Productivity is calculated with a simple equation: Productivity = Value / Effort. The equation tells us that there are two routes to better productivity. One is to increase value while the other is to save the effort needed to create that value. In business, the value translates to actual Customer Value but also to Customer Experience. Correspondingly, the effort spent depends on Operational Efficiency. This the The Trio for all productivity increase potential.
It is easy to see that productive companies are also competitive. Not only they create lots of customer value but they can also strike the balance between customer experience and operational efficiency. Sounds simple in theory. In practise, this is very hard to achieve and involves significant trade-offs and strategic choices.
Productivity Frontier is useful concept to assess competitiveness. The frontier is where the leading players within an industry currently operate. Since no company is best in everything, frontier is meaningful only on solutions level: What are the best solutions as of today and how are we performing in relation to them? The term “best solution” refers to best value, best experience or best efficiency.
Digital disruption is fundamentaly about productivity gains within The Trio. Assessing productivity frontier is to identify the leading solutions and to estimate their impact. For example, what are the data analytics based solutions to improve customer experience in retail business. Or how IoT solutions boost customer value in B2B product business.
Productivity frontier is where solutions create genuine Competitive Advantage. Where data based novel solutions delight consumers by exceeding their expectations. Conversely, solutions that have transformed to industry table stakes are no longer at the frontier.
Digital Discovery is a method for analysing technology based solutions and their impact on productivity. The basic idea is study the intersections of technologies and The Trio. Zooming into intersections reveals existing and potential solutions.
The frontier movement is about what is happening in the competitive landscape. What are the main competitors doing in order to improve their position. Awareness of the frontier movement is very beneficial because leading players and solutions make good benchmarks.
As a rule of thumb, a company needs to stay approximately at the productivity frontier. If the company position starts to slip clearly behind the frontier, the result can only be increasingly thinner margins and continous profitability challenges.
For more information on technologies’ impact on productivity and how productivity frontier relates to competitive landscape, see video on Digital Discovery.