productivity is going down in the US

Productivity in the US is the lowest it’s been in 70 years.

Just the other day, Goldman Sachs came out with a pretty chilling warning, that productivity is seriously declining in the labor sector.

I’ll try and break this down in the most simple terms possible, as I know many of you aren’t financial/economic experts.

I’ll admit that the way this figure is calculated is a little off, so I wouldn’t put too much emphasis on it, but there’s definitely something here.

productivity at work lowest in 70 years

Does this make any sense?

Almost every day, we see the stock market hitting new highs and breaking previous records, so what’s going on?

Let me break it down for you.

What companies are doing, is buying back their stock to make what’s called earnings per share higher.

What this basically means, is that they’re able to make their shares worth more, and make it look like they’re doing better than they actually are.

The way this works, is let’s say for example there are 1,000,000 shares of a stock out in the marketplace for people to buy.

Let’s also assume for easy numbers that the company I work for made $10,000,000 this year. If you want to calculate earnings per share, you just divide net income (10,000,000) by the number of shares in the market (1,000,000), giving you $10/share. In stock terms, you could say your company has an earnings per share (EPS) of $10.

Now, suppose as a company, I buy back some of the shares that are out there, so that there are only 900,000 in the market. When doing the calculation, the denominator in the equation is now lower, meaning I’ll get a higher number. In this case, it would be $11.11 per share.

The problem with this, is that even though the company’s earnings per share is going up, there’s no increase in productivity to show for it.

Without getting too carried away, this is going to have a major effect on the US economy pretty soon, mostly because companies can only do this for so long.

Another huge problem, and this is the secret here, is that since companies are spending most of their money on buying back their own stock to impress their shareholders, they’re not spending any of that money to grow their business.

In my opinion, this is why productivity at work is so low in the US.

I also think there’s sort of a deeper problem going on here. I think most of these public companies are moving too slow, aren’t innovating enough, and are struggling to stay alive.

So how do we become more productive at work? I think by being more lean.

The Lean Startup Movement

To me, applying the lean startup principles to a big corporate company is the answer.

General Electric, which, true story, is the only stock I currently own, is an incredible example of a company that is using lean startup methodology to innovate and run their business.

GE calls the program “FastWorks”.

Here’s a quote from a great article from Harvard Business Review about how GE had to iterate many times before getting it right on one of their products:

Instead of the traditional approach in which salespeople give design requirements and then leave, customers would be involved throughout. Having the team hear customer feedback firsthand was a big change, especially for the engineers. At their training center in Louisville, they bounced ideas and product prototypes off of retail salespeople who came to learn about GE’s products. They also went to Monogram design centers in New York and Chicago to test products with designers who were visiting to get specifications and information about products for their clients.

The feedback was hard for the engineers to hear, but it made a huge impact on them. In January 2013 the team came out with a “minimum viable product.” They put it out in front of customers, and … the customers didn’t like it.

The first feedback they got was that the stainless steel was too dark. So they made it a lighter shade of silver. Then the lighting tested poorly. They revised it and tested it again. They cycled through several product iterations. By August they had version 5, and customers started to like it. They built 75 of version 6 in January 2014 and response so far has been positive. They’re now working on version 8, which they will produce in October, and version 10, with better lighting, and there is a design projected for 2015. They intend to launch new products every year.

In fact, GE worked with Eric Ries, the guy that literally wrote the book on the lean startup, to develop their “FastWorks” program.

The Role Of Employee Engagement

The point of acting like a lean startup is to be more agile, and to adjust as new ideas come up and new feedback comes in.

I think lack of engagement is one of the biggest reasons that these companies can’t innovate.

There are still too many managers out there that feel like just because an employee is collecting a check, that’s good enough, when it’s been proven over and over again that that’s just not the case.

What do you think it does to morale when an employee will suggest a new idea or a change only to be dismissed?

As leaders, we need to encourage everyone to think like a lean startup, and train our employees on how to pivot, how to be agile, what it means to iterate and change quickly, etc…

Additional Resources

I really recommend everyone reading this to check these resources out to learn more about this stuff, it will make you better at your work.

What Are Your Tips For Being More Productive At Work?

Do you have any experience with the lean startup? Any other productivity tips you can share? Let me know in the comments!