deal more work, but not necessarily more useful work. In a bureaucracy, there is often no net gain. Until you tame bureaucracy, with more agile management, computers often make things worse.

The Solow Paradox Is Counterintuitive

The usual first response to encountering the Solow Paradox is disbelief: “If I have to write a few emails so that I don’t have to use a carrier pigeon, sign me up!”

But in a bureaucracy, the story of those few emails usually doesn’t end there. So, you send your few emails, and then you soon get email replies and comments. Now, you have to write more emails in reply to those emails, which are then sent up the hierarchy and to a chain of full-time reviewers, who each make a comment to show that they are useful.

So now you have to reconcile all these comments. And maybe you have to send more emails to explain to each reviewer how their particular comment has been dealt with, and you may get replies to those emails. And so on. What began as a few quick emails has turned into days of work by multiple people all over the organization. In a bureaucracy, computers help work spread like a virus.

The First Digital Computers

Digital computing began differently, with a big success. The first digital computer, Colossus, was developed by British intelligence in the 1940s. It deciphered encrypted messages between Hitler and his generals: it helped win the Second World War

Similar one-off triumphs were apparent with NASA’s moon landing in 1969, and with IBM’s computer, Deep Blue, which defeated world-champion chess player Gary Kasparov in 1997 and Watson, which won the game show, Jeopardy, in 2011. Yet widespread economic gains from computing have been harder to find.

Mainframe Computing

When mainframe computer systems began appearing commercially in the 1950s, big firms were thrilled. Suddenly, in a single system, top managers could for the first time see the results of massive amounts of data. Computers were used by firms for critical applications like bulk data processing, enterprise resource planning, large-scale transaction processing, and industry and consumer statistics.

Mainframe computers were expensive and required significant expertise. The computers were physically huge and needed special cooling systems. Access to computing time was strictly rationed. The systems themselves were monolithic and could not interact with other systems. The systems were also difficult to adjust or re-program.

By the 1990s, huge sums of money were being lost in mainframe computing because the work of software development was always late, over budget, and plagued by quality problems. Some big projects were never finished at all. Software programmers were seen as culprits and were punished. They worked harder. They labored evenings and weekends. They were fired. It made no difference. The software was still late, over budget, and full of bugs. Replacements were hired, but they did no better.

Standard management practices did not seem to work with big software systems. Managers found that the more they sought to control things, the less progress they made. The more staff they added, the slower the team became. Complexity did not respond to authority. Billions of dollars were being lost. Something different had to be found. But in the course of the search to find a better way, computer departments acquired a reputation for bad management.

Computers and Bureaucracy: A Marriage Made In Hell

Meanwhile the advent of minicomputers in the 1960s, and then personal computers, in the 1970s, democratized access to computing. Now everyone in the white-collar workforce had access to a computer. And indeed, computers enabled much more work to be done.

One or two redrafts of documents became incessant revisions. Individual reviews turned into multiple levels of reviews and further rework. Staff found themselves preparing, and then sitting through, endless PowerPoint presentations.

Spreadsheets spawned massive amounts of data analysis. Yet different computing programs often couldn’t interact with each other. Data was shipped back and forth, or up and down corporate hierarchies, or across different systems, or unbundled and re-bundled, or transformed into analog and then re-transformed back into digital.

The Spread of Unproductive Work

As anthropology professor David Graeber explained in his landmark book, Bullshit Jobs: A Theory, the workplace became riddled with useless work: “HR consultants, communications coordinators, PR researchers, financial strategists, corporate lawyers, or the sort of people … who spent their time staffing committees that discuss the problem of unnecessary committees.”

Graeber’s analyses suggested that in large organizations, as much as half of all work was being done by five categories of unproductive jobs:

·      Flunkies, who serve to make their superiors feel important.

·      Goons, including lobbyists, corporate lawyers, telemarketers, and public relations specialists.

·      Duct tapers, who fix problems—temporarily.

·      Box tickers, who create the appearance that something useful is being done.

·      Taskmasters, who create extra work including middle managers.

An Explosion of KPIs

As the quantity of useless work grew with the help of computers, bureaucracies developed devices to prove that their work was useful. Key performance indicators (KPIs) that supposedly defined what was important to perform by any person or unit flourished like mushrooms.

In practice, KPIs were mainly used to justify the bureaucracy, rather than to help determine whether any activity was creating genuine benefit for any external customer. Masses of computerized KPIs helped managers prove—to themselves and to their bosses—that what they were doing was useful.

The Solution: Agile Management

In the (good) old days before computers, you didn’t send unproductive emails. You just did what needed to be done.

And that’s what happens now in the winning firms of the digital era that have made the transition to agile management. All work, including computing, is focused on what will add value to external customers. So, you don’t send those unproductive emails: you are working in a team with a clear mandate on a customer-focused set of tasks in a sprint—i.e. work with a short deadline. You don’t need to continually check in with a steep hierarchy or with an army of reviewers. You just get on with it and get it done.

It’s not that computers aren’t potentially capable of great gains. But like most new technology, they need a different kind of management to realize that potential.

 

Sep 09

Collaboration Overload Is Sinking Productivity

An article about employees’ changed workloads in this new post-pandemic era,  published by the renowned Harvard Business Review , written by Rob Cross, Mike Benson, Jack Kostal and R J Milnor – and precised below
Collaborative work — the time spent on email, IM, phone and video calls — has risen 50% or more over the past decade to consume 85% or more of most people’s work weeks.
The Covid-19 pandemic caused this figure to take another sharp upward tick, with people spending more time each week in shorter and more fragmented meetings, with voice and video call times doubling and IM traffic increasing by 65%. And to make matters worse, collaboration demands are moving further into the evening and are beginning earlier in the morning.
These demands, which can be invisible to managers, are hurting organizations’ efforts to become more agile and innovative. And they can lead to individual career derailment, burnout, and declines in physical and mental well-being.
In response, forward-looking organizations are taking action to protect employees from the volume of collaborative demands by employing organizational network analysis (ONA) – (O NO – not another unnecessary TLA!)
For example:
  • Two major life sciences organizations have used network analysis (aka ONA?) to systematically analyze calendar data and identify ways to reduce redundant meeting time.
  • One global software organization has focused on email to reduce volume, length, and cc’ing redundancies.
  • A globally recognized insurance organization has employed network analysis (aka ONA?) to identify the most overwhelmed employees and educate them on practices to reduce overload.
  • And, on a more dubious front, one global services organization implemented a 60-second timeout button – after a particularly difficult time, employees can hit a button that lets others know they are taking a mindfulness break — although one must wonder if this is akin to giving a band-aid to an amputee
This exclusive focus on quantity of collaborative demands misses two important drivers of collaborative overload:
1. The inefficiencies and subsequent cognitive switching costs of always-on cultures – i.e. the costs of being disrupted – the time needed to ‘get back up to speed’ – the increase in meetings and the number of participants per meeting from the use of Zoom or Slack, and the decrease in focus on results
2. The personal motivations that lead us all to jump into collaborative work too quickly – and unnecessarily – much of the blame lies with the individual, not others, by responding to most requests or perceived opportunities to feel one matters and/ or is in control – or from wanting to help somehow

 

To avoid these negatives, General Mills took the following action:
  • Implementation of “free-form fridays” – employees were instructed to leave their calendars blocked starting at 2.00pm every friday, so they could engage in “deep work,” catch-up on emails, and recharge
  • More frequent surveys of employees’ well–being and stress levels, with senior leaders emphasizing the need for prioritization and self-care
  • The development and deployment of “Ways of Working” training and tools for teams with high levels of collaboration, stress, and negative mood
On average, General Mills claim to have reduced collaboration time by eight hours per employee per week , and cut many non-value-added meetings — all without any negative effects on stress levels or moods
The authors thus claim ‘leading organizations that equip their employees to work more efficiently in this context will have an important advantage in terms of both performance and retention’

 

Sep 03

4 reasons hybrid offices won’t work

A provocative article by Joseph Woodbury, CEO of Neighbor, and published by fastcompany.com – arguing that WFH full-time is not a sensible productivity tactic

In a singular (and hopefully rare) global pandemic, we seem to have collectively forgotten our need for each other. Without thinking twice, companies are rushing to roll out remote work policies as if employees are robot machines that don’t need the human interaction of an office. As a result of one major unfortunate disaster, we have rashly set aside centuries of collective learnings about collaboration and teamwork.

Contrary to these split-second policies, the famous Westgate studies conducted at M.I.T. by social psychologists Festinger, Schachter, and Back proved that propinquity, or the state of being close to someone, heavily influences the likelihood that a close relationship will form.
Management Professor Thomas J. Allen later applied this concept to employees when he created the Allen Curve, which demonstrates that as the distance between engineers within an office increases, the communication between those same engineers falls exponentially, dropping off almost entirely after a distance of just 50 meters.

 

Here is my advice for leaders who prize speed, innovation, and trust, as they determine their return to office plans.

PROPINQUITY FOSTERS INNOVATION

But wait, hasn’t technology progressed so much that virtual relationships can be the same as physical ones?

Not quite.

A major study entitled “Distance Matters: Physical Space and Social Impact” set out to measure the effect that advances in communication technology have had on the power of propinquity in social influence. The study concludes: “We have presented evidence from three divergent samples showing that the empirical relationship between distance and social influence, first documented 50 years ago, still holds despite remarkable changes in the technology of communication.”
Behavioral scientist Jon Levy added earlier this year, “Even in the age of Slack, email, and Zoom, the fact remains: Out of sight is often out of mind.”

 

Innovation often happens when you overhear your colleagues talking about issues, during quick chats walking to the elevator, or the small talk before and after the meetings. These in-person, real-time conversations help get the creativity flowing. These close relationships and innovative conversations are essential ingredients of success, especially for ambitious startups.

BEING TOGETHER IS ENERGIZING

Deep down inside of us, we all feel the importance of human connection and community. As management consultant Meg Wheatley once observed, “There is no power for change greater than a community discovering what it cares about.” Humankind has long sought closeness in every aspect of life, from neighborhoods to social clubs to P.T.A.s to religious groups. Our natural intuition tells us there is something more connecting about a face-to-face interaction than a digital one:

  • It’s one thing to watch an important sports game on TV, but it’s another experience entirely to attend the game in person cheering shoulder to shoulder with fellow fans.
  • It’s one thing to hear a song on the radio and another entirely to see it performed in full concert alongside other enthusiasts.
  • It’s one thing to develop a friendship or relationship online, and another to build that friendship or relationship in person, face to face, especially with a colleague in a company.
  • It only takes one glance at Facebook to see that people talk to each other very differently (and make very different assumptions) online than they do in a face-to-face, personal interaction.

 

Throughout human history, great things have been accomplished by individuals coming together around a shared vision, from government initiatives like NASA’s space race to land a man on the moon to private endeavors like building Amazon, a company that reshaped the global economy. All of the most ambitious projects in human history were driven by a team working in close proximity to build and collaborate towards an audacious goal. Will your startup be different?

PROPINQUITY CAN FUEL PRODUCTIVITY

So much of the debate encircling the remote vs. office discussion has centered around worker productivity. Advocates of remote work describe periods of intense focus and deep work that contribute to productivity, while advocates of the office cite studies that show employees working remotely put in longer hours due to much less efficient productivity during the day.

At Neighbor, productivity is not relevant to the debate. Productivity is more about hiring great people than it is about the setting. With a strong internet connection, we trust that each of our employees would be just as productive in Antarctica as they would be in our office. Employers should trust their employees enough that productivity is a non-issue.

COMMUNITY IS A NETWORK EFFECT

Being in an office and working together in person demonstrates a network effects principle. Network effects occur when something becomes more valuable (often exponentially) as usage increases. This is certainly true of communities and teams.

As we’ve explored here, everyone benefits from face-to-face, physical interaction. Yet if a company simply provides an office and only a few individuals show up, then those exponential network effects aren’t able to take effect. An office simply becomes a lonely place to do work, no better than a home office.

True human and employee flourishing occurs when the conditions and culture are put in place to create a strong physical community, where no one is left out. In 2021, we need less digital interaction and more human interaction. That’s what we’re building by embracing an in-office culture.

 

Aug 27

History tells us what will decide whether we work from home in the future

Another good article from Ross Gittins, economics editor of the Sydney Morning Herald, who always peddles a lot of sense

Productivity Commission boss Michael Brennan and his troops have been giving the matter much thought and, as he revealed in a speech last week, such a radical change in the way we work would be produced by the interaction of various conflicting but powerful forces.

After all, it would be a return to the way we worked 300 years ago before the Industrial Revolution. Then, most people worked from home as farmers, weavers and blacksmiths and other skilled artisans. And, don’t forget, by today’s standards we were extremely poor.

What’s made us so much more prosperous? Advances in technology. But technology is the product of human invention. That invention could have pushed our lives in other directions.

What underlying force pushed us in the direction it did? As the Productivity Commission boss was too subtle to say, our pursuit of improved productivity.

Productivity isn’t producing more, it’s producing more with less. In particular, producing more of the goods and services we love to consume using less labour.

Why among the three “factors of production” – land and its raw materials, capital equipment and labour – is it labour we’ve always sought to minimise?

Illustration: Simon Letch
Illustration: Simon Letch

Because we run the economy to benefit ourselves, and it’s humans who do the labour. We’ve reduced physical labour, but now automation allows us to reduce routine mental labour.

It was the Industrial Revolution that increasingly drove us to the centralised workplace. Initially, the factory and the mine, then the office.

The move to most people working in a central location was driven by economic forces. Businesses saw the benefits – to them and their customers – of combining labour with large and expensive machinery, powered by a single source. Initially, steam.

“The factory provided a means for bosses to co-ordinate activity in real time, supervise workers and it also provided an efficient way to share knowledge – as did the office,” Brennan says.

So the central workplace reduced the cost of combining labour and capital, but did so by imposing transport costs – mainly on workers who had to get themselves from home to the central location and back.

For most of the 20th century, however, it got ever-cheaper to move people around, via steam, electricity, the internal-combustion engine and the aeroplane. So advances in transport technology reinforced the role of the central workplace. Over the past 30 years, however, the cost of moving people around has stopped falling. “We seem to have hit physical limits on speed; and congestion has meant that today it takes longer to move around our cities than was the case a few decades ago,” Brennan says.

This, of course, is why we fancy the idea of continuing to work from home. It’s only advances in computing and telecommunications technology that have made this possible. The cost of moving information has plummeted, while the cost of moving workers – in time and discomfort – has gone up.

 

Aug 15

How Artificial Intelligence Will Shape Our Future

A prescient and wise article just published in entrepreneur.com and penned by Archil Cheishvili claims we’ll witness the creation of industries that are unimaginable now, thanks to AI

As AI improves and becomes more powerful, its impact on the world economy will become vastly more significant. It will affect virtually every aspect of the world economy — from unemployment rates to economic growth, productivity, income inequality and more.

Some argue that so far, AI has not had a large enough impact, but as its development accelerates, its effects will grow exponentially. Whether we like it or not, automation and job displacement are already here, slowly pushing the human workforce into different domains. Similar patterns can be found throughout history; new technology made certain products and jobs obsolete, and eventually humans were forced to switch to more innovative products and new jobs.

For instance, occupations such as a milkman, switchboard operator and knockerupper (a human alarm clock that used to tap on windows) no longer exist today. Steam engines were replaced with internal-combustion engines, and coachmen became chauffeurs. It’s a natural process: As technology advances, it doesn’t make sense to have humans work the same old jobs.

Higher productivity at a relatively cheaper price

When we examine the job displacement, we should analyze the phenomenon referred to as “The Great Decoupling,” which reveals that up until the 1970s, productivity and hourly wage increased at the same pace; since then, however, the hourly income has not been able to keep up with the productivity increase. This disparity between the two curves might get even worse with AI automation.

Moreover, when we look at other economic indicators, such as returns to capital and labor, we can see that the former has been outperforming the latter consistently for the past decades. If we combine the mentioned indicators, we can infer that investors are getting higher productivity from employees at a relatively cheaper price due to the improvement in capital assets and technology used by the employees.

Furthermore, if we add AI automation to the premises above, we get super-high productivity from a fraction of employees for a fraction of the cost. The implications of this can be huge for the world economy. Will the rich get richer, leaving the ones without capital even more powerless? Or maybe it will level the playing field, and nobody will have to work for a living? The outcry that jobs will be lost has been there forever, but we clearly see that the world is a better place to live than ever before. Overall poverty levels have been declining across the globe, and the average human lifespan has been increasing.

When computers became cheaper, they served as the foundation for a variety of industries

In the mid-term perspective, AI advancement will enable products to be produced cheaply and in abundance. This, in turn, will lead to demand quantity increase for the cheaply produced products. That’s just economics: When the price of a product decreases, more people can afford it, and the demand quantity increases. This demand drive might mitigate the severity of the job losses — offsetting it to some degree. Additionally, when certain technologies become cheap, it sparks the creation of completely new industries, in which money is invested and jobs are created. For example, when computers became cheaper, they served as the foundation for a variety of new industries.

According to Moore’s Law, the number of transistors on a microchip doubles every two years; hence, the cost of computers is more or less halved. When computers become cheap, this means that the computational power can be utilized in ways never imagined before: smart watches, smartphones, tablets, smart glasses, smart homes, automotive self-driving systems and more. The fact that this much computational power became available at such a cheap price kick-started whole new industries and application ideas. Consequently, new products and jobs were created to satisfy the growing demand for such novel technology and products.

In economic terms, the supply curve shifted, meaning that at any given price, consumers would be able to purchase more of the computational power embedded in various products.

It cannot be refuted that so far humans have been able to create more jobs and income opportunities for an ever-growing population despite the fact that some of the older professions have been replaced by robots and technology. We cannot say for sure, but this trend may continue for the next 50 to 100 years at least.

We will witness the creation of industries that are unimaginable now

In the long term, AI will be able to perform more of the tasks that humans do right now, but for AI to replace the majority of the current jobs, it will take 80 to 100 years, maybe even more. Eventually, humans might be pushed out from most traditional jobs, but since we’ve been creating whole new industries and an increasing number of jobs, we might not care at all. Total human replacement is unlikely in the foreseeable future.

But if AI ends up in the hands of a few companies, then these companies will essentially take over the world. Although the economic pie will get larger, which in its turn should lift more people out of poverty, the income inequality might worsen. On a positive note, we will witness the creation of industries that are unimaginable now. Two decades ago, it was impossible to imagine that we would see an increasing number of people making a living by creating online content on platforms like Youtube and Instagram. The same way internet brought completely new domains and displaced some of the workforce, AI and automation will lead to the creation of totally new jobs.

