At a glance
- When firms become more productive, so do economies. Increasing the value each worker creates also promotes rising wages for workers and profits for firms. These facts are well known to economists. Our other findings are not.
- A small number of firms contribute the lion’s share of productivity growth. Fewer than 100 productivity “Standouts” account for two-thirds of growth in our sample of 8,300 large firms in Germany, the United Kingdom, and the United States. Many others also play a role: the majority of firms contribute positively.
- Productivity grows in powerful bursts as firms find new ways to create and scale new value. Think Apple expanding into services, easyJet shaping the discount airline trend, and Zalando pioneering apparel e-commerce. This is not the efficiency transformation nor the gradual diffusion described by conventional wisdom.
- In the United States, the most productive firms expanded and unproductive firms restructured or exited. This contributed half of US sample productivity growth while sticky underperformers dragged down growth in Germany and the United Kingdom.
- This fresh view of productivity growth calls for a new playbook. It suggests focus on the power of the few more than the broad swath, on value creation more than efficiency, and on reallocation of resources to leading businesses.
The world needs robust productivity growth
The world needs robust productivity growth more than ever to address pressing global issues: inflated balance sheets, financing the transition to net zero, bridging empowerment gaps, and funding a demographic transition with more retirees and fewer workers. And a fundamental unit of productivity growth is firms. If firms do not increase their productivity, economies don’t either.
Firms themselves benefit from productivity growth, or growth in value added per worker. In view of long-term demographic shifts and the tight labor markets of today, labor productivity is a strategic imperative. And productivity growth is the only way for businesses to serve all their stakeholders, delivering rising wages for their workers, increased customer surplus, and profit. Customers and employees are typically the biggest and most immediate beneficiaries of productivity growth. Productivity growth is a win-win for all.
A few firms shape the lion’s share of an economy’s productivity growth
The prevailing view is that productivity growth emerges gradually through the incremental improvements of many firms, trickling down as best practices diffuse from leaders to the rest. In our lab economy, a very limited number of firms drove the lion’s share of productivity growth in powerful bursts.
Approaching this topic from a distinct analytical angle led us to develop a specific terminology for certain firms in our sample. To help readers navigate what follows, we begin with a brief overview of these definitions.
Productivity advances one firm at a time
Fewer than 100 firms in our sample of 8,300—a group that we have dubbed Standouts—accounted for about two-thirds of the positive productivity gains in each of the three country samples we analyzed. Standouts are defined as firms that added at least one basis point to their national sample’s productivity growth.
Frequently Asked Questions
- Question 1: How do Standout firms impact national productivity growth?
- Question 2: What role does reallocation of resources play in productivity growth?
- Question 3: Why is focusing on the power of the few firms important for economic growth?
Conclusion
By analyzing productivity growth at the firm level, we have uncovered key insights into how a select few firms drive the majority of productivity gains in economies. This new perspective calls for a shift in focus towards value creation, strategic moves, and reallocation of resources to leading businesses. As business leaders and policymakers navigate the complex landscape of productivity growth, understanding the dynamics of Standouts and Stragglers becomes crucial for fostering sustainable economic growth.
