How Productivity Drives Sustainable Growth
Ahead of the AESC global conference Sustaining Growth in London on November 15, Bart van Ark, Professor of Productivity Studies at Alliance Manchester Business School and Managing Director at The Productivity Institute, spoke with us about the headwinds causing productivity to stall, how this could jeopardize economic recovery and how leaders and leadership advisors can foster highly productive environments to drive sustainable growth.
Q&A with Professor Bart van Ark on Productivity Growth
AESC: Multiple headwinds (the global financial crisis, COVID-19, war, political tensions, and the climate crisis) have prevented a widespread productivity improvement in the past decade and a half. If productivity continues to stall, how will this impact the economy in the future?
Bart van Ark: As we have seen in the past decade and a half, a volatile economic environment with a heightened amount of uncertainty is detrimental to business investment. If firms slow their investments in physical, knowledge and human capital, productivity will slow even further. The paradox is that we are in the middle of the Fourth Industrial Revolution, during which digital transformation and the rise of artificial intelligence provide immense opportunities to raise productivity. There is a concern that the absorptive capacity of firms to adopt those new technologies and put them to productive usage has weakened.
AESC: If such headwinds persist, slow productivity could turn out to be a major weakening force for economic recovery and jeopardize the transition path to net-zero growth. Why does productivity have such an impact on sustainable growth?
Bart van Ark: Productivity growth is about turning your resources as effectively as possible into better outcomes. That is different from a narrow focus on efficiency which is often just about “more with less." Whether it is business growth, improving the quality of life in cities and towns, or creating a path to net-zero production, we always need to make the best use of people, machines, energy, natural capital and other inputs in the production process. Except for our own ingenuity all those resources are finite. We won’t be able to achieve better health, well-being and a sustainable environment without using those inputs productively.
AESC: What is the role of leaders and leadership advisors in this transition?
Bart van Ark: At all levels, the role of leadership is immense. For business leaders, there is overwhelming evidence that managers who are able to connect the dots, have strategic vision, engage their staff and are focused on communication and collaboration, are at the heart of more productive organizations. But it is also true for national, regional and local policy makers who are not only responsible for creating good conditions for private sector productivity but who also can make a difference for more productive outcomes in the public sector itself.
AESC: What frameworks and strategies should leaders and leadership advisors look to employ to foster a highly productive economy?
Bart van Ark: In addition to management competencies, we find four other key drivers to what we call “strategic productivity” which means productivity that creates sustained business growth: (1) continuous innovation driven by digital transformation; (2) skill formation at all levels in the organization, which means supporting life-long learning; (3) collaboration, vertically in value and supply chains as well as horizontally in (often place-specific) ecosystems and platforms; and (4) access to multiple sources of finance for investment. At the economy-wide level, these strategic productivity drivers seem to translate quite naturally into investments in what is sometimes referred to as the “six capitals”: human, physical, knowledge, financial, social and natural capital.
AESC: Then, how do leaders and leadership advisors work together to turn productivity into a force for sustainable growth in the future?
Bart van Ark: While most business leaders know that using your resources productively matters a lot for growth and value creation, productivity is rarely a key performance indicator for an organization. In recent research, we found that leaders in different functions have quite different perceptions of what productivity actually means. Sometimes it is about cost savings (in finance), digital tools (in operations), better engagement of employees (in HR) or brand enhancement (marketing). It all matters and making it explicit will help to look at existing (or new) KPIs in combination to drive productivity. Seeing how each function contributes its part to the organization’s productivity can also help the strategic and planning conversations in the boardroom. For complex processes like digital transformation or the net-zero transition, this strategic approach to productivity is indispensable.
Join Bart van Ark and other sustainability experts in London on November 15 for AESC's Global Conference. Expand your knowledge and leave with new ways to become a game changer.