A Productive Debate

Posted on Oct 26, 2011 | 4 Comments

In case news of the economy was filling you with good cheer (just kidding), here’s one more thing to consider: Our productivity growth has gone down.

What’s worse, even our former productivity growth turns out to have been less than we thought. “Worker output actually fell in the first two quarters of 2011, the first back-to-back decline since 2008,” Bloomberg Businessweek reported recently, “and Labor Dept. economists have revised the data from 2007 to the present downward.” Among the “probable culprits” cited are “less aggressive spending on new equipment and technology by companies uncertain of the future.”

Peter Drucker liked to remind people that “productivity”—typically defined as output per hour of work—was barely understood as a concept until the 20th century, and even then economists often overlooked it when trying to make sense of things. “We now know that a valid theory of economics will have to be based on productivity as the source of value,” Drucker noted in Managing in Turbulent Times.

For his part, Drucker may well have pointed less to insufficient spending on equipment as the real source of falling productivity, and more to the imperfect management of knowledge work. Sure, perhaps new technology would help companies boost their ouput, but not necessarily.

“In making and moving things, capital and technology are factors of production, to use the economist’s term,” Drucker wrote in Managing for the Future. “In knowledge and service work, they are the tools of production. Whether they help productivity or harm it depends on what people do with them, on the purpose to which they are being put, for instance, or on the skill of the user.”

The real question, according to Drucker, is how to get smarter about how we work, not just fancier with our machines. “Unless we can learn how to increase the productivity of knowledge workers and service workers, and increase it fast,” Drucker warned in Post-Capitalist Society, “the developed countries will face economic stagnation and severe social tension.”

What’s driving our current loss of productivity—less equipment, the way we manage knowledge workers or something else? 


  1. Sergio
    October 27, 2011

    Watts Humphrey, a legendary IBM software engineer and leader one made the claim that software engineers were pioneers of knowledge work. You may think this is a biased view, and myself being one, this comment will have a biased angle to it, but I can share with you some recent innovations and practices in software development that have software development professionals become “smarter in how they work”. The list includes (try googling any one of these)

    Agile software development, Agile management, Test driven development, Behavior driven development, Devops, Continuous integration, Continuous deployment, Pair programming, daily meetings, Scrum.

    The list is significantly longer than this, but this is a good start. Each of these practices not only improves productivity, but in some cases quality, development of people and innovation to boot. The two high-level trends for these practices is that they borrow from the System thinking mindset and by many of the management principles and practices discovered by the automobile industry and preached by people like Deming and Drucker.

  2. Sergio
    October 27, 2011

    I submitted before completing my thought above. The creation and daily implementation of these new software development practices is what allows software professionals to continuously become more effective in their work. Boosting effectiveness here means a sharper sense for “what not to do” and so less waste, less time reworking things, and more time focused on doing what’s needed.

    I’m not really sure what is driving the current loss in productivity, but I know in the software development world, the amount of tools (i.e. equipment) that has become available in the last decade alone is dizzying. Therefore a software professional (i..e knowledge worker) who doesn’t have or continuously seek a work style driven by practices that promote trust, effectiveness while also leveraging their individual strengths and motivations, is a recipe for decreased worker productivity.

  3. Mike Grayson
    October 27, 2011

    Alan Greenspan made the comment that the U.S. just can’t seem to get GDP growth much above 3%. In fact, GDP went negative in 2009 and is currently trending downward. http://www.tradingeconomics.com/united-states/gdp-growth-annual. But why?

    I think it is important to examine consumption, more so than production. Examining consumption in the U.S. is easy. Walk into any WalMart and flip a product over to see where it is being made. The odds are pretty high that it is made in China – or some place other than the U.S. Many of the goods being consumed in the U.S. are not being produced in the U.S. This is clearly a reason for the drop in productivity in the U.S. – we simply are not consuming enough goods produced in the U.S.

    There is an uneven playing field between the U.S. and China. Currency manipulation accounts for part of the problem, regulations for the environment, working conditions, wages, etc. This causes an imbalance in trade and inability to compete by American companies – not that the American worker is less productive. Studies have shown that the American worker is usually more productive than their international counter-parts.

    The drop in GDP is a serious problem and has not been adequately addressed. Until there is a level playing field, it is not going to improve.

  4. The Feedback | The Drucker Exchange
    November 1, 2011

    [...] One question we asked was where the heck America’s productivity has gone. Does it have something to do with less spending on new equipment, with poor management of knowledge workers—or what? [...]


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