Sluggish Productivity Has Become Companies’ Worst Enemy

In today’s tight labor market, companies’ productivity gains have been hamstrung by a dearth of qualified workers. Organizations can no longer hire their way to higher profitability—or improved productivity.

But they’re not out of options. My more than two-decade career as an operator and adviser to executives has led me to believe that sometimes the best way forward is to enhance the skills of existing employees.

The U.S. unemployment rate is close to a 50-year low, with only a slight uptick in recent months. This prolonged period of low unemployment means that the days of easily adding new workers to lift sales are largely over. Companies must now look inward, focusing on productivity to drive growth. In fact, 74 percent of L&D leaders say skill development programs are a critical priority today, particularly for boosting productivity, according to a recent study by Executive Networks.

The broader economic picture is equally compelling. A McKinsey & Co. study highlights that if U.S. productivity had grown at historical rates, gross domestic product (GDP) would have been significantly higher. Sluggish productivity growth has held back the economy, underscoring the urgency for businesses to continuously enhance their efficiency.    

The skills gap amid an aging workforce 

Two factors further complicate the productivity conundrum: an aging workforce and the advancement of artificial intelligence (AI). Some older workers struggle to keep up with the latest technological developments. Meanwhile, younger employees, though more familiar with technology and AI, lack the seasoned skills of their more experienced counterparts that could fuel greater productivity.

The solution, I argue, is for companies to undergo a thorough assessment of their employees’ skills and close any gaps. This involves a keen understanding of the current capabilities of their workforce and identifying areas for improvement and evolution. Only then can businesses design effective upskilling programs that align with their financial goals. While this effort does not have to be difficult to do, it will require focus and prioritization by leadership, something that I argue will be worth the investment of time.

A Five-Step Solution

1. Objective analysis of skills

The first step in any skills assessment is to gather unbiased, objective data. This means relying on technological tools to infer skills from employees’ activities rather than self-reported information. The way to go about doing this is to create a small SWAT team, either internally or externally, to set up this project. Remember that this isn’t a one-and-done task; it’s an ongoing process.

2. Cross validation of skills data

To ensure the reliability of the data, it must be cross validated, often by a third party. This step is crucial in building trust in the assessment process. By having an external entity verify the information, companies can be confident that the skills data is robust and accurate.

3. Organizational acceptance

The information gathered must be embraced by both the company and its employees. For the process to be effective, it needs support from the C-Suite, demonstrating that the initiative is a priority. The culture of the organization should view this data collection as beneficial for both the company’s growth and the employees’ development.

4. Skills tied to goals

The skills assessment should be linked to clear business objectives, with productivity as a key measure. For employees, the focus could be on agility and mobility within the company, while at the same time understanding that the company’s success is in their best interest. This process will eventually become part of the organization’s DNA.

5. Training programs

As a matter of sequencing this process, once steps one and two are in place, companies can determine the most effective training programs. Options might include bootcamps, college courses or special projects. The goal is to find the training that offers the best ROI. In my experience, steps three and four tend to come along naturally, making their achievement relatively easier than one and two.

The Road Ahead

The American workforce is undergoing a significant transition. Baby Boomers have been retiring en masse, and Generation X isn’t far behind, with the oldest in that cohort now 59 years old. Replacing those workers is crucial, but the competition for talent is fierce.

There is plenty of lip service about skills-based hiring, but the truth is employers cannot just hire replacements for those who leave. New hires, while potentially more tech-savvy, will still require skills development.

My advice here takes time and money. Companies must commit to the hard work of continually assessing and upskilling their workforce. This is not a one-time effort but a constant process of monitoring and improvement.

CEOs ought to understand that enhancing the skills of employees is not just a strategy for survival but a way to thrive in a competitive market. For any company in any industry, buckling down now can unlock new levels of productivity, foster workforce retention and satisfaction, and secure its position in the market for years to come.