Productivity isn’t everything, but in the long run it’s nearly everything

by Marco Tapia

in productivity,

May 14, 2012

Productivity is the efficiency with which an economy (or a company or a business unit) transforms inputs into outputs. At a high level, improved production efficiency can generate higher real incomes and lead to long term improvements in the living standards of Australians.

  • During the early part of the decade 1999-2009, Australia experienced improved productivity.
  • Recent years have seen Australia’s productivity index plateau, and in 2008-09 productivity fell 2.7% compared with the previous year.

The following chart (source ABS) shows clearly how our productivity is declining; and declining fast.

Also, and represented in the following chart, compared to our US counterparts, our labour productivity has slumped over the last few years (source “Productivity Spectator” - Derailing Australia’s gravy train - Mon, 30/04/2012 — Robert Gottliebsen). In summary this chart indicates that our labour productivity is currently in declining much faster than the US.

From the information above, there seem to be sufficient evidence to conclude that our productivity is in decline and that it cannot continue for much longer before it starts impacting our standard of living.

So what can we do? Obviously only those things that are under our control…. Let’s hope our Governments do their bit and set general frameworks to allow for more labour flexibility and therefore better productivity.

To start with, we need to know how each business unit within our corporation is doing. Then analyse the totality of our company and after, compare ourselves with others.

Then, let’s start improving the worse performing areas. How do we do that?

  • Improving processes
  • Improving systems
  • Improving technologies in use or introducing new technologies
  • Training people
  • Innovating

Some very simple examples can demonstrate how productivity gains can be achieved by introducing clever technologies.

Example 1.

Most restaurants in Australia operate in a way that waiting staff will go to a table (when called) to be asked for the bill, then he/she will go to ask for the bill at the register, will then deliver the bill, will return to collect the credit card, will deliver the credit card to the casher, will process and deliver the final dockets, etc, etc Without going through the fine detail of all of these superfluous activities, I estimate that a restaurant with 50 sittings per night, will waste some 1,125 Hrs per annum on these activities that will cost some $33,750 per annum. If in turns, new portable devices are introduced (like in most places in France), where the waiter goes only once to a table (for billing purposes), process and finish the transaction all at once, the hours wasted are now only 250 per annum at a cost of $7,500 per annum. This is a huge 77% productivity gain and cost savings of $26,250/annum that can easily pay for the cost of introducing the system in the first place.

Example 2.

Most companies use Excel, but when Excel is used by multiple people at once, it creates a number of issues, some being; Excel is locked by another user so others have to wait, data is corrupted due to the multiuser access, data is overwritten by the next user without a trace, system cannot be accessed when users are away in Hotels, airports, other cities. The Excel file is normally duplicated, its functionality is broken by users due to misuse, and data entry could be slow and cumbersome. Accuracy, errors and integrity is usually lost.

One solution is to replace such system with a proper browser based system and database like SQL or Oracle. A system that can log users and their activities. A system that allows multiusers and does not corrupt. Reporting can be comprehensive and access can be from anywhere any time.

A solution like this will address multiple issues raised above and also will improve productivity at the same time. It is fair to conclude that at the end of the day and in the long run, productivity will come down to technology, innovation and process improvement. Labour flexibility is perhaps outside our control however that is a macro element very important in achieving productivity gains.

As the Nobel Prize-winning economist Paul Krugman said,

Productivity isn’t everything, but in the long run it’s nearly everything

For more on what PicNet can do for your organisation to look at productivity improvements, contact me at any time.