Where to find economic growth, and why management is a waste of time.

Economic growth in the mature economies is lacklustre. That’s annoying at best; less hope for your salary increase or even a new job, but it’s also a massive threat to the public services that you’re used to:

Take, as one example, the historic, current, and expected healthcare spending growth rate, combine that with the current underlying economic growth and the future becomes scary: in 20 years roughly 1/3rd of the US GDP and almost 1/5th of typical European nation’s GDP will go towards healthcare (footnote 1). That won’t work, so we’ll either have to renounce on ever better healthcare, scale back on other services we value like security and education, or lower our daily consumption of goods and services.

A rather bleak outlook, and the politicians have no answer despite trying everything in the economists’ book.

Real sustainable (for a period at least) economic growth and the resulting increase in human welfare happens in spurts, spurred by new use of (reasonably new) technologies. Like fences and ploughs, the motor, the assembly line, the computer. And these “Age” transitions always came to our rescue: The industrial revolution saw the emergence of a middle class as well as many of the public services we now take for granted. Then the information age took over, increasing our overall productivity, translating to even more economic growth and more and better services over the last 40 years or so.

The two phases of economic growth

Each age-transition, and hence economic growth period, comes in two phases, one following the other when the first flattens out:

  1. The “Efficiency Phase” when “how we do things” change,
  2. then the “Effectiveness Phase” when “what things we do” change.

The economic growth from the age transitions is often nicely mapped as a classic “S” growth curve; slow at the beginning, steep, then flattening out. But viewing the transition as a single S growth curve that eventually flattens once the new “age” has been reached, misses out on something. Something, that if we recognise it, could be the key to renewed economic growth: There is not one but two S growth curves per “Age transition”, the second only starting after the first has flattened out.

  1. Take for instance the transition to the “Industrial age”. First the motors enabled us to haul coal faster out of the ground, transport more people faster and farther, and produce more faster. “How we did things” changed, and wealth was created. Then when “everybody” had replaced horses and muscles with motors, the efficiency gain, and therefore economic growth flattened out.
  2. Then something happened, exemplified by Henry Ford in 1913: He moved his car production from the classic workshop mode to the assembly line, and within one year the productivity per worker increased 7.8 times, not a few percentage points. But be clear, this was not “work automation” as in automating value creation. The value creation, assembling cars, did not change at all; the doors and wheels were fastened by the same people using the same tools and the same movements. What happened was that the workers did not have to wait for work orders and instructions from the foreman, and he did not have to fetch parts or tools. Instead a steady stream of car embryos came from the right allowing him to focus on the actual value creation; adding a door or some wheels, without pause. What happened was a change to “what things he did” (effectiveness), not a change to “how he did things” (efficiency).

This two-step view is important, as productivity, the root source for economic growth, is a function of both efficiency and effectiveness. Actually, efficiency without effectiveness can be counterproductive thus making the effectiveness phase the most important: Do the wrong things very efficiently is devastating, do the wrong thing slowly is merely bad. Better to do the right thing slowly, or best, do the right thing fast. Your 256 unread cc and bcc mails now residing in your inbox could be a nice example of how “wrong things” delivered efficiently plays out.

Now fast forward to today:

We’ve had ICT and related technologies for more than 40 years, and beyond automating many blue collar tasks, it steadily increased knowledge worker / white collar worker efficiency. Now you can “enjoy” 120 emails each day while only 30 years ago the mailman delivered five letters a week, and you can dazzle (and confuse?) your co-workers with intricate spreadsheets. But we still write, communicate, calculate, report, control, budget, plan and do more of the same things that our grandfathers did. And now; upgrade some IT system from version 9 to 10 and it does not yield much beyond two new features and some tweaks to the colours. The efficiency phase is over. That growth component of the overall economy has been exhausted. That S growth curve is now flat.

So, what about now, how will the effectiveness phase play out? What can we do in practice?

If you look for it, you should see the first signs of the next phase, where we change “what things we do” and become more effective: It started out with the internet and banks, airlines and bookstores allowing people to do their business online, to change their behaviour (the definition of innovation), and become more effective. Spending five minutes on the computer instead of hours on commuting, queuing and tapping fingers at the bank has been a real boon. And I’d suggest that Airbnb and Uber could be the latest iterations, enabling another set of human behaviour changes that adds effectiveness to the society as a whole (car and home owners creating revenue from their idle investments).

Two types of workflows

Work is one huge economic component that remains largely untouched by effectiveness. The purpose of work is to create value, something that happens in a sequence of activities; in a flow. These flows can be one of two types:

  1. Linear, predictable, Easily Repeatable Processes (ERPs), or
  2. non-linear, unpredictable, Barely Repeatable Processes (BRPs).

