Productivity
Productivity growth has slowed significantly over the last 20 years in the US and other developed countries, while inflation increased sharply in April 2021 and remains persistently high.
The has led to a corresponding reduction in firm profits and standard of living from higher consumer prices. However, although aggregate productivity growth has slowed, there are striking differences at the macro and micro levels, with substantial gaps between frontier firms in the top 5% and other firms. Frontier firms that are leaders in applying digital technology are 3-4 times more productive than non-frontier firms[i]. The productivity gap continues to widen for the services sector while the manufacturing sector has leveled off but not declined.
Technology Diffusion
Stalling technological diffusion has been cited as a key driver of this productivity gap for non-frontier firms struggling to identify and integrate beneficial digital technologies.
Firms adopting a dual operating system approach can more effectively manage their existing hierarchical system and implement a more strategic, networked management operating system to innovate new and existing business models [ii]. This approach is ideal for preserving existing organizational structures and efficiencies while implementing a complementary system focused on rapid innovation and agility.
Business or strategic agility is an enterprise-wide ability to successfully compete and thrive by rapidly responding to market changes and emerging opportunities with innovative, digitally enabled business solutions. Developing an agile mindset is fundamental to driving productivity. It involves cultivating a culture of continuous learning, adaptation, and embracing change. Encouraging employees to be proactive and innovative and take ownership of their work fosters productivity and efficiency.
Scaled Agile
The most effective approach is building strategic agility by implementing an enterprise agile methodology, such as scaled agile or scrum of scrums. It is a critical pillar that enables the deployment of sophisticated digital technologies to increase performance.
Agile methods emphasize iterative and incremental delivery, allowing the teams to rapidly deliver value in shorter cycles at lower risk. Agile methodologies enhance productivity and performance by setting clear priorities, maintaining transparency, and focusing on continuous improvement.
Digital Skills
Another critical pillar of enabling business agility is a digitally skilled learning organization better equipped to leverage innovative methods and technology.
Improving employee expertise and sense of mastery is also an essential element of a motivated and engaged workforce. Digital upskilling ensures that employees are provided with the necessary skills and knowledge to leverage emerging technologies, such as artificial intelligence, automation, cloud computing, and data analytics. Without digital upskilling, businesses risk falling behind their competitors and missing out on opportunities for growth and innovation.
Other key tenets of the agile mindset, breaking down departmental silos and promoting cross-functional collaboration, are vital for improving productivity. By facilitating effective communication and collaboration across teams, businesses can eliminate bottlenecks, improve decision-making, and accelerate work processes.
Empowering teams by granting them autonomy, accountability, and decision-making authority is crucial for driving performance. When employees have a sense of ownership and are empowered to make decisions, they become more motivated, engaged, and productive. Providing the necessary resources and support to teams allows them to achieve their goals effectively.
Business agility enables organizations to adapt swiftly to changes in the market and customer preferences. By gathering customer feedback, closely monitoring industry trends, and staying ahead of competitors, businesses can make informed decisions and adjust their strategies in a timely manner. This adaptability enhances productivity by aligning business activities with evolving market needs.
Embracing technology is essential for improving performance in today’s digital age. Automation, data analytics, and collaborative tools can streamline processes, eliminate manual tasks, and improve decision-making. By leveraging technology solutions, organizations can optimize productivity, reduce errors, and enhance efficiency in various business functions.
A culture of continuous improvement is a core aspect of business agility. Encouraging teams to regularly reflect on their work processes, identify areas for enhancement, and experiment with new approaches fosters process excellence. Embracing feedback loops, conducting retrospectives, and implementing iterative improvements allows businesses to continually improve performance.
Conclusions
Improving productivity through business agility requires a comprehensive approach that encompasses mindset, collaboration, methodologies, empowerment, adaptation, technology, and continuous improvement. By fostering an agile culture and embracing these practices coupled with leveraging digital technologies, organizations can optimize productivity, respond effectively to change, and achieve sustainable growth in a dynamic business environment. Building business agility through the introduction of a complementary, innovative management operating system that integrates with existing structures is a leading approach to optimize benefits and minimize transformation risks.
[i] Andrews, Dan, and Criscuolo, Chiara, and Gal, Peter “The Global Productivity Slowdown,
Technology Divergence and Public Policy: A Firm Level Perspective” Brookings,
September 2016.
[ii] Kotter, John, Accelerate: Building Strategic Agility For A
Faster-Moving World, Harvard Business Review Press, 2014.