Great companies obsess over productivity, not efficiency

Business leaders often think of “efficiency” and “productivity” as synonyms, two sides of the same coin. When it comes to strategy, however, efficiency and productivity are very different.

Efficiency is about doing the same with less. Companies most often improve labor efficiency by finding ways to reduce the number of labor hours required to produce the same level of output. Efficiency is about shrinking the inputs (headcount, labor hours) to improve profitability.

Productivity is about producing a higher output with the same input. In contrast to efficiency, productivity is about expanding the output to deliver greater top-line growth from the same workforce.

For most of the last three decades, senior executives have been encouraged to take an efficiency mindset to their business. Today’s business environment requires a different worldview. Continuing to wring out greater profits through efficiency has become the managerial equivalent of attempting to squeeze blood from a stone.

Bain & Company recently completed a comprehensive study of workforce productivity and performance, surveying more than 300 senior executives from large companies worldwide and complementing these findings with in-depth organizational audits.

This research, combined with our decades-long experience as consultants working with senior leaders, highlights three fundamental tenets of a productivity mindset. Leadership must recognize:

— THE ORGANIZATION GETS IN THEIR WAY OF EMPLOYEES’ PRODUCTIVITY: The average company loses more than 20% of its productive capacity to what we call “organizational drag,” the structures and processes that consume valuable time and prevent people from getting things done. Leaders that take a productivity mindset fight bureaucracy and create ways of working that allow employees to focus their time on delivering for customers and shareholders.

— “DIFFERENCE MAKERS” ARE TOO OFTEN PUT IN ROLES THAT LIMIT THEIR EFFECTIVENESS: Fifteen percent of most companies’ workforces are star players, employees with exceptional performance and the potential to have an outsize effect on strategy execution. But leaders with a productivity mindset make sure their scarce star talent is assigned to business-critical roles. This allows for more and better output from this function and better (and faster) execution of the company’s strategy.

— PEOPLE HAVE MORE ENERGY THAN THEY ARE INSPIRED TO USE: Virtually every employee can bring more to their job, but many don’t invest the additional ingenuity and creativity that they could. Executives with a productivity mindset do everything they can to tap into every employee’s reservoir of discretionary energy. They strive to align the firm’s purpose with each individual’s purpose. And they build a culture of autonomy and accountability that provides every employee with the opportunity to do their very best work.

In the coming decade, it will be critical for business leaders to adopt a productivity mindset. By systematically removing obstacles to productivity, deploying talent strategically and inspiring a larger percentage of their workforce, leaders can dramatically improve productivity and reignite top-line growth.