NEW YORK ( TheStreet) -- In the 1960s when manufacturing dominated the world's economy, Edward Deming, a New York University professor, noticed that manufacturers resolved problems as they occurred, but there was no system for continuously improving manufacturing performance.
In response, Deming developed "Statistical Process Control." He tried and failed to sell it to U.S. auto companies, but found enthusiastic supporters in Japan's central government. Japan's unprecedented transformation from cheap goods to best-in-the-world manufacturing is largely attributed to Deming. Still today, Japan's top corporate award is, "The Deming Prize." By dramatically increasing manufacturing productivity, Deming improved the standard of living for every Japanese citizen. Fast forward to 2009. Think Microsoft ( MSFT), Thomson Reuters ( TRI) or even Orkin. Each of these companies is essentially a collection of leased buildings and people. What is the system for improving productivity in these pure human capital plays? With 75% of GDP from advanced countries now coming from services it is time for a fresh approach to productivity improvement -- one that is focuses on workforce capabilities. Like Japan in the '60s and '70s, America's standard of living depends on productivity growth. But we have a problem -- our comparative advantage is eroding. The Conference Board reported that 2008 productivity growth from emerging economies was 5.5%, down from 8.3% in the BRIC countries for 2007. This sustained growth, largely attributable to investments in state-of-the-art manufacturing processes and technologies, far surpasses the growth rates from advanced counties such as the U.S. (1.7%), Japan (0.9%) and the European Union (0.2%). In summarizing the productivity challenge of today's service-intensive economy, The Conference Board concludes, "Innovation remains a crucial trigger for growth and recovery. But it requires continued investment in capital and labor -- iincluding management and workplace practices, organizational structure, technology applications, and human resource strategies...." What are your company's productivity-enhancing "workplace practices" and "human resource strategies"? The annual employee survey? Your new five-point performance appraisal scale? More likely than not, over the past 12 months your workplace practice of choice has been downsizing. Downsizing often does improve output per hour, but how does it affect growth? The Economist reports that 2008 patent filings, an important indicator of innovation and growth, dropped from a three-year average growth rate of 9.3% to 2.4%. As in past downturns, mass layoffs will likely reduce mid- and long-term productivity by suffocating risk and innovation. What must U.S. companies do to drive productivity and revenue growth? Build and manage a comprehensive, disciplined system for improving workforce capabilities and outputs. Then assign it, with metrics and review dates, to an executive team member. Don't look to HR for a solution; today's HR programs are not designed for productivity improvements. It's time to build a new model that "bends" the curve on workforce productivity. Here are three components to consider.
Effective Executive Teams
Executive team performance may be your organization's biggest productivity lever. Effective executive teams choose a differentiated business strategy and then design an organization that efficiently delivers that strategy. Successful executive teams know the answer to the question, "Are the outputs of our team 'better' than last year?" That answer is knowable. Ask team members to define the four or five outputs for meeting the organization's financial targets. "Create a compelling strategy" might be one. Then have team members define level 1, 2, and 3 performance for each. Finally, as a team, assess performance every six months.