In this 4th article in the series on the idea of productivity, we’re shifting gears: from productivity at a national, macro-economic and conceptual level to the meaning, challenges, and opportunities for improvement in organizational productivity.
Productivity – built on a basic input:output efficiency ratio – is about doing more, and better with less.
Organizational and national productivity are interconnected and both – when understood in their holistic sense – provide a framework for connecting sustainability to organizational operations. Productivity is a concrete and meaningful way in which we can live out the idea of thinking globally and acting locally, by doing more and better with less.
What is Organizational Productivity?
Organizational productivity is an efficiency measure, describing how effectively an organization can convert inputs—labor, materials, and capital—into outputs, the goods or services it provides.
The word ‘efficiency’ in conversations about organizations too often is management-speak for the kind of anti-human dystopia described in Jacques Ellul’s terrifying writing on technocracy (2). Too often we very efficiently do the very wrong thing (3). However, in this conversation, efficiency is crucial because it describes an organization’s capacity to create value, its resource consumption, it’s profitability if it is a for-profit organization, and ultimately its sustainability. True organizational productivity goes beyond mere output to encompass the quality and value of what is produced.
Efficiency in Conversion. At its core, organizational productivity assesses how well an organization uses resources to produce goods and services. This involves understanding how effectively inputs are utilized to create value. High productivity should mean achieving more and better with less, reducing costs and demand on resources (including human time and effort) and potentially improving our ability to create greater value for the organization and those it serves (including shareholders, customers, patients, etc.).
Quality of Outputs. Organizational productivity as we think about it at Beaton Rettich Waters, critically considers the quality of the outputs. Efficiently producing large quantities of garbage leads to customer unhappiness, poor internal returns, an unjustifiable impact on the planet. The quality of the process and its outputs matters. Poor productivity always throws off the metaphorical equivalent of the noise and heat – waste – in any system, experienced in organization as a decline in effectiveness, impact, or brand reputation. High-quality outputs, on the other hand, enhance customer delight, returns on investment, and sustainable growth.
Adding Value. Productivity is ultimately about adding value efficiently. An organization is productive if it adds value to the inputs it consumes, transforming them into products or services worth more than the sum of their parts. This value can be measured in terms of innovation, customer service, and the opportunity to enhance the position of an organization in its market or community.
Why Does Organizational Productivity Matter?
Understanding why productivity at the organizational level is crucial requires looking beyond P&Ls and operational metrics, to consider the strategic roles it plays in enhancing competitiveness, supporting growth, and promoting sustainable practices. Organizational productivity is not just a simple efficiency ratio, but also a cornerstone of effective management.
Growth and Competitiveness. For an organization, improving productivity means it can produce more and better with less: less time, fewer resources, and less cost. This efficiency is crucial in competitive environments in which we are continually driven to do more with less. A more productive organization can reduce costs in all forms and pass these savings on to clients or other stakeholders in the form of lower prices or enhanced services, and improve its sustainability in every sense of that word.
This is a critical link between organizational productivity and national productivity.
Organizations that continuously improve their productivity contribute to the broader economy by creating more value, which can lead to job creation and higher wages. As organizations become more efficient, they can expand their operations and explore new opportunities, further enhancing economic growth.
Sustainability and Resource Management. Sustainability is increasingly becoming a strategic and an ethical priority. Productive organizations utilize their resources more efficiently, which not only reduces costs but also minimizes environmental impact. For example, optimizing energy use in organizational operations can significantly lower an organization’s carbon footprint. Properly understood, productivity operationalizes sustainability aspirations.
Innovation and Quality Improvement. Organizational productivity creates an important reinforcing feedback loop with innovation. Organizations that invest in improving their processes and offerings tend to see these investments reflected in enhanced productivity. This cycle of investment in innovation driving productivity can lead to the development of new products and services that meet changing client or community needs even more effectively. This in turn can drive revenue and margin growth to reinvest in further process and productivity improvements.
Productivity is not just about doing things right; it’s about doing the right things. An organization that focuses on real productivity is better placed to adapt to changes, respond to new opportunities, and face challenges. Improved productivity improves adaptive capacity and is essential for sustainable success at every level.
Improving Organizational Productivity
That’s the why; time to get to the how.
Improving organizational productivity requires a holistic approach that considers many interdependent factors (i.e. a systems-thinking perspective). Each element below plays a role in shaping the productivity ecosystem of an organization, and impacts and is impacted by each of the other elements.
1. Quality of Inputs
- Human: The skills, experience, and engagement of employees are the primary determinant of productivity in all human organizations.
- Work Environment: A supportive and healthy work environment is central to sustained productivity. Factors such as autonomy, agency, recognition, and constructive feedback are table stakes. Effective communication, clear role definitions, and inclusive management practices improve engagement. Engaged employees are productive employees because they have a higher GAS (‘Give A Sh!t) factor.
- Materials and Technology: The quality of equipment, software and materials used in work are pivotal. Improving technologies can streamline operations, reduce waste, and increase output quality.
