The link between diminishing returns, productivity and culture

Once upon a time, productivity was an easy equation. It simply measured effort against production. If you required less effort to produce more, productivity was higher. More experience generally leads to improving productivity – as you ‘grow into’ a job, you become more efficient. But there is a limit to how much productivity can be improved by greater experience.

Today, productivity is now a function of multiple factors – including people and experience, technology, innovation, suppliers, and so on. We also have different methods of measuring and assessing productivity. Such as the Law of Diminishing Marginal Productivity.

What is the Law of Diminishing Marginal Productivity?

This law states that if one element on the input side of the productivity equation increases while all the others remain the same, then the output possible is limited – and therefore diminishes progressively. Once the limit of productivity has been reached, productivity may begin to fall.

For example, let’s say that you produce soda cans. The machine you use can produce 100,000 cans per day. Your supply of aluminum is only enough to produce 70,000 cans per day. By increasing the amount of aluminum delivered to you, you can make more cans each day. But you are limited to 100,000. If you buy more aluminum than this, your productivity cannot rise. 

Let’s say that you now have your supply of aluminum, but instead of 10 people to produce 100,000 cans, you decide to add two new employees. You still only produce 100,000 cans but your productivity per employee falls.

Organizational change and productivity

In the VUCA world, organizations must develop winning traits to navigate constant change. As technology shapes the world of work, productivity becomes not a direct result of doing more, but a result of increasing efficiency. This requires the behavior of your people to evolve. They must use different technology in new ways, and follow procedures that have been adapted to the new environment.

Culture drives the new behavior needed. If your culture is not conducive to change, then you risk your productivity falling and your organization falling behind.

The culture of organizational change that improves productivity

Your culture must align with your organization’s culture. If your people aren’t engaged in innovating their environment to produce efficiency gains, the productivity enabled by all other inputs will not achieve its potential.

Therefore, it is imperative that your people align with your organization’s transformational values and its purpose. Your leaders must support people through their fears of change and support them through it. They should be examples of the new behaviors that are needed, and ensure that espoused values don’t exist in your organization.

Culture is the heartbeat of your organization. Inconsistency between what you say and what your leaders do will quickly erode people’s motivation to reach their full potential.

As technology, AI and machine learning become increasingly relevant in the business world, the potential for productivity to fall is high. It is critical that your culture fosters a constant shift in how people think, especially to encourage remote teams to work with a collaborative approach.

Your technology-enhanced organization is led by humans

The tasks undertaken in all organizations are becoming increasingly executed by technology. However, that technology is managed and operated by humans. It is imperative that decisions that must be taken are taken quickly and effectively. If your organizational culture does not allow these decisions to be taken autonomously, your productivity will never meet its potential.

Culture and the Law of Diminishing Marginal Productivity

Your organization’s culture can make or break potential productivity gains. Greater automation should lead to improvements in productivity. But the ability of your people to take autonomous decisions in line with your values and purpose is critical to this. 

If your organizational culture encourages the status quo to exist, you are unlikely to benefit from the improvements in productivity to which change should lead. How do we know this? The Law of Diminishing Marginal Productivity tells us this is so.

To learn how to embed a culture of continuous change that could spark productivity gains in your organization, contact Primeast today.

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