For more than two centuries, productivity improvements have funded our personal, corporate, and national prosperity. By continually producing goods and services with less effort, more people have been able to afford more products and services, and this has benefited consumers and producers alike.
Healthy and sustainable productivity does not exploit or oppress. It rewards those who create it. Therefore, leaders-including executives, teachers, labor leaders, and politicians-serve everyone's interests when they communicate that productivity improvements are good. Overall and over time these improvements benefit individuals, families, companies, and nations alike.
Better productivity generates the economic surpluses that pay wages, produce profits, and generate the tax revenues that support our social structures. If wages stay the same and productivity goes down, even flat wages will not be affordable for long. At the same time, if productivity were to go up 100%, wages could go up dramatically and continue to be very affordable.
Due to knowledge work productivity constraints, many managers have been forced to focus on the cost-oriented nature of efficiency instead of the wealth-generating nature of productivity. There is a clear difference between these two approaches. Efficiency focuses on inputs and tries to reduce them whereas productivity concentrates on outputs and tries to increase them. Cost cutting does not drive productivity. Reinvention does. It's not enough for companies to tighten their belts. We need to redesign our structures.
Many established companies have gotten stuck in cost cutting spirals because they have, from a systems perspective, hit a knowledge work productivity wall. Problems like this occur with every system and should be expected and then overcome. All systems can take their users only so far before they become constrained. Then, those systems need to be replaced by the next generation.
Consider personal transportation from a systems perspective. On the lower end of the spectrum, people can rollerblade only so fast and so far before they are constrained by their ability to skate-both in terms of speed and distance. Being chased by a Doberman may make a person go faster for a while, but even then their skating will reach a limit. People can break through the rollerblade system constraint by riding a bicycle to go faster and farther, but still there is a limit. Then, they can break through the constraint of the bicycle with a car until it reaches its limit, and then they can use an airplane, which also has a limit. Every system eventually reaches a limit for a given purpose.
For centuries, our predecessors have been able to increase prosperity by breaking through productivity system limits. Farming was more productive than hunting, and manufacturing was more productive than farming. These productivity improvements-as people migrated from hunting to farming, and then from the farm to the factory-funded the personal and national wealth increases in our most economically developed countries. In the last century, for example, the percentage of agricultural workers in the United States shifted from 85% to 3% of the population. In the last fifty years manufacturing workers shifted from over 70% to less than 5%. The productivity improvements from these shifts have increased the prosperity of America and the rest of the economically developed world for many generations.
Today, the majority of U.S. workers are employed in the services sector, and knowledge has become our most important product. According to the United States Chamber of Commerce, 75% of our workforce consists of managerial, professional, service, sales, and office workers. With our fast computers, sophisticated software, and high-speed networks, many hoped that knowledge work productivity would grow naturally and rapidly. Unfortunately, it hasn't. Instead, we have gotten stuck and the productivity paradox has been the result.
It's now clear that the speed of information and the productivity of knowledge work are two different things. The troubling fact is that we are a nation full of knowledge workers, and we have not been able to productively manage these organizational resources. The same techniques that work effectively for manual work have proven to be ineffective with knowledge work. Due to this disconnect, it doesn't matter how many computers we throw at the problem.
Peter Drucker warned managers, consultants, academics, and government officials for decades that we were in danger. He made it clear that for the prosperity of the developed world to continue-let alone grow-we need to systematically break through the knowledge work productivity wall. We have made massive investments in technology for decades but the math ultimately doesn't work, and pushing the old Scientific Management system harder isn't sufficient. A better management system is required.
Just as our ancestors successfully broke through the productivity constraints of hunting versus farming and farming versus manufacturing, we now need to do the same with knowledge work. Manufacturing achieved a 50-fold increase in productivity in the 20th century. What can we do for an encore?
It has never been clearer. There is nothing more important from an economic and social perspective than improving knowledge work productivity. This requires that we reinvent our Enterprises in the Knowledge Age.