White paper

Productivity:
Theres a Better Way
A look at solving the productivity puzzle
by Steve New
Associate Professor at Oxford Universitys
Sad Business School
 Productivity: Theres a Better Way White paper

Productivity: Theres a Better Way

Introduction
Productivity. Whats your response to this word?

Maybe it makes you think smugly of that day when you managed to hit all
those deadlines, and you found yourself operating without distraction or
deviation from your plan. Or perhaps, in contrast, it recalls that day when the
siren call of Twitter pulled you away from the task at hand and you ended up
losing an evening just to catch up.

If you run a business, maybe it reminds you of the constant struggle to hit
budgets and deadlines. Or if you once studied economics, maybe it conjures
misty memories of complex equations and obscure acronyms.

In this paper, I want to show how the concept of productivity acts as a mirror
and a mantra: a mirror which reflects our assumptions, and a mantra that can
actually block critical thought about how organisations work.

I will set out why some common assumptions about productivity are
In this paper,
mistaken, and, worse, how they can misdirect policy makers and business
I want to show
leaders. I then want to provide a better vision of productivity, drawing on
how the concept of
a growing body of evidence from varied settings. The discussion will take in productivity acts as a
some ideas from the research literature and my own experience of working mirror and a mantra.
with a wide range of organisations.

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Productivity as a mirror: A ratio for all seasons.

As every textbook tell us, productivity is a very simple concept: a ratio
which sets output over input. The simplicity is beguiling; its clear that more
output for the same or less input is obviously more productive. Increasing
productivity must be a good thing.

At the level of macro-economy, a productive economy means wealth;

tracking the changes in overall productivity is a major pre-occupation of
policy makers, journalists and academics. In recent times, the concept has
attracted several narratives.

In the UK, the story of the moment is that the historical rise in productivity
is tailing off. In other words, the source of our steadily increasing prosperity
over many decades has seemed to stop working, particularly since the
financial crisis. This productivity puzzle is interesting not least for the fact
that most economists will confess to being baffled.

Without increased productivity, it is argued, the nation will fail to recover

from its current struggles and fall behind our competitors. The demographic
The demographic
shifts mean that a relatively smaller working population needs to be creating shifts mean that a
more wealth to support the growing burden of the elderly, but the curve of relatively smaller
improvement is too slow to avoid future penury. working population
needs to be creating
more wealth.

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In other parts of the world, the productivity narrative is slightly different: in

the US, productivity figures look a bit more promising, but seem to have
become disconnected from employment growth.

The traditional connection between productivity and prosperity the happy

rising tide on which all boats bob seems to be weakening. The result is an
increasingly unequal distribution of the benefits of advancing technology.

Productivity improvements are leading some to think that, after all, the
robots will come and take our jobs. This development follows a longer
period in which economists puzzled as to why the huge developments
in information technology appeared to have little impact on productivity;
intuitively, people thought all those computers would be making firms
super-efficient, but the evidence appeared muted at best. But now the
technology seems to be having its effect, but at the cost of equality. The
new productivity seems to be delivering new wealth to the educated and
powerful, and stripping away the less skilled jobs that have supported the
ordinary worker.

These developments are driving a wide range of policy responses, all of

which zero in on the need for better productivity. There is no shortage of
But now the
prescription and there is a growing sense of urgency. Something must be
technology seems to
done! But in fact the debate mostly acts as a vehicle for commentators to
having its effect, but at
air their prejudices.
the cost of equality.

