This month there is a BPM Conference in London that BPTrends co-sponsors. It turns out it’s a rather good time to be holding it. The Economist (May 30 2015) just ran an article on productivity in the UK. It seems that productivity gains have been flat since about 2011, and the government is seriously concerned. (US productivity has increased over 9% since 2011.)
I’ve written about productivity before and how important it is. In the case of the UK, the country’s GDP grew by 2.8% last year, the best performance turned in by a G7 economy. Moreover, the UK's unemployment has never been lower – so you might think of the UK economy as in rather good shape. That, however, doesn’t take productivity into account. Over the longer term, growth and raises both depend on productivity.
If it costs the same amount to create products, year after year, then, assuming that wages and material costs don’t fall, the products are going to continue to cost the same. And if that happens, then consumers on more or less fixed incomes are only going to be able to buy the same things this year as they bought last year. If, on the other hand, several items were to become cheaper, then consumers would have a little extra money to spend on something else, and the economy, as a whole, would grow. Similarly, if it takes the same number of employee hours to make a product, year after year, it’s hard to find new money to provide a wage increase.
The Economist article, “The productivity puzzle: Under the bonnet,” looks at specific industries and finds that there are some sharp deviations from the general pattern. Transport/manufacturing productivity is improving rapidly. The 345,000 UK workers producing cars, planes and trains are producing 56% more per hour than they did in 2009. From 2005 to 2009 auto industry workers created 9.3 vehicles per employee per year. From 2010 to 2014, they managed to create 11.5 vehicles. Industry leaders attributed the changes to new technology, improved supply chain processes and better management.
Another area that experienced major improvements was what the UK terms “Administration and Support” which refers to outsourcing – as when a company hires another firm to manage it travel expense operations, or its entire HR function.
On the other hand, productivity in Finance and Insurance is 10% lower than in 2009 – and London is the financial center of Europe. In this case, industry people suggest that it's government regulation and the number of new employees hired to handle compliance operations that is contributing to the problem. (This discussion focused on the growth in productivity, and not the base rate for various industries. For example, Finance workers in the UK, are, about 20% more productive, overall, than car workers. But the figures reported suggest that won’t remain the case if present trends continue.)
The causes of productivity problems are complex. When we discussed this before, we suggested that the base cost of labor, new technology, and new processes were the major factors. In reading the latest Economist article, I was impressed with how much of the discussion focused on what process people would term management and support processes. Thus, we talk about auto manufacturing and think of workers assembling cars, but in fact, the problem may lie with workers dealing with the flow or parts to those workers, or with Human Resources that is less efficient in hiring and firing than it was in the past. Or, in the case of the banks, it may lie with the growth of regulators who are tracking and reporting on financial compliance activities.
To my mind, this suggests the importance of good business process architecture. It’s too easy for an organization to think it's in the auto manufacturing or the loans business and ignore all of the management and support activities that are used to make the core processes possible. This leaves a firm open to being blind-sided by changes in some support activity that reduces its overall productivity. A well-managed firm needs to keep track of all of the processes that contribute to the success of the core activities. It needs to measure them and be aware when one of those sets of activities begins to cost more or produce less. Loans may still be processed at an efficient rate, but reporting compliance may be taking longer and costing more, and the organization needs to know and document that. And, of course, business process people need to be prepared to analyze those support processes and suggest ways to improve the flow and efficiency of that work.
Productivity isn’t entirely a process problem. But understanding and working to improve the processes used within your organization is entirely under your organization’s control, so it’s the place to start. By documenting existing processes, and by tracking their results, and then by working hard to make unproductive processes more productive, you lay the groundwork for continuing growth in productivity.