When coming up with the Balanced Scorecard concept, Kaplan & Norton reminded us of the need for balanced measurement – focusing on a number of important factors.
Yet when we measure and discuss national productivity, it is almost always in the context of a single measure – GDP per employee or employee-hour.
There is a growing view that this measure is not just ‘unbalanced’ but out-of-date. It is a measure very suitable for older, manufacturing-based economies but fails to recognise the nuances of knowledge-based economies.
It ‘counts’ tangible assets within GDP (cars, widgets, fridges, etc) but does not gather data on intangible assets like patent portfolios, bright young people and so on.
Financiers and investors have moved on. When they value a start-up, they do not value the physical assets – but the intangible, intellectual assets and intellectual property – the ideas.
So, perhaps we need to catch up – and establish measures of national productivity that are suitable for this – and future – centuries.
China and India are arguably the world’s best performing economies over the last decade – both have seen large productivity gains.. Yet, China has managed to address poverty more effectively than India.
According to the World Bank, the rate of extreme poverty in Chinas declined from 84% in 1981 to just 12% in 2019. The comparable decline in India during the same period was from 60 to 33%.
India’s population have put great confidence in Prime Minister Modhi. He has talked up good solutions – nut now is the time to execute. India’s poor are relying on him to turn higher productivity into a fairer society.
Lots of national governments – and other agencies- make calls to their populace for a productivity revolution. They are simply urging people to work harder.
Bu we know that productivity revolutions do not occur because people work harder or when people work longer hours (despite what Jeb Bush might think).
So, a ‘call to arms’ is unlikely to be effective.
Governments need to do more – to build a strategy (or at least a plan) for productivity development involving policy and infrastructure elements (macroeconomics, regulation, transport, telecoms, education, skills). They need to build a potential for higher productivity which enlightened firms can exploit. Individuals might then respond with higher productivity.
If Greece is forced out of either the Euro, the EU or both – there are clear implications for theGreek economy. But will there be any implications for underlying productivity.
Well, there is some evidence – ironically from Greece itself – that national confidence and national pride do have a significant impact on the productivity of workers.
When Athens hosted the Olympics in 2004, there was a surge of national pride and of ‘engagement’ of the workforce with their country. This resulted in both a sense of well-being for the workers and in a boost to the economy.
This suggests, unfortunately, that exit from the Euro might have a negative effect on productivity and the economy – perhaps resulting in a kind of ‘vicious spiral’ of decline in the economy and national confidence.
When I was a teenager (warning – ancient history lesson coming up!), we were regaled with promises of the paperless office and factory automation – leading to a life of leisure (and luxury). Now people work longer hours than ever before – and many are never really off duty – being permanently connected to the office network.
Where did it all go wrong?
This is one of life’s great productivity paradoxes – increasing automation results in more work for people, not less.
There are often ‘quick fixes’ we can apply to problems. There are also often improvements we can make to get yield up or improve throughput. The problem is that some of these can have negative impact over the longer-term.
Global agriculture seems to be caught in this trap. Yields per hectare are rising. Good! With a growing global population, this is not only desirable – but essential.
However, there is increasing evidence that underlying soil performance is falling. This means we need more and more ‘treatments’ to maintain yields (putting costs up) – but it also means that there might come a time when the soil refuses to support effective growth.
So, though we might want to improve agricultural productivity, we need to be wary of the timescale over which we expect improvement to occur – and be sustained. Traditional agricultural practices managed to maintain soil quantity and slowly improving yields over centuries; our need for growth has resulted in massively increased yields – but for how long?
Total factor productivity around the globe seems to be slowing. This is a major problem.
Rising productivity is what fuels increased wealth and well-being – it is what allows poorer nations to catch up to richer nations … a basic requirement of longer-term political stability.
In developed nations, it is what allows a falling population to afford the pensions of a growing retired class.
If TFP is falling, then – collectively – we are doing something wring .. or not doing something right.
One thing we do is to continually increase regulatory burdens – with the best of intentions, but resulting in smaller firms in particular finding it hard to navigate the bureaucratic minefield.
We also – especially when times are hard – often seem to forget to educate, train and develop the workforce … increasing their capacity and capability.
Governments work in fits and starts on infrastructure – but often more on ‘vanity’ projects and ‘note grabbers’ rather than concentrating on productivity infrastructures.
We need to do more – more consistently.
Now, when I rule the world …
We are all good at starting new initiatives, new ventures – and creating new teams or even new departments. Of course, it is good that we can do this speedily and (hopefully) effectively.
The problem is that most of us are not very good at closing down those initiatives, those teams when the job is done – or has proved to be ineffective.
Many organisations thus have the remnants and rumps of what were once effective projects, effective teams – even, of course, effective products ….. things that should have been positively closed down but have been left to ‘wither on the vine’.
So, take a look around and see what you should stop doing.
I have been doing some training this week – on Change Management. Both the group I was with – and myself – exhibited all the signs of a comfortable regularity – staying at the same hotel we always stay at, dining in the same restaurant, eating (broadly) the same lunch – and so on. Its very good when you can use yourself as the role model/case study..
Of course I think of myself as a flexible innovator – but ‘behind the scenes’ I am as resistant to change as anybody else. This doesn’t make me odd, or staid, or old-fashioned or curmudgeonly – though I might be those things as well…. it just makes me normal. It is my little routines that make the day go more easily. No need to think; just do what you’ve always done.
… And hope that when its needed, you can switch into ‘change’ mode – and become that flexible innovator.
Some firms like to link pay explicitly to performance – with a direct link.(the ‘carrot approach’)
Some like to rely on post-poor-performance sanctions ( the ‘stick’ approach).
Those who think of themselves as enlightened pay good basic pay and expect good performance (the ‘faith’) approach).
Others pay poor wages but still expect good performance (the ‘ miserable fools’ approach)
…. but the majority have never thought about it (the ‘ignorant fools’ approach)
Which one(s) do you think work? Can you prove it?