Prioritizing Productivity to Drive Growth Competitiveness and Profitability

The global economy appears to be slowly drifting into a productivity crisis—one that has gone largely unnoticed and clearly highlights the many challenges of obtaining productivity gains from the flood of new technologies available to organizations. In the past seven years (2007–2014), the rise in the efficiency of global production has been reduced to about a quarter of what it was during the prior seven years (1999–2006), with little recovery in sight before 2025. If left unaddressed, declining productivity will eventually limit companies’ ability to grow and compete, squeeze profits, threaten global economic growth and job creation, and derail recent gains in global living standards.

Business cannot be complacent about the risks associated with slow productivity growth, whether originating from within companies or from the business environment. Here is why:

• In the short term (the next 12 months), as global growth and pricing power remain weak while costs (especially labor) rise, productivity will become the primary source of competitiveness and profitability for most companies.
• In the medium term (the next five years), technology and innovation need to reemerge as the key productivity drivers. The main problem with productivity is not inefficient workers, but inefficient investments in equipment, technology, and innovation.
• In the long term (the next 10 years), as labor supply slows and baby boomers retire en masse, workforce productivity growth needs to be raised by at least 60 percent compared to the last 10 years before the recession to maintain global economic growth and living standards.

The analysis in this report raises a red flag that businesses must heed in order to maintain and improve their competitive advantage and profitability in economically challenging times. Although there is no magic bullet to remedy these developments, this report looks at how businesses can prioritize productivity and improve their competitiveness while contributing to an environment that enhances productivity and growth.

What is in the main report?

The full report focuses on four main questions and includes the following discussions:

• Where and why is productivity growth slowing? A review of productivity performance for major regions, and an analysis of the reasons for the slowdown.

• How does slower productivity impact industry competitiveness? Development of productivity and unit labor cost in manufacturing across countries and a review of productivity performance by industry in the United States.

• Why is productivity becoming more important as a source of profitability? Analysis of sources of profitability, and why productivity becomes more important as other sources (demand and margins) waver.

• How can business reverse the productivity slowdown? Analyzing the takeaways for business: focus on human capital, innovation, and management; and embrace reforms in the business environment.