SOURCE: Boston Consulting Group

Boston Consulting Group

December 14, 2016 16:52 ET

New Study Finds Lagging Productivity Growth Despite Five Times Higher Total Shareholder Returns for Top-Quartile US Performers

It Is Imperative for US Manufacturers to Achieve a Step-Change Increase in Productivity and Then Maintain Growth Through Continuous Improvement

CHICAGO, IL--(Marketwired - Dec 14, 2016) - Productivity is cited by more than 90% of executives as one of the top five most important corporate initiatives, according to a new report by The Boston Consulting Group (BCG) and The National Association of Manufacturers (NAM). Titled Productivity Now: A Call to Action for US Manufacturers, the report says that the productivity of US manufacturers was -0.4% for the period from 2011 through 2015, a decline from an already low 0.4% for the period from 2007 through 2011. Global headwinds have challenged manufacturers, making it difficult to implement the productivity changes identified as high priorities. This shows in their lack of urgency to implement productivity changes, according to the surveyed executives. Their responses indicate that they rely too much on traditional improvement levers and are not sufficiently rigorous in managing their improvement programs. As a result, they fail to maximize the impact of their efforts. "Leaders should be bold in achieving step-change productivity gains of more than 15% to 20% in key cost areas, not eking out advances of 1% to 2% each year. In many manufacturing industries, such large productivity gains will tip competitiveness from low-cost countries back to the United States," said Justin Rose, a BCG partner and coauthor of the report.

Manufacturers can achieve these gains through the disciplined application of a comprehensive set of productivity levers that attack all the underlying drivers of cost. Essential to this approach is the use of new digital and analytical tools that can help manufacturers reach continually higher levels of productivity.

What Underlies the Downward Trend?

Companies apply the traditional productivity levers they are most familiar with, rather than utilize cross-functional levers. By doing more of the same, companies are promoting diminished returns. Both types of levers must be applied to drive a step-change in productivity gains.

Further, few companies have taken a sufficiently rigorous approach to managing their productivity programs. Respondents were presented with a list of five basic elements of a comprehensive productivity improvement program. Although more than 70% said they are designing their efforts with at least one element partially incorporated, only 14% are executing on all five.

Bold Ambitions Supported by Excellence in Execution

For too long, manufacturers have stayed within their comfort zone, applying the productivity levers they are most familiar with and eking out anemic productivity gains. If companies continue doing more of the same, the consequences for US manufacturing competitiveness could be disastrous. To reverse the recent downward trend in productivity, manufacturers must establish bold ambitions and pursue them using the comprehensive and rigorous improvement program described in the report. "Many of the manufacturers that I speak with are dedicated to making long-term strategic moves that will boost their company's productivity and competitiveness. But there's more to be achieved in the near term -- both through productivity investment by companies and a commitment by policymakers toward a stronger US," said Chad Moutray, chief economist at NAM and coauthor of the report.

Industry 4.0 Holds Great Potential to Increase Productivity Gains

Industry 4.0 is the lever most underutilized and underappreciated by the executives surveyed. Of all the cross-functional levers, Industry 4.0 holds particular potential for capturing tangible value. Leading companies have used these advanced technologies to capture gains in productivity of up to 15%.

BCG has launched its Innovation Centers for Operations (ICO), a network of model factories in France, Germany, and the US. The ICO includes real production lines and visionary technology demonstrations, allowing for a unique client experience. Supported by an array of academic and technological partners, the centers showcase the impact of new technologies on these production lines, offering immersion, experimentation, and training to ICO visitors on all topics related to Industry 4.0.

"US manufacturers must set a bold ambition, take a programmatic approach, pull cross-functional productivity levers, and embrace new digital tools to see a step-change in productivity outcomes," says Jonathan Van Wyck, a BCG principal and coauthor of the report. "But those that get it right will see five times higher shareholder returns versus those that don't."

Learn more about BCG's Innovation Centers for Operations here.

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter, and LinkedIn.

About The National Association of Manufacturers
The National Association of Manufacturers (NAM) is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12 million men and women, contributes $2.17 trillion to the U.S. economy annually, has the largest economic impact of any major sector and accounts for more than three-quarters of all private-sector research and development in the nation. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States.