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One big problem is that macro-level productivity is an idea which only
makes sense if you have confidence actually, quite a lot of confidence
in the ability of governments to calculate reliable measures of economic
activity. Although talking about the economy and growth is a routine part
of everyday discourse, it is worth remembering that there is no big machine
with a dial and a needle from which the state of the economy can be read.
When economists talk about aggregate economic activity, they are quoting
a figure that emerges from an extraordinarily complex process riven with
a vast number of estimates and frankly creaky theories. The figures we use
are contrived by adding together fragments of data according to rules that
have been adapted and developed over time, and are applied by different
countries in many different ways.
Deeply Flawed
The underlying data is incomplete and noisy. The models which underpin
the rules, and the assumptions which underpin the models, are deeply
flawed, and understood in detail by very few people indeed.
Coming up with a measure of output (the numerator in the productivity ratios)
is a heroic guess, and the assumptions are so slippery that economists dont
even presume to offer the number with an error bar. GDP (gross domestic
product) is a fabrication, and a relatively recent invention. The data used to
describe input (the denominator in the productivity formula) are even more
perplexing, and based around extremely problematic survey evidence
requiring extensive manipulation and extrapolation.
Productivity: Theres a Better Way White paper
This is not to say the economists who prepare these numbers are wasting
their time. The figures are useful for some purposes: the origins of national
income accounting arise from the desire to manage macro-economic policy
to keep aggregate supply and demand in rough alignment to avoid inflation
and recession. But, normally, serious economists are circumspect and
modest about what relatively small changes in these numbers might mean;
in academic circles they are normally careful to qualify their statements.
However, once in front of a microphone or when writing for the public,
the uncertainties and ambiguities tend to be downplayed; journalists need
a story; politicians need a slogan. The discourse proceeds as if the official
figures were a straight-forward thermometer reading. Unlike other kinds
of statistics in which the idea of significance plays an important role, tiny
changes in GDP and productivity figures (and GDP growth and productivity
growth, and the growth in the growth) are always (and often wrongly) treated
as meaningful.
One big problem
is that macro-level
productivity is an
idea which only
makes sense if you
have confidence...
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 Productivity: Theres a Better Way White paper

There are several aspects to the difficulty of accurately assessing the It is possible, then, that the most interesting feature of the macro-productivity
measurement of macro-level productivity that are technically interesting. numbers is not the value of the number itself, but the type of discourse
To start with, the procedures for data collection and calculation are not static; that it provokes. Most of the people deploying the numbers do not really
it is quite possible that some of the current puzzle of UK productivity is understand how they are calculated, or exactly what they mean, and there
explained by methodological changes introduced since the financial crisis. is ample scope to concoct a wide variety of stories or explanations. Listen
to people ruminating on productivity figures, and you can hear a series of
Two particular problems are how productivity measurements account for plausible myths. In the next section, I examine some of the major strands
intangible services, and how outputs of differing quality are handled; both of that emerge in these stories.
these aspects have been subject to revised methods in recent years. Secondly,
changes in society and behaviour for example, the shift of large numbers
of professionals from in-house to freelance roles, the rise of social media,
undocumented immigration, the flux of activity between private, public and
voluntary sectors, and a shorter product life-cycles all undermine some of
the assumptions of a statistical approach that emerged at a time when large,
stable organisations with large stable workforces making easily countable
things were more dominant.

Even the terminology used to explain elements of the calculation (for example
the prices at the factory gate) are quaintly archaic. Furthermore, a key issue
is that aggregate productivity might go up and down merely by distributional
effects; if some low productivity jobs disappear, productivity overall goes up The current puzzle
even if everything else stays exactly the same. of UK productivity
is explained by
methodological changes
introduced since the
financial crisis.

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Productivity Drivers: Technology? Skills? Individuals?

One of the most common assumptions made about productivity is that it
is to do with process technology. It stands to reason that a worker with an
expensive machine can crank out more stuff than one who does everything
by hand. Therefore, it seems obvious that more investment in technology
will lead to more productivity.

For a government, this means that the productivity challenge might be

countered by measures which could, for example, give tax breaks to
encourage firms to introduce automation. Technology is progressing at
breakneck speed, and firms need to keep up; the winners in the global race
will be those who have leveraged their human capabilities by the maximum
application of the latest machines.

Its the age of robots, big data, the Internet of Things and instant
communication. For the UK, its a time when we must learn the lessons
of the past: the British textile industry used to dominate the world, but
decades of underinvestment in new machinery at the start of the twentieth
century led to catastrophic decline.
Technology is
Our route to productivity is through the technology of how we make things progressing at
and provide services (process technology); only with a reinvention of our breakneck speed,
productive base can we generate the new gizmos (the product technology) and firms need to
that we can sell (and export). keep up.

