We all deal every day with a wide array of different risks, right? Well, what do you think is the ultimate risk, the mother of all risks? Is it business interruption? Fire or other property loss? Ransomware or another data hack? These are the kinds of things risk professionals insure against, pursue safety programs to mitigate, and find new ways to finance all day, every day. After, lo, these many years in the business, we have come to a different conclusion. We think the ultimate risk may be sitting just down the hall, walking past you at the water cooler, or looking disinterested on a Teams call. The vital engine of modern prosperity is all but invisible on a normal day, but let it go missing and see what happens.
Late in the 18th Century a new concept was born, at first in Great Britain and soon throughout Europe and then across the Atlantic. It gave us a new word: productivity.* It took many forms—the power loom, the steam engine, then the railroad—but everywhere it went it did the same thing: it allowed any one person or any group of people to multiply their output, to produce more goods per unit of time, per unit of material input. Until then, the ability of one person to produce needed goods hadn’t changed much, if at all, since the Iron Age three thousand years earlier. We have all been lunching at the productivity buffet ever since, introducing one new productivity-enhancing device or concept after another.
What about risk? The ultimate risk in our estimation is just this—in recent years many measures of productivity have been stagnating or even reversing. Consider this lead from a recent Washington Post article: “Bosses and economists are troubled by the worst drop in US worker output since 1947.” ( U.S. workers have gotten way less productive. No one is sure why. - The Washington Post ) According to the Bureau of Labor Statistics, in the first half of 2022 the output of goods and services an employee can produce in an hour plunged by the sharpest rate since 1947**—the first year for which we have decent numbers.
Oddly enough, productivity spiked in 2020 when working arrangements were rearranged by COVID-19, so this sudden drop-off is doubly perplexing. One clue to the conundrum may be the rumored spread of “quiet quitting” among younger employees. As it happens, productivity is holding up better in manufacturing where it’s much more objectively measurable. Indeed, one professor of economics, cited by the Post, said, “The data is very odd these past couple of quarters in so many different ways. It’s hard to even tell a coherent story.”
In company after company, management is struggling to restore some semblance of pre-COVID-19 normality. Our question here is: What role is risk management playing as your organization works towards getting productivity back to what we used to call normal? Is maintaining productivity included in your ERM plan? It seems to us that every likely change to drive better productivity, from new tech to reorganization to “rightsizing,” has serious risk implications. We recommend reading the full Post article which looks at several dimensions of the issue and exposes some of the attendant risks along the way.
Events are challenging many fundamental assumptions about how our organizations work today and every response has serious and possibly novel risk dimensions. It’s important that risk be at the table as your organization evaluates and decides on new ideas and approaches. Not addressing productivity deficits may be the biggest risk of all, so playing it safe, hunkering down, is probably not appropriate either. Perhaps the lingering lesson of COVID-19, as we deal with its knock-on effects, may be to embrace risk. Could be a golden age for applied risk management.
*The Oxford Unabridged Dictionary dates the first use of “productivity” in the modern, economic sense to 1776, a busy year indeed.
**I was around but not being very productive in 1947, so I don’t take this personally.