Breaking Operational Barriers to Peak Productivity
Introduction
The world urgently needs more productivity growth to address issues like wealth inequality, inflation, and debt. Despite this, productivity growth has significantly declined in advanced economies since the global financial crisis of 2007–09 (Exhibit 1).
Macro Causes of Declining Productivity Growth
- Fading Technological Benefits: The dramatic benefits of technological advancements, such as Moore's law, have diminished, leading to more incremental improvements.
- Investment Plateaus: Investments in restructuring and offshoring have also seen diminishing returns.
Micro Causes of Declining Productivity Growth
- Loss of Operational Discipline: Repeated shocks over the past five years have led to high levels of attrition and job churn, breaking the chains of knowledge and expertise.
- Impact on Talent: The loss of critical talent has further exacerbated these issues.
Key Data
- Exhibit 1: Productivity growth has slowed across almost all economies since the global financial crisis. Advanced economies show a decline from 2.2% to -0.2% (2007–2022).
- Exhibit 2: Job vacancy rates in advanced economies are higher today compared to 2010, with significant variations across sectors.
Methodology and Surveys
- Next-Generation Operational Excellence Survey (NGOES):
- Comprises 1,000 employees from various organizations.
- Half are senior leaders, and half are frontline workers or middle managers.
- 52% of respondents are from the manufacturing sector, with the rest in services.
- Operational Excellence Survey (OES):
- Comprises 1,225 respondents from 15 organizations.
- 21% are senior leaders, and 79% are frontline workers or middle managers.
Elements of Operational Excellence
- Crafting a Purpose and Strategy:
- Clear purpose and strategy are essential but often not fully aligned with daily work.
- Articulating Behaviors and Principles:
- Practices that put the strategy and purpose into effect.
- Building a Management System:
- Reinforcing behaviors and principles through a holistic set of processes.
- Refining Technical Systems:
- Eliminating waste in value delivery.
- Applying Technology:
- Augmenting human capabilities rather than replacing them.
Challenges and Opportunities
- Technological Advances:
- New technologies like automation, analytics, and generative AI offer significant promise but require a broader commitment to operational excellence.
- Digital Transformation:
- Only 30% of organizations successfully scale and sustain digital improvements.
- Gen AI could add $2.6 trillion to $4.4 trillion to the global economy, but only 5% of organizations attribute at least 5% of their EBIT to it.
- Operational Excellence Practices:
- Proven to create significant improvements in cost reduction, employee retention, and other variables.
- Few organizations perform well across all five elements, making it difficult to sustain impact from new technologies.
Practical Actions
Companies can take specific actions to improve operational excellence, leading to transformative outcomes such as increased customer satisfaction, reduced CO2 emissions, and improved employee retention. Organizations that achieve this standard of performance continue to improve year after year.
Regional Variations
- Differences in operational excellence among regions, particularly in Asia and Latin America, warrant additional attention.
By examining current practices, identifying areas for improvement, and committing to change, organizations can unlock lasting productivity gains.