The future of AI is both exciting and frightening

Aug 02

The future is not so bright

Realism or pessimism from Martin Wolf in the Financial Times – read on and decide?

The 2020s will determine whether we have a chance of averting irreversible damage to the climate. But, for the UK, this comes together with other big challenges. Its response will also determine what happens to the wellbeing of its people.

Dominic Cummings’ brutal testimony this week suggests that its leadership’s ability to deliver is very much in doubt.

The Resolution Foundation and Centre for Economic Performance of the London School of Economics have, to their credit, just launched an important inquiry into The UK’s decisive decade. It is decisive, because the country must grapple with recovery from Covid-19, the aftermath of Brexit, an ongoing technological revolution and the transition to net-zero emissions of greenhouse gases.

Moreover, it does so from a base of stagnant productivity, high inequality, rapid ageing and high debt. Only a frivolous person would assume that this is sure to work out.

Remember: in 1987, Italians celebrated il sorpasso, the year when their nominal incomes per head surpassed those of the UK. But today, after two decades of stagnant real incomes, Italy is well behind. Its gap with Germany has become bigger still.

Yet over the past decade, UK productivity has also stagnated. If that is not reversed, a declining UK will lose not just prestige, but the ability to give rising living standards to its people. The report spells out in sobering detail the challenges and the legacy.

On the aftermath from Covid-19, for example, there has probably been a permanent shock to high-street retail, a particularly important source of jobs for women. On Brexit, the impact on trade with EU countries is already visible, with little chance that trade with the rest of the world will soon (if ever) offset these losses. On technology, we must assume large and continuing shifts in the structure of employment and competitive pressures, with many firms disappearing. On the transition to net zero, the country must make huge investments well before any gains from lower operating costs become apparent.

Then there is the dire legacy. The low rate of growth of productivity reflects, among other things, weak investment and the slow adoption of new technology. The report notes that, “In 2017, the UK had only 71 robots installed per 10,000 manufacturing employees, compared to 309 in Germany and 631 in Korea.” Mainly as a result of slow productivity growth, the growth in real household incomes fell from 22 per cent in the 2000s to only 9 per cent in the 2010s.

Again, inequality soared in the 1980s and never reversed. As a result, “The UK Gini coefficient [a measure of inequality] is higher than in all countries in the EU, except Bulgaria, and the second highest in the G7”. The UK also has exceptionally big regional inequalities in productivity, which leaves the rather less unequal regional distribution of household incomes dependent on transfers from London, whose most competitive industry, services, has been gleefully sacrificed on the altar of Brexit.

In view of all this, the facile boosterism of the prime minister is a luxury the country simply cannot afford. What is needed instead is the “ruthless truth telling” recommended by Keynes to the then nascent IMF. As the report indicates, the UK has some important assets, notably its language, first-rate universities, a strong science base and largely non-corrupt politics. The government has also already laid down a “plan for growth” that has some welcome elements, including somewhat higher public investment, a plan for life-long learning, a focus on innovation and science and some targets for decarbonisation.

Yet there is no recognition of the costs of Brexit or of the obstacles to spreading prosperity more broadly. There is no certainty that the needed money will be spent on skills. There are big holes, too, in the plan for decarbonisation. Possibly most important, instead of ideas on how to raise private investment the chancellor intends, after a brief period of generous allowances for investment, to raise corporation tax substantially. This will reduce already low investment. Yes, we will get “freeports”. But these will prove a zero-sum gimmick.

When we look back at Covid-19, we see one blunder after another, partially redeemed by a flash of inspiration: the vaccination programme. But one inspiration will not secure the development of an economy in such challenging circumstances. That takes far-sighted policymaking and resource mobilisation by a competent political and administrative machine in a supportive relationship with a dynamic private sector. It takes policy, not gestures, and respect for reality, not slogans.

Is this feasible in the UK? Perhaps. Is it likely? No.

Jul 17

Britain is running out of new ideas and it’s killing productivity

Writing in Cityam.com, Sam Dumitriu, Research Director at the Entrepreneurs Network, addresses a longer term problem with current efforts to improve national productivity – the problem being that, despite more brainworker inputs, the impact of their new-ideas is becoming more and more marginal 

It is no secret that Britain is in a productivity slump (if one is to completely accept the ONS data, which we do not). The statistics should be familiar. In the decade before the pandemic, productivity grew at just 0.3 per cent per year. Before the financial crisis, it grew at 2 per cent. That might sound like an abstract or wonkish concern, but it is the difference between wages doubling every 35 years and wages doubling every 231 years.

In the short run, there are clear ways to lift our productivity levels closer to American or German levels. To their credit, the Government is implementing many of them. Reforming the planning system, a super-deduction for investment in productivity-boosting machinery, and a Help to Grow scheme to improve management skills will all help.

The above policies will bring us closer to the frontier, but pushing the frontier forward consistently is what really matters. In a way, the solution is simple: have more ideas. But it’s easier said than done.

When economists from Stanford and the LSE investigated whether ideas are getting harder to find, the answer was a clear “yes”. We now need eighteen times as many researchers to achieve a doubling of computer chip density, the famous Moore’s law, than we did in the 70s. Economists Ben Southwood and Tyler Cowen find similarly concerning trends across a range of scientific fields. We are getting fewer transformative discoveries even though the number of PhD researchers has surged over the past few decades.

If we can’t figure out how to reverse these worrying trends, then we will remain stuck. Our ability to solve our greatest problems from climate change to pandemics will be limited.

The Nobel Prize-Winning economist Robert Lucas once said of economic growth: “The consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else.”

In a foreword to a new essay collection, Patrick Collison, the co-founder of Stripe, observed that “many of the most important considerations that will determine the long-run rate of economic growth are not the foremost policy issues of our day.” How long do journalists spend reporting on the way we fund research? Even Dominic Cummings struggled to get it on the agenda.

It’s a concern shared by former Prime Minister Tony Blair. On technology he writes in the preface that “too often policymakers either ignore its importance or focus on questions like those to do with privacy which are important but limited; when the real debate should be around how we use technology to usher in a new advance for humankind.”

There may be a silver lining to the neglect: there is no culture war or partisan fight to worry about. In many cases, the low-hanging fruit has not been picked.

Take the way we fund scientific research for an example. A few recent studies suggest that radically different funding mechanisms could deliver substantial gains and liberate researchers from bureaucratic grant applications. Yet, the topic is under-studied. We ironically don’t apply the scientific method to science funding itself.

Or look at our approach to high-skilled immigration. We take a “build it and they will come” approach. At a stretch, we might create specialist visas. But we are in competition for global talent. Why not take a leaf out of the Premier League’s book? They invest serious money into scouting the next Neymar, Messi, and Salah. We could take a similar approach to scientific talent. The Government could fund scholarships at top universities for high-achievers at the International Math Olympiad.

These are just two ideas. We also need to make government procurement more open to new ideas, digitise the state to eliminate unnecessary frictions in civic life, and promote innovation to the next generation – through a 21st Century Great Exhibition.

In some fields, we have seen dramatic technological progress in the past year. CRISPR gene-editing is curing fatal genetic disorders, mRNA vaccines are bringing an end to the pandemic, and falling sequencing costs are enabling us to track new variants. Each technology is in its infancy, but has the potential to transform our lives. Imagine a world where every genetic disorder was easily treatable, where routine blood tests allow us to stop cancers at an extremely early-stage, and where infectious diseases are stamped out altogether.

It’s a future that is within reach. But we should be more impatient, more urgent. Boris Johnson wants to make the UK a science superpower. It’s the right rhetoric, but now is the time for action.

 

City A.M.’s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Jul 10

World’s largest trial of a shorter work week

In an article for Mashable.com, Amanda Yeo reports that Iceland ran the world’s largest trial of a shorter work week – and says ‘the results will (not) shock you’

The trial was run from 2015 to 2019. An analysis of the results was finally published this week, and surprise! Everyone was happier, healthier, and more productive. Please pretend to be surprised.
The report was jointly prepared by the Association for Sustainability and Democracy (Alda) in Iceland and UK think tank Autonomy, who note that Iceland’s experiment could be used as a blueprint for future trials around the world.”This study shows that the world’s largest ever trial of a shorter working week in the public sector was by all measures an overwhelming success,” said Will Stronge, Autonomy’s director of research. “It shows that the public sector is ripe for being a pioneer of shorter working weeks — and lessons can be learned for other governments.”

(SEE ALSO: Microsoft Japan’s 4-day work week boosted productivity by 40 percent)
 

Iceland’s test consisted of two trials run by Reykjavík City Council and Iceland’s national government. The former involved over 2,500 people while the latter had 440, together making up more than one percent of the country’s workforce. Workers were moved from 40-hour work weeks to 35- or 36-hour weeks with no reduction in pay, and a wide variety of workplaces took part, including offices, preschools, social service providers, and hospitals. Not all participants worked traditional nine-to-five jobs either, with workers on non-traditional shift times also included.

Regardless of these variables, the results of the trials were overwhelmingly positive. Productivity either remained the same or actually increased, and worker wellbeing was considerably improved. Perceived stress and burnout went down, while health and work-life balance went up, as employees were given more time for housekeeping, hobbies, and their families. Both managers and staff considered the trials a major success.

“For me it is like a gift from the heavens,” said one manager in Reykjavík, according to the report. “And I like it a lot.”

Workplaces tried out various time reduction strategies to accommodate the shorter work hours. These included delegating and prioritising tasks more effectively, having shorter and more focused meetings, and yes, letting meetings that could have been emails just be emails.

The trials’ success has helped Iceland’s trade unions negotiate for permanently reduced working hours since 2019, affecting tens of thousands of their members. The report states that around 86 percent of the country’s entire workforce now either has shorter working hours, or the right to shorten their hours.

“The Icelandic shorter working week journey tells us that not only is it possible to work less in modern times, but that progressive change is possible too,” said Alda researcher Gudmundur D. Haraldsson.

(SEE ALSO: Uniqlo to test four-day week for store workers in Japan) 

This is far from the first time the benefits of a shorter work week have made themselves known.

When Microsoft Japan trialed a four-day work week in 2019, productivity increased by almost 40 percent.

New Zealand firm Perpetual Guardian permanently switched to a four-day work week in 2018 after their own trial saw productivity increase 20 percent.

Companies around the world have tried shorter work weeks again and again, continually confirming the International Labour Organisation’s 2018 report that shorter work hours typically produce happier, more productive workers.

“We should continue on this journey, and I believe the next step is to reduce working hours to 30 hours per week,” said Icelandic parliament member Bjarkey Olsen Gunnarsdóttir.

Across the board, shorter work weeks have proved better for employees, employers, and society in general.

It’s high time life caught up to the science.

 

Jul 02

High productivity figures pre-Covid masked some underperformance

Martin Wall, writing in the Irish Times, reports that Leo Varadkar, Tánaiste (Irish Deputy PM) says the government is seeking to have a record 2.5m people in work in 2024 – he offers some ideas which other nations might consider

Ireland’s high national productivity figures before the Covid crisis masked significant areas of underperformance in some parts of the economy, Tánaiste and Minister for Enterprise and Employment, Leo Varadkar has said.

Addressing the second day of the national economic dialogue he [said] while productivity was not a term to grab the imagination, it was “crucially important”.

He said competitiveness and productivity needed to be improved, that there should be a “pandemic-dividend” for workers , He said the Government wanted to see record numbers of people – about 2.5 million –in employment within the next two to three years.

He said not all previous jobs would return after the pandemic and also warned that “capacity constraints may emerge quickly in certain areas, especially given the scale of investment required in areas like housing and climate”.

Mr Varadkar said that as well as helping businesses and workers through the immediate challenges facing them, the Government also had to look to the longer term.

“We need to put in place forward-looking policies that will create the right environment for an inclusive jobs-led recovery. That means helping business become more resilient and agile.”

“It means increasing Ireland’s competitiveness and productivity, placing a focus on expanding sectors, such as green and digital, life sciences, the creative industries and the health and social care economy.”

Mr Varadkar said that coming into the Covid-19 crisis, Ireland had ranked high in terms of international competitiveness and productivity. However he said “our high national productivity figures had masked significant areas of underperformance”.

“There is a long-standing and, also, growing productivity gap between high-performing ‘frontier’ firms, often foreign-owned – and the rest of the economy.”

“If we want higher levels of productivity in our SME sector, we need to figure out how those companies can learn from the high performing multi-national cohort. “

Mr Varadkar said the Government wanted to restore employment numbers to pre-pandemic levels and to then go beyond this “by targeting a record 2.5 million people in work in 2024”.

He said the Government wanted “to treat workers better after the pandemic”.

“Essential workers – from doctors, nurses and gardai – to delivery riders and supermarket staff – have got us through this difficult time. And we must do more for them.”

Mr Varadkar said he would be bringing forward new legislation to introduce sick pay for almost all workers. He said the the Low Pay Commission had formally begun work on examining how Ireland can move towards a living wage.

He said a series of reforms were also being progressed “to unleash the potential of remote working, including the right to disconnect and the right to request remote working”.

“I believe these reforms can form part of a pandemic dividend – a positive legacy which can emerge from the hardship and sacrifice endured by the Irish people during the pandemic.”

Jun 29

Prioritise employee wellbeing

A chap called Barney Cotton, writing in the Business Leader, recommends prioritising employee well-being, the latest hot business topic, or companies may suffer greatly

 

Personio, a European HR software for SMEs, is calling for businesses to prioritise employee wellbeing alongside company culture – or risk a boom of burnout, and in the worst cases, a talent retention and productivity crisis.

Despite the Covid-19 crisis having put people’s mental and physical wellbeing under immense pressure, the latest research from Personio finds that many businesses have not adapted their practises and principles accordingly. Only 25% of HR decision makers believe that mental health / employee well-being initiatives are a top priority for the HR function over the next 12 months, whilst just 15% stated that workplace culture initiatives were a priority. (If so, yet another demo that many HR departments are still being filled with those who cannot hack it in the mainstream – when they are the most important and so need the very best)

These figures stand in stark contrast to the sentiments of employees – who stress that feeling happy and healthy at work is a top priority. 58% of employees state that good work/life balance is a priority, and 39% say that a good workplace culture is a priority for them, indicating a clear disconnect between the priorities of employees and employers.

The research – released during World Wellbeing Week (first I’ve heard of it!)– also highlights the importance of employee wellbeing and company culture when it comes to talent retention and productivity. 23% of employees say that worsening work/life balance would encourage them to look for a new job if this were to happen in the next 6 months – and 21% say that a toxic workplace culture would encourage them to look elsewhere. (Only 23% and 21%?)

Zooming in on productivity, 83% of employees state that a good workplace culture helps them to be more productive. Meanwhile, employees say that low levels of motivation and morale (28%) and burnout – from overworking or being ‘always on’ (22%) are the top two factors that negatively impact on their productivity. (Hardly headline %s!)

Ross Seychell, Chief People Officer at Personio, commented: “After what has been a very difficult period for employees and businesses alike, these findings highlight how important it is for businesses to prioritise their people’s wellbeing, together with their company’s overall culture. Indeed, as we begin to put the worst of the pandemic behind us, employees will once again feel empowered to assess their employment options and look elsewhere if they feel unsatisfied – whether because they’re burned out, or they don’t feel appreciated.

The bottom line is that if businesses fail to implement a holistic people strategy that really places all aspects of employee wellbeing at its heart, particularly at this critical juncture, they will face the consequences of employee burnout, discontentment, and in the worst of cases, an exodus of valuable talent – and resulting productivity dive.”

Jun 20

Back to dreary normal?

Chris Dillow makes several interesting points in an article in the Investors Chronicle, finishing on a ‘slender’ positive note 
Author Image

Which isn’t as good as you might think. Before the pandemic, the economy was stagnant. Labour productivity, for example grew only 0.3 per cent per year in the 10 years to 2020, compared with 2.2 per cent in the 30 years before the financial crisis. That’s why real wages were flat.

Yes, the economy is recovering well now. But we must not confuse short-lived expansions for the trend. Before 2020, trend growth was weak. Why should the pandemic have changed this fact?

It might have made things worse. It has left many companies with huge debts: the Bank of England estimates that small and medium-sized enterprises (those with under £25m in turnover) have seen their bank debt rise 25.5 per cent in the past 12 months. That will limit any expansion plans they had. And the pandemic might have a scarring effect: it could permanently reduce optimism and the willingness to invest and innovate.

It’s not just SMEs that have been left with a debt overhang, though. So too has the government. And it plans to tighten its belt. The OBR foresees cyclically-adjusted borrowing falling from 6.9 per cent of GDP this year to nothing by 2024. This retrenchment will hold back demand growth.

So, what offsets these drags? We can disregard the government’s talk of building back better. Economists such as Dietz Vollrath, Peter Robertson and John Landon-Lane have shown that national economic policies actually have little impact upon longer-term growth.

Instead, there are other reasons for optimism. One is that as the IMF recently pointed out the pandemic has accelerated progress towards a digital economy, such as working from home, which could raise productivity.

Another is that if companies’ debt overhang forces enough of them out of business, it’ll raise the profits of their surviving rivals thus enabling them to invest – all the more so as they’ll be able to get cheap empty premises and equipment vacated by the dying companies. This lays the foundations for faster growth.

This is an old-fashioned view, associated with economists such as Hayek and Schumpeter. It fell into disrepute in the 1930s, when the depression then proved not to be self-correcting. But it was a decent description of earlier recessions. And the previous two US recessions, in 2001 and 2008, did indeed greatly restore profitability, if only temporarily. Recessions can have what the MIT’s Ricardo Caballero has called a “cleansing” effect.

You might object here that the companies hardest hit by this downturn aren’t lame ducks – the best restaurants and hotels have had to close as much as the worst ones – and so killing them off won’t help raise productivity. True. But firm closure is only part of the story: there’s evidence from the US that companies that start up in hard times are unusually efficient – a fact that can raise productivity growth.

Perhaps, then, the new normal will be better than the old. Given how powerful the pre-pandemic forces for stagnation were, however, these are slender hopes rather than expectations.

Jun 18

A 5-hour workday is most productive?

Douglas Perry, writing in the Oregonian, claims the 8-hour workday is a ‘holdover of old ways; research suggests 5 hours is the office time sweet spot’

Eight hours is too long to spend at work. Recent research says so.

