Competitive productivity – a new perspective on effective output
The shortcoming of the traditional understanding of productivity is that it overlooks the nature of competitiveness. The key question in a competitive market environment is to what degree any activity not only leads to productivity, but also its direct impact on competitiveness.
Traditional paradigm of productivity
Productivity is a hot topic in Western markets like Australia. Aging populations coupled with low fertility rates and growing social costs only allow one way to maintain current life style levels: an increase in productivity. Problematically, however, Western productivity levels are dropping, and the current understanding of productivity may result in falling behind dynamic East Asian markets.
The traditional understanding of productivity is that it is:
“A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical determinant of cost efficiency.” (www.businessdictionary.com)
The drivers of productivity have been identified, for example in the UK, as investment, innovation, skills, enterprise and competition. The Organisation for Economic Cooperation and Development’s (OECD) foundation for productivity are the framework conditions (low and stable inflation, developed financial markets, low taxes), infrastructure investment, degree of competition in product markets (eg. strict product market regulation undermines productivity growth), and open markets (trade and investment). At the same time, the OECD has identified relatively liberal labour market regulation as a contributing factor to productivity since excessive job protection results in high costs for firms to restructure. Strong job protection may also lead to a reduction of incentives for employees to focus on performance. A key factor in the productivity discussion is the OECD-acknowledged importance of human capital accumulation. A well-designed tertiary education sector provides the business community with human resources contributing to business, sciences and technology, the latter since technical knowledge stimulates innovation.
All in all productivity occurs at two levels. At the micro level, labour productivity is about the ratio of output produced per unit of labour used. At the macro level, however, multifactor productivity is about the ratio of output produced per combined input of labour and capital (buildings, equipment and machinery). What perhaps is not yet well understood is that the two levels are intertwined, and ultimately productivity is linked to competitiveness.
Paradigm shift to ‘competitive productivity’
In Western organisations, an increasing number of work hours are spent in time-consuming meetings, committee work and advisory boards which do not always result in productive outcomes. In marketing, for example, Apple may have a collaborative approach, but its speed to market and level of innovation has fallen behind its main competitor in East Asia, Samsung.
Competitive productivity is in essence both an attitude and a behaviour directed at beating the competition. Just as productivity itself, it is a factor score of both macro and micro-level determinants.
In order to showcase our new paradigm, we compare the Western to the East Asian approach to demonstrate the differences in competitive productivity:
- Benchmarking: Competitive productivity benchmarks performance against industry leaders in order to aspire to the same, if not higher, market position (sales, profitability, product/service/experience quality, brand equity). Such benchmarking will result in the allocation of resources in line with the objective to be the best possible. For example, Apple introduced the iPhone 4S in 2011, which was faster than the previous iPhone 4, but its performance was behind Samsung’s new Galaxy line. Another example is Apple’s iPad that runs one application at a time, while Samsung’s Note 10.1 runs three. Competitive productivity for Apple means to benchmark with Samsung’s superior performance.
- Culture: Competitive productivity is a culture that focuses on performance and competitiveness. A recent study (Baumann and Hamin 2011) has established an association between culture, competitiveness and performance. The antithesis is a nation’s culture that permits, if not supports, non-performance. When school leavers receive government support without any attempts to find a job, and when government websites provide comprehensive calculations of entitlements, then a culture of non-performance is nurtured. Such a culture makes it more attractive to search for free money rather than for work options, but no real value is created. Competitive productivity, in contrast as found in East Asian societies, is a culture with less-generous welfare systems, but instead nurtures performance orientation in society.
- Education and development: Competitive productivity is about performance orientation instilled in the education system, and then ‘lived’ in firms and society. For example, the Korean approach to education has resulted in top-of-the-world results in international student competitions such as PISA, whereas Western countries (such as Australia, USA and some European countries) have fallen behind. Educational top achievers such as South Korea, China and Singapore with their Confucian approach to education understand the role of education to go beyond the transfer of knowledge and skills, but importantly to also pass on values such as discipline, respect and performance orientation. Their ‘no pain no gain’ spirit results in peak performance in education, and subsequently in business, entertainment, medicine, science and sports. Western education, in contrast, increasingly loses the focus on passing on values such as competitiveness, performance and aspiration. Perhaps one of the most important lessons in business education, the one on competitiveness, is now increasingly omitted at Western educational institutions in comparison to East Asia where competitiveness is nurtured.
- Environment and infrastructure: Competitive productivity is about creating and upgrading a country’s (or firm’s) infrastructure. East Asian nations have world-class airports and transportation systems (eg. airports in Hong Kong, Seoul, Singapore, all generating large transit volumes). In contrast, infrastructure projects in Western countries are often neglected, under-funded and progress at a slow rate. For example, Sydney airport is non-competitive in comparison to the modern and convenient East Asian transport magnets. Western countries often engage in bureaucratic processes that are time-consuming (but perceived as ‘productive’ in the traditional sense of the term), but generate very little competitive productivity. East Asian nations are more pragmatic with their ‘can do’ spirit. The non-tangible business environment in China, Hong Kong, Korea and Singapore rewards performance with low tax rates, whereas Western societies have generated tax systems that flatten out society, discouraging peak performance.
- Performance (outcomes): Competitive productivity generates high-quality products, services and experiences. High-tech products such as computers, smart phones and consumer electronics are predominantly made in East Asia (China, Japan, Korea, Taiwan), whereas the West has largely lost its competitive edge. Siemens and Nokia were once market leaders in mobile phones, but German Siemens spun off their division to Taiwan, and Nokia is on the verge of brand equity bankruptcy. On the other hand, Samsung and LG, or Hyundai and Kia in the autombile market, are now market leaders in their categories. For physical products, competitive productivity is about speed to market (such as Samsung with fast product innovation) and product quality and design (such as with Hyundai now offering top design and quality, surpassing major competitors).
Asian service brands such as Singapore Airlines or Asiana (in Korea) provide competitive productivity since they provide award-winning services drawing passengers to their brands, and subsequently expand their networks, order new planes and generate profits, while Western brands such as American Airlines or United are generally viewed as almost ‘no frills’ providers with old planes and mediocre service. US and Asian airlines may spend equal amounts of time to generate the same amount of travel, but what ultimately matters is a service orientation focused on retaining customers for repeat business rather than time spent on projects such as internal committee work that may not result in improved service quality. What really matters to the customer is the actual service experience and service quality that drive customer loyalty and repeat purchase and ultimately, brand advocacy that is in fact, competitive productivity.
- Values: Competitive productivity is a ‘can do’ spirit and a positive service attitude. Confucian dynamism prevalent in East Asia nurtures values of hard work in education, workforce and society through a system of reward and punishment. At the same time the push in their society is for harmony. This is achieved through placing a high value on education and performance, reflected in government policies promoting educational achievement. In Chinese and Korean society, Confucianism has resulted in a society that puts teachers and professors at the top of the social hierarchy: performance, achievement and knowledge are valued and a key priority in society. In Korea, this has allowed the development of a knowledge society and an ‘educational powerhouse’. Teachers and professors are viewed and treated as an ‘investment’, whereas in Western societies respect for scholars is low, and is reflected in the low income for teachers and professors. Korea in contrast pays its teachers well, especially over the lifespan of a teacher’s career, and entry into high school teaching is very competitive.
The current business environment demands a direct link between productivity and the quest for competitive advantage. Marketers – and also politicians and educators – need to gain a working understanding of this new paradigm to position their organisations to retain if not increase their customers’ loyalty, retain and increase their brand value and ultimately remain relevant in their chosen markets.