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What electricity, railroads, and gasoline power did for the U.S. economy between roughly 1850 and 1970, computer power is widely expected to exercise for today's data-based service economy. But at that place is increasing concern considering improvements in productivity growth are continuing at low levels despite the expenditure of trillions of dollars on information technology. Whereas productivity grew at an almanac charge per unit of three% in the two decades following World State of war Two, information technology has grown at an annual charge per unit of only well-nigh i% since the showtime of the 1970s. Had the earlier level of productivity growth been sustained, the gross domestic product would now be approximately $11 trillion instead of most $6.v trillion. That extra $4.5 trillion per year in economic output—which amounts to roughly an additional $18,000 for every man, woman, and child—would exist having a profound bear upon on a wide range of social and economic issues.

What is preventing a productivity revival in the U.S. economic system? Clearly, the manufacturing sector cannot be blamed. Since 1980, improvements in productivity in the manufacturing sector have moved the United States from a position of most terminal decline to renewed world dominance. Manus-wringing over the fate of the Rust Belt cities is a affair of the past. From 1970 to 1980, the The states lagged behind several other major industrial powers in manufacturing productivity growth. (See the tabular array "The Turnaround in U.S. Manufacturing Productivity.") In the early 1980s, U.Southward. manufacturing began to rebound, and between 1985 and 1991 the United States surpassed Germany and Canada in manufacturing productivity growth, was neck and cervix with Italy, and lagged behind only Japan and the United Kingdom.

The Turnaround in U.South. Manufacturing Productivity

Manufacturing, however, constitutes an increasingly small proportion of the U.Due south. economy. Appurtenances-producing activities (such as manufacturing and structure) employed only 19.ane% of the labor force in 1992—down from 26.1% in 1979. (See the table "The Growth of the Service Sector in the U.S. Workforce.") Service-producing activities, on the other hand, employed 70% of all U.S. workers in 1992—up from 62.two% in 1979. By 1994, 71.5% of U.S. workers performed service jobs—whether in manufacturing or service organizations—equally managers and professionals, salespeople, or technical back up staff.

The Growth of the Service Sector in the U.Southward. Workforce

Although the service sector's size has grown in the past 20 years, its productivity growth has declined. Compare its productivity growth with that of the manufacturing sector, for instance. From 1946 to 1970, productivity grew past 3% per yr in the manufacturing sector and by 2.5% per twelvemonth in the service sector. From 1970 to 1980, those annual rates fell to one.iv% for manufacturing and 0.7% for services. And then, from 1980 to 1990, the charge per unit recovered to 3.3% for manufacturing only stagnated at 0.eight% for services. The productivity revival had failed to penetrate the service sector.

Why hasn't productivity grown equally fast in the service sector as in the manufacturing sector? Several incomplete explanations have been offered and have resulted, in our view, in some serious misconceptions. We hope to show their limitations here and present a new explanation that lays the arraign in two places: the ineffectiveness of many U.S. business concern managers at improving productivity and the inherent complexity of the service sector itself. A management-based approach to improving the service sector's productivity offers promise for a rapid and significant turnaround of the sector's productivity growth charge per unit.

Understanding the Service Sector's Productivity Slump

At that place are a number of current explanations for why productivity growth has stalled in the service sector. A mutual i is that the consequence is simply a matter of measurement. Productivity, it is claimed, has been growing. But traditional productivity measures fail to capture that growth because information technology has been concentrated in improved quality of services. The data, however, argue strongly against this possibility. Starting time, undermeasurement of quality has been cited equally an explanation since the 1950s, but there is little testify that it has increased. 2nd, the quality argument would apply as to services and manufactured goods, yet manufacturing productivity has enjoyed a revival despite the nether-measurement of quality, whereas service productivity has continued to stagnate.