A workflow is no different from a flow of water, that is, if you want to make good use of the water, or workers, it requires a framework to steer the flow in the right direction. And workflow frameworks, like water flow frameworks, can be one of three different types — pipeline, riverbed or bucket passing.

Linear, predictable flows, aka Easily Repeatable Processes (ERPs), can do well with pipelines, in the work world called assembly lines or perhaps case handling (if heavily infused with rules, practices, and perhaps supported by some BPM system). But those kinds of processes (ERPs) stand for only about 30 percent of the world’s value creation measured by GDP, while over 60 percent of the value is created in non-linear, unpredictable flows, aka Barely Repeatable Processes (BRPs), like services, government and education (footnote 2). And for these, a pipeline type framework won’t work. A riverbed style framework would be better, a place where the riverbanks keep the flow going in the right direction but where the water is free to find its way around each stone or boulder.

The thing is that nobody was able to design an effective riverbed type work framework from the technologies available way back (scrolls, shoe leather, ledgers) when it was needed. So we designed a way to support the flows that is more akin to bucket passing, also known as management. The main component of this bucket passing is the organisational structure: from hierarchies to departments to separate corporations and entities. All dependent on positions and command & control, nicely refined by the Roman army two thousand years ago and since then not changed much. Mechanisms and methods have been added: reporting, double entry book keeping, carrots (bonuses) and sticks, KPIs, budgets, and meetings with action items. All held together by people with “manager” in their titles.

All this “bucket passing” has a cost, it creates much “water splashing”: a knowledge worker spends about 2/3rd (research indicates between 55 and 75 percent) of his/her time on moving the flow forward, managing work as it is. Responding to report requests, being embroiled in budgeting, sitting in meetings with action items, ad hoc communicating, and looking for stuff (the latter gobbles up one full day a week for UK knowledge workers according to McKinsey), just to mention a few non-value creation activities. But if you’re sceptical to the figures, try to add up the daily time you spend on the above non-value creation activities.

And if you think you need to communicate better or more, think again: Imagine that a handover of task, information, responsibility and authority was equally clear and all-inclusive as the car chassis arriving from the right on the assembly line, then your email and chat clients would soon gather dust.

The immense and unused source of economic growth

So here’s the thing — when 67 percent of the time and resource spend for 60 percent of the world’s work is a waste value creation wise, then freeing that wasted time towards value creation, one could have a 120 percent increase in the world’s GDP. If the growth is linear it would yield 40 years of added annual WW GDP growth of almost 2 percentage points, or roughly twice the rate of what the first ICT “efficiency” phase supplied. (footnote 3)

But to get there we need to question the need for management, positions and organisational hierarchies. The problem is that management is seen as a bit like death; annoying, but not so much you can do about it. But luckily, that seems to be about to change. Terms like flat organisations, fewer management layers, self organising, and new methodologies like Holacracy or Teal organisations, are all the rage these days.

That is all good and well, but replacing one manually driven organisational form (hierarchies) with another (circles say) might be helpful, but it won’t reap the full potential. For that, technology must come into play, this time, ICT obviously. But what do the ubiquitous software vendors do? Nothing. They are still largely peddling efficiency as most of their offers are single activity, siloed, support tools without much, if any, holistic approach to the whole value creation process from A to Z. Although, one honest effort to better effectiveness by software vendors must be mentioned; namely collaboration solutions. But alas mostly still in version 0.9; there is little flow in the current crop, in essence they are rather like shared light tables for data or firehoses of ad hoc communication.

The immediate future, the second half of the transition to the information age, is in dire need of a new ICT based work framework, a process focused solution that can free us from the flow-work, and management. Something that is focused on the overall flow and that allows us to change “what things we do”. That’s when we will enter a new era of sustainable and real economic growth.

And if you’re responsible for running a business, ask your favourite ICT advisor/supplier what they can do for your effectiveness. Just imagine what it would do to your bottom line if your white collar workers could triple their capacity without much of an effort.

(1) US GDP average growth rate last ten years is “
under 2%” while expected healthcare cost growth at least until 2024 should be 5.8%. With a current 19 percent of GDP, US healthcare would then balloon to 33 percent of GDP in 20 years. Using similar growth rates but a lower starting point today of 10 percent of GDP spent on healthcare most European countries would see 19 percent of their GDP go towards healthcare in 20 years.

(2) 63.4% of the world GDP happens in services, 30.7% in industrial production, 5.9% in agriculture. Assuming that 90% of services and 10% of production (research, development and more) is BRP.

(3) “Production” starting point is 100 where 60 happens in BRPs, 34 in ERPs and 6 in agriculture. If the BRP portion of production triples the end result would be 3*60 + 34 + 6 = 220, or an increase of 120 percent. If that growth was spread evenly over 40 years it would amount to 1.99 percent annually.

This post has been posted on my own blog as well.