THE PRODUCTIVITY CHALLENGE

Earlier this year at our annual conference, TIGER 21 Members were treated to an in-depth discussion on current economic and market events by David Rosenberg, Chief Economist and Strategist at Gluskin Sheff + Associates, and Byron Wein, Vice Chairman of Blackstone’s Multi-Asset Investment Group.

The two touched on a range of topics, but a prominent theme they highlighted was how the economy has struggled to improve productivity in recent years, and the shadow that casts over what has otherwise been a pretty exuberant stock market.

Thinking about this in a TIGER 21 context, it strikes me that entrepreneurs face this productivity challenge on both a macro and micro basis. Not only are they exposed to macro-economic trends, but they have to deal with specific ways the productivity challenge manifests itself in entrepreneurial organizations.

Macro Challenges to Productivity

Starting at the macro level, here are some of the challenges to productivity outlined by Rosenberg and Wein:

1. Slow growth. The current economic expansion may be longer than average, but it has been characterized by slow growth. Classically, fast growth tends to be good for productivity because it makes greater use of capacity, but the current expansion has not created that kind of rising tide for productivity.
2. Aging population. The economy in the nineteen-eighties and nineties got a nice pop from Baby Boomers entering their peak earning and spending years, so it makes sense that the transition of that generation into retirement would act as a drag on growth. This means that slow growth may be somewhat chronic for the foreseeable future, implying that the attendant challenge to productivity gains is here to stay.
3. Mismatch of skills. Technology has advanced faster than the skill sets of the mainstream workforce. The result is a shortage of people with the type of value-added skills that create the greatest potential for productivity gains.
4. Transition to a service economy. As the service sector has become a bigger part of the economy, the hands-on nature of many service occupations will act as a natural limiter of productivity gains.

Productivity in an Entrepreneurial Organization

The productivity challenges discussed by Rosenberg and Wein are all too real for entrepreneurs and established companies alike on a macro-economic level, and they also have some particular applications to entrepreneurial organizations:

1. Hitting the wall. Typically, growth is a boon to productivity because it makes greater use of capacity, but recent start-ups often hit a wall with respect to capacity. This sometimes may have to do with getting the financing together for a transformational stage of capacity expansion, but in many cases it has to do with having a dominant, entrepreneurial leader who starts to run up against the limits of how much any one person can do in an organization.
2. Recruiting and training. If the mismatch between the workforce and up-to-date skills is a challenge for the economy at large, it can be an even greater one for entrepreneurial organizations. In such organizations, the required skills are often more cutting edge, and the first wave of key hires represents a larger portion of the overall company workforce, and therefore has an especially large impact on its potential capacity.
3. Maturing into slower growth. There’s nothing like those heady-days of early stage growth, but of course those growth rates are impossible to sustain as an organization matures. Downshifting to a more sustainable growth rate is likely to mean that productivity gains become harder to come by.

Productivity Opportunities

While the productivity challenge has special implications for entrepreneurial companies, those companies by nature may be especially well-equipped to rise to the challenge. To the extent that productivity can be a competitive advantage, this means entrepreneurial companies can turn the challenge into an opportunity. Here are some examples:

1. Technology solutions. From souped-up computing power to robotics and other forms of automation, technological advancements have the potential to transform productivity. This may be especially true for newer organizations that have less sunk cost in old-style capacity – and perhaps are less invested intellectually in old-style methods. In particular, a fresh perspective may be most valuable in determining the most productive way to employ robotics and automation, while these trends are likely to be most disruptive to more entrenched organizations.
2. Breaking down physical barriers. Leveraging people’s time, from rank-and-file workers to senior management, can be a pathway to productivity gains. Given the out-sized role entrepreneurs often play in their organizations, this means the benefit of leveraging their time is especially great. Between mobile resources, more accessible video conferencing, cloud computing, and more openness to more flexible working arrangements, traditional barriers of physical location have been lowered, creating greater productivity potential for key executives in particular.
3. Process improvements. Macro discussions of productivity often focus on capacity utilization, but for entrepreneurial organizations in particular, there is also the potential to improve productivity by finding new ways of doing things. In fact, often the vision of a better way to deliver a product or service is the inspiration for an entrepreneurial venture, and continuing to search for such transformational vision can be an ongoing source of productivity gains.

The macro-economic challenges to productivity defined at our annual conference by Rosenberg and Wein are daunting to business in general. Those challenges relate to entrepreneurial companies as well as to the economy in general, but they translate in a slightly different way on a micro level. Using the entrepreneurial advantages of nimbleness and creativity can help meet the productivity challenge in ways that just are not possible for the economy at large.

Barbara GoodsteinPresident & CEO of TIGER 21