Dynamist Blog


This trade magazine article asks, "Why is supply-chain optimization still the exception rather than the rule?" and goes to some lengths to answer the question. In the process, it illustrates a journalistic challenge of covering productivity improvements: This is not compelling writing, to say the least. True, it's written for insiders and thus employs a lot of jargon. But clear organization and vivid examples would be just as valuable in a trade magazine as in a general-interest publication. Unfortunately, the trade journalists who know the most about the nuts and bolts of productivity gains are often the least likely to have the skills necessary to communicate what they know to the general public. Fortunately, that creates opportunities for knowledge arbitrageurs like me.


Jay Manifold, who blogs a purely technical critique of the Californian photovoltaic regulation," emails some thoughts on productivity:

Re: "The Big (Econonmic) Story" -- kudos for pointing this out, especially Brad DeLong's "becoming smarter about organizing production processes." Sprint's in-house process-improvement training (which we got from somebody else -- we didn't make this up) claims that any process that's been around for a while is susceptible to having as many as three-quarters of its steps removed while remaining capable of achieving the needed result. The potential for increased productivity at any given moment is therefore not so much a percentage as a multiple.

I don't think it's a coincidence that the last four years, with their high-profile difficulties in IT, a recession, and ongoing struggles in (for example) the airline and hospitality industries, have seen striking productivity increases. Harold Kerzner spoke at a PMI chapter meeting here in KC back in '01 (and will be here again this fall; see http://www.kcpmichapter.org/Symposium2004/Symp04home.html, which describes an event I will certainly attend). One of his more memorable remarks was that the recessions of the early '80s and '90s saw the greatest improvements in project management methodologies, and that as for the then-current recession, "I hope it lasts 25 years!"

This must be carefully distinguished, of course, from the notorious "broken window" fallacy, since economic downturns aren't, by themselves, good for the economy. I think that keeping the "triple constraint" of project management in mind (colloquial version: cheap, fast, good -- pick two) resolves this. Assuming the effect of a recession is to force operations to be cheaper, maintaining scope/quality requires that they be redesigned to be somehow faster and better.

Somewhere in the above I segued from talking about processes to talking about projects, and then back again. But the development (or redesign) of a process is itself a project, and the PMBOK devotes an entire chapter to quality management, with special attention to the tools and techniques of quality control. The assumption is that project managers must become intimately familiar with repeatable, high-volume processes.

I am proud of my employer's openness in this area, which distinguishes it from at least some of the "companies that don't want to talk about their operational secrets"; see here.

In the real world, it takes a finite amount of time to redesign processes -- or design them in the first place -- and gain their acceptance and use by those who will be carrying them out. It is nonetheless reasonable to suppose that a sufficiently committed organization could double its productivity every three years. The quality teams and process-improvement initiatives I've participated in have typically paid for themselves in less than six months and eventually resulted in financial gains, or prevented financial losses, equal to several times the annual salaries of all the team members combined. Indeed, a target of 10x one's salary in cost savings is not unheard of.

On the journalistic side of this story, Neiman Watchdog (the site of Brad DeLong's original post), posted an item about my earlier discussion


Better, cheaper vaccines could be on their way to poor countries, as vaccine makers in low-cost countries like India not only improve their own capabilities but license technology from the U.S. and other developed countries. The Scientist reports:

The Serum Institute of India (SII) this week signed an agreement with the international Meningitis Vaccine Project (MVP) to develop a new conjugate meningitis A vaccine at a cost of 40 cents per dose for the African meningitis belt, which stretches from Ethiopia to Senegal.

Existing polysaccharide vaccines cannot be used in children younger than 2 and do not produce long-lasting protection. The MVP, run by the World Health Organization (WHO) and the international charity PATH, hopes that the new conjugate vaccine will overcome these problems.

"We won't have to vaccinate every 3 to 5 years, and we'll create herd immunity — and that's a major thing," said William Perea, WHO's coordinator of responses to disease outbreaks.

To create the vaccine, SII — which already claims to supply 75% of the measles vaccine needed worldwide by the United Nations Children's Fund — has applied a new US technology to conjugate a tetanus toxoid with a meningitis A polysaccharide from a Dutch company, SynCo BioPartners.

US Food and Drug Administration scientist Carl Frasch, who created the high-efficiency conjugation technology using hydrazine, told The Scientist, "The agreement represents a new paradigm for vaccine or drug development — a consortium so the raw materials come from one place, the technology from another, and the manufacturing facility from another."

"Concerned scientists are very interested in trying to make vaccines — that are largely first-world products — more widely available," said Frasch.

The US National Institutes of Health negotiated the license agreement with SII. Suresh Jadhav, the Indian firm's executive director for regulatory affairs, told The Scientist they would pay $2.4 million over 10 years, or around 1 cent a dose, for the technology.

The vaccine could not be created entirely off the shelf, and so represents a tentative new step in R&D for developing country vaccine companies. "When we stepped up from pilot to production scale," said Jadhav, "we had to make a lot of changes."

