Raising capital productivity through systems thinking

Productive Thinking

Raising capital productivity through systems thinking

This is the first of Digital Frontier Partners’ weekly newsletters for our clients. We aim to help your organisation raise its capital productivity by applying systems thinking.

Key thoughts

  • Productivity is the ultimate goal
  • Leaders need systems thinking skills to see new pathways to productivity gains

Productivity matters

A country’s capacity to improve its standard of living critically depends on its ability to raise its capital productivity and increase its energy efficiency. To emphasise that these two metrics are primary to national and organisational success, I label them Cʹ (C prime) and Eʹ (E prime).

Australia’s standard of living depends on its leaders, across all arenas, making decisions that forefront productivity. However, we have a productivity problem. The Financial Review reported on June 12th that productivity has slumped to a 60-year low over the last decade. This message was echoed by the outgoing Reserve Bank of Australia governor, Philip Lowe, who averred that a failure to improve productivity has lowered living standards and increased social tension. We need to think productively about raising productivity.

There are multiple paths to increased productivity. Here are two of the many diverse examples I’ve collected. I will share more with you in future newsletters.

Innovations, such as the shipping container, can be a major source of improvement. For the maritime industry, introduction of containers reduced the cost of shipping goods from as high as 25% to around 1% of an item’s cost. The productivity increase was as much as fortyfold.

Effective health policies and systems can lower employee absenteeism and raise their level of engagement. Despite harsh winters, Minneapolis-St. Paul is the healthiest US urban area. This is attributed to a policy that aims for all residents to live within a 10 minute walk of a park. Even such a short stroll raises physical fitness, reduces the risk of chronic disease, and improves cognitive function. Parks are vital for a productive workforce.

Systems thinking matters

Today’s world is a system of systems of systems, and so on. Your organisation is a system within this complex system. It vies with other systems for customers, resources, and attention. To compete, organisations need to understand how systems work, how you collaborate effectively with other systems, how systems impact each other, and how to digitally transform to raise the productivity of your systems. The economy is a partnership of systems, and they can all affect our quality of life and prosperity.

Systems thinkers look at a problem from many angles. They shake it like a kaleidoscope, so they see more than one pattern. They look for causal connections, such as parks → healthiness → productivity. They are landscape artists whose broad vision can look over the horizon to envisage a future. Leaders need systems thinking skills to see new pathways to productivity growth.

For the last 60 years, information systems have been the major driver of capital productivity. These systems facilitate the digital transformation of organisations, governments, and society, and the transition is far from finished. Indeed, many see AI as generating a more significant transformation than the Internet.

Systems create and enhance capital. For example, a system of engagement -> social capital (customers) -> demand, and a system of production -> economic capital (goods and services) -> revenue.

Amazon demonstrated the power of digitizing a system of engagement to disrupt traditional retailers. JBS, the world’s largest meat processor, uses an AI driven system of production to slice up a carcass to maximize revenue based upon current prices for each possible cut of meat.

The digital transformation journey is not an easy amble. It requires preparing a detailed map in conjunction with an expert guide familiar with traversing new territory.

Metro Map

Metro map

The preceding ’metro map’ was developed by my colleague Mikael Lind of the Research Institutes of Sweden. It enabled us to understand the complexity of a port visit by exposing the connections between the various systems in a port. The map informed development of an international standard for data sharing within a port. A large container ship costs about USD 600 million to build. By raising a port’s level of coordination among the various participants during a visit, a ship can reduce its time in harbour and deliver more containers per year, thus raising a shipping company’s Cʹ.

Purpose

The weekly newsletter will focus on capital productivity, the foundation of national and organisational success. The winners in all sectors are those with the highest Cʹ.

Over the next few newsletters, I will introduce you to the components of the capital creation system, the amazing system that since the birth of agriculture has over many generations raised Cʹ and Eʹ to enable today’s quality of life.

Rick Watson

Research Director

Digital Frontier Partners

Regents Professor & J. Rex Fuqua

Distinguished Chair for Internet Strategy

Emeritus, University of Georgia

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Comments and conversations are welcome.

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