Friday, October 30, 2009

Why productivity is soaring in this downturn

Wonder why productivity seems to jump during a recession? It is not
just because people are laid off. The real productivity impacts of
laying someone off cannot be measured immediately, because in the
immediate time of a layoff most companies have obligations to continue
paying severance and into the unemployment pot. Also, let's face it: lay
off decisions in big companies are much more about crony-ism and
favorites than about long-term values, successful missions or measurable
objectives. The Peter Principle ensures that those making such decisions
are not quite capable of making them correctly. Failure is promoted,
success is means for discrediting or dismissal; it is inevitably the
PEOPLE WHO MAKE STUFF who get the shaft.

So there's part of the answer. To paraphrase Indigo Montoya, "You keep usin tha word 'productivity' -- I do no thin it means what you thin it means". Productivity is a euphemism for an average that is
completely misleading, GDP divided by number of labor hours. Even if
the numbers used for GDP and labor hours were accurate, which they are
not, the measure is too gross to suggest it means anything in terms of
how a recession affects the structure of companies.

Another part of the answer is intuitive, and embodied in the saying "to cut the fat". Unfortunately, as we have seen in the American experience, the fatheads doing the cutting have conserved the fat, cut the muscle, and in some cases bled the company dry. The government has
done its part by encouraging a service economy. To apply the same
metaphor, this is in effect a body without muscle or bone.

Here's one thought I have heard: the recent GDP figure has been expanded wildly by raw government expenditure. The money Obama has poured onto
non-production areas like the funding of political cronies, is itself
directly counted as an increase in the GDP. Too bad there's nothing
underneath the fiat money to support its value. Worse yet, that the
money did not get spent in such a way to make substantive improvements
in energy or production. Instead, it has gone to political activities
and feel-good projects, marketing and promotion. In effect, it is a
government spending bubble. That's how we can have a grossly overstated
rise in GDP in the middle of a long-term government initiated and
perpetuated recession.

But here's one other thought I haven't heard: what if the "fat" were practices, not people? Over time, institutions get bigger and go
bureaucratic. As I've been reminded over and over at the Web Design
meetup, PEOPLE DON'T LIKE TO BE MADE TO THINK. So during good times, fat-headed processes like ISO9000, CMM, and all manner of Sarbanes-Oxley
compliance motivated programs get funded, staffed up, and pushed into the
practices of everday workers, making the meat well-marbled with fat. In
a recession, the same processes hang on the books, but the meetings get
tossed under the bus and remaining workers find ways in their slow time
to bypass the blockages these "quality" programs introduced. Similarly,
marketing functions which poured gobs of money into Web development slow
the outpouring for a time to a trickle; Web artifacts have the longevity
of a gnat and yet take enormous amounts of cash to publish relative to
their lifetime, so the slow down causes pauses in incredibly large and
unproductive expenditures. But only for a time.

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