Barry Ritholtz pointed to a recent Wall Street Journal article on the recent drop in U.S. productivity. This two-month decline could simply be due to some federal government numbers being released earlier than others. Or it could signal that the current expansion is slowing.
However, the longer-term flat productivity rates you see in the graph are worrisome since productivity improvements are a primary driver of real economic growth.
Some Silicon Valley economists like Hal Varian say that we are not capturing all the productivity improvements from software and that productivity is not flat; that they are improving more quickly than our numbers show. Perhaps they are right.
If we go from the macro-view to the micro-view, what do these graphs tell us about productivity at the level of the firm? Have all possible productivity improvements been wrung out of U.S. firms as a result of labor saving machines and process improvements?
Well that certainly could be the case in the manufacturing function where companies have seen dramatic increases in financial results and operational achievements over the last several decades.
But as Michael Webb points out, “these gains represent a fraction of the total profit-improvement opportunity available in most organizations.”
That’s because the same methods that eliminate waste, reduce costs, and improve performance in operations accomplish those goals, and many more, in sales and marketing. They enable companies to increase sales productivity and margins, to manage and forecast business growth, and to know what customers want and how to deliver it—in the company’s products and services and in its marketing, sales, and service activities.