RESEARCH REPORT
The productivity payoff: Unlock competitiveness with gen AI
10-MINUTE READ
October 29, 2024
In brief
- Despite major advances in technology over the past decade, global productivity remains flat with 40% of large companies we analyzed reporting negative growth.
- However, the top 25% of companies are seeing real gains – boosting productivity over 8% per year. These leaders are widening the productivity gap and gaining a competitive edge.
- We identified 5 behaviors that set productivity leaders apart. This report offers a blueprint others can follow to reach their productivity payoff.
The productivity payoff: Unlocking competitiveness with gen AI
Over the past decade, we’ve seen major technological advances that promised to boost productivity. But despite substantial investments in tech, many companies have yet to see a productivity payoff, as global productivity growth has remained flat. Even more alarming: 40% of large global companies have seen negative productivity growth annually.
In the past, productivity initiatives have focused on input — on cutting costs and driving efficiencies. And our analysis shows that many CEOs continue to define productivity through a cost lens. The reality though is that productivity is fundamentally about the balance between input (effort required) and output (value created). Now the impact of generative AI and other technologies is reshaping the business landscape and forcing companies to redefine productivity and reinvent new ways of working.
One group is already seeing real productivity gains, with a quarter of companies boosting productivity by more than 8% per year. They are investing in growth and using technology to drive innovation. They are enhancing both the speed and quality of their work to gain a competitive advantage.
Productivity by the numbers
1.4%
Global productivity, measured as inflation adjusted EBIT per employee, has increased by only 1.4% annually since 2000.
8%
Productivity leaders are increasing productivity by 8% or more a year.
40%
However, 40% of large global companies are seeing negative productivity growth annually.
The productivity gap: Impact and opportunity
The gap between high and low productivity growth companies has doubled in the past eight years — and it’s quadrupled in the last four.
What’s driving this gap? Companies with high productivity growth aren't cutting costs; instead, they are growing revenues faster than their spend and investing strategically in key areas.
For instance, they:
- Achieve cost efficiency ratios (revenue/cost) that are ~4.5% higher than peers.
- Increase revenues by ~1.3% for every 1% increase in total costs.
- Grow revenues per employee by ~7% annually, while total costs per employee rise by only ~6%.
Another critical gap at play: how executives view productivity in today's business context. Too often, they still see productivity in terms of cost reduction; our analysis shows that of those earnings calls that mentioned productivity, almost half focused on cost management, while only 20% of such calls discussed growth.
For those CEOs of high productivity growth companies, they are increasingly coupling productivity discussions with the focus areas of revenue growth, innovation and technology rather than cost alone.
A new productivity equation is emerging
In the new equation of productivity-driven performance, generative AI serves as a multiplier to cost inputs and organizational effectiveness.
Adopting a holistic approach that addresses these three dimensions can pay real dividends. For example, our modeling shows that for an average company, this could translate to a boost in productivity over a 10-year period that would result in a 2.8x increase in profits.
The path to productivity
So, how do companies boost productivity and close the gap? We identified the 5 behaviors of high productivity growth companies and explored how they use these to gain a competitive edge. Learn their blueprint for success and follow their lead.
01
Redefine productivity and how it’s measured
High-productivity growth companies are shifting from focusing on cost and simply lowering inputs—and instead recognize that “knowledge productivity” is critical today. They measure quality across a range of inputs and outputs to reach new performance levels.
02
Invest deliberately in productivity for growth
Companies that invest more in productivity to drive growth earn a significant return on investment: For every additional 1% in spend, they earn ~1.3% in higher revenues. They spend more per employee but still grow their revenues faster than costs.
03
Supercharge productivity with gen AI
Gen AI is expected to transform 44% of work time in the US and improve knowledge productivity in particular to boost the quality of outputs. The result is work that is more accurate, insightful or creative.
04
Empower talent with a human-centered strategy
Productivity leaders are 33% more likely to view training as a key to success. These companies invest heavily in developing both technical and soft skills, particularly in technology fluency and cybersecurity. And they create a culture of learning to support ongoing skill development.
05
Embrace change, break through barriers
Continuous change is the new reality. Gen AI is causing major shifts in markets and ways of working. While 80% of organizations consider change part of their long-term vision, only 30% have confidence in their capabilities to do so today.
The productivity payoff: Unlocking competitiveness
Leaders must shift both their mindset and their actions now to capture the greatest value from their productivity programs and bridge the gap with high productivity leaders. Here are three ways to get started on the path to productivity:
CEOs and their leadership teams must embrace a holistic approach to cost and productivity reinvention. They need to redefine and invest in productivity as a means of value creation through innovation and knowledge.
Gen AI is a powerful tool for enhancing both efficiency and quality. The C-suite should integrate gen AI across their operations, emphasizing areas where technology can amplify human capabilities, streamline processes and multiply value.
To realize the full productivity payoff, CEOs must take a human-centered approach. In a rapidly changing business environment, where technology is reshaping industries, companies that invest in reskilling and upskilling their workforce will thrive.
