Why we write about this topic:
During Brainport Industries‘ annual conference, dedicated to ‘doing more with less’, Bart van Ark talks about stagnating productivity growth. Despite the growing number of technological tools, which are supposed to make work more efficient, productivity is barely rising worldwide. Van Ark is a Professor of Productivity Studies, the Managing Director of The Productivity Institute in Manchester, and an honorary professor at the University of Groningen. During the conference, Van Ark shared his thoughts on stagnating productivity growth, the definition of productivity, and how companies can still grow in times of staff shortages.
According to Van Ark, productivity cannot be captured in one definition: “At the economic level, there is a very specific measure of productivity: the Gross Domestic Product (GDP) per employee or hour worked. Productivity is always about measuring output and input, such as production per worker or how many products go through a machine within a certain time.” Yet, this concept of productivity does not quite fit anymore, believes Van Ark: “You may have to pull it broader in this more complex economy. What do you want to achieve as a company? What are your goals, and what resources can you best use to achieve them?”
Van Ark says that technological developments are making productivity increasingly harder to measure. “It is difficult in an economy that is becoming increasingly immaterial. We can count how many products are made by a person or machine, but when it comes to digital content, you have to start measuring it in a completely different way. What exactly is the value or price? Is it the technology itself or the service it provides? There are a lot of measurement problems, and statisticians are always a bit behind. You just have to find the right measure.” Van Ark cites a quote from economist and Nobel prize winner Robert Solow. He made the remark in the 1980s, but it still applies today, Van Ark says: “‘You see computers everywhere but in the productivity statistics.’ All you have to do now is replace the word ‘computers’ with ‘digital content’.”
Productivity puzzle
Stagnating productivity growth in times of digitization and automation – the apparent paradox is known as the productivity puzzle. According to Van Ark, there is no single explanation for this phenomenon: “It has to do, for instance, with the slowdown in globalization and with the financial crisis, which caused us to invest less, but also that it is difficult to convert digital technologies into more productive processes and services. ” According to Van Ark, the nice thing about digital technology is that consumers have benefited from it very quickly. “For companies, these kinds of technologies have to be integrated into processes. That is a difficult transition. It’s a different way of innovating and collaborating in the market and beyond.”
Stagnating productivity, however, is not just of our time but has already set in a few decades ago. According to Van Ark, productivity growth comes in waves. After the first three industrial revolutions since the end of the eighteenth century, we are now in the fourth one, that of digital technology. The old digital economy was characterized by the rise of the personal computer and the internet. The new digital technology is more complex. “The old digital economy was mainly about faster arithmetic. In the new digital economy, computing power is increasingly deployed in all kinds of connections. It appeals more to intelligence, which until now was the unique domain of humans.” That switch is difficult to implement. However, as productivity growth comes in waves, there is also hope on the horizon it will eventually pick up again. “But the valley does take long this time”, says Van Ark. “We have to find a new interplay between the human behind the machine and the digital technology.”
More with less
Economists have a term: diminishing excess returns. It means that if you keep investing in the same thing over and over again, the extra value diminishes at some point. So you have to innovate to keep growing. According to van Ark, that is exactly what productivity means.
“I think productivity is very often linked to a very narrow conception of productivity: efficiency. That is also the risk of using the concept of ‘we want more with less.’ That is taken as ‘I have to work harder. I have less budget, more stress, more risk of burnout’. It gives pressure to be more innovative and creative, but at some point, it no longer works. That’s why it’s important to see innovation as an ongoing process. It’s a culture where you don’t feel that innovating is a stressful obligation but is something you simply keep doing. A culture of innovation leads to impact.”
Productivity limit
The decline in productivity growth can partly be attributed to the fact that we have become more affluent, according to Van Ark. As a result, an increasing part of our economy comprises services where it is not so much about how fast we can produce, but the value we as consumers give to it. “That could be, for example, a restaurant, a nail salon, or culture in general.”
Still, we should not think too quickly about this natural development: “There must eventually be a lot of new things that we do not currently do. Think, for example, that we don’t yet have a good way to set up our health system for an aging population, which is of enormous value to society. We don’t measure that value properly now, but we should. That is why this broadening of the concept of productivity is so important. If we keep looking very narrowly at productivity, it is doomed to slow down even further.”
Entrepreneurship
Many companies are facing staff shortages. As a result, the pressure for productivity improvement is rising fast, but the solutions are not easy. Yet, established companies, as well as start-ups, can still continue to grow and thereby increase productivity. One factor can not be missed here: leadership.
“Good leadership is number one. Take the time to see if your processes are set up properly and whether you might not be getting signals to do things differently. Ultimately, if you want your technology to also lead to applications and improvements, it is especially important to think about how you will grow. How do I create a culture of continuous innovation? How do I ensure that the people I bring in get the same skills or bring different skills with them? Good leadership is not just about setting up a business. It is also developing it.”
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