There's also a good prospect that companies like SII will expand their R&D capacity substantially in the future, to allow cheaper creation of more new drugs and vaccines for poor countries, said Jadhav, who is also president of the Developing Countries Vaccine Manufacturers' Network.

"More than three or four could do it. For example BioFarma in Indonesia, Bio-Manguinhos in Rio, Instituto Butantan in Sao Paolo, and CIGB in Cuba," said Jadhav.


Matt of Overtaken by Events writes:

I've been fascinated with the productivity reports ever since I was employed at Wal-Mart Stores and had the opportunity to attend a lunch with Warren Buffett. This may be anecdotal, but based on the scale, I think it's telling.

The company I work for now partners with several large hardware manufacturers to deliver IT rollouts for Wal-Mart. One of the current projects is a multi-million dollar installation of a wireless network into every store in the US for the sole purpose of making the checkout areas more efficient. If you've ever been in line and had to wait for someone to deliver change to the register, you know how much time it can take. When this project is complete, every checkout supervisor will have a PDA that will communicate directly with the register. When a cashier starts to run low on change, has to go to the bathroom or has virtually any other problem, there will be a specific code they enter that will page the PDA and tell the supervisor exactly what they need. No longer will the supervisor have to walk to the register, find out the problem and make another trip to resolve it. This may only save a few minutes at a time, but when you're talking about 100 million customers per week the productivity gains could be enormous.

As a bonus, this new system will also track each cashier, ensuring that breaks and lunches are taken at the appropriate times, going so far as to shut down a specific register if that person hasn't signed out. This could potentially help to shield the company from future labor lawsuits.

This is just one example from one company for whom I am working on multiple projects. I agree with you, though. I'm unlikely to read about this in the Post.

Keep those stories, positive and negative, coming. Thanks.


Whether or not there's actually a bubble in places like L.A. and San Francisco, housing is unbelievably expensive in most of California. High housing prices drive people and businesses out of state and make life significantly worse for many who stay. So the California legislature is working to make new houses even more expensive, by requiring a feature almost nobody who lives outside the boonies is willing to pay for: photovoltaic solar systems. Here's the A.P. report:

SACRAMENTO - A bill that would make homebuilders install solar energy systems on 15 percent of new homes built in California starting in 2006 narrowly passed a key committee in the Assembly on Wednesday.

With a 5-4 party-line vote that saw Democrats in support and Republicans in opposition, the Assembly Housing and Community Development Committee approved the bill that could quickly put California on par with Japan and Germany, home to thousands of new solar home systems. The bill requires that 55 percent of homes have the units by 2010.

But if it passes the full Assembly, the bill could put Gov. Arnold Schwarzenegger in a jam between two interest groups -- environmentalists and the state's large building industry -- that have claimed his allegiance. During last year's recall election, Schwarzenegger campaigned for incentives that would install solar systems on half of new homes starting in 2005.

Spokeswoman Ashley Snee said Wednesday that Schwarzenegger has no position on the bill but that he remains committed to "opportunities for solar technologies."

Opponents of the bill said the solar systems will add $20,000 to home costs and price thousands more Californians out of the housing market, which is among the nation's most expensive.

Solar systems are undoubtedly cool, but so are skylights and heated bathroom floors. That's no reason to make them mandatory. The solar-industry lobby makes arguments that would be recognized as greedy and self-serving coming from any other industry:

"Creating a minimum standard for builders is the most cost-effective way of increasing the number of solar powered homes," said Bernadette Del Chiaro, Clean Energy Advocate for Environment California. "This bill would not only reduce thousands of pounds of air pollution each year, it would also save Californian's money by preventing the need to build more natural gas power plants."

According to the California Building Industry Association, approximately 135,000 single-family homes will be built in 2006. Should California require a minimum of 15 percent of these homes be built with 2 kW solar PV systems, as called for in this bill, California's solar market would increase by approximately 40 MW, equivalent to the size of a peaking power plant.

In other words: GIVE US MORE BUSINESS.


Poliblogger Steven Taylor is helping with a drive to collect and ship up-to-date textbooks to restock the library at Baghdad University. Particularly needed are math, science, and medical books. (Via Jane Galt.)


Here, on CNET, is a good example of the way journalists typically cover rising productivity--as bad news: "So-called smart applications will soon cause more job losses than outsourcing, and policymakers will need to tread cautiously to minimize the effect of this new trend, a new report warns."

I'm about 85 pages into William W. Lewis's excellent book, The Power of Productivity. Lewis, the founding director of the McKinsey Global Institute, draws on McKinsey & Co.'s detailed international reports on productivity in specific industries. Here's a passage that's on point:

In the 1990s, as we were finishing our productivity work on manufacturing and services, the most serious economic issue in Europe was not productivity but high and rising unemployment. Every time Europe had a business downturn, unemployment rose. Every time there was a business upturn, unemployment stayed constant. The net result was that unemployment rates in Europe were two to three times as high as in the United States. At the urging of my colleagues in Europe, we decided to see whether our industry study approach would yield new insight into the reasons for the differences in employment performance.

