McKinsey Quarterly on raising productivity

Stephen Dorgan and John Dowdy of McKinsey & Company researched factors influencing productivity growth focused on the period from 1994 to 2002. They looked at 100 manufacturing companies in France, Germany, the United Kingdom, and the United States and found that increases in IT spending has little impact on productivity unless it is accompanied by first-rate management practices. The 100 companies were evaluated on a scale of 0 to 5 for their use of three important productivity tools: “lean manufacturing, which cuts waste in the production process; performance management, which sets clear goals and rewards employees who reach them; and talent management, which attracts and develops high-caliber people.” The results indicate a one point improvement on the scale correlates with a 25 percent increase in the company’s total productivity (labor + capital). Companies that raised their management-practices score by one point increased their financial returns by 42 percent. Companies in the top quartile of IT deployment had a total productivity just 4 percent higher than the bottom quartile. The conclusion of the study is “Companies should first improve their management practices and then invest in IT.”
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