Productivity is hard…but easy to solve
Are you familiar with productivity in these situations?
A workshop where ways of working & collaboration are refined to make teams work more productively.
The Treasurer frowning at the decline in productivity, as reported in the national accounts.
Sitting at your desk working - ‘being productive’ - by using apps from a ‘’productivity suite’’.
Each one of those uses of productivity is standard, but only the second counts for anything because it measures actual income.
When global productivity averaged 1% annually for a thousand years, but then swiftly rose 25% annually after the British industrial revolution, it wasn't because team building had taken root in British industry. It was because investment had changed labour productivity: the value of the output.
For productivity to mean forms of collaboration and working and transacted value makes it the hardest concept to use in business.
Ask a sample of managers how they define productivity and different responses will come back; most often related to the perceived diligence of staff, which partly explains why so much sunk cost is dedicated to fixing labour efficiency. Or why working from home is deemed unproductive.
To demonstrate the argument this chart shows the Australian productivity situation over the last 65 years.
With kind permission of Gerard Minack
Australia’s productivity problem is related to investment, not team morale, although that also slumps when the rewards of productivity decline.
Most technology professionals will be astonished at this because technology delivers productivity, doesn't it?
Yes, is the right answer. But not always.
Between 1996-2013 the level and consistency of investment was bold and improvements were measurable. The level of investment tailed off from 2005 compared to the earlier phase. Since 2014 it has been weak.
US productivity has grown 30% since Covid due to massive investment, three times greater than Europe. In Australia it’s slumped. The chart above depicts it well.
The chief reason why US productivity is rampant is that US technology companies dominate development investment.
A comparison between the US and Australia, which is not entirely fair due to differences in economic complexity, reveals that US tech investment is about 1.4% of total GDP while Australia’s relative share of tech investment to total GDP is 0.06%. Go here for more data.
Investment alone won’t deliver an answer, well , not for the long term.
The intersection between investment and its application is clear enough in the multi-factor productivity , or MFP, trends. MFP measures both core equipment and technology acquisition and how labour is enhanced through the investment.
The Australian MFP data record is downbeat and partly explains why the Productivity Commission made an open call late in 2024 for ideas on how to solve this problem.
This predicament is the reason AI is hyped as the magic solution to the productivity problem. But whether it really is a viable solution depends on who making that claim.
MIT’s Daron Acemoglu estimates in ‘’The Simple Macroeconomics of AI’’ that productivity gains of 0.55% over a decade are possible. We might have to live with that.
In SDR Advisory’s work we have seen strategic investments actually produce large falls - over 20% - in annualised labour productivity. That happens more often than it should.
To get a positive return, management needs to know how to manage the investment. Data analysis and operating model design will support that in conjunction with a clear idea of how to make productivity gains.
