Category Archives: C. Business

086 – Why does worker productivity remain low?

Worker productivity is the output of goods and services per hour worked. In the broad terms of an industry, productivity is the gross output of industry sales divided by the number of workers allocated to produce the output.

After World War II, worker productivity in the USA improved significantly due to the investments made by companies in the technological advances of the period. Increasingly, American products were in high demand as much of the rest of the world rebuilt after the war. The US government provided educational opportunities largely free of cost to returning service personnel, who then entered the workforce with improved skills. Typical of the times, firms retained and invested profits in their growing businesses. It was a period that is now remembered fondly as being a golden age in the American homeland. During the period 1947-1973, non-farm worker productivity grew at a robust 2.8 percent per year (according to the Bureau of Labor Statistics).

By contrast, the last decade (2007-2016) has seen non-farm worker productivity grow at an anemic 1.2 percent per year. Granted, the USA (and much of the world) was working its way out of a deep recession during the period, but that may not fully explain the low rate of productivity growth. Productivity growth has been weak, and getting weaker, for decades in most industrialized countries. If it continues at this pace, living standards in the USA and highly developed countries around the world will stagnate for most workers.

Economists have provided a number of competing explanations to try to explain what is going on:

1. management strategies that worked in the past have been widely implemented and may no longer contribute to productivity (e.g., efficiency improvements like downsizing, re-engineering, KPIs, etc.);

2. the slow down in capital investment following the financial crisis of 2008 has probably contributed to low productivity;

3. measurement error may be a factor, since the measurement of productivity is notoriously difficult;

4. a delay or lag in productivity gains from any investments in new technology (which may be realized in coming years);

5. a fall in wages across the globe during the recession has put pressure on workers compensation in the USA;

6. the psychological pressures on workers that do not feel secure in their current position;

7. continued weak growth in demand; and

8. the continuing shift from a manufacturing to a service-based economy.

The above explanations generally reflect common beliefs among economists about the nature of the current problems surrounding productivity.

Now let me focus on another possibility — the underlying negative effect of current management practices on productivity and worker engagement. As Gary Hamel (London Business School) has pointed out, many organizations remain inertial, incremental, and insipid in the face of the creative destruction going on in the world economy. The top-down, command and control, and bureaucratic nature of most organizations is hampering innovation at a time when innovation is key to survival and growth.

Clayton Christensen (Harvard Business School) has found another management behavior that is limiting innovation and growth. It relates to the financial metrics (e.g., IRR) being used in public companies. First, Christensen outlines three common types of innovation:

1. Market-creating innovation. This type of innovation creates growth in the economy as it discovers ways to take expensive products that have limited appeal and makes them widely available at lower cost to a mass market. The evolution of the computer from the mainframe to the personal computer, to the smartphone, is an example. The benefits of this type of innovation in the financial metrics are apparent only in the long term (5-10 years), while there is likely to be a short-term decrease until the investments pay off.

2. Sustaining innovations. This type of innovation makes good products better but doesn’t create growth, due to the substitution of new for old. For example, if you buy a Toyota Prius hybrid, you will not be buying a Camry.

3. Efficiency innovations. This type of innovation tries to do more with less, through downsizing, rightsizing, and other cut back measures. It generally eliminates jobs but frees up cash. The benefits of this type of innovation are apparent in the short term in the financial metrics.

Since efficiency innovations provide short-term results which can be seen quickly in the financial metrics, but market-creating innovation only pays off in the long term, it is the efficiency improvements that usually win out. This too can help explain low worker productivity in recent decades.

A recent article in Harvard Business Review (March 1, 2017) noted that great companies obsess over productivity rather than efficiency, since the benefits of efficiency improvements have now played out. Despite weak top-line growth in many years, the 1990s and 2000s saw the earnings growth of S&P 500 companies run nearly three times the rate of inflation due to improvements in efficiency; however, starting with the quarter ending March 31, 2015, S&P 500 earnings began falling and has remained negative ever since. Without top line growth, continuing efforts to achieve improvements in efficiency eventually hit a proverbial brick wall. The same HBR article found three fundamental tenets of a productivity mindset that executives need to understand:

1. Most employees want to be productive, but the organization often gets in the way;

2. A company’s talented “difference makers” are often put in roles that limit their effectiveness; and

3. Employees have plenty of discretionary energy that could be devoted to their work, but many are not sufficiently motivated to do so.

As is often the case with this podcast, we have once again found a need to reinvent management for the 21st Century and beyond. Efficiency improvements have worked their way through companies in recent decades, but have taken a significant toll on future growth. The current path on which many public corporations find themselves is not sustainable. Now we need to create corporations that invest for the future, in workers and their work, by providing the freedom and the tools to do creative and innovative work. It seems that innovation is the only likely path out of the current low productivity regime.

