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)

* no dominant economic, political, or military power (no dominant economic power to design, organize, and enforce the rules of the economic game) In conclusion, he notes, ". . . knowledge has become the only source of long-run sustainable competitive advantage, but knowledge can only be employed through the skills of individuals (and), as with everything, else knowledge and skills will move around the world."(4) Current Issues This brings us to the crux of current issues that relate to productivity. Structural productivity strategies had their place in the initial effort to catch up to the competition and ensure a level of organizational survival. Like many quick fixes to long-term needs, their initial illusory "high" can seduce the user to continue using them long past the point of manageable application. Skyrocketing corporate profits, ballooned CEO compensation, and workforces focused more on their own economic survival than that of the company do not comprise a success formula for sustained growth. In a report released last April, the National Association of Manufacturers acknowledged the widespread nature of workforce anxiety caused by extensive corporate downsizing and layoffs. The report called for more emphasis on training and education, especially by the private sector, and more cooperative relationships between workers and employers. The initial furious thrust at (short-term) "whacking down the weeds" and "draining the swamp" around the corporate structure is beginning to give way to a longer-range growth perspective necessary to survive the fundamental changes that are occurring in global business. Techno Trends author, Daniel Burris, reminds us that the former National Commission on Productivity listed four factors necessary for increased success in business and government: "integration of common goals/methodologies, flexibility, communications, and orchestration of effort by all involved parties."(5) Similar notions are paralleled by Marvin Weisborg who discusses the three issues to be addressed in developing productive work places: need for sense of community (integration/orchestration of effort), need for total involvement of employees (communications) and resolution of conflicts that inhibit employees from working effectively in groups (flexibility).(6) Wrong Focus For too long, there has been an unfortunate tendency to frame corporate (profit) growth and employee development as an "either. . .or" issue when, in fact, it is actually a "corporate growth and employee development" route to success. Manager Magazine cited an Institute of the German Economy study that compared Japanese and German workers in terms of productivity improvement suggestions they contributed. They found that the impact of Japanese workers in performance improvement was 514 times greater than that of German workers.(7) A five-year study by John Kotter and James Heskitt, which involved 207 companies in 22 industries, found that financially successful companies focused first on fulfilling customer/employee needs and second on corporate profits. In fact, net income growth over an 11-year period for high performance (employee-involved) cultures was 756 percent versus one percent for low performance cultures.(8) It does seem extraordinarily curious to separate out and distance so far the factors of morale/training/culture from productivity gains in the corporate concerns noted in the survey cited in Consultants News. The shift in focus to operational productivity is overdue but, nonetheless, welcome. The danger contained in the earlier strategies was the risk of going beyond "trimming the fat" to "cutting into muscle." Not surprising, many of the corporate "best and brightest" were the first to line up to take advantage of buy-out offers. Losing their strategic knowledge base was not one of the sought-after outcomes desired by corporations and government agencies. The thrust of the current shift may be best summarized in remarks made by Alan S. Binder at the 1990 Brookings Institute Conference on Pay and Productivity: "Changing the way workers are treated may boost productivity more than the way they are paid. . . although profit sharing or employee stock ownership combined with worker participation may be the best system of all."(9) Striving For Balance What is needed now is a balanced approach that strives to achieve a right-sized organization for secure corporate growth through the expansion of workforce capabilities. The traditional corporate Command, Control, Communications (C3) systems were modeled after 19th-century railroads that needed to coordinate train movements over fixed-track systems that spanned large geographic areas. Rigid systems supervised by legions of eagle-eyed, mid-level personnel to ensure predictability in an unchanging or slowly-evolving landscape hardly offer an effective model for managing today's environment of unpredictable change. Today's corporate leaders need to truly recognize that the old business landscape has been transformed into a new working environment. Ironically, the recent stirrings by U.S. Secretary of Labor Robert Reich and various major employer groups for a new "Social Contract" come too late for many professionals. Their new social contract closely resembles the "guilds" of medieval Western Europe that were formed as a result of the loss of protection of kinship groups. The merchant groups lost power and knowledge control with the rise of associations of master craftsmen, journeymen, apprentices, and traders. The escalating professional links through the Internet, professional associations, and networks of friends and associates gathered across multiple employment experiences form the base for the emerging "guilds." In a simplistic fashion, the first step corporations must take is to assess the strength of the links between their organizational performance, process performance, and workforce performance. This task, of course, requires extensive communication involving all of the parties. An examination of who needs to learn what, when, how to achieve specific outcomes, and the development of measures that focus on the range of knowledge (effectiveness), as well as how well they apply that knowledge (efficiency), will be a key piece of the assessment. Important Links Finally, the last three elements in the Institute of Management Consultants survey must be recognized as the sustaining forged links in operational productivity. Companies will achieve workforce productivity gains by paying close attention to employee morale, training, and culture change. The lead article in a recent issue of Business Week focuses on the "new workplace" with increased emphasis on people productivity factors such as promoting a sense of community, easier channels of communication, reducing anxieties (day care, work hours, depersonalized workspaces) that arise in a "work anywhere, any time" work life and continually tapping into employees' training needs to alleviate the key workers' sense of "falling behind." Alcoa Corporation and Procter & Gamble were listed among the companies that were at the forefront.(10) Running an internet-style operation that uses 19th century, railroad-style C3 systems and rigid role assignments is a sure way to stumble on a heaving terrain of economic change. The "fix" for the future (quick or otherwise) will require assembling a committed workforce that is well-schooled in problem-solving and providing a broad forum in which workers (and management) can search together for solutions to common problems and fix things before they even appear to be broken. The remainder of the economic world simply will not wait patiently while the U.S. business community cautiously experiments with operational productivity. 1 Madrick, Jeffery, "It's Productivity, Stupid," Washington Post National Weekly Edition, April 8-14, 1996, 22. 2 Hamel, Gary and C.K. Prahalad, Competing for the Future, Harvard Business School Press, 1994, 6-9. 3 Winslow, Charles D. and William L. Bramer, Future Work, Free Press, 1994, 221. 4 Thurow, Lester, The Future of Capitalism, William Morrow & Co., 1996, 74. 5 Burris, Daniel, Techno Trends, Harper Business, 1993, 262. 6 Weisborg, Marvin, Productive Workplaces, Jossey Bass, 1987. 7 Hermann, Simon, Manager Magazine, February 1993, cited in Gary Hamel and C.K. Prahalad, Competing for the Future, Harvard Business School Press, 1994, 165-166. 8 Kotter, John and James Heskitt, Corporate Culture and Performance, The Free Press, 1992, 11, 78-79. 9 Binder, Alan S., (ed), Paying for Productivity: A Look at the Evidence, Washington, D.C., Brookings Institute, 1990, 13. 10 Hamilton, Joan, Stephen Baker and Bill Vlasic, "The New Workplace," Business Week, April 29, 1996. JOHN F. HORNE III, MSHRD, is a practicing organizational development consultant and is president of ChannelMarker Consulting in Tempe, AZ. The firm specializes in the identification of operational strengths and needs within a system and the utilization of that knowledge in the management of organizational change. Mr. Horne has received the Hal Kellner Award for excellence in human resources development services from the NTL Institute for Applied Behavioral Sciences. He has written articles on organizational resilience, stratregic planning, productivity, and performance assessment. The firm is a co-sponsor of the Center for Organizational Resilience Studies based in Fort Worth, TX.