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Ops 4.0: the solution to the productivity puzzle?

Productivity Puzzle

by Philipp Radtke and Kevin Speicher

The current economic recovery is job-rich, but productivity-weak. While employment is high, labor productivity growth is near historic lows in the United States and much of Western Europe. Growth in labor productivity has been slowing since the 1960s in many of these countries, but the sharp drop to an average of 0.5 percent in 2010–14 from 2.4 percent a decade earlier has been particularly concerning. New research by our colleagues the McKinsey Global Institute (MGI) attempts to shed light on this puzzle.

Using economy-wide analyses, industry case studies, and corporate surveys, the MGI identifies three economic waves that have pummelled productivity growth in recent years. The first of these is the waning of the last productivity boom, which began in the 1990s, fuelled by advances in information technology, operational restructuring and the development of global supply chains. The second is the after effects of the global financial crisis, which depressed demand, increased uncertainty and discouraged investment.

For us, the third wave is the most intriguing: digitization, which includes transition to online sales and delivery models, as well as the application of a range of fast-maturing technologies such as advanced analytics, artificial intelligence and the Internet of Things (IoT).

Three waves—a waning 1990s productivity boom, financial-crisis aftereffects, and digitization—help explain low productivity growth today.

As operations professionals, that conclusion chimes with our own experience. We’ve seen at first hand the potential of Ops 4.0 (which has digital innovation at its heart) to transform productivity in a wide range of industries and functions. But we also know that many companies are struggling to capture that potential. The challenges are complex. Transforming the capabilities, culture and processes of any organization quickly, but sustainably, will always be difficult.

Difficult, but vital. The race to unlock the potential of digitally-enabled operations has already started and businesses are getting ready to surf the next major wave of productivity growth. Others risk being swamped by it.

Read the full MGI report “Solving the productivity puzzle: the role of demand and the promise of digitization

Find out more about Ops 4.0: Fueling the next 20 percent productivity rise with digital analytics