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There is undoubtedly truth in this view. But the difficulty is that for every Nevertheless, this does not stop politicians and opinion-formers from
great example of brilliant investment in technology, there are several tales stressing the urgent need for increased investment in technology: no-one
of catastrophic disaster. Technology investment is necessary, but it clearly wants to be seen as against progress, and the technology solution has a
depends on how you do it. cheering, future-facing, optimistic feel to it. But the mantra, productivity =
technology actually stymies critical thought. And, of course, a great many
Real capital investment in UK business despite some notable exceptions technology providers have a vested interest in selling inspiring visions of
has not been strong in recent years; some observers have pointed to high-tech solutions.
a systemic shift in investment patterns towards releasing capital from
manufacturing operations (for example, by outsourcing and offshoring)
rather than making long-term commitments in plant and equipment.
Even where investments have been made, many businesses and perhaps
particularly the public sector have found that the payoffs have not been
as planned.

Non Productive Investment

A good example of this phenomenon is found in the way in which
organisations invest in large-scale information technology systems (often
called Enterprise Resource Planning systems, ERP). One of the classic cases of
non-productive investment in technologies is provided by the ill-fated efforts
of General Motors in the 1980s and 1990s to embark on ambitious schemes
to integrate its automation efforts; the project is viewed as a classic failure If technology
investment is the
of its kind.
route to greater
productivity, the map
The UK National Health Services experience with its doomed national
of how to get there
patient records systems provides another example. The benefits from these is not always clear.
projects are consistently over-estimated, and the costs and time required
consistently under-estimated. If technology investment is the route to
greater productivity, the map of how to get there is not always clear.

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 Productivity: Theres a Better Way White paper

But if technology is not the answer, then what about skills? Perhaps needed to have in place was far more exacting financial expertise.
problems with productivity can be addressed by equipping the workers with Finally, skills training finds a natural ceiling when what is needed is actually
better capabilities, more appropriately tuned to the needs of the modern better education: you can teach basic spreadsheet skills, but its much more
world. Again, this is something that is very difficult to argue against who difficult to overcome limited numeracy; you can train people in inter-cultural
could not be enthusiastic about the idea of a highly-skilled workforce? sales methods, but sometimes the need is for people who can actually speak
Chinese. Throwing money at skills training while ignoring these issues is
As with investment in technology, good arguments can be made that not unlikely to do much for productivity.
enough training is happening, and around the world governments are
struggling to design systems which encourage employers and employees
to focus on the acquisition of skills. This includes the encouragement of
apprenticeships for young workers, the idea of everyone learning how to
programme computers, and long-running schemes for developing attitudinal
changes in young people to increase employability.

The problem, however, is that the evidence that training per se is an

automatic route to improved productivity is at best shaky. One obvious
problem is ensuring that the training provided is appropriate, or of
sufficient quality.

Context-Dependant Skills
A more profound problem is that although generic skills may be important, Finally, skills training
it is often highly specific, context-dependent skills that are needed to finds a natural
actually improve productivity. Furthermore, because the context of work is ceiling when what
constantly changing (as technology and markets change), those detailed skills is needed is actually
that are needed are not static. better education.

For years, banks and insurance companies focussed on generic customer

service and sales skills for people selling financial products; they found
(to their great cost, after mis-selling scandals piled up) that what they really