The 8-hour workday has been the norm for more than a century, but employee surveys suggest that most people are truly productive only for about three hours every day. This has led to calls for the workday to be reduced to five or six hours, with proponents saying it would increase employee well-being and ultimately productivity.

A 2019 survey of nearly 2,000 British office workers found the usual suspects accounted for what people most commonly did during the workday when they weren’t actually working: checking social media, reading news websites, talking about “out-of-work activities” with co-workers, making hot drinks, taking smoking breaks. Searching for a new job even snuck into the Top 10 list of non-productive office work time.

An Inc. magazine piece published shortly after the study’s release embraced the findings, insisting that with a six-hour workday “people would be better rested, more focused, and likely more productive.”

The coronavirus pandemic, which over the past year has forced millions of office workers to set up shop from home, has reignited the call for shorter hours.

A new piece in Wired’s British edition says five hours, rather than six, is the ideal, calling this schedule “compressed working.”

“Research indicates that five hours is about the maximum that most of us can concentrate hard on something,” productivity consultant Alex Pang told the magazine. “There are periods when you can push past that, but the reality is that most of us have about that [amount of] good work time in us every day.”

The 8-hour workday is a remnant of the industrial age, and it came about in part because it made for a snappy labor-rights slogan: “Eight hours labor, eight hours recreation, eight hours rest.”

For millions of people, the information age has different requirements.

A few companies have experimented with shorter office hours in recent years, The Wall Street Journal has reported. The results apparently have been mixed. For some, productivity spiked; for others, it didn’t.

One CEO thought “team culture” and office relationships took a hit. That company considered banning distractions like personal cell phones to get the full productivity pop from a 5-hour workday.

For those companies out in front of the curve on shorter hours, the pandemic actually upended the experiment.

Working from home provided staffers “the flexibility to fit their personal lives around their work commitments,” Wired pointed out, “but it also means the key element that makes five-hour days a success — a solid period of unbroken concentration — is harder to achieve.”

— Douglas Perry

dperry@oregonian.com

@douglasmperry

Jun 12

The coming productivity boom

An article of optimism in the MIT Review by Erik Brynjolfsson and Georgios Petropoulos – AI and other digital technologies have been surprisingly slow to improve economic growth, but that could be about to change.

Productivity growth, a key driver for higher living standards, averaged only 1.3% since 2006, less than half the rate of the previous decade. But on June 3, the US Bureau of Labor Statistics reported that US labor productivity increased by 5.4% in the first quarter of 2021. What’s better, there’s reason to believe that this is not just a blip, but rather a harbinger of better times ahead: a productivity surge that will match or surpass the boom times of the 1990s.

Annual Labor Productivity Growth, 2001 – 2021 Q1

Annual Labor Productivity Growth 2001 - 2021 Q1
For much of the past decade, productivity growth has been sluggish, but now there are signs it’s picking up. (Source: US Bureau of Labor Statistics)

 

Our optimism is grounded in our research which indicates that most OECD countries are just passing the lowest point in a productivity J-curve. Driven by advances in digital technologies, such as artificial intelligence, productivity growth is now headed up.

There are three reasons that this time around the productivity J-curve will be bigger and faster than in the past.The productivity J-curve describes the historical pattern of initially slow productivity growth after a breakthrough technology is introduced, followed years later by a sharp takeoff. Our research and that of others has found that technology alone is rarely enough to create significant benefits. Instead, technology investments must be combined with even larger investments in new business processes, skills, and other types of intangible capital before breakthroughs as diverse as the steam engine or computers ultimately boost productivity. For instance, after electricity was introduced to American factories, productivity was stagnant for more than two decades. It was only after managers reinvented their production lines using distributed machinery, a technique made possible by electricity, that productivity surged.

The first is technological – The past decade has delivered an astonishing cluster of technology breakthroughs. The most important ones are in AI: the development of machine learning algorithms combined with large decline in prices for data storage and improvements in computing power has allowed firms to address challenges from vision and speech to prediction and diagnosis. The fast-growing cloud computing market has made these innovations accessible to smaller firms.

Significant innovations have also happened in biomedical sciences and energy. In drug discovery and development, new technologies have allowed researchers to optimize the design of new drugs and predict the 3D structures of proteins. At the same time, breakthrough vaccine technology using messenger RNA has introduced a revolutionary approach that could lead to effective treatments for many other diseases. Moreover, major innovations have led to the steep decline in the price of solar energy and the sharp increase in its energy conversion efficiency rate with serious implications for the future of the energy sector as well as for the environment.

The costs of covid-19 have been tragic, but the pandemic has also compressed a decade’s worth of digital innovation in areas like remote work into less than a year. What’s more, evidence suggests that even after the pandemic, a significant fraction of work will be done remotely, while a new class of high-skill service workers, the digital nomads, is emerging.

As a result, the biggest productivity impact of the pandemic will be realized in the longer-run. Even technology skeptics like Robert Gordon are more optimistic this time. The digitization and reorganization of work has brought us to a turning point in the productivity J-curve.

 

When you put these three factors together—the bounty of technological advances, the compressed restructuring timetable due to covid-19, and an economy finally running at full capacity—the ingredients are in place for a productivity boom. This will not only boost living standards directly, but also frees up resources for a more ambitious policy agenda.

Erik Brynjolfsson is a professor at Stanford and director of the Stanford Digital Economy Lab. Georgios Petropoulos is a post-doc at MIT, a research fellow at Bruegel, and a digital fellow at the Stanford Digital Economy Lab.

Jun 10

A government review of social care

The following impressive, yet depressing, article from John Seddon, head of Vanguard Consultants – I have no connection with them, and never even met him, but regular readers will know I’m an admirer of their approach to productivity improvement which seems far more efficient and effective than all others peddled by the bigger consultancies, including my alma mater nowadays – let me first apologise for some of the language used but hope it does not detract from the vital points made

I’ve always been a fan of Private Eye. Forty years ago I worked for the BOC Group. The chairman Sir Leslie Smith would say he’d read the Financial Times to find out what’s happened and he’d read Private Eye to find out what was going to happen. Private Eye does a better job of scrutiny than many of our institutions.

It was a small item in a recent issue of Private Eye that got my attention; I learned that Brendan Martin, the man who runs Buurtzorg UK, had withdrawn his support for what was described as a Blueprint for social care. I like Brendan; he’s a good man with worthy intent. I also rate Buurtzorg – a Dutch care-service organisation – as amazing, a true innovation. Private Eye reported Martin withdrew his support because the Blueprint proposed a structural change whereas he believed the reform of care services must start with the needs of the care recipients. He’s right.

So I got hold of a copy of the Blueprint. It was authored by Josh MacAlister, CEO of Frontline, an organisation funded by public money to recruit and train social workers, in conjunction with Boston Consulting Group. The Blueprint has Buurtzorg all over it; representing the UK pilots of Buurtzorg as successes. Absolute rubbish; they were shocking failures. So I did a Podcast to argue that, compared to Buurtzorg in the Netherlands, the UK pilot results were, at best, pathetic – and I described the reasons for Buurtzorg’s success which, in short, began with the leader realising that the problem was the system; I also described how Vanguard’s clients in care services had learned the same; that the starting-point for designing a better system is understanding what’s wrong with the current system.

Then I wrote to the people listed as interviewees for the Blueprint, sharing the transcript of the Podcast with them. What astonished me was that everyone who replied – and bear in mind these were all significant people in the care-services world – told me they did NOT concur with the Blueprint’s plan of action. One or two were even quite cross to have been cited. One would have thought that with this lack of consensus, as the Blueprint places such heavy emphasis on Buurtzorg whose leader had withdrawn support, the whole thing should have been re-written, shelved or at least paused for reflection.

But then I think about what I’ve learned about policy-making in Whitehall. It’s like this: you have an idea; then you get other people in the Whitehall bubble to enthuse about your idea. And once you have a body of people onside you stand a good chance of the idea becoming policy. There’s neither desire nor means to base policy on evidence. In that crazy world you’d want to list lots of people in any proposal to give the impression that your idea is widely supported and you’d want to ignore the inconvenience of the main argument being torpedoed by its representative in the UK.

So I began to take the view that this Blueprint is a pitch; a pitch for public money. According to Private Eye MacAlister’s organisation has already received £72m over recent years for social-worker training. That too was a plausible pitch. We have a problem… turnover of social workers is too high… it must be a training problem… that’s how Ed Balls saw it when he was the minister. It wasn’t a training problem then and it isn’t a training problem now. Social workers leave because the system is rotten. Did the £72m have any impact?

Clearly not, the Blueprint reports that as many as 55% of social workers have had enough and are planning to leave. You might have thought that Josh MacAlister would have reflected on that as his organisation was set up on the basis that training would solve the morale problem.

The Blueprint uses the word ‘system’ but shows no understanding of how the system needs to change. For example, it acknowledges the current problems of bureaucracy, form-filling, mistrust, overbearing reporting to regulators and low morale and yet, again astonishingly, it asserts that the plan will adhere to all existing regulatory frameworks. Forgive my cynicism but this is either a ploy to avoid any opposition amongst the consensus-builders or MacAlister hasn’t got a clue about work as a system.

Perhaps he thinks his proposed structure represents a different system. His plan is to create a series of self-managed teams. A family-facing team that does the social work, a referral team that allocates work, an enabler team that helps the family-facing team by handling administration, an insight team that helps family-facing teams do best practice and a strategy team that guards the culture and ensures the teams are empowered.

Really? This is Big-Consultancy speak; lots of words with indistinct meaning. But then, eventually, I find out where it is going. You have to plough on to the end of the huge document, which has abundant repetition and is a tiring read, to find this: To deliver the plan in an initial 12-month phase for 2 family-facing teams the cost estimate is between one and one-and-a-half million pounds. What is delivered for this eye-watering fee? The 2 family-facing teams get 5 initial training days and 2 monthly training days in their first year.

Forgive me. But all I can say is fuck me. What a rip off. The estimate for a complete transformation of each local authority’s children’s service is 5 to 7 million.

Now here’s the thing: we have helped leaders of care services transform their services into systems that have results on a par with Buurtzorg for tens of thousands of pounds, with results in months, not years.

Camilla Cavendish (I admired her good-sense articles when she was an economics journalist) is working for the minister on the future of care services and chairs the Frontline organisation – in other words she is a collaborator with MacAlister – she came across one of our clients and was impressed. My team introduced her to another client who’d taken even further strides; they sent her my Podcast on Buurtzorg as she too was a fan and had eulogised about Buurtzorg as a journalist. She replied to say she’d read the script in one gulp. Maybe it gave her indigestion. She arranged for us to speak but on the day she was busy and instead sent an American student, who is working with her, to interview me. It was a bloody awful experience. Her questions showed she either couldn’t listen or had no ability to grasp what I was talking about; I gained the impression she’d been tasked with asking me some questions Cavendish wanted answers to which, given what I’d been saying, were neither good nor useful questions.

My central argument concerned the way regulation is the fundamental cause of sub-optimisation of these services. The bureaucracy MacAlister describes demands reports up the hierarchy, and many of them. Failure to report and reporting poor results both risk damage to reputation. I have published many examples of adherence to referral, assessment and care-plan targets, a focus on budget management and the methods of commissioning, all causing sub-optimisation and the signal that things are awry is the volume of failure demand hitting care services (failure demand is demand on the service which would and should not have occurred if things had been done right in the first place) – often over 80% of all demand.  Yet managers of these systems get the green light from regulators. Boxes ticked.

Ofsted is the primary regulator of children’s services; many of the measures that drive the bureaucracy are questions you would want to ask if you want to know the extent of what’s going on with children in need. You can understand why governments might at least want to know the extent of the problem. The regulator asks: How many assessments are occurring? Are children referred and assessed in a timely manner? Do the children have care plans in place within defined timescales? Is there evidence these are reviewed? How many children are be labelled as ‘Looked-after Child’ (LAC) and ‘Child in Need’ (CIN)? How many are there in terms of percentages per 10,000 of the population? And the like. These controls help no one understand or improve the system; instead they work against any such understanding and frequently can serve to make performance worse. But adherence to these controls protects reputation. Yes, you can have a lousy service and a good rating from the regulator. The controls focus leaders on activity at the expense of purpose. So it matters that activity targets are met rather than each and every child in need being understood.

The questions you would ask if you wanted to know how we are actually doing with helping children in need would be related to purpose, not activity. I shall return to this.

But first something that came to my desk recently – a manuscript of what I hope will be published as a book, describing one family’s experience of children’s services. It began with a tragic event: A family happily agreed to take in their friend’s three children for a couple of weeks when she was admitted to hospital. She deteriorated rapidly and unexpectedly died. What began as a two-week arrangement became extended and tragic. The family wanted to take the children in and the children wanted the same but there were two issues: the family had limited resources, so funding would be necessary, and the children had an estranged father who had been sent back to his home country, Latvia, for criminal behaviour.

The protection of children is, quite rightly, governed by law. In such circumstances the law provides for our statutory services to appoint the family as connected foster carers immediately, then later as Special Guardians, leaving more formal matters of suitability to later and to offer discretionary payment. It could have been very normal very quickly. But that didn’t happen. The motivation for the book was to share the horror of that result taking 18 months.

A hierarchy of social-work actors delayed, failed to act as agreed, told lies, threatened the family with taking the children away, contravened a judge’s direction, only to, eventually, do what mattered. It illustrates how the social work hierarchy sought to avoid bad news, for fear of personal and corporate liability. The book shows how mistakes and lies couldn’t be admitted; instead were denied, and further lies were generated to cover up; it being impossible to acknowledge the truth.

So you have to ask why. How can these people, who joined a vocational service, act this way? It’s how you survive; it’s how you climb the tree. Adherence to regulation, adherence to budget, avoidance of bad news – we have seen how scandals have driven up the number of children taken in to care, simply because it avoids loss of reputation.

Ofsted’s web site proclaims its regulatory function is insuring that services help children in need. It asserts that prerequisites for leadership, note that, prerequisites – you’d better have them – include a vision and values statement, a statement of philosophy, documentation for the structure of teams, controls on how cases move through the system, descriptions of how social work practice will be carried out, arrangements for the provision of help, protection and care for children, what the thresholds for providing services are, what services are expected to do and how services are monitored for quality and effectiveness.

And this is where regulation gets into deep water. One way to deal with all the above is to have documentation for everything, in spades. Regulators like documentation. But what constitutes ‘good’ in any of the above edicts is open to subjective judgement. Much of what is promulgated as ‘good’ isn’t good at all. Misjudgements, conflict, stress, staff turnover and claims for retribution are inevitable consequences.

It is the primary fault in our system of regulation: regulators bring theory. So adherence to their theory is the route to a good reputation. But their theory is wrong. Any of us can point to vision and values statements that are meaningless and not lived by. How cases move through the system encourages an industrial, specialised, cost-controlled design; specifying how work will be carried out impedes the system’s ability to absorb the variety of demand, the very idea of thresholds is to misunderstand how value is created for care recipients, and effective monitoring depends entirely on the measures in use; activity and budget measures do nothing to help us understand effectiveness.

Ofsted also publishes examples of good practice on its web site. In its view these things are good: Being child-centred, ensuring stable relationships (continuity) with social workers, co-producing plans with families, ensuring children grow up in their own families or extended families where possible, having a relationship with the whole family.

Well blow me down, who’d have thought? Having published this insightful list of the bleeding obvious, and despite publishing its view on prerequisites, Ofsted is at pains to point out that it favours no particular method.

And neither should it. In fact Ofsted – and all regulators of public services – should have NOTHING to say about how services should be run.

What we need is a complete re-think of our philosophy and method of regulation. We can only justify regulations if the controls they disseminate are economically and socially advantageous.  The way we regulate today fails both tests. Regulation today amounts to a plethora of specifications inspected for compliance. The specifications amount to opinion; the ideas ministers, administrators and regulators like. Instead of regulation by specification and compliance we need a regulatory system that drives innovation.

There is a systemic relationship between purpose, measures and method. To say it is systemic is to assert that it exists in all organisations for good or ill. When regulators specify measures and methods they create a culture of compliance (usually with bad ideas). Regulators need to limit their edicts to statements of purpose. The leaders of services must be free to choose how to work to achieve that purpose, determining for themselves what measures and methods they will employ. When inspection comes around inspectors need only to ask what choices of measures and methods have been made, and the inspector should go see for themselves how well it is working. The consequences are that transparency will increase (the usual hiding places are removed) and the reliability and validity of inspection reports will increase. Moreover it lays the foundation for innovation. It is to change the locus of control from the centre to those who are paid to run the services.

As I said many UK local authorities have adopted the Vanguard Method to improve care services despite having issues with regulators. But regulators can’t argue with the results: significant improvements in capacity – they provide better help for more people – improvements in service – they learn to give only what is required to meet the needs of care recipients – and significant reductions in the cost of service provision. These services have been subjected to scrutiny by local scrutiny panels. But there is an example of our work that has been subjected to external scrutiny by a number of bodies including the OECD; and that’s the youth service in Amsterdam. (An easier-to-read version, written as a case study is here.) Academics who are critical of the Blueprint for its lack of evidence, among other issues, argue in a recent article that this is the example from the Netherlands that MacAlister should have paid attention to, as it is more akin to children’s services than Buurtzorg.

And here are the results: Overall savings of 30m Euros across the Youth Protection system in Amsterdam; a 50% reduction in the number of families under care; a 61% reduction in protective measures; a 53% reduction in the number of out-of-home placements; a 46% reduction in youth parole measures; a 16% reduction in child custody; a 28% reduction in referrals to youth care providers; a 75% reduction in unnecessary administration. And, of course, many more lives more quickly back on the rails.

All achieved because the service focussed on doing what matters for each and every child. They changed the whole system to respond effectively and efficiently to the children’s needs. There’s the thing: high-quality services are always lower cost. Efficiency comes from effectiveness. All of the New Public Management paraphernalia went, thrown away, by leaders who learned how irrelevant and harmful it was to performance; supported by a government that had given up on New Public Management.

My current copy of Private Eye reports that the Department for Education insists that any recommendations in the “independent” review of children’s social care – chaired, would you believe, by MacAlister – requiring funding must include ‘as robust and detailed an evidence base as possible to demonstrate how, and over what period, this would be offset by savings’. So you might assume that MacAlister’s Blueprint is dead in the water. I wouldn’t bank on it; Big Consultancies are adept at creating fictitious spread-sheets and equally adept at avoiding blame when the savings don’t transpire.

