Explaining the productivity paradox

Smartsheet's Brent Frei and Mark Mader offer their take on why productivity growth has mysteriously slowed since 2004
Written by Mark Mader and  Brent Frei on

If there were a Productivity Hall of Fame, John Deere would definitely occupy a place of prominence.

The 19th-century inventor introduced his cutting-edge steel plough with a polished and curved blade in 1837. In the process, he revolutionised agriculture. Tilling an acre of land with a spade took 96 hours and ploughing an acre with a yoke of oxen and a crude wooden plough took 24 hours. Deere's steel plough reduced the time to between five and eight hours.

Fred Smith would also be inducted into the Productivity Hall of Fame. On the night of 17 April, 1973 the Yale-educated logistics master sent the first FedEx narrow-body Dassault Falcon jet roaring down the runway at the Memphis airport. From that moment on, packages were delivered more rapidly — absolutely, positively overnight.

Another surefire member of our pantheon of productivity would be Andy Grove, the co-founder and former chief executive of Intel. Under Grove's leadership, Intel brought out a new generation of microchips that powered the first wave of PCs in the 1980s. Those PCs with Intel inside spelled the demise of typewriters and paper account ledgers, and set the stage for digital time-saving tools like email.

Deere, Smith, and Grove each made it possible — and easier — for us to do more work more quickly.

That's the nature of productivity. And productivity is the lifeblood of a nation's economy. America's efficient assembly-line culture, spurred by Henry Ford and General Motors' Alfred Sloan, certainly proved this in the 20th century.

Once the Model Ts started rolling, America's labour productivity growth started surging, averaging about two percent each year. That growth rate helped double the US standard of living every 35 years.

As the hyper-prosperous hi-tech 1990s unfolded, Americans were living better than at any time in history. Indeed, the internet accelerated the US productivity revolution, pushing annual labour productivity growth up to 2.5 percent between 1995 and 2000, and 2.8 percent between 2000 and 2004.

Productivity growth has slowed since 2004, however, and nobody is sure why.

Certainly, technology has done its job. In the wake of downsizing, budget cuts, re-engineering and outsourcing, it has filled in the gaps at company after company. As a result, supply chains are efficient and lean, the financial services industry is automated and manufacturing processes are flexible. Indeed, the average company in the US now spends between $5,000 (£2,517) and $10,000 per knowledge worker on hardware and software designed to boost productivity.

One theory that may explain declining productivity growth has been advanced by management consultancy McKinsey & Company, which believes that companies have finally cut the non-complex transactional positions that benefit from productivity-stimulating technology. All that's left are complicated and nuanced jobs requiring experience, expertise, judgement, interaction and collaboration — or tacit knowledge. Increasing productivity for employees whose jobs can't be automated has thus far proven to be a challenge for software developers.

Another way of explaining the decrease in productivity is to admit that much of the productivity-enhancing technology now in use hasn't made us more productive. According to Basex, a research firm focused on the knowledge economy, interruptions from email, mobile phones, instant messaging, text messaging and blogs eat up nearly 30 percent of each day. On an annualised basis, this represents a loss of 28 billion hours for the entire US workforce or a $588bn cost to the American economy.

An equally sad truth is that, even though we now have the technological ability to do faster work, we may not be doing better work. Even more problematic is the fact that we're generally not working easily or happily, in groups or on our own.

A 2006 research study conducted among sales and marketing teams at Intel indicated that 54 percent of those surveyed believed email had a negative impact on their stress levels. And a number of other studies show that productivity-enhancing hardware and software has helped heighten distraction and discontinuity in the workplace at the expense of critical and creative thinking, as well as constructive collaboration.

This is a large and looming problem because, as McKinsey & Company said, we are entering an interaction revolution that will require employees to truly and sensitively come together to achieve top- and bottom-line goals in a hyper-competitive global marketplace.

Automating the knowledge economy is essential to nations' health. And, when this technological turn of the wheel takes place, it will almost certainly drive productivity growth back up — but in the right way that makes sense for well-meaning companies and the hard-working people within them.

Brent Frei is chairman and Mark Mader is chief executive of Smartsheet, a software-as-a-service provider based in Bellevue, Washington.


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