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Why we are wrong about labor productivity

by Ana Lopez
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Marc Emmer is chairman of Optimize Inc. and an author, speaker, and consultant specializing in strategy and strategic planning.

A story has emerged that employees are less productive in a hybrid work environment. But this perception is formed by inherent biases, not facts.

Productivity in the aftermath of Covid

According to the US Federal Reserve, there have been fluctuations production per worker over the past two and a half years. While there are several variables that affect labor productivity, it is most closely related to unemployment. When unemployment peaked in 2020, productivity rose with it, as there was roughly the same output with fewer workers.

Ironically, productivity in the US started to decline in Q1 and Q2 of 2022 as knowledge workers started coming back to the office, only to improve in Q3. Some economists explained this sudden drop in productivity by comparing it to a period when it was artificially high.

Today, production per worker is 5% higher than before the pandemic. Employers perceive their employees as less available. But blaming employees is overly helpful, especially since actual productivity statistics disprove claims that employees are less productive when they work remotely. Rather, the evidence suggests there was a period of adjustment as employers tried to catch up with hybrid, and some of their practices undermined productivity. Employers are only now finding their way.

Enabling productivity

Many employers have not equipped their managers and employees for hybrid work. They thought their adoption of tools like MS Teams and Zoom were solutions, but these are just technologies that need to be combined with significant behavioral change, which companies have been slow to adopt.

In 2012, McKinsey found that the average knowledge worker spent money 19% of their time searching for information, and today more than ever before, employees know where to find information. Consider the implementation of Teams, which was rushed into most companies in the spring of 2020. To this day, most US companies do not use channels and chat threads, instead relying on email for internal company communication – an arcane method of cooperation. And few companies have updated their document management protocol or other workplace systems.

Perhaps more importantly, productivity should not be our only measure of success. According to the Federal Reserve, the number of “cancellations” in the US had increased by 20% during the pandemic (an average of 3100 cancellations before the pandemic and 4026 in the last recorded period). According to ADP, wage inflation was annualized 7.7% in October for those who stayed in their jobs versus 15.2% percent for job changers. According to Zippia, employees continue to prefer remote working 74% say they are less likely to leave a company where they can work remotely. So if employers want to factor productivity into their hybrid work evaluation, they also need to consider the trade-off with their ability to retain their most valuable employees.

The result of all this noise is a trend Microsoft has labeled as “productivity paranoia.” Microsoft found that 85% of employers reported that the shift to hybrid work made it “challenging to trust employees to be productive.” But this is a form of confirmation bias: managers look for evidence they can see. Only 38% say they have insight into the work their employees do, compared to 54% before the pandemic.

This has led to what Microsoft calls “productivity theatre” – a phenomenon my colleagues and I have also observed in employee engagement surveys and customer focus groups. Employees leave crumbs for their managers to try to illustrate their output, such as delaying the delivery of an email after hours. Can you think of anything less productive than employees who create artificial or ill-timed work products to appease their managers’ misconceptions?

It is time for a new playbook in those environments where hybrid working remains meaningful, according to five principles.

1. Do your most important work personally.

Some activities, such as strategic planning sessions, performance reviews, and team building, must be done face-to-face. Other meetings can be just as (or even more) productive on Zoom, such as an MS Excel training class where each employee can sit on their own computer. Make this distinction so that managers can provide face-to-face meetings for the topics that matter.

2. Create a “productivity everywhere” model.

It is an employer’s duty to provide technologies and protocols that enable employees to be equally productive both in and out of the office. For example, companies need to structure one-on-one for managers and employees. Given the increased awareness of the need for accountability, managers need to be clearer about prioritizing deliverables when employees are out of sight.

3. Build structure.

Companies with clearly defined standard operating procedures, integrated systems, and other structures found in mature organizations have had a significant advantage. Process can compensate for a shortage of talent.

4. Manage and communicate your work plan.

Hybrid workers are extremely frustrated with employers who fail to communicate when and why they are expected to be in the office, especially when some employees are still remote. For many of my company’s clients, Tuesday, Wednesday, and Thursday face-to-face days are becoming the norm. On these days, there should be clarity about which activities and meetings will take place, as well as the desired outcomes of each.

5. Leverage flexibility.

For many employees, flexibility is more important than the number of days at the office. Provide an environment where your employees have the freedom to attend their children’s sporting events and doctor’s appointments. This trade-off can be made while still expecting productivity.

The goal of hybrid is to create an environment where companies and their employees can find the right balance between productivity and empowering employees to be the best version of themselves.

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