But here we are, us who never went to school with anyone in government, with an evidence base that is as robust as anyone could want, with a method that any leader can follow, that results in far better services at much lower costs, and, in services where children can be separated from families, far fewer separations and thus much lower costs across the whole system. And, in every example, demand for services falls. Happier people and communities, isn’t that the purpose of public services?

Ours is delivered, MacAlister’s is entirely speculative.

The best thing we can do with the Blueprint is chuck it in the bin.

So what do you think about my arguments on regulation?

Thanks in anticipation…

John

john@vanguardconsult.co.uk

P.S.1 The academic article arguing our work in Amsterdam should have been MacAlister’s model can be purchased here: Dismantling the Blueprint: Buurtzorg in English child protection social work: European Journal of Social Work: Vol 0, No 0 (tandfonline.com) – One of the authors has agreed to provide free copies; contact joe.hanley@open.ac.uk

P.S.2 The OECD report that includes the Amsterdam work is here:  https://www.oecd.org/media/oecdorg/satellitesites/opsi/contents/files/SystemsApproachesDraft.pdf

P.S.3 An easier read of the case study in Amsterdam is here:  https://vanguard-method.net/wp-content/uploads/2021/05/88-European-Social-Fund-case-study-ChildProtect-Netherlands.pdf

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Jun 03

Pandemic provides unexpected boost to UK’s productivity prospects

Valentina Romei offers the following in the Financial Times

Technology and machinery investment is up 3.2% compared with pre-pandemic levels

The shift to homeworking, online consumption and social distancing during the Covid-19 pandemic has driven increased investment in new technologies that could deliver an unexpected lift to the UK’s long-term productivity slump.

Britain has been experiencing a productivity crisis since the financial crash in 2008-09 — a slowdown that has been more acute than in any other western country. Economists say low productivity growth matters because it is the rising value of output per hour worked — or productivity — that enables businesses to increase wages to workers and ultimately boost living standards.

Higher productivity also increases government resources to improve public services or cut taxes. But according to Office for National Statistics data for the first quarter of 2021, UK investment in machinery and in information and communication technology rose 3.2 per cent compared with the last quarter of 2019 — the last three-month period before the pandemic hit Britain. In contrast, overall investment over the same period fell 4.8 per cent while UK output declined 8.7 per cent.

What has offered encouragement to economic experts is the degree to which the investment in new technologies and machinery has been accompanied by a greater degree of business innovation and staff retraining which, in turn, has boosted productivity levels.

Spending on intellectual property products, such as software and patents, also surged in 2020 while official statistics showed labour productivity rising in 2020 and in the first quarter of this year.

Mark Posniak, managing director of Octane Capital, a specialist lender, said the first national lockdown last year acted as a “trigger” to automate their processes. “We are now a much more streamlined and digital-first lender, which is really proving its value with our borrowers and partners alike.”

Meanwhile, Craig Bunting, co-founder of coffee shop chain Bear, said that before the pandemic they were focused on the high street market. “Covid-19 changed everything,” he said. “We built an entire ecommerce platform in a matter of a few months.”

Andy Haldane, chief economist at the Bank of England, said earlier this month that spending on R&D and digitalisation “has actually picked up quite maturely and indeed quite unusually for a weak activity period”, which “may provide some clues to productivity doing a bit better than we might otherwise have thought”. He added that the shift to homeworking during the pandemic had provided a boost to productivity.

Nearly half of UK businesses are planning to shift towards greater homeworking as a permanent business model because of increased productivity, according to a recent ONS survey.

Martin Spring, director of the Centre for Productivity and Efficiency at Lancaster University Management School, said coronavirus had provided an incentive to companies to introduce changes that they might otherwise have put off. “That’s really the important point, those organisational changes, skills changes, capabilities changes have had to happen and that’s what makes the difference . . . if the pressure was not on . . . you would probably get away without bothering,” said Spring.

David Owen, economist at Jefferies, said the notion of the UK as a low productivity growth country could be challenged by the pandemic which had forced “new ways of doing business and innovation”.

The UK’s productivity crisis has long been a concern to economists. The UK’s prospects have been further limited by high Brexit uncertainty and low business investment since the EU referendum in 2016. Despite the boom in digitalisation in 2020, UK business investment was down 18 per cent compared with the second quarter of 2016, while it registered a double-digit growth rate in the US.

However, companies’ investment intentions, including spending in buildings and transport equipment which is currently very low, have picked up in April, according to the BoE agents’ survey, largely reflecting the waning of uncertainty related to Brexit and the pandemic as well as a brightened economic outlook.

According to Oxford Economics, UK business investment is expected to grow much faster over the next two years than in other G7 countries, driven by the government’s two-year tax break which allows companies to deduct 130 per cent of their investment from their taxable income. But Andrew Goodwin, economist at Oxford Economics, warned that business investment would still be limited by the costs of servicing debt that companies were forced to take on during the pandemic. “Brexit is also likely to prove a key headwind,” he said. Goodwin added that the “super deduction” was “relatively narrow focus and is temporary in nature” and “it’s hard to believe that it will have a significant long-lasting positive effect”.

Global economic impact tracker Ben Broadbent, a member of the BoE monetary policy committee, also raised a note of caution and said the lower use of capital such as offices and transport infrastructure would be a drag for productivity in the short term. Others noted that a one-off adjustment in innovation was unlikely to have long-lasting effects on productivity if the trend did not continue. “The trick now will be to hang on to those changes and build on them further, even as the expediencies of the pandemic diminish,” said Spring.

Bart van Ark, managing director of The Productivity Institute, a research organisation, said that while the change in digital transformation put the UK in a better place to reap the benefits from new technologies in the future, “digital transformation is not a one-off investment but a journey”. He added that UK productivity was so much lower than in France and Germany that even assuming a stronger productivity growth in the coming years, “it would require the UK outperform on investment and business practices for quite some time to visibly narrow the gap”.

 

May 24

How to solve the puzzle of missing productivity growth

A perceptive article published by the Brookings Institution and written by the well-known economist Erik Brynjolfsson and two colleagues, Seth G. Benzell and Daniel Rock

Despite the economic damage wrought by the novel coronavirus over the past year, an analysis published by The Economist in December 2020 argues that the COVID-19 pandemic may have made a boom in productivity more likely to happen because “new technologies are clearly able to do more than has generally been asked of them.” This would be welcome news to observers who have scratched their heads about why supposedly innovative technologies like cloud computing and artificial intelligence have struggled to materially affect topline productivity growth numbers or the rate of overall GDP growth.

Office closures have made firms invest in automation and digitization and make better use of existing resources. Survey data collected by the World Economic Forum during the pandemic show that more than 80% of employers are planning to accelerate the adoption of advanced technologies and provide more opportunities for remote work, while 50% plan to accelerate automation of production tasks. In a way not seen for the last two decades, this turn has the potential to provide sustained productivity growth—the ultimate engine of economic activity in the long run.

To take a step back, in the past decade digital goods and services have been criticized for under-delivering on their enormous economic promise. In spite of the emergence of new technologies capable of diagnosing diseases, understanding speech, or recognizing images, these tools have had startlingly little effect on the disappointingly slow productivity growth rate of advanced economies, critics argue. Indeed, the pace of productivity growth has decelerated in the past two decades—from an average of 2.8% per year in the decade ending in 2005, down to 1.3% per year from 2006 through 2019.

In a recent Stanford HAI and Digital Economy Lab policy brief, we took stock of the latest research and identified four potential reasons why productivity growth is slowing. Besides examining each of these four explanations, we want to sketch out what policymakers can do to reverse this trend, reduce income inequality, and make the United States more competitive. This set of policy actions falls into three broad categories:

  1. Increasing investments in research and development through direct grants and tax credits.
  2. Expanding the human capital available to the economy by boosting our education system and expanding immigration of high-skilled labor.
  3. Removing the legal and regulatory bottlenecks that currently exist to entrepreneurship and business innovation.

Establishing root causes

To begin, why has productivity growth slowed in spite of immense technological innovation? First, we have to consider the possibility that today’s technological advances simply fall short of the promise envisioned by their developers and that they will never fulfill their expected economic promise. Second, economists might be failing to measure properly all the aspects in which technological changes are affecting the economy. Third, the new technologies under consideration may be privately beneficial to the companies that developed them but have fewer positive effects on the broader economy. Lastly and most compellingly from our perspective, transformative technologies take time to diffuse throughout the economy and must be accompanied by appropriate investments and adjustments. They don’t typically translate into improvements in productivity until complementary innovations have been developed.

The argument that tech hype is overblown and will never fulfill supposedly irrational expectations rests on the contested observation that the rate at which innovations are being created is decreasing. This is borne out in some respects, since it is increasingly difficult for researchers to reach the frontiers of their discipline as more specialization is needed per innovation than before. But we do not find as compelling the parallel argument that productivity gains from the adoption of I.T. systems installed early in the 21st century have run their course and that no additional technological improvements to productivity should be expected.

Moreover, as information flows and knowledge-based work increases in importance, accounting for digital goods and services has become an increasingly important part of the economic conversation. While traditional growth accounting handles the case of economic activity like manufacturing pretty well, instances of unmeasured inputs and unmeasured outputs that stem from what are known as intangible or hidden assets—assets like corporate culture or business processes that are not documented on balance sheets, not kept as inventory in a warehouse, and not easily transferable between firms—have upended the mechanics of economic measurement. This raises questions about whether growth accounting is properly capturing the ways in which digital technologies are changing the economy.

The second explanation, that we may be failing to properly measure new sources of economic activity, enjoys broader support than the overblown hype argument. Since the beginning of the productivity slowdown, the way consumers choose to value search engines and social networks demonstrates considerable fluctuation, as has consumer dependence on goods like mapping software and encyclopedias that were not free before they became digital goods. Improper or uncertain measurement must also be seen in conjunction with the fact that prices for goods such as semiconductors and other specialized computational hardware are increasingly being mismeasured. If economists’ estimates of price changes for these new technology products were rising too quickly or falling too slowly over time, the overall amount of productivity growth observed would be understated.

Improper and uncertain measurement is related to the third hypothesis, that lucrative technologies are increasingly used in zero-sum applications that merely shift wealth around and have fewer positive effects on the economy generally. An example of this can be seen in the misalignment of incentives in tax policy that subsidizes capital at the expense of labor and crowds out investment in labor generative technology. Capital subsidies result in firms developing technologies that are only marginally more efficient than workers but not sufficiently better to incentivize additional investment that could complement workers. This can be seen in the case of recent innovator companies who have focused on developing technologies that are just better enough than a worker to lower labor demand, but not better enough to free up additional capital for complementing workers.

Lastly—and most importantly—slowing productivity growth may be the result of technologies taking time to reach their full economic potential. We find this argument most convincing because of the nature of general-purpose technologies (GPTs) like artificial intelligence—those that are generally pervasive and can improve over time but require complementary investments that are both intangible (e.g. in data collection, employee training) and physical (e.g. computers, 5G towers). In the early stages of GPT-related economic activity, it can appear increased tangible costs are required to achieve the same outputs as in the past—before unmeasured capital service flows and unmeasured costs to create that capital start to balance each other out. This is because of the substantial need for complementary innovations to many intangible assets, especially in the case of fundamental technology advancements such as AI. We have termed this phenomenon the “productivity J-curve.” As we have seen, complementary innovations for productivity enhancing technologies can take years or even decades to create and implement. In the meantime, measured productivity growth can fall below trends since real resources are devoted to investments in these innovations.

Supercharging productivity growth

Taking the above analysis into account allows us to develop the following recommendations policymakers should take to enhance productivity growth. In order to ensure that the economic gains from integrating these hard-to-measure intangible assets are not consumed entirely by the wealthy and privileged, we propose a set of interventions across three broad issue areas that are designed to share prosperity among the entire population.

First, to address inadequate research and development (R&D) efforts, boost levels of spending in both public and private R&D by authorizing large, government-directed research projects, government grants through the National Science Foundation or the National Institutes of Health, and through tax credits for private businesses. Fundamental science is often best carried out by government, academia, or nonprofits while marketable applications of that basic research are often optimized through private development. Thus, the federal government should adopt a diversified approach in building this program in order to reduce overall risk and fund early stage or large-scale projects that the private sector either would not be able to pursue or would not want to pursue. This will increase the likelihood of positive effects from at least one avenue.

The second category of policy actions we recommend involve increasing U.S. human capital. This can be accomplished through shoring up our education system and encouraging high-skilled immigration. Boosting the attractiveness of the United States to high-skilled immigrants is the most simple and important action the country could take today to increase growth. This includes immigrants and refugees who do not have university degrees. Those who come to America tend to be entrepreneurial and ambitious and represent some of the most talented and tenacious individuals in their home countries. Immigration also has the added benefit of expanding market size and providing opportunities for entrepreneurs to serve specialized markets.

The United States should also boost funding and support for schools and universities, including by potentially funding new universities, updating the land-grant process used to create institutions like the University of California system, or by allocating appropriately sized endowments to be administered by the states. In order to better prepare children for college, the United States should do more to improve the quality of primary- and secondary-school instruction through better accountability for teachers, extending the length of school days and the school year, offering optional weekend classes, and providing one-on-one math tutoring. The goal here is to not only produce more STEM PhDs in the United States, but to promote the training of scientists abroad as well, since R&D conducted abroad is likely to produce positive spillovers in this country.

Our third category of policy interventions involve eliminating bottlenecks to innovation in the legal, regulatory, and tax realms. In order to reduce adjustment costs and lags to the benefits of new technologies, policymakers should pursue legislation to eliminate or weaken the non-compete clauses that prevent skilled engineers from bringing their talents and insights to competitors. Policymakers should further enact intellectual property reforms that push more technologies and artistic concepts into the public domain. Besides investing in infrastructure and public goods, the United States should also reinvigorate antitrust enforcement, including by empowering the Federal Trade Commission to subpoena information needed for better understanding and regulating monopolies.

Rather than focusing on breaking up digital platforms—which might destroy productivity-enhancing network effects—the federal government should promote standards that enable easier market entry and interoperability among competitors. Where this is impossible, regulators should focus on tax policy, regulation, and collective bargaining tools to ensure the benefits from these platforms are more widely distributed. Decoupling healthcare from employment and reforming occupational licensing will help make it easier for people to start a new business and boost entrepreneurship. Lastly, the United States should correct the subsidy it currently provides to capital-intensive automation over the invention of new tasks for labor. Washington should also collaborate with other countries on corporate tax reform in order to prevent a race to the bottom with respect to corporate tax havens in the international contest to attract capital.

Pursuing these policies will reward firms for creating new jobs instead of economizing on labor costs and will ensure that the innovation provided by GPTs accelerates productivity growth across the entire economy. This in turn will help expand wages, reduce income inequality, and ensure that more equitable growth is enjoyed across the country. Addressing the productivity paradox will contribute to the speedy integration of scalable machine intelligence into the global economy and ensure that its integration reflects our fundamental values about the dignity of human work. In sum, we are optimistic that the coming decade will be one of higher productivity growth as firms continue to adjust their business practices because of the COVID-19 pandemic and as policymakers take the reins in making a plan for equitable growth a reality.

Erik Brynjolfsson is the Jerry Yang and Akiko Yamazaki Professor and Senior Fellow at the Stanford Institute for Human-Centered AI (HAI), and Director of the Stanford Digital Economy Lab. He also is the Ralph Landau Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR), Professor by Courtesy at the Stanford Graduate School of Business and Stanford Department of Economics, and a Research Associate at the National Bureau of Economic Research (NBER).

Seth G. Benzell is an Assistant Professor at the Argyros School of Business and Economics at Chapman University. He is a Fellow of the Stanford Digital Economy Lab, part of the Stanford Institute for Human-Centered Artificial Intelligence (HAI).

Daniel Rock is an Assistant Professor of Operations, Information, and Decisions at the Wharton School of the University of Pennsylvania and a Digital Fellow at both the Stanford HAI Digital Economy Lab and the MIT Initiative on the Digital Economy.

This post is adapted from the Stanford HAI Digital Economy Lab’s policy brief, “Building Solutions to the Modern Productivity Paradox”

May 09

Don’t Underestimate the Power of Kindness at Work

  • An important article follows on the powerful impact that kindness can have on a range of productivity issues, especially as we move from an era of materialism to mentalism – it was published in the Harvard Business Review, written by Ovul Sezer, Kelly Nault and Nadav Klein and clearly supports my wife, Rhona’s quote: “There’s no downside to being kind”

Everybody wants to be happy. But how can we meet that sometimes elusive goal? This was a difficult question even before the global pandemic, but nowadays just thinking about it can seem futile. Parents are trying to balance the demands of remote work and online schooling; people who live alone try to keep their focus in isolation. When life is measured by back-to-back Zoom meetings, even taking a shower can seem like a win.

The transformation of the workplace into scheduled online meetings has led to another source of deprivation: The removal of serendipitous encounters. For many people, hearing a colleague say, “Thank you so much” in the hallway, or a manager telling you “Great job” after a presentation were a highlight of office life. Now, these seem like traditions from another lifetime. Without water cooler interactions, casual lunches, and coffee breaks with colleagues, we don’t have the same opportunities for social connection as before. Without them, it can be much harder to find joy in our work. So, what can we do about it?

We offer a humble suggestion: Kindness. This past year, most management advice has focused on how to sustain productivity during the pandemic, yet the power of kindness has been largely overlooked. Practicing kindness by giving compliments and recognition has the power to transform our remote workplace.

The Benefits of Kindness

A commitment to be kind can bring many important benefits. First, and perhaps most obviously, practicing kindness will be immensely helpful to our colleagues. Being recognized at work helps reduce employee burnout and absenteeism, and improves employee well-being, Gallup finds year after year in its surveys of U.S. workers. Receiving a compliment, words of recognition, and praise can help individuals feel more fulfilled, boost their self-esteem, improve their self-evaluations, and trigger positive emotions, decades of research have shown. These positive downstream consequences of compliments make intuitive sense: Praise aligns with our naturally positive view of ourselves, confirming our self-worth.

Second, practicing kindness helps life feel more meaningful. For example, spending money on others and volunteering our time improves wellbeing, bringing happiness and a sense of meaning to life, research finds. Being kind brings a sense of meaning because it involves investing in something bigger than ourselves. It shapes both how others perceive us — which improves our reputation — and how we view ourselves. We draw inferences about who we are by observing our own behavior, and our acts of kindness make us believe that we have what it takes to be a good person. In the remote workplace, where cultivating moments of joy is difficult, this may be a particularly important benefit that translates into long-term job satisfaction.

