Insights for What's Ahead

Firms should consider embracing productivity as a key measure to generate strategic clarity and alignment toward better results. An intentional use combined with a well-developed narrative around productivity across a company’s functions could come to serve as a powerful performance measure. Beyond this, productivity can also become an overall C-suite or boardroom system of measurements that connects the different functions, breaks through silos, guides overall company strategy, and improves results.

Firms can develop a more meaningful firm-wide narrative and improve common measurement by focusing on five drivers of productivity. They are: innovation and digital adoption; worker skills, engagement, and well-being; management competencies; access to finance and cost savings; and marketing and communication.

Even though each business function has specific challenges regarding the organization’s productivity performance, key productivity challenges increasingly cut across functions and require collaboration. The cross functional nature of the key drivers means that functional executives need to expand their perspective about how their own functions contribute to productivity and how they can collaborate more effectively with their C-suite partners.

The role of the C-suite is critical in aligning and then integrating productivity metrics across all functions to achieve strategic objectives collaboratively. The CEO should be the champion for better introspection about an enterprise-wide approach to productivity to generate continuous improvement across the organization.

Productivity as a Critical Firm Level Metric

When considering the notion of “productivity” most of us immediately jump to a macro-economic level since, arguably, productivity is THE key indicator of an economy’s growth performance in the long-term. But most of the nation’s productivity is done by private sector firms. Fundamentally, productivity is about how to use resources optimally (i.e., getting more output from investments or headcount) to realize the best results at firm, sector, and national level. Within companies, managers sometimes consider their own function’s “productivity” explicitly, but the inconsistency in how it is defined and measured means it is often not adopted more broadly as a meaningful and reliable firm-level metric.

The Strategic Productivity for the Leadership Team report argues that creating a strong common narrative within the firm built around productivity allows for a long-term growth strategy centered on productivity to be fully understood within the firm and by the senior team. The report argues that it is important to understand and demonstrate how individual business functions can work together to address those aspects of productivity that apply to more than one function.

The Five Key Drivers of Productivity

To develop a common narrative and strategy around productivity, the report identifies five key drivers of productivity: 

Innovation and digital adoption. Most lasting productivity, the report argues, comes from new investments, not just in more machinery and equipment, but especially in new technologies, such as ICT, organizational innovations, and in people, by raising their skills and competencies. R&D investment has been shown to have a strong positive effect on productivity, along with adopting the correct digital infrastructure.

Worker skills, engagement, and well-being. The report identifies a highly contingent relationship between employee satisfaction with their company and higher productivity, improved customer loyalty, and lower staff turnover. “Effective implementation of technology to better communicate, flexible work arrangements, cross-departmental collaboration to assess the collective impact of each other’s activities, and rewards for innovation activities are all critical tools for empowerment,” the report concludes.

Access to finance and cost savings. Many business owners, especially of small firms, treat accounting and finance as ‘reporting necessities’ rather than day-to-day management tools that enable them to monitor and drive performance. One recent survey for the UK shows that more than half struggle to measure productivity due to either difficulties in attributing value to intangible assets or in identifying productivity gains from improvements in the quality of inputs and outputs. This issue can have a profound impact on perception of short-term cost savings versus benefits from long-term investment. Addressing this dichotomy in thinking about productivity could lead to better strategies toward long-term objectives rather than short term, knee-jerk (re)actions.

Marketing and communication. According to the report, successful sales and marketing can boost productivity, but only if processes, company culture, and business communications are aligned with the corporate brand to build the company’s reputation and get customers to fully appreciate the value its products and services deliver. Good internal communication about a common productivity narrative with clear goals, objectives, and a common language are the keys to success.

Management competencies. Productive firms are led by knowledgeable and successful leaders. For firms to be productive, they need high levels of personal, interpersonal, and group skills from managers who need listen to and motivate a skilled and productive workforce to meet business objectives. “Managers not only require the knowledge of their technical areas, but also need to be collaborative and creative. They need to not only lead and negotiate internal teams, but also external partners and organizations,” the report says.

The C-suite's Role in Driving Productivity

The five drivers clearly cut across different company functions and thus require cross-functional collaboration to drive a coordinated approach to productivity into the organization.

Driver: Innovation and digital adoption

Key roles – Chief Technology Officer (CTO) and Chief Information Officer (CIO)

An organization’s reliance on digital technology has elevated the Chief Information Officer to a prominent role in the boardroom and the senior leadership team. The growing importance of cyber security means that an effective CIO needs to not only know the digital and IT opportunities that are available on the market to support the firm’s productivity, but also be able to make informed decisions about which of these will be the most effective in meeting the firm’s overall objectives. The CTO and CIO also need to work with the CHRO to ensure upskilling among employees is used to springboard productivity efficiencies.

Driver: Worker skills, engagement, and well-being

Key role – Chief Human Resources Officer (CHRO)

Traditionally, the most important HR activities relevant to productivity were in the realm of pay, working hours, health and safety conditions, and most importantly, training. No productivity strategy can be successfully executed without a permanent focus on strengthening the skill levels of the workforce at every level. However, skill shortages, mismatches and skill underutilization, together with the complex balance and interaction between STEM (science, technology, engineering and mathematics) skills and soft skills, makes HR’s inclusion in long-term strategic planning essential. The CHRO needs to work across functions, such as with the Chief Technology Officer (CTO) to ensure that firms are optimizing productivity through both technical and workforce development.

Driver: Access to finance and cost savings

Key role – Chief Finance Officer (CFO)

From a productivity perspective, the CFO is most engaged with cost savings and potential efficiency gains. But the growing importance of ESG issues and the complexity of modern financial instruments to manage short-term fluctuations and long-term investment opportunities have extended the need for the CFO to be an adept communicator and strategist, engaging on a regular basis with shareholders, customers, local and national government, and auditors.

Driver: Marketing and communications

Key role: Chief Marketing Officer (CMO)

As firms operate in ever more competitive markets and social media acts as an immediate outlet for both positive and negative feedback, the CMO and his or her understanding of changing consumer needs becomes not only critical to the marketing function, but also to overall firm’s growth strategy. Marketing intelligence has become more complex as competition may not only be in relation to the product or service the firm provides, but also from other industries or products that set the bar for customer experience expectations. Managing communications—between internal departments, up to senior management, down to the workforce at large, or to external suppliers—is critical to effective execution of productivity-enhancing measures. Data analytics also provides marketing executives with a better interface to other business functions and processes to maximize productivity gains, monitor productivity targets, and analyze their effectiveness.

Source: Strategic Productivity for the Leadership Team, The Productivity Institute, 2022.

Driver: Management competencies

Key roles – CEO and the C-suite

This is where the opportunity lies to bring things together. The CEO should be the champion, making productivity improvements more important by encouraging function heads to address the need for introspection, external awareness, and continuous improvement across the organization. Adoption can be achieved by identifying new technology and management practices that collectively drive productivity and by integrating and embedding these practices across the firm. In this way, the CEO and the senior management team can integrate a common productivity narrative and drive productivity across the whole firm on a holistic basis.

About The Productivity Institute

Headquartered at the Alliance Manchester Business School, this Institute brings together the expertise from seven business schools and three other academic entities across the UK. Its latest report Strategic Productivity for the Leadership Team is published at a time when the UK, and the world, is experiencing a significant and damaging productivity slowdown, exacerbated by rising costs, labor shortages, and pressure to deal with the transition to net zero.