© 2018 CMC Today and Aron Pervin, CMC
We are in an age of disruption and experimentation. We are in this transition phase of trying to find a new productivity metric in an era of massive societal change – the fourth industrial revolution. And, it will be challenging. The World Economic Forum predicts that this “industrial revolution will bring a massive productivity boom.”1
The world of productivity is changing faster than we think – and it’s becoming people-centric. Productivity is commonly defined as the ratio between output volume and input volume. It measures how efficiently inputs such as labour and capital are being used to produce a given level of output. Output generally refers to measurements of units manufactured, hours delivered, or sales generated – all with the goal of generating revenues. But where do the people fit in?
Is It Time for a New Definition of Productivity?
Six Sigma defines business productivity as “the ability of an organization to utilize its available resources in order to produce profitable goods or services as desired by customers or clients.” 2 However, this old system of measuring productivity by revenues and profits does not work anymore, even though we are accustomed to it and comfortable with it. Companies need to form their own definition of productivity that includes non-financial metrics like the people factor, rather than just settling for what is externally accepted as productivity.
Productivity Is About More Than Just Dollars
Is there a definition of productivity that doesn’t contain revenues and/or profits? The short answer is yes. In broader terms, productivity improvement is not only about revenue generation and profits anymore, it’s about creating an engaged workforce that has shared values and a desire to perform at its best. This is related to the often-cited sustainability framework of the Triple Bottom Line (TBL) – social, environmental and financial – used by many companies to measure performance output.
When we look at what is being measured these days around high performance, a lot of it is about productivity using the TBL in some way or another. But, measuring productivity has become more complex than just people, planet and profits grouped into widgets. It’s more about the esoteric facets of human existence. There is a need for a high performing, long-term, viable business strategy that takes into account sustainability and corporate social responsibility.
Productivity as a Measure of Growth & Sustainability
The world is shifting towards managing resources, and so we must look at performance and strategy with respect to the whole idea of sustainability. If we take a look at the World Economic Forum’s Inclusive Development Index for 2018, they propose looking past GDP to a “wider dashboard of 12 indicators in three areas: growth and development; inclusion; and intergenerational equity and sustainability,”3 in order to properly assess productivity and progress.
It would follow that we could then begin to view the relevant metrics of performance and productivity as a measure of sustainability in areas such as:
- Respectful and safe environment;
- Community connection;
- ‘Doing good while doing well’;
- Pride in the company;
- And more.
Happiness - An Alternative Way to Measure Productivity
When measuring productivity at the greater macroeconomic level, we talk about GDP, when in fact we should take a page out of Bhutan’s strategy book. In 1972 the Kingdom of Bhutan implemented the Gross National Happiness (GNH) index which is used to measure the collective happiness and wellbeing of its population. The GNH supports sustainable development that takes a holistic approach to progress, giving happiness equal importance to the economic aspects of wellbeing.
The results speak for themselves. In 2010 Bhutan’s annual growth rate was 9.3% with a GDP of US$1.585 billion4 and a GNH of 89.4%.5 Five years later the GDP was up by 29.9% to US$2.059 billion,4 and despite the annual growth rate being down by 2.8%, the GNH climbed by 1.8% to 91.2% of the population saying they were happy.5
The GNH initiative was so well received by 68 of the member states of the United Nations, that in 2011 the UN adopted Bhutan's call for a holistic approach to development. It is now considering ways that Bhutan's GNH model can be replicated across the globe.6
An Engaged Workforce Is a Productive Workforce
Is the whole notion of productivity and innovation a customer-centered activity? Is ‘the customer is always right’ still accurate today? Or, should the focus be on building an engaged workforce in an environment of respect and trust, which would lead to greater productivity, improved individual performance, a workforce that takes ownership, better service and, ultimately, customer satisfaction? As Sir Richard Branson so rightly said: “Take care of your employees and they will take care of your business. It’s as simple as that.”
The Shift from the Balance Sheet to the Shop Floor
We are in a difficult transition period of not being able to give up the accounting platform, because it is so compelling, and not being able to truly measure productivity in this new environment. The core concept of productivity strategy is shifting, and companies must adjust. Great strides are being made in data and predictive analytics that look at non-financial metrics, but the idea of productivity and what performance you are actually trying to manage is still murky. That is what makes this transition period so difficult.
As consultants, we need to lead productivity innovation. Some of our strategies and tactics will remain the same and some will shift. We need to build a bridge between productivity, sustainability and stakeholder expectations. As the change agents – the catalysts for enabling productivity improvements – the outcomes we deliver must be created in a fashion that allows clients to achieve meaningful results.
We must help our clients build the capacity for change and improve the competence and confidence of their workforce. Helping our clients to develop trust, respect and a safe working environment will not only allow employees to collaborate, it will give them the impetus to make a positive impact, which will create a high performing company.
New measurements and measurement tools will play a larger role in what we do. We need to help our clients embrace different ways of assessing performance to get meaningful metrics, both financial and non-financial, that enable evidence-based decision-making and productivity measurement in the new era.
It was for these reasons that I created Optimizer720, a tool that evaluates a family business in 12 non-financial areas – the kinds of ‘productivity’ metrics that were previously difficult to quantify. Optimizer720 uses data from internal and external stakeholder groups to measure the performance of a business in these hard-to-quantify areas in an objective way, which helps business families make decisions about the future with confidence.
We as consultants also need to lead the way, by delivering new, clever ways to solve existing problems with service delivery. This is the time for us to be agile, innovative and make a positive impact – because that is what our clients are hiring us to do.
If you’re interested in additional reading and examples of how to use non-financial metrics, refer to the whitepaper on What High-Performing Family Businesses Do Differently. It identifies 12 key non-financial metrics and how to effectively capture, evaluate and act on them.
“The winning enterprises of the next decade will not be those whose leaders chase fads and fantasies, but those who can integrate new knowledge and new possibilities with their own trusted understanding of the basic truths of business success.” – Dr. Karl Albrecht
About the Author
Aron Pervin CMC, FFI (Fellow), ICD.D, TEP is the founder of Pervin Family Business Advisors and Optimizer720. He is recognized as a global leader in family-owned business management and governance. Consultant, counsellor, author and educator, he has helped hundreds of business families succeed by developing, managing and preserving both internal and external relationships.
Aron’s work with business families led to the development of Optimizer720 because he could not find a practical, useful tool to quantify the effect of family dynamics on performance and productivity. Optimizer720 combines a holistic assessment of employee engagement and customer satisfaction with multi-faceted assessments of business planning and execution. The end result is a new level of confidence to embrace change, deal with issues, increase productivity and grow opportunities.
1 – World Economic Forum, The Fourth Industrial Revolution will bring a massive productivity boom, 15 Jan 2018.
2 – Six Sigma Online, Glossary of Terms, 2017.
3 – World Economic Forum, A new way to measure economic growth and progress, 22 Jan 2018.
4 – The World Bank, Bhutan Report, 2017.
5 – Centre for Bhutan Studies & GNH, GNH Survey Report, 2015.
6 – The Guardian, Gross National Happiness in Bhutan, 2012.