Third, as we found in a new set of studies, giving compliments can make us even happier than receiving them. We paired up participants and asked them to write about themselves and then talk about themselves with each other. Next, we asked one of them to give an honest compliment about something they liked or respected about the other participant after listening to them. Consistently, we found that giving compliments actually made people happier than receiving them. Surprisingly, though, people were largely unaware of the hedonic benefits of being kind.

Why does giving compliments boost our happiness to such a degree? A key ingredient of well-being that we’ve sorely lacked during the pandemic plays a role: social connection. In our studies, we found that giving compliments engendered a stronger social connection than receiving compliments because giving them encouraged people to focus on the other person. Sure, receiving a compliment feels great, but making a thoughtful, genuine compliment requires us to think about someone else — their mental state, behavior, personality, thoughts, and feelings. Thinking about other people is often a precondition to feeling connected to them. In this way, compliments can become a social glue, enhancing connections and positivity in relationships, and making us happier.

Nonetheless, people are often hesitant to give compliments. Why? The idea of approaching someone and saying something nice can trigger social anxiety and discomfort, recent research by Erica Boothby and Vanesa Bohns shows. For this reason, we assume people will feel uncomfortable and be bothered by receiving a compliment, when the opposite is true.

In addition to these psychological barriers, working remotely has added more structural barriers to random acts of kindness, compliments, and recognition. Before the pandemic, organizations often recognized employees through formal programs, while serendipitous encounters could easily generate a simple thank you or words of praise. By contrast, today’s Zoom meetings tend to follow strict agendas that leave no room for any other topic, let alone compliments.

Organizations benefit from actively fostering kindness. In workplaces where acts of kindness become the norm, the spillover effects can multiply fast. When people receive an act of kindness, they pay it back, research shows — and not just to the same person, but often to someone entirely new. This leads to a culture of generosity in an organization. In a landmark study analyzing more than 3,500 business units with more than 50,000 individuals, researchers found that acts of courtesy, helping, and praise were related to core goals of organizations. Higher rates of these behaviors were predictive of productivity, efficiency, and lower turnover rates. When leaders and employees act kindly towards each other, they facilitate a culture of collaboration and innovation.

Bringing Kindness to Work

How can leaders promote kindness in the remote workplace? First, they can lead by example. People are naturally sensitive to the behaviors of high-status team members. By giving compliments and praising their employees, leaders are likely to motivate team members to copy their behavior and create norms of kindness in teams.

Second, leaders can set aside time during Zoom meetings for a “kindness round” in which team members are free to acknowledge each other’s work. This need not take much time — even a few minutes a week will suffice. But these few minutes can boost morale and social connection, especially when months-long projects are mostly completed over Zoom.

Third, consider small spot bonuses. Companies such as Google have used “peer bonus” systems to encourage employees to send small amounts of money (from a fund in the organization) to each other to show appreciation for particularly effective work. Even a few dollars could have a positive effect; research finds that people appreciate small acts of kindness as much as large ones. A gift card or a small gift sent through the mail might work just as well. Simply knowing that one is appreciated can trigger the psychological benefits of kindness without costing the organization substantial sums.

The power of kindness can mitigate the ill effects of our increasingly online social world. It is an essential leadership skill that can cascade through people, changing the culture of the workplace along the way.

  • Ovul Sezer is a behavioral scientist, stand-up comedian, and Assistant Professor of Organizational Behavior at UNC Kenan-Flagler Business School.
  • Kelly Nault is a PhD candidate in Organizational Behavior at INSEAD. Her research focuses on person perceptions and social decision making affecting status dynamics in organizations.
  • Nadav Klein is a behavioral scientist and Assistant Professor of Organizational Behavior at INSEAD.

May 02

AI and productivity

Extracts follow from a ‘cover story’ just published in the Financier Worldwide Magazine

The global AI market has rocketed in recent years:
  • According to UBS, the AI industry was a $5bn marketplace by revenue in 2015. By 2025, the size of the AI software market is forecast to reach $126bn
  • McKinsey Global Institute reckons AI techniques could create between $3.5 and $5.8 trillion in value annually across nine business functions in 19 industries in the coming years. This accounts for about 40% of the overall $9.5 to $15.4 trillion annual impact potentially enabled by all analytical techniques.
  • Accenture claim that by 2035 AI will double growth rates for 12 developed countries and increase labour productivity by as much as a third.

 

Automation evolution

AI itself has evolved dramatically, particularly over the last 10 years.

“Machine learning, a subset of AI, has been an area of research for over half a century but has only achieved transformational success with recent increases in processing power and memory and the availability of very large training data sets, sometimes by-products of the internet age,” explains Matt Hervey, a partner and head of artificial intelligence at Gowling WLG. “This has vastly improved computer vision and language processing, in turn enabling unprecedented automation of previously human-only tasks. High-profile examples include self-driving cars and medical diagnosis, but vision and language perception enable automation of a vast range of low profile, menial tasks across all sectors.

“The effects of such automation are unclear to experts and the public alike, so current attitudes to AI may not last,” he adds. “What is abundantly clear is that governments, regulators, lawmakers and companies around the world are conscious of both the economic potential of AI and the risks to society, including fake news, mass unemployment, loss of privacy, and challenges to human autonomy and dignity.”

More recently, the coronavirus pandemic has had a significant impact on adoption of AI, as companies responded to the challenges of worker productivity during the crisis. “COVID-19 has accelerated AI and its applications by decades,” says Clare Lewis, a partner at McGuireWoods. “With the unprecedented move online, from tele-medicine, e-learning and remote working, the demand for AI and machine learning has never been greater.” Indeed, AI can help remote workers stay focused on their most important duties by eliminating tedious tasks.

Sector-specific trends have also emerged during the COVID-19 crisis, with healthcare one obvious beneficiary. “The beauty of AI is that it can benefit all sectors that rely on data,” says Giles Pratt, a partner at Freshfields Bruckhaus Deringer LLP. “But the healthcare sector, and particularly pharmaceutical and biotech, may have the most to gain, as ‘failure rates’ in drug research and development (R&D) remain high and costly. “AI is increasingly being used in drug development, analysing and learning from large data sets to identify suitable compounds and to predict efficacy and side effects of new treatments,” he continues. “Reducing the time and cost involved in R&D can make a tangible difference in this space – and the importance of efficient drug development has really been put in the spotlight during the COVID-19 pandemic.”

In manufacturing, AI can monitor and analyse equipment to issue alerts when a service is necessary. This predictive maintenance enables businesses to cut out scheduled services. In turn, downtime and overall maintenance costs are reduced.

Across a range of industries, automation is being targeted to replace specific tasks within a role, particularly repetitive tasks considered ‘low-value’. “AI can make certain jobs more efficient and interesting,” says Ms Lewis. “In the legal realm, for example, lawyers use AI tools for mundane document review and due diligence tasks which previously needed to be reviewed manually. When workers are freed up from menial tasks, they can focus on increased client service and innovation.”

 

Cyber strength

Cyber security is another key area of AI application – indeed, it is the leading area according to the Consumer Technology Association, with 44% of all AI applications being used to detect and deter security intrusions. AI can provide an ‘always on’ solution to help protect businesses from malicious attacks. It can monitor systems to identify and fix vulnerabilities, allowing the IT team to concentrate on key risks.

“The scale and complexity of large organisations’ IT environments means the task of monitoring systems for irregularities is becoming increasingly difficult,” points out Mr Pratt. “As part of a multi-layered cyber security strategy, we see AI playing a significant role in detecting and responding to threats by first learning what is ‘normal’ for a specific IT environment, and then identifying anomalies. That makes AI an important line of defence against attack, and in managing the legal and regulatory risks associated with cyber security incidents,” he says.

Workforce worry

There is, however, so much that we do not know about the implications of AI. One thing is increasingly clear, however: AI will be profoundly disruptive. Some already view the proliferation of AI and its potential future applications in a negative light.

In terms of productivity and employment, for example, robots have been depicted as taking jobs from workers. Concerns about AI making human labour obsolete are understandable. According to a recent study from MIT and Boston University, robots could replace as many as 2 million workers in manufacturing alone by 2025.

“Whenever you have a leap in efficiency, there are large strides made in terms of economic growth,” says Ms Lewis. “However, the dark side to AI is that some workers, such as truck drivers for example, will need to re-tool their skills very quickly and be able to relocate to find new jobs. Software developers around the world are developing software specifically geared to replace well-paid managers who perform repeatable tasks. The AI technology being developed is very exciting, but the collateral damage will have long-term repercussions in terms of poverty and inequality. Innovative solutions are needed for those who fall through the cracks.”

COVID-19 has exacerbated this issue. In the US, for example, around 40 million jobs were shed at the height of the pandemic, and according to the University of Chicago, around 42% of those losses will be permanent. With many companies in survival mode for the foreseeable future, the pandemic has provided further incentive to increase automation levels. AI, after all, does not need to socially distance.

On the other hand, there are suggestions that AI will actually have a net positive impact on jobs. According to PwC, for example, AI is projected to create as many jobs as it displaces in the UK over the next 20 years – in absolute terms, around 7 million existing jobs could go, with around 7.2 million engendered.

In the short- to medium-term, AI is more likely to automate certain tasks within a role, rather than the entire role itself. There will be a focus on AI for complex calculations, routine processes and pattern recognition, for example, which can boost profitability and free up employees. Ultimately, AI can exist symbiotically with humans. The technology does not operate in a vacuum; it requires humans to function properly and deliver the desired efficiency and productivity gains.

Implementation hurdles

To date, AI has typically been deployed in the form of industrial and collaborative robotics, as well as machine vision and machine learning. But it is continually evolving. For example, industry leaders expect significant growth in predictive systems which use AI to manage intelligent supply chains. Manufacturers also predict increased use of robotic process automation (RPA) in their operations.

At present, the most significant barrier to deployment of AI solutions is that many organisations lack clarity on how to implement them. There is also a lack of employees with the necessary digital skills to implement AI, or even to define what skills are needed.

To overcome such issues, companies must adopt a holistic approach. This may entail a workforce transformation strategy which considers what AI-specific jobs need to be created and how to provide relevant AI training to employees at every level.

“Some companies are proposing their own ethical frameworks to protect workers,” explains Mr Hervey. “Rolls-Royce recently launched its Aletheia Framework for AI. This requires the company to consider the impact of AI on its workers, such as to deploy AI ‘shown to improve the well-being of employees, such as improved safety, working conditions, job satisfaction’, to analyse ‘potential job role changes or potential human resource impacts and the opportunities for retraining’, to explore ‘upskilling opportunities’ and so on.

Currently, the topic is a source of debate and speculation, with competing arguments on all sides. “The impact on labour markets remains to be seen,” says Mr Hervey. “Some futurists predict mass unemployment, some predict that new forms of work will be invented, while others predict that AI will be used to ‘augment’ rather than replace human employees.

Thinking regulation

As with any disruptive technology, the dawning of the age of AI has sparked calls for greater regulation. The need for increased regulation is becoming clearer, given the speed of AI development and uptake.

The European Commission is currently developing a regulatory framework that could have an impact on any company looking to do business in the EU. It hopes to promote a human-centric approach, where AI primarily services people and increases their wellbeing.

In anticipation of regulatory developments, it is prudent for companies to pre-emptively introduce a vetting process for AI products and services, to reduce disruption and drive productivity.

Rewards

AI stands to play an increasingly significant role in the day-to-day operations of many businesses, helping them to create value by generating profit, reducing costs and improving customer experience.

Increased integration of AI into workstreams seems inevitable, enabling companies to eliminate tedious tasks and focus employees on more productive activities, boosting speed, efficiency and accuracy.

Overall, AI-enabled technologies have the potential to dramatically increase economic output.

Apr 27

How We Work Has Changed Forever

Keir Weimer pens his thoughts in a Forbes magazine article – he adds that he is founder of Keir Weimer Multimedia, a real estate & lifestyle entrepreneur, No. 1 bestselling author, keynote speaker & high-performance coach.

The following are three trends I have seen emerge and that I predict will continue to grow in the coming months and years.

Individualism and self-productivity will rise in importance.

Never before has there been such a spotlight and a focus on the individual work and output of singular members of an organization. Many of us have been working remotely and have been on our own island creating, interacting and collaborating through Zoom and other technology with our teams and companies, all scattered across the country and the world. We had to find new ways to stay motivated, foster our creativity, stay organized and continue to be productive members of our companies.

However, many people have felt more of a spotlight and added pressure to prove themselves and make sure their bosses and teams know that they are staying productive and focused on the goals even though there’s nobody looking over their shoulder anymore. The level of accountability and the system of accountability has changed. It’s more important for us to be proactive and take initiative in making sure our work and our output are not only valuable, but it’s also acknowledged and recognized in ways that we didn’t have to before. This will likely only continue. The focus on our individuality and singular individualism has never been more apparent.

Deliberate and intentional connectedness will be more valued and rewarded.

Another trend we’ve seen emerge and appears to be growing is the value of leadership, proactive communication and work by individual team members. It’s a lot easier to hide behind a computer screen on a Zoom meeting with your camera off than it is to show up prepared to an in-person meeting where you’re expected to contribute meaningfully and positively to the dialogue and the solutions that are to come from that meeting.

Those that get ahead in this new remote world will be those that possess and prioritize a level of deliberateness in their connectedness to management, to their colleagues and to their organizations’ missions. This will be what is rewarded and noticed, and a class of so-called digital leaders will continue to emerge.

In-person team retreats will grow in importance and frequency.

Something else I predict will start to grow in popularity and importance is the need for in-person team retreats and other organizational events to bring people together in person again. It doesn’t matter how good the technology and the remote infrastructure are; at the end of the day, we’re all still humans, and we need the human and emotional connection that being together with our peers brings. This will continue to grow in importance and influence, and so too will companies’ and organizational budgets for event space and services to provide a creative venue and outlet for teams to get together, even when they aren’t working in a physical office.

Even before the pandemic, it was well-documented that social interaction is good for our physical and mental health. This trend of in-person team retreats will likely pick up steam as we start to head into this next chapter of reorganizing the working world with new priorities and new frameworks guiding the organizational behavior and patterns of tomorrow.

While the landscape of how we work has fundamentally changed and will continue to be altered for years to come, it represents unique opportunities for organizations and their employees if they are identified and creative solutions implemented in a proactive way that fosters connectedness, collaboration and productivity.

 

Apr 23

Productivity After The Pandemic

Interesting views  expressed in the Financial Advisor magazine from Laura Tyson, former chair of the U.S. President’s Council of Economic Advisers, is Professor of the Graduate School at the Haas School of Business and Chair of the Blum Center Board of Trustees at the University of California, Berkeley. Sadly, as ever, they all hinge on the flawed national labour productivity statistic, even though most forecast growth will be due to capital investment 

Summary:

After years of disappointing productivity growth, the Covid-19 pandemic has shaken something loose, with surveys of business executives showing most reporting increased investments in technology. The danger now is that the pandemic-era acceleration of automation and digitalization impedes growth in labor income and consumption.

 

With Covid-19 vaccines being rolled out and supportive fiscal and monetary policies fueling aggregate demand, the U.S. economy is poised to return to its pre-pandemic output level later this year. The labor-market recovery, however, will be much slower and unevenly distributed, with employment unlikely to return to its pre-pandemic peak until 2024.

If output growth exceeds employment growth over the next few years, productivity will increase (at least temporarily). The Congressional Budget Office’s most recent forecast predicts labor-force productivity growth of 1.5% per year for the 2021-25 period, up from an average of 1.2% per year between 2008 and 2020.

In response to the pandemic, many firms—but especially large ones—have made significant strides toward boosting productivity through automation, digitalization, and the reorganization of operations, including a rapid shift to at-home work, to boost efficiency and resilience.

 

In a December 2020 McKinsey & Company survey of business executives in North America and six European countries representing about 40% of global GDP, 51% of respondents said they had increased investment in new technologies in 2020, and 75% said they planned to do so in 2020-24.

By contrast, just 55% reported increased investments in 2014-19. Moreover, a 2020 survey conducted by the World Economic Forum (WEF) found that 80% of firms plan to increase the digitalization of their operations and expand their use of remote work, and 50% intend to accelerate the automation of production tasks.

More broadly, recent research by the McKinsey Global Institute (MGI) (N.B. still the only big consultancy interested in productivity issues and improvement) identifies opportunities for incremental productivity growth across a wide variety of sectors that account for about 60% of the non-farm economy. These include health care (telemedicine), construction (digital twins and offsite modular construction), retail (e-commerce and warehouse automation), banking (digital payments and hybrid remote working), manufacturing (robots, digital channels, and connected autos), and even the hard-hit travel industry (more agile working).

If all of this potential is realized, annual labor productivity growth in the United States and several European economies could increase by about a percentage point between 2019 and 2024. But achieving such a dramatic supply-side improvement requires that the productivity-driving changes spread from the large firms where they have been concentrated to small and medium-size enterprises.

Many in this latter group have so far been unable or reluctant to increase their investment in automating or digitalizing their supply chains, operations, and delivery models. And without such investment, the productivity gap between big “superstar” firms and a long tail of lagging competitors will increase, diminishing economy-wide productivity gains and exacerbating the post-2008 trends toward greater inequality in economic performance across firms and regions and more market concentration.

Equally important is the trajectory for aggregate demand, which will depend on what happens to employment and income growth. The most convincing explanation for the disappointing productivity growth in the decade following the 2007-09 global financial crisis was chronically weak consumption and investment demand. While the pandemic-era acceleration of automation and digitalization may boost productivity on the supply side, it could have a detrimental effect on demand, by hampering growth in labor income and consumption—a major determinant of economic growth generally.

During the next year, consumption growth is likely to be strong, owing to the post-pandemic release of pent-up demand and massive injections of fiscal stimulus. But, over time, the effects of efficiency-focused productivity measures and accelerated digitalization could dampen employment and income growth, cause polarization within labor markets to deepen, and eliminate middle-skill jobs, thereby constraining consumption growth among those with the highest propensity to spend.