A 2d mutual explanation for the lag in the service sector's productivity growth is that since the 1970s, manufacturing workers, faced with the threat of losing their jobs to depression-wage employees overseas, take learned to work harder and smarter, but service workers, who typically have much less exposure to global competitive pressure, have not. This explanation as well falls short. First, the pressure on manufacturing workers in the United states of america has generally been overstated, often for political purposes. Second, although it is true that many manufacturing jobs have been lost to foreign workers, a far greater number have been lost merely because growth in demand for manufactured appurtenances has been relatively slow in the by ten years, and that has affected output.

A third and mind-numbingly familiar explanation is that output in the service sector is far beneath its potential because of a number of macroeconomic factors. Co-ordinate to this line of reasoning, the proposed solutions are to increment national savings and investment in the service sector by lowering the federal deficit and thereby reducing interest rates; to meliorate the quality of the workforce by repairing the woeful educational system, which produces workers unable to cope effectively with the increasingly technical nature of jobs; and to advance the development of new technologies by increasing support for inquiry and development, which has been dwindling. In other words, save more, improve education, conduct more than R&D, and the service sector's issues will exist solved.

A radically different view volition be presented hither. Nosotros volition argue that the problem is not a lack of resources; rather, it is that service sector companies operate below their potential and increasingly neglect to have advantage of the widely available skills, machines, and technologies. The chief reason the service sector has not reached its total potential output is management.If managers were focused energetically and intelligently on putting the existing technologies, labor forcefulness, and capital stock to work, rapid productivity growth would follow. To be sure, the management challenges are more than severe in the service sector than in the manufacturing sector. However, the high productivity levels attained by leading-edge service companies indicate that attending from management can result in vastly improved performance throughout the service economy.

The primary reason why the productivity growth charge per unit has stagnated in the service sector is direction.

By putting the existing technologies, labor strength, and capital stock to work, managers can raise productivity growth rates considerably.

What is required to fulfill this potential is a amend understanding of services and a set up of tools, techniques, and policies to assist keep management'due south focus on productivity improvement. The rigorous application to the service sector of those direction techniques that have been so effective in the manufacturing sector is a start. Despite their many failings, techniques such as total quality management, best-practise assay, process reengineering, just-in-fourth dimension management, team-based management, and time-based contest helped to focus manufacturing managers' attention on productivity and, in the process, helped them bring their companies back to life. Although applying those techniques to the service sector is more complex, doing so would aid managers provide high-quality services efficiently to customers. The key here is that such techniques take refocused manufacturing managers' attending on the key issue: the efficiency of basic operations. Applied with equal rigor to service organizations, they should yield similar results. The villains, according to our view, are not the deficit or the educational system or lagging government support for R&D; rather, they are all the forces—takeovers, financial manipulations, government regulation, and the general fixation on high growth—that distract managers from the fundamentals of their businesses.

A Management-Based Approach to Service Sector Productivity

The show overwhelmingly supports the management-oriented view of the service productivity problem. Robert H. Hayes and William J. Abernathy, the authors of "Managing Our Way to Economical Refuse" (HBR July–August 1980), are every bit relevant today equally they were in the 1980s, when they argued that productivity functioning lies predominantly in the easily of managers. Five broad categories of testify point in this direction: (i) the productivity turnaround in manufacturing; (ii) the large and persistent gaps betwixt the performance of average service companies and the best-run companies; (3) the fluctuating patterns of productivity growth at many service companies; (4) sure special events, such as direction buyouts, that demonstrate the high levels of unexploited potential; and (5) our detailed instance studies of individual companies' productivity functioning.

The first compelling slice of show for the view that productivity is direction driven is the improved performance of U.S. manufacturing. The decisive element in this turnaround clearly was not the economic factors that are the primary focus of the current debate. The early 1980s were a period of huge public deficits, low individual-saving rates, and high real interest rates. Schools were just as bad as—if not worse than—they are today, judging past the slight comeback in most measures of educational functioning since the late 1970s and early 1980s. Nor can the revival be explained by the inflow of new productivity-enhancing information technologies. Foreign competitors take had equal access to such technologies just have non been able to replicate the improvements attained in the United States.

