Reversing the Decline in Productivity

By Mark Roberti

If companies begin investing again in new technologies, workers will become more efficient.

In May 2015, the U.S. Department of Labor published its first-quarter statistics. The report revealed that output per worker fell by 1.9 percent during that period. The steep decline was surprising, but it was part of an ongoing trend. During the past 10 years, worker productivity in the United States grew annually by just 1.4 percent—half the rate of the previous decade, according to the Brookings Institution.

One possible explanation for the decline is the reduction in investment in information technologies. Corporate spending on IT systems, as a percentage of gross domestic product, peaked at 4.6 percent in 2000, and has since been declining.

Why aren't U.S. companies investing in IT systems when they are sitting on $1.4 trillion in cash? There are likely several reasons. One, no doubt, is that recent financial crises have caused companies to be cautious. These days, it's difficult to know when the global economy will be rocked by, say, a major decline in the Chinese stock market or the potential of some country (Greece, perhaps?) defaulting on its loans and throwing the European Union into convulsions.

Another reason might be that IT investments don't have quite the bang for the buck that they once had. Think about a secretary in 1980. She (it was most likely a woman in those days) was typing letters on an IBM Selectric typewriter. If the boss wanted to make a change, she had to retype the entire letter. By 1990, she was using a PC, which allowed her to store templates (which could be quickly customized) and make corrections with ease. And within another decade, her PC was connected to the Internet and she could book the boss's travel, research any topic on which he (or she) wanted information, and do a whole lot more.

Today, all workers are digitally literate and connected to corporate IT systems around the clock via their laptops and smartphones. Manufacturing systems are highly automated and monitored. So investing in new systems is unlikely to deliver a significant return on investment.

But what if new technology enabled companies to do things that were simply not possible with desktop PCs, laptops, smartphones and existing software systems? What if they could track and manage all of their assets in real or near-real time? The answer is that businesses most certainly would invest in new systems. Radio frequency identification systems enable firms to do this. But the main reason that companies are not investing a huge pile of cash in RFID solutions is that they are not yet convinced the technology is a slam-dunk.

I'm convinced. And so are the many companies in myriad industries that have deployed RFID solutions. The inventory accuracy of most apparel retailers is 60 percent to 65 percent, which results in customers not finding the items they want to buy. These products thus end up being marked down. Investing in all of the software or PCs in the world won't help workers count these items more efficiently.

By using RFID, workers can count items 25 times faster and far more accurately, enabling stores to raise their inventory accuracy up to 95 percent (see Dillard's, U. of Ark. Study Quantifies RFID's Superiority to Manual Inventory Counts). As a result, retailers can sell more items at or near full price, which means all of the additional revenue is profit. There's a reason why Macy's, Bloomingdale's, Marks & Spencer and other major retailers are adopting RFID.

I've heard of RFID pilots that have shown store sales going up by more than 10 percent—and that's only the beginning. RFID can deliver benefits in the warehouse, reducing the amount of time it takes workers to receive goods into inventory, pick goods to be shipped to stores and confirm that the right items were shipped. Yet, some CEOs refuse to believe these kinds of sales and productivity gains are possible. (If these folks had been in charge of corporate America in the 1980s, secretaries might still be using typewriters!)

Genesis Health Systems deployed a real-time location system (RTLS) and reduced the time its staff spent searching for medical equipment from 22 to 11 minutes down to only 2 minutes. That frees nurses up to take care of patients, and it makes the employees who manage the equipment far more productive. Yet, only a small fraction of hospitals are using an RTLS to achieve these productivity improvements. (An RTLS can also reduce capital expenditures on new equipment by increasing asset-utilization rates.)

There are many other examples of how RFID can dramatically reduce or eliminate the time required for workers to perform routine counting and checking. And by creating accurate and automatic checks (when the wrong item is packed for shipping, for example), RFID reduces the amount of employee labor involved in addressing errors.

These kinds of benefits are not easily achieved by giving workers a new software program to use, but they are available when we extend IT systems to monitor a company's physical assets. I suspect that both investment in technology and productivity will soon be on the upswing. Exactly when is hard to say, but it will happen when companies see that RFID technologies can deliver the kinds of productivity gains that occurred in the 1980s and 1990s with PCs and Internet technologies.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.