To find this path, I recommend a new management approach that we have discussed before on this podcast, and which is described in my 2017 book, Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

References & Links:

1. Link to Gary Hamel’s blog
2. Link to Clayton Christensen’s talk
3. Mankins, Michael. 2017. “Great companies obsess over productivity, not efficiency.” Harvard Business Review, March 1, on-line edition.
4. Chandler, Charles G. 2017. Become Truly Great: Serve the common good through Management by Positive Organizational Effectiveness. Powell, OH: Author Academy Elite.

082 – Vending & School Spirit

Matt Miller

In this episode, we visit with Matt Miller, founder of School Spirit Vending. Matt heads a business enterprise that uses a franchise model to serve a unique niche at the intersection of vending & school spirit — helping to raise extra funds for elementary schools.

Charles G. Chandler, Ph.D.

Links mention in this episode:

  1. School Spirit Vending
  2. Vending Secrets for Passive Income (course)

080 – Adventures in Capitalism

Consider how an upbeat story about a business (Shake Shack) was distorted on social media, eliciting some negative responses in which people question the underlying motivation of management. There seems to be a dominant, and rather negative narrative that plays in the back of people’s minds about capitalism, providing a context in which to interpret daily events. Clearly, capitalism is not working for everyone.  This episode suggests a partial answer.

Charles G. Chandler, Ph.D.

079 – Claim a niche and serve it

It is said that the fox knows many things, but the hedgehog knows one big thing. Whether generalist or specialist, an organization needs to claim a niche and serve it so well that the competition is irrelevant. In doing so, an organization can carve out a continuing role in its ecosystem. This episode explores (among other things) how Marriott, Hyatt, Hilton and Starbucks have created a mutually beneficial ecosystem that serves convention goers in downtown Atlanta (USA).

Charles G. Chandler, Ph.D.

077 – The outcome economy in technology services

Today I want to focus on a transition happening in the technology services industry driven by some macro trends. This issue appeared on my radar screen while I was looking into the business models used by technology services firms such as IBM, Cisco, and SAP. It is the emerging phenomena that some have called the outcome economy. The outcome economy in technology services, as SAP defines it, is the leap from selling software to selling outcomes to its customers. The old economy was an output economy. As you know, an organization’s outputs are its products and services, or its projects and programs. In technology services, the output economy involved selling boxes of software to customer organizations, so that their internal IT department could install and manage the software on in-house servers. Vendors also sold software directly to individual consumers, for example, Microsoft Windows or MS office.

The new economy is outcome-based. It involves delivering results valued by customers, while providing software as a service in the cloud. In the Outcome Economy, selling an outcome is much more complex for the vendor than selling a product (or output) because delivering outcomes typically involves an integrated and managed end-to-end process.

Now, long-time listeners to this podcast may be wondering whether the outcome economy refers to ‘outcomes’ in the same way as we have used them in the past when discussing organizational effectiveness. The quick answer Is ‘not exactly,’ since those promoting the outcome economy do not define their terminology in a precise way, but let’s not quibble over terminology just now. Today’s discussion is simply a report on trends in the technology services industry, which may have lessons for the rest of us, since these trends are likely to spread elsewhere in the future.

Let me outline three macro trends in the market that I believe are pushing the disruption in technology services.

1. The search for knowledge worker productivity. Today, all knowledge workers require technology services for productivity, and there is a continuing need to enable higher levels of capability and productivity as time goes on and applications evolve. Knowledge workers in the traditional professions include doctors, lawyers, and teachers, to name a few. Knowledge workers master a body of knowledge and apply it to accomplish a task. Knowledge workers become productive within a system that manages the scheduling of the work with the worker. It is a system that either they create themselves (if they are running their own practice) or someone else creates for them (as part of a larger organization). The basic ingredients of the system for knowledge worker productivity can be divided into two categories: a) back office operations — which takes care of the administrative functions, such as personnel, accounting, budgeting, maintenance, facilities, etc., and b) production operations — which organizes the internal production tasks in order to acquire the work (from a customer), and then distribute the work to the individual knowledge workers in a logical, timely, and efficient manner. The knowledge worker remains in control of how the knowledge is applied to the work. Technology services vendors are enhancing the basic productivity model for knowledge workers by adding additional services, such as cognitive computing (e.g., IBM’s Watson in the medical field) to diagnose problems and suggest solutions based on the latest research. Many fields are becoming so complex (e.g., medicine, law) that no single knowledge worker can keep up with everything that has changed since they graduated. Cognitive computing addresses this problem, striving to extend the reach of knowledge workers in new ways.

