ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

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—Alex and Axel

An individual may feel “productive” after finishing a difficult task at work. But evaluating the productivity of entire organizations is much more complex. At its simplest level, productivity measures output relative to input. But the rise of factors such as automation, generative AI (gen AI), and remote and hybrid work makes the ratio of inputs to outputs harder to calculate. With productivity levels slowing among advanced economies, amid a climate of geopolitical disruptions and environmental concerns, leaders may be facing increased urgency to boost productivity within their own organizations. This week, we examine some strategies to make the operational improvements that, taken together, could help companies become more productive.

AN IDEA

Commit to operational excellence

New technologies hold out the promise of improving productivity, but they may not be effective without a commitment to operational excellence, according to McKinsey senior partner Richard Sellschop and colleagues. Our research over the past 20 years has shown that high-performing companies score highly on five essential components of operational excellence and are better able to realize value from advanced technologies. For example, one of these five elements is building a management system that reinforces innovation. Yet few organizations put this into practice by encouraging innovative behaviors, such as frequent contact with managers that enables workers to continually improve a company’s operations. In a recent survey on operational excellence, only 21 percent of employees say they have check-ins with their leaders at least once a week.

A BIG NUMBER

7

That’s the number of questions that we suggest leaders ask as they evaluate their organizations’ productivity. For example, one question concerns how to drive productivity in services. Despite advances in some subsectors, “services tend to be harder to transform and can be a drag on an economy’s productivity growth,” observe McKinsey senior partners Chris Bradley, Olivia White, and Sven Smit and their colleagues in a recent report. As manufacturing becomes more automated, reweighting economic activity toward services may be critical to growth in many countries. “Making services more productive is a more reliable and sustainable way to raise the aggregate productivity of the economy than other approaches,” note the authors.

A QUOTE

“Every time a new technology comes along, you need to rethink how the economy is run.”

That’s economist and Stanford University professor Erik Brynjolfsson in an episode of McKinsey’s At the Edge podcast. Speaking with McKinsey senior partner Lareina Yee, Brynjolfsson explains how gen AI can spark that rethinking—and reignite productivity. “Generative AI is, frankly, one of the biggest, most effective technologies for changing the way work is done that’s ever been invented,” he says. While the automation that may result from gen AI could alter some occupations and jobs, “we’re already seeing it complement a lot of human activity, allowing people to do their jobs more effectively than they could before,” adds Brynjolfsson. “So in most cases, it’s really not a replacement but more of an amplification.”

A SPOTLIGHT INTERVIEW

“At the micro level, if you’re a company, productivity is one of the best predictors of the fortunes of your business,” says University of Chicago professor and economist Chad Syverson in an episode of McKinsey’s Forward Thinking podcast. “The more productive businesses are much more likely to survive.” He adds that AI may be able to reverse the productivity slowdown in many advanced economies. Between its potential applications in a variety of situations and sectors and its ability to complement other technology investments—including intangible assets, such as managerial skills, talent, and processes—AI could be “the best candidate for a new general-purpose technology we’ve had in decades,” says Syverson. “It’s made me more optimistic that we will end the productivity growth slowdown than anything else that’s happened since I started looking deeply at the slowdown ten years ago.”

— Edited by Rama Ramaswami, senior editor, New York

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