The U.S. Bureau of Labor Statistics released its revised nonfarm business sector labor productivity results last week. The quarterly figure, although revised up, was still only up 0.7 percent versus the same quarter last year.
The trend of U.S. labor productivity during the post-Second World War period evidences alternating eras. During the two decades immediately following the war, annualized productivity growth exceeded 3%. Growth fell to 1.5% during the 1970s and 1980s, but jumped to 2.5% between 1990 and the onset of the global financial crisis in 2007. Since then, growth averaged only 1.3 percent.
What set apart the high growth eras was a confluence of improvements that combined in virtuous cycles. The immediate post-war era aligned with the broad adoption of transfer line manufacturing and statistical process control that together enabled improvement of an integrated production process. The start of the second boom era, one that S&O consultants played a key role in fomenting, coincided with the publication of “The Machine that Changed the World” that helped popularize lean and included the dissemination of computer aided design and manufacturing technologies that together adapted an integrated production process to yield greater product variety.
Productivity growth is a function of capital deepening, changes in labor composition, and multifactor productivity. Essential to making the cycles virtuous was that they pulled all these levers. That meant combining capital investments in new technologies with changes in what jobs workers did and how they did them. And companies needed to adapt their operating models and ways of managing to get the most out of the improvements. At their core, moreover, these virtuous cycles of productivity growth involved combining tools and techniques for both improving production efficiency and dealing with variability.
The current era of lackluster productivity growth reflects declining contributions from capital deepening and especially multifactor productivity. There is no shortage of promising production technologies, including additive manufacturing, advanced materials, data analytics, Internet-of-Things, and robotics, yet uptake is still partial and companies are not reorganizing their operating models to maximize the impact.
S&O consultants are doing plenty of evangelizing about these technologies, but evidence of real impact in client engagements is scant. And there is much more attention to the technologies than the business and operating models that can harness them and yield the sort of productivity growth that can really change the economics of a business.
Still, these are early days. The technologies and methods that drove earlier productivity booms were a couple of decades old when their effects were felt. Statistical process control and transfer line manufacturing emerged in the 1920s, numerically controlled machines in the 1940s and 1950s, the Toyota Production System was largely in place by the mid-1970s, and intelligent robots, remote sensors, data analytics, and the Internet-of-Things evolved during the 1980s and 1990s. But if S&O consultants want to repeat their success with lean they need to help their clients to combine these new technologies with new ways of working and embed them in new business and operating models.