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But a more significant problem is that a concentration on skills smuggles the arrival of portable electronic technology, found its expression in the
in a notion of individuality into the discourse: skills are things acquired by Filofax and card-index systems.
individuals, but work is normally something that happens collectively.
It does not take much observation to see these personalised, technical
In fact, in many cases, what matters is not so much the skills of the fixes can be frequently counter-productive, and, in some cases, almost
individual, but the skills of the team, and the actual work being carried out. risible. The problem is that technology is double-edged: computers and
Translating training and skills acquisition into realised benefits requires a smartphones allow people to do amazing things, but also waste time in
close understanding of the actual jobs people do, and how those jobs hitherto unprecedented ways.
work in practice.
Its not just that staff may find Internet shopping or Facebook a distraction
Personal Characteristics from their official work; constant communication encourages a type of
An over-emphasis on the personal characteristics and capabilities of the intensive quasi-managerial activity divorced from the value-adding activities
individual is probably the greatest mistake people make about productivity. of the organisation.
This way of thinking can be seen in three ways in contemporary life:
personal attitude, personal technology, and personal markets. Because meetings can be scheduled so easily, meetings happen that do
not need to happen in the first place; because PowerPoint is so easy to
An increasingly influential brand of pop psychology relates to individuals use, presentations are prepared that have a dysfunctional effect on the
ability to achieve flow or focus at work. Do you need to be on task? conduct of business.
Endless books emphasise that the solution to productivity problems is
within the psyche of the individual worker. Its an interior problem, to be Managers jobs can become dominated by
The problem is that
solved with some quasi-religious conversion to a new mental attitude. the processing of email. Because every technology is double-
This individuated view also leads to a dysfunctional emphasis on document can be stored, managers burn edged: computers
supporting technology. off energy storing documents. Paradoxically, and smartphones
the very tools that were supposed to have allow people to do
Recent years have seen an explosion in the availability of personal a positive effect on productivity become amazing things, but
productivity tools, often associated with smartphones and mobile part of the problem. Obsessing about also waste time.
computing. This is not new: the fetish for time management has its roots personal productivity ends up being terrible
in the efficiency movements of the early twentieth centuries, and, before news for effective business processes.

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The third expression of the individuated view of productivity is the idea that
businesses need to have better mechanisms for drawing on the right people,
and only deploying them for the right amount of time.

Its a model perhaps exemplified by the idea of the zero-hours contract and
the various Uber-ized models in which electronic markets mean that the
best (i.e. most productive) workers can be used without the inconvenience
of an employment relationship. But even in non-electronic markets, the
same idea has come to dominate many organisations; work is progressively
casualised, outsourced, and freelanced.

For the employer, there is no more need to hold onto unproductive labour
when there is a lull in work to be done, and workers who dont deliver
need not be selected.

These responses to the question of productivity more training! more

skills! better people! are three of the most common reactions to concerns
about productivity, and all of them are deeply problematic.

They sound great, but they dont get to the heart of the matter. To really
address productivity, its necessary to think about three other fundamental To really address
issues: collectivity, dignity and experimentation. productivity, its
necessary to think about
three other fundamental
issues: collectivity, dignity
and experimentation.

