4/20/16

 
The Productivity Trap

• 20% productivity improvement is still possible just by focusing on people
• People are still important
• Automating inefficient processes is bad
• Supervisors are key; do not assume these skills come naturally.

In a recent interview on the state of the economy, former Chair of the Federal Reserve, Alan Greenspan, asserts that global productivity is in decline because of a reduction in capital investment. 
          Spoken like a person who has never been in production or supervised people.
There are other ways to improve productivity without buying new equipment.  Productivity is defined in Economics as “the rate of goods/services brought forth, produced;” simply stated, it is the output/hour.  Productivity speaks to how well a group of people converts inputs into useful outputs.  As economist Bill Conerly says, “Productivity is the most important determinant of the standard of living  of a group of people, a nation or a planet.” But, spending capital ≠ goodness.  Sometimes, I believe the underlying premise is, “dealing with people is hard, spending money is easy.”  Reference The ValueTree; capital equipment, on day one, hurts ROIC.  Invested Capital goes up and Earnings goes down (via depreciation); parity can only be maintained if sales go up or people go down.   Even Amazon, with their highly robotized delivery centers, needs people for maintenance and programming.  WE NEED PEOPLE AND WE NEED THEM GIVING THEIR BEST.  My experience shows 1 out of 10 people are self-initiated with personal standards.  How do we get the other 9 into gear?  With good supervision and shared standards, that’s how.  So much effort is left on the table every day.  We KNOW that a soundly run Kaizen with real standard work delivers a solid 20% productivity improvement.  We KNOW from Gallup that 19% of the workforce is “actively disengaged.”  These issues are not addressed through capital, but rather, good supervisors.  And it starts very subtly with the “leader-member exchange;" simply, supervisor biases create “in-groups” and “out-groups”.  This, and so much more, is covered in good supervisor training.  Investing in supervisors is always money well spent. 
 
Stay lean and drive the ROIC machine,
 
Alden B.
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