The long-run effects could be substantial. About 60% of the productivity potential identified in the most recent MGI report reflects efficiency-boosting cuts to labor and other costs. The WEF survey found that 43% of the businesses surveyed anticipate net reductions in their workforce as a result of pandemic-accelerated automation and digitalization. In a related report, MGI estimates that an additional 5% of workers (eight million) could be displaced by automation/digitalization by 2030, on top of the 22% of workers estimated to be vulnerable before the pandemic.

In the U.S. and other industrialized economies, the largest negative impact of the pandemic on jobs and incomes has been in food services, retail, hospitality, customer service, and office support. Many of these low-wage jobs could disappear altogether if pandemic-induced reductions in professional office time and business travel diminish demand for myriad services such as office cleaning, security and maintenance, transportation, and restaurant and hospitality services. Prior to the pandemic, these occupations accounted for one in four U.S. jobs and a growing share of employment for workers without a post-secondary education.

Weak investment poses another demand-side risk to potential productivity growth. Business investment rates overall were already in long-run decline before the pandemic (hence the post-2008 productivity slowdown), and investment has since contracted further, owing to a decrease in private non-residential investment from its 2019 peak. That said, the decline in investment during the Covid-19 recession has not been as large as that of the 2007-09 financial crisis.

To realize the potential for higher productivity growth, fiscal and monetary authorities should shape recovery policies with two broad goals in mind: fostering strong and inclusive income and consumption growth, and boosting public and private investment in physical capital (infrastructure and affordable housing), human capital (education and training), and knowledge (research and development).

Given the significant shortfalls in public infrastructure that have developed over decades of under-investment, the Biden administration’s infrastructure plan could crowd in private investment, boosting overall investment in the short run and increasing the economy’s long-run potential productivity growth.

 

Apr 22

Counting hours worked isn’t cutting it anymore

A bang-on article in Fortune magazine by Robert Pozen, senior lecturer at MIT Sloan School of Management 
Commentary-Hours Clocks-Measuring Success

If you are reading this, do you really care how many hours I took to write it? Or do you just care about the freshness of my ideas and the clarity of my writing?

As this example illustrates, counting hours is not a sensible way to gauge the productivity of professionals in knowledge-based industries like finance, software, biotech, or journalism. Those professionals may generate a great idea in a few hours, or take days to come up with a mediocre one. A much better measure is the quality of their results.

Yet many companies are still counting hours spent working—traditionally enforced through timesheets and standard office hours. When the pandemic struck, some companies even inserted software into the home computers of their employees to monitor how many hours they stayed online each day.

The pandemic and its aftermath should ring the death knell of hours as a useful proxy for productivity. With most employees working from home, the boss no longer can walk around the office to check on who is sitting at their desk. And, going forward, the boss will not be able to monitor the hours of the team as they move to a hybrid model, working sometimes in the office and sometimes at home.

As counting hours becomes less relevant, managers are searching for alternative ways to hold their team members accountable for doing a good job. After all, how can the manager know whether team members are working diligently from home, or using the time away from the office to practise their golf swing? In other words, to replace the counting of hours, organisations need a more effective system of accountability tied to results.

Both new and old companies are moving to systems emphasising results rather than hours.
For instance, Matt Mullenweg, the founder of Automattic, says that its employees are accountable for what they accomplish rather than the number of hours they log. Similarly, the new mobile work policy of Siemens focuses on outcomes rather than time spent on the job.

To provide accountability based on results, I’ve developed an approach called success metrics. Under this approach, the manager sets objectives for their team as part of the effort to fulfill the organisation’s goals. Then the manager and team members discuss how they will know at the end of the relevant period whether they have been successful in achieving these objectives. That discussion should lead to an agreed-upon list of specific deliverables with time targets.

Using success metrics has many benefits. First, it forces a clarification of objectives. When I headed two investment organisations, I was constantly amazed by the failures of communication among dedicated, smart, and loyal colleagues. These communication glitches are minimised when the manager and the team must agree on specific deliverables.

Second, using success metrics helps maintain a high level of job satisfaction and productivity. Once the managers and team members agree on a list of specific deliverables, it’s up to the team to decide how, when, and where they get the work done. This high degree of autonomy and flexibility not only frees up team members to do their best work, but also promotes their work/life balance.

Third, with general objectives translated into a set of specific deliverables, the manager no longer needs to micromanage the activities of their team every day or every hour. As long as the team members deliver the scheduled results, it does not matter how they utilise every day or hour. Instead, managers can use their time more constructively to find new clients or develop new products.

Nevertheless, a good manager won’t ignore the team and just wait for the scheduled results. A good manager should meet with the team every week to ascertain their progress and offer assistance if needed.

For example, the manager might help solve difficult analytic problems, assign more resources, or persuade other units to cooperate with the team. At the end of the project, the manager should celebrate the team’s victories and understand any deficiencies to prevent them from happening again.

In short, while we should all applaud the demise of the eight-hour workday as a relic of a bygone era, we need to replace it with a productivity measure more relevant to a knowledge economy. Out with timesheets and in with success metrics!

 

Apr 11

Flexible work schedules are attractive to many remote employees. 

Jesper Schultz is  CEO of BasicOps, a San Francisco internet-platform, who allowed his remote employees to set their own working hours and found they were way more productive and much happier as a result. During the pandemic, he allowed his small team to adjust their preferred working hours. The flexibility encouraged workers to prioritise their own wellness and be more motivated and productive while working.

Jesper Schultz is the CEO and cofounder of BasicOps

A year of postponed weddings, torn-up plane tickets, and far too many Zoom calls has forced us all to adapt to a new way of life. Beyond personal changes and too much time spent perfecting the art of sourdough bread baking, the workforce has also adapted.

For better or worse, we’ve said goodbye to long commutes and water-cooler chats. A new era of remote work has taken its place, bringing far more flexibility than the traditional 9-to-5 ever gave us.

While juggling childcare and crafting an office out of your bedroom closet probably wasn’t your idea of work-life balance, there are two sides to every coin, and the pandemic has forced some positive changes in the way we work, too.

Flexibility has become a necessity rather than a luxury. After permitting work schedule flexibility, I’ve seen positive shifts in our employees’ overall mindsets and productivity.

Here are the top five benefits of this flexibility that I’ve witnessed reshaping our workplace.

 

1. Flexibility leads to higher productivity

There’s a myth perpetuated by traditional office culture that our most productive hours happen between 9 a.m. and 5 p.m. This schedule may work for a portion of the population, but there’s growing evidence that at least half of us operate on an altogether different productivity timeframe — and much that is calculated by our circadian rhythms.

In “Why We Sleep,” sleep researcher Matthew Walker describes how up to 50% of us aren’t programmed to wake up early. Our genetics determine our circadian rhythms: While you might have no trouble turning in at 10 p.m. and rising at 7 a.m., these hours may force your colleague to wake up far earlier than their natural sleeping patterns.

Losing early morning sleep has been linked to poor memory recall, trouble concentrating, poor communication, and lost productivity. Beyond the cognitive difficulties, it’s also costly for companies: In a study across four large US companies, researchers found insufficient sleep costs employers almost $2,000 per employee per year.

Companies including Nike and Google allow employees to time their work hours to match their circadian rhythms. Employees at these companies are even encouraged to take cat naps during their workdays, with “nap pods” scattered throughout corporate headquarters. Other than scheduled meeting times, my employees can plan their days as they please. If they’re tired after lunch and need a nap, I’m totally fine with that.

2. Remote workers take fewer sick days

The standard workday leaves very little room for the unexpected. The 9 a.m. punch-in doesn’t account for a feverish child at home or a rough night of sleep, meaning it’s likely your employees will opt to call in sick.

With flexible scheduling, your employees will feel comfortable starting later to get a few extra hours of sleep or tend to a sick child at home. Rather than losing an entire day, employees can start when it suits them.

Rigid working hours lead to higher stress levels, and higher stress weakens our immune systems. One powerful way to help keep your employees healthy is by providing flexibility — that alone will decrease stress and anxiety in their daily lives. They’ll take fewer sick days, and you’ll likely see more motivated workers, too.

3. Flexible schedules lead to happier employees

If you’re sceptical that a flexible schedule can improve happiness levels, look no further than Finland, the happiest country in the world.

Finnish workplace culture is a far cry from the American standard: For nearly 25 years, the Finns have been able to set their work hours — by law. The Working Hours Act, put into law in 1996, allows most workers in Finland to adjust their hours as needed. With that much flexibility and control over their lives, it’s not surprising that the Finns are happier than, well, everyone.

By offering a working agreement that mimics the Finns, you’re allowing your employees to incorporate personal errands such as picking up the kids, attending courses, or exercise, all of which will make it far easier for your employee to juggle life and work. They’ll be less stressed, more productive, and feel more balanced.

At BasicOps, all employees have the opportunity to take weekdays off and make up the time over the weekend if that works better for them. One of our employees takes hikes every Wednesday, which I think is great.

4. Communicate more effectively with flexible work

This may come as a surprise, but communication is far more efficient when an employee works from home or works on a flexible schedule. Between excessive coffee breaks and idle chit-chat, there’s a surprising amount of time wastage in the office place.

With the pandemic has come a heavy adoption of workflow management software programs. While these programs existed pre-pandemic, the work-from-home mandates made them all the more necessary to keep projects and collaboration flowing.

Flexible and remote workers are far more likely to use these platforms to connect with colleagues than those who are in the office on a rigid schedule. By adopting such platforms, communication among teams becomes far more streamlined and efficient, saving everyone time and energy.

5. A flexible work culture improves employee retention

Work-life balance is the Holy Grail of today’s professionals. Millennials , who now make up the largest generation in the US workforce, and Gen Z both place a high value on achieving that balance, so finding and retaining new talent will be likely more successful with flex work.

Perhaps most importantly, a flexible working agreement indicates trust and transparency between employee and employer. That not only puts employees at ease but also improves productivity.

While flexibility has been somewhat forced upon all of us during these pandemic times, it’s become clear that there is a silver lining for both business and employees.

The era of micromanagement is dying and flexibility must be embraced in order to keep moving forward.

 

Apr 01

U.S. May See Post-Pandemic Productivity Surge

Rich Miller pens an optimistic article for bloomberg.com – welcome stuff after the past year plus – he refers to a McKinsey & Co. report which makes a lot of good sense for what may happen out there – indeed, only they, of all the management consultants in the world, publicly recognise the importance of productivity to global standards of living and quality of lives – it’s just a pity  they still base all they say on the flawed and out-of-date national productivity statistic – a single ‘GDP/ Labour’ number ignores most outcomes now important to us all, focuses on labour numbers and not their skill and quality levels, and completely ignores the massive difference capital investment in new machines and IT now makes

The U.S. has a good chance of shucking off the secular stagnation of the last decade and entering a period of markedly faster economic growth as companies take advantage of lessons learned during the pandemic and strong demand fueled by the government to become more efficient.

That’s one of the takeaways from a new report by the research arm of global consultants McKinsey & Co. that takes an in-depth look at prospects across a swathe of industries, from construction to health care. It sees the potential for a 1 percentage-point acceleration in annual productivity growth over the next four years, roughly doubling the average increase seen in the post-financial-crisis expansion.

“It’s quite an optimistic picture,” Jan Mischke, a partner at the McKinsey Global Institute in Zurich and one of the authors of the report, said in an interview.

The super-charged federal budgetary boost championed by President Joe Biden plays a key role in the more upbeat future envisaged by McKinsey, as the high-pressure economy it fosters encourages companies to boost capacity by increasing research, development and investment.

“This is about getting on a virtuous cycle where higher productivity fuels incomes and investments and that again fuels higher productivity,” Mischke said, adding that increased efficiency lessens the chances of the economy overheating by boosting its capacity to grow.

The 108-page report sees “early evidence of dynamic changes” to the economy as businesses were forced to take extraordinary measures to deal with the fallout from efforts to contain the pandemic. They range from increased automation of warehouses and more online marketing to wider use of telemedicine and digitization.

“The pandemic pushed companies to reorganize and become more agile,” the report said.

More than half of North American and European company executives contacted in a December survey by McKinsey said their speed of making and implementing decisions was somewhat or significantly faster compared with December 2019.

“The crisis has unleashed” more rapid change, Mischke said. “Digitization is happening in some instances 20 to 25 times faster than was thought possible prior to the crisis.”

While the advances in the U.S. have so far been concentrated among larger companies, the McKinsey Institute partner voiced hopes that they could spread to other firms, including small and medium-sized businesses. The industries with the biggest upside, according to the report, are health care, construction, information and technology, retail and pharmaceuticals.

“As the disruption eventually recedes, significant productivity acceleration could be possible if action taken by firms enhances productivity, if the action spreads, and if demand strengthens,” McKinsey Global Institute said, in summing up the results of its report.

Mar 11

Looking To The Future: Redefining Work

Aruna Ravichandran, a Forbes Councils Member, offers a very readable and sensible article on the way work must be radically re-organised in future – and emphasises our regular drum-beat that “it’s outputs that matter most, not inputs and presenteeism”

 

More than 10 years ago, a beer commercial captured the essence of how to look busy. Staged as a scientific lab, the humorous spot described its new invention, the fake steaming cup of coffee. This innovation allowed a bored employee to sneak out of the office to catch a baseball game or go to the bar, while co-workers and, most importantly, the boss remained impressed by the employee’s so-called dedication. Even though the employee was not at his desk, his steaming mug of coffee was, and that was enough to convince everyone he was there.

As with most humor and parody, there is a kernel of truth in this commercial. It focuses on the inaccurate definition of work as being equal to face time: If you’re in the office, you are working, but if you’re elsewhere, you can’t possibly be.

This concept has always been a fallacy, and there are myriad examples of how people have found ways to not work at the workplace. There’s even an entire subgenre of articles on how to look busy at work. And the reverse of this was also true — if you weren’t at the office, you couldn’t possibly be working. In fact, there were even pointers on how to do that effectively.

To be fair, for much of the last century, office work centered around desks, telephones and computers. It was essential for employees to come to a central location, and it was equally inconvenient and counterproductive for them to try to do the same work at home. The technology just wasn’t able to balance these two scenarios out.

But here we are, emerging from a year in which almost everyone was sent home and companies had to review every aspect of their operations in light of a pandemic. It was a turning point.

Prior to 2020, we were already well on the way to establishing virtual workspaces with improvements in meeting and collaboration technology that allowed people to work from anywhere and connect with clarity.

But what has been slower to evolve is the definition of work. As employees struggled to do their work from their home office, kitchen or bedroom, many were forced to contend with the needs of children, pets and other family who had no concept of the traditional 9-to-5workday. This did not sit well with some managers, who believe that work cannot be done in pockets of time but must fit the contiguous 9-to-5framework.

But the 9-to-5model never worked. Physiologically, it is not possible for any human to deliver eight hours of consistent, high-quality output per day. Even those who try will succumb to the natural rhythms of the body, which delivers peaks and troughs of energy. According to Inc, “Research suggests that in an eight-hour day, the average worker is only productive for two hours and 53 minutes.” The rest is filler, disguised as overly long meetings, excessive emails and checking social media.

Kaizen For Knowledge Workers

To redefine work, we should first look back to the scientific studies done by Toyota in the development of continuous improvement (kaizen), just-in-time manufacturing and lean manufacturing, all of which focused on the smoothing of the workflow through the identification and elimination of muda (wasteful habits), muri (unreasonable work placed on people and operations) and mura (unevenness and irregularity).

These concepts can be applied to knowledge work delivered in the modern office.

We’ve had a transitional year that proves that work can be done in locations other than the office. We are still able to meet, communicate and collaborate. And the opportunities provided by virtual workspaces allow individuals to curate a schedule to deliver their best work while addressing muda, muri and mura.

Resetting And Redefining Work

This last year also offers itself as an opportunity to reset; an opportunity to redefine work. Managers and staff can look at the nature of work as blocks of focused time that may occur at different times of the day — and in which the outcome is valued more than any number of contiguous hours elapsed.

Such a change demands heightened amounts of trust, genuinely felt and copiously demonstrated, with managers empowering employees to deliver. That, too, is possible in a dynamic and virtualized workspace.

One final point: Part of the aforementioned commercial’s humor came from the fact that the “steaming coffee mug” was being marketed to employees who really did not want to be at the office. The work held no appeal. The mug was their tool for escape.

This bodes the question as to why a job should represent 40 hours a week of boredom, when engagement and empowerment generate far superior output.

A new definition of work can be one that embraces the human elements of passion, respect and autonomy — and these become the new raw materials for quality deliverables, even if the hours worked by each team member vary to better fit their own lives.

The technology exists to make this happen. It is now up to management to envision work in terms of output rather than process. This is how we redefine work for the future.

Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives. Do I qualify?

Mar 03

Now is the time to embrace a four-day workweek

Brad Badelt is a freelance science and environment writer – a Canadian based in Vancouver – his article below adds weight to the increasing momentum for a reduction in working hours per week for most employees – albeit not all – for example, brainworkers work 24/ 7

In 1930, at the onset of the Great Depression, British economist John Maynard Keynes made two bold predictions:
  • Within a century, the standard of living in Europe and the United States would increase 400% to 800%
  • And with technological advances, we wouldn’t have to work much any more more – only three hours a day.

“We shall endeavour to spread the bread thin on the butter – to make what work there is still to be done to be as widely shared as possible,” he wrote in his essay “Economic Possibilities for our Grandchildren.”

On the first prediction, he was remarkably accurate. The standard of living in the West has increased fivefold since 1930 (as measured by inflation-adjusted GDP per capita). But despite leaps in technology, the three-hour workday has yet to pan out.

Our workweek today, in fact, isn’t that different than in Keynes’s time. The five-day, 40-hour week is standard in Canada and many other countries and goes back to the 1920s, when it was introduced by Henry Ford for his assembly lines. It was a radical shift at the time, as most factory employees worked gruellingly long hours six days a week. By giving workers a proper weekend, Ford saw an immediate return: increased productivity.

A century later, the five-day workweek is still with us.

Since the onset of the pandemic, however, there have been calls for change. A number of companies, faced with financial challenges, have imposed shorter workweeks coupled with pay cuts as a way to avoid layoffs. Others have compressed their 40-hour workweeks from five days to four to give staff more flexibility for child care and homeschooling duties. But with the end of the crisis hopefully in sight, we should be looking at the four-day week not as a temporary fix but as a permanent shift in the way we work.

