Managing our way to higher service-sector productivity.

In the two decades following World War II, U.S. productivity grew at an annual rate of 3%. But since the beginning of the 1970s, it has grown at only about 1%. Had the earlier rate been sustained, the gross domestic product would now be about $11 trillion instead of about $6.5 trillion. That extra $4.5 trillion per year in economic output would have had a profound impact on a wide range of social and economic problems. What is preventing a productivity revival in the U.S. economy? Clearly not the manufacturing sector, which has rebounded since the early 1980s. The service sector, on the other hand, has seen productivity growth rates stagnate during the same period. Why? Michael van Biema and Bruce Greenwald believe that the usual explanations are incomplete and have resulted in some serious misconceptions. The authors point out the limitations of those explanations and offer one of their own. They lay the blame in two places: the ineffectiveness of many service-sector managers at improving productivity and the inherent complexity of the sector itself. The authors argue that the problem is not a lack of resources; rather, it is that service sector companies operate below their potential. If managers focused on putting the existing technologies, labor force, and capital stock to work, rapid productivity growth would follow. Although the service sector is complex, the authors believe that managers would do well to apply the same tools, techniques, and policies that have been so effective in manufacturing sector. Doing so would help them keep their eye on the ball - the efficiency of basic operations.