Knowledge Drives Productivity

In this video I’ll explain the relationship between knowledge and productivity, and why these two concepts will become a more important issue in the future for both organisations and for entire countries.

First I’d like to cover the issue of productivity. Productivity is simply the amount of work that can be done within a period of time. It’s sometimes seen in a negative way – like exploitation, but productivity is what drives our collective standards of living. When productivity improves at a lower rate than cost increases, goods and services become relatively more expensive.

So to improve productivity we need to be doing more with less.. and in a business sense this can only really be achieved in three ways: through people, processes and systems/technology.

Every five years, the Australian government publishes the productivity commission’s report into national productivity. This was, the report was bleak and the authors have noticed worrying signs from the leading indicators that Australia’s productivity might be in decline.

There are, of course many factors behind this, but the one the authors highlighted this year was the issue of Knowledge Diffusion. That is, the way that information and knowledge is shared within and between organisations.

In my previous video I explored the issue of the retiring boomers, skills shortages, and the emergence of working from home, let’s now explore this again but this time at the level of national productivity.

So we start with the expectation that boomers, our most experienced and wealthy generation, will leave the workforce in large numbers over the coming decade. To replace them we have fewer Gen X and Gen Y with the required skills. In fact, if you look at the national skills shortage, you can see that managers and other white collar professionals makes up more than half of the list.

Aside from nurses, who we will need in growing numbers to care for the elderly, white collar professionals are likely to be in short supply for some time to come.

Australia, like all developed economies, has seen its birthrate fall and we’ve attempted to arrest this decline with skilled migration. And this policy has been very successful. But it can only work up to a certain point, as our national infrastructure and stock of housing, has not kept up. If we want to increase our population by 2%, we need to be adding at least 2% more houses, 2%
more capacity on roads and public transport, otherwise everybody’s standard of living declines.

Although skilled migration has an important role to play, it can’t be the only solution to the skills shortages, because starts to cause productivity problems.

In fact, this is already happening. More and more people are choosing to work from home because it allow them to be more productive, and save money on things like travel and childcare. In an earlier report, the productivity commission found that working from home was, on the whole, positivity contributing to productivity, and the main reason was avoiding the long commute times.

But, of course, most employers only pay people from the time they arrive, so this travel time comes as a personal cost, which is why many businesses are still urging employees to return to the office.

Working from home allows people to reclaim some of this personal time, as well as reduce travel and childcare costs. This reduces congestion and helps free up childcare places for those people whose jobs require physical presence.

So at at national level, working from home as a lot of advantages, but there are also some significant disadvantages. The main one picked up in the Productivity Commission’s report was Knowledge Diffusion.

Knowledge Diffusion is the way that ideas and knowledge is shared. Training is one aspect of this, but it also includes less-formal methods such as asking your colleague for their advice. With working from home, every interaction between colleagues must be planned. You wouldn’t normally expect to bump into your colleagues when heading to the bathroom. So this means working from home can be more inefficient if you can’t get hold of the knowledge you need quickly.

And of course this is what affects productivity. The ability to overcome obstacles quickly and keep momentum when completing tasks. It is also more difficult in a work-from-home environment to ensure that everybody has been given important information. It becomes much more important for managers to check in with their teams because it’s very difficult to observe the interactions between employees remotely.

Earlier in the video I talked about work being the product of people, processes and systems. We know that bringing in more people is only part of the solution, but we need to be also thinking about processes and systems.

In the next video, I’d like to talk about process and systems, because these are the areas where we have much more scope to move. And it’s through technology such as Generative AI that we can start to address the issue of Knowledge Diffusion.

So as you can see, knowledge diffusion and productivity are closely linked.

Unless we can all get better at diffusing knowledge, it seems productivity will decline, especially among younger employees who can’t get access to the knowledge that they require to do their job, and lean from the older workers who will leave the workforce.


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