HEROES OF PRODUCTIVITY

RATHER THAN A THOUSAND OR A MILLION FIRMS MOVING AN INCH, THE REAL GAINS COME FROM JUST A FEW EXTRAORDINARY FIRMS MOVING THOUSANDS OF MILES

- Chris Bradley & Jan Mischke

Few doubt that productivity growth is good for society. It generally translates into higher wages, consumer surplus (prices below what you are willing to pay), larger profits, and greater shareholder value. Less understood, however, is how productivity growth is created. New research from the McKinsey Global Institute shows that the lion’s share comes from just a few firms making audacious moves.

While the conventional wisdom holds that productivity growth stems from gradual, collective improvements to efficiency across many companies, our analysis suggests otherwise. A tiny number of firms are driving potent bursts of progress, because they have made bold, idiosyncratic strategic moves that force competitors to respond. Rather than a thousand or a million firms moving an inch, the real gains come from just a few extraordinary firms moving thousands of miles.

We based our analysis on 8,300 companies in Germany, the United Kingdom, and the United States, focusing especially on four sectors: retail, automotive and aerospace, travel and logistics, and computers and electronics. We used these companies to create a “lab economy,” tracking precisely who was creating value and contributing to national productivity growth, and who was destroying value by dragging productivity down. Although we looked at the relatively stable period between 2011 and 2019 ~ after the global financial crisis but before the COVID-19 pandemic —we found similar patterns in the data from 2019 to 2023.