Last May, New Zealand’s Prime Minister, Jacinda Ardern, floated the idea of a four-day workweek as a way to bring back her country’s economy. Ms. Ardern, who was speaking via live video on Facebook, pointed to the importance of tourism, which employs 15% of New Zealand’s population and gets a large portion of its revenues domestically. A post-pandemic four-day workweek, she suggested, would give people more opportunity to travel within New Zealand and spend money.

It’s an intriguing idea that Canada should consider as well. And not just to support our own domestic tourism industry, which has been similarly hard hit by the pandemic. A compressed workweek – in which employees retain the same income – has been shown to improve employee well-being and reduce workplace stress. It’s been correlated with improved productivity. And, to a lesser degree, it’s a way to reduce traffic congestion and carbon emissions.

Some of the resistance to a four-day workweek has been rooted in the long-held belief that working longer hours means getting more accomplished. But research has shown that’s not necessarily the case. A study from Stanford University, for example, noted a significant drop in productivity and creativity when employees worked more than 45 hours in a week. After 55 hours, the researchers found, productivity dropped so much that it was relatively pointless to keep working.

According to the OECD, Canadians work about 1,670 hours a year. That puts us about average for developed countries, just below the U.S. and significantly less than hard-working South Korea. But compared with Northern European counties such as Denmark (1,380 hours) and Norway (1,384 hours), we’re working almost 300 hours more every year. Yet both Norway and Denmark have significantly higher productivity rates than Canada. They also rank above us in the latest World Happiness Report.

The most widely reported corporate trial of a four-day workweek was that of Microsoft Japan. The company tested it in 2019 and reported a productivity boost of 40%, as well as cost savings in several areas, including electricity, which fell almost a quarter. The trial wasn’t strictly about reducing the number of workdays; it was also about working more efficiently. The standard duration of meetings was cut from 60 minutes to 30, and attendance was capped at five employees.

Perpetual Guardian, a New Zealand trust management company, likewise saw a 20% boost in productivity when it shifted to a shorter workweek. Perhaps more importantly, though, the company also reported a 45% increase in employee work-life balance and measurable improvements in job satisfaction and staff retention.

The Henley Business School at the University of Reading found similar results in 2019 when it surveyed some 250 companies in the U.K. that had adopted a four-day week. “A shorter working week (on full pay) could add to businesses’ bottom lines through increased productivity and an uplift in staff physical and mental health,” the study’s authors wrote.

It’s these employee wellness outcomes that may be the most compelling argument of all.

In Canada, workplace stress and burnout are rampant. In many ways, the pandemic has only heightened that – blurring the lines between home and work and leading many of us to check our laptops and phones at all hours. For this reason alone, a three-day weekend every week may be just what this country needs right now.

A recent survey by the Angus Reid Institute suggests that Canadians are ready for a break. 53% of survey respondents said it’s a good idea to make a 30-hour workweek standard in Canada, while just 22% were opposed (the remainder were undecided). “The concept of a shorter work week, much like that of the universal basic income, finds its highest levels of support among younger Canadians, with six-in-ten of those aged 18-34 saying a four-day work week would be a good idea,” the study reported.

A compressed workweek may not be for everyone – or for every employer. But, with the end of the pandemic almost in sight, we have a unique opportunity to try something different. And as Ford discovered a century ago, we might be pleasantly surprised by the results.

 

Feb 18

The Pandemic Is Widening a Corporate Productivity Gap

Bains claim to recruit the ‘best of the best’ to its consultancy ranks – so bear this in mind when reading the following extracts from an article by Eric Garton and Michael Mankins, both Bains partners – they claim the pandemic has widened the gap between top performers and other companies

 

During the Covid-19 pandemic, most businesses have adopted new ways of working. Many employees have gone remote, interacting with customers and coworkers virtually. Others continue to go to a workplace each day, but perform their jobs very differently. Everyone is doing their best. But how productive have companies actually been during the pandemic relative to where they were before Covid-19?

The short answer: It depends on the company.

Some have remained remarkably productive during the Covid-era, capitalizing on latest technology to collaborate effectively and efficiently. Most, however, are less productive now than they were 12 months ago. The key difference between the best and the rest is how successful they were at managing the scarce time, talent, and energy of their workforces before Covid-19. The companies that are the very best at managing these three factors are 40% more productive than the rest.

Claim 1 – The best companies have minimised wasted time from excessive e-mails, meetings and processes – the rest have not.  

Stay-at-home orders liberated time previously spent commuting and created flexibility in work schedules, enabling many employees to devote additional time to their jobs.

We estimate that the best organizations have seen productive time increase by 5% or more.

However, for companies that struggled to collaborate productively before the pandemic, work-from-home orders only made matters worse. Time consumed in virtual meetings exploded. Poor collaboration and inefficient work practices reduced productive time by 2% to 3% for most organizations.

Claim 2 – The best have capitalized on changing work patterns to access new talent.

Exceptional talent ― people with the ability to bring creativity and ingenuity to their work ― is a scarce and valuable resource. Our research suggests that the best companies are 20% more productive than the rest due to the way they acquire, develop, team, and lead such talent.

Remote work has created opportunities for organizations to access talent that may have been out of reach prior to Covid-19. Physical proximity to work is no longer a primary factor in determining the pool of available labor for most companies. The best companies are capitalizing on new and different sources of talent to build the capabilities they will need to win in the future.

Remote work has also enabled an organization’s most skilled workers to engage virtually in a broader range of initiatives and teams than they could physically — multiplying the influence these individuals have on performance.

However, most companies have struggled to tread water during the pandemic. A dearth of demand for products and services has kept them out of the labor market, unable to capitalize on opportunities to acquire new talent. Meanwhile, their current employees have faced mounting pressures at home, as they juggle work and family. As a result, some organizations have seen many of their star performers leave the workforce — at least temporarily — reducing overall productivity.

Employee engagement and inspiration matter. According to our research, an engaged employee is 45% more productive than a merely satisfied worker. And an inspired employee — one who has a profound personal connection to their work and/or their company ― is 55% more productive than an engaged employee, or more than twice as productive as a satisfied worker. The better an organization is engaging and inspiring its employees, the better its performance.

However, most organizations have struggled to engage their employees during the pandemic.

As Covid-19 and work-from-home orders persisted, regular surveys revealed that employees were growing tired, balancing the new realities of work and home. In response, Adobe, for example, gave all employees an extra day off — the third Friday of each month — to unplug and recharge.

Conclusion:

The productivity gap between the best and the rest has widened during the pandemic. We estimate that the best companies — those that were already effective in managing the time, talent, and energy of their teams — have grown 5% to 8% more productive over the last 12 months. Additional work time, access to new star talent and continued engagement have bolstered productivity at these companies. Most organizations, however, have experienced a net reduction in productivity of 3% to 6% (or more) due to inefficient collaboration, wasteful ways of working, and an overall decline in employee engagement.

This all sounds logical and sensible – just don’t ask for details about how they actually measure the productivity of any one company (you can’t) in order to establish the above % differences – nor how they can ignore other drivers of productivity such as management quality, process efficiencies, invention and innovation from any source, capital investment in machinery/ IT/ AI/ robotics and not just Zoom – and luck

 

Feb 09

We’re Productive, But Are We ‘Okay?’

Rick Western, CEO at Kotter, is an expert in transformational change in complex global organizations and has spent more than 35 years assisting Fortune 100 companies with strategic initiatives, leading development activities and managing business units – he raises some interesting points about human capital well-being in an article for the ‘Chief Executive’ magazine which should be the concern of all organisations as they work through the CV pandemic 

Rick Western

Rick Western

 

Your company may appear to be functioning heroically in the midst of a pandemic, but it pays to look under the surface to make sure all is truly well

Leaders across industries have done a miraculous job in shifting to a virtual work model, while keeping productivity high, IT functioning and customers served.

 

Yet this leads me to ask: are we spending enough time understanding the deeper psychological needs of our human capital, who now find themselves in a fully remote working environment? Are we, as leaders, too focused on keeping the engine running and therefore failing to ensure the emotional needs of our employees are being met during this strange and difficult time?

From what I have seen over the past year, the following themes have risen to the forefront:

• A “Them vs. Us” phenomenon. Some people who must continue to work from a physical location, such as construction, manufacturing or healthcare workers, hold concerns about safety. These employees might even envy those who can work from home. Yet the employees who are working from home may long for the kind of structure and social interaction that a physical work venue might provide. This has the potential to create a “them vs. us” division within the workforce—a rather odd cultural issue that leadership needs to address, to ensure they aren’t unknowingly creating two competing cultures within the same organization, with each group of employees thinking the grass is greener on the other side.

• Your valuable female employees may be “flight risks.” A startling result of the impact of Covid-19 is that women are leaving the workforce at a significantly higher rate than men. Recent data released by the U.S. Department of Labor indicates the rate could be as much as four times that of men. The burden of parenting, running a household, schooling and caring for elderly relatives has taken a disproportionate toll on women. Many women are finding that this burden, coupled with career demands, is simply too great and are making the difficult decision to withdraw from the workplace. If unaddressed, this talent drain could have a devastating impact on organizations and set back decades of achievements in diversity efforts across corporate America.

• The interplay between isolation & low morale. That palpable sense of team spirit we once felt while hanging out around the water cooler is harder to cultivate when connecting through a screen. Regardless of the business you are in, physical distance makes it more difficult for human beings to foster a true collaborative spirit. We can no longer feed off each other’s energy in the room, and meetings have become more transactional in nature. With video as our primary mode of communication, we see each other only in little boxes. We spend less time wandering off the agenda and checking in with one another on a personal level. But—at what cost? Are employees feeling increasingly isolated? How is their morale?

• Blurring of work & personal lives—Rather than packing up one’s bags and commuting to work, most now start their day by turning on the computer at the crack of dawn. What’s more, workdays often stretch longer into the evening than they did pre-Covid-19. The fact that work and personal lives are being experienced by many in the same physical setting can make it hard to create that much-needed separation between career and personal life. Commuting time, which many of us used to complain about, has, in many cases, become an “extension” of the workday. Yet that time we once spent listening to music while driving or reading a book on the train provided a psychological barrier between life inside and outside of the office which has now dissipated.

So, how can leaders chip away at these issues, all while being constrained by a relatively inflexible set of pandemic-related factors which fall outside of their control?

• Pull down the veil.

Many leaders may shy away from having open conversations with their employees about their feelings and needs, for fear that they will be unrealistic in their requests and, if not properly addressed, employees will grow even more unhappy. But this pattern of thinking and behavior creates a vicious cycle of leaders not listening to employees, and employees, in turn, not approaching leaders with their questions and concerns. Yet, at the end of the day, everyone knows what we are going through—everyone knows this is hard. Rather than seeking to get every problem solved, what employees might be looking for from their leaders is simply a listening ear, to feel heard. They want someone to share in their experience and perhaps brainstorm potential solutions for incremental improvement. Now more than ever, employees are longing for that sense of community and to see the human side of those leading them through this crisis.

• Show how the grass is green (and a little brown) on both sides.

To me, the “us vs. them” culture issue can be addressed by making sure people understand that whatever their needs are, based on their work situation, those needs are actively being addressed. For example, if safety arises as a key concern among on-site workers, taking steps to create a safer work environment will add comfort to those employees’ lives. Similarly, taking steps to address isolation can be comforting to remote workers. Rather than talking to each group in isolation, transparency across the entire organization can work in leaders’ favor. If one group of employees understands what the other group’s needs are, and how they are being met, leaders can subliminally communicate that the grass isn’t necessarily greener on the other side—that no situation is perfect—and that there’s reason on all sides to be grateful.

• Address the burden Covid-19 has placed on parents.

At Kotter, we recognize the disproportionate burden Covid-19 is placing on our employees who are parents of younger children or caring for elderly parents. As a result, we have offered any employee in this situation the ability to take off up to 20% of time with full pay and benefits. We are hoping this additional flexibility will be sufficient to allow these valuable employees the ability to manage the increased demands of family and career and remain a critical component of our workforce. We fully recognize the perception of treating one employee group more favorably than another, but we see it as treating people “differently” as opposed to “favorably,” based on their needs and circumstances. This may also result in the need to hire additional resources. But, in the end, we believe we are doing what is best for the entire organization and employees.

• Create small opportunities for change.

The more leaders truly understand what challenges their employees are dealing with, the more likely they will be able to imagine relatively easy-to-implement, but impactful, changes that could improve the lives of their employees. At Kotter, our consultants were complaining about their workdays being filled with back-to-back calls, with every moment scheduled. As leaders, we raised the idea to consolidate calls where possible, making 30-minute calls 20 minutes and hour-long calls 45 minutes, to intentionally create moments of space when people could catch their breath, get a snack, use the restroom or walk outside. Yet we wouldn’t have identified this obstacle or implemented a solution if we didn’t have an open conversation with our employees to begin with.

• Take advantage of the flexibility.

We have encouraged people at Kotter to take advantage of the flexibility of working from home by blocking out personal time—time which would otherwise fall within the “normal” workday—to run an errand, go for a walk, or take an uninterrupted lunch break. If it’s true that we are signing on earlier and powering down later, why couldn’t we take advantage of this more flexible schedule to take some time for ourselves in the middle of the day for self-care, cleaning, cooking, or walking the dog? If leaders merely give employees permission for these types of mid-day breaks, and if workers give permission to their fellow workers to step away from their computers, we could collectively shift those “unwritten rules” that were followed in a pre-Covid-19 setting to take advantage of the more flexible, virtual environment.

Ultimately, by addressing these issues, leaders can differentiate themselves in a time of crisis, showing compassion for their employees’ emotional wellbeing, which could result not only in higher productivity, but also, more importantly, in greater loyalty, collaboration and retention in the long-term. When the Covid-19 crisis is finally behind us, workers will long remember, and much will be written about how organizations responded on their behalf.

Leaders, begin writing your legacy today.

Jan 30

It’s time to redefine workplace productivity

By rienne Gormley – an article in Techradar.pro fully supporting our view that, apart from the huge increase in the amount of time available for productive work caused by the pandemic, there’s also a huge increase in productivity on the way as people focus on why they’re paid, not the time they input

Business leaders and futurists have been talking about how we need to change the way we work for some time. This is because, long before the Covid-19 pandemic swept across the world, working life was already in transition, with the ability to work from home increasing both attractive and practical for managers and employees alike. Our relationship with work has been reshaped by social, economic and political influences—and, of course, by technology.

Millennials are now the largest generation in the US workforce; in England, there are over a million more mothers in the workplace than there were 20 years ago; and freelancers are now the fastest-growing group in the European labor market.

But despite these wide-ranging changes, the way we measure our work has largely stayed the same. We are still disproportionately focused on the hours we spend at work or online, and many of us are used to joining back-to-back meetings and sharing status updates or internal notes, as it creates the sense that everyone is ‘getting things done’. But are we actually? Not according to a study Vanson Bourne carried out for Dropbox at the start of 2020, which found we waste 29% of time at work on tasks that don’t add critical value to the business.

Today, however, the pandemic is creating anxiety and an increase in background noise – in fact, before lockdown even began in the UK, more than six in ten people said they’d felt anxious about coronavirus. It’s not just the constant news alerts, but millions of employees worldwide are juggling their work with always-on childcare, homeschooling, or other caregiving responsibilities.

This creates an imperative for businesses to acknowledge employees’ reduced bandwidth and to ensure precious time is spent on only the most important tasks. For too long, we have been bound to an hours-based model of work that puts too much focus on the how of getting things done, rather than what is ultimately accomplished.

Let’s measure what matters

Today, however, we have entered a moment that calls for managers to be supportive of their teams as they work in a fully distributed environment for (what is likely) the first time—and innovative with how they get things done. Now is the time to upend our traditional ideas about productivity and embrace an output-based way of working.

Expecting employees to be “logged on” for fixed office hours has become senseless and, likely, impossible; asking them to churn through tasks that don’t have a discernible impact on business objectives will be a waste of the precious time we have left, between looking after ourselves and others.

Instead, we’ll turn to what truly matters when it comes to our business goals: output. What has been achieved? How does a task take us closer to our goals? What do we need to do next? These should be the key questions that measure our progress and help us choose how to spend our time.

Ruthless prioritization and freedom to focus

To prioritize effectively, business leaders will need to ensure that everybody is aligned on the goals, building in touch-points that enable team members to stay on the same page. Leaders also need to interrogate team to-do lists and OKRs, and ask themselves ‘what can we not do?’ to drill down into what’s really necessary.

Once we’ve aligned on our goals, managers need to prioritize the requests we are making of our team’s time so they have the space for deep work. Heading into April, we at Dropbox saw an over 2,000% increase in usage of our Zoom integration compared with February levels. People have rushed to find solutions for the many synchronous communications we still need to have in this new world, but it’s imperative to strike a balance to allow for focus.

I suggest asking ‘can this meeting be an email?’, so that we schedule meetings only when absolutely necessary. I find the “inform, discuss, or decide” model a useful guide. If you are ‘informing’—i.e. giving an update or providing information—this should be an email. If you are ‘discussing’—multiple parties sharing feedback or perspectives—this can be done via collaboration tools like Dropbox Paper or Slack. If you are ‘deciding’—making a key decision with a number of stakeholders—a meeting may be warranted. But use this time wisely and ensure everyone has the information they need in advance.

Trust in our teams

Once teams are aligned on the major milestones, and we’ve prioritized the asks we’ve made of people’s precious time, we need to allow our team members to work in the ways that work for them. This means trusting them to manage their own schedules, knowing that the expectations are clear and check-ins are in place to ensure results.

And if we’re allowing employees to manage their schedules, we should also allow them to use the tools that work best for them. Today, the average employee is innately more aware of the tools that are available to them in the world outside of work; as demonstrated by a recent survey that found that 41% of UK workers have used Whatsapp for work purposes.

Once employees feel they are trusted to manage their own time and tools in order to reach their business goals, we will have cleared a path to optimal output, and these results in turn will lead to an increase in trust from their managers—it’s a virtuous circle.

The end of presenteeism

If we can adopt an output-based approach, these difficult times could bring about a positive in the workplace—a broad realization that not everyone has to be physically present to make their professional and personal presence felt, and to move the dial on a company’s goals.

This will be a welcome change, signalling an end to an outdated stigma around remote-workers’ contributions. A third of remote and flexible workers surveyed by Deloitte in 2018 felt that they were regarded as having less importance, while a quarter felt they were given access to fewer opportunities and missed out on progression and promotion opportunities.

This could mean more opportunities for parents, freelancers, and anyone who wants flexibility—as well as more varied and distributed teams, where everyone works towards the same goals, beyond the restrictions of a traditional office environment.

