Productivity Skyrockets: Yes We’re Working Harder. But Also Smarter

I’ve been watching US Labor Productivity data for over a decade and for many years after the 2008 meltdown found it lagging. We struggled to rebuild our companies after the financial crisis and many of the new “labor-saving” ideas (digital tools, organizational transformation, automation) were not increasing output per hour worked. In fact, labor productivity had been a big problem for years and economists were blaming long commute time, lack of skills, and other possible causes. I felt we were suffering from “too much digital life” and many of us were simply overwhelmed by messages, emails, tweets, and meetings all day.

Well, all that has suddenly changed. As of today, the US Labor Productivity has skyrocketed – up 7.3% on an annual basis, the highest increase since early 2009.

What does this all mean? 

Well of course as the chart clearly shows, the number of hours worked has plummeted, as more than 20 million people have lost jobs (some replaced but close to 10 million still looking for work). So one could argue that “when there are fewer people around, the people left tend to get more done.” And this is certainly true.

In all our conversations with business leaders, they all agree that people are working longer hours than at almost any time in the recent past. Working at home is part of the problem: despite the distractions we have with children and family issues, people are working “all the time.” My Millennial children (one works for SAP another works for a fast-growing software company) are working almost all the time. They take breaks a lot too – but there is absolutely no barrier between “work” and “life.”

But I think its much more than this. We are in the middle of what I call “sweeping structural change.” Change in the economy, change in business, and change in our organizations themselves.

What is the change? We are now understanding that the “digital transformation” we bought from consulting firms, which often just meant “implementing SAP or Workday,” was not nearly enough. What we learned over the last 11 years is that digital transformation does not mean implementing digital systems, it means learning to operate in a digital way. And this shift, which has been slow and difficult to accept, is suddenly happening overnight. And the productivity data is good evidence.

As we will be soon publishing in our Big Reset study, company after company is telling us “we just stopped all the bureaucracy and we’re getting stuff done.” The Pandemic is an excuse for an “instant digital transformation” and companies are clearing out the clutter, reducing red tape, and getting projects accomplished. 

PepsiCo and AB-InBev simplified their performance management process and are saving hundreds of thousands of hours per year. Pizza Hut and other Yum Brands! companies redesigned their restaurants and have already created more hygienic workplaces. Sainsbury’s turned up the heat on digital check-out and delivery services overnight. And smaller companies like Honest Burger (UK based) now use technology to schedule workers on a daily basis based on virus trends by neighborhood.

These are just a few of the dozens of stories we’re hearing. And in every case, the team tells us “we were able to do things fast because the need was urgent.” These companies threw away the old “steering committees” and “consensus-building” practices of the last decade and just got things done. And while none of these new practices is perfect, they are doing them in an agile and iterative way, eliminating more inefficiency by the minute.

Let me share something comical to make this even more clear. In the 1940s the OSS (predecessor to the CIA) published an entire manifesto on “how to sabotage an organization.” It’s called The Simple Sabotage Field Manual.

If you read the part about “General Interference with Organizations and Production” it reads like Management 101. It’s funny and sad at the same time.

If you think about business life last year, we were riddled with this kind of stuff. Staff meetings, review cycles, and endless discussions about “why this won’t work” or “what we can do to make this better.”

Well as Marie Kondo taught us in our personal lives, a good decluttering makes us all feel better.

If you’ve ever worked for a startup, you know how much you can get done. There’s nobody to ask for permission and nobody to look over your shoulder. You just do things, deal with the mistakes, fix them, and move ahead.

I remember a senior executive at Sybase once told me “Every time you hire a new manager you add complexity to the company. The new person wants to redesign things or make things better, so they add a little more overhead.” Things slow down, productivity starts to decline, and the business feels more sluggish. If you read the new book Lights Out about GE, you see years of “bureaucracy-busting” efforts in the company, but the problems kept coming back.

Of course, big organizations need scale to succeed. But as Amazon’s “two-pizza rule” has proven, smaller teams with fewer meetings create faster results. And it makes people feel accountable, responsible, and empowered as well!

By the way, one of the benefits of productivity increase is that labor costs (wages) can finally go up. We have experienced a steady increase in income inequality for two decades as people in the lower-skilled part of the workforce have fallen behind. We may be finally turning that around, albeit only a small bit (since 80% of the Pandemic job loss was people making less than $50,000 per year.)

I think the Pandemic is teaching us an important lesson. The Big Reset we’re going through is not just a transformation of our workplace, products, and customer offerings. It’s also a transformation of our companies. We can do more with less, and maybe we needed a little shock in the system to remind us.

Stay tuned for some amazing research on the pandemic coming out soon, we have a lot of stories to share. And feel free to share the OSS manual with your leadership team, they’ll all get a laugh and then stare at each other and say “we should talk about this.”