The critical factor seems to have been the performance of managers, whose attitudes changed significantly under the pressure of strange competition. If marketing was the primary focus of the 1960s, and if management and finance dominated the 1970s and early on 1980s, the most recent catamenia has been characterized past renewed attention to managing bones production and operations. Many of the important managerial techniques that accept been developed in contempo years are production oriented, and if they were indeed the decisive development in the turnaround of manufacturing, and so it seems unlikely that service productivity would be able to improve without a similar refocusing of managers' attending.

The second major slice of testify in support of a management-based understanding of service sector productivity is the existence of broad and persistent disparities in operation between the all-time service companies and their competitors. Northwestern Mutual, for example, has long been best-selling every bit the low-cost provider of life insurance. (See the table "How Productivity Varies in the Insurance Industry.") Each dollar that Northwestern collected in 1991 from customers' premiums involved a processing cost of half dozen.3 cents, every bit opposed to 20.9 cents for Connecticut Mutual and 15.vi cents for Phoenix Mutual.

How Productivity Varies in the Insurance Industry

The differences in productivity cannot be attributed solely to differences in the product mix. If annihilation, those would have worked against Northwestern because it sells relatively more low-premium term policies than high-premium whole-life policies. Nor tin can the differences be attributed to the system of the sales force, since the numbers measure only authoritative costs; to the productivity measure out chosen, since other measures, such equally insurance in force (the full corporeality of insurance a visitor has underwritten) or total avails, yield similar results; or to wage costs, since they differ only slightly amongst the companies. Nor tin the U.S. budget arrears, overall R&D spending, or the educational system exist invoked to explain the differences, since technology, highly skilled labor, and capital are equally available to practically all similar companies. The differences, therefore, must be attributed to how these factors are put to utilize, and that is a question of management.

Such large disparities between the most productive companies in an industry and the others can be institute even among the regional Bell operating companies. The telephone companies, because of their mutual Bell System inheritance, apply the same basic technologies, pay the aforementioned basic wages, and operate nether the same basic labor agreements. Their employees share common backgrounds and preparation. Their engineering science is developed in common either past equipment suppliers or past their shared R&D facility, Bell Communications Research. Yet toll differences of about 50% characterize regional company operations in the aggregate, from a low in 1991 of $384 per telephone access line at Illinois Bong to a high of $564 per access line at New York Telephone. (Encounter the table "How Productivity Varies at Regional Phone Companies.") Like differences likewise show up in other areas, such as customer service. Customer service costs per access line in 1991 ran from a depression of $32.40 at US West to a high of $49.30 at New York Telephone. Because there are few proprietary technologies, productivity is theoretically the same for all companies, and differences in performance must therefore reflect differences in managers' effectiveness.

How Productivity Varies at Regional Telephone Companies

Similar large differences in productivity also have been plant in such industries equally banking, brokerage, and retail. If a high percentage of companies in those industries utilize best practices, they can have a considerable cumulative effect. Consider the following scenario: Assume that there is a productivity gap of three to one between the best performers in an manufacture and the laggards. If, over a twenty-year menstruation, all the laggards could close that gap, then the industry would exist able to enjoy iii% annual productivity growth over that period.

A 3rd piece of evidence for the view that managers drive productivity is the fact that productivity growth at many companies fluctuates widely in both duration and magnitude. The usual cycle goes something like this: Management becomes concerned about costs and margins. It announces price-cutting programs and large-scale layoffs. Then placidity returns and, for an extended period, petty more than is heard until the next direction intervention.

A telling example of this bike is the feel of Citicorp's credit-card sectionalization during the recession of the early 1990s. Citicorp was widely regarded in 1990 as having the most efficient operations of any credit-menu issuer, with lower costs than all its major rivals. Administrative expenses grew by about 6% in 1991, so declined past 3% under companywide cost-cutting pressure, and and so jumped by 27% in the adjacent two years. (Meet the tabular array "The Cost of Taking Ane's Eye off the Ball: Citicorp.") The increment in costs over those two years was an across-the-board phenomenon affecting all aspects of the operation. A deterioration of such magnitude in so short a catamenia defies traditional economical logic and demonstrates how important it is for managers to keep paying attending to costs. In this instance, the source of the distraction was an unprecedented increase in bad loans owing to the recession—a problem that consumed much of management's time. The emphasis on managing credit losses was understandable, as a farther run-up in cyberspace credit expense would have had a disastrous issue on the visitor'south finances. Just the rapid increase in operating costs when management's attention was diverted from basic operations underscores the central function of management in maintaining productivity growth.