2. Process Efficiency
- Workflow Optimization: Understanding and optimizing workflows to eliminate waste and bottlenecks can improve productivity. Approaches such as Lean management or TOC (Theory of Constraints) (4) can be instrumental in identifying and minimizing workflow inefficiencies.
- Technology Integration: Implementing the right technology solutions can automate routine tasks, reduce waste and errors, and free up humans for more complex activities that add greater value.
3. Innovative Culture
- Encouraging Innovation: Fostering an environment that nurtures creativity and innovation can improve productivity. This involves supporting new ideas, providing a safe space for experimentation (i.e. psychological safety) and learning from failures.
- Adaptability to Change: Organizations that are constantly improving productivity are more likely to thrive through environmental and technological disruptions. They are more likely to be ‘leaner’ and have the elements already suggested: human-centricity, systems-thinking, Lean management, and a culture of psychological safety agency, and accountability.
4. Strategic Resource Allocation
- Investment Decisions: Resourcing decisions are strategic. Investments in technology, humans, and infrastructure, should all support strategic organizational goals. The improvements these investments create in productivity are not the end; improved strategic outcomes are.
5. Quality Management
- Data: Most organizations lack the data – or the tools to interpret the data, or the framework to execute on the data – to make effective decisions around improving productivity. This is a huge area of concern for most SMEs (and a surprising number of larger organizations).
- Continuous Improvement: Quality should be a continuous pursuit. Again, most organizations lack the feedback-driven ‘kaizen‘ culture and systems to identify productivity gaps effectively and improve them.
A Million Ways to Fail
Just like anything important in organizational management, there are dozens of ways to mess this up.
1. An ‘Anti-productive’ Culture
A culture that does not promote safety, candor, agency, engagement, innovation, or accountability will stumble in its efforts to improve productivity. Badly. This is the ‘first cause’ of all failures in improvement and transformation in organizations.
Solution: Cultivate a positive organizational culture that actively monitors and improves psychological safety, organizational transparency, high-quality communication, agency, autonomy, continuous improvement, and collaborative problem-solving. Read Edgar Schein’s Organizational Culture and Leadership, Amy Edmondson’s Fearless Organizations, and Ed Catmull’s Creativity, Inc. (5, 6, 7)
Also, invest not just in training in a narrow technical sense, to keep people current and increase self-efficacy, but also employee development through coaching and mentoring.
2. No Effective Change Management
Changes in strategy, process, or technology, can be disruptive for the humans in the organization. Too many leaders and manages don’t understand or appreciate the impact of poor change management in this, or how to improve the situation. Resistance to changes that could improve productivity can stem from fear of the unknown, perceived threat to job security, or a perceived loss of competence and value to the team. Ignore this stuff and the efforts to improve productivity will fail.
Solution: Educate yourself and your team on the basic tenets of change management. Take your peoples’ role in all of this, seriously.
3. An Absence of Strategic and Systems Thinking
Without a clear and compelling strategy, efforts to boost productivity will be scattered and ineffective. This will lead to wasted resources, unintended consequences (Catmull calls them ‘acorns’ in Creativity, Inc.), employee confusion, skepticism, and even cynicism, and ultimately ending up right where you started from in regards to productivity.
Solution: Educate yourself on the basics of organizational strategy and systems thinking, and how to communicate it. Read Creativity, Inc., Eric Ries’ The Lean Startup, and Donella Meadows Thinking in Systems: A Primer. (8, 9)
4. Inadequate Technology and Data
Today, no (or ancient) technology means no (or unusable) data. No useable data means that any efforts at productivity improvement are based on guesses and have few mechanisms for validating or fine-tuning. Validation and improvement are rooted in having robust feedback loops, and technology is critical in creating those loops.
Solution: Invest in updated technology and build your capability to collect and analyse good data, and your capacity to evolve that data into information and decisions. These investments are essential to long-term productivity. Move carefully, but move!
5. Complexity, Scalability, Disruption
For growing organizations, scaling operations is challenging. As the organization grows, complexity increases, and so does the difficulty in maintaining and improving productivity. This is compounded by an increasingly complex and demanding environment, and the constant issue of churn, succession and its attendant requirement for effective knowledge transfer.
Solution: There is no single ‘fix’ for this. The ability to thrive and become increasingly productive in a VUCA (Volatile, Uncertain, Complex, Ambiguous) environment is the product of how you address all of the foregoing challenges. Importantly, this is another reinforcing feedback loop: the same investments you make to improve your productivity, improve your ability to thrive in a VUCA environment; and the investments you make to thrive in that environment – if they are framed correctly – can improve your people’s ability to thrive in these environments, reducing turn-over and increasing stability.
Get Busy (or, Let’s Not)
Productivity is one of the most misunderstood areas of organizational management. In the place of true understanding, most managers focus on simple effort: work harder. Work faster. Keep moving. Or they get sophisticated and throw around one of the most useless phrases in organizational behaviour: “Don’t work harder, work smarter.“
I have NEVER found an employee who had the foggiest notion what their manager meant by that phrase. And when I’ve interviewed managers about this, they’ve never been able to explain it in anything but philosophical terms either.
