The insidious effects of Productivity claims

Interesting little tidbit in CIO Insight this week about productivity.  Parallax View – IT Spending – IT: A Bright Spot in an Economic Slowdown.

There’s nothing wrong really with trying to see the silver lining in an economic slowdown (ie. that workers are increasing their productivity while the economy slows), but I think we need to see beyond the short term effects of this productivity surge as they call it.

The writer’s feel that businesses haven’t been investing as heavily as they did in in the 1990′s and I agree with that.  I cut my teeth in the business world during the go-go days when everyone was installing ERP systems to head of the doomsday scenario that Y2K was sure to bring.  I felt fortunate to be in consulting those years because it was lucrative but I really should have been in sales.  I think you just had to sit by your phone for a few years in the late 90′s and fortunes rained down upon you.

Back to today’s reality however, I think the game has changed significantly.  The low hanging fruit is gone.  What major or even medium sized company doesn’t have an ERP system already?  There’s even plentiful solutions for the SMB market.  Where to invest the IT dollars isn’t as much of a no-brainier anymore but I think the returns to be had can be significant if you’re actually aligning your IT projects to your business needs.

Anyway, I started out talking about productivity and what’s left unsaid behind the numbers.  I tend to think that productivity is going to go up during recessions because companies force less people to do the same work that was done by more.  Whether companies actively reduce their headcount or let it happen by attrition it’s natural that the ones left behind will be obliged to pick up the slack.  You know they want to do it because the alternative is looking for a new job when there are plenty of others doing the same and businesses aren’t hiring.  I think this is, at best, a very short term solution.  I say we should look for productivity to increase going into the downturn but start to lag just like everything else.  Despite fearing for their jobs, people still get burnt out.  They will start to spend more time complaining about the way things are versus how they used to be.  They might still stay at work until 9pm and come in at 7am but the output during those hours just is not going to be sustainable over time.

One of my favorite sites, iTulip, posted this great article on the insidious unseen effects of Inflation.  Although the topic of the article is inflation, I think you can draw a great parallel between that and what happens during an economic slowdown.  In the iTulip article they used a restaurant as the business to illustrate how inflation changes the way they operate.  You can read between the lines though and see that all companies could react the same way – all businesses have people and they have inputs to their end product.   A restaurant or company cutting back can cut their fixed expenses by reducing the number of people, or they can try to lower unit costs by substituting cheaper products or providing less quantity for the price.  While having less shrimp in your pad Thai is a bad thing, I’m more focused here on what the effect is on the employees left to hold it together.

The quote from the article hits it right on the head:

Management tries to lower fixed expenses (versus per plate of food unit costs) by reducing staff. Customers experience this as slowness and crankiness among the remaining overburdened wait staff.  If your wait person is cranky and unresponsive, count how many tables they are covering before passing judgment. These days it’s probably too many.

The morale of their article is that well run, properly capitalized businesses that have a lot of cash can use these recessions to steal the customers from their weaker competitor’s.  The key is to not do the things that are forcing your competitor’s to go out of business.  Don’t raise your prices as much, don’t begin to skimp on the quality of the products you offer and most importantly, don’t let the service you provide slip because you’ve decided to rest all the work of many on the shoulders of less.

Bad things can happen when you push people to the point of breaking…

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