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A Better Way: Collectivity
It was an early finding of management research that the collective aspect
of work matters. Whereas some of the early investigations into scientific
management tended to focus on the individual task, it soon became clear
that an approach concentrating just on the individual missed most of the
crucial elements.
This is true for the basic machinery of how work gets done, but also
at a psychological level. People work together. This has big implications,
because (in just about every case) the correct unit of analysis for
understanding the output of a system is never the individual task, but
always the business process.
There are some people who operate completely alone, and whose work
is never impeded by anyone else, and whose activity never rely on others
work; but this is not common.
Process Thinking
This observation is the basis for what has become labelled process thinking,
and, banal as it seems, is one of the key insights that lay behind most of the
alphabet soup of initiatives such as TQM, Lean, Six Sigma, and so on.
For the most part, you cant improve the output volume of a process by
tinkering with the component elements, unless you happen to tinker with
the bottleneck in the system. But because bottlenecks are normally dynamic
and shift around, you can only identify and tackle them by understanding
the broader system. For improving output, holistic, collective approaches
are much, much better than individuated, piecemeal efforts.
Productivity: Theres a Better Way White paper
Thinking about the collectivity has two other important angles. Not only
does the principle apply within an organisation, but also beyond; sometimes
the business process that needs attention spans organisations.
In many cases, the route to real productivity gains requires changes that cut
across the boundaries of suppliers and customers. Just as individual workers
dont generally work in isolation, individual companies normally work in
combination with other supply chain partners.
Collectivity also applies to the operation of business processes, but also to
their improvement. Efforts to increase productivity need to be collective,
participative efforts, in which the people who at the coalface are involved
and engaged.
In any organisational system, the people who know how to improve
productivity are the people who actually do the work. But that is hard
for some organisations, because they are
locked into an employment mentality which
denies people dignity.
Collectivity also
applies to the
operation of business
processes, but also to
their improvement.
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A Better Way: Dignity
A serious constraint on productivity is organisations institutionalised
contempt for ordinary workers.
Some trace this back to the origins of modern management thinking and
the approach which encouraged the deskilling of work so that the cheapest
and most compliant labour could be hired for any job. Others see echoes
of ideas of social rank and the class system. Whatever its foundations, its a
sad truth that in many organisations the people who do the work are not
treated with respect.
Asking people to treat workers with respect is not the same as asking
for a workers paradise. It doesnt involve, necessarily, lots of perks or
extra benefits. Its not, necessarily, about particularly generous working
conditions or premium pay. Its not about being soft-hearted towards
poor performance.
But it is about according workers credit for their normal human capabilities.
Productivity can often only be improved with the direct involvement of
the people who do the work, and they will only get involved if treated with
respect. And the tragedy for productivity is that respect can be pretty rare.
Productivity: Theres a Better Way White paper
I have told an anecdote hundreds of times; it concerns a middle-aged
sheet metal worker; an ordinary shop-floor manufacturing employee with
considerable skill and extensive experience. He was working on a particular
task with a machine that was beyond the end of its life.
Wasted Effort
As a consequence, he couldnt produce the items to the specification
required; every item that came off the machine had to be rectified by
hand, resulting in a lot of wasted effort (and, incidentally, providing quite
a lot of overtime).
The worker, depressed at his inability to do a good job, approached his
supervisor not just with a moan, but with a solution: in his own time, hed
identified the replacement machine that was needed. Hed even attempted
a rough-cut cost analysis to show how quickly the replacement would pay
for itself.
His idea was treated with contempt; it
Productivity can
wasnt his place to make suggestions about
often only be
new equipment. It was his role to get on improved with the
with the job. direct involvement
of the people who
do the work.
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Some weeks later, the worker along with the rest of the shop floor was
summoned to the canteen for a special meeting. With some fanfare, the
Managing Director, accompanied by some management consultants, was
making an important announcement.
The firm was to embark on a new campaign to improve quality and
productivity: Total Quality Management. The workers heart raced:
at last, would this mean that someone would start to listen? But after an
hour or so of airy exhortation, the worker returned to his bench, and his
faulty machine, carrying a hat. A baseball cap, adorned with slogan
Quality: Job One.
Disrespect
That hat symbolises the disrespect that plagues our organisations: it
embodies a message that any problems were really down to the attitude
of the worker. Machine not up to the job? Process poorly designed? The
problem lies with you.
The implication of the hat is that if only the worker were more motivated,
more focussed, more attentive, then quality and productivity would follow.
Of course, it neednt have been a hat. It could have been a motivational
poster; it could have been a bonus scheme. It could have been any of the
myriad devices that managers have constructed to brush over their own
failures, and then lay any problems at the feet of the workers.
Productivity: Theres a Better Way White paper
The anecdote would not be so powerful for me had I not seen the same
dynamic played out in organisation after organisation.
A local authority Head of Adult Social Care refused to listen to the
concern of lowly Care Assistants, not wanting to invite them to a meeting
of managers because it would be culturally difficult. A surgeon saw any
process design issues on a ward as just nurses problems too lazy to do their
jobs. Managers assume their own ill-informed guesses about processes and
technologies are a more reliable source of information than the people who
do the work day after day.
The issue of dignity and respect goes hand in hand with the idea for
the need for collectivity. Productivity is about process, and process is
about people. Its only by involving the people who do the work that
improvements can be reaped. That respect includes allowing people to
explore and experiment.
Productivity is
about process,
and process is
about people.
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A Better Way: Experimentation
In the search for improved productivity, involving the people who do the
work usually means that there is never any shortage of ideas. People, if
treated with dignity, seem to be endless fountains of ingenuity.
There is, however, a difficulty: many of the ideas dont work. Given that lots
of processes are complicated, and that even up close we only often see part
of the system, its not surprising that our best ideas are sometimes not good
enough. At least, often, not the first time. A key insight from many of the
worlds best companies is that productivity and quality improvements often
need a cyclical, iterative process before they work. Companies like Toyota
and Unipart get it; they promote programmes for problem solving and
sharing experience that have become part of their cultures.
Meta Processes
There are several reasons for this. Firstly, when you try a new way of doing
something, some issue arises that wasnt thought of at the start. Secondly,
improving a process often means that a layer of supporting meta-processes
needs to be worked out: you introduce a new form to an administrative
process what happens when the stock of forms runs out? A new
procedure is installed but who now trains new recruits?
Productivity: Theres a Better Way White paper
Tackling productivity improvements as an experiment brings these
questions to the surface. It also encourages people towards a more
objective, data-based approach. Did the new idea work? If a new idea has
just been implemented from on high, people tend to come to their own
(negative or positive) view of the change based on their prior prejudices.
An experimental approach helps keep people honest. Treating changes
as experiments and especially as collective experiments means the
proposer of the idea is less likely to be humiliated if it turns out not to work.
And people who might resist change are often more likely to be open to an
experiment than an imposed fait accompli.
There is persuasive evidence that tackling productivity improvements
iteratively and experimentally is a much better way than imposing
innovations. Not only do the improvements tend to work better,
but they are less prone to fading away. But
an absolute prerequisite is that people have
the latitude and opportunity to experiment
People who might
and necessarily sometimes to fail. resist change are
often more likely to
be open to an
experiment than an
imposed fait accompli.
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Conclusion: Back to the Mirror.