The Cost of Taking Ane'south Eye off the Ball: Citicorp

This commonly observed pattern of fluctuating productivity—periods of rapid advance followed by periods of little comeback, if non outright turn down—cannot exist explained by the oft-cited factors of uppercase, labor, and engineering. That is because changes in investment, labor, and technology take, on an annual basis, only marginal effects on a company's overall productivity. Investment and depreciation change a company'southward capital stock by only a small percentage in any given twelvemonth. Employee turnover accounts for simply minor changes in a company's labor force. Even engineering changes at a relatively steady and predictable rate. And then in order to empathize how productivity fluctuates at companies, one needs to look beginning and foremost at the actions of management.

In that location are a number of special circumstances that, taken together, provide the fourth piece of evidence that direction can achieve improvements in productivity. The success of most leveraged-buyout firms, for example, stems almost entirely from their ability to concentrate management's attention on the efficiency of bones business operations. Such opportunities would not be equally widely available if those firms were operating at—or even near—their potential productivity levels. The LBO firms accept made fortunes not because of the mostly low level of stock prices (successful buyouts accept continued to occur since the mid-1980s despite high stock prices) and not because they can acquire companies at bargain prices, but considering they accept hired tough managers who are able to increase efficiency.

The Importance of Sustained Management Attention

One of the factors complicating the achievement of productivity gains in the service sector is that, unlike many manufacturing companies, in which product engineers are asked to work on long-term projects, service companies tend to assign their staffs to temporary projects. Consider the post-obit series of events at Connecticut Mutual Insurance Visitor, which decided in 1990 to improve productivity in several departments. The company brought in an exterior operating executive who, in her previous job at some other insurance company, had achieved a 35% cost reduction. A task force from the targeted departments convened in December and developed a plan to reduce the number of employees by 25% in 1991 and by some other ten% in 1992. Data technology staff members would be used to carry out the projection, although a scattering of outsiders were hired for critical positions. The piece of work consisted primarily of creating a common graphical interface for the multiple databases that characterized the original functioning and so streamlining processes such as underwriting, posting premiums, setting upwardly new policies, and writing loans. The technology involved was standard and well tried. Upper-case letter was invested largely in personal calculator workstations and programming services. Existing employees needed trivial training to perform the new jobs.

Some processes were revisited more once over the two years of the project. Surprisingly, when processes were revisited a 2nd fourth dimension, productivity gains were greater than they had been on the first pass. In other words, the first go-around had not wearied all the possible improvements. The results of this persistence were impressive. Over the class of 1991 and 1992, Connecticut Mutual managed to reduce the number of positions in its dorsum-office support operations by 128—just over 25% of the original 500-person strength. Its full investment was estimated to be about $seven million: about $4 1000000 for new investments in computers and about $3 million for boosted operating expenses. Almanac savings were estimated to be $4.5 million per yr—a render in excess of 60%—and quality measures, such as response times past the dorsum office, improved enormously as a result of the new processes.

In the heart of 1992, the company's CEO, who had been a major promoter of the project, announced that he would be stepping downwardly in 18 months. Successful work on the projection came to a halt as senior managers, including the outside operating executive in charge of the productivity plan, began jockeying for the acme position. Focus and cooperation among departments was rapidly lost. Effort was diverted from carrying out improvements to identifying and promoting what had been achieved. Although the project was extended through 1993, there were few reductions in the workforce after mid-1992. The attending of management was now focused elsewhere.