The way we measure our work lives in terms of hours spent at a desk and boxes ticked is an outdated concept that is no longer fit for purpose. It reminds me of our QWERTY keyboards. There are actually more efficient and faster ways to type, but the reason the keyboard is setup this way today is because, on old-style typewriters, the keys that were used the most often couldn’t be beside each other or they would catch. Now that keys no longer catch, it’s actually a highly inefficient set up, but we’re used to it so we don’t change it.

We have an opportunity to go back to the drawing board on productivity. Let’s not waste it.

Adrienne Gormley, Head of EMEA & Vice President of Global Customer Experience at Dropbox.

Jan 24

COVID’s creative destruction is cause for productivity optimism

Positive thinking from across the pond – Business in Vancouver, by Jock Finlayson and Ken Peacock 

Amid the human carnage and economic pain caused by the COVID-19 calamity, it is tempting to search for silver linings.

One that is attracting interest among some economists is the prospect of a productivity resurgence once the pandemic is firmly in the rear-view mirror.

At first glance this may seem unlikely. Among the casualties of the economic slump of 2020 and the ongoing challenges posed by rising global infection rates has been a drop in business investment and a related slowdown in capital formation. This trend will dampen upside growth potential as the recovery from COVID-19 unfolds. Because investment in many categories of capital has fallen in 2020, two and three years from now the economy will be operating with a smaller and less up to date “capital stock” than if COVID-19 had never happened. Productivity growth is essential to delivering sustainable increases in real incomes and living standards over time. Reduced investment and slower capital formation due to the pandemic will serve as a headwind to these gains.

But adopting a longer-term view may suggest a more hopeful scenario.

History furnishes numerous examples of job-destroying economic shocks that – eventually – help to lay the foundations for significant advances in productivity and business innovation. The latter years of the long Depression of the 1930s saw an impressive surge in economy-wide productivity growth in both the United States and Canada. What the great economist Joseph Schumpeter called “creative destruction” plays an important role in this process by fostering the rise of new firms and reallocating resources from declining to expanding industries. Creative destruction tends to be most visible in the aftermath of extended periods of economic dislocation.

Certainly, a great deal of change is afoot in today’s economic environment. As the pandemic rages, the pace of digitization has accelerated as workers, consumers and organizations have quickly turned to digital platforms. New and improved digital communications tools and other technologies are allowing firms to serve customers in different ways and enabling many employees to remain productive, connected and engaged without the need to congregate at central work sites. By the end of 2020 hundreds of millions of people were toiling remotely. In most cases, they and their employers have learned to adapt and even thrive in an increasingly digital world.

McKinsey estimates that once COVID-19 is under control, 15% to 20% of employees will continue to work remotely at least half of the time, a dramatically higher share than in pre-pandemic times. This should generate sizable cost savings for businesses that want to scale back their real estate footprint. Savings on physical space can then be redirected toward more useful productivity-enhancing investments. The spread of remote work will also make it easier for companies to access dispersed pools of talent – which should provide a further productivity boost.

Beyond remote work, the pandemic also looks to be speeding the development and take-up of new technologies and innovations more broadly. This can be seen in the progress being made in fields like artificial intelligence, robotics, data analytics, new materials, 3D/4D printing, genomics, biotechnology, and low-carbon energy. In addition, the COVID-19 crisis has led to the production of multiple targeted vaccines in record time. Advances in all of these areas hold the promise of faster productivity growth in the coming decade and beyond.

There are forces that could militate against a productivity revival, however. One is deglobalization – a mix of mounting trade restrictions, slower growth in international commerce, thicker borders and less travel. Some recalibration of far-flung supply chains makes sense given the need to lessen reliance on China and to respond to the difficulties many countries encountered in securing key inputs as COVID-19 took hold. But a widespread retreat from participation in international markets would not be positive for productivity.

Another development that could undermine a hoped-for productivity rebound is bigger and more intrusive government. Governments have had a central role in battling COVID-19, and in the post-pandemic era they may assume a larger place in economic and social affairs. Huge public sector deficits incurred in 2020 suggest that governments will be hungry for new sources of revenue once the virus fades. The risk is that policymakers will lose sight of the necessity of creating the right conditions for businesses, entrepreneurs and innovators to invest in assets and activities that are critical to building a high-productivity economy.

Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.

Jan 18

Productivity is almost magical, but don’t forget the side effects

Ross Gittins, economics editor of the Sydney Morning Herald, highlights the benefits of national productivity improvement in his article below – in particular, he applauds the effectiveness of Australia’s  very own ‘Productivity Commission’ – however, he rightly reminds all that mental wellbeing is at least as important as material wellbeing 

When you put the word “productivity” into the name of a government agency, you guarantee it will spend a lot of its time explaining what productivity is – a lot of people think it’s a high-sounding word for production; others that it means we need to work harder – and why it’s the closest economics comes to magic.

Earlier this year the NSW Productivity Commission issued a green paper that began with the best sales job for the concept I’ve seen. Its title said it all: Productivity drives prosperity.

The hidden consequences of a drive to greater productivity are often overlooked.
 

Its simple definition of productivity is that it “measures how well we do with what we have”. In other words, productivity is the most important tool we have for improving our material wellbeing

“Our productivity grows as we learn how to produce more and better goods and services using less effort and resources. It is the main driver of improvements in welfare and overall [material] living standards.

“From decade to decade, productivity growth arguably matters more than any other number in an economy . . . Growth in productivity is the very essence of economic progress. It has given us the rich-world living standards we so enjoy.”

Productivity improvement itself is driven by increases in our stock of knowledge and expertise (“human capital stock”) and by investment in physical capital (“physical capital stock”)

The biggest long-term driver of productivity is the stock of advances known as “technological innovation” – a term that covers everything from new medicines to industrial machinery to global positioning systems

Technology’s contribution to overall productivity growth has been estimated at 80 per cent, the paper says

“Our future prosperity depends upon how well we do at growing more productive – how smart we are in organising ourselves, investing in people and technology, getting more out of both our physical and human potential”

The Productivity Commission has pointed out that on average it takes five days for an Australian worker to produce what a US worker can produce in four. That’s not necessarily because the Yanks work harder than we do, but because they have fancier equipment to work with, and better organised offices and factories – not to mention greater economies of scale

The paper notes that productivity improvement hinges on people’s ability to change. “Unwelcome as it has been, the COVID-19 pandemic has shown that when we need to, we can change more rapidly than we thought. There is no reason we can’t do the same to achieve greater productivity and raise our future incomes”

Technological innovation is the process of creating something valuable through a new idea. You may think that new technology destroys jobs – as the move to renewable energy is threatening the prospects of jobs in coal mining – but, if you take a wider view, you see that it actually moves jobs from one part of the economy to another and, because this makes our production more valuable, increases our real income and spending and so ends up increasing total employment.

“All through history,” the report adds, “technological innovation has been a huge source of new jobs, from medical technology to web design to solar panel installation. And as these new roles are created and filled, they in turn create new spending power that boosts demand for everything from buildings to home-delivered food”

But the thing I liked best about the NSW Productivity Commission’s sales pitch was the examples it quoted on how technology-driven productivity has improved our living standards

Medicine:

“The French king Louis XV was perhaps the world’s richest human being in 1774 – yet the healthcare of the day could not save him from smallpox. Today’s healthcare saves us from far worse conditions every day at affordable cost.”

 

Farming:

“In 1789, former burglar James Ruse produced [Australia’s] first successful grain harvest on a 12-hectare farm at Rose Hill. Today, the average NSW broadacre property is 2700 hectares and produced far more on every hectare, often with no more people.”

(Pre-pandemic) travel:

About “67 years after the invention of powered flight, in 1970, a Sydney-to-London return flight cost $4600, equivalent to more than $50,000 in today’s terms. Today, we can purchase that flight for less than $1400 – less than one-30th of its 1970 price.”

Communications:

“Australia’s first hand-held mobile call was made at the Sydney Opera House in February 1987 on a brick-like device costing $4000 ($10,000 in today’s terms). Today we can buy a new smartphone for just $150, and it has capabilities barely dreamt of a third of a century ago.”

There are just two points I need add:

  • The first is that there’s a reason we’re getting so many glowing testimonials to the great benefits of productivity improvement: for the past decade, neither we nor the other rich countries have been seeing nearly as much improvement as we’ve been used to
  • Second, economists, econocrats and business people have been used to talking about the economy in isolation from the natural environment in which it exists and upon which it depends, and defining “economic wellbeing” as though it’s unaffected by all the damage our economic activity does to the environment.
As each month passes, this blinkered view of “the economy” is becoming increasingly incongruous, misleading and “what planet are you guys living on?”

What’s more, the growing evidence that all this year’s “social distancing” is having significant adverse effects on people’s mental health is a reminder we should stop assuming that ever-faster and more complicated economic life is causing no “negative externalities” for our mental wellbeing.

 

Jan 11

Improve Productivity By Getting Better At Being Better

Some practical suggestions follow from Peter Bendor-Samuel , a contributor to Forbes magazine – he certainly reads like a guy who has been on the front line, experienced the problems many organisations find when they seek quantum leap panaceas for their lack of productivity progress, and find their often expensive solutions don’t live up tp expectations – it turns out  he’s a devotee of ‘continuous improvement’ (aka kanban), a powerful approach mostly ignored by companies in the West, to the benefit of those in the East – it’s a process which involves everyone, from boss to tea-lady, in every-day seeking productivity improvements, no matter how small – make hundreds of them and they can add up to very substantial benefits

Companies spend time getting work done. Leaders focus attention on getting through the backlog and responding to today’s challenges. Teams focus on executing the work. Leaders evaluate teams on whether they completed the work, the quality of the work, whether it was timely, whether it pleased customers and whether it drove the desired results. Almost all energy and time in the company focuses on these factors.

But we do not spend enough time on getting better at doing all that.

The tyranny of the urgent – to just get the work completed – especially in difficult COVID-pandemic circumstances – is what drives the focus. Companies do not set aside time or resources to get better at being better. Consequently, they are in a rat race.

So, how can your company get better at being better?

Typically, the first remedy companies look to when seeking to be better is technology. And that has a lot of validity. The story of human progress is one of technology innovation resulting in increased productivity.

Consequently, large-scale technology investments typically take many years before an organisation fully leverages its technology investments (and sometimes it never happens). To the extent that they do leverage the technology, it often takes quite a few years for the organisation to fully understand how to do that and change its operating model to fully benefit from technologies.

All experienced executives were involved in major technology investments in the past when they felt like they took a step back in productivity as the new technology came in. These investments seldom yield the promised results that the vendors or people sponsoring them hold out as the potential.

The same phenomenon happens when companies implement outsourcing, managed services or as-a-service solutions. The service provider comes in and changes the status quo. The provider takes over a process or function the client was doing and leaves the rest of the organisation trying to figure out how to fully utilise that service. It often happens that the client ends up duplicating functions that it pays the service provider to do – not because the service is inadequate but because the client organisation has not yet accommodated fully relying on that managed service. So, the technology comes up short on the promise of delivering better value.

So what’s the answer to how to get better at being better?

It requires time, resources and discipline, particularly on how the organisation implements technology and subsequently changes its processes or services.

Underpinning the effort to be better is the concept of a team – the group that is responsible for delivering value or doing the work – they must take responsibility for getting better at doing that work. This goes beyond receiving training to use technology.

First, leaders must challenge team members with how to improve what they do because only they can really see all the steps required to fully utilise it. But, and often, leaders distract teams by piling more work on them and focusing on getting more throughput, rather than giving them the challenge to get better or giving them the resources to do that.

Second, leaders must recognise that the challenge of getting better at being better is a journey, not a destination. There is always the opportunity to get better at being better. Leaders often make the mistake of thinking about this as a large project to run through to completion and that the result of completing the project will be being better. That mindset is a mistake. Rather, leaders need to think of efforts to get better at being better as a continuous journey in which every month they invest some part of the company’s time and resources so that the team can get better at being better.

The formula for your company getting better at being better is simple. Just follow these steps:

1.     Measure the results you want the team to accomplish (not the team activities, because the activities will need to change).

2.     Trust and empower the team to focus on those results and allow the team to build ownership in driving towards the results.

3.     Work monthly with the team to devote a portion of their time and provide them with resources so they can get better at being better.

4.     Recognize this effort as an ongoing journey that can give the company tremendous return on its investment and your time.

5.     Be patient.

6.     Be consistent in doing something to improve every month.

7.     Be consistent in inspecting or working with the team monthly.

By following this strategy, your company will achieve remarkable progress in getting better at being better.

 

Dec 30

The Silver Lining of 2020*

More reasons to be optimistic on this great day when the UK regulator passed the Oxford CV19 vaccine which could enable billions to look forward to a more normal, even better, life – this time from Tyler Cowen, economics professor at George Mason University, writing for Bloomberg.com – despite the pandemic, Tyler believes 2020 saw great scientific progress which will be of great benefit to all in the coming decade – Happy New Year

Maybe they had the right idea.

For obvious reasons, 2020 will not go down as a good year. At the same time, it has brought more scientific progress than any year in recent memory — and these advances will last long after Covid-19 as a major threat is gone.

Two of the most obvious and tangible signs of progress are the mRNA vaccines now being distributed across America and around the world. These vaccines appear to have very high levels of efficacy and safety, and they can be produced more quickly than more conventional vaccines. They are the main reason to have a relatively optimistic outlook for 2021. The mRNA technology also may have broader potential, for instance by helping to mend damaged hearts.

Other advances in the biosciences may prove no less stunning. A very promising vaccine candidate against malaria, perhaps the greatest killer in human history, is in the final stages of testing. Advances in vaccine technology have created the real possibility of a universal flu vaccine, and work is proceeding on that front. New CRISPR techniques appear on the verge of vanquishing sickle-cell anaemia, and other CRISPR methods have allowed scientists to create a new smartphone-based diagnostic test that would detect viruses and offer diagnoses within half an hour.

It has been a good year for artificial intelligence as well. GPT-3 technology allows for the creation of remarkably human-like writing of great depth and complexity. It is a major step toward the creation of automated entities that can react in very human ways. DeepMind, meanwhile, has used computational techniques to make major advances in protein folding. This is a breakthrough in biology that may lead to the easier discovery of new pharmaceuticals.

One general precondition behind many of these advances is the decentralized access to enormous computing power, typically through cloud computing. China seems to be progressing with a photon method for quantum computing, a development that is hard to verify but could prove to be of great importance.

 

Internet access itself will be spreading. Starlink, for example, has a plausible plan to supply satellite-based internet connections to the entire world.

It also has been a good year for progress in transportation.

All this will prove a boon for the environment, as will progress in solar power, which in many settings is as cheap as any relevant alternative. China is opening a new and promising fusion reactor. Despite the absence of a coherent U.S. national energy policy, the notion of a mostly green energy future no longer appears utopian.

In previous eras, advances in energy and transportation typically have brought further technological advances, by enabling humans to conquer and reshape their physical environments in new and unexpected ways. We can hope that general trend will continue.

Finally, while not quite meeting the definition of a scientific advance, the rise of remote work is a real breakthrough. Many more Zoom meetings will be held, and many business trips will never return. Many may see this as a mixed blessing, but it will improve productivity significantly. It will be easier to hire foreign workers, easier for tech or finance workers to move to Miami, and easier to live in New Jersey and commute into Manhattan only once a week. The most productive employees will be able to work from home more easily.

Without a doubt, it has been a tragic year. Alongside the sadness and failure, however, there has been quite a bit of progress. That’s something worth keeping in mind, even if we can’t quite bring ourselves to celebrate, as we look back on 2020.

Dec 22

Something more to look forward to in 2021

Ed Conway, economics editor of Sky News, recently wrote a positive article in The Times – in essence, his views were:

  • For decades, developed world economies have lacked ‘oomph’
  • Productivity is the ‘silver bullet’ viz:
    • The more we earn for each hour worked (an old school view) the more is spent on every other bit of the economy, the more governments receive in taxes
    • Hence, there’s more to spend on public services or redistribute to those who need it
  • Productivity growth would make most people better off – and it would help us repay pandemic debts incurred
  • But, in recent years, productivity growth has been ‘disappointingly weak’ (according to ONS statistics)
  • And proposed solutions such as improving infrastructue, boosting education and supporting entrepreneurs have not emerged with much success
  • Some experts even think we’ve become trapped in a ‘great stagnation’
  • We’ve plucked the low-hanging fruit and the great life-changing innovations of the industrial era are all behind us
  • “But what of fruit already on the ground, aka waste – and high-hanging fruit we’ve yet to pick to any great extent?”
  • Then, reading on, he agrees with the potential of my ‘high-hangers’
  • Vaccines are promising a return to something like normality – more likely a supercharged normality as a wall of savings made by many locked-down families is unleashed – indeed, a retail boom is in the offing for many who can manage to survive the next few months
  • And a host of innovations have appeared during this pandemic which have the potential to create not just a few new products but whole new sectors which could launch thousands of new products and even more thousands of new jobs viz:
    • The first mRNA vaccines have opened up the possibility to treat other diseases, including cancer
    • Deepmind has used AI (Artificial Intelligence) to predict the structure of proteins
    • Quantum computing, the next frontier in technology, came a step closer to reality – and from China
    • Nuclear fusion is said to be ‘close at hand’ according to MIT
    • GPT-3, an AI algorithm, can now write poetry or prose and sound uncannily human (i.e. pass the Turing test)
    • Apple have unveiled computer chips which are leagues faster and more efficient than their equivalents from Intel
    • Waymo has rolled out self-friving cars to consumers in Arizona
    • Singapore has approved the sale of ‘chicken bites’ grown in the lab without the death of a single hen

 

Add to the above the fact that businesses have been forced to become leaner, and so less wasteful, during the pandemic, and there is much hope

Conway, being an economist, then has to balance this optimism with a cautionary note (after President Truman’s quote: “Find me an economist with just one hand!”)

He finishes by saying it’s early days for much of the above – interest rates will not stay so low for ever, and for businesses and governments that have borrowed big, they will be hit hard when they do rise – and a bounce next year will not fully heal the scars suffered by  millions who have lost their jobs

Add in Brexit uncertainty (even if a deal is reached) and the fact that the UK market is focused on the kinds of business that have been hit hardest – banks, oil, Rolls-Royce and airlines for example – and one might worry that the world is on the brink of a productivity leap, but the UK could be left behind

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