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Productivity Schmoductivity

Improving productivity is simple – do more with less. Imagine buying tube socks without the invention of the cotton gin. I mean, we all know that Wal-Mart is good, but they surely wouldn’t be selling socks for $1.99 for a half dozen if they were still made by hand. Productivity can be increased by more than one factor. The impetus can be a technological advance or a simple improvement of management and process, but is usually a combination of the two.

Not to sound like a complete nerd or enter into any sphere of politics, but economist Paul Krugman knows a thing or two, and the missing piece of most conversations regarding jobs or competition is almost always Productivity.

We sell productivity to our customers, and in such a highly competitive and transactional business as HR Services, it is the only competitive advantage. Now, let us introduce a similar and slightly better concept of Comparative Advantage and discover what that has to do with productivity in your business.

Productivity is simple, do more with less. Imagine buying tube socks without the invention of the cotton gin. I mean, we all know that Wal-Mart is good, but they surely wouldn’t be selling socks for $1.99 for a half dozen if they were still made by hand. Productivity can be increased by more than one factor. The impetus can be a technological advance or a simple improvement of management and process, but is usually a combination of the two.

The concept of Comparative Advantage was introduced in 1817 to look at trade between Portugal and England, but the evolution of the global marketplace has brought it from a theory in a book to reality.

What the heck does that have to do with my HR Services business? Everything!

Take any two parties, whether they be countries, companies or playmates. Now add products or services they trade in relation to each other, knowing of course that we all aren’t the best at everything.

Let’s bring back a blast from the past with NAFTA for an example, and there are two goods being produced but not traded between the U.S. and Canada, and those could be oil and whiskey.

  • In the U.S. it takes 10 hours of labor to make a barrel of Texas Tea, and 15 hours to make a barrel of fine Tennessee whiskey.
  • In Canada it takes 15 hours to get oil out of the cold hard ground, and 20 hours to make whiskey due to the short summers.

So far so good, but the trick is to decide if there is any advantage to trading.

The answer is much easier than crossing the border and all based on math.

In the U.S. it takes 1.5 more hours to get a barrel of whiskey than it does to fill that oil drum, but it takes 2/3 the time to get oil versus whiskey.
In Canada it takes 1.33 more hours to get a barrel of whiskey than it does to get some heating oil, but it takes 3/4 the time to get oil versus whiskey.
What does that all mean, eh? If all other things are equal (wages, inflation, taxes etc.) then:

  • Canada can produce more barrels of oil per hour than whiskey (75% vs. 67%), they have the crude Competitive Advantage with oil.
  • U.S. can produce more barrels of whiskey per hour than oil (1.5 vs. 1.33) then it should return the favor to our neighbors and send some whiskey to the Great White North.
  • The bottom line is that one party/country/company is better at something than another and has an advantage, and the great equalizer isn’t always foreign exchange rates or taxes, but productivity. When that exists in balance, like the example, both parties trade and win.

Again, what in tarnation does that have to do with HR Services?

Easy, we can become trading partners. You focus on your sales and service and do what the U.S. economy is good at, service. We trade highly productive and cost efficient labor to make you look good.

That means that you now have the Comparative Advantage over your competition.

 

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