2. Outsourcing in search of lower costs. Pervasive internet connectivity, together with mobile and cloud computing, are leading to outsourcing and some atomization of business processes in a search for improved efficiency and lower cost. For instance, because everybody is connected to the internet, we can have Virtual Assistants in the Philippines (who act like they are simply part of your office), or social media services optimization by vendors in India. This is just the tip of the iceberg, and the trend is leading to the outsourcing of bits and pieces of processes where it makes sense to do so.

3. Increasing customer expectations. Customer expectations are increasing, and organizations are integrating technology within their offerings to compete. The customer experience, particularly the customization of that experience for the customer by the organization, is increasingly being driven by algorithms. The best experience that the customer has had is driving expectations toward higher and higher norms. For instance, Amazon knows what you have bought in the past, and suggests what else you might be interested in now. Your car, once repairable by you a few decades back, but no longer (yet it monitors itself, and alerts you to a problem). Your kitchen appliances are increasingly being connected to the internet (IoT), and they can schedule a service call before a major problem occurs.

Technology services vendors report that the revenues from their old business models are decreasing rapidly, and they are searching for new ways forward. Many have already moved away from selling software boxes and are now selling software subscriptions (e.g., Microsoft office). Smart analytics and the Internet of Things (IoT) has made it possible to move from the “break it-fix it” model to the “fix it before it breaks” model involving offerings that are sold as a service, tied as closely as possible to business outcomes. These trends have been termed the outcome economy, the consumption economy, or the B4B economy — simply different terms for the same macro trends. In the outcome economy customers pay on the basis of usage (e.g., a cell phone contract) or on the basis of business outcomes (e.g., hours of jet engine operation for an airline, rather than allocating capital toward aircraft engine ownership).

Technology services is complicated, and can be scary for customers. The customer needs (and values) a trusted advisor and partner with whom to chart their journey into the future. Vendors are best placed to absorb the risk of the journey for their customers. In return, they can experience high adoption and renewal rates for their new as-a-service offerings.

In summary, the writing is on the wall. Old business models in technology services are dying as part of the outcome-based economy, and new ones are taking their place. For some, their current situation represents a burning platform, and it creates a “bet the farm” moment, requiring a major change going forward. It must start with what their customer wants (an outside-in approach), and big new investments are likely to be needed going forward to make the transition a reality. Vendors must convert their burning platform into burning ambition, in order to successfully overcome an adverse situation and claim a new future within the outcome economy.

076 – The Boomerang Principle (encore)

Lee Caraher
Lee Caraher

In this episode, I welcome back Ms. Lee Caraher, CEO of Double-Forte, a public relations and marketing services firm with offices in San Francisco, New York, and Boston. Lee was first on the podcast in June 2016 (episode 021) to talk about her first book (Millennials and Management). She has written a second book entitled, The Boomerang Principle: Inspire Lifetime Loyalty from your Employees. By engendering a lifetime of loyalty from former employees, leaders can see them “return” in the form of customers, partners, clients, advocates, contractors, and even returning employees.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

Reference:
Caraher L. 2017. The Boomerang Principle: Inspire Lifetime Loyalty from your Employees. New York, NY: Bibliomotion.

Amazon affiliate link:

069 – The Amazon Way

In this episode, I am joined by author John Rossman as we talk about The Amazon Way, a book he wrote on his experience as an Amazon executive. Tune in to explore some of the 14 principles that are part of the Amazon Way.

Offers:
To take advantage of the free offers that John mentioned in this episode, go here. You can read a chapter of each of his books for free, as well as get a free poster for future use.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

042 Millennials and work (rerun)

Lee Caraher
Lee Caraher

In this episode, I interview Ms. Lee Caraher, CEO of Double-Forte, a public relations and marketing services firm with offices in San Francisco, New York, and Boston. Lee has written a book entitled, Millennials & Management: The Essential Guide to Making it Work at Work. The book offers practical advice on managing the culture clashes and performance problems of the modern office, where millennials are a growing cohort.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com

Reference:
Caraher L. 2015. Millennials & Management: The Essential Guide to Making it Work at Work. Brookline, MA: bibliomotion.

Amazon link:

 

038 Does ‘quality’ improve effectiveness? (rerun)

In this episode, I interview Ankit Patel, Managing Director at The Lean Way Consulting. Ankit is an entrepreneur and Lean Six Sigma expert who I have come to know through a mutual acquaintance. I asked Ankit to come on the show to provide a view on how ‘quality’ can improve organizational performance, including efficiency and effectiveness.

I have titled this episode “Does ‘quality’ improve effectiveness?” The quick answer is “yes and no”. While quality is mostly about internal efficiency improvements, including reducing waste and defects in processes, a proper determination of “the voice of the customer” can have an impact on effectiveness.

You can connect with Ankit at his company website >> here.

Charles G. Chandler, Ph.D.
cchandler@AssumptionAnalysis.com