So how does the prescription I offer here collectivity, dignity,
experimentation connect with the themes that recurrently emerge in
productivity debates (i.e. technology, skills, individuals)? The key linking theme
is the centrality of business processes. Technology investment may be a
great way of increasing productivity, but only if it is applied coherently to
specific business processes.

A workforce with better skills is an excellent idea, but, for it to be effectual,

the skills need to be closely matched to the way people (collectively) work.
Individuals are of course important, but rather than being cajoled with pop
psychology, swamped with communication or treated as commodities,
people need to be treated with basic respect.

The debates about productivity are unlikely to end soon, but Id guess the
real answer lies not primarily with government initiatives or high-level policy.
More likely, it lies with managers deciding there is a better way.

The key
linking theme is
the centrality of
business processes.

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Author
Steve New is Associate Professor in He subsequently taught at the Manchester School of Management,
Operations Management at Oxford UMIST (now merged with MBS), before joining Sad Business School in 1996.
Universitys Sad Business School and He has taught extensively on a wide range of Executive Education and
a Fellow in Management Studies at Degree Programmes, and previously served as Vice Dean of the school.
Hertford College, Oxford. Steves
expertise is in process improvement Steve has published widely, with his work appearing in journals ranging from
and supply chain management. He has the Harvard Business Review to the British Medical Journal. Much of his
extensive experience with working work is inter-disciplinary, for example working with colleagues in the Nuffied
with organiations in manufacturing, Department of Surgical Sciences at Oxford. He teaches across a wide range
professional services, government and of programmes, including courses in General Management, Corporate
the third sector. His recent research has Turnaround, and Technology and Operations Management.
had a particular focus on the application
of the Toyota Production System in
medical care, and in the development
of models of structure and provenance
within supply chains.

Steve began his career as an engineer, working for Rolls Royce while
completing a degree in physics at Southampton University. After a spell in
management consultancy, he completed his doctorate on the use of visual
interactive modelling for decision support in manufacturing at Manchester
Business School (MBS). This work was sponsored by the Eaton Corporation,
for whom Steve worked while studying.

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