How Private Companies Can Pursue Productivity Gains

Productivity is top of mind for many economic leaders and observers, from Federal Reserve Chair Jerome Powell’s remarks that generative AI might lead to increases in productivity over the long term, to reports of increased labor productivity during the last quarter of 2023.

Boosting productivity has long been a priority for private companies, but it has become more critical as labor and other expenses increase at a faster-than-usual rate. Deloitte’s recent survey of 100 private company leaders captured the stakes involved: those organizations concerned about increasing productivity say they expect to face slower business growth and declining valuations if they’re unable to meet their productivity goals.

Any leader would pause at the thought of such consequences. When I speak to owners and leaders of privately held companies, they often tell me there’s no quick fix to optimize inputs for enhanced output. However, many of them share certain productivity-boosting practices.

Here are three ways that private companies prioritize the capabilities of their human capital and leverage technology advancements to help achieve their productivity goals.

Innovation or the basics?

Deloitte analyzed survey respondents by two revenue categories (revenue under $500 million and above) and found that the smaller firms identified a range of fundamental business functions related to their back end, product, and customer acquisition as opportunities to enhance productivity. For instance, respondents from organizations with annual revenues less than $500 million reported that productivity improvements are most needed in procurement, product development, and sales and marketing to achieve business priorities.

The larger organizations cited emerging technologies in AI as key areas of investment. In fact, enterprises with more than $500 million in annual revenue were more than twice as likely (38% versus 18%) to say AI and emerging technologies are a priority for investments seeking productivity improvements.

Hire or reskill?

When it comes to the types of worker investments needed to boost productivity, investing in talent is a top priority for both smaller and larger companies. Nearly half of those surveyed from the under $500 million revenue category put reskilling and upskilling at the top of the list for increasing productivity. Respondents from higher-revenue private enterprises said hiring qualified/skilled talent (51%) is their top priority to increase productivity.

And then there are those abstract skills that require investment as well. Deloitte’s 2024 Global Human Capital Trends report points out that skills such as?creativity, critical thinking, and collaboration may be less easily measured by productivity metrics but are still paramount for succeeding in today’s rapidly changing operating environment.

Convergence between humans and intelligent tech

The debate over AI as a productivity booster is far from settled, but our survey respondents were quite clear about its potential: Less than 10% of respondents said AI is currently improving their organization’s productivity, yet the large majority (87%)?expect it will within three years. That said, respondents from larger companies are significantly more likely to prioritize investments in advanced technology like AI (44%) compared to 16% of smaller companies. This may indicate a need for ‘fast followership’ by smaller companies as AI becomes more mainstream.? ?

Privately held companies of all sizes can capture some of AI’s productivity benefits through human capital deployments. For instance, there’s potential for supporting workers assigned to repetitive, customer-facing tasks. A study from the National Bureau of Economic Research found that Generative AI helped customer support agents resolve more issues per hour[1], and they also demonstrated signs of being more empathetic (a bonus for participants on both sides of the call).

Then there are the fast-paced jobs like sorting in manufacturing or e-commerce warehouses, where humans and robots work side-by-side. Robots can crash if paths conflict. To address the problem, researchers at MIT built a model to simultaneously plan for dozens of robots at once, compared to traditional algorithms that keeps one robot on course and makes the other maneuver around it.

Barriers to improved productivity

We also asked companies to identify the biggest barriers to increasing productivity in the next 12 months. More than all other categories, respondents told us that market competition (46%) and legacy technology (44%) were major or very major barriers to productivity, suggesting the need for a self-critique and a fresh approach to technology to meet productivity targets.

These are big challenges, but they aren’t insurmountable. By prioritizing a few discrete areas for improvement, organizations can gain traction for larger productivity gains in the future.?

How is your organization planning to address productivity challenges this year?

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Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

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