What is this "productivity" thing, anyway?

Jeffery Madrick, author of "The End of Affluence," summed up the meaning-in its broadest sense-in a Washington Post Weekly Edition commentary: "Productivity is the amount of goods and services the economy produces for every hour of work."(1) Productivity growth is the result of more goods and services produced in fewer hours. Theoretically, higher productivity leads to an expanding economy which, in turn, leads to a higher standard of living. Corporations and government have used this structural definition of productivity as a basis for decision-making for several decades. The result is an emphasis on downsizing/rightsizing, reengineering, process redesigning, and a host of other initiatives. In their work, Competing for the Future, authors Gary Hamel and C. K. Prahalad refer to this form of productivity improvement as a "harvest strategy" in which productivity gains are achieved through the aggressive management of costs in the output/costs ratio. They note that this approach is considered the easiest and fastest method by marketing strategists and usually consists of downsizing, overhead reduction, pushing down the level of decision-making, process redesigning and portfolio rationalization.(2) Although this route may provide quick relief and allow companies to catch up to some competitors by lowering costs, it does not directly lead to improved corporate growth in a long-haul sense. Despite all the buzz-word banter about high-speed change, global competition, valuing knowledge workers, etc., there doesn't seem to be much in-depth focus on the full implications of these factors for the long range. The prevailing corporate "lean" is still toward structural redesigning to achieve productivity gains. Charles D. Winslow and William L. Bramer, two senior consultants with Arthur Andersen & Co., note, "Although $862 billion has been spent on information technology in the service sector in the United States over the past decade, there has been little improvement in workforce productivity until very recently."(3) Little Improvement How can so much money and effort result in such little improvement in workforce productivity? It is necessary to scrutinize several factors carefully to find an answer to this question. The public is just beginning to realize that there truly have been some fundamental transformations in the economic landscape that are not temporary potholes in the business-as-usual road. In his 1996 work, The Future of Capitalism, Lester Thurow concisely laid out the major shifts in the underlying dynamic forces of the economic world:

* the end of communism (new market forces/new players)

* a technological shift to an era dominated by man-made brain power industries (industries that are geographically free to exist anywhere and are not tied to natural resource bases)

* changing global demographics (major population growth in poor countries; large groups of nonworking affluent elderly in the U.S.)

* a global economy (anything can be made and sold anywhere on the earth)