Clearly, in one case managers' attention was no longer sustained, productivity improvement dropped off. Given the seriousness of this problem, it might be helpful to understand why projects stall. Competitive pressures obviously play a role, as do pressures to run into profit targets or eliminate losses. Just an underlying, and more plausible, explanation is that management is a deficient resource. If acquisitions, stock-price manipulations, and public relations are top priorities, so productivity performance will lag. If the improvement of basic operations ranks high, and then productivity growth will follow.

Exploiting Existing Capabilities

In all the successful projects we studied, returns on majuscule more than than justified any investment and in some cases were astronomical. Furthermore, more highly skilled workers were rarely essential for success: the existing workforce was fully capable, with at most modest retraining, of coming together the demands of the new work processes (although lower-skilled workers were often allow become). Finally, to the extent that the projects we studied used truly leading-edge technologies, they tended to contribute to failure rather than success. The successful projects overwhelmingly used proven technologies that were at least three years former. In all those respects, managers were largely using existing resource to achieve improvements.

Consider the experience of NYNEX Corporation. In 1991, the company wanted to install a express automated-voice-response system to handle a small percent of service calls for residential and small-business customers. The installation flow was less than 2 years, the technology had been available for a few years, and the existing customer-service labor force was largely unaffected and unchanged (except for some modest grooming). The capital expenditure was $three.25 million. In addition, near $two.18 million in erstwhile expenses were incurred—by and large labor costs associated with bringing the new organisation online. When the vox response system was upward and running, NYNEX realized annual savings of almost $3.9 1000000—an annual return far in excess of 50%. By using the same technology in other areas of the company, NYNEX discovered, it could potentially salve more $50 million per year.

Only equally NYNEX could use existing technology to achieve productivity gains, Salomon Brothers was able to leverage an existing workforce. When the company wanted to relocate its back-office staff from New York City to Tampa, Florida, in lodge to lower labor costs, a conscientious reevaluation of functions led to a reduction from an average of 644 workers between 1991 and 1993 to 458 workers in 1994, and ultimately to 425 in 1995. At the aforementioned fourth dimension, both the volume and complexity of transactions increased with no pregnant upgrading of the labor forcefulness. In fact, in that location was a significant reduction in the number of skilled workers as many highly experienced employees decided not to motion from New York to Tampa. The overall reduction in the labor force of 34% represents an average annual productivity gain of more than than 15% over 2 years. We have seen this pattern at company after company, and the data unambiguously show that by using existing inputs, management tin can enhance productivity growth rates considerably.

The Management Challenge: Understanding Service Businesses

Although management's effectiveness may be what drives the service sector's productivity, nosotros are still a long mode from seeing improvements in the sector at the level of the macroeconomy. That is not simply because of the sector's size simply too, and more important, considering it tin be notoriously difficult to manage. One way to capeesh this complexity is to compare the management challenges in the service sector with those in the manufacturing sector.

The offset important divergence betwixt the two sectors is that services comprehend a much wider range of activities than traditional manufacturing does. Economists and many managers have tried to treat service equally an undifferentiated constructing. However, although medical care, investment direction, retail distribution, private education, telecommunication, dry cleaning, and check processing may all be service activities, they present very dissimilar productivity challenges.

A necessary first stride for managers is to identify the distinct activities performed in their companies and deal with each in an appropriately tailored way. An approach that has been fruitful in our research is to distinguish amongst transaction-processing activities like data processing, which, with advisable technology, can be effectively organized into large, highly automatic work environments; distribution activities (wholesale and retail) that involve local, interconnected operations with significant economies of scale; pocket-sized, dispersed manufacturing-like activities (such equally dry out cleaning and hamburger making); and college-level activities that involve direct human interaction and superior analytical capabilities (such as medical care, investment cyberbanking, and police). Because the productivity-comeback strategies appropriate to each type of action are quite different, it is essential to identify these dissever functions—which often are embedded in the same company—if progress is to exist fabricated in improving productivity.

