KANNING: Improved productivity isn't good enough

August 13, 2011

Myron KanningA recent Boston Consulting Group research report predicts a renaissance for U.S. manufacturing. To the Indiana economy, this prediction is music to the ears, since manufacturing’s share of the state’s production of goods and services is double the national average.

The fundamental factors behind the prediction are rapidly increasing labor rates in developing countries, like China, and improved U.S. productivity.

The latest prolonged recession intensified the push for U.S. productivity gains. Companies used what worked in the past—a job enlargement model. The model might go by new names, but it is fundamentally the early 1900s concept of getting people to accomplish more by increasing each person’s amount of work, resulting in lower costs.

Who can argue? It again has returned many Indiana companies to profitability, for now!

A risk of this approach surfaces when change is required. Loading individuals with tasks reduces the amount of time people can devote to executing change. The enlargement model is effective when markets change slowly, but when employees are increasingly loaded with tasks, the organization reacts to market changes more slowly.

There is a noticed acceleration of market change driven by technology, expanding markets and new competitors. My students are shown a chart of market change going back to 1970 and looking forward to 2030. In the early years, the chart is virtually horizontal. The incline shifts to the point it becomes almost vertical by 2030.

The ability to change with the market will become the most critical weapon in the competitive arsenal. At a time we should be intensifying our change efforts, our productivity actions are pushing toward change gridlock. We are taking one productive step forward for short-term gain and in turn taking several steps backward from adaptability.

Productivity efforts allow businesses to survive. Adaptability allows businesses to prosper.

Leaders are on record: Change is increasingly important. How are businesses doing on the change/gridlock front? The answer depends on what research we choose. Depending on the study, 70 percent to 90 percent of change initiatives fail—virtual gridlock.

The United States still holds the honor of being the world’s most productive economy. However, by relying on what worked in the past, the nation has seen its annual productivity improvement rate decline from first globally to between eighth and 11th.

The book “The New American Work Force” calls annual productivity improvement the single most important factor in determining prolonged economic health. The economic doctor is telling us seven to 10 countries are healthier and closing in on the United States.

Conversations with business leaders who are improving productivity through the enlargement strategy reveals they are pleased with results. Their pleasure shows an acceptance of satisfactory underperformance. Unless leaders focus on adaptability as well as productivity, the prolonged required change will not happen.

A recent poll of Indiana CEOs reports that organizations and leaders are increasing innovation efforts. Innovation is a required change. But will innovation efforts succeed or go the way of 70 percent to 90 percent of other change efforts? Oddsmakers would bet against Indiana innovation’s taking root.

What is required is not new learning. Ongoing research shows business competitiveness and results are not driven by fads.

Ongoing documented high results (achieving at least three times higher results) are the product of employees’ trusting their organizations and leaders, aligning to the strategy, engaging competitively, focusing on stakeholder returns, and sharing in organizational success.

With competitive speed intensifying, the urgency to begin these actions is also intensifying. For Indiana to become a successful competitive global leader, companies must be rapidly designed to adapt to market changes.

The quicker businesses react, the quicker Indiana’s economic strength will follow.•


Kanning is a faculty member in the Department of Management and Entrepreneurship at Indiana University’s Kelley School of Business. He can be reached at mgkannin@indiana.edu.


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