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Article by Mohan Babu


Productivity gains shoot up in spite of downturn

Productivity gains mean that corporations and executives will find it easier to justify spending money on tools and technologies that improve productivity of their workers and companies that can design and implement innovative solutions will find a good market, writes Mohan Babu

In February, this year, the US Labour Department released new productivity numbers for the final three months of 2001 and the figures were startling. In spite of the economic downturn during the year, productivity gains didn’t wane. The 3.5 percent annual growth rate for the period is well above 2.6 percent average rate for the late nineties. The US Labour Department tracks non-farm business output-per-worker, which translates to productivity per employee. Even Alan Greenspan, the all-powerful chairman of the American Federal Reserve acknowledged the significance of productivity gains brought about by technology. At this point in time, with the economy bottoming out, planners and corporate strategists are looking back and trying to find the key to the gains in productivity that we experienced.

The impact of technologies (including the use of software systems) on the economy was far reaching. Factory and office automation has helped streamline the repetitive work of employees so much so that fewer people are needed to do the same job, and they can do it in a more efficient manner. For instance, FedEx has equipped trucks with state-of-the-art messaging systems and hand-helds that help managers route trucks in a more efficient manner. The use of technology has helped the company streamline its operations: a route that would have required two trucks earlier now requires only one truck. In many cases, for instance the computerisation of banks and railway reservations, the same number of people are able to do a variety of tasks, leading to a better level of customer service and satisfaction. In a classic example of eating one’s own cooking, software engineers are benefiting from the use of tools of productivity, including the use of RAD (rapid application development) tools. I could go on with examples but you must have got the idea by now.

While looking back and analysing the gains experienced in the past decade, some business leaders are becoming sceptical about the ability of technologies to continue to grow at the same rate as in the past. Even ‘Moore’s Law’ that talks about computer power doubling each year is starting to hit a glass ceiling. Unless we experience new disruptive technologies in the horizon, with the current rate of growth, it will be hard for technology alone to continue to propel the growth in economy. The question that then remains is, Can the momentum of the past gains push us toward higher productivity moving forward? It is hard to say. The Yankee Group, a consulting firm that has done extensive studies on the ‘new economy’ companies, points to, Dell and Microsoft as the most successful Internet pioneers. However, even traditional companies like Southwest Airlines have been able to use new technology to their advantage. This in turn had a ripple effect on the people working for these companies who also benefited from a culture of technical innovation. Margaret Popper, who covers the markets for Business Week, in a recent article, said: “The tech sector will consolidate in 2001 and 2002, but the technologies that sparked new efficiencies over the past half-decade will continue to work their magic for some years yet or so most experts believe.”

Most of the research in productivity gains and growth is being done in the US but I’m sure that a similar rate of growth is sustainable even in India where we don’t have the level of automation and computerisation as in the west. Small businesses and most government bodies are not wired up and record keeping is still manual. However, the change is evident in larger companies and some government departments that are already reaping benefits of higher productivity. For instance, computerisation of railways has lead to a more streamlined reservation process. Passengers can walk down to any small station and book tickets from any location to another for their choice of dates. They can also verify their travel details over the phone! Similarly, accounting and office automation packages are ubiquitous. With the privatisation of telecom industry, even communication is becoming really cheap and teleconferencing and videoconferencing technologies will alleviate the need to travel halfway across the country or globe to meet with clients or project-mates, thus increasing the productive hours spent not travelling.

What do the gains in productivity mean to Indian entrepreneurs? I think the renewed interest in productivity gains mean that corporations and executives will find it easier to justify spending money on tools and technologies that improve productivity of their workers. There are still a number of business problems that need automating and companies that can design and implement innovative solutions will find a good market. Efficiency from the Web, especially in business-to-business dealings are yet to be fully realised. Companies are continuing the thrust towards the use of B2B platforms, and technologies that enable them to globally source materials and buy the products. Even though B2B players may not experience the euphoric growth as seen in the past, they will continue to find interest from global players. As the economy continues to stabilise and eventually take off, companies will start to explore what the Net and other new technologies can do for them.

Indian players, especially those in the field of system automation should carve out a niche for themselves during this downturn. They should be working to design and develop innovative products geared towards optimising the output-per-worker in different segments of the business-arena. This will prepare them for an upswing, positioning them to gain from the future growth.





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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