Productivity, processes, and the trillion-dollar GDP boost

Boosting US labor productivity to levels enjoyed in the recent past represents a $10 trillion opportunity. That was the optimistic message from a team of McKinsey & Company consultants at Celosphere 2023.

The path to $10 trillion may be ambitious, but it’s far from fanciful, they said. Since 2005, the US labor productivity growth rate has averaged a modest 1.4% – compared with a long-term trend of 2.2%. If the growth rate returns to the average, the potential cumulative increase in US GDP between now and 2030 will be around the $10 trillion mark – equivalent to $15,000 per US household.

New enterprise technologies could be what moves the needle, according to McKinsey, with similar gains possible in Europe too. The crucial next step: unlocking the power of these technologies.

A new era of optimism

It’s reassuring to know that big jumps in labor productivity are far from unusual. From 1995 productivity growth averaged 1.6% over five years, then lifted to 3% in the following decade, according to the US Bureau of Labor Statistics.

Now consider the significant productivity gaps between bottom and top business performers. Leading manufacturing firms, McKinsey reports, enjoy 5.4 times greater productivity compared with sector laggards. That leaves a lot of room for gains.

McKinsey believes the new generation of enterprise software offers businesses myriad opportunities to address poor performance. Process mining in particular can help to change ways of working across the breadth of a business, drastically improving labor productivity.

• Understand how work gets done: Celonis for Workforce Productivity

But every business consultant knows the implementation of technology is not enough. Going from ‘potential’ to ‘real’ business transformation requires change management throughout the journey.

It’s about moving organizations onto better paths, aligning stakeholders, and ensuring that the focus of value is there. It’s this combination of technology and change management that could unlock the $10 trillion prize.

• Read – Change management is as much about people as it is processes

To illustrate this point, the McKinsey team revealed the impressive process transformation of a global manufacturer.

How a vehicle manufacturer streamlined production

McKinsey worked with Celonis to help a leading vehicle manufacturer drive efficiency at one of its highest performing facilities in North America. The overarching objective: bring down the production cost per unit.

The company had many manufacturing process complexities to deal with, not least high volumes, a broad product mix, and multiple digital systems. To get started, the McKinsey team used process mining to create virtual value-stream maps for more than 100,000 vehicles, charting thousands of hours of rework.

These value-stream maps soon revealed where and how productivity problems occurred, including:

• Thousands of hours spent unnecessarily moving vehicles between repair bays.
• Tens of thousands of hours lost on repairs at the end of the production line, instead of catching them at the point of origin (repairs made during the production line process as opposed to the end took about 40% of the average repair time required).

Despite the manufacturer’s unmatched heritage and expertise, these insights came as a surprise to company management. Working with the McKinsey team, here’s how they accelerated into action:

• Implemented a training program to reduce moves between repair bays.
• Ensured more repairs were carried out during the production line process (as opposed to the end), while preventing defects.
• Used performance management to reduce overall repair hours.

Process mining helped identify a 20% reduction opportunity in rework costs. Overall cost-per-unit savings identified were around 15%.

This was a hugely significant result for a high-performing facility at a vehicle manufacturing leader.

• See what Celonis does for manufacturers here.