Productivity is not a measure of effort or even throughput. Productivity is a measure of efficiency, the ‘smarter not harder’ crowd have that part right. Where they need a lot of help is in the ‘how’. How do you work smarter? How do you create more, or better, with less?
It is critical to understand at the outset – taking from people like Deming and Goldratt – is that this is not about individuals working smarter or harder. True organizational productivity is a system-level, structural concern.
1. Foster a Culture of Continuous Improvement
The ‘magic’ of creating more and better with less is an ongoing, unrelenting commitment. This requires a culture – not just a methodology – of continuous improvement. We must nurture the values already described: psychological safety, operational transparency, candor, collaboration, and accountability.
A culture of continuous improvement is inseparable from a learning culture. Encourage learning at all levels of the organization. Commit resources to training, mentoring and coaching. Bake feedback loops into everything you do. Emphasize the importance of learning from both successes and failures to continually adapt and improve.
2. Improve Processes through Technology and Innovation
Technology, data, and automation won’t fix a sub-par or broken culture. But if you have the culture to support it, intelligent implementations of modern technology can transform your productivity. Identify areas within the organization where technology can reduce redundancy, waste and errors, streamline processes, and enhance output quality. Ensure you have a coherent organizational strategy, and align your technology investments with it.
Create mechanisms for continuous innovation within the organization. This could include setting up innovation labs, scheduling regular brainstorming sessions, and providing incentives for innovative ideas that improve productivity.
3. Implement Robust Change Management Practices
Anything that significantly improves productivity is going to be disruptive. As well as the cultural non-negotiables already described, two commitments are required from employers:
- Understanding that your employees are stakeholders and treating them accordingly. Every stage – from developing a culture of continuous improvement to investing in significant technology and process improvements – should be done in conversation with your stakeholders.
- Make transparent communication – and robust feedback loops – a cornerstone of effective change in your organization.
4. Develop Strategic and Systems Thinking
What’s your strategy? Can you define it? Communicate it to your employees? Start there.
Without a strategy (however you define it) your productivity improvement investments risk poor returns. Alignment with an articulate strategy helps to ensure that productivity improvements contribute to the broader goals of the organization, create expected returns, and don’t spin up unintended consequences.
Adopt a systems-thinking approach to understand how different elements within the organization interact with one another. Fundamental concepts like system-level effects, feedback loops, and leverage points are critical to the effective implementation of productivity improvements.
A significant piece of the systems focus is feedback. Feedback, properly understood, is the only way to ensure you are getting a return on your investment in improvement, and minimizing unintended risks and externalities. Central to robust feedback systems is data. Improving your operational data, as well as data around employee wellbeing and engagement, and customer delight, must happen in concert with any productivity improvement efforts if you want to maximize the return on those efforts.
Stay Focused
It is easy to let the means become the end; to let various methodologies, models, technologies, and even the data itself become ‘the point’. They aren’t.
The point here is doing more with less; doing better with less. At its best, productivity improvement is about reducing your inputs: reducing effort, costs, and impact on people and the planet, while improving output: quality, delight, positive impact and profits.
A lever in systems thinking is a point in a system where a small change can produce a large impact. With a deeper understanding of productivity, organizational managers and leaders can effect change at the organizational level (the lever) that can have industry-level and ultimately global impacts on the resources we consume and the quality and cost of the goods and services we produce.
Have your own questions about productivity? Concerns about the way I’ve described something in my explorations? Leave a comment and I’ll incorporate your thoughts in a future article.
(1) 1: Productivity is What? 2: Productivity, Eh? 3: Where Productivity Falls Apart.
(2) Ellul, J. (1964). The Technological Society. Vintage Books. “The Technological Society” (“La Technique ou l’Enjeu du siècle”) by Jacques Ellul is a seminal work that critically examines the role and impact of technology on society and human life. Published in 1954 in French and translated into English in 1964.
(3) Ackoff, Russell L. “Recreating the Corporation: A Design of Organizations for the 21st Century.” Oxford University Press, 1999.
(4) Goldratt, E. M., & Cox, J. (1984). The Goal: A process of ongoing improvement. North River Press.
(5) Schein, E. H., & Schein, P. (2016). Organizational Culture and Leadership (5th ed.). Wiley.
(6) Edmondson, A. C. (2019). The Fearless Organization: Creating psychological safety in the workplace for learning, innovation, and growth. Wiley.
(7) Catmull, E., & Wallace, A. (2014). Creativity, Inc.: Overcoming the unseen forces that stand in the way of true inspiration. Random House.
(8) Ries, E. (2011). The Lean Startup: How today’s entrepreneurs use continuous innovation to create radically successful businesses. Crown Business.
(9) Meadows, D. H. (2008). Thinking in Systems: A Primer. Chelsea Green Publishing.