One major consultancy we do respect when talking about productivity is the MGI – McKinsey Global Institute (with whom we have no connection).
Recently, they published their latest thinking how any organisation can improve its productivity performance.
We agree that just FIVE STAGES are involved, and that the first step must always be a good plan.
However, we part company on the following four, having little faith in thinking that ‘culture change’ comes second rather than being a follow-on result after successful action taken by business leaders
Compare the ‘MGI 5’ with ours and see what you think
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‘MGI 5’ – extracts:
Uniting organisations around strategy and purpose
- As company leaders have prioritised efforts to respond to a volatile operating environment where price volatility, supply chain challenges, and talent shortages are the order of the day, attention has shifted away from the core principles of operational excellence — leaving considerable value on the table.
- The time is now to revisit the foundations of operational excellence, while applying technology, digital and analytics to accelerate operations and make them faster, smarter, and more resilient.
- Centered on continuous improvement and high performance to drive productivity and resilience, operational excellence across an entire organisation is built on a shared understanding and commitment to mission and values for all stakeholders.
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‘OUR 5’ – as detailed in our book ‘Productivity Knowhow Revisited’
Stage 1 – Corporate plans:
- Most organisations stumble even at this first hurdle – they produce a glossy corporate plan once a year, but then ignore it
- Action for productivity improvement is rarely mentioned
- Objectives are unclear and/ or unquantified – usually ‘to do better here, and more there’ i.e. mostly dull, ‘steady as you go’, and unexciting
- Expensive strategy consultants dominate the worthy support on offer
Stage 2 – Productivity measures:
- There are plenty of measures available – but few that managers need to put them in good control
- Few consultants offer good advice on the specific measures needed
- Managers lack vital feedback from others further down the line
- They also have financial budgets but lack meaningful productivity targets over which they have control
Stage 3 – Productivity analyses:
- Lacking good measures, most managers cannot identify where their major improvement opportunities and problems lie
- If financial results are ‘going south’, most don’t know where best to act
- Most consultants also cannot identify where best to act
- But there’s usually plenty of ‘worms under stones’ for them to find, and offer special teams to deal with them
Stage 4 – Special improvement projects:
- Most managers are not trained in ways to improve productivity, nor how to manage special improvement projects – hence, many bring in outside consultants and even let them take charge – so the consultants, not the employees, learn from the exercise
- There are three basic steps for improving productivity:
- Step 1. Cut waste – The waste of time, effort and so money within many ways of working, especially ‘custom and practice’, is usually over 20% and can be over 50% – most managers are usually amazed when they find out
- Step 2. Optimise existing resources – Once obvious waste has been minimised, there still remain many opportunities to reduce unit costs and/ or improve quality and customer service levels using a mix of business common sense plus sometimes mathematics/ statistics/ computer modelling – now called apps and algorithms
- Step 3. Invest in new – Much new technology has a track record of making major productivity improvements in all sectors e.g. electricity and ICT, now AI – but the greatest advances usually come from upskilling labour to use such new ‘general purpose’ technology plus changing neighbour systems to feed and use them
- Sadly, too many organisations leap straightaway to Step 3 and ignore the potential of Steps 1 and 2
- Most projects fail to realise 100% of the benefits needed or thought possible
- Most consultants specialise – some claim their skills are precisely those required to resolve a client’s problem, which may or may not be so
Stage 5 – Continuous improvement:
- Most managers in the West ignore the huge potential on offer if they employed kaizen and enlisted all their workforce in a drive for productivity improvements, anywhere at any time, no matter how small
- The cumulative impact of this approach can be as big as, if not bigger than, that of any one special improvement project
- Most consultants in the West also ignore this stage – it earns them few fees
The ‘Ratchet Effect’:
- Productivity improvement usually happens in ‘fits and starts’
- It’s rarely a monotonic ride up an improvement curve – more a succession of ‘S- shaped’ performance curves climbing on each other, interspersed with occasional quantum leaps viz:
- A slow start when everything is new – employees have to ‘learn the ropes’
- A rapid improvement as better ways of working evolve internally or are copied from outside, and the team move along their ‘learning curve’
- A slow-down as the scope to improve eventually becomes exhausted and only incremental improvements are possible
- Then a ‘breakout’ – perhaps due to some major technological advance (such as AI)
- Then another ‘S curve’ climb – and so on
- Eventually, most organisations are unable to keep climbing as above, or ‘re-invent’ themselves – they can only make modest improvements and become vulnerable to ‘creative destruction’ when others with newer, better offerings overtake them, grab much of their market share, even take them ‘over’ or push them ‘under’
Overview:
- What action you take much depends on where you are now
- As Jack Welch, famous CEO of the mighty GE, said: “If you want a 10mph increase in train speed you tinker with HP, but if you want to double its speed, you have to break out of conventional thinking”