We quickly found that in the decade of the 1980s the United States had created far more new jobs relative to the growth of the working-age population than in Europe. The question was why. We started with the relationship that employment levels are the result of dividing the overall level of production of an economy by the productivity of the workforce.

This simple relationship has led to one of the most serious public misunderstandings about how economies work. It is tempting to conclude that if productivity increases, then employment must go down. After all, if the workforce works more efficiently, then fewer workers are needed. This line of thought stops too soon. It fails to consider what happens after productivity is improved and workers are available to be redeployed somewhere else in the economy. It assumes incorrectly that the amount of business activity in an economy is fixed. In fact, if workers are available, entrepreneurs can match them with new business ideas and investment capital and thus increase the total amount of business activity in an conomy. The production of goods and services thus increases, along with the productivity increase, and employment levels do not have to decrease....

Somehow in Europe, the efficiency of the workforce was increasing but the available labor was not being matched with new business ideas and additional equipment to create growth and employment. The natural evolution was proceeding differently in Europe than in the United States.

We looked at the structure of the European and U.S. economies and found that the employment distribution was quite different. The U.S. had far more people working in services than Europe did. In fact, the biggest differences were in residential construction and retailing. We asked why this is so. What we found is that many of the factors that distort the nature of competition and result in lower productivity also limit the production of more goods and services.

What makes the book interesting is the information it provides on just what these international differences are--how and why, for instance, residential construction is similarly productive in the U.S. and the Netherlands (and produces high employment) and far less productive in Germany and Japan.


On the Nieman Foundation's site, Brad DeLong recently urged journalists to do a better job covering "the big story about the economy during the past four years"--the rapid growth in productivity because of underlying structural changes:

On the structural side, the American economy has been growing fast over the past four years. The productive potential of the American economy has grown at an extremely rapid pace. But the rapid growth has not been the result of high investment (more capital). In fact, the rate of investment has been markedly slower than in the late 1990s. It has also not been the result of any action taken by the Bush Administration. Instead, the rapid growth is the result of:

(a) learning to efficiently use the information-technology capital
(b) becoming smarter about organizing production processes, and
(c) speeding up the pace of work.

This story of positive structural changes in the American economy — the very rapid growth of potential output — is the big story about the economy during the past four years. It's important both at the macro level — why is output-per-man-hour 20 percent higher than it was five years ago? — and at the micro level — how are people today doing their jobs and being 30 percent more productive than their predecessors of a decade ago? The news media aren't covering this well. Yet it's the really big story about the economy in the Twenty-First century.

In today's Boston Globe Ideas section, I look at one piece of that very big story: the spreading use of operations research techniques once confined to theory. (What's operations research? The story explains that too, or tries to without using any math, graphs, or jargon about optimizing subject to constraints or finding interior solutions. For more on the field, see the INFORMS site.)

Of course, very few general-interest publications would let a writer spend nearly 2,000 words writing about operations research--or, for that matter, rising productivity. Brad is exactly right that journalists aren't covering this story, but he doesn't offer any reasons why. As a journalist, let me suggest a few:

1) The productivity story is boring. It isn't really, but editors think it is. There's no obvious conflict, no scandal, no little guy getting hurt (unless you portray rising productivity as throwing people out of work, which is the most common angle). The improvements that drive productivity increases are incremental--hence, not dramatic--and often technical.

2) The productivity story isn't political. Neither George Bush nor Bill Clinton deserves any credit, except for not getting in the way. Not getting in the way is actually a big accomplishment, one many politicians around the world can't claim, but it's bipartisan, hence boring. (See above.)

3) The productivity story is too big. It's less a story than a beat, requiring many different stories to tell. Business beats aren't organized to tell stories like this. They're organized by industry or, occasionally, by field (e.g., marketing). The rare writers who cover economics, including me, reflect the limits of economic scholarship, which mostly deals in aggregates and tends to lag what's going on at the moment. On this score, major props go to USA Today, which recently published its fourth annual report on producivity gains at large companies, with some anecdotal info about smaller enterprises as well.

4) The productivity story is hard to report. If you really want to understand what's going on, you have to spend lots of time with mid-level managers at companies that don't want to talk about their operational secrets. You need to understand operational details that are unfamiliar to most journalists, or, for that matter, economists. Once you've invested all this time, you may or may not have a story that fits accepted journalistic formats--formats that, for all their flaws, do reflect experiential wisdom about what readers will read. As long as David Brooks can go for laughs by invoking "Six Sigma" as a mere buzzword, the productivity story will continue to strike editors as a nonstarter.

Since I am a stubborn freelancer, however, I intend to do what I can to tell this story anyway. Indeed, as many of my NYT columns illustrate, I think there's an even larger story to be told, one that includes not just the measured productivity gains of the past few years but enormous unmeasured gains in (to use the econ jargon) consumer surplus going back further.

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