The second difference between the sectors is that service jobs are inherently multifunctional in ways that manufacturing jobs often are not. The function of fast-food workers is an obvious example in signal. Their responsibilities oftentimes include product (making the fast food), retail service (commitment to customers), customer service (making certain that customers have an enjoyable feel), and transaction processing (accepting payment and making alter). Under some circumstances, it besides may involve stock management and elementary building maintenance. Measuring, monitoring, and improving an private's performance are therefore complex tasks. As a result, efforts at improving organizational performance require careful attention to what employees actually exercise and how their activities could exist streamlined. This complication tin can thwart efforts to improve efficiency because employees resistant to modify ofttimes claim that changes will impair their ability to practise their work.

To address this level of complexity, managers need to consider a full range of management practices. All-time-practice analysis within an organization with many similar units (equally is often the case in services) can exist a good kickoff for managers because efficient units provide useful information about direction techniques and performance targets. At the aforementioned time, comparisons beyond organizations can assistance companies avoid repeating by mistakes. Procedure analysis, too, is often a useful tool considering information technology can uncover means in which service workers can collaborate with customers. The continual analysis and feedback of quality-management techniques ensure that the full range of disquisitional functions keep to be improved. Our studies indicate that the proper awarding of this gear up of tools can yield enormous performance gains in services just as they accept in manufacturing.

Third, whereas manufacturing chapters can be spread out beyond fourth dimension through physical inventory, service capacity is relatively fixed and cannot rely on inventory to shop capacity. Compared with manufacturing, service operations are more rigid, involving a basic level of chapters that must exist ready in anticipation of demand (for case, the number of telephone lines, switches, or stores). Furthermore, it is hard to tell at times whether a service business organisation has the appropriate amount of capacity, since there are no "stockouts" or inventory accumulations to use every bit gauges. Therefore, service sector managers who desire to amend productivity not only must maximize capacity utilization but also must struggle to determine just what that chapters needs to be.

Consider the differences in workforce planning in the two sectors. In manufacturing, excess capacity leads to an aggregating of inventory, which in turn leads to temporary or, if necessary, permanent layoffs. In the longer run, new hiring often stops automatically, as laid-off workers wait to fill up their old jobs. In services, because operations are spread out, signs of excess capacity are more subtle, and staffing adjustments are more convulsive and uneven. During slowdowns in business, service companies react in one of two means: They eliminate piece of work without laying off the respective workers and hence are left with excess staff. Or, in frustration at not having accomplished projected workforce reductions, they eliminate both jobs and employees without ensuring that the people who go correspond closely to the work that is existence eliminated. As a consequence, many of the workers go on on equally consultants or contract employees, defeating the original objectives.

Careful workforce planning is much more important for productivity comeback in services than it is in manufacturing. Such planning must be a function of any reengineering, quality-management, or other technique-driven approach to performance improvement. It likewise should be noted that this type of planning tin can reduce or eliminate the likelihood of the kinds of devil-may-care layoffs that have received and then much negative press of late.

Fourth, the nature of contest differs in the two sectors. Manufacturing output is transportable, and economies of scale are either global or nonexistent. Competition among manufacturers is correspondingly global, and that has important consequences. Manufacturing companies do non enjoy local niches sheltered from the total force of foreign competition. In the 1970s, the weaknesses in U.S. manufacturing were ruthlessly exposed, and weak companies were threatened with extinction. That was perhaps the greatest single factor in the U.South. manufacturing revival. Efficiency gains at individual companies were apace translated into gains in the industry and the overall economic system.

This situation is in marked contrast to that in the service industries, where competition is predominantly local. Services are usually not transportable—remember of hospitals, restaurants, and stores—and some larger service organizations (such as Wal-Mart Stores and Target in discount retailing) have accomplished economies of scale that ensure protected local marketplace positions. The local nature of many service businesses diminishes the invigorating force of competition and may cause efficiency gains at the company level to dissipate at industry-wide and economywide levels. For example, improved retail efficiency will non e'er translate into lower prices or college quality at the local level. Instead, such improvements may only spur entry by new competitors with access to the operating efficiencies involved. Their entry, in plow, may not drive downward prices or bulldoze up the quality of service; instead, it may carve up the existing sales in the marketplace more finely amongst local competitors. Stock-still costs are then spread out over a smaller sales base at each company, which largely offsets the original efficiency gains. Thus, at the industry level, at that place may be little consequent productivity proceeds.

