How individual firms can solve the ‘productivity paradox’

There are vast opportunities for firms to improve productivity at the enterprise level. Image from www.shutterstock.com

Commentators are urging government and others to do whatever they can to improve productivity in Australia because it is a key driver of prosperity, living standards and national wealth. While recent reports show that Australia’s national productivity has stalled, and that it is no longer high compared to many other industrial and other countries (Australia was recently ranked 50th), very few people have a strategy or even any tactical answers as to how to solve the problem. The productivity issue was labelled as a paradox some 30 years ago by Harvard Business School Professor Wickham Skinner, who noted that the harder one works directly at improving productivity through additional exertion, the more difficult it seems to improve productivity.

My recent research with Tom Bevington has shown that there is an answer, and that it lies directly and fully at the enterprise level. Indeed, that it requires implementation on the shop floor - not in the “top floor”.

Our research illuminated that organisations on average fully waste one third of their efforts and time (and associated costs) on “noise” activities that occur at the interfaces between process steps and these are rarely documented. On the shop floor (which could be in a bank, factory, hospital, call centre, or indeed every operation), operations are rarely smooth, but much more usually some of the items being processed suffer from “noise”: variation that cause rework, workarounds and wasted “chasing up”. While these individual items and matters are often small, some go viral and wreak havoc downstream.

Firstly, let me expose our unusually granular research material, where 13,657 people employed in 117 organisations documented - without exception - all of the 395,832 activities which they routinely undertook in their day to day jobs. So who were these 117 organisations that we carefully researched? Most are household names in the private and public sectors. They include 2 of the most respected names in the world, 2 organisations in Australia’s top-ten listed companies as well as recognisable medium and small enterprises.

Comparisons with existing documentation, such as job descriptions, procedures and process maps yielded the first shock. Staff often report that much of what they routinely do is never documented. The comparison showed that their assertion is correct: only one in every four activities carried out had been previously documented. The activities rendered invisible by this oversight, usually associated with interfacing between defined and documented processing steps, occupy on average 49% of everyone’s time.

We classified these interfacing activities, which included checking, chasing, correcting, completing and dealing with the consequences of earlier failure, as “interfacing activity noise”. Of real concern is that organisations must be undertaking major change blindfold, unaware of how their people spend half of their time.

The second shock was the size of the problem. Fully one third of organisational activity (33.6%, or 1⅔ days in every five days worked) is interfacing activity noise which obviously destroys productivity, customer service and employee satisfaction. These noise steps occur usually because of perfectly understandable human misunderstandings, omissions and, for the most part, simple errors which can behave like a virus, that is, enter the process and cause mayhem (more interfacing activity noise) downstream. These often simple errors creep in potentially, with every staff and product change as well as being ramped up by outsourcing and off-shoring initiatives. There were hundreds of different causes of this noise in the data, but Pareto analyses pinpoint the 20% of causes which address 80% of the problems.

There are therefore two key components to what we see as the solution, interface mapping: capture all of the micro activities routinely done and accumulate them by cause. This is where the breakthrough lies, because if you know the location and quantum of every noise activity, then it can be addressed precisely and the benefit harvested. Of course, quality, lean and Six Sigma programs strive to eliminate this noise in key parts of the process but, with 1⅔ days of pure noise in every 5 worked in our sample of 117 organisations these programs (which have been widely implemented for the past 20 years) are clearly not delivering.

Further analysis revealed why. The fixes for each “viral” causal factor are often required to be made in a number of parts of the process and likewise the benefits generally need to be harvested in other, again often widely scattered parts of the process. For instance, the provision of correct, timely and complete information may involve the client, sales administration and order team changes to yield time and material benefits in order taking, order handling, delivery, finance and even in sales as well as delivering excellent customer service. Our analysis demonstrates that the two-thirds of the benefit which lie elsewhere are never made visible by conventional approaches and so issues are not tackled and benefits are not harvested. If you are undertaking change, you need to start looking in the right places, such as the interfacing activity where the consequential noise is located.

Now I can get really excited about driving productivity forward. Interface mapping allows the important causes of interfacing activity noise to be pinpointed. Our work shows that these can be directly aligned with strategy and the top level management principles found in the best in the world. Catching up with the Toyotas of this world has now moved from a pipe dream to practical reality. We no longer need the 30 years that Toyota spent getting to its level of operational excellence while bringing to fruition the theories of operations management luminaries such as Skinner, Penrose and Wernerfelt.

In summary, a short-form solution to the productivity paradox is now possible and proven. In less than a month, an organisation’s staff can map the interfacing activities, analyse and prioritise the noise to address the toxic, viral “noise drivers”. Then within three to six months, significant noise reduction can be effected. Managers have the opportunity to solve the problem on the shop floor by engaging the staff to get the data; working with the staff to develop the solutions and oversighting implementation.