New research indicates global productivity is ramping up, leading to opportunities for innovation and growth. Being prepared for this significant dynamic will assist CFOs to make the most of new openings. CFOs who want to employ strategies to take advantage of this trend may benefit from understanding the context of past productivity slowdown.
Management consultant McKinsey's report, Solving the productivity puzzle: the role of demand and the promise of digitisation explains how the productivity dynamic is playing out around the world. The research suggests since the 1990s, productivity growth has slowed on average by 1.9% across countries. It highlights a number of dynamics that have contributed to this.
The technology boom that happened in the 90s prompted a spate of restructuring and offshoring that contributed to a one per cent drop in productivity growth. Additionally, the financial crisis of 2007/2008 led to a subsequent drop in demand and uncertainty that also contributed to a productivity slowdown.
While digital technologies such as cloud computing are expected to lead to higher productivity, this is yet to properly play out.
One issue that has affected the ability for digitisation to make an impact has been that companies have allocated resources to innovations that have been unproven. Another key issue reducing the positive effect of digitisation is that investments in technology have not had an immediate impact on productivity and growth.
This has affected sectors to different degrees. For instance, the retail sector was blindsided by the financial crisis. When business conditions started to improve, many retailers found it hard to get the balance right between investing in digital channels and hiring staff in these areas, and making investments to ensure their bricks and mortar presence continued to support profits.
In contrast, productivity growth in tourism has remained relatively stable overall due to a number of factors. These include new business models such as Airbnb, new competitors entering the market such as aggregators Lastminute.com and growing consumer demand.
McKinsey's report suggests overall, action at the public policy level may help to stem any future productivity declines. Initiatives that encourage businesses to adopt the right digital tools could help to push the global economy towards a significant productivity boost.
Technology is the answer
McKinsey's report argues that the appropriate adoption of the right digital technologies is key to resolving the productivity challenge sweeping the world.
Fiona Dixon, Director of consulting at business advisers HLB Mann Judd, believes that continual technology innovation is key to support organisation's productivity improvements. Much of this will revolve around more businesses rethinking their IT requirements.
“Integrated, cloud-based technologies are what we believe will drive productivity as they give real time access to information," says Dixon.
“There are two factors that will allow CFOs to make faster decisions and drive productivity. These are new reporting technologies and being able to extract data from various systems in an efficient manner. They must also be able to disseminate that information in real time in a concise and meaningful way," she adds.
Cloud-based tools also allow for more efficient data integration and can also facilitate collaboration and real-time communication between stakeholders, explains Dixon. The CFO has an important role to play in this process.
“Finance chiefs can encourage their businesses to be open to change, and willing to explore potential benefits from these new technologies, for instance access to more data and enhanced reporting capabilities. What's essential is to invest in solutions and products that reduce friction points in the organisation," she recommends.
To fully realise productivity gains, organisations need to ensure they employ people who know how to use technology effectively. This potentially includes those with non-traditional skill sets. Finance departments require not just superior numerical competencies, but also project management, change management and process implementation skills to maximise the benefits new technologies can deliver.
Also, technology is replacing existing manual processes, which is freeing up employee time. This additional capacity might be invested in new, value-added activities such as data analytics and strategic planning, which can drive continued productivity growth.
“This approach is much more likely to produce dividends compared to employees simply continuing to do all the same tasks they did in the past, even if those tasks no longer provide great value," Dixon advises.
Future proof the business
Continuous productivity gains do require CFOs and their teams to be on an ongoing journey of improvement and learning. So, Dixon's advice is for CFOs to develop a mindset and culture of unremitting innovation by developing quality people. This is because motivated and engaged employees will help to support a big productivity boost.
“Train staff to have all the skills that will be required by the organisation in the future," she advises.
It is no longer realistic for businesses to implement a new system and expect it to remain relevant and up-to-date for many years without any changes. In this environment, organisations could need to be open to constantly evolving systems, as well as the way that their staff interact with them. If something is not working, the idea is to 'fail fast' and find a new solution.
Says Dixon: “Reduce the noise and focus on the important tasks and what really contributes value." It's good advice for CFOs and their teams to heed as the international economy enters the next stage of global growth.
- Productivity has been negatively impacted by the technology boom of the 1990s, the financial crisis of 2007/8 and the adoption of unproven digital technologies.
- Retail has been hit hard by this, but tourism is one of the sectors that has held ground amid these threats.
- There’s an opportunity for a public policy response to help support productivity globally.