- Received wisdom has it that, whilst the productivity levels achieved by all organisations nationally might be expected to follow the normal distribution curve – with some good, some poor, and most in-between – the actual distribution is heavily skewed towards the poor end.
- If so, it’s not the best that’s the problem, it’s the rest.
- It’s also thought that there can be big performance differences not only between organisations within the same sector but also between different sectors within the same nation.
- For example:
- The top quintile of organisations were said to be over 5 times more productive than the bottom quintile in manufacturing sectors
- And more than 10 times in service sectors.
- So the potential for massive productivity improvement should be blatantly obvious to all.
- But whither the proof of all this – and the concerted action to follow?
- It seems all we get is occasional and piecemeal action whilst the ONS reports little or no productivity growth overall.
- Then we chanced on a new report from the MGI- McKinseyGlobal Institute – which looks deeply into macro-issues involving national productivity.
- Our brief summary follows.
MGI Report:
- First, they defined productivity as firm-level real GVA per worker – N.B. not GDP per worker – where Gross Value Added is revenue minus external cost
- They stated:
- If firms don’t increase their productivity, economies don’t either
- Productivity growth is the only way for businesses to deliver rising wages for their workers, increased customer surplus and profit
- Their study looked at 8,300 large firms in three countries – UK, USA, Germany – over the 2011-19 period, covering two thirds of GVA per worker in four sectors:
- Retail
- Automotive and aerospace
- Travel and logistics
- Computers and electronic
- They found a relatively small number of firms (~ 10%) making bold strategic moves generated the majority of productivity growth (~ 90%) in the period studied, in powerful bursts rather than in a smooth trickle of gradual change
- In other words, they found: “A few firms moving a mile rather than many moving an inch”
- Essentially, they ‘do things differently’ rather than ‘do things more efficiently’ by:
- Scaling more productive business models or technologies:
- Apple shaping the mobile internet wave
- Amazon shaping e-commerce
- easy-Jet helping to set the low-cost carrier trend
- Shifting products to most productive areas:
- Nissan expanding EV offerings
- General Motors exiting unprofitable geographies
- Reshaping customer value propositions:
- Major retailers integrating buying on-line and picking up in-store
- Delta and American Airlines providing distinct better services to loyal customers
- Building scale and network effects:
- Hapag-Lloyd driving growth through geographic expansion and acquisitions
- US airlines improving route networks and aircraft capacity utilisation through mergers
- Raising labour efficiency:
- Tesco’s multibillion-pound cost reduction programme
- easy-Jet’s fleet modernisation to reduce operating costs
- Scaling more productive business models or technologies:
- Their conclusion:
- Whilst labour efficiency is most commonly associated with productivity growth – at least amongst businesses – it was very rarely the most important one in our case studies.
We leave you to consider the potential read-across of the above to all other sectors in any national economy, especially developed economies, and especially services in both private and public sectors.
1 comment
Surprised that the focus seems on “initiatives” to move a mile rather than conventional wisdom of continual improvement. Granted, it has been historically known that every so often, even with CI in place, the “next step up” needs an initiative to move to the next level. Also surprised that little if any attention (based on your summary) appears to be paid to the type of workplace environment that effective leadership creates, that stimulates commitment to these types of step-up initiatives.