Productivity is a term we encounter daily, from assessing our personal efficiency to evaluating business operations. However, its impact extends far beyond individual accomplishments, influencing the entire economy. Understanding productivity, especially in a business context, allows us to optimize how we utilize resources to achieve more with less, directly affecting economic growth and our standard of living. Aside from lending rates, our productivity as a nation is one of the largest drivers of inflation — which we can all identify is a major issue even after multiple years of elevated interest rates.
What impacts productivity overall and what can we do as organizations to be on the right side of it? Canada ranks 29thin productivity out of 38 OECD countries for labour productivity — does that mean were lazy? Are we just not working hard enough? For perspective, for every hour Canadians worked to produce $1 worth of goods and services, an American creates $1.30 and Norwegians are creating $1.55 of value. If that sounds bad, it’s because it is. To a degree it means we tend to throw more labour at problems instead of optimizing workflows, getting advanced tools into workers hands, and upskilling our workforce to deliver higher value products.
So how does a country’s productivity get measured? Essentially it’s the amount of money the country can make in goods and services divided by the number of hours it took to complete the work. The wage has little relevance here — but it is impacted by the end result. One paradigm uses labour hours to compensate for inefficient operations in permanence, the other invests in ways to reduce hours, increase safety, and mitigate friction. That’s hard to wrap our heads around on a macro scale, so let’s go through some examples at the business level that add up to our country’s grim ranking.
In our first example a small coffee shop that prides itself on quality and customer service started out with very little capital. They made their machinery work around the building’s existing infrastructure. That lead to the milk fridge being 6 steps away from where the baristas prepare drinks. This didn’t matter when they first opened — however since they are the best in the area — they are now very busy. To compensate, two people are required to operate the espresso machine for most of the day. One person to prep and brew coffee, the other to fetch and prep the milk. During a rush this might make sense, but once it becomes regular, we are paying an extra body to do a job that shouldn’t exist. This drives down the amount of money we have to attract the best talent we can; further our profit margin. A one-time investment in plumbing, electrical and a purposeful fridge reduces the steps and allows one person to operate the machine for most of the day. We are now able to compensate them better and make more money. The barista can focus on customer interactions and quality instead of constantly battling frustration and hassle. In one year this could likely save about $40k and pay for itself.
The second example is a BBQ sauce maker. Originally the goal was to sell 100 bottles a week as a side hustle. Working out of a rented commercial kitchen, the sauce got rave reviews — local restaurants and boutique grocers wanted to feature it. The proprietor scrambled to accommodate and was stuck extending the hours of production and taking on staff with ill-defined roles to work a haphazard workflow. Conflicted as to whether they could quit their day job — the proprietor evaluated the profit margin and realized it wasn’t sustainable — they could barely pay anyone minimum wage let alone themself. An alternative is to seek investment for equipment upgrades that range from bottle fillers, boil kettles, dedicated space, automated machines, or seek a co-packing agreement with large producers. There is a large amount of capital up front for some of these upgrades, however they are how we improve our productivity by large margins. It allows us to stop throwing cheap labour and time at problems for an increasingly narrow margin. Roles change from hand food processing and cleaning to technical roles to keep the machines running to spec. Opportunity exists to bring in deeper lab analysis of quality and consistency — allowing us to extend shelf lives of product.
Both of our examples fall with in what we call a differentiator business. They don’t want to sell the cheapest of things, and they don’t necessarily want to sell the most of things. They distinguish themselves with quality, service and uniquity. That leaves them in a conflicted space when things take off and they become busy. Small issues can become massive headaches when we try to make or sell more of things. This is why continuous improvement and effective feedback loops are so important in organizational development. Owners can quickly become disconnected from the tasks and realities; if employees feel unheard they will make do with what they have or make compromises. Scarcity mindset can set in if we aren’t able to pay people appropriately — they may start trying to fix inefficiencies in ways we can’t predict — and some of them will be counter to your organizational goals.
Occasionally we don’t need to spend tons of money to unlock greater productivity. In fact sometimes it involves spending less. Persistent overtime is a persistent cause of employee burnout and workplace accidents. While those surface issues should act as a deterrent alone, there is also a slow creep of lower quality work that accompanies tired employees. Whether people want to work overtime or not, it has a depreciating impact on their efficacy and accuracy of work performed. This impacts your top line revenue while the premium pay chews up the bottom line. When overtime becomes normalized it’s important to recognize it and take concrete steps to mitigate it. If you are short people, hire. If people keep calling off, look into why.
Understanding your team and what they need to bring their full selves to work is critical to any aspiring high-performance organization. Ensuring your compensation and benefits packages meet their needs ensures they have what they need to make the business successful. Extended health benefits are expensive — but predictable and budget-able. When people make hard decisions about seeing doctors or buying prescription medicine it can’t help but have an impact on business; but the way it happens in this scenario you cannot predict and there is no way to budget the fallout. You instead have to manage a workforce more prone to absenteeism and lower rates of productivity. The longsighted employer takes a proactive stance on employee wellbeing with tailored benefits and wellness plans. I reference Maslow a lot in my practice because he laid the basis for all of this. You will never unlock peoples potential when they are struggling to get by.
Not sure where to start? A full job analysis that evaluates ergonomics, workflow, and efficiency is part of our full cycle organizational development consulting model. After a thorough understanding of your organization is gained, we get to work helping you make objective decisions that empower your people to maximize value for the business. We help you measure the effects of investing in your people; with dashboards and reporting that eventually tie business outcomes and employee surveys to real people strategies we help you design and implement. Reach out today for a free strategic assessment and begin your journey to become a high-performance organization today.
