Is doing things ever-better and ever-faster enough
—for companies and their employees?

By Judy Frankel

Over the last three years, the productivity of the U.S. worker has increased to its highest rate in the past 50 years. Between 2002 and 2004 productivity growth was 4.5 percent. In a climate of increased globalization and an ever-expanding field of aggressive players, is doing things better, cheaper and faster enough to stay on top? School of Business faculty, alumni and others examine the issue.

Can productivity continue to rise and play a role in providing American industry with
a competitive advantage? Or are American workers and their companies running hard just to stay in place?

Uniform agreement is lacking on both the existence and cause of recent productivity gains. Some believe recent gains can be directly attributed to the increased use of information technology (IT) in the workplace. Professor John (Jack) Nevin, executive director of the Grainger Center for Supply Chain Management and the Center for Brand and Product Management, contends that the introduction of IT into the workplace is truly revolutionary, terming this re-engineering “a front-office revolution.” Nevin believes that what we are largely seeing since 2002 is that “IT infrastructure and smart machines are used to automate the front office which handles interactions with customers.”

As an example, Nevin cites the increase in e-tickets in air travel. “One e-ticket machine replaces 2.5 workers,” he says. In the manufacturing sector, production and sourcing have also been stream lined. A by-product of increased efficiency can be displaced workers, but Nevin asserts this is an opportunity for America rather than a penalty. He believes that the future for companies lies in utilizing the combination of smart machines and merging information systems with human activities to deal with customers more effectively and efficiently.
Not everyone is as quick to credit IT as the source of productivity gains. Some, like Professor Urban Wemmerlöv, director of the business school’s Erdman Center for Operations and Technology Management, believe a longer historical perspective is necessary to determine whether recent productivity gains can be attributed to the use of information technology.

Stu Reed, vice president worldwide manufacturing, integrated supply chain at IBM, is also skeptical. Reed, who serves on the Executive Advisory Board of the Grainger Center for Supply Chain Management, says IBM has been making productivity gains for much longer than three years, and he does not put too much stock in recent statistics showing a spike in productivity based primarily on IT.

Tom Nicholas, who earned his M.S. in supply chain management from the School of Business in 1996, is president of Nicholas Consulting Services Inc. He also is cautious about making too much out of glowing productivity statistics. “Those measurements are full of noise,” he says. “We are improving, but there is still so much to be done.”

We still have a way to go in using some of the technical advancements made in the last decade.

Nicholas maintains that in order to truly understand productivity gains in the overall economy, we need to look to manufacturing. Corporate actions such as embracing IT, collaborative supply chain planning, automation and innovation have all led to increased productivity. But factors like management and company culture can also have a large impact, cautions Nicholas.

The use of IT in the workplace offers a great opportunity, but that opportunity is contingent on how the users can harness its potential, explains Reed. In his estimation, IT has yet to be fully exploited. Others concur that we still have a way to go in using some of the technical advancements made in the last decade, such as computing and communication tools that help us collaborate more effectively. “Execution is always the more difficult aspect of management,” says Wemmerlöv.

All of this is consistent with what Matt Gohr, a May MBA graduate in Operations and Technology Management, found during his internship last summer at W.W. Grainger Inc. While technologies are maturing, they were not close to reaching their full potential.

Xiao Dong Yin, also a May MBA graduate in Operations and Technology Management, reasons that productivity in and of itself is not enough to stay competitive. “It is only one of the factors which affects the competitiveness of a company,” he argues. He points to the strong work ethic of workers in other countries, particularly in Asia. In his estimation, to stay competitive, companies need a good business strategy, new products and strong marketing and communications.

Why is advancing productivity and maintaining competitiveness so hard? “In order to move the line, you have to be creative and accepting of change. Then, once you have an improvement concept, you have to implement and sustain the improvement with complete repetitive consistency,” says Nicholas. Gohr points to a new Dell PC manufacturing plant under construction in Winston-Salem, N.C., as a bona fide example of a company willing to do things differently. “They are setting a good benchmark. There is demand in this country for their product and they are fulfilling that demand in the most efficient manner,” says Gohr.

“We are certainly going to have to continue to be innovative,” says Nevin. But, he believes that other external factors, like government policies, are also important. “Certainly there are some macroeconomic considerations that could potentially create some problems, like inflation and a decreasing value of the dollar.” Other factors that affect competitiveness include a lack of investment, uncertainty about the labor market and the price of oil.

In order for productivity rates to continue to rise, a high level of technology modernization is required. “Adoption of new technologies is required for sustained productivity,” says Wemmerlöv. “Integration within and between organizations and product and process innovations are key to global competitiveness.”

Innovation and focused strategies appear to be paramount for survival of the American industry. “We’ve got to create innovation where we can get the returns of those innovative activities,” reasons Nevin. He cites pharmaceutical research as an example where the U.S. is a leader. “We will have to find our niche,” concurs Nicholas, but he is also a proponent of moving away from this “us vs. them” way of thinking. “Should we really think about us vs. them in a global economy with global corporations?” he asks.

“In order to sustain high levels of productivity, we need to change the way we look at the world,” agrees Reed. “We must move away from this ‘America vs. the world’ thinking.” Reed believes companies need to view their supply chain as a competitive advantage. “The supply chain can be a competitive weapon that companies need to learn how to utilize,” he says. “Innovation, better delivery time and greater efficiency are key components to maintaining a competitive global advantage.”

Innovation, better delivery time and greater efficiency are key to maintaining a competitive global advantage

The challenge is that the U.S. now faces some very strong competitors. Wemmerlöv says that one cannot look just at recent improvements in American productivity but needs to take into account other factors, like productivity rates in other countries and associated exchange rates. For him, the bottom line is that America can compete globally. “But we need to compete on product innovation and customization, and where rapid, reliable and frequent deliveries are important.”

The overall consensus: there is indeed room, in fact, there is a need, for continued productivity increases and for company strategies tailored to the strengths of American enterprises, if U.S. businesses are to successfully compete.

Judy Frankel is a Madison-area freelance writer.

Illustration by Gymeung Bang