Five rules of productivity improvement

By Torbjørn H. Netland

If I should explain my research in two words, I would say “improving productivity”.

Productivity matters

The importance of productivity for our wealth and prosperity is well captured by the famous quote of Nobel Prize Laurate Paul Krugman [1]:

Productivity isn’t everything, but in the long run it is almost everything.  A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.

Krugman’s quote suggests that productivity is the ratio of output per worker. A problem with this usual definition is that it reduces productivity to an efficiency measure, thereby either presupposing (or, worse, ignoring) effectiveness. If we hold resource input and time constant, it suggest that a process that produces two units is double as productive as a process that produces one unit. However, if the market only needs one of the units, this conclusion is clearly nonsensical. To understand productivity, we must relate it to the demand.

The 5 rules of productivity improvement

Based on the rich productivity  literature* and my own research and observations, I have carved out five universal rules of productivity improvement. Also when we prepare for the future – and what has been called the fourth industrial revolution – I suggest that they hold and should guide the application of new technologies.  Here they are:

Rule 1. Deliver value for the customer

First—and too often misunderstood—do the right things before doing the things right! Effectiveness comes before efficiency. This means to start with a focus on creating value for the customer [2]. Another word that captures this notion is in my opinion the good old “quality”, in the broad meaning of the word. Quality can be defined as conformance to customer requirements.

Rule 2.  Get processes under control

Do not overload processes, equipment or people. Reduce “muri”, as they say in Toyota. Queuing theory gives mathematical proof that, when utilization gets closer to 100 %, chaos grows exponentially. If the key to the first principle is quality, the key to this principle is a deep respect for your resources – first and foremost respect for people. Technology is a great means to get processes under control. Digitalization and automation is here to help, but make sure your maintenance practices are robust. A good tips is to start focusing on the bottleneck processes in your operations [3].

Rule 3. Sync processes as a system

The third rule is to sync processes. It requires a system perspective [4]. We know that variation (“mura”) is one of the biggest enemies of productivity and should be sought reduced [5]. However, we must differentiate between strategic and dysfunctional variation [6]. It is only the dysfunctional variety that should be sought eliminated. The strategic variation gives us competitive edge and should be kept or cultivated. Many practical techniques help sync the processes, including assembly lines, standardization, modularization, takt time-paced production and just-in-time logistics, to mention a few.

Rule 4. Shorten throughput times

For productivity, fast flow is an ideal [7] — but not on the expense of any of the three first rules! A good way to make throughput times and lead-times shorter is to reduce non-value adding activities in and between all processes, so called waste (“muda”) [8].

Rule 5. Continuously improve

There are two good reasons for seeking continuous improvement [2]. First, because systems never get perfect, there is always room for increasing productivity in your processes. Second, the external environment is constantly changing. Improvements range from incremental process improvements (exploitation) to more radical technological and organizational innovations (exploration). Building a learning organization, capable of both exploration and exploitation, is the most certain way to sustain and improve productivity over the long run.

References

* Many have studied productivity. These references are a very short selection of some contributions that have had a significant influence on how I think about productivity improvement. If you feel something is missing, please share below.

1. Krugman, P. R. (1994). The age of diminished expectations: US economic policy in the 1990s: MIT press.
2. Womack, J. P., & Jones, D. T. (1996). Lean thinking: banish waste and create wealth in your corporation. New York, NY: Free Press.
3. Goldratt, E. M., & Cox, J. (1984). The goal: excellence in manufacturing. Croton-on-Hudson, N.Y.: North River Press.
4. Deming, W. E. (1982). Out of the crisis. Boston: Massachusetts Institute of Technology.
5. Hopp, W. J., & Spearman, M. L. (2011). Factory physics. Waveland Press.
6. Suri, R. (1998). Quick response manufacturing: a companywide approach to reducing lead times. Portland, Ore.: Productivity Press.
7. Schmenner, R. W. (2012). Getting and staying productive: applying swift, even flow to practice. Cambridge University Press.
8. Ohno, T. (1988). Toyota production system: beyond large-scale production. New York, NY: Productivity Press.
9. March, J. G. (1991). Exploration and Exploitation in Organizational Learning. Organization Science, 2(1), 71-87.

This article is written and reproduced with the kind permission by Dr. Torbjørn Netland who is a Tenure Track Assistant Professor and the Head of Chair of Production and Operations Management at the Department of Management, Technology, and Economics, ETH Zurich, Switzerland. You can access his latest content through his website or follow him on LinkedIn and Twitter.