The latest BLS productivity report released in September shows a decrease of 1.8% in productivity for the non-farm business sector.  After 5 quarters of increasing productivity, it is not surprising to see a dip.  I would expect productivity to be flat or slightly down for several more quarters.  While this severe recession has tested the government’s ability to produce these kinds of macro measures, I do think that this reflects reality.

During a severe downturn, most businesses are in a race to resize their capacity in line with demand.  As the view of demand grows more pessimistic, companies begin to anticipate the drop and get “ahead of the game” on capacity reductions.  As demand bottoms, a large productivity improvement is expected in the macro economic numbers.  While companies did reduce some non-value adding activities, most of these improvements are purely from sizing with no upside buffer of people capacity. Most did not improve the way that they operate and some merely reduced service levels hoping that customer defections would be minimal.

With most reports calling for a slow recovery, it is more important than ever for companies to drive real efficiency gains.  This means truly changing the way that they operate.  The biggest obstacle appears to be the perception that cuts have gone as deep as they can.  My view is that most companies have areas where they have cut too far but others where substantial opportunity remains.  The big challenge is ferreting out each and addressing them appropriately.

There is debate about the impacts of off-shoring on the macro productivity numbers, but the fact remains that the US must drive significant real productivity improvements to compete with increasing capabilities in other countries labor markets.  More on this topic to come….

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The End of Management?

August 23, 2010

A recent Wall Street Journal article by Alan Murray has posed the question about the end of management, with a silly subtitle we will get to shortly.  The article is part of a book called The Guide to Management.  The part of the article which is interesting is the discussion of the advent of professional management which created low unit costs but created other problems as well.  I plan on investigating the work of British economist Ronald Coase which is cited in the article.  It is also refreshing that there are no crazy statements about Web 2.0 driving the new organization.  It will not.  While the technology is helpful, the primary challenges have more to do with the people part.  He makes this point directly in the article.  I also wonder if the book addresses other corporate topics such as managing to short term street expectations and the actual and perceived incentives of middle level managers in a big company.  He references these but there is not detail.  This is the type of topic that I would expect in a handbook.  Overall, I think that the broad points represent some really good journalism.  He unfortunately added a subtitle which mentions that managers should act more like VCs.  It is a bit of odd overstretching to suggest that the answer to bureaucracy is found in VC investing philosophy, especially given the recent investing record of the VC industry.  This is the kind of thing that a person who has never managed in a big company would observe.

I am preparing several posts that will be part of a broader white paper which are in this broad topic area of efficiency and productivity.  In the first, I will discuss the notion that startups are more efficient than big companies.  In some respects the answer is yes and in others the answer is no.  We just have to be more precise about how we define efficiency.  I will then address how organizations evolve, more specifically addressing the absent notion of capacity management and of perceived risk.

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Yes, most organizations would be well served by identifying all the people checking other peoples work as all or part of their job.  Big organizations are just full of checking and any process where work products wind through various teams is sure to have lots of it.  It is easy to miss though because traditional process approaches focus too much on conference rooms and unneeded complexity for the task at hand.  When looking at efficiency, you really want to get out in the field and at desks observing actual work.  I like the “checker” term because it is easy to describe and when you are actively looking for it, you will not miss it. [Read more →]

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Most executives pride themselves on being connected to their business, no matter how large. They perform site visits to far flung operations with lots of small talk, hand shaking, and conference room meetings. It often looks like the practices decribed in this article and this one which is better.   In my experience, these activities can accomplish far more and can be one the most important executive management skills. The reason is that effective observation of the reality on the front line provides executives with confirmation of financial metrics and additional early warning indicators of issues.  It also supports more effective communications between layers of management. Even when everyone has the best of intentions, information reaching the top tends to be heavily filtered and at times reflects nothing of actual business realities. [Read more →]

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The federal government has just finished investigating a small sample of accidents and concluded that all were caused by driver error. While Toyota is not off the hook completely, it does vindicate the car maker to some degree. This situation now looks very similar to the claims of sudden acceleration surrounding Audi in the late 80s. The link to the WSJ article is here.  The exact findings are not clear from the current news accounts.  In other words, were all of the accidents sampled the result of driver error or just a few.  [Read more →]

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The dangers of multitasking received some attention on the heels of a report published by the British Institute of Psychiatry back in 2005.  In addition to finding that multitasking erodes productivity, it also found amusing impacts which it likened to smoking pot and taking 10 points off of an employees IQ. [Read more →]

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Lean Buzz – FOTM?

June 2, 2010

The increasing buzz around Lean makes me worry that it is headed for FOTM status (that is flavor of the month or maybe year)?  It looks eerily like the situation around Six Sigma about 5 years ago.  The increasing buzz about Lean seems to lack much understanding of how it might be used specifically in a business.  I also hear frequent statements about the pitfalls of Six Sigma.  While I may agree with many of these, the superficial buzz accompanied by criticism of the last fad makes me worry. [Read more →]

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Seeking Alpha features a short article on Salesforce and VMware with respect to the unfolding competitive dynamics in the “cloud” space.  The author is suitably cynical about much of the hype and makes some interesting observations about the aspirations and limitations of these cloud pioneers.  There has been lots of hype around cloud, including some really inane statements from IBM on the matter.  The point in this article is that there are some deep pockets out there all maneuvering for the leadership position.  This is a worthy read.

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This SAP upgrade by JP Morgan was a little surprising to me.  They must be assigning a lot of weight to the power of the global recovery.  There may be a short term bump here, but I am not seeing this as a longer term opportunity.  Here is a link to one of the announcements.

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For some reason, the back office seems to never have productivity goals or at least not in the same way as the manufacturing side of the business.  I started thinking about this in the context of a series of articles this week fretting about whether US companies have achieved better productivity by actually working better or if they are just working people harder.  While many companies have cut deeply as part of the current downturn, most are just scratching the surface of true sustainable productivity improvements in their back office organizations.  I realize that many companies make a mess of things with productivity goals, but lets leave that topic for another day.  In my experience, the nature of back office work often leads to counterproductive incentives which in turn create deeper cultural barriers to improving productivity (and a tough economy makes it all even tougher). [Read more →]

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