For more than two centuries, improvements in productivity have financed our personal, corporate, and national prosperity. By continually producing goods and services with less effort, more people have been able to afford more products and services, benefiting both consumers and producers.
Healthy and sustainable productivity does not exploit or oppress. Reward those who believe it. Therefore, leaders, including executives, teachers, labor leaders, and politicians, serve everyone’s interests when they communicate that improvements in productivity are good. Overall and over time, these improvements benefit individuals, families, businesses, and nations alike.
Better productivity generates the economic surpluses that pay wages, produce profits, and generate the tax revenues that support our social structures. If wages remain the same and productivity declines, even fixed wages will not be affordable for long. At the same time, if productivity increased by 100%, wages could rise dramatically while still being very affordable.
Due to the productivity limitations of knowledge work, many managers have been forced to focus on the cost-oriented nature of efficiency rather than the wealth-creating nature of productivity. There is a clear difference between these two approaches. Efficiency focuses on inputs and tries to reduce them, while productivity focuses on outputs and tries to increase them. Cost cutting does not boost productivity. The reinvention yes. It is not enough for companies to tighten their belts. We need to redesign our structures.
Many established companies have gotten caught up in cost-cutting spirals because, from a systems perspective, they have hit a wall of knowledge work productivity. Problems like this occur with all systems and should be expected and then overcome. All systems can take their users only so far before they are limited. Then those systems need to be replaced by the next generation.
Consider personal transportation from a systems perspective. At the lower end of the spectrum, people can skate a certain speed and distance before being limited by their ability to skate, both in terms of speed and distance. Being chased by a Doberman may make a person go faster for a while, but even then their skating will hit a limit. People can overcome the restriction of the skate system by riding a bicycle to go faster and further, but there is still a limit. They can then break the bike restriction with a car until it reaches its limit, and then they can use a plane, which also has a limit. Every system eventually reaches a limit for a given purpose.
For centuries, our predecessors have been able to increase prosperity by overcoming the limits of the productivity system. Agriculture was more productive than hunting, and manufacturing was more productive than agriculture. These improvements in productivity, as people migrated from hunting to farming, and then from farm to factory, financed increases in personal and national wealth in our most economically developed countries. In the last century, for example, the percentage of farmworkers in the United States went from 85% to 3% of the population. In the last fifty years, manufacturing workers went from more than 70% to less than 5%. The productivity gains from these changes have increased the prosperity of the United States and the rest of the economically developed world for many generations.
Today, the majority of American workers are employed in the service sector, and knowledge has become our most important product. According to the United States Chamber of Commerce, 75% of our workforce consists of managerial, professional, service, sales, and office workers. With our fast computers, sophisticated software, and high-speed networks, many expected knowledge work productivity to grow naturally and quickly. Unfortunately, it hasn’t. Instead, we have stagnated and the result has been the productivity paradox.
It is now clear that the speed of information and the productivity of knowledge work are two different things. The troubling fact is that we are a nation full of knowledge workers and we have not been able to productively manage these organizational resources. The same techniques that work effectively for manual work have proven ineffective with knowledge work. Because of this disconnect, it doesn’t matter how many computers we throw at the problem.
Peter Drucker warned managers, consultants, academics, and government officials for decades that we were in danger. He made it clear that for the prosperity of the developed world to continue, let alone grow, we must systematically break down the wall of knowledge labor productivity. We have made massive investments in technology for decades, but the math is finally not working, and it is not enough to push the old scientific management system. A better management system is required.
Just as our ancestors successfully overcame the productivity constraints of hunting versus farming and farming versus manufacturing, we must now do the same for knowledge work. Manufacturing achieved a 50-fold increase in productivity in the 20th century. What can we do for another year?
It has never been clearer. There is nothing more important from an economic and social perspective than improving the productivity of knowledge work. This requires us to reinvent our Companies in the Knowledge Age.