The Authorities's Role in Productivity Growth

Traditionally, economists have argued that the government can amend productivity in the service sector past lowering the deficit and involvement rates, improving instruction, and supporting enquiry and development. Although all those measures may be helpful, they are unlikely by themselves to make a big improvement in the rate of productivity growth. The about important contribution that government is likely to make in this effort is to minimize its demands on the attending of business leaders.

The government's most important contribution may be to minimize the demands it makes on the attending of business leaders.

The offset way it can practice that is to maintain a stable macroeconomic environment and avert letting the economy slip into recession. Historical evidence suggests that, on residual, recessions have a negative impact on productivity levels. Moreover, the loss in productivity growth seems to be permanent. In that location is no pregnant evidence that recessions are followed by higher than average productivity growth. In coping with the residue canvas, workforce level, cash flow management, and other concerns that typically confront companies during recessions, management's attention seems to be diverted from the everyday chore of continuous performance improvement, and the resulting declines in efficiency are long lasting. In our example studies, we saw several instances in which large productivity-enhancing projects were delayed or scrapped during such periods.

The second way the government can assistance the service sector ameliorate productivity is non to overregulate information technology. The bespeak here is not, however, that regulatory interventions are unjustified. When carefully conceived, they can be quite beneficial to the country's economic and social well-being. The indicate is that regulation should be carried out in both spirit and practice to minimize the demands made on businesses' attention and resource. This means that if the authorities is serious about enhancing productivity performance, it should codify stable, cooperative long-term regulatory policies, rather than aggressive responses to the latest crunch.

Securing Jobs Through College Service-Sector Output

It has been claimed that recent improvements in productivity—gained by reducing employment rather than increasing output—are less desirable than productivity gains achieved during a period of expanding employment. But that is not always the case. One example is the spectacular long-term growth in agricultural productivity: the subcontract labor force has been reduced to near zip, and yet the sector is a foundation of U.S. prosperity. Similarly, although accelerating growth in manufacturing productivity in the 1980s led to reduced manufacturing employment, the change was beneficial to the U.S. economy every bit a whole. Overall employment has continued to abound and has grown especially rapidly for managerial and professional workers. (See the table "The Growing Ranks of Management in the Service Sector.") The present problem is not the creation of new jobs just rather the productivity of workers in those new, predominantly service positions.

The Growing Ranks of Management in the Service Sector

Keeping highly skilled workers in jobs in which they are non needed is no solution to the nation'south productivity difficulties. The available evidence indicates that the smashing bulk would succeed in finding new jobs. The U.S. economy has generated an unending stream of new employment opportunities, not just for laid-off workers just also for new immigrants, the expanding native-born population, and the growing number of women entering the workforce. The challenge is to ensure that their talents lead to ever higher levels of productivity in their new jobs, and that is ultimately a challenge for management. Managers must ensure that productivity levels in the newly created service jobs that use an always increasing proportion of the U.S. labor force are sufficiently high to provide for the state'due south commonage well-being.

Many factors complicate the task of achieving a management-driven revival in service productivity comparable to that in manufacturing, but they do not put it entirely out of reach. Service sector managers may indeed have to be more than focused and conscientious in their approach to managing productivity improvements. Due attending must be paid to identifying and defining the roles and activities performed in the workplace; bringing to deport advisable productivity-enhancing strategies to ensure that of import elements of job responsibilities are non lost; implementing carefully conceived, parallel human being-resource and workforce-direction strategies; and maintaining the focus on performance improvement in the absence of global competitive forces and in the presence of many other distractions. However, there is undeniable evidence that leading-edge service companies do attain functioning levels far in excess of those of their boilerplate competitors, and particular companies attain spectacular improvements. The management challenge is articulate.

A version of this article appeared in the July